2017 (5) TMI 1503 - HC - Income Tax

Allowable business expenditure - Held that - Initially the Corporation has not accepted the liability therefore the observations which are made by the Tribunal for the year 1991-92 were in the peculiar facts where the liability was not accepted but subsequently for the year 1992-93 the Corporation has accepted the liability which was shown in the books of account and in view of the matter additions made by the tribunal for the relevant year would not be applicable in the changed circumstances. Since they accepted the liability the resolution which is sought to be passed on 28.8.1992 was administrative formality but for the Income-tax purpose it is shown in the books of account mercantile system therefore though the point raised by Mr. Singhi is remained an academic issue but facts and law in mercantile system which is debited for the relevant year i.e. 1992-93. It is thus very clear that the survey expenses are almost identical and hence required to be allowed as revenue expenses. In view of the observations made by the Supreme Court in the Judgment of Empire Jute Co. Ltd. vs. Commissioner of Income Tax (1980 (5) TMI 1 - SUPREME Court) we are of the opinion that the expenses which gives fruitful result require to be done according to the necessity of relevant time and development with the nature of expenses. - Decided in favour of the assessee.

Issues Involved:
1. Justification of ITAT in allowing certain sums as business expenditure.
2. Classification of expenses as capital or revenue expenditure.
3. Specific expenditures related to mine development, compensation to landowners, consultancy charges, and payments to the State Government.
4. Deletion of disallowance of contributions to the State Renewal Fund.
5. Allowance of expenditure under Section 35E of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Justification of ITAT in Allowing Certain Sums as Business Expenditure:
The court examined whether the ITAT was justified in allowing various sums as business expenditure. The court upheld the ITAT's decisions, referencing prior judgments that supported the classification of these expenses as revenue rather than capital. The court noted that the expenses were shown in the books of account under the mercantile system and were necessary for the business operations, thus qualifying as revenue expenditure.

2. Classification of Expenses as Capital or Revenue Expenditure:
The primary contention was whether the expenses incurred by the assessee provided benefits of an enduring nature, which would classify them as capital expenditure. The court held that the expenses in question, including mine development costs, compensation to landowners, and consultancy charges, were revenue expenditures. It was emphasized that these expenses did not create new assets but were necessary for the ongoing operations of the business.

3. Specific Expenditures Related to Mine Development, Compensation to Landowners, Consultancy Charges, and Payments to the State Government:
The court addressed multiple appeals where the department challenged the classification of various expenditures:
- Mine Development Expenditure: The court upheld the ITAT's decision to classify mine development costs as revenue expenditure, noting that these expenses were essential for maintaining existing mines rather than creating new ones.
- Compensation to Landowners: Payments made to landowners for acquiring minerals were deemed revenue expenditure as they were recurring costs necessary for the business.
- Consultancy Charges: The court found that consultancy fees were revenue expenses, as they were incurred for the ongoing business operations and did not result in the creation of any new asset.
- Payments to State Government: Payments made for extracting minerals were classified as revenue expenditure, following the precedent that such expenses are necessary for the business's operational needs.

4. Deletion of Disallowance of Contributions to the State Renewal Fund:
The court upheld the deletion of the disallowance of Rs. 10,00,000 contributed to the State Renewal Fund. It was determined that this contribution was a legitimate business expense and not merely an application of funds. The court referenced prior judgments confirming that such contributions are allowable as revenue expenditure.

5. Allowance of Expenditure under Section 35E of the Income Tax Act:
The court addressed the department's challenge regarding the allowance of Rs. 33,66,708.50 under Section 35E of the Income Tax Act. The court upheld the ITAT's decision, noting that the expenditure was related to the exploration and development of mines, qualifying it as a deductible expense under Section 35E.

Conclusion:
The court dismissed the appeals, holding that all the expenses in question were revenue expenditures, not capital expenditures. The issues were resolved in favor of the assessee and against the department, affirming the ITAT's decisions. The judgments referenced established precedents and legal principles, ensuring consistency in the application of the law.

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