2009 (4) TMI 399 - HC - Income Tax

Reassessment- Replacement of machinery- Capital or Revenue Expenditure- The appellant-assessee is a public limited company engaged in the business of manufacture and sale of cotton yarns. For the assessment year 2000-01, the assessee-company filed return of income on November 29, 2000, admitting a total income of Rs. 84,05,000 under the normal computation and Rs. 1,35,23,360 as book profit under section 115JA. The return of income was assessed under section 143(1) on November 27, 2000. The Assessing Officer has initiated reassessment proceedings by issuing notice under section 148 and following the procedure contemplated therein disallowed seven categories of machines valued at Rs. 532.27 lakhs claimed as revenue expenditure and treated it as capital expenditure and also depreciation at the rate of 25%. The matter was taken up before the Commissioner of Income-tax (Appeals), who partly allowed the claim of the assessee. The Tribunal remanded the matter to the Commissioner (Appeals) for reconsideration of issue as to whether replacement of machinery could be regarded as revenue or capital expenditure in terms of the decisions of Supreme Court held that the ingredient of section 147 of the Act has been fulfilled, there is no scope of inquiry. Held that- dismissing the appeal, that once the matter was agreed to be settled before the Commissioner (Appeals), the question as to the correctness of the reopening of the case was redundant.

Summary

Issues:
1. Correctness of the Tribunal's order upholding the assessment
2. Validity of the assessment under section 147
3. Reopening of the assessment under section 147

Issue 1: Correctness of the Tribunal's order upholding the assessment
The appellant, a public limited company engaged in the business of manufacturing and selling cotton yarns, challenged the order of the Tribunal regarding the assessment for the year 2000-01. The Assessing Officer initiated reassessment proceedings disallowing certain claimed expenditures and treating them as capital expenditures. The Commissioner of Income-tax (Appeals) partly allowed the claim, leading the appellant to appeal to the Income-tax Appellate Tribunal. The Tribunal remitted the matter back to the Commissioner for reconsideration based on legal grounds, particularly regarding the categorization of machinery expenditure. The Tribunal found the ingredients of section 147 fulfilled for reopening the assessment and disposed of the appeal partly, which the appellant now challenges before the court.

Issue 2: Validity of the assessment under section 147
The Tribunal considered the reopening of the assessment under section 147, but the court found that the correctness of the reopening did not need consideration as both parties agreed to remit the matter to the Commissioner for fresh adjudication. The Tribunal's order indicated that relevant details were not available for a precise assessment of the expenditure nature. Since the case was agreed to be settled before the Commissioner for adjudication, any further discussion on the correctness of the reopening was deemed unnecessary, and the court dismissed the appeal.

Issue 3: Reopening of the assessment under section 147
The court emphasized that once both parties agreed to remit the case for fresh adjudication before the Commissioner, the question of the correctness of the reopening became redundant. The court concluded that further deliberation on this issue would only prolong the proceedings unnecessarily. Despite certain findings by the Tribunal, the court held that the question of law did not require consideration since the matter was already set for fresh adjudication. Consequently, the court dismissed the appeal based on the agreement to settle the matter before the Commissioner, rendering the discussion on the correctness of the reopening irrelevant.