2011 (7) TMI 320 - AT - Income Tax

Expenditure for preparation of Maps - enduring benefits - capital versus revenue expenditure - assessee got prepared maps of tea garden on the Grants and Patta lands. - Revenue submitted that there is an enduring benefit to the assessee in respect of survey and preparation of maps prepared for entire tea garden. Hence, the expenditure is capital in nature. - Held that - the said payment aggregating to Rs.7,06,500/- paid by the assessee is wholly and exclusively for the purpose of its business and it does not form/create any assets. The said expenditure is revenue in nature. Prior period expenses - Payment of arrear wages - the Circular No.73 dated 22/08/2001 of the Tea Association of India filed by the Assessee along with the written submission for the Revision of Pay scale for Sub-staff effective from April, 2000 and on the basis of the said memorandum of understanding Assessee had made the Payments of Arrear wages - the liability for payment of earlier period wages has been crystallized on 22-08-2001 and not on 28.03.2001 as observed by the Assessing Officer. - Decided in favour of assessee. Cultivation expenses - Capital expenditure or revenue expenditure - Shade trees cutting - Uprooting jungle plants - Irrigation - held that - these expenses are revenue in nature and not on capital account.

Issues Involved:
1. Deletion of disallowance of expenditure for preparation of maps.
2. Deletion of disallowance of arrear wages under 'prior period expenses.'
3. Deletion of disallowance of cultivation expenses.
4. Deletion of disallowance of cess on green leaf.
5. Deletion of disallowance of expenditure towards Pollution Control Board fees.
6. Deletion of disallowance of foreign travel expenses.
7. Disallowance under section 14A and application of Rule 8D.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Expenditure for Preparation of Maps:
The Assessing Officer (AO) disallowed Rs. 7,06,500/- claimed by the assessee for map preparation, treating it as capital expenditure due to its enduring benefit. The CIT(A) reversed this, stating the expenditure was revenue in nature as it was wholly and exclusively for business purposes, without forming any asset. The Tribunal upheld CIT(A)'s decision, agreeing the expenditure was revenue in nature and dismissing the department's appeal.

2. Deletion of Disallowance of Arrear Wages under 'Prior Period Expenses':
The AO disallowed Rs. 6,01,885/- claimed by the assessee for arrear wages, stating the liability crystallized on 28.03.2001, not in the current financial year. The CIT(A) found the liability crystallized on 22.08.2001 based on a circular from the Tea Association of India and allowed the expense. The Tribunal upheld CIT(A)'s decision, agreeing the liability crystallized within the relevant financial year and dismissing the department's appeal.

3. Deletion of Disallowance of Cultivation Expenses:
The AO disallowed Rs. 10,94,583/- for shade trees cutting, uprooting jungle plants, and irrigation, treating it as capital expenditure. The CIT(A) reversed this, stating the expenses were revenue in nature as they were for wages and diesel costs, not for planting new trees. The Tribunal upheld CIT(A)'s decision, agreeing the expenses were for normal business activities and dismissing the department's appeal.

4. Deletion of Disallowance of Cess on Green Leaf:
The AO disallowed Rs. 12,60,320/- for cess on green leaf, pending finality of the SLP against the Calcutta High Court's decision in AFT Industries Ltd. The CIT(A) followed the High Court's decision and allowed the expense. The Tribunal upheld CIT(A)'s decision, dismissing the department's appeal.

5. Deletion of Disallowance of Expenditure towards Pollution Control Board Fees:
The AO disallowed Rs. 37,090/- for Pollution Control Board fees, treating it as capital expenditure due to its three-year benefit. The CIT(A) reversed this, stating the fees were for water and air pollution control for the current year and were revenue in nature. The Tribunal upheld CIT(A)'s decision, dismissing the department's appeal.

6. Deletion of Disallowance of Foreign Travel Expenses:
The AO disallowed Rs. 3,77,186/- for foreign travel, stating the assessee did not export to the countries visited. The CIT(A) allowed the expense, finding the assessee exported through recognized export houses and the travel was for business purposes. The Tribunal remanded the issue to the AO to verify if the travel was for business purposes, allowing the department's appeal for statistical purposes.

7. Disallowance under Section 14A and Application of Rule 8D:
The CIT(A) directed the AO to recompute disallowance as per Rule 8D, following the ITAT Special Bench decision. The assessee contested this, citing the Bombay High Court's decision in Godrej and Boyce Mfg. Co. Ltd. that Rule 8D is prospective from AY 2008-09. The Tribunal agreed, setting aside the issue to the CIT(A) for reconsideration based on evidence and law, allowing the assessee's cross objection for statistical purposes.

Conclusion:
The Tribunal dismissed the department's appeal on issues 1, 2, 3, 4, and 5, upheld the CIT(A)'s decisions, and remanded issue 6 to the AO for verification. The cross objection on issue 7 was allowed for statistical purposes, directing the CIT(A) to reconsider based on the Bombay High Court's ruling. The final order was pronounced on 28.7.2011.

← Previous Next →