2010 (1) TMI 1235 - AT - Income Tax

Summary

Issues involved: Assessment of expenditure towards Compensatory Afforestation Management and Planning Agency (CAMPA) as capital expenditure u/s. 37.

Assessment Year 2006-07:
The appeal by the assessee challenges the order confirming the expenditure towards CAMPA as capital expenditure. The assessee argued that the expenditure should be treated as revenue in nature and allowable u/s. 37.

Facts Leading to Dispute:
The assessee filed income tax return declaring income at Rs. 79,72,878. A search action u/s. 133A revealed escaped income, leading to assessment reopening. The assessee, owning mines, debited Rs. 84,80,000 for Net Present Value paid to the Forest Department for CAMPA.

Assessing Officer's Decision:
The AO considered the payment as capital expenditure due to its enduring benefit linked to mining rights. He emphasized it facilitated mining activities and was nonrecurring, hence capital in nature.

CIT(Appeals) Decision:
The CIT(Appeals) held the expenditure as capital, connected to the capital asset of mine owners. He distinguished it from revenue expenditure, emphasizing its relation to the mining site. He concluded it as capital expenditure intrinsically linked to the capital asset.

Tribunal's Decision:
The Tribunal, citing previous rulings and the Supreme Court's directions, allowed the appeal by the assessee. It noted the contribution to CAMPA was not akin to royalty, thus treating it as revenue expenditure. The Tribunal's decision was binding, leading to the allowance of the appeal.

Conclusion:
The Tribunal allowed the appeal, overturning the previous decisions and treating the expenditure towards CAMPA as revenue expenditure rather than capital expenditure, based on the specific circumstances and legal precedents cited.