2019 (1) TMI 1918 - AT - Income Tax

Addition being provision for enhanced compensation on land acquisition - court has not yet quantified the exact compensation and interest payable - CIT-A deleted the addition - HELD THAT - We in agreement with the view taken by the CIT(A) that the A.O on the basis of misconceived facts had made an addition in the hands of the assessee. D.R had also not placed before us any such material or raised any such contention which could persuade us to conclude that the factual observations of the CIT(A) suffer from any infirmity - the aforesaid expenses viz. (i). interest on service tax on transport of goods; (ii). Interest on Kerala State General Tax and (iii). Interest on leasehold land acquisition payments being in the nature of a revenue expenditures were allowable as a deduction while computing the income of the assessee, thus finding no infirmity in the order of the CIT(A) who had rightly deleted the addition - Decided against revenue. Nature of expenditure - Addition on account of acquisition of land expenses - expense is related to the acquisition of land and cannot be revenue expenditure - CIT-A deleted the addition - HELD THAT - Expenditure incurred by the assessee pursuant to an understanding with the State government of Kerala was in the course of its business of mining, hence the same being clearly in the nature of a revenue expenditure was to be allowed as a deduction while computing its income for the year under consideration. Apart therefrom, we find that the issue under consideration as regards the allowability of the aforesaid expenditure is squarely covered by the order passed in the assesses own case - We thus finding ourselves to be in agreement with the view taken by the Tribunal, thus are of the considered view that the amount incurred by the assessee was rightly claimed as a revenue expenditure. We thus not finding any infirmity in the order of the CIT(A) wherein the latter had ordered deletion of the addition - Decided against revenue Addition on account of school expenses at Orissa - expense is related to the running of the school and not wholly and exclusively for the purpose of business - CIT-A deleted the addition - HELD THAT - The aforesaid expense which had strictly been incurred by the assessee pursuant to government directive since 1990 onwards, as rightly observed by the CIT(A) was in the nature of a revenue expenditure which was to be allowed while computing the income of the assessee for the year under consideration. We thus finding ourselves to be in agreement with the view taken by the CIT(A) in context of the issue under consideration, uphold the his order. The Ground of appeal raised by the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition for provision for enhanced compensation on land acquisition.
2. Deletion of addition on account of land acquisition expenses.
3. Deletion of addition on account of school expenses in Orissa.

Issue-wise Detailed Analysis:

1. Deletion of Addition for Provision for Enhanced Compensation on Land Acquisition:

The revenue challenged the deletion of ?16,41,654/- being provision for enhanced compensation on land acquisition. The Assessing Officer (A.O) had disallowed this amount, considering it as a provision for enhanced compensation which had not yet been quantified by the court. The CIT(A) observed that the A.O misconceived the facts and clarified that the amount booked as revenue expenditure included interest on service tax, interest on Kerala State General Tax, and interest on leasehold land acquisition payments. These were recognized as revenue expenditures and thus allowable deductions. The tribunal agreed with CIT(A) that the A.O's addition was based on misconceived facts and upheld the deletion of ?16,41,654/-.

2. Deletion of Addition on Account of Land Acquisition Expenses:

The A.O disallowed ?53,09,116/- considering it as capital expenditure related to land acquisition. The CIT(A) found that the major portion of this expenditure was towards maintaining the office of the land acquisition unit of the Government of Kerala. This included reimbursement of salary, rent, electricity, and other office maintenance expenses. The CIT(A) observed that these expenses were incurred pursuant to an understanding with the Government of Kerala, which was involved at every stage of the assessee’s mining activity. The tribunal found that these expenses were in the nature of revenue expenditure and had been consistently allowed in previous years, including in A.Y. 1997-98 by the ITAT. Therefore, the tribunal upheld the deletion of ?53,09,116/-.

3. Deletion of Addition on Account of School Expenses in Orissa:

The A.O disallowed ?1,20,61,377/- incurred on running and maintaining Atomic Energy Central School, Oscom, Orissa, on the grounds that employees were already drawing educational allowance. The CIT(A) found that the school provided education not only to the employees' children but also to local residents and those from adjoining areas. The expenses were incurred as per the directives of the Department of Atomic Energy. The tribunal agreed with CIT(A) that the expenses were mandatory and in the nature of revenue expenditure. The tribunal referenced judgments from the Hon’ble High Court of Madras and a coordinate bench of the ITAT, which supported the view that compliance with government directives by a PSU was necessary. Consequently, the tribunal upheld the deletion of ?1,20,61,377/-.

Conclusion:

The tribunal dismissed the appeal filed by the revenue, upholding the CIT(A)’s order in deleting the additions made by the A.O on all three grounds. The order was pronounced in the open court on 30.01.2019.