Commissioner of Income Tax vs East India Syntex Limited

Veena Birbal, J.—This appeal is directed against the Tribunal''s order dated 19th May, 2006 for the block assessment period 1.4.1988 to

14.10.1998. The main issue raised is in respect of the deletion by the CIT(A) and the Tribunal of the addition of about Rs. 51.52 lacs made by the

Assessing Officer with respect to Capital Assets debited to store consumption. It is also an issue as to whether the question that a particular

expenditure is of a Capital or Revenue nature can be a subject matter of block assessment proceedings?

The relevant facts are as under:-

The assessee had filed a return for the block period from 1.4.1988 to 14.10.1998. In the said return, undisclosed income of Rs.25 lacs was

declared. Notices u/s 143(2) of the Income Tax Act were issued to the assessee on 31.7.2000 and 15.9.2000. The assessee filed its reply as

required. The assessee is engaged in the manufacturing and production of polyester viscose Blended Yarn and 100% polyester yarn

After considering the material on record, the Assessing Officer made certain additions in the income of the assessee company. The additions

made are stated in the appeal. The Assessing Officer thereafter ascertained the undisclosed income of the assessee during the relevant block

period and computed tax on it vide order dated 31st October, 2000. The assessee preferred an appeal before the Commissioner of Income Tax

(Appeals)-XIV, New Delhi (hereinafter referred to as CIT(A)) against the said order of the Assessing Officer. The order of the Assessing Officer

was challenged on various grounds. The CIT(A) deleted all the additions made by the Assessing Officer except the one relating to sale of

waste/bogus purchases and remanded the matter back to the Assessing Officer in respect of said addition for deciding afresh after giving

opportunity to the assessee vide its order dated 28.02.2001. Aggrieved with the said order, the Revenue preferred an appeal before the Tribunal.

All the deletions made by the CIT(A) were challenged before the Tribunal. The Tribunal vide its order dated 19.05.2006 observed that each and

every issue has been discussed in detail by CIT(A). The Tribunal in its impugned order had dealt with the deletions made by the CIT(A) and did

not interfere with the decision of CIT(A).

Aggrieved with the same, the present appeal is filed. Nine substantial questions of law i.e., para 2 (a) to (i) of the appeal have been proposed in

the present appeal.

We have gone through the questions stated therein. We are of the view that questions 2(c) onwards stated in the appeal are clearly not

questions of law at all. During arguments, the learned counsel for the appellant pressed for questions 2(a) & 2(b) and contended that same are

substantial questions of law. The same are as under:-

(a) Whether ITAT was justified in law in deleting the addition of Rs. 51.52 lacs made by the Assessing Officer with respect to Capital Assets

debited to store consumption?

(b) Whether ITAT was correct in law in holding that the issue as to whether the expenditure is capital or revenue is relevant for the purposes of

regular assessment u/s 143(3) and cannot be a subject matter of block assessment proceeding?

The relevant findings of the Tribunal in this regard are as under:-

On a careful consideration of the matter, in the light of the submissions made on behalf of the department before us, we are of the view that no

interference with the decision of the CIT (A) is called. There is no dispute that the expenditure has been recorded in the books of account for the

year ended 31.3.98. Therefore, the return for the AY 1998-99 has been filed in November, 1998. But, it is not in dispute that the entries were

made contemporaneously when the expenditure was incurred between September, 1997 and December 1997. Therefore, though the search was

in September, 1998, it cannot be denied that the entries had been made in the books of accounts by that time. This is what the CIT (A) has noted

in para 27 of his order by saying that the case of the AO is not that these were not made in the regular books of account. Further, as rightly

pointed out by the CIT (A), a debatable question whether the expenditure is capital or revenue in nature cannot form the subject matter of block

assessment, though it may be disallowed as capital expenditure in the regular u/s 143(3) if the facts warrant the same. Quite appear from these

expenditure of Rs. 14.79 lacs on invertors has not been claimed at all as revenue expenditure, but has been capitalized and the entries in the

balance sheet support the same. For these reasons, we are of the view that the CIT (A) committed no error in deleting the addition of Rs. 51.52

lacs. We uphold his decision and reject the ground.

We have gone through the material on record including the reasoning given by the Tribunal. We are of the view that the finding of the Tribunal

cannot be faulted. We are in agreement with the finding of the Tribunal.

The questions proposed cannot be termed as substantial questions of law which require our consideration. Accordingly the appeal is dismissed.