2017 (10) TMI 1585 - AT - Income Tax

Tribunal Upholds CIT(Appeals) Orders on Expenditures and Liabilities

The Deputy Commissioner of Income Tax, Circle 1, Bellary Versus M/s. Sandur Manganese & Iron Ores Ltd.

The Deputy Commissioner of Income Tax, Circle 1, Bellary Versus M/s. Sandur Manganese & Iron Ores Ltd. - TMI Issues Involved:1. Deletion of addition of Rs. 107,05,56,400 on account of capital expenditure being net present value (NPV) paid to the forest department.2. Disallowance of Rs. 5,65,47,944 as compensatory afforestation expenditure.3. Disallowance of forest lease rentals of Rs. 2,77,51,446.4. Disallowance of provision for medical expenses of Rs. 30,01,400.5. Disallowance of provision for leave travel allowance of Rs. 30,40,011.6. Disallowance of foreign travel expenses of Rs. 38,05,986.7. Disallowance of stamp fee for registration and processing fee of Rs. 24,82,670.8. Disallowance of mining lease rent of Rs. 21,81,32,476.9. Charging of interest under Sections 234B and 234D of the Income Tax Act.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 107,05,56,400 on Account of Capital Expenditure Being NPV Paid to Forest Department:The revenue appealed against the CIT(Appeals) order that deleted the addition of Rs. 107,05,56,400, which was treated as capital expenditure by the AO. The assessee argued that the payment was made in compliance with a Supreme Court judgment and should be treated as revenue expenditure. The CIT(Appeals) followed the Tribunal's order in the case of M/s. Ramgad Minerals & Mining Pvt. Ltd., which was upheld by the jurisdictional High Court and the Supreme Court. The Tribunal found no infirmity in the CIT(Appeals) order and upheld the deletion.2. Disallowance of Rs. 5,65,47,944 as Compensatory Afforestation Expenditure:The AO treated the compensatory afforestation expenses as capital expenditure, noting that it was inextricably linked to the mining rights of the assessee. The CIT(Appeals) confirmed the disallowance, stating that the payment was necessary for the renewal of the mining lease and was thus of a capital nature. The Tribunal upheld this decision, distinguishing it from the NPV payment, which was a result of a Supreme Court judgment and not known at the time of obtaining the lease.3. Disallowance of Forest Lease Rentals of Rs. 2,77,51,446:The AO disallowed the lease rental payments that related to prior years (1994-2006) and not the relevant assessment year (AY 2007-08). The CIT(Appeals) upheld this decision, noting that lease rentals are recurring expenditures and should be debited annually. The Tribunal agreed, stating that in the absence of evidence that the liability was crystallized in the impugned assessment year, the prior period expenses were rightly disallowed.4. Disallowance of Provision for Medical Expenses of Rs. 30,01,400:The AO disallowed the provision for medical expenses, considering it a contingent liability. The CIT(Appeals) upheld this disallowance, stating that the liability was contingent and not an accrued liability. The Tribunal confirmed the CIT(Appeals) order, agreeing that the liability was contingent and thus not allowable as an expenditure under Section 37 of the Act.5. Disallowance of Provision for Leave Travel Allowance of Rs. 30,40,011:Similar to the medical expenses, the AO disallowed the provision for leave travel allowance, considering it a contingent liability. The CIT(Appeals) upheld this disallowance, and the Tribunal confirmed the decision, finding no infirmity in the CIT(Appeals) order.6. Disallowance of Foreign Travel Expenses of Rs. 38,05,986:The AO disallowed the foreign travel expenses, stating they related to a new project in acquiring a mine in Thailand, thus a capital expenditure. The CIT(Appeals) upheld this decision, and the Tribunal confirmed, noting that the expenditure incurred in acquiring a capital asset is capital in nature.7. Disallowance of Stamp Fee for Registration and Processing Fee of Rs. 24,82,670:The AO treated the stamp fee and processing fee for the mining lease as capital expenditure, relying on the jurisdictional High Court's judgment in the case of Hotel Rajmahal v. CIT. The CIT(Appeals) upheld this decision, and the Tribunal confirmed, agreeing that the expenditure related to obtaining a mining lease for 20 years is of capital nature.8. Disallowance of Mining Lease Rent of Rs. 21,81,32,476:The AO disallowed the mining lease rent for prior periods, allowing only the lease rent for the relevant assessment year. The CIT(Appeals) upheld this decision, noting that the liability was not crystallized during the impugned year. The Tribunal confirmed, stating that mere notice of demand does not demonstrate that the liability was disputed in earlier years and crystallized only in the impugned assessment year.9. Charging of Interest under Sections 234B and 234D of the Income Tax Act:The CIT(Appeals) confirmed the charging of interest under Sections 234B and 234D. The Tribunal did not find any specific arguments or evidence to overturn this decision and thus upheld the CIT(Appeals) order.Conclusion:In conclusion, the Tribunal dismissed the appeals of both the revenue and the assessee, upholding the CIT(Appeals) orders on all issues. The decisions were based on the nature of the expenditures, the timing of the liabilities, and the relevant legal precedents. The Tribunal found no infirmity in the CIT(Appeals) orders and confirmed the disallowances and deletions as appropriate.