Modification carried out on-premises in Small Scale Repair does not constitute Capital Expenditure: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Surat Bench has held that modification carried out on-premises in small scale repair does not constitute capital expenditure and deleted the addition of Rs.2,06,400/ to capital expenditure.

The appellant is a partnership firm engaged in the business of embroidery job work where the assessee has shown purchases of GPO cloth of Rs.3,60,250/-. The Assessing Officer found self-made invoices and issued a show-cause notice to state the reason for the purchase of Rs.3,60,250/- not be added as bogus. The Assessing Officer found the mismatch in bill dates submitted by the assessee and the entire purchase of Rs.3,60,250/- was disallowed.

The Assessing Officer made disallowance of the entire purchase shown from Milan Lace on the ground that the date of the voucher and their dates are not matching being ascending or descending in dates and the CIT(A) upheld the addition to the extent of 50%.

It was contended by the appellant on written submission that the mismatch in date was a clerical mistake and filed the bank statement showing some purchases through cheques. The Tribunal viewed that in absence of corroborative evidence, the payment made through cheque is not sanctified and stated that if the purchase is found to be bogus, only the profit element in such purchase is to be disallowed to avoid revenue leakage and not the substantial part of the transaction.  

The Coram consists of Shri Pawan Singh, Judicial Member and Dr Arjun Lal Saini, Accountant Member, held that CIT(A) has erred in sustaining the addition of Rs.2,06,400/- towards construction expenses on the ground that the payment by cheque was not seen in the bank statement and the repairs of small modifications carried out cannot be classified with capital expenditure. The appeal filed by the appellant was partly allowed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.