2011 (6) TMI 1018 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Depreciation on Geographical Report under Section 35E of the Income Tax Act.
3. Additional depreciation on Geographical Report under Section 32(1)(iia) of the Income Tax Act.
4. Allowing expenditure for up-gradation/construction of a link road as revenue expenditure.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal filed by the Revenue was delayed by 8 days. The Tribunal found the cause for the delay reasonable and, as conceded by the Counsel for the assessee, condoned the delay and admitted the appeal.

2. Depreciation on Geographical Report under Section 35E:
The primary issue was whether the expenditure on the Geographical Report (GR) could be considered as a "plant" and thus eligible for depreciation under Section 32 or should be treated under Section 35E. The Assessing Officer disallowed the depreciation claim, considering the GR as an expense under Section 35E. The CIT(A) allowed depreciation but disallowed additional depreciation, treating the GR as an intangible asset. The Tribunal examined the GR, which contained detailed geological information essential for mining operations. It concluded that the GR constituted a "know-how" under Section 32(1)(ii), making it an intangible asset eligible for depreciation.

3. Additional Depreciation on Geographical Report under Section 32(1)(iia):
The Tribunal addressed whether the Geographical Report qualified for additional depreciation. The second proviso to Section 32(1)(iia) disallows additional depreciation for machinery or plant installed in office premises. The Tribunal found that the GR, being an office document, did not qualify for additional depreciation. Thus, the claim for additional depreciation was dismissed.

4. Allowing Expenditure for Up-gradation/Construction of Link Road as Revenue Expenditure:
The issue was whether the expenditure incurred for the up-gradation/construction of a link road, which belonged to Burdwan Zilla Parishad, could be treated as revenue expenditure. The Assessing Officer considered it a capital expenditure, but the CIT(A) allowed it as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in L.H. Sugar Factory and Oils Mills (P) Ltd. vs. CIT, which allowed similar expenditures as revenue expenses. The Tribunal noted that the road facilitated the business operations of the assessee, making the expenditure allowable under Section 37(1).

Conclusion:
The Tribunal concluded that the appeal by the Revenue and the Cross Objection by the assessee were both dismissed. The Tribunal upheld the CIT(A)'s decision to allow depreciation on the Geographical Report as an intangible asset but disallowed additional depreciation. It also affirmed the CIT(A)'s decision to treat the expenditure on the link road as revenue expenditure.