2019 (3) TMI 1260 - AT - Income Tax

Revision u/s 263 by CIT-A - Nature of expenditure - revenue v/s capital expenditure - land maintenance expenditure - erroneous or prejudicial to the interest of the revenue - HELD THAT - The expenditure that the assessee has incurred is on account of labour charges at the factory for cleaning, removal of waste and increasing vegetation. The expenditure was incurred wholly and exclusively for carrying on the business of the assessee-company in compliance with the directions of the Kerala State Pollution Control Board. The expenditure is only revenue in nature and hence there is no error in the assessment order. Insofar as the expenses incurred for the Childrens Park, we notice that it is a periodic maintenance for the upkeep of the park and not a capital expenditure. The expenditure is revenue in nature and wholly and exclusively for the purpose of the business and hence there is no error in the assessment order. The Cochin Bench of the Tribunal in the case of Acumen Capital Marketing (I) Ltd. 2017 (6) TMI 61 - ITAT COCHIN had held that in order to invoke the provisions of section 263 of the I.T.Act, the assessment order has to be erroneous and such order has to be prejudice to the interest of the revenue - we are of the view that land maintenance expenses incurred and debited to the P & L account is clearly being revenue in nature, the assessment order cannot be stated to be erroneous. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of notice u/s 263 for land maintenance expenditure.
2. Nature of land maintenance expenses - revenue or capital expenditure.
3. Correctness of assessment order and revisionary proceedings.
4. Interpretation of section 263 of the Income-tax Act.

Analysis:

Issue 1: Justification of notice u/s 263 for land maintenance expenditure
The appeal was against the order of the Commissioner of Income-tax issued under section 263 of the Income-tax Act, concerning the land maintenance expenditure debited to the profit and loss account by the assessee. The Principal Commissioner of Income Tax had issued a notice proposing to set aside the assessment order, claiming the expenditure was capital and needed to be disallowed.

Issue 2: Nature of land maintenance expenses - revenue or capital expenditure
The assessee, engaged in the business of manufacturing ice cream and frozen foods, argued that the land maintenance expenses were revenue in nature. The expenses included labour charges and materials for cleaning, waste removal, and landscaping as per Pollution Control Board directions. The Tribunal analyzed the details of expenses incurred at different locations and concluded that the expenditure was wholly and exclusively for business purposes, making it revenue expenditure.

Issue 3: Correctness of assessment order and revisionary proceedings
The Assessing Officer had allowed the expenditure as revenue during the assessment proceedings. The Tribunal noted that the tax audit report did not indicate any capital expenditure debited to the profit and loss account. The Tribunal further referenced a similar case to support the contention that for section 263 to apply, the assessment order must be erroneous and prejudicial to the revenue's interest. In this case, since the expenses were revenue in nature and incurred for business purposes, the assessment order was considered correct.

Issue 4: Interpretation of section 263 of the Income-tax Act
The Tribunal emphasized that for section 263 to be applicable, the assessment order must be erroneous and prejudicial to the revenue's interest. Since the land maintenance expenses were found to be revenue in nature and incurred for business compliance, the Tribunal ruled that section 263 did not apply in this case.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing that the land maintenance expenses were revenue in nature and the assessment order was not erroneous. The judgment was pronounced on March 21, 2019.