ITAT Rules Machinery Repair Costs as Revenue Expenditure in Petrol Pump Business

Court Name : ITAT Kolkata

Parties : Akram Hossain Mullick Vs DCIT

Decision Date : 11 July 2023

Judgement ref : ITA No. 321 /Kol/2023

Imagine you're running a petrol pump business. You've got machinery that needs regular maintenance and repair. Now, when it comes to accounting, how do you classify these repair costs? Are they capital expenditure or revenue expenditure?

This was the crux of the case Akram Hossain Mullick Vs DCIT before the Income Tax Appellate Tribunal (ITAT) Kolkata. Thesee, Mr. Akram Hossain Mullick, had classified machinery repair costs as revenue expenditure. However, the Assessing Officer (AO) viewed these costs as capital expenditure, leading to a dispute.

The ITAT Kolkata, in its judgement, examined the nature of the expenses. It found that the repair costs were incurred to keep the machinery in working condition, not to bring a new asset into existence or to provide an enduring benefit. Therefore, these costs were revenue in nature, not capital.

This ruling is significant for you if you're in a similar situation. It clarifies that machinery repair costs for a petrol pump business should be treated as revenue expenditure for tax purposes. So, next time you're calculating your taxes, remember to classify these costs correctly. It could make a significant difference to your asses

ORDER

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

This appeal filed by the assessee is against the order of Ld.

CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide Order No.

ITBA/NFAC/S/250/2022-23/1049488929(1) dated 07.02.2023

passed against the penalty order by ACIT, Circle-47, Kolkata

u/s.271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as

the “Act”), dated 28.06.2019 for AY 2016-17.

2. Sole issue involved in this appeal is against the action of the Ld.

CIT(A) in confirming the action of the Ld. AO in respect of imposing

penalty u/s. 271(1)(c) of the Act of Rs.4,49,908/-

3. Briefly stated, facts are that assessee is engaged in retailing of

petroleum and diesel under the proprietary concern as M/s. M.H.

Filling Centre operating petrol pump. Assessee filed his return of

income on 17.10.2016, reporting total income of Rs.68,63,440/-.

Case was selected for scrutiny under CASS and assessment was

completed u/s. 143(3) by making certain additions and disallowances,

at an assessed total income of Rs.84,74,430/-. In the course of

assessment proceedings, Ld. AO observed that assessee has claimed

expenses under the head repairs to machinery for Rs.6,540/- and

repairs to building of Rs.14,49,473/- which according to Ld. AO are

capital in nature. Explanations were called for but all in vain, Ld. AO

made a disallowance in this respect of Rs.14,56,073/-. Penalty

proceeding was initiated u/s. 271(1)(c) for furnishing of inaccurate

particulars of income in this respect. In the penalty proceedings,

assessee submitted his explanations. However, Ld. AO completed the

same by imposing penalty @ 100% amounting to Rs.4,49,908/-.

Aggrieved, assessee went in appeal before the Ld. CIT(A).

4. Before the Ld. CIT(A), a detailed explanation was furnished

whereby it was contended that these expenses are revenue in nature

which have been duly reported in the audited financial statements.

According to the assessee, repairs to machinery is an essential

incidental expense for running his petrol pump business which

includes fuel dispensing machine, water pump and air compressor

machines. In respect of the repairs to building, it was submitted that

in case of petrol pump business, heavily loaded motor vehicles pass

through the premises of the petrol pump. Further, the petrol pump is

situated beside the National Highway where heavily loaded motor

vehicles pass through.

4.1. It was also submitted that assessee is the owner of land where

the petrol pump is set up and receives lease rent from the oil

supplying company. The oil supplying company has given permission

to render the trading business of motor spirit and lubricants which

are the produce of the oil supplying company. According to the

assessee, the entire petrol pump premises is to be handed over to the

oil supplying company if the dealership agreement is terminated any

time in future and any other person or concern who is appointed as a

dealer by the oil supplying company shall do the business in the same

premise and the assessee will continue to receive the lease rent of the

land. On these submissions, it was contended that assessee is

required to regularly repair the building relevant to the set up of petrol

pump and incur these expenses which are revenue in nature.

According to him, no new advantage of enduring benefit is brought

into existence. Expense for the repairs cannot be related as heavy

structural repairs except that it was routine repairs and maintenance.

This only results greater efficiency by improvement of the working

condition.

4.2. Ld, counsel placed reliance on the decision of Hon’ble Supreme

Court in the case of CIT vs Reliance Petroproducts Pvt Ltd [2010] 322

ITR 158 (SC), wherein the Hon’ble Supreme Court has held as under:

“Dismissing the appeal, the court held that the CIT(A), the ITAT and the High Court had correctly reached the conclusion that the Assessee company had fully furnished all relevant details of its income and expenditure in its ROI, which were in themselves, not found to be incorrect and therefore could not be viewed as inaccurate or a concealment. The words used under section 271(1)(c) of the Act are plain and simple, and unless the case of the Assessee is strictly covered by words in this provision, no penalty can be invoked. By any stretch of imagination, making an incorrect claim in law

cannot tantamount to furnishing in accurate particulars. Merely because the

Assessee claimed of deduction of interest expenditure has not been accepted

by the Revenue, penalty under section 271(1)(c) is not attracted. If the

contention of the revenue is accepted, the Assessee would be liable to

penalty under section 271(1)(c) in every case where the claim made by the

Assessee is not accepted by the AO for any reason. The court held that this

cannot be the intention of the legislature. (AY. 2001-02) (CA No. 2463 of 2010 dt. 17-3-2010).”

5. Per contra, Ld. Sr. DR submitted that Ld. AO has examined the

case of the assessee and arrived at a conclusion that the expenses are

in the nature of capital, considering the quantum of expenses claimed

by the assessee and, therefore, the penalty has been rightly imposed

since capital expenditure has been claimed as revenue by the

assessee.

6. We have heard the rival contentions and perused the material

available on record. We note that the quantum of expenditure is not

in dispute. The only point for our consideration is in respect of nature

of the expenses which has been claimed by the assessee as to revenue

or capital. From the facts and circumstances narrated above, we find

force in the submission made by the Ld. Counsel explaining the case

of the assessee. There is no new asset which has been created giving

benefit of enduring nature. It is a case where the claim of the

assessee of repairs to machinery and building as revenue expenditure

has been characterized as capital in nature by the Ld. AO on which

the penalty has been imposed u/s. 271(1)(c) of the Act. By placing our

reliance on the decision of Hon’ble Supreme Court in the case of

Reliance Petroproducts Ltd. (supra), we are inclined to delete the

penalty imposed by the ld. AO. Accordingly, grounds taken by the

assessee are allowed.

7. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 11th July, 2023.

Sd/- Sd/-

(Sanjay Garg) (Girish Agrawal)

Judicial Member Accountant Member

Dated: 11th July, 2023

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IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA

BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER

AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER

ITA Nos.321 /Kol/2023

Assessment Year: 2016-17

Akram Hossain Mullick

NA, Dharsa Mullick Para,

Balitikuri, Howrah-711113

(PAN: AEUPM 6002 Q)

Vs.

Deputy/Assistant Commr.

of Income Tax, Circle-47,

Kolkata.

(Appellant) (Respondent)

Present for:

Appellant by : Shri S. P. Datta, Advocate

Respondent by : Shri P. P. Barman, Addl. CIT, Sr. DR

Date of Hearing : 22.06.2023

Date of Pronouncement : 11.07.2023