2017 (8) TMI 609 - HC - Income Tax

Claim of expenditure on improvement of leasehold asset - revenue treated it as capital in nature as against the claim of the assessee as revenue expenditure - Held that - The appropriate procedure that should have been followed by the respondent is to put the petitioner on notice, afford an opportunity and then take decision in the matter. However, the respondent has straight away proceeded and passed the impugned order, which is not sustainable, as it is in violation of principles of natural justice. The learned counsel for the petitioner would point out that there is an order of the Tribunal, which has been extracted and the extracted portion is not found in the earlier order. This submission is made to show that the impugned order has been passed without due application of mind and has virtually prejudged the issue. As this Court is convinced that the impugned order passed is in violation of principles of natural justice, the matter requires to be remanded to the respondent for fresh consideration

Summary

Issues:
Challenge to the assessment of expenses as capital in nature instead of revenue expenditure for the assessment year 2009-2010. Violation of principles of natural justice in passing the impugned order without proper procedure and prejudging the issue.

Analysis:

Issue 1: Assessment of Expenses
The petitioner challenged the respondent's decision to treat expenses related to improvements in leasehold premises as capital in nature for the assessment year 2009-2010. The petitioner claimed these expenses as revenue expenditure, contesting the order passed by the Commissioner of Income Tax (Appeals) dated 09.03.2016. The Income Tax Appellate Tribunal remanded the matter for fresh consideration, directing the Assessing Officer to review the claim of expenditure on improvement of leasehold asset, similar to the assessment year 2008-2009. The Tribunal allowed the assessee's appeal for statistical purposes, indicating a need for a reevaluation of the expenses.

Issue 2: Violation of Natural Justice
The petitioner argued that the respondent's decision was in violation of principles of natural justice due to the lack of proper procedure followed. The petitioner contended that the respondent should have provided notice, an opportunity to be heard, and allowed the petitioner to file written objections before making a decision. It was highlighted that the impugned order was passed hastily, without due application of mind, and appeared to have prejudged the issue based on extracted portions from previous orders. The High Court agreed with the petitioner's stance, acknowledging the violation of natural justice principles in the respondent's actions.

Judgment:
The High Court allowed the writ petition, setting aside the impugned order and remanding the matter back to the respondent for fresh consideration. The Court directed the respondent to follow proper procedure, afford the petitioner an opportunity to present their case, permit the filing of written objections, and make a fresh decision based on merits and in accordance with the law. The Court emphasized the importance of adhering to principles of natural justice in such proceedings and concluded by stating that no costs were to be imposed in this matter.