2018 (1) TMI 1309 - HC - Income Tax

Addition made on account of capitalization of revenue expenses - ITAT deleted the addition - Held that - Both the Tribunal and the Commissioner (Appeals) have recorded concurrent findings of facts to the effect that the dies and tools as well as the machinery spares were consumable in nature and have accordingly held the expenditure to be revenue in nature. The fact that in earlier years such expenditure had been treated as revenue expenditure by the revenue has also been taken into consideration. Having regard to the concurrent finding of facts recorded by the Commissioner (Appeals) and the Tribunal, it cannot be said that the conclusion arrived at by the Tribunal that the expenditure incurred on dies and tools and machinery spares was revenue in nature, suffers from any legal infirmity so as to give rise to any question of law, much less, a substantial question of law warranting interference.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding addition made on account of capitalization out of revenue expenses.

Analysis:
1. The appellant revenue challenged the order of the Income Tax Appellate Tribunal, Ahmedabad, regarding the addition made on account of capitalization out of revenue expenses for the assessment year 2009-10. The appellant raised the substantial question of law concerning the erred decision of the Tribunal in confirming the deletion of the addition by CIT (A).

2. The assessee, engaged in the manufacturing of aluminum extruded sections, claimed consumption of dies as revenue expenditure due to frequent design changes and short life of dies. The Assessing Officer made additions considering the consumption of dies and tools as capital expenditure. However, the Commissioner (Appeals) deleted the addition, citing past acceptance of similar treatment by the revenue in earlier years.

3. The Commissioner (Appeals) noted the acceptance of revenue expenditure treatment for dies and tools in previous years by the revenue. The expenditure was considered consumable due to the short life of dies, leading to the deletion of the addition. In the case of machinery spares, the Commissioner (Appeals) identified items as capital expenditure based on their nature and functionality, distinguishing between repair and replacement expenses.

4. The Tribunal upheld the findings of the Commissioner (Appeals) regarding the nature of expenditure on dies, tools, and machinery spares. The Tribunal considered the consumable nature of the items and past treatment by the revenue in similar cases, leading to the conclusion that the expenditure was revenue in nature.

5. The appellant's counsel challenged the impugned order on the grounds mentioned in the appeal memorandum and the reasoning of the Assessing Officer. However, both the Tribunal and the Commissioner (Appeals) had concurrent findings that the expenditure on dies, tools, and machinery spares was revenue in nature due to their consumable nature and past treatment by the revenue.

6. The High Court observed that the findings of fact by the Commissioner (Appeals) and the Tribunal were concurrent, establishing the revenue nature of the expenditure. Considering the past treatment and the consumable nature of the items, the Court found no legal infirmity in the conclusion reached by the Tribunal. Consequently, the appeal was dismissed for lack of any substantial question of law warranting interference.