Aryan Flavours Vs DC/AC Circle 1 (ITAT Patna)
Large Repair Costs Not Capital Expenditure as Building Only Maintained, Not Expanded; ITAT Deletes Addition After Finding Renovation Did Not Result in Enduring New Benefit; Major Structural Repairs Allowed as Revenue Expense Since No Extension Was Made; High-Value Building Repairs Treated as Revenue Because They Preserved Existing Asset; Renovation of Old Factory Not Capitalised as No New Advantage Emerged; Quantum of Expense Not Decisive: ITAT Allows Deduction for Extensive Factory Repairs
The Patna Bench of the Income Tax Appellate Tribunal (ITAT) decided an appeal concerning whether expenditure incurred on extensive renovation and repair of an old factory building should be treated as capital expenditure or revenue expenditure for Assessment Year 2018–19.
The assessee, engaged in the business of manufacturing flavours and perfumes for more than 25 years, had shown a building valued at Rs. 1.85 crore (depreciated value) in its balance sheet. During the relevant year, it claimed Rs. 77.73 lakh as repair and maintenance expenses relating to the factory building. The Assessing Officer (AO), observing the substantial magnitude of the expenditure and the nature of renovation carried out, treated the expenses as capital in nature. After allowing depreciation at 10 percent, the AO added Rs. 69,95,700 to the total income of the assessee.
