Section 37 of the income Tax Act, 1961– Business Expenditure – Capital or revenue expenditure – Expenditure incurred  to preserve and maintain an already existing asset and the expenses that were not incurred to bring a new asset into existence or to obtain a new or a fresh advantage to the business of the assessee were revenue in nature.

Facts: AO passed an order under section 143(3) and disallowed the claim of the assessee in treating the expenditure incurred on replacement of the plant and machinery as the revenue expenditure. On further appeal, CIT(A) held that since the repairs have been carried out in order to replace the damaged parts of the plant and machinery and since no new asset has come into existence, the addition made by treating the repair expenses as of capital nature, is not justified. On further, appeal, Tribunal held, in favour of revenue. Being aggrieved, assessee went on appeal before High Court.

Held, that what was really being done was to preserve and maintain an already existing asset and the expenses were not incurred to bring a new asset into existence or to obtain a new or a fresh advantage to the business of the assessee.  Tribunal committed an error in holding that the expenditure incurred on replacement of plant and machinery is a capital expenditure. Thus, question of law is answered  in favour of the assessee – PRECISION WIRES INDIA LTD. Vs. ASSTT. CIT [2020] 424 ITR 130 (GUJ)