Expenditure incurred on replacement of old truck bodies be treated as revenue expenditure

The issue in this appeal of assessee is as regard to the order of CIT(A) confirming the the order of AO wherein the expenses of Rs.47,40,701/- were treated as capital expenditure as against the assessee’s contention that the same were of revenue nature as being incurred on repairs and maintenance of the trucks etc.

In this case, the assessee was called upon by the assessing officer to show cause as to why the claim of excess depreciation of Rs.47,40,701/- should not be disallowed and added to the income of the assessee. The assessee submitted that the said expenditure was incurred on the replacement of body of trucks which was damaged due to wear and tear and these expenses incurred by the assessee on routine basis. Further, the assessee submitted that since the expenses incurred on repair/replacement of truck’s body were very high , these were accounted for under capital cost however while finalizing the account at the year end the said expenditure was charged to profit and loss account at 100% wrongly under the head depreciation instead of the said cost being directly charged the revenue expenditure. He also submitted that he incurred expenditure under capital account, then depreciation would have come to 30% only. The assessee reiterated that the amount of Rs.47,40,701/- was actually the expenses for body repairs/replacements but wrongly classified under the head depreciation which has resulted into the rate of depreciation going up as high as 50% instead of 30%. The assessee submitted that this being accounting mistake on the part of the accountant ,cannot be the basis for punishing the assessee. The AO however was not convinced with the reply of the assessee and he rejected the claim of the depreciation qua the expenses and allowed depreciation at 30% thereby making an addition of Rs.47,40,701/-.

Aggrieved with the decision passed by AO, the assessee preferred appeal before CIT(A) who also dismissed the appeal by observing that the expenses incurred on replacement was of capital nature. Aggrieved by the order passed above, the assessee filed appeal before tribunal.

ITAT noted that the assessee was an operator of trucks and lorries on hire. During the year the assessee had incurred expenditure on replacement of old truck bodies which was treated as revenue expenditure. It relied on the judgment passed by Hon’ble Calcutta High Court in the case of CIT vs. Tea Estate Pvt. Ltd. reported in [1992] 198 ITR 535 (Cal) and se aside the order passed by CIT(A) and direct the AO to treat the expenditure as revenue in nature. The judgment in the case of CIT vs. Tea Estate Pvt. Ltd. (supra) is as follows:

“where the assessee has replaced the part of trucks being petrol engine by diesel engine, the said replacement could not be considered as bringing into existence any new asset or any new advantage of enduring character and therefore expenditure incurred on replacement of said patrol engine by diesel engine was treated as revenue expenditure”.

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