Case Law Details

Case Name : M/s Budge Budge Company Ltd Vs CIT (Calcutta High Court)
Appeal Number : I.T.A No 175 of 2005
Date of Judgement/Order : 13/05/2015
Related Assessment Year :
Courts : All High Courts (3988) Calcutta High Court (156)
Brief of the case:

Calcutta High Court Held in the case of  M/s Budge Budge Company Ltd Vs CIT if the business had been suspended for some period of time without any malice contention of the assesse and the plant was still ready for use during that suspended period also, then the depreciation would be allowed to the assesse for that suspended period.

Hon’ble High Court Held in M/s Budge Budge Company Ltd Vs CIT that if the expenditure had been incurred by the assesse which gave an advantage for enduring benefit due to which the assesse ‘s asset value would increase then that expenditure would be treated as a capital expenditure not revenue expenditure.

Facts of the case:

AO had disallowed depreciation of Rs 32,77,267/- on the basis that there was no work running in the factory and the work was suspended. Moreover machinery was kept ready for use and factory resumed operation after some period of time.

Assessee had incurred expenditure for filling of pond and treated the expense as a revenue expense but AO disallowed Rs 15.69 Lakhs because the same should be capital expenditure not revenue expenditure.

Contention of the assesse:

Assessee was of the view that as the business was suspended for some period of time which was not in the hands of assesse. Moreover assesse relied on the decision given in the case of Hindusthan Gas & Industries Ltd. Vs. CIT reported in (1995) 79 Taxman -Tax Reports 151 and CIT Vs. M/s. Norplex Oak India in ITA 17 of 2001 in which it was held that if the lockout of the business was not in the control of assesse and it was incidental to the assesse’s business because the assets were remained leased/ready to use at that time also. So depreciation should be allowed to the assesse.

Assessee was of the view that the expense incurred by the assesse for filing up the pond should be treated as a revenue expense not capital expenditure because no new asset was created and it was just for yielding rental income.

Contention of the revenue:

Revenue was of the view that as the business was suspended and the assets were not used for the business purpose, So depreciation should not be allowed to the assesse.

Revenue was of the view that pond and ground were shown as a part of land in the schedule of

Fixed assets so any expense incurred for land should be capitalized because that expense would increase the cost of asset and improvement would bring enduring benefit to the assesse.

Held by High Court:

High Court held relied on the case of Hindusthan Gas & Industries Ltd. Vs. CIT reported in (1995) 79 Taxman -Tax Reports 151 and CIT Vs. M/s. Norplex Oak India in ITA 17 of 2001 and decided that the suspension of business was not in the hands of assesse and moreover the assets were still ready for use and the value of machinery would depreciate notwithstanding its non-user. So depreciation should be allowed to the assesse.

So the appeal of assesse was allowed.

High court held that the expenditure incurred for filing up pond should be treated as a capital expenditure because that would increase the value of asset and that would endure long term benefit to the business of assesse.

Appeal of the assesse was dismissed.

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