2021 (11) TMI 139 - AT - Income Tax

Disallowance of miscellaneous expenditure - nature of expenditure location and scale of operations - CIT-A sustaining half (50%) of the ad hoc disallowance of 25% made in respect of miscellaneous expenditure - HELD THAT - When both the parties have failed to justify their respective stands in entirety, we deem it appropriate that a lumpsum estimated disallowance of 8% only than that in issue @25% would be just and proper. We order accordingly. The assessee succeeds in part in its instant identical former substantive ground in all these years involving varying sums subject to a rider that it shall not be treated as a precedent in any other case. Necessary computation shall follow as per law. Nature of expenditure - Expenditure on rail tracks and conveyor belt systems - revenue or capital expenditure - HELD THAT - Assessee's case records as well as photographs of the corresponding rail tracks and conveyor belt systems and submits that both the lower authorities have erred in law and on facts in treating the assessee's revenue expenditure items as capital in nature despite the fact that the same were meant to be kept abandoned at sites for the use of the owner of the business only than that incurred for deriving enduring benefits in its own hands. We are also taken to the necessary factual position emanating from the relevant photographs. DR fails to dispute that the foregoing clinching facts have nowhere been considered either in the course of assessment as well as in the CIT(A)'s detailed discussion extracted in preceding paragraphs. We therefore deem it appropriate to restore the assessee's instant latter identical issue in all the four instant appeals back to the Assessing Officer for his afresh factual verification as per law within three effective opportunities of hearing subject to the condition that it shall be the burden of the taxpayer only to place on record all the relevant facts; at its own risk and responsibility.

Summary

Issues Involved:
1. Disallowance of miscellaneous expenditure.
2. Treatment of revenue expenditure as capital in nature.

Issue 1: Disallowance of Miscellaneous Expenditure:
The appellant contested the ad hoc disallowance of miscellaneous expenditure, arguing that due to the nature of expenditure and lack of banking facilities at the site, the disallowance should be deleted. The Revenue contended that the appellant failed to provide sufficient evidence for the expenditure. The tribunal found both parties lacking in justifying their stands completely. Consequently, a lumpsum estimated disallowance of 8% was deemed appropriate instead of the initial 25% disallowance. The appellant succeeded partially in this issue across the years, subject to the condition that it would not set a precedent for other cases.

Issue 2: Treatment of Revenue Expenditure as Capital in Nature:
The second issue revolved around the lower authorities treating the appellant's revenue expenditure claims as capital in nature. The CIT(A) noted that the project had been ongoing for over 12 years, indicating a long-term initiative. Specific items like Rails, Track Cross, and Conveyer Belt were discussed. The tribunal observed that the appellant's arguments regarding the nature of these assets were not adequately supported by evidence. Despite the appellant's claim that these items were not enduring and should be treated as revenue expenditure, the tribunal upheld the lower authorities' decision, considering the enduring nature of the assets and directing depreciation on them. The tribunal decided to send this issue back to the Assessing Officer for further factual verification, emphasizing the burden on the taxpayer to present all relevant facts.

In conclusion, the tribunal partially allowed the appellant's appeals concerning both the disallowance of miscellaneous expenditure and the treatment of revenue expenditure as capital in nature. The decision involved detailed analysis of the nature of the expenses and the enduring quality of the assets in question, emphasizing the importance of evidence and factual verification in tax assessments.