2011 (6) TMI 997 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of sales proceeds of geological data.
2. Disallowance of insurance premium expenses.

Summary:

Issue 1: Treatment of Sales Proceeds of Geological Data

The sole issue in the appeal for Assessment Year 2006-07 was the treatment of sales proceeds of geological data. The assessee argued that geological data should be classified as books and come under the definition of plant u/s.43(3) of the Income Tax Act, 1961. The assessee contended that the expenditure for collecting geological data was carried as "miscellaneous expenditure" in the balance sheet and not claimed as depreciation or revenue outgoes. The Assessing Officer, however, treated the expenses as incurred for acquiring a business block and considered the profit from the sale of geological data as business profit, adding Rs. 9,39,70,450/- as business income. The Commissioner of Income Tax(A) upheld this view, stating that the geological data collected was for business purposes and should be treated as business receipts. The reliance on the decisions of Elecon Engineering Co. Ltd. and Scientific Engineering House (P) Ltd. was found distinguishable on facts. The ITAT confirmed the action of the Assessing Officer, treating the sale consideration as business income, and dismissed the appeal for Assessment Year 2006-07.

For Assessment Year 2007-08, the same issue was raised, and the ITAT dismissed the related grounds based on the decision for Assessment Year 2006-07.

Issue 2: Disallowance of Insurance Premium Expenses

The second issue in the appeal for Assessment Year 2007-08 was the disallowance of Rs. 2,31,52,085/- on insurance premium paid in March 2007. The assessee argued that the payment should be treated as revenue expenditure despite being shown as pre-paid. The Assessing Officer disallowed the expense, stating it did not pertain to the relevant previous year. The Commissioner of Income Tax(A) sustained the disallowance, noting that the expenditure pertained to the subsequent Assessment Year 2008-09 and could not be allowed based on materiality.

The ITAT, however, found that the payment of insurance premium was not disputed and was for the business purpose of the assessee. The premium payment, being only 0.12% of the total expenditure, was considered immaterial. The ITAT referred to Section 30(i) and Section 31(ii) of the Act, which allow insurance premium expenses on payment basis, and concluded that the expenditure could not have been disallowed. The disallowance was deleted, and the ground was allowed.

Conclusion:

The appeal for Assessment Year 2006-07 was dismissed, while the appeal for Assessment Year 2007-08 was partly allowed.