ITAT upholds CIT(A) decisions on tax issues: Business loss, depreciation, royalty deductibility, and raw material loss. (A)

The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeals and upheld the decisions of the Commissioner of Income Tax (Appeals) [CIT(A)] on all issues. The ITAT ruled that the loss on sale of shares was a business loss, allowed depreciation on compensation for mining rights, permitted deductibility of royalty paid in a prior financial year, and upheld the invisible loss in raw material. The judgments were delivered on 28.05.2018.

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Issues Involved:
1. Allowance of loss on sale of shares of an associated concern.
2. Depreciation on compensation paid for acquiring mining rights.
3. Deductibility of royalty paid in a prior financial year.
4. Disallowance of invisible loss in raw material.

Issue-wise Detailed Analysis:

1. Allowance of Loss on Sale of Shares of an Associated Concern:
The Revenue challenged the allowance of a Rs. 53,28,000/- loss on the sale of shares, arguing it was a speculation loss per section 73 and not allowable as a business expense. The Assessing Officer (AO) disallowed the loss, deeming it speculative and not genuine. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the loss, referencing the Bombay High Court's decision in CIT vs. Colgate Palmolive (India) Ltd., which classified such losses as business losses. The Income Tax Appellate Tribunal (ITAT) upheld CIT(A)'s decision, noting the assessee was not in the business of trading shares, thus the loss was not speculative under section 73. The ITAT referenced the Calcutta High Court's decision in Standipack (P.) Ltd. vs. CIT, asserting that losses from non-trading activities in shares are not speculative.

2. Depreciation on Compensation Paid for Acquiring Mining Rights:
The Revenue contested the deletion of disallowance of Rs. 6,37,034/- depreciation on compensation paid for mining rights, arguing it was a tangible asset. The AO viewed the rights as akin to leasing property, thus not intangible. CIT(A) allowed the depreciation, classifying the compensation as intangible under section 32(1)(ii). The ITAT upheld CIT(A)'s decision, citing the Delhi High Court's ruling in Areva T AND D India Ltd. vs. DCIT, which included business or commercial rights of similar nature under intangible assets. The ITAT concluded that mining rights are intangible assets, thus eligible for depreciation.

3. Deductibility of Royalty Paid in a Prior Financial Year:
The Revenue argued that the Rs. 70,50,772/- royalty paid in March 2002 should have been claimed in the 2002-03 assessment year under section 43B. The AO disallowed the claim, but CIT(A) allowed it, noting the payment was an advance for the next financial year. The ITAT upheld CIT(A)'s decision, confirming the advance payment was allowable in the 2003-04 assessment year. The ITAT referenced the ITAT Chandigarh Special Bench's decision in DCIT vs. Glaxo Smithkline Consumer and the Andhra Pradesh High Court's ruling in Gopi Krishna Granites India Ltd. vs. DCIT.

4. Disallowance of Invisible Loss in Raw Material:
The Revenue disputed the deletion of disallowance of invisible loss in raw material, citing a prior year's invisible gain. The AO disallowed Rs. 74,57,220/- of invisible loss, doubting its genuineness. CIT(A) allowed the loss, noting the AO failed to disprove the claim or show stock suppression. The ITAT upheld CIT(A)'s decision, emphasizing that invisible losses depend on factors like moisture and quality of raw material, and the AO did not reject the books of accounts or show defects. The ITAT found no basis for disallowing the loss based on prior year's gains.

Conclusion:
The ITAT dismissed both appeals by the Revenue, affirming CIT(A)'s decisions on all issues. The judgments were pronounced in the open court on 28.05.2018.

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