2023 (6) TMI 283 - HC - Income Tax

Reopening of assessment u/s 147 - Allowability of expenditure as revenue or capital - expenditure of Rs. 6.01 crores as amount paid to Madhya Pradesh Electricity Board (MEPB) for the line/bay charges - AO was of the view that the expenditure incurred was for the creation of capital assets - CIT(A) allowed the claim as revenue expenditure - HELD THAT - This Court is of the view that the amount paid by the assessee to the Madhya Pradesh Electricity Board for bay lines has been rightly taken to be the revenue expenditure. Similar benefit had been extended to the assessee for the assessment year 1992-1993 and 2004-2005. This expenditure has been rightly claimed by the assessee as per the provisions of the Income Tax Act. There was no reason for re-opening and initiating proceedings under Section 147/148 of the Act. The Tribunal has rightly allowed the appeal of the assessee by appreciating the facts in the right perspective. Decided against revenue.

Summary

Issues involved:
The judgment involves the interpretation of provisions of the Income Tax Act, 1961, specifically u/s 260A, 143(3), 147, and 148, regarding the treatment of expenditure claimed by an assessee as revenue or capital in nature, leading to the reopening of assessment for the assessment year 2007-2008.

Assessment Year 2007-2008:
The assessee initially declared a total income for the assessment year 2007-2008, later filed a revised return, and the assessment was completed u/s 143(3). Subsequently, the Assessing Officer issued a notice u/s 148 for reopening the assessment, disallowing an expenditure claimed as revenue, treating it as capital expenditure. The CIT (A) upheld the reopening and the capital expenditure treatment, leading to an appeal before the Tribunal.

Capital vs. Revenue Expenditure:
The dispute revolved around the nature of an expenditure claimed by the assessee, paid to Madhya Pradesh Electricity Board for bay lines, whether it constituted capital expenditure or revenue expenditure for the business. The Assessing Officer disallowed the claim, treating it as capital expenditure, while the assessee contended it to be revenue expenditure. The CIT (A) and Tribunal upheld the capital expenditure treatment, based on ownership rights and relevant provisions of the Income Tax Act.

Reopening of Assessment:
The Tribunal considered precedents where similar expenditures were treated as revenue in earlier assessment years, highlighting consistency in treatment. It was observed that the Assessing Officer lacked fresh material or valid reasons for reopening the assessment u/s 147/148, especially after allowing the claim in the original assessment. The Tribunal also referenced relevant documents from the Madhya Pradesh Electricity Board to support the assessee's claim.

Judgment and Conclusion:
The High Court upheld the Tribunal's decision, emphasizing the consistency in treatment of the expenditure as revenue in previous assessment years. It was noted that no income had escaped assessment, and the Revenue failed to provide evidence supporting the reopening of assessment. Consequently, the appeal was dismissed, with no substantial question of law arising for consideration in the case.