2016 (9) TMI 1394 - HC - Income Tax

Allowance of revenue expenditure - liability was not accepted - Held that - Taking into consideration the fact initially the Corporation has not accepted the liability, therefore, the observations which are made by the Tribunal for the year 1991-92 were in the peculiar facts where the liability was not accepted but subsequently for the year 1992-93, the Corporation has accepted the liability which was shown in the books of account and in view of the matter additions made by the tribunal for the relevant year would not be applicable in the changed circumstances. Since, they accepted the liability, the resolution which is sought to be passed on 28.8.1992 was administrative formality but for the Income-tax purpose it is shown in the books of account mercantile system, therefore, though the point raised by Mr. Singhi is remained an academic issue but facts and law in mercantile system which is debited for the relevant year i.e. 1992-93. On first point, the contentions raised by Mr. Singhi has a doubt but in view of the consideration by us the relevant year debited entry in the books of account for the year 1992-93, therefore, resolution is passed subsequently but since it was mercantile system for the year 1992-93, it will come into force. The contention which has been raised by Mr. Singhi is required to be accepted, it can only be one time revenue expenditure and subsequent claim of the assessee will not be acceptable and if his claim is made and accepted, it will be for the department to recover the tax from the assessee. The issue is answered in favour of the assessee and against the Department for the revenue expenses of year 1992-93 only one time.

Summary

Issues:
1. Whether the Appellate Tribunal was justified in allowing the sum of ?6 crores as revenue expenditure despite the claim of the assessee as lease money in addition to other charges?
2. Whether the Appellate Tribunal was justified in allowing prospecting charges of ?2.96 crores for survey reports as revenue expenditure despite enduring benefits to the assessee and the liability being accepted for a different assessment year?

Analysis:

Issue 1:
The Department contended that the first issue was decided against them in a previous case. Therefore, the focus shifted to the second issue regarding the prospecting charges. The Tribunal observed that the expenditure was revenue in nature as no tangible or intangible asset was created, citing relevant case laws. The Department argued against the allowance of the amount, but the Tribunal, considering all arguments, ruled in favor of the assessee, deleting the addition.

Issue 2:
The Tribunal deliberated on the prospecting charges issue, where the assessee requested various survey reports from the Government of Rajasthan, incurring ?2.96 crores as charges. The Assessing Officer initially disallowed this amount due to non-provision in accounts. The Tribunal, after considering arguments from both sides and relevant case laws, concluded that the expenditure was revenue in nature and allowed the claim. The Department relied on the Assessing Officer's observations from a previous year, emphasizing the capital nature of the expenditure. However, the Tribunal, considering the changed circumstances and acceptance of liability by the assessee for the relevant year, ruled in favor of the assessee, stating it as a one-time revenue expenditure for that specific year only.

In summary, the judgment dealt with two main issues involving revenue expenditure claims by the assessee, focusing on lease money and prospecting charges. The Tribunal, after thorough examination of facts, arguments, and case laws, ruled in favor of the assessee for both issues, allowing the claimed amounts as revenue expenditures for the respective assessment years.