What constitutes as 'current repairs' to claim deduction u/s.30(a)(ii) of the Income Tax Act?

This Income Tax Appellate Tribunal case clarifies what qualifies as 'current repairs' for tax deductions under Section 30(a)(ii) of the Income Tax Act. The assessee claimed a significant portion of renovation expenses as revenue expenditure for current repairs. However, the Assessing Officer argued that the extensive refurbishment, including civil work, structural glazing, and plumbing, was not merely repair but an adaptation for a new and different advantage, thus constituting capital expenditure.

THE INCOME TAX APPELLATE TRIBUNAL
“E” Bench, Mumbai

 Shri Shamim Yahya (AM) & Shri Pavan Kumar Gadale (JM)
 I.T.A. No. 6371/Mum/2019 (Assessment Year 2013-14)

M/s. Todi & Company
C/o. Porwal & Powrwal
LLP, 625, Laxmi Plaza, 6th
Floor, Off.New Link Road,
Andheri(W),
Mumbai-400 053
PAN : AAAFT1739P
Mumbai-400 012
(Appellant) 

Vs.

ACIT-21(3)
Room No.209,
Piramal Chambers
(Respondent)

Assessee by None
Department by Vijay Kumar Menon

Date of Hearing 04.05.2021
Date of Pronouncement 01.07.2021

 O R D E R

Per Shamim Yahya (AM) :-

This appeal by the Assessee is directed against the order of learned CIT(A)-33 dated 22.07.2019 and pertains to Assessment Year 2013-14.

2. The grounds of appeal read as under :

Estimated Disallowance of Rs. 26,40,199 of Revenue Expenditure.

1.01 The learned CIT (A) erred in confirming the addition of Expenditure amounting to Rs. 26,40,199 after allowance of an estimated amount of Rs. 20,00,000 from the total disallowance of Rs. 46,40,199 as Capital Expenditure.

1.02 The learned CIT (A) failed to appreciate the various issues raised in the appeal on this ground and erred in partly allowing this Grounds of Appeal.

3. Brief facts of the case are that the AO observed that assessee during the year had undertaken a major refurbishment of its business premises and expenditure, which was capitalized amounted to Rs.59,22,000/-. Further, he observed that the assessee had debited a sum of Rs.37,01,849/- on account of "repair and maintenance". Therefore, AO directed the assessee to submit along with documentary evidences, the details of addition  to factory premises, nature of repairs & maintenance. Assessee was also directed to furnish the details of labor charges debited under the head "manufacturing expenses" in direct expenses.

From the perusal of the submission, AO observed that during the year assessee had undertaken a major renovation/refurbishment of its factory & office premises and nature of works involved civil work, structural glazing, wood work, false ceiling, waterproofing, plumbing, electrical wiring and fittings, flooring, plastering etc. Some of the bills have been reproduced herewith, which give clear idea of the nature of work done.

4. Thereafter, AO referred to some bills. Further in para 3.9, the AO cut & pasted from some other Ld.CIT(A) order as under:-

3.9 I have carefully considered assessee's submission and found the same not satisfactory, without any supporting documents and hence not acceptable. From the AO's findings and by assessee's own admission it has been established that during FY.2012-13 assessee carried out a major renovation of its premises, which was not in The nature of current repairs, a condition required to be fulfilled in order to claim the Expenses as deduction u/s.30(a)(ii). Instead the expenditure was incurred in order to adapt the premises to a new and different advantage. Indeed, assessee himself has admitted that it had incurred expenditure in order to bring into existence a new asset. What is debated here is the assessee's claim of certain proportion of this expenditure being in the nature of current repair. The issue involved, thus, reduces to as to whether a certain proportion of the expenditure on extensive repairs and renovation could be allowed as towards current repairs even though it was spent in the regular course of the renovation.

5. The AO further observed as under:-

3.11 From the perusal of the ledger of "building repair", it is clear that what assessee has capitalized is merely the cost of concrete and steel (that is also not entirely) while the rest of the expenses have been debited under the head current repair and claimed as revenue expenditure even though they-were incurred for the same renovation wherein the concrete and steel was used.

3.12 Thus as per assessee, the cost of civil work was capitalized while the rest constitutedcurrent repair. This explanation is completely misplaced. A premises, it may be appreciated, is constituted not merely by, or only of, civil structure, in-as-much as the same by itself does  not render it functional for the stated purpose of its user. Rather all the ancillary construction,refurbishment subsidiary amenities, services etc are to be as necessary in order to render the premises functional. Therefore, assessee's logic of treating only concrete and steel cost as capital expenditure while other expenditure as revenue is not acceptable for the simple reason that entire expenditure was incurred at once in order to transform the premises.

To know more in details find the attachment file