1982 (3) TMI 106 - AT - Income Tax

Summary

Issues:
1. Rectification of original assessment order regarding treatment of expenses as revenue or capital expenditure.
2. Disallowance of expenses as capital expenditure by the CIT under section 263 of the IT Act.

Analysis:

Issue 1: Rectification of original assessment order regarding treatment of expenses
The case involved two appeals by the same assessee related to the treatment of expenses as revenue or capital expenditure. The Revenue filed an appeal against the AAC's order allowing certain expenses as revenue in the original assessment. The ITO proposed to rectify the assessment order under section 154 of the IT Act, contending that expenses related to the acquisition of a new asset should have been capitalized. The AAC disagreed with the ITO's view, citing the Supreme Court decision in India Cements Ltd. vs. CIT. The Tribunal analyzed the facts and legal precedents, concluding that the expenses were admissible as revenue expenditure. The Tribunal held that interest on capital borrowed for purchasing assets, insurance charges, and road tax were allowable as revenue expenses. The Tribunal emphasized that the expenses were incurred in the course of carrying on the existing business, distinguishing the case from Challapalli Sugars Ltd., which dealt with a newly commenced business.

Issue 2: Disallowance of expenses as capital expenditure by the CIT under section 263
In the second appeal, the CIT sought to disallow certain expenses as capital expenditure under section 263 of the IT Act. The CIT disagreed with the assessee's claim that the expenses were allowable as revenue expenditure. However, the CIT accepted that interest on the loan for purchasing the new tanker was a revenue expense. The Tribunal reviewed the arguments presented by both parties and found that the expenses in question, namely road tax and insurance charges for the new tanker, were revenue expenses incurred in the normal course of business. The Tribunal noted discrepancies in the figures presented by the CIT and upheld the original assessment order passed by the ITO. Consequently, the Tribunal set aside the CIT's order under section 263 and restored the original assessment order.

In conclusion, the Tribunal dismissed the department's appeal and allowed the assessee's appeal, affirming the treatment of expenses as revenue expenditure in both instances.