The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has rejected the claim for the deduction of expenditure on a masala grinder and toaster, as reported under capital expenditure in the tax audited report.
The AO observed that the taxpayer had spent a total of Rs. 48,845 on a Masala Grinder and toaster. The AO disallowed this expenditure, categorizing it as capital expenditure. In response, the assesse lodged an appeal with the Commissioner of Income Tax (CIT-A), who subsequently dismissed the appeal.
Capital expenditure or capital expense represented the financial resources that an organization or corporate entity expended to purchase, maintain, or enhance its fixed assets, including buildings, vehicles, equipment, or land. It was classified as a capital expenditure when the asset was newly acquired or when funds were allocated to extend the useful life of an existing asset, such as repairing the roof.
Capital expenditures ( Capex) were contrasted with operating expenses (opex), which were ongoing expenses inherent to the operation of the asset. Opex included items such as electricity or cleaning. The difference between opex and capex might not have been immediately obvious for some expenses; for example, repaving the parking lot could have been considered inherent to the operation of a shopping mall. Similarly, the costs of software for a business (either software development or software as a service licensing) might have fallen into either opex or capex (that is, was it merely business as usual, or was it something new, an investment with multiyear return). The dividing line for items like these was that the expense was considered capex if the financial benefit of the expenditure extended beyond the current fiscal year.
The two member bench of the tribunal comprising Aby T varkey (Account member) and Amarjith Singh (Judicial member) noted that the aforementioned amount was indicated as capital expenditure in the tax audited report and was also disallowed in the income tax return.
Consequently, it is concluded that the disallowance of this expenditure is not warranted. Therefore, we instruct the AO to eliminate the addition made towards the expenditure on the Masala Grinder and Toaster, subject to verification of the assessee’s claim.
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