The Chennai bench of Income Tax Appellate Tribunal (ITAT) recently denied revenue expenditure claim and held that replacement expenditure could not be treated as current repairs.
Assessee Tanfac Industries Ltd is engaged in manufacturing of fluorine-based chemicals. The assessee incurred expenditure on repairs and renovation of worn-out reactors and claimed the same to be revenue expenditure. It transpired that the assessee replaced its old reactor with new reactor costing Rs.3 Crores.After the assessment the assessing officer disallowed revenue expenditure and added the Reactor installed under capital expenditure. Against this order the assessee filed an appeal before ITAT.
R.Vijayaraghavan, counsel for assessee submit that “in normal course, the reactor would run for at least 10 to 15 years. The original reactor was installed in 1985 and was replaced in 2003. The old reactor has served a life of more than 18 years but installed capacity has not changed”.
D.Hema Bhupal counsel for the revenue submits that the installation of HF Reactor brought enduring benefit and therefore, the expenditure was nothing but capital expenditure.
After considering the contentions of the both parties the division bench of ITAT comprising Mahavir Singh, (vice president) and. Manoj Kumar Aggarwal, (Accountant Member) disallowed the appeal filed by the assessee and observed that “the assessee therein replaced components of a boiler and not the entire boiler. These parts were not capable of functioning independently and the expenditure was incurred to preserve and maintain an existing boiler. The same is not the case here since in the present case, the assessee has replaced entire HF Reactor.’’
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