2016 (2) TMI 521 - HC - Income Tax

Addition on Land Development Expenditure - Capital or revenue - Held that - Keeping in view the main objects of the assessee, the activities of the assessee, the nature of expenses incurred and also the legal principles noticed hereinbefore, had concluded that the expenditure was revenue in nature

Summary

Issues:
1. Whether the expenditure incurred by the assessee for reclaiming and development of land was capital expenditure or revenue expenditure.

Analysis:

Issue 1:
The primary issue in this appeal was to determine whether the expenditure by the assessee for land development was capital or revenue expenditure. The assessee, a corporation set up by the Punjab Government, incurred expenses for land development, contract farming, procurement of foodgrains, and marketing. The Assessing Officer disallowed an amount of Rs. 81,90,000 as capital expenses for land development. The CIT(A) allowed the appeal and deleted the addition, following a precedent from the assessment year 2006-07. The Tribunal upheld the CIT(A)'s decision, referring to its own orders from previous years. The revenue challenged this decision, arguing that the expenditure should be treated as capital in nature.

The Court referred to a previous case involving the same assessee where a similar deduction was allowed as revenue expenditure. The Court emphasized that the nature of expenditure, business purpose, and commercial viewpoint should be considered to determine if an expense is capital or revenue in nature. Citing legal principles, the Court highlighted that each case must be decided based on its own facts and circumstances. The Tribunal, after examining the evidence, found that the land was not barren and the expenses incurred were for the furtherance of business objectives. The expenses included tractor hiring charges, vehicle expenditure, staff welfare, and other operational costs, all essential for the business activities. The Tribunal concluded that the expenses were revenue in nature and not capital.

The Court upheld the Tribunal's decision, stating that the expenditure was revenue in nature based on the specific facts of the case and the nature of the business activities. The Court dismissed the appeal by the revenue, emphasizing that the substantial question of law was answered against the revenue, and the appeal lacked merit.

In conclusion, the Court determined that the expenditure incurred by the assessee for land development was revenue expenditure and not capital expenditure, based on the specific facts and circumstances of the case and previous legal precedents.