2017 (4) TMI 1475 - HC - Income Tax

Appeal success on mines dev. expenses, school reimbursements disallowed. Precedents key in tax law.

The Commissioner of Income Tax, Central­III, Mumbai Versus M/s. Prism Cement Ltd.

The appeal challenges the disallowance of expenses incurred on mines development expenditure and reimbursement for running a school. The court admitted ... Disallowance being expenses incurred by the Company on account of mines development expenditure treated as deferred revenue expenses - HELD THAT:- The impugned order is common order passed for the AY 2000­-01, 2003­-04 and 2004­-05. In the two appeals filed by the Revenue in respect of A.Y. 2000­-01 and 2004­-05, to this Court an identical question as raised herein was raised therein by the Revenue. We have today, by a separate order, dismissed the Revenue's appeal on this very issue in the above two appeals. Therefore, for the reasons recorded in our order passed today, Question(2) as proposed does not give rise to any substantial question of law. Thus, not entertained. Appeal admitted on substantial question of law at Q.(1) above - Tribunal was justified in holding the order of the CIT(A) in deleting disallowance­ being expenses incurred by the Company on account of mines development expenditure treated as deferred revenue expenses without appreciating the fact that benefit derived by the Company is staggered over the periods of years and therefore it will give enduring benefits to the Company? Issues:1. Disallowance of expenses incurred by the company on mines development expenditure.2. Disallowance of expenses reimbursed by the company to an institute for running a school.Analysis:Issue 1: Disallowance of Mines Development ExpenditureThe appeal challenges the order of the Income Tax Appellate Tribunal regarding the disallowance of expenses incurred by the company on mines development expenditure. The substantial question of law raised is whether the Tribunal was justified in deleting the disallowance of expenses amounting to Rs. 74,98,740. The Revenue argues that the benefit derived by the company from the expenditure is staggered over multiple years, providing enduring benefits. The key contention revolves around whether the expenses should be treated as deferred revenue expenses. The Tribunal's decision on this issue will impact the tax liability of the company for the Assessment Year 2003-04.Issue 2: Reimbursement for Running a SchoolRegarding the reimbursement of expenses by the company to an institute for running a school, the Tribunal upheld the order of the CIT(A) in deleting the disallowance of Rs. 18,34,062. The substantial question of law raised questions the justification of this decision, considering that running a school is not a business activity of the company. The payment is alleged to be in violation of Section 40A(9) of the Income Tax Act, 1961. However, the Tribunal's decision in this matter was influenced by similar cases where the Revenue's appeals were dismissed on the same issue. The court dismissed the Revenue's appeal on this issue in other cases, indicating that the question does not give rise to any substantial question of law in the present case.The appeal has been admitted on the substantial question of law related to the disallowance of mines development expenditure. It is scheduled to be heard along with other Income Tax Appeals. The judgment highlights the complexity of tax law interpretation and the significance of legal precedents in determining tax liabilities for companies.