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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ NEW DELHI
Before: SHRI C.M. GARG & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This appeal by the Revenue is directed against the order dated 04.11.2013 of ld. CIT(A)-VIII, New Delhi for the assessment year 2006-07 on the following grounds : “
1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting disallowance of Rs.10,79,33,238/- being cane Development Expenses, treated as capital expenditure by the A.O.
2. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law.”
2. The brief facts of the case are that the assessment of the assessee was completed u/s. 143(3) at a loss of Rs.74,80,520/-. However, on the scrutiny of assessment records it revealed that the assessee had debited an amount of Rs.10,79,33,298/- on account of ‘Cane Development expenses’ under the head raw material consumed. The AO observed that since the said expenditure gives an enduring benefit to the assessee, it was required to be capitalized and added back to the income of the assessee and this mistake resulted into underassessment of income of Rs.10,04,52,780/- which amounts to escapement of income. He, therefore, issued notice u/s. 148 of the Act. In reply to notices the assessee’s contention was that the above expenditures were, in fact, incurred towards purchase of sugarcane for the year under consideration in order to run its production business of sugar. The assessee had paid additional price of sugarcane of Rs.17.48 per quintal of sugarcane over and above that fixed by the Government, in order to ascertain the supply of sugarcane during the crushing season. It, therefore, can in no way be said to give any enduring benefit, as such expenditure was essential to run the business of the assessee. Therefore, the amount paid as part of the cost of raw material is revenue expenditure and not capital in nature, as the true nature of above expenditure is the cost of cane or the cost of raw material, which was inadvertently classified as cane development expenditure in the accounts. The above amount was paid for running the business. The AO was not satisfied with the reply of assessee. Therefore, the assessment of the assessee was reopened and after disallowing the total cane development expenses of Rs.10,79,33,238/- treating the same as capital expenditure, added the same to the taxable income of the assessee. In appeal before the ld. CIT(A), the impugned addition stood deleted treating the expenditure as revenue expenditure. Aggrieved, Revenue is in appeal before the Tribunal.
The ld. DR relied on the order of the AO and submitted that the impugned payment was voluntary payment over and above the price fixed by the Govt. which is for goodwill generation of the assessee and the assessee itself has give the name of these expenses as ‘cane development expenses’, which goes to suggest that these expenditures give enduring benefit to the assessee and are capital in nature. The ld. CIT(A) has wrongly deleted the addition.
The ld. AR of the assessee, on the other hand, relied upon the order of the ld. CIT(A) and submitted that the expenditure being the cost of purchase of cane cannot be held as capital expenditure as done by the AO. It was submitted that additional price paid to the farmers or crane growers over and above the price fixed by the government was to purchase the cane for the purpose of business and to meet the competition amongst sugar mills, and hence, such expenditure comes within the realm of revenue expenditure and the ld. CIT(A) has rightly deleted the addition.