Appellate evidence and revenue expenditure: revised TDS material needs AO rebuttal, while business-support grants stayed revenue.

Additional evidence admitted at the appellate stage, including a revised TDS return, cannot be relied on to delete a disallowance under section 40(a)(ia) unless the Assessing Officer is given a reasonable opportunity to examine and rebut it under rule 46A. Expenditure of a grant to milk producers' co-operative societies for construction of buildings was treated as revenue in nature because it was incurred under the society's bye-laws and board approval to facilitate milk collection and testing, without creation of any capital asset in the assessee's hands. The procedural disallowance issue was restored for fresh examination, while the revenue character of the building grants was upheld.

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Issues: (i) Whether the deletion of disallowance under section 40(a)(ia) could be sustained when the revised TDS return was admitted without giving the Assessing Officer an opportunity to examine the additional evidence under rule 46A. (ii) Whether the grant of Rs. 5,00,000 made to milk producers' co-operative societies for construction of buildings was allowable as revenue expenditure.

Issue (i): Whether the deletion of disallowance under section 40(a)(ia) could be sustained when the revised TDS return was admitted without giving the Assessing Officer an opportunity to examine the additional evidence under rule 46A.

Analysis: The revised TDS return was filed after completion of assessment and was relied upon by the first appellate authority to reconcile the expenditure with the profit and loss account. The statutory scheme of rule 46A requires that additional evidence should not be taken into account unless the Assessing Officer is afforded a reasonable opportunity to examine it and to rebut it.

Conclusion: The deletion of disallowance could not be finally sustained on the existing record and the matter was rightly restored to the Assessing Officer for fresh consideration after granting opportunity to both sides.

Issue (ii): Whether the grant of Rs. 5,00,000 made to milk producers' co-operative societies for construction of buildings was allowable as revenue expenditure.

Analysis: The grants were made pursuant to the society's bye-laws and board approval to facilitate milk collection and testing by the recipient societies. No capital asset came into existence in the assessee's hands, and the expenditure was incurred to further the assessee's business objects more effectively.

Conclusion: The expenditure was revenue in nature and the disallowance was not warranted.

Final Conclusion: The Revenue succeeded only on the procedural issue relating to additional evidence, while the allowance of the building grants as revenue expenditure was upheld.

Ratio Decidendi: Additional evidence admitted at the appellate stage cannot be relied upon without affording the Assessing Officer a reasonable opportunity to examine and rebut it, and expenditure incurred to facilitate business operations without creating a capital asset is revenue expenditure.

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