1982 (9) TMI 181 - AT - Income Tax

Appeal Allowed for Air Conditioning Repairs & Office Expenses Deductibility

The Tribunal allowed the appeal, holding that the expenditure on air conditioning repairs was of a revenue nature and deductible. Additionally, the ... - Issues Involved:1. Denial of deduction for expenses incurred on repairs of air conditioning equipment.2. Non-adjudication of allowance for office expenses by the AAC.Detailed Analysis:1. Denial of Deduction for Expenses Incurred on Repairs of Air Conditioning Equipment:The assessee, an individual owning a cinema theatre, incurred expenses of Rs. 49,924 on repairing an air conditioning plant that was installed but found defective shortly after its commissioning. The Income Tax Officer (ITO) classified these expenses as capital expenditure, arguing that the repairs were part of the installation process and therefore should be added to the cost of the plant and machinery for depreciation purposes. The Appellate Assistant Commissioner (AAC) upheld this view, stating that the installation of a capital asset is incomplete until it provides the desired results, and any expenditure incurred before achieving this should be added to the original cost.The assessee argued that the expenditure was for repairs and should be treated as revenue expenditure. It was highlighted that the air conditioning equipment was commissioned and used, but due to defects, repairs were necessary to achieve the desired cooling effect. The representative of the assessee cited precedents, including Nathmal Bankatlal Parikh and Company vs. CIT, emphasizing that the expenditure was for maintaining the asset and should be considered revenue in nature.The Tribunal, after reviewing the facts and rival submissions, concluded that the expenditure was indeed for repairs and not for creating a new asset. It was noted that the defect was identified after the equipment was put to use, and the repairs were necessary to achieve the desired cooling effect. The Tribunal relied on the judgment in Hanuman Motor Service vs. CIT, which distinguished between expenditure for preserving an existing asset and creating a new one. The Tribunal held that the expenditure was of a revenue nature and allowed the deduction.2. Non-Adjudication of Allowance for Office Expenses by the AAC:The assessee also raised an issue regarding the non-adjudication of an allowance of Rs. 1,756 for office expenses by the AAC. The representative of the assessee argued that these expenses were incurred for offering tea, coffee, etc., to persons concerned with the assessee's business and should not be considered entertainment expenses. It was pointed out that a similar claim was allowed in a previous assessment year.The Departmental Representative supported the orders of the lower authorities, but the Tribunal found that the expenditure was not of an entertainment nature and was incurred for business purposes. The Tribunal referred to a previous decision in favor of the assessee and concluded that the disallowance was unjustified.Conclusion:The Tribunal allowed the appeal, holding that the expenditure on air conditioning repairs was of a revenue nature and deductible. Additionally, the Tribunal allowed the office expenses, rejecting the lower authorities' disallowance. The appeal was thus decided in favor of the assessee on both grounds.