2023 (4) TMI 468 - AT - Income Tax

Nature of expenditure - revenue or capital expenditure - Amount deposited by assessee to department of mines for taking contract of royalty recovery HELD THAT - Assessee submitted the copy of the challans paid to the mining department. The head under which the money paid is neither refundable to the assessee nor adjustable against the future receipt to the assessee. Even the mining department has confirmed the receipt of the payment challan by the assessee and this information was collected by the AO u/s. 133(6). CIT(A) has contended that the expenditure incurred by the assessee is capital expenditure. The observation so arrived is without any basis or reasoning by the CIT(A). The term capital expenditures are typically one-time large purchases of fixed assets that will be used for revenue generation over a longer period or expenditure incurred for enduring benefit to the assessee. Whereas Revenue expenditures are typically referred to as ongoing operating expenses, which are short-term expenses that are used in running the daily business operations. Thus, based on these basic difference of expenditure and on careful examination of the challans placed on record we are of the considered view that the expenditure incurred by the assessee are not in nature of any enduring benefit to the assessee but in fact days to day routine expenditure in the nature of revenue expenditure - we vacate the addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the case and assessment order under section 147/143(3).
2. Treatment of an amount paid to the Department of Mines as capital expenditure instead of revenue expenditure.

Summary:
1. The appeal was filed challenging the order of the National Faceless Appeal Centre, Delhi for the assessment year 2012-13, which originated from the order of the ITO Ward 1, Sikar. The proceedings under section 147 of the IT Act, 1961 were initiated based on available information, resulting in the reassessment with an assessed income against the returned loss. The addition of Rs. 6,74,000 was made by the Assessing Officer, treating it as capital expenditure due to the absence of income earned against the payment.

2. The assessee contended that the addition should be quashed and the amount treated as revenue expenditure. The CIT(A) confirmed the addition, stating that the appellant failed to provide sufficient evidence to justify the claim of capital expenditure. The appellant's request to admit additional evidence, including a copy of the agreement for royalty collection, was made to support their case. The appellant argued that the payment was a business decision to reduce loss, not a capital expense, and provided various documents to support this claim.

3. The Department argued that the appellant did not submit required documents and failed to clarify the terms of the contract with the mining department. However, upon review, it was found that the payment made was not refundable or adjustable, indicating it was a routine revenue expenditure rather than a capital expense. The Tribunal vacated the addition of Rs. 6,74,000, allowing the appeal of the assessee.

4. The Tribunal's decision was based on the nature of the expenditure, distinguishing between capital and revenue expenditures, and the lack of enduring benefit to the assessee from the payment made to the Department of Mines. The appeal was allowed, and the order was pronounced on 23/03/2023.