2011 (11) TMI 150 - HC - Income Tax

Block assessment assessee filed return for undisclosed income pursuant to it notices u/s 143(2) issued - additions in the income of the assessee made as undisclosed income - whether the question that a particular expenditure is of a Capital or Revenue nature can be a subject matter of block assessment proceedings - Held that - Entries were made in books of account when the expenditure was incurred. Therefore entries had been in the books of accounts by the time of search. The case of the AO is not that these were not made in the regular books of account thus addition cannot be made as undisclosed income. Further whether the expenditure is capital or revenue is relevant for the purposes of regular assessment u/s 143(3) and cannot be a subject matter of block assessment proceeding. - The questions proposed cannot be termed as substantial questions of law. Accordingly the appeal is dismissed. - Decided against the revenue.

Issues:
1. Deletion of addition made by Assessing Officer regarding Capital Assets debited to store consumption.
2. Whether the nature of expenditure can be determined in block assessment proceedings.

Issue 1: Deletion of addition regarding Capital Assets debited to store consumption
The appeal challenged the Tribunal's order for the block assessment period from 1.4.1988 to 14.10.1998, specifically focusing on the deletion of the addition of approximately Rs. 51.52 lacs made by the Assessing Officer in relation to Capital Assets debited to store consumption. The CIT(A) had deleted all additions except for one related to sale of waste/bogus purchases, remanding it back to the Assessing Officer for fresh consideration. The Tribunal, in its order dated 19.05.2006, upheld the deletions made by the CIT(A) without interference, emphasizing that the expenditure in question had been recorded in the books of account for the relevant year and the entries were made contemporaneously with the expenses incurred. The Tribunal concluded that the question of whether the expenditure was capital or revenue in nature could not be a subject matter of block assessment but could be addressed in regular assessment under section 143(3) if warranted by the facts. The Tribunal upheld the decision of the CIT(A) to delete the addition of Rs. 51.52 lacs, citing that the entries in the balance sheet supported the capitalization of the expenditure on invertors.

Issue 2: Determination of expenditure nature in block assessment proceedings
The second main issue revolved around whether the nature of expenditure, specifically whether it is capital or revenue in nature, could be determined in block assessment proceedings. The Tribunal's findings emphasized that such determinations were not within the purview of block assessments but could be addressed during regular assessments under section 143(3) if the facts warranted such consideration. The Tribunal highlighted that even though the expenditure in question had not been claimed as revenue expenditure and was capitalized with entries in the balance sheet supporting the same, the question of capital versus revenue nature of expenditure did not fall under the scope of block assessments. The Tribunal's decision aligned with the CIT(A)'s deletion of the addition of Rs. 51.52 lacs, reinforcing that such determinations were not suitable for block assessments but could be addressed in regular assessments if required.

In conclusion, the High Court dismissed the appeal, stating that the questions raised did not qualify as substantial questions of law necessitating their consideration. The Court upheld the findings of the Tribunal, emphasizing that the determinations regarding the nature of expenditure and the deletion of additions made by the Assessing Officer were appropriately handled within the framework of regular assessments rather than block assessment proceedings.

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