2016 (10) TMI 1219 - HC - Income Tax

Depreciation on assets leased out - treatment of expenditure on construction of jetty at its cement plant in Gujarat as revenue in nature - deduction of provision for unforeseeable losses in valuing workinprogress of construction contracts - interest expenditure on capital borrowed - per-operative expenditure - mining development expenditure Held that - Appeal admitted on substantial questions of law being Question No. (1). Whether on the facts and in the circumstances of the case and in law the Tribunal was correct in allowing depreciation on assets leased out when the related transactions were purely financial transactions. Other questions / grounds appeal of the revenue not entertained.

Summary

Issues:
1. Depreciation on assets leased out
2. Expenditure on construction of jetty at cement plant
3. Disallowance of unforeseeable losses in construction contracts
4. Treatment of interest expense on capital borrowed for new cement plant
5. Preoperative expenses claimed for new cement plant
6. Mining development expenditure claimed as revenue expenditure
7. Expenditure on Nasik Glass Works projects
8. Expenses on laying power lines at Nasik Glass Works

Analysis:

1. Depreciation on assets leased out:
The Tribunal allowed depreciation on assets leased out, considering the transactions as purely financial. The Revenue challenged this decision, but the Court found no substantial question of law, as the issue was previously decided in favor of the Assessee.

2. Expenditure on construction of jetty at cement plant:
The Court dismissed the Revenue's appeal on this issue, as it was consistent with previous orders regarding similar expenditure. The Court found no substantial question of law, as the Revenue had accepted the Tribunal's decision on identical facts in earlier years.

3. Disallowance of unforeseeable losses in construction contracts:
The Revenue's appeal was dismissed on this issue as well, following previous orders related to the same Assessee. The Court did not entertain the question, as the Revenue had accepted the Tribunal's decision on similar matters in previous years.

4. Treatment of interest expense on capital borrowed for new cement plant:
The Tribunal's decision to treat interest expense as revenue expenditure was upheld, as it aligned with previous orders. The Court found no substantial question of law, as the Revenue had accepted the Tribunal's decision on identical facts in earlier years.

5. Preoperative expenses claimed for new cement plant:
The Tribunal allowed preoperative expenses for certain cement plants but disallowed for others. The Court found no substantial question of law, as the Revenue had accepted the Tribunal's decisions on similar matters in previous years.

6. Mining development expenditure claimed as revenue expenditure:
The Tribunal allowed the Assessee's appeal on this issue, treating mining development expenditure as preoperative expenditure. The Court did not find any substantial question of law, as the issue was similar to the one raised in the preceding question.

7. Expenditure on Nasik Glass Works projects:
The Tribunal allowed the expenses on Nasik Glass Works projects as revenue expenditure, following principles from earlier years. The Court found no flaw in the Tribunal's decision and did not entertain any substantial question of law.

8. Expenses on laying power lines at Nasik Glass Works:
The Tribunal's decision to dismiss the Revenue's appeal on this issue was upheld, as it was consistent with previous orders. The Court did not find any substantial question of law, as the Revenue had accepted the Tribunal's decisions on similar matters in earlier years.

The Court admitted the appeal on substantial questions of law related to depreciation on assets leased out and directed the Registry to serve a copy of the order to the Tribunal for further proceedings.