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2017 (10) TMI 1585 - AT - Income TaxNature of expenditure - Addition on account of capital expenditure being net present value paid to forest department - HELD THAT - As payments to the Government are to be paid once the mining lease is obtained and such payments are governed by various Acts along with the Apex Court making a ruling for State Governments to participate in the granting of mining lease by recovering compensation when their forests are uprooted. Therefore for this purpose, the funds are used for a natural regeneration which the assessee participates indirectly. Therefore at no point of time could it be said that the assessee had incurred a capital expenditure giving the assessee a benefit of enduring nature for the purpose of earning segmented income to render the same to income tax - authorities below have not pointed out the income generated against the purported deferred revenue expenditure so proposed by them in their impugned orders - Decided in favour of assessee. Nature of expenses - compensatory afforestation expenses - revenue v/s capital expenditure - HELD THAT - NPV to the forest department was paid on account of the judgment of the Apex Court. The lesser of the land for mining was not aware of the NPV payable to forest department at the time of obtaining the lease from the Government. It was paid on account of the judgment of the Apex Court during the pendency of the mining lease. But the amount paid under the head compensatory afforestation expenses was known to the assessee at the time of leasing of the mining land. It is compulsory for each and every user of mining land to pay the afforestation expenses to forest department to compensate the use of forest land for mining towards regeneration of forest for diversion of forest to non-forest use. Since this payment is inextricably linked to the mining rights of the assessee, this payment is of capital nature and the lower authorities have rightly treated the same accordingly. We accordingly find no infirmity in the order of CIT(Appeals). Disallowance of lease rental payments - No documentary evidence to prove that crystallization was done in the impugned assessment year - HELD THAT - No doubt lease rent is revenue expenditure and it should be debited to the account every year when it becomes due. The assessee was also asked to file some evidence in support of his contention that for certain reasons the lease rent was not paid and disputes were settled during the impugned assessment year. But no evidence was furnished on behalf of the assessee. Undisputedly lease rent is recurring expenditure and it should be paid every month. Since the assessee has been following mercantile system of accounting, the lease rental should be debited to its books of account in their respective years unless any dispute is raised. We therefore do not find any force in the contention of the assessee in the absence of any documentary evidence that crystallization was done in the impugned assessment year - CIT(Appeals) who has rightly disallowed the prior period expenses. Disallowance of provision for medical expenses - company is reimbursing the medical expenses based on the employees claim and liability against medical reimbursement accrues on submission of medical reimbursement claim by employees - HELD THAT - Undisputedly, the payment of medical reimbursement was made on receipt of claim from the employees. The said payment can be made during the financial year. In the absence of claim, there is no ascertained liability which are to be discharged by the assessee. Therefore, we find ourselves in agreement with the order of CIT(Appeals) that liability itself is a contingent liability. Therefore the provision for contingent liability has to be disallowed. We therefore confirm the order of CIT(Appeals) as we find no error in it. Disallowance of leave travel allowance - HELD THAT - As the claim of provision of leave travel allowance was also disallowed by the AO for the similar reasons as the payment of medical reimbursement. For the same reasons as discussed in the foregoing paragraphs, we find no infirmity in the order of CIT(Appeals) and we confirm the same. Disallowance of foreign travel expenses - Since the expenditure relating to new project on acquisition of mine is a capital expenditure and not incurred in connection with business carried on by the assessee - HELD THAT - As we find that undisputedly the assessee has undertaken the foreign travel in connection with the purchase of mines at Thailand. The assessee claimed expenditure incurred thereon as revenue expenditure on the ground of expansion of old business, but no details in support of its claim were furnished. It is also not disputed that the assessee has purchased mines at Thailand, therefore expenditure incurred in acquiring capital asset has to be capital expenditure. The CIT(Appeals) has adjudicated the issue in detail in his order and we find no infirmity therein. Accordingly, we confirm his order. Nature of expenditure - Stamp duty for registration and processing fee of the mining lease was claimed to be revenue expenditure - HELD THAT - We find that the lower authorities have adjudicated the issue following the judgment of Hon'ble jurisdictional High Court in the case of Hotel Rajmahal 1984 (3) TMI 24 - KARNATAKA HIGH COURT . Since the lower authorities have decided the issue following the judgment of the Hon'ble jurisdictional High Court, we find no infirmity therein. Accordingly, we confirm the order of CIT(Appeals). Disallowance of mining lease rent - DR has contended that annual lease rent is fixed at the time of granting the licence for mining - HELD THAT - No evidence has been placed on record to demonstrate that this liability was ever disputed by the assessee. Therefore, it is to be debited to the profit loss account annually every year. We find no evidence on record that the liability was disputed in the earlier years and it is crystallized only in the impugned assessment year. Mere notice of demand does not demonstrate that liability was disputed in the earlier years and it is crystallized in the impugned assessment year. Therefore, we find no merit in the contentions of the assessee. Accordingly, we confirm the order of the CIT(Appeals), who has rightly disallowed the prior period expenses.
