2019 (2) TMI 908 - HC - Income Tax

Nature of expenses - addition on account of net present Value (NPA) - whether said payment was capital in nature and hence cannot be allowed u/s 37(1) - Held that - Tribunal noted that the assessee was engaged in trading of iron ore and mining ore. During the year under consideration, the assessee had expended a sum of ₹ 1.68 crores by way of payment to the various departments and obtained temporary working permission for mining purpose, which was a precondition. The Tribunal held that the payment was an essential payment required to be made for continuing its existing mining operation and nonpayment of the same would have resulted in adverse consequences. Under such circumstances, we see no error in the view of the Tribunal. Thus, not entertained. Allowable revenue expenditure - expenditure incurred for starting a new project which was later on abandoned - Held that - Question no.(ii) was considered by this Court in the case of CIT Vs. M/s. Essar Oil Ltd. 2008 (10) TMI 649 - BOMBAY HIGH COURT , this Court had dismissed the Revenue s appeal. Under such circumstances, we see no error in the Tribunal having followed the decision in Essar Oil Ltd. (supra) to dismiss the Revenue s appeal before it. Thus, not entertained.

Summary

Issues:
1. Whether the Tribunal was justified in deleting the addition of ?1,68,94,820 on account of 'net present Value' (NPA) as revenue expenditure?
2. Whether the Tribunal was justified in deleting the disallowance of deduction of ?1,34,08,905 for a project later abandoned as revenue expenditure?

Issue 1:
The Revenue challenged the Tribunal's decision to delete the addition of ?1,68,94,820 as revenue expenditure for 'net present Value' (NPA). The Assessing Officer considered the expenditure as capital in nature, but the CIT(A) and Tribunal disagreed. The Tribunal found the payment essential for the mining operation, preventing adverse consequences. The High Court upheld the Tribunal's decision, stating the payment was necessary for continuing the mining operation, thus justifying the deletion of the addition.

Issue 2:
The second issue involved the disallowance of deduction of ?1,34,08,905 for a project that was later abandoned. The High Court referred to a previous case involving M/s. Essar Oil Ltd., where a similar deduction was allowed. Citing the precedent, the High Court upheld the Tribunal's decision to delete the disallowance, as it followed the decision in the Essar Oil Ltd. case. Consequently, the High Court dismissed the Revenue's appeal based on the findings in both issues.

In conclusion, the High Court dismissed the appeal filed by the Revenue challenging the Tribunal's judgment. The Court upheld the Tribunal's decisions regarding both issues raised by the Revenue, emphasizing the necessity of the payments in question for the ongoing mining operation and the precedent set in a similar case regarding deduction for an abandoned project.