Disallowance of Intangible Asset Depreciation on Opening WDV, Unearned Advance Subscription Revenue, and Interest on Inherited Slump-Sale Borrowings Is Impermissible Without Rebuttal or Finding of Unreasonableness

5.4.8.1. In a landmark judgement in the case of Radhasoami Satsang v. Commissioner of Income-tax,  (SC), Hon’ble apex court held that though res judicata does not apply in the Income Tax matters, consistency should be followed where no change in the facts. The relevant para of the judgement is reproduced as under:

“13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.”

5.4.8.2. In the case of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 282 ITR 273 (SC), the Apex court held that though the principle of res judicata would not apply to tax matters as cause of action for each assessment year is different/distinct, yet in case there is no change in the factual position or the law, the views expressed in one year are binding for the subsequent years. The relevant para of the judgement is reproduced as under:

“15. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why the courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction.

5.4.8.3. Madhukar C. Ashar v. Union of India  (Bombay): Hon’ble Bombay High Court held that though principle of res judicata would not apply to tax matters, yet there being no change either in facts or in law, views expressed in one year are binding for subsequent years and, therefore, if impugned order wanted to depart from consistent view taken earlier, it must so justify.

6.1 We find that Assessing Officer has nowhere denied that expenditure in question has been incurred for the purpose of the business. He has also not denied that those expenses are routine in nature and same would generally be classified as revenue Expenditure as per the provisions of the Act. The business of the assessee has already been set up and assessee has commenced providing digital services to its customers. The revenue from the same as also been recognised in books of account and offered for the tax. In such circumstances, the expenses which are incurred for running the business are revenue expenditure for the purpose of income tax irrespective of the treatment of the same by the assessee in its books of account. Before us the Ld. Departmental Representative could not substantiate as how the expenses incurred for day-to-day business are for upgradation of the asset and of enduring benefit. Though the assessee has treated those expenses in its books of account as capital expenditure following the Indian accounting standard, but these expenses, list of which has been reproduced above have been incurred in relation to services provided to existing customers, and therefore same being incurred wholly and exclusively for the purpose of the business, deserve to be allowed in terms of section 37(1) of the Act. We find that identical nature of expenses have been allowed by the Tribunal in the case of another two companies namely Reliance Footprint Ltd.’s case (supra) and Reliance Fresh Ltd.’s case (supra), which have been further upheld by the Hon’ble Bombay High Court. The finding up the Tribunal in the case of Reliance Footprint Ltd. (supra) has already been reproduced by the Ld. CIT(A) in para 11.2 of the impugned order and therefore we are not repeating the same. The relevant finding of the Hon’ble Bombay High Court in the case of Reliance Footprint Ltd. (supra) in ITA No. 948 of 2014 is reproduced as under:

“6 . We have considered the submissions canvassed by the learned counsel for the respective parties.

7. It is not relevant as to how the Assessee shows a particular income or expenditure in the books of account. In the present case, the Commissioner (Appeals) and the Tribunal has specifically on appreciation of factual matrix arrived at a conclusion that the expenditure are directly identifiable with the operations and maintenance of the existing stocks i.e. with regard to the payment of salary, travelling and conveyance allowance, telephone expenses, professional fees paid, audit fee and other miscellaneous expenses.

8. In view of the specific finding of fact arrived at by the Commissioner (Appeals) and the Tribunal, the Tribunal have held the expenditure to be revenue expenditure. In case of Kothari Auto Parts Manufacturers Pvt. Ltd. (supra), this Court had specifically observed that separate computation of income and expenditure would be justified only when several distinct business are carried on, and not when the separate business activities were carried out by some person and when one set of account is maintained for all set of activities.

9. In the present case also, one set of account is maintained for the business activity by the Assessee. The Assessee had incurred expenditure on account of expansion of business and the Assessee had commenced the business as per the findings of the Commissioner (Appeals) and the Tribunal. The said findings are findings of the fact.

10. In view of the above, no substantial question of law arises. These Appeals, as such, stand dismissed. No costs.”

6.2 The identical question raised in the case of the another company namely Reliance Fresh Ltd. (supra) has also been allowed in favour of the assessee by the jurisdictional Bombay High Court in ITA No. 985 of 2017, observing as under:

“4. In its return of income, the expenditure incurred for setting up new stores has been claimed as revenue expenditure to the extent the expenditure was revenue in nature and where capital expenditure was incurred, the same was not claimed as revenue expenditure. However, the Respondent in its books of account showed the entire expenditure i.e. even the expenditure which is claimed in the income tax return as revenue expenditure as capital expenditure. It was only on the above basis, the Assessing Officer and the Commissioner of Income-tax (Appeals) held that the revenue expenditure claimed by the Respondent in its return of income could not be allowed.

5. On further appeal, the Tribunal allowed the Respondent’s appeal, inter alia, pointing out that the treatment given in the books of account by the assessee would not be conclusive in income tax proceedings to decide whether the expenditure was revenue or capital. In support of its view, the Tribunal relied upon the decision of the Supreme Court in the case of Taparia Tools Ltd. v. JCIT’. The Tribunal also relied upon the judgment of its Coordinate Bench in the case of Reliance Footprint Ltd. v. ACIT in ITA No. 5997/Mum./2011 decided on 23 October 2013 for the assessment year 2008-09, on identical facts, holding that the revenue expenditure as claimed is allowable.”

’28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue.

29. In Radhasoami Satsang Saomi Bagh v. CIT [1992] 193 ITR 321 SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same “fundamental aspect” permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoystead v. Commissioner of Taxation 1926 AC 155 (PC) wherein it was said:

“Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.”‘