2024 (6) TMI 921 - AT - Income Tax

ITAT Confirms Electric Transformer Installation Expenses as Revenue, Not Capital, u/s 37.

D.C.I.T., Surat Versus Kishorbhai Babubhai Kheni

The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision that expenses incurred by the assessee for installing an electric transformer ... Nature of expenses - treatment of expenditure on installation of Electric Transformer - assessee reiterated that the ownership of such transformer is always with the State Government or Electricity Company as per statutory provisions, thus, such expenditure can be considered as capital expenses - HELD THAT:- We find that there is no dispute that the assessee made such payment to GEB for installation of transformer at the project developed by the assessee. It is not the case of AO that the transformer was purchased by the assessee for his personal need. We find that before the ld. CIT(A), the assessee made similar submission in his written submission as summarily made before us. CIT(A) on appreciation of facts, held that the land and other amenities which were forming part of project was handed over to the ultimate buyers and ownership was transferred to the society. The builder (assessee in the present case) no more enjoys the right to the property. The installation of transformers was not for the ultimate benefit of builder. The expenses were borne out of the receipt from ultimate beneficiaries. In such cases, the expenses like purchase of land and other expenses was just a work in progress for the assessee and not an asset with enduring benefits for the assessee. On the basis of such observation, the ld. CIT(A) allowed relief to the assessee. We also in agreement with the contention of assessee that the assessee has not got any personal benefit from such expenses. The ownership of such asset lies with the Gujarat Electricity Board or the electricity distributor company. No personal benefit of enduring in nature is received or enjoyed by assessee. Thus, we affirm the order of ld. CIT(A), resultantly, the appeal of revenue is dismissed. Issues Involved:The appeal by the Revenue against the order of National Faceless Appeal Centre, Delhi for the Assessment Year 2013-14 regarding the disallowance of Revenue expenses u/s 37 and treatment of expenditure on installation of Electric Transformer as Capital expenditure.Disallowance of Revenue Expenses u/s 37:The Revenue contended that the expenses incurred by the assessee for the installation of an electric transformer were capital expenditure, not revenue in nature. The Assessing Officer reasoned that the expenses were capital in nature. The Revenue sought to restore the assessing officer's order.The Assessee, a builder and developer, argued that the expenses were revenue in nature as they were incurred for providing electricity to flat holders in a housing project, essential for business activities. The ownership of the transformer remained with the Gujarat Electricity Board, and no personal asset was created for the assessee. The expenses were incurred before completion of sale of flats and for business purposes.The Tribunal noted that the transformer was installed by the assessee at the project developed by them, and ownership was transferred to the society. The expenses were borne out of receipts from ultimate beneficiaries, not for the benefit of the builder. The ownership of the asset remained with the Electricity Board, and no enduring personal benefit was received by the assessee. Thus, the Tribunal upheld the CIT(A)'s decision to allow relief to the assessee, dismissing the Revenue's appeal.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the expenses incurred by the assessee for the installation of the electric transformer were revenue in nature, not capital expenditure. The ownership of the asset remained with the Electricity Board, and no personal benefit was derived by the assessee. Therefore, the appeal was dismissed on merit, rendering the issue of tax effect academic.