2017 (3) TMI 1870 - AT - Income Tax

Nature of expenses - expenses paid by the assessee as NPV to enable the assessee to carry on its mining business - whether or not the payment of NPV made by the assessee to carry on its mining activities on forest land is allowable as revenue expenditure? - HELD THAT - As rightly pointed out that the assessee by making payment of NPV got no fresh right to mining but the said payment was made to overcome restriction or obstruction or disability that had arisen in continuing of the mining business. Merely because it was one-time payment it could not be considered as capital in nature. Besides the said issue is covered by assessee s own case in 2014 (1) TMI 1515 - ITAT KOLKATA wherein the Tribunal treated the said expenditure as revenue in nature. Therefore we hold that ld. CIT(Appeals) has rightly held that the above 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) - Decided against revenue. Delayed payment of employee s contribution to PF - As per revenue CIT (A) erred in relying on the provisions of section 43B (b) of the I.T.Act whereas the present issue is involved with Section 36(1) (va) read with 2 (24) (x) - HELD THAT - We are of the view that there is merit in the submissions of ld. AR for the assessee as the proposition canvassed by ld. AR for the assessee are supported by the facts narrated by him above. Ld. AR for the assessee has rightly pointed out that as per Tax audit report column No.16(b) Annexure-B which clarified that employees contribution to PF Rs. 2, 30, 271/- for January 2011 was paid on 23.02.2011 that is next Month. Therefore the assessee did not commit and default in depositing the PF contribution even as per section 36(1) (va) r.w.s 2(24) (x) of the I.T.Act. Considering the factual position we do not find any infirmity in the order passed by the ld CIT(A). Therefore we confirm the order passed by ld.CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) under Section 153A.
2. Treatment of Net Present Value (NPV) payment as revenue or capital expenditure.
3. Disallowance of employees' contribution towards PF under Section 36(1)(va) read with Section 2(24)(x).

Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) under Section 153A:
The primary issue was whether the AO had the jurisdiction to make additions on items of regular assessment during a search assessment under Section 153A. The CIT(A) held that the AO retained original jurisdiction for regular assessment in addition to search assessment, supported by the decision of the Hon'ble Special Bench of the ITAT in the case of All Cargo Global Logistics Ltd. The AO could make assessments for each of the six assessment years separately based on incriminating material found during the search. Thus, the AO had jurisdiction to make additions on items of regular assessment, and ground no. 1 was dismissed.

2. Treatment of Net Present Value (NPV) payment as revenue or capital expenditure:
The second issue was whether the payment of NPV made by the assessee to carry on its mining activities on forest land should be treated as revenue expenditure. The CIT(A) observed that the NPV was a statutory obligation and non-payment could lead to the stoppage of business. The payment was made to remove restrictions or obstructions to continue mining activities and did not result in acquiring any capital asset. The CIT(A) relied on several judicial decisions, including the Apex Court's decision in Bikaner Gypsums Ltd and the jurisdictional ITAT's decision in the assessee's own case for the assessment year 2006-07. Therefore, the payment of Rs. 12,14,61,050/- as NPV was held to be revenue in nature and allowable as business expenditure under Section 37(1). The addition was deleted, and ground no. 3 was allowed.

3. Disallowance of employees' contribution towards PF under Section 36(1)(va) read with Section 2(24)(x):
The third issue was the disallowance of Rs. 2,30,271/- on account of employees' contribution towards PF. The CIT(A) noted that the contribution was deposited before the due date for filing the return, supported by the tax audit report and challans. The CIT(A) relied on the jurisdictional High Court's decision in the case of CIT vs M/s Vijay Shree Ltd, which held that the amendment to Section 43B of the Income Tax Act was curative and applicable retrospectively. Therefore, the disallowance was not sustainable, and the addition was deleted. Ground no. 4 was allowed.

Conclusion:
The Tribunal upheld the CIT(A)'s order on all grounds. The payment of NPV was treated as revenue expenditure, and the disallowance of employees' contribution towards PF was deleted. The Revenue's appeal was dismissed on all grounds. The order was pronounced on 15/03/2017.