9911796707
TMI Blog2006 (3) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... opment expenses. The case of the assessee is that it is engaged in the business of mining granite and obtained licence of 5 different places in Andhra Pradesh. In respect of one quarry at Khammam the production was effected in the year under consideration. The assessee had incurred quarry development expenses of Rs. 1.14 crores during the year on 5 quarries and claimed 1/5th of the same i.e. Rs. 22.97 lakhs as deduction during the year by taking analogy from the provisions of section 35E of Income-tax Act. In the order dated 27-3-1998 the Assessing Officer observed that there was no sanction in law for deferment of granite quarry development expenditure. However, he was of the view that the expenditure was revenue in nature and allowed deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that though the treatment accorded in the assessee's books does not determine whether a particular item is capital or revenue in nature and had to be recognized in the terms of the provisions of Income-tax Act, such proposition can be fought out only before the Tribunal. Since there was a specific direction by the CIT the appeal filed by the assessee against the consequential order was not entertained by the learned CIT(A). 5. Aggrieved, assessee is in appeal before the Tribunal. Learned counsel appearing on behalf of the assessee submitted that the order passed by the revisional authority does not contain any specific finding on the aspect as to whether the expenditure is revenue or capital in nature and the matter having been mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servations of the revisional authority, learned DR submitted that there is a specific direction to the Assessing Officer with regard to the nature of treatment of the expenditure incurred by the assessee and the Assessing Officer having carried out specific directions, no appeal lies against the said order. In particular, he highlighted the following observations of the revisional authority: "In the present case also, the assessee-company was aware of the true character and nature of Quarry Development Expenses, yet, it chose to capitalize such expenses and depict them as part and parcel of the fixed assets of the company. It cannot be said that such treatment was erroneous or contrary to the accepted principles of accountancy as followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the CIT and, being an authority functioning within the jurisdiction of the Commissioner, the Assessing Officer appears to have taken that as a direction to disallow the expenditure as capital in nature, though an overall reading of the order shows that there is no specific direction by the Commissioner. On the contrary, the following observations of the Commissioner indicate that, in principle, the revisional authority has accepted that the quarry development expenditure was not in the nature of capital expenditure. "In the present case, from the details furnished and as referred to supra, it does not appear that the assessee-company incurred expenditure for the betterment of the Quarries or for increasing the potential value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner which ought to have been pondered over to arrive at the correct legal conclusion. It is well-settled that an expenditure which is otherwise revenue in nature cannot be treated as capital expenditure merely because an entry is made in the books of account on an incorrect understanding of the legal position. In the case of JCT Ltd. the Calcutta Bench of ITAT observed that if an entry in the books of account is in consonance with the method of accounting followed by the assessee, the same would be binding upon the assessee; whereas in the instant case the facts prima facie show that the entries made in the books of account are contrary to the correct legal position. The Assessing Officer being a functionary working under the jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the CIT(A) having not appreciated the issue in correct perspective, in the interests of substantial justice, I set aside the matter to the file of the Assessing Officer who is directed to reconsider the issue in accordance with law after giving the assessee a reasonable opportunity of being heard. Needless to observe that an expenditure which, in law, cannot be treated as a capital expenditure, merely on account of the fact that the assessee has treated it in its books as capital expenditure the right to make a correct claim in the return of income is not lost to the assessee. This view is in consonance with the decision of Apex Court in the case of Kedarnath Jute Mfg. Co. Ltd. With these observations, I set aside the matter to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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