CENTRAL WAREHOUSING CORPORATION,NEW DELHI VS. ACIT, CIRCLE-5(2), NEW DELHI, 1369/DEL/2024, ITAT Delhi
In an important win for taxpayers, the Income Tax Appellate Tribunal (ITAT) Delhi, in the case of Central Warehousing Corporation vs ACIT (ITA No. 1369/Del/2024), ruled in favor of the assessee by allowing its claim of dunnage expenses as revenue expenditure rather than capital expenditure.
The decision reinforces the principle that expenditures linked to short-term utility and non-enduring benefits should be treated as revenue expenses — even when they relate to physical goods like dunnages used in warehousing.
Quick Background
- Assessee: Central Warehousing Corporation (CWC), a public sector enterprise involved in warehousing services.
- Assessment Year: 2016-17
- Dispute: AO disallowed Rs. 1,11,93,565/- claimed by the assessee towards dunnage expenses, treating it as capital in nature.
- CIT(Appeals): Confirmed AO’s view.
- Assessee’s Contention: Expenditure is revenue in nature, and this issue was already decided in CWC’s favor in earlier years.
What are Dunnages?
Dunnages are materials (like wooden planks, jute mats, polyfilms) used to protect goods from floor moisture or damage in warehouses.
👉 Ordinary dunnage: Used once; becomes unusable after a year.
👉 Special dunnage: Lasts several years; treated separately for depreciation.
The assessee had consistently:
- Capitalized special dunnages and claimed depreciation.
- Expensed ordinary dunnages directly through the profit and loss account.
Tribunal’s Analysis
The Tribunal referred to assessee’s own cases for AY 2012-13 (ITA No. 5449/Del/2017) and AY 2017-18 (ITA No. 353/Del/2021), where it was already held that:
- Ordinary dunnage, having a short life and used up in one year, is clearly revenue expenditure.
- No enduring benefit is derived from such dunnage.
- Accounting treatment adopted by the assessee is consistent and logical.
The ITAT emphasized:
“Life expectancy is the determining factor — when an asset lasts only a year, it cannot be treated as a capital asset.”
Accordingly, the ITAT deleted the addition of Rs. 1.11 crores, granting full relief to the assessee.
Key Takeaways
✅ Revenue vs Capital: Items with a short useful life and consumed within a year are revenue expenses, even if physical in nature.
✅ Consistency Matters: Where an assessee consistently follows a method and it is accepted in earlier years, the Revenue should not deviate without justification.
✅ Precedent Binding: Prior favorable rulings in assessee’s own case were rightly followed.
Conclusion
The Central Warehousing Corporation judgment reinforces that ordinary business expenses related to short-term usage assets must not be treated as capital expenditures.
This ruling gives much-needed clarity and protection to businesses against unnecessary disallowances and promotes consistency in tax assessments.