Issues Involved:
1. Deletion of addition of ?107,05,56,400 on account of capital expenditure being net present value (NPV) paid to the forest department. 2. Disallowance of ?5,65,47,944 as compensatory afforestation expenditure. 3. Disallowance of forest lease rentals of ?2,77,51,446. 4. Disallowance of provision for medical expenses of ?30,01,400. 5. Disallowance of provision for leave travel allowance of ?30,40,011. 6. Disallowance of foreign travel expenses of ?38,05,986. 7. Disallowance of stamp fee for registration and processing fee of ?24,82,670. 8. Disallowance of mining lease rent of ?21,81,32,476. 9. Charging of interest under Sections 234B and 234D of the Income Tax Act. Issue-wise Detailed Analysis: 1. Deletion of Addition of ?107,05,56,400 on Account of Capital Expenditure Being NPV Paid to Forest Department: The revenue appealed against the CIT(Appeals) order that deleted the addition of ?107,05,56,400, which was treated as capital expenditure by the AO. The assessee argued that the payment was made in compliance with a Supreme Court judgment and should be treated as revenue expenditure. The CIT(Appeals) followed the Tribunal's order in the case of M/s. Ramgad Minerals & Mining Pvt. Ltd., which was upheld by the jurisdictional High Court and the Supreme Court. The Tribunal found no infirmity in the CIT(Appeals) order and upheld the deletion. 2. Disallowance of ?5,65,47,944 as Compensatory Afforestation Expenditure: The AO treated the compensatory afforestation expenses as capital expenditure, noting that it was inextricably linked to the mining rights of the assessee. The CIT(Appeals) confirmed the disallowance, stating that the payment was necessary for the renewal of the mining lease and was thus of a capital nature. The Tribunal upheld this decision, distinguishing it from the NPV payment, which was a result of a Supreme Court judgment and not known at the time of obtaining the lease. 3. Disallowance of Forest Lease Rentals of ?2,77,51,446: The AO disallowed the lease rental payments that related to prior years (1994-2006) and not the relevant assessment year (AY 2007-08). The CIT(Appeals) upheld this decision, noting that lease rentals are recurring expenditures and should be debited annually. The Tribunal agreed, stating that in the absence of evidence that the liability was crystallized in the impugned assessment year, the prior period expenses were rightly disallowed. 4. Disallowance of Provision for Medical Expenses of ?30,01,400: The AO disallowed the provision for medical expenses, considering it a contingent liability. The CIT(Appeals) upheld this disallowance, stating that the liability was contingent and not an accrued liability. The Tribunal confirmed the CIT(Appeals) order, agreeing that the liability was contingent and thus not allowable as an expenditure under Section 37 of the Act. 5. Disallowance of Provision for Leave Travel Allowance of ?30,40,011: Similar to the medical expenses, the AO disallowed the provision for leave travel allowance, considering it a contingent liability. The CIT(Appeals) upheld this disallowance, and the Tribunal confirmed the decision, finding no infirmity in the CIT(Appeals) order. 6. Disallowance of Foreign Travel Expenses of ?38,05,986: The AO disallowed the foreign travel expenses, stating they related to a new project in acquiring a mine in Thailand, thus a capital expenditure. The CIT(Appeals) upheld this decision, and the Tribunal confirmed, noting that the expenditure incurred in acquiring a capital asset is capital in nature. 7. Disallowance of Stamp Fee for Registration and Processing Fee of ?24,82,670: The AO treated the stamp fee and processing fee for the mining lease as capital expenditure, relying on the jurisdictional High Court's judgment in the case of Hotel Rajmahal v. CIT. The CIT(Appeals) upheld this decision, and the Tribunal confirmed, agreeing that the expenditure related to obtaining a mining lease for 20 years is of capital nature. 8. Disallowance of Mining Lease Rent of ?21,81,32,476: The AO disallowed the mining lease rent for prior periods, allowing only the lease rent for the relevant assessment year. The CIT(Appeals) upheld this decision, noting that the liability was not crystallized during the impugned year. The Tribunal confirmed, stating that mere notice of demand does not demonstrate that the liability was disputed in earlier years and crystallized only in the impugned assessment year. 9. Charging of Interest under Sections 234B and 234D of the Income Tax Act: The CIT(Appeals) confirmed the charging of interest under Sections 234B and 234D. The Tribunal did not find any specific arguments or evidence to overturn this decision and thus upheld the CIT(Appeals) order. Conclusion: In conclusion, the Tribunal dismissed the appeals of both the revenue and the assessee, upholding the CIT(Appeals) orders on all issues. The decisions were based on the nature of the expenditures, the timing of the liabilities, and the relevant legal precedents. The Tribunal found no infirmity in the CIT(Appeals) orders and confirmed the disallowances and deletions as appropriate.
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