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The High Court held that the appeal under Section 260A of the Income Tax Act, 1961, requires a substantial question of law. The Court found that the substantial question of law raised by the appellant pertained to factual aspects and the AO's allegations of suppressed purchases. The Court noted that the ITAT had rightly dealt with these aspects and concluded that the assessee's books of account and contemporaneous records of purchases and sales constituted sufficient compliance to show no suppression. The Court referred to the Supreme Court ruling in Kondiba Dagadu Kadam v. Savitribai Sopan Gujar and others, stating that the High Court should not investigate the grounds on which the last court of fact arrived at its findings. If two inferences are possible, the one drawn by the lower appellate court is binding. The Court found the reasoning and findings of both the CIT(A) and the ITAT to be legal, proper, and reasonable, based on factual evidence without perversity. Therefore, the ITAT's order was maintained.
The High Court dismissed the appeal filed by the Revenue. The Court held that the expenditure incurred by the assessee for converting the rented godown into office premises was revenue expenditure. The reasoning was based on the principle that if expenditure, even if it brings about an enduring benefit, does not bring into existence a capital asset for the assessee, and the asset created belongs to someone else, it can be considered revenue expenditure. The Court referred to several Supreme Court judgments, including CIT vs. Associated Cement Co. Ltd. (1988) 172 ITR 0257 and CIT vs. Bombay Dyeing and Manufacturing Co. Ltd. (1996) 219 ITR 521. In these cases, expenditure incurred for facilitating business operations, improving efficiency, or obtaining immunity from liabilities, where no capital asset was acquired by the assessee, was treated as revenue. Similarly, in the present case, the created assets did not belong to the assessee, but the assessee gained a business advantage of using modern premises at a lower rent for a long period, thus saving revenue expenditure. The Tribunal was justified in its conclusion.