2024 (7) TMI 1142 - HC - Income Tax

Nature of expenditure - expenses on power and fuel and lease rent for machines taken on hire - revenue u/s capital expenditure - ITAT held it capital expenditure incurred by the assessee in connection with the establishment of the cement manufacturing unit at Bilaspur - CIT(A) treated the same as revenue expenditure. HELD THAT - As perused the orders passed by this Court, we note that in fact for AY 1985-86 Division Bench of this Court dismissing the revenue s appeal, observed that the Tribunal had passed an order based on the order passed by the Tribunal in regard to the earlier assessment year 1984-85 and for the assessment year 1985-86, the revenue was unable to state whether the Revenue had preferred any appeal against the said order or had filed any reference against the same. In this view of the matter, the Division Bench observed that as the issue involved was purely based on a finding of fact, no substantial question of law has arisen and accordingly dismissed the appeal. Principle of consistency - We, find much substance in the contentions as urged on behalf of the assessee that the present proceedings would stand covered by not only the position taken by the revenue for AY 1984-85 subject matter of M/s. Raymond Woollen Mills Ltd. decided by the Tribunal, but also by the subsequent orders passed by this Court, for assessment years as noted by us hereinabove. Supreme Court in Godrej and Boyce Manufacturing Company Ltd. 2017 (5) TMI 403 - SUPREME COURT wherein the Supreme Court reiterated the principles when it was observed that the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out, which conspicuously was stated to be absent in the case in hand before the Supreme Court. The Supreme Court reitereated the principles as laid down in M/s. Radhasoami Satsang, Saomi Bagh, Agra 1991 (11) TMI 2 - SUPREME COURT wherein as held observed that strictly speaking res judicata does not apply to income tax proceedings and that each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found, as a fact one way or the other, and parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year. Assessee appeal allowed.

Summary

Issues:
1. Interpretation of expenditure as capital or revenue.
2. Consistency in judicial decisions.
3. Application of legal principles in tax proceedings.

Analysis:
1. The appellant challenged an order by the Income-tax Appellate Tribunal regarding the classification of expenditure as capital or revenue for the assessment year 1986-87. The Tribunal considered power, fuel, and lease rent for machinery as capital expenditure related to establishing a cement manufacturing unit. The appellant argued for consistency with previous years' treatment as revenue expenditure.

2. The Court admitted the appeal based on the substantial question of law: whether the Tribunal's decision contradicted previous assessments without justification. The appellant claimed that similar expenses were treated as revenue in prior years, citing relevant cases and decisions by the Tribunal and the High Court.

3. The Court reviewed past judgments involving the same issues for assessment years 1984-85, 1985-86, 1990-91, 1994-95, and 1997-98. It noted that in previous cases, the Tribunal and the Court consistently upheld the treatment of pre-operative expenses as revenue expenditure. The Court emphasized the importance of consistency and the absence of compelling reasons for a departure from established positions.

4. Referring to Supreme Court decisions, the Court highlighted the principle of consistency in tax proceedings. It emphasized that unless there is a material change justifying a different view, decisions from previous years should be upheld. The Court cited the need for strong and compelling reasons to deviate from settled positions, as reiterated in relevant legal precedents.

5. Ultimately, the Court ruled in favor of the appellant, holding that the expenditure in question should be treated as revenue rather than capital. The decision was based on the principle of consistency in judicial decisions and the absence of compelling reasons to depart from established positions. The appeal was disposed of accordingly, with no costs awarded.

This detailed analysis of the judgment highlights the key issues of interpretation of expenditure, consistency in judicial decisions, and the application of legal principles in tax proceedings.