Dahej Harbour and Infrastructure Private Limited Vs ACIT (ITAT Mumbai)
Conclusion: Expenditure of ₹4.49 crore incurred on maintenance dredging for removal of natural siltation and restoration of the existing operational depth of the jetty constituted revenue expenditure allowable under section 37(1). Accordingly, the disallowance made by AO and sustained by CIT(A) was deleted.
Held: Assessee was engaged in the business of operating and maintaining a jetty, incurred expenditure of ₹4.49 crore towards maintenance dredging. Due to continuous silt deposition caused by strong tidal currents in the Gulf of Khambhat, periodic dredging was necessary to maintain the minimum navigational depth of 13.5 metres required for safe berthing and movement of vessels. The work was carried out under an agreement with M/s Van Oord India Pvt. Ltd. titled “Agreement for Maintenance Dredging Services.” The expenditure was debited under repairs and maintenance and tax was deducted at source. AO treated the expenditure as capital in nature on the ground that dredging was undertaken only once in about two years and conferred enduring benefit. CIT(A) affirmed the disallowance. Assessee contended that the dredging activity was undertaken solely to remove naturally accumulated silt and preserve the operational efficiency of the existing jetty. No new berth, channel or infrastructure was created and the expenditure merely restored the original navigational depth. Hence, the amount constituted revenue expenditure allowable under section 37(1). Revenue argued that the infrequent nature and substantial amount of expenditure indicated acquisition of a long-term advantage. According to the Revenue, the dredging activity enhanced the operational efficiency and navigational capacity of the jetty and, therefore, was capital expenditure. It was held that the agreement itself described the work as “maintenance dredging” and the documentary evidence established that the activity was undertaken only to remove silt accumulation and maintain the existing water depth. The contractor was deployed for merely five days and no material was brought on record to show that the dredging resulted in creation of any new asset, expansion of capacity or addition to the existing infrastructure. Tribunal held that an expenditure assumed capital character only when it created a new asset or results in an advantage in the capital field. Merely because an expenditure yields benefit extending beyond one accounting period did not render it capital in nature. The dredging activity merely preserved and maintained the existing profit-making apparatus and enabled the assessee to carry on its business efficiently. The periodic nature of such maintenance, even if undertaken once in two years, could not alter its revenue character.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
