Merely because description states replacement of machinery, it cannot lead to conclusion that expenditure was capital in Nature: ITAT

The Income Tax Appellate Tribunal (ITAT) in the matter of Shree Sulphurics Pvt. Ltd. vs ACIT has said that merely because the description of expenditures states to be a replacement of certain parts or machinery, it cannot lead to the conclusion that the expenditure was not for the purpose of maintaining or preserving of an asset, and it resulted in the creation of a new asset or new advantage to the assessee.

The assessee had explained that it was in the business of manufacturing various acids which corroded its plant & machinery speedily, and therefore, its plant & machinery needed to be repaired and part of it replaced so as to maintain its working capability.

Relevant Text of ITAT Order:

7. Considering facts as above, we are not in agreement with the Revenue that expenses to the tune of Rs.37.50 were not in the nature of current repairs to be allowed in terms of section 31 of the Act particularly when the assessee had explained that considering the nature of manufacturing done by it , machinery parts corroded frequently warranting their replacement so as to maintain the machineries in working condition, which has not been controverted by the Revenue . And the finding of the Revenue of the expenses being capital in nature /noncurrent is based on mere description of the expense as replacement of certain machinery with no facts emanating from the records before us to substantiate the same.

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