The High Court in a case ruled that if expenses incurred for replacement in membrane cells – I plant was treated as revenue expenditure in earlier years then the same shall be treated as revenue expenditure also in relevant assessment year.  

Case: Commissioner of Income tax vs. Gujarat Alkalies & Chemicals Ltd.

Facts:

The assessee has shownexpenditure of Rs.25,13,20,259 for replacement of re-membraning in membrane Cell-I plant as revenue expenditure in his books of accounts.

The AO, treated the said expenditure as capital expenditure.

On appeal, the Commissioner (Appeals) confirmed the order of Assessing Officer holding that it would be capital expenditure and not the revenue expenditure.

Aggrieved by the order, assessee appealed to the Tribunal. The Tribunal held that the Assessing Officer himself treated the said expenditure as revenue in earlier assessment years. The Tribunal viewed that also, there being no material to make departure from the earlier view, rule of consistency shall be followed and, consequently, the Tribunal allowed the appeal.

On appeal to High Court:

Held:

The revenue contended that the Tribunal should not have gone just by principle of consistency and allowed the appeals. It shall also consider the reasoning recorded by the A.O. and thereafter, CIT (A). It was submitted that the expenditure involved is huge. Further, life of membrane, even as per the assessee, is 3 to 5 years. Thus, the assessee would be entitled to have the benefit spread over 3 to 5 years of the membrane.

On this, the assessee contended that the department in as much as should have adhered to the rule of consistency when it was undisputed position in earlier AY. In addition to this, the Revenue itself treated such expenditure as revenue expenditure, in absence of any change in the circumstances or any material brought on record, the different view shall not been taken.

On hearing the contention, the Court was of the view that the attempt to contend that life of membrane would be spread over from 3 to 5 years or that the amount involved for replacement of membrane is huge and, therefore, the expense shall be considered as capital expenditure shall not be correct for two reasons:

• The amount involved would not make difference for chargeability of the tax but the nature of expenditure would be relevant for the chargeability of tax.
• The aspect of life of the membrane, to spread over from 3 to 5 years was not considered neither by the A.O. nor by CIT (A) in earlier years.

Thus,order passed by the Tribunal shall not be interfered with. Hence, expense if treated as revenue expenditure in earlier years then principle of consistency shall be followed if no material departure is recorded.

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