An assessee has a factory located in a residential area and was facing irregular power cut imposed on the residential areas, due to which he was suffering huge production losses. The assessee approached the State electricity dept. and paid a huge amt towards installation of a direct power line from the main sub station to his factory. What should be the treatment of this expenditure as it appears to be capital expense but the assessee claims it to be revenue expense as the asset (power line) is owned by the state electricity board?
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Treatment Of Installation Charges
Replies (2)
Hi,
Vaibhav in this case the expenses can be capitalised by treating them as an "Intangible asset". It is an Intangible Asset because since by incurring the expenditure the assessee is getting right to use the wire lines.
In CA Final also there is a case in AS-26 wherein the company pays money to the goct. for getting constructed a service road ( from main road to its factory). In this case it cannot record Road as a Fixed Asset rather it will treated as an Intangible Asset.
his contention that the asset belongs to SEB and thus it cant be capitalised is true.in my opinion it could betreated as revenue expense for the year.but along with this it has to be treated as extraordinary items as per AS-5 and is to be shown accordingly
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