2016 (8) TMI 1462 - HC - Income Tax

Gujarat HC Confirms ITAT Decision: Rs. 4.67 Crore Replacement Expenses Deemed Non-Capital, Dismisses Revenue Appeal.

The HC of Gujarat upheld the ITAT's decision, dismissing the Revenue's appeal concerning the deletion of a Rs. 4.67 crore addition for replacement ... Addition on account of expenses incurred for replacement of remembering cells-II - HELD THAT:- This issue in case of this very assessee for earlier assessment years came up for consideration before this Court in case of Commissioner of Income Tax vs. Gujarat Alkalies and Cheimcals Ltd. [2015 (2) TMI 118 - GUJARAT HIGH COURT] as held that attempt to contend that life of membrane would be spread over from 3 to 5 years or that the amount involved for replacement of membrane is huge and, therefore, the departure on the part of the Revenue could be said as justified, in our view, cannot be countenance for two reasons. One is that the amount involved would not make difference for chargability of the tax but the nature of expenditure would be relevant for the chargability of tax. It hardly matters whether the amount is more or less. Further, on the aspect of life of the membrane, nothing is referred to by the A.O. nor by C.I.T. (Appeals) that earlier, such aspect, namely, life of the membrane spread over from 3 to 5 years was not considered or it had missed or otherwise. - Decided against revenue Issues:1. Correctness of the decision of the ITAT in deleting the addition of Rs. 4.67 crores made on account of expenses for replacement of remembering cells-II.Analysis:The High Court of Gujarat addressed the appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal (ITAT) on the issue of deleting the addition of Rs. 4.67 crores for replacement expenses. The primary contention was whether the expenditure was capital in nature and thus not allowable as a deduction. The Court noted that the crux of the matter was the correctness of the ITAT's decision in deleting the said addition.The Court referred to a previous case involving the same assessee, where the Division Bench dismissed the Revenue's appeal. The Court emphasized that the nature of the expenditure, rather than the amount involved, was crucial for tax liability. It was highlighted that the life span of the membrane, in this case, was a significant factor, and the Revenue's argument based on the amount involved was not valid. The Court found that the Revenue's attempt to justify the expenditure based on the amount and the life span of the membrane was not acceptable.In conclusion, the High Court upheld the decision of the ITAT and dismissed the tax appeal by the Revenue. The Court reiterated that the nature of the expenditure and its relevance to tax liability were pivotal, emphasizing that the amount itself did not determine taxability. The judgment underscored the importance of considering the nature and impact of expenses on tax liability rather than solely focusing on the amount involved.