Natural Capsules Limited Vs ITO (ITAT Bangalore)
Routine Repairs ≠ Capital Spend: ITAT Bangalore Allows Plant Repairs & Share-Related Professional Fees
The Bangalore SMC Bench of the ITAT partly allowed the appeal of the Assessee-company and deleted disallowances on repairs & maintenance of plant and machinery as well as professional charges, holding both to be revenue expenditure allowable u/s 37(1).
AO had treated substantial repairs and maintenance expenses as capital in nature and made an ad-hoc disallowance of 20% of professional fees, alleging linkage with increase in share capital. The CIT(A) partly sustained these disallowances by re-classifying certain items (magnetic bullets, enclosures, ETP equipment, etc.) as providing enduring benefit and by confirming disallowance of professional fees of ₹1.54 lakh.
On further appeal, the Tribunal held that:
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Expenditure on magnetic enclosures, magnetic bullets, auto-follower parts and ETP components constituted routine replacement of parts and did not result in creation of a new asset or enhancement of production capacity. These were minor items forming a negligible portion of the overall fixed-asset block and hence could not be capitalised merely on the “enduring benefit” test.
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Replacement of ETP components to maintain compliance and operational efficiency was maintenance, not acquisition of a new plant.
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Professional fees incurred towards share transfer work, reconciliation of share capital and listing of equity shares on BSE were not for raising fresh capital and therefore fully allowable. The CIT(A)’s partial confirmation lacked factual foundation.
Accordingly, the Tribunal reversed the findings of the CIT(A) on both counts, directed deletion of the disallowances and allowed the appeal partly in favour of the Assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
