2016 (10) TMI 355 - HC - Income Tax

Tax Appeals Dismissed, Expenses Treated as Revenue, Not Capital, Aligning with Legal Precedents

Commissioner of Income Tax Versus Kayal Syntex Ltd.

Commissioner of Income Tax Versus Kayal Syntex Ltd. - [2016] 389 ITR 84 Issues:Challenge to judgment and order by Income-tax Appellate Tribunal regarding addition of revenue expenditure as capital in nature under Section 37 of the Income Tax Act, 1961.Analysis:The appellant-revenue challenged the Tribunal's decision upholding the addition of revenue expenditure as capital in nature. The assessee claimed expenditure as revenue, but the Assessing Officer deemed it capital expenditure. The CIT (Appeals) partially deleted the addition, and the Tribunal upheld the deletion of interest payment but removed the remaining addition. The main contention was whether the Tribunal erred in upholding the deletion of the addition on account of revenue expenditure being capital in nature.The revenue argued that the assessee initially treated the expenditure as capital in its books and could not change it later. Citing a Supreme Court decision, the revenue contended that the expenditure was for an initial outlay and acquisition of a capital asset. On the other hand, the assessee maintained that the expenses were allowable revenue expenditure, relying on a similar case precedent where expenses for expanding an existing business were considered revenue expenses under Section 36(1)(iii) or Section 37.The Tribunal, following a previous case, noted that capitalization in books does not conclusively determine tax treatment unless consistent with tax provisions. Referring to a similar case, the Court held that expenses for expanding an existing business were allowable as revenue expenses. The Court found no infirmity in the Tribunal's decision, as the issue was akin to the precedent case. Consequently, the appeals were dismissed in favor of the assessee, confirming the Tribunal's order.In conclusion, the judgment addressed the dispute over treating certain expenses as revenue or capital in nature under the Income Tax Act. The Court upheld the Tribunal's decision, emphasizing that capitalization in books alone does not dictate tax treatment, and expenses for expanding an existing business could be considered allowable revenue expenditure. The judgment provided clarity on the tax treatment of such expenses, drawing from relevant legal precedents and statutory provisions.