2011 (5) TMI 1138 - AT - Income Tax

Revenue appeal denied on compensatory afforestation expenses & NPV treatment. Closing stock upheld.

The appeal by the Revenue against the deletion of an addition under compensatory afforestation expenses and the treatment of NPV as capital expenditure ... - Issues involved: Appeal against deletion of addition under compensatory afforestation expenses, treatment of NPV as capital expenditure, and treatment of closing stock for subsequent year.Deletion of addition under compensatory afforestation expenses: The Revenue appealed against the deletion of an addition of Rs.81,38,28,655 made by the AO under compensatory afforestation expenses. The CIT(A) held that the amount spent could not be considered as creating an asset with enduring benefit, thus not capital expenditure. The Tribunal supported this decision based on previous rulings and found no infirmity in the decision.Treatment of NPV as capital expenditure: The CIT(A) held that the payment of NPV does not bring enduring benefit to the assessee, despite long-term benefits from raising minerals from the land. The Tribunal upheld this decision, stating that compensatory afforestation is revenue in nature and does not create a capital asset.Treatment of closing stock for subsequent year: The CIT(A) held that the value of closing stock should be taken as the opening stock for the subsequent year, based on a previous ruling in the assessee's own case. The Tribunal affirmed this principle, finding no issue with the decision.The learned DR could not provide any material to counter the findings of the CIT(A) on both issues. As the issues were covered in favor of the assessee by previous Tribunal orders, the appeal of the Revenue was dismissed.