2018 (7) TMI 2307 - HC - Income Tax

Maintainability of appeal in HC - substantial question of law - finding of Tribunal that all the companies which have earned profit at less than 6% should be excluded for consideration of comparable companies - HELD THAT - We do not find any substantial question of law arising in view of the recent judgment of this Court in Pr. Commissioner of Income Tax, Bangalore and Another Vs. M/s. Softbrands India P. Ltd 2018 (6) TMI 1327 - KARNATAKA HIGH COURT wherein it is held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. Nature of expenditure - payment of compensation paid by the appellant - Revenue or capital expenditure - HELD THAT - No substantial question of law would arise in this regard to Question No. 2 also because the expenditure paid by the Assessee Company to the other party for withdrawing from the Contract for purchase of Immovable Property i.e. land in question, on which the Appellant Assessee wanted to establish the infrastructural facilities for the business has been rightly held to be a Capital Expenditure and the same cannot be said to be a Revenue Expenditure incurred in the ordinary course of business.

Summary

Issues:
1. Whether the finding of the Income Tax Appellate Tribunal regarding the exclusion of companies earning profit less than 6% for consideration of comparable companies is contrary to Sec. 8E?
2. Whether the payment of compensation of Rs.105 lakhs by the appellant is a capital expenditure justified under the law?

Analysis:

*Issue 1:*
The High Court examined the first issue raised in the appeal regarding the exclusion of companies earning profit less than 6% for consideration of comparable companies. The Court referred to a recent judgment and held that unless an ex-facie perversity in the findings of the Tribunal is established, the appeal is not maintainable. The Court emphasized that the selection of comparables does not give rise to any substantial question of law. The Court clarified that dissatisfaction with Tribunal findings is not sufficient to invoke Section 260-A. Consequently, the appeal filed by the Revenue was found devoid of merit and dismissed.

*Issue 2:*
Regarding the second issue of whether the payment of Rs.105 lakhs as compensation constitutes a capital expenditure, the Court analyzed the Tribunal's findings. The Tribunal held that the payment was made to discharge a capital liability and not a revenue liability, thus categorizing it as a capital expenditure. The Court concurred with the Tribunal's decision, stating that the payment was not an operational expenditure and was rightly disallowed as a deduction. The Court found no substantial question of law arising from this issue, as the Tribunal's findings were based on relevant evidence. Consequently, the appeal of the Assessee was dismissed.

In conclusion, the High Court dismissed the appeal filed by the Assessee, as no substantial question of law arose from either issue. The Court upheld the Tribunal's decisions on both matters, emphasizing that the findings were based on cogent material and evidence. The judgment provided detailed reasoning for each issue, ensuring a comprehensive analysis of the legal aspects involved in the case.