2013 (10) TMI 1414 - AT - Income Tax

Tribunal revisits afforestation expenses, upholds disallowance of demurrage expenses, emphasizes clarity on nature of expenditure.

Asst. Commissioner of Income Tax, Circle (1), Panaji, Goa. Versus M/s. Damodar Mangalji & Co. Ltd.

The Tribunal partly allowed the Revenue's appeal, remanding the afforestation expenses issue back to the CIT(A) for re-evaluation. The AO's disallowance ... Revision u/s 263 - nature of expenditure - Held that:- The CIT(A) was bound to give a clear-cut finding whether the expenditure incurred by the Assessee is a capital expenditure or whether it is a revenue expenditure and whether the expenditure has accrued during the year or not. The order passed by the CIT(A), in our opinion, is cryptic and has not dealt with the issue involved. We, therefore, set aside the order of CIT(A) and restore this issue to the file of CIT(A) with the direction that the CIT(A) should re-decide this issue on merit whether the expenditure incurred by the Assessee is a capital expenditure or whether it is a revenue expenditure and if it is a revenue expenditure, whether the expenditure has accrued during the year or not after giving proper and sufficient opportunity to the Assessee. Thus, this ground is allowed for statistical purpose. Non deduction of tds - Held that:- The facts of the present case, are governed by section 40(a)(i ) of the Act 1961. Order passed by the Assessing Officer, in our view, is legal, proper and in accordance with the Scheme of Act 1961. In view of which we have taken in the matter, the appeal deserves to be allowed by quashing and setting aside the Order passed by the learned Commissioner of Income-Tax (Appeals) Issues Involved:1. Classification of afforestation expenses as capital or revenue expenditure.2. Non-deduction of TDS on demurrage expenses paid to a shipper based out of Hong Kong.Issue-wise Detailed Analysis:1. Classification of Afforestation Expenses:The Revenue appealed against the CIT(A)'s order which deleted the addition of Rs. 2,14,21,820/- made by the AO, who classified the afforestation expenses as capital expenditure. The AO argued that the payment provided an enduring benefit, allowing the Assessee to use forest land for mining, thus qualifying as capital expenditure. The AO cited various Supreme Court decisions to support this view.The Assessee contended that the expenditure was statutory and necessary for their mining business, thus qualifying as revenue expenditure. The CIT(A) agreed with the Assessee, referencing a similar case (Dr. Prafulla R. Hede vs. CIT) where the Tribunal had classified such expenses as revenue in nature.However, the Tribunal noted that the CIT(A) did not provide a clear finding on the merits of whether the expenditure was capital or revenue. The Tribunal emphasized that the CIT(A) should have independently assessed the nature of the expenditure rather than relying solely on the previous Tribunal's decision. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the issue back to the CIT(A) for a thorough re-evaluation, directing a clear determination on whether the expenditure was capital or revenue and whether it accrued during the year.2. Non-deduction of TDS on Demurrage Expenses:The second issue involved the non-deduction of TDS on a payment of Rs. 7,096/- as demurrage charges to a shipper based in Hong Kong. The AO disallowed this expense under Section 40(a)(i) due to the Assessee's failure to deduct TDS. The CIT(A) had deleted this disallowance.The Tribunal referred to the decision of the Hon'ble Bombay High Court in CIT vs. Orient Goa Co. (P) Ltd., which clarified that Section 172 of the Income Tax Act, dealing with the profits of non-residents from occasional shipping business, does not apply to Indian companies. The Tribunal concluded that the CIT(A) had incorrectly interpreted the law and the CBDT Circular No. 723 dated 19-9-1995. The Tribunal upheld the AO's disallowance, setting aside the CIT(A)'s order and restoring the AO's decision.Conclusion:The appeal by the Revenue was partly allowed for statistical purposes. The Tribunal remanded the issue of afforestation expenses back to the CIT(A) for a detailed re-evaluation and upheld the AO's disallowance of the demurrage expenses due to non-deduction of TDS. The order was pronounced in the open court on 25/10/2013.