2017 (2) TMI 272 - AT - Income Tax

Revision u/s 263 - contribution to CAF - revenue or capital receipt - deferred revenue expenditure - Held that - No point of time could it be said that the assessee had incurred capital expenditure giving the assessee a benefit of enduring nature for the purpose of earning segmented income to render the same to income tax. In other words, the authorities below have not pointed out the income generated against the purported deferred revenue expenditure so proposed by them in their impugned orders. The amount was incurred as a revenue expenditure to be allowed in the year it has been incurred. It is not in dispute that the said payment was made as contribution to compensatory afforestation as per the directions of the Supreme Court. It is not permissible for the assessee to make phase-wise payment. In that view, the order of the Appellate Tribunal is sound and proper. See Ramgad Minerals and Mining Pvt. Ld. 2012 (1) TMI 313 - Karnataka High Court Interest u/s 234C - Held that - Direct the A.O. to levy interest u/s 234C only on the basis of returned income of the assessee.

Summary

Issues:
1. Allowability of the assessee’s contribution to the Compensatory Afforestation Fund (CAF)
2. Allowability of prior period expenses
3. Allowability of processing charges

Issue 1: Allowability of the assessee’s contribution to the Compensatory Afforestation Fund (CAF)

The Assessing Officer (AO) completed the assessment, determining the income of the assessee-company. The Commissioner of Income Tax (CIT) initiated revisionary proceedings under section 263, setting aside the original assessment order on three issues, including the contribution to CAF. The AO disallowed the CAF contribution in the fresh assessment order. The CIT observed lack of scrutiny by the AO and deemed the assessment erroneous and prejudicial to revenue, directing a fresh assessment. The assessee challenged this decision, citing previous Tribunal rulings in their favor on similar issues. The Tribunal held that the CIT was unjustified in invoking section 263 for this issue, deciding in favor of the assessee.

Issue 2: Allowability of prior period expenses

The CIT also questioned the admissibility of prior period expenses, stating they were not allowable under the mercantile system of accounting. The AO was directed to reassess this issue along with others. The assessee defended the expenses, referring to Tribunal decisions in their favor. The Tribunal found the CIT's invocation of section 263 unwarranted for this issue, aligning with previous rulings favoring the assessee.

Issue 3: Allowability of processing charges

The CIT raised concerns about the processing charges claimed by the assessee, alleging irregularity in treating them as revenue expenditure. The AO was instructed to reevaluate this issue. The assessee argued for the deduction of processing charges, referencing Tribunal decisions supporting their position. The Tribunal examined the issue and decided in favor of the assessee, following precedents that upheld similar claims. Additionally, the Tribunal ruled in favor of the assessee regarding interest charged under section 234C, aligning with previous decisions on the matter. Consequently, both appeals filed by the assessee for the assessment year 2006-07 were allowed, with the Tribunal pronouncing the order on February 3, 2017.