ATAM MANOHAR SHIP BREAKERS PVT. LTD.,,BHAVNAGAR vs. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1,, BHAVNAGAR

Though the assessee has taken five grounds of appeal, but its grievance revolves around a single issue viz. (a) disallowance of expenditure amounting to Rs.10,76,507/- by treating it as capital expenditure, and (b) disallowance professional expenditure amounting to Rs.20,000/- by treating the same as capital expenditure.

The assessee has filed its return of income electronically on 21.9.2012 declaring total income at Rs.1,04,50,245/-. On scrutiny of the accounts it revealed to the AO that the assessee has debited a sum of Rs.10,76,507/- for purchase of wire ropes. Similarly it has debited a sum of Rs.20,000/- towards payment to interior designer. The ld.AO treated the payment in the capital field and disallowed them. Appeal to the ld.CIT(A) did not bring any relief to the assessee.

On due consideration of the above facts, we are of the view that the ld.Revenue authorities have erred in treating both these expenditures as capital expenditure. It is pertinent to observe that the assessee is in the business of ship breaking. It used to pull ships and scrapes with the help of cranes where wire ropes are being used. According to the assessee these ropes required frequent replacement, and therefore it has to purchase them. Revenue authorities were of the opinion that such ropes could give enduring benefit to the assessee, whereas the assessee has pleaded that it has to change ropes within 40-50 days. The ld.Revenue authorities failed to appreciate that these ropes are one of the components of the crane. It is not an independent machinery in itself. Without replacement of ropes, crane could not be used. The assessee has not bought any machinery rather it has just got the repair done by replacement. Thus, such expenses ought to be treated as in the field of revenue.

In the result, appeal of the assessee is allowed. Order pronounced in the Court on 27th June, 2018 at Ahmedabad.