2012 (12) TMI 528 - AT - Income Tax

Capital versus revenue expenditure - Expenditure on prospecting, etc., for certain minerals Assessee claim over burden removal charges, Drilling, Blasting and Explosive, Shifting and Leveling charges, query development charges and mining survey AO argued that these expenses are incurred for the purpose of exploring of iron ore and thus are covered by Sec. 35E Held that - An expenditure is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce profits it is a revenue expenditure. Hence the expenditure incurred in removal of overburden was of revenue nature and hence the assessee was entitled to claim deduction. In favour of assessee Addition on account of plot bidding charges Revenue or capital expenditure Assessee claim amount incurred for acquiring a plot inside the Port is revenue in nature - Ownership of the Plot is with Paradeep Port and the assessee is nothing but a tenant Held that - The assessee has incurred this expenditure for carrying out stowing operation for export business and such expenditure is not incurred for the purpose of bringing into existence any such assets or advantage but for running the business with a view to earn profits. The assessee was to bid when the Port Trust authority allowed it stock with condition of export of 1 lakh tones per annum. No capital assets can be transferred with condition and stipulation which rather indicate that the assessee must export lest be deprived of the plot in the Port Trust. The expenditure was necessarily for the smooth business of the assessee and not for creation of an asset or enduring benefit. In favour of assessee Disallowance u/s 40A(3) Cash payment exceeding Rs. 20000 Held that - As the details as inscribed by the AO which are not individual vouchers for incurring a particular expenditure but are a group head. Delete the addition. In favour of assessee

Summary

Issues Involved:
1. Application of Section 35E(1) towards disallowed expenditures.
2. Addition of Plot Bidding charges.
3. Addition under the head charity and donation.
4. Addition under Section 40A(3).
5. Addition under the head Income from House Property.

Issue-Wise Detailed Analysis:

1. Application of Section 35E(1) towards disallowed expenditures:
The assessee challenged the disallowance of Rs.5,36,77,794 on expenditures related to overburden removal, drilling, blasting, shifting, leveling, quarry development, and mining survey. The Assessing Officer and CIT(A) considered these expenditures as capital in nature and covered under Section 35E, thus not allowable as revenue expenditure. However, the ITAT found that the expenditures were incurred for ongoing mining operations, not for prospecting, and thus should be treated as revenue expenditure. The ITAT referenced the case of Jitendra Nath Patnaik v. JCIT, concluding that the expenditures were part of continuous operations and not for acquiring a new asset or enduring benefit. Therefore, the addition of Rs.5,36,77,794 was directed to be deleted.

2. Addition of Plot Bidding charges:
The Assessing Officer disallowed Rs.1,25,00,000 paid for acquiring a plot inside Paradeep Port, considering it a capital expenditure. The CIT(A) upheld this view. The ITAT, however, found that the payment was for facilitating the assessee's business operations and did not result in acquiring any asset or enduring benefit. The plot remained under Paradeep Port's ownership, and the assessee was merely a tenant. The ITAT concluded that the expenditure was for running the business and should be treated as revenue expenditure, directing the deletion of the addition.

3. Addition under the head charity and donation:
The assessee did not press this ground during the hearing, and thus, the ITAT dismissed the ground related to the addition of Rs.1,40,290 under charity and donation.

4. Addition under Section 40A(3):
The Assessing Officer disallowed Rs.84,64,588 under Section 40A(3), which restricts cash payments exceeding Rs.20,000. The CIT(A) upheld the disallowance. The ITAT found that the expenditures were grouped under heads where individual payments did not exceed Rs.20,000. The remand report confirmed that no single payment exceeded Rs.20,000. The ITAT concluded that the disallowance under Section 40A(3) was unjustified and directed its deletion.

5. Addition under the head Income from House Property:
The assessee did not press this ground during the hearing, and thus, the ITAT dismissed the ground related to the addition of Rs.2,99,360 under income from house property.

Conclusion:
The ITAT allowed the appeal partly, deleting the disallowances related to the expenditures under Section 35E(1), plot bidding charges, and Section 40A(3), while dismissing the grounds not pressed by the assessee.