SURAJ AGRO INFRASTRUCTURE (INDIA) PRIVATE LIMITED ,CHENNAI vs. ACIT CORPORATE CIRCLE 2, COIMBATORE

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -1, Coimbatore, dated 29.03.2017 and pertains to assessment year 2014-15.

The only issue arises for consideration is disallowance of expenditure said to be incurred by the assessee towards repairs and maintenance of road inside the Port Trust, to the extent of `51,59,865/-.

Shri S. Swaminathan, the Ld. representative for the assessee, submitted that the assessee is engaged in the business of providing storage facilities in various ports across the country, including Jawaharlal Nehru Port Trust, Mumbai and Chennai Port Trusts, etc. According to the Ld. representative, the assessee in fact took land on lease from the port and built up storage facilities under Built, Operate, Lease and Transfer Scheme. According to the Ld. representative, as per agreement with port authorities, after expiry of lease period, the land taken on lease has to be returned in the same condition as it was taken initially. According to the Ld. representative, the storage facilities established by the assessee on the lease land cannot be taken away by the assessee after expiry of lease period. Moreover, the Port Trust will not compensate the assessee for leaving the storage facilities at their premises.

The Ld. representative for the assessee further submitted that the customers of the assessee are mainly exporters and importers. The customers transfer their goods from the factory and store it in the facilities established by the assessee for storage before it was loaded in the ship. According to the Ld. representative, the storage facilities established by the assessee included tanks for storage of oil, building for storage of other material and approach road. Hundreds of lorries used to move in and out in the premises during loading / unloading process.

The Ld. representative for the assessee further submitted that the Assessing Officer found that even though no new asset came into existence, the work carried by the assessee to conduct the business effectively have a enduring benefit. Therefore, according to the Ld. representative, the Assessing Officer disallowed the claim of the assessee and allowed depreciation at 5%. According to the Ld. representative, the moment the facilities were established and expenditure was incurred for effectively carrying on the business in the process of earning profit, the same has to be allowed as revenue expenditure. According to the Ld. representative, the existing of road was maintained for the purpose of smooth running of heavy vehicles, therefore, the Assessing Officer is not justified in disallowing the claim of the assessee. The CIT(Appeals) without appreciating the facts, confirmed the order of the Assessing Officer.

On the contrary, Ms. S. Vijayaprabha, the Ld. Departmental Representative, submitted that the expenditure incurred by the assessee for earth work, laying of sand, laying parse block, laying of concrete yard are in the nature of capital expenditure. The Assessing Officer found that even though no new asset came into existence, it facilitated to conduct the business efficiently. Hence, according to the Ld. D.R., the assessee derived enduring benefit, therefore, the expenditure has to be capitalized.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee is engaged in the business of providing storage facilities at Port Trust. The assessee created infrastructure facilities for storage and also established road for movement of heavy vehicles for transportation of goods. Since the assessee found that the road established was badly damaged, in order to maintain smooth movement of heavy vehicles, the assessee repaired the road by relaying the same. In the process, the assessee incurred an expenditure of `51,59,865/-. It is also not in dispute that by incurring the expenditure, the assessee has not established any new asset. In other words, no new asset came into existence. Unless the assessee maintains the road properly, the assessee cannot carry out the business. Therefore, this Tribunal is of the considered opinion that the expenditure was incurred for the purpose of maintaining the existing road in order to carry on the business efficiently and effectively in the process of running of the business. Therefore, the expenditure incurred by the assessee is in the revenue field. Hence, the lower authorities are not justified in treating the same as capital expenditure.

In view of the above, we are unable to uphold the orders of the authorities below. Accordingly, the orders of the authorities below are set aside and the Assessing Officer is directed to allow the expenditure incurred by the assessee for maintaining the road, to the extent of `51,59,865/- as revenue expenditure.

In the result, the appeal filed by the assessee is allowed.