2014 (7) TMI 1085 - HC - Income Tax

High Court affirms Tribunal decision on afforestation charges as revenue expenditure under Income Tax Act

The Commissioner of Income Tax Versus Dr. Prafulla R. Hede And Another

The High Court upheld the decision of the Income Tax Appellate Tribunal that the afforestation charges claimed as deduction were for commercial expediency ... Revision u/s 263 - Compensation paid as afforestation charges claimed as deduction – nature of expenditure - Held that:- The Tribunal rightly concluded that the payment is towards the loss of forestry on the forest land that has been diverted and no forest asset for the assessee is created by making payment of net profit value – The assumption on which the Commissioner of Income Tax proceeded is wholly erroneous. The Tribunal concluded that the order of the Assessing Officer was a possible view of the matter and in the given facts and circumstances, could not have been said to be erroneous and prejudicial to the interest of the revenue, requiring interference under Section 143(3) The expenditure incurred is to be for commercial expediency and that it should therefore not be treated as expenditure of capital nature – no substantial question of law arises for consideration – Decided against revenue. Issues:Challenge to order of the Income Tax Appellate Tribunal under Section 263 of the Income Tax Act regarding afforestation charges claimed as deduction.Analysis:The appeal challenged the order of the Income Tax Appellate Tribunal, Panaji Bench, regarding afforestation charges claimed as deduction by the appellant. The respondent held a mining lease, and the Deputy Conservator of Forest determined the net present value to be paid by the assessee for the mining lease. The Assessing Officer allowed the deduction as revenue expenditure, but the Commissioner of Income Tax concluded that the expenditure was of a capital nature. The Commissioner interfered with the Assessment Order under Section 143(3) of the Income Tax Act.Analysis Continued:The appellant appealed to the Income Tax Appellate Tribunal, which concluded that the payment towards loss of forestry on the diverted forest land did not create any asset for the assessee. The Tribunal found the Assessing Officer's order to be a possible view and not erroneous or prejudicial to the revenue's interest. The Tribunal's findings were consistent with the materials on record, stating the expenditure was for commercial expediency and not of a capital nature. The High Court agreed with the Tribunal's conclusions, stating no question of law arose for consideration.Final Decision:The High Court, after hearing the Department's Counsel, dismissed the appeal, finding no merit in it. The Court upheld the Tribunal's decision that the expenditure on afforestation charges was for commercial expediency and not of a capital nature, hence not warranting any interference.