2015 (8) TMI 645 - AT - Income Tax

Addition on account of capital expenditure - CIT(A) deleted the addition - Held that - The issue is squarely covered in favour of the assessee by the decision of the Income-tax Appellate Tribunal, Kolkata Bench in the case of group concern of the assessee in the case of Asst. CIT v. Rungta and Sons (P) Ltd. 2014 (1) TMI 1515 - ITAT KOLKATA .The Tribunal had found that the decision of the hon ble apex court in the case of Bikaner Gypsums Ltd. v. CIT 1990 (10) TMI 2 - SUPREME Court applied to the case of the assessee and the expenditure cannot be treated as capital expenditure as expenditure paid by the assessee as NPV to enable the assessee to carry on its mining business is revenue in nature, which is allowable as business expenditure under section 37(1) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Whether the expenditure of Rs. 1,03,55,795 incurred by the assessee under the head "Environment and Ecology" is a capital or revenue expenditure for the assessment year 2007-08.

Analysis:
1. The case involved an appeal by the Department against the order of the Commissioner of Income-tax (Appeals) regarding the addition of Rs. 1,03,55,795 on account of capital expenditure. The assessee had incurred this expense for compliance with the Forest (Conservation) Act, 1980, to obtain mining rights on forest land. The Assessing Officer considered this payment as capital expenditure, as it was for the transfer of forest land to non-forest use. However, the Commissioner of Income-tax (Appeals) ruled in favor of the assessee, stating that the payment was for removing restrictions and ensuring the continuation of the mining business, making it a revenue expenditure.

2. The Commissioner noted that the payment was made for specific purposes related to environmental protection and wildlife management, as directed by the Forest Department. Referring to the Supreme Court's decision categorizing the payment as a fee, the Commissioner concluded that the expenditure was revenue in nature. The Commissioner also cited the case of Bikaner Gypsums Ltd. v. CIT, emphasizing that the expenditure was allowable as a deduction for the assessment year 2007-08.

3. The Tribunal, after hearing both parties and reviewing the records, found that a similar issue had been decided in favor of the assessee in a previous case. The Tribunal upheld the Commissioner's order, stating that the expenditure was revenue in nature and allowable as a business expenditure under section 37(1) of the Income-tax Act. Since the facts were identical and there was no indication of the previous decision being reversed, the Tribunal dismissed the Revenue's appeal and upheld the Commissioner's order.

In conclusion, the Tribunal affirmed that the expenditure of Rs. 1,03,55,795 incurred by the assessee was revenue in nature and allowable as a business expenditure for the assessment year 2007-08, based on the specific purposes for which the payment was made and the legal precedents cited in support of this classification.