2024 (9) TMI 869 - HC - Income Tax

ITAT Rules Rs. 212.52 Crores Contribution to Afforestation Fund as Revenue Expenditure, Dismissing Revenue's Appeal.

The ITAT ruled in favor of the Assessee, determining that the Rs. 212.52 crores contribution to the Compensatory Afforestation Fund should be treated as ... Nature of expenses - allowability of the assessee's contribution to the Compensatory Afforestation Fund (CAF) - HELD THAT:- This issue is no more res-integra as even in the case of Dr. Prafulla R. Hede and Another [2014 (7) TMI 1085 - BOMBAY HIGH COURT] has accepted that contribution to CAF will be revenue expenditure and not capital in nature. Even the Special Leave Petition that was filed by the Revenue against Dr. Prafulla R. Hede as been dismissed[2014 (11) TMI 1239 - SC ORDER]. No substantial question of law arises. Issues:1. Whether the contribution made by the Assessee to the Compensatory Afforestation Fund (CAF) amounting to Rs. 212.52 crores should be treated as capital expenditure or revenue expenditure.Analysis:The judgment involves an appeal under Section 260A of the Income Tax Act, 1961, concerning the treatment of the Assessee's contribution to the Compensatory Afforestation Fund (CAF) as either capital or revenue expenditure. The Assessee, engaged in the manufacturing of iron and steel products, had filed a return of income for Assessment Year 2006-2007, declaring a total income of Rs. 44,22,82,61,971. Subsequently, the Commissioner of Income Tax set aside the original assessment order on three issues, one of which was the allowability of the Assessee's contribution to the CAF amounting to Rs. 212.52 crores. The Assessing Officer disallowed this contribution, leading to appeals before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT).The ITAT, in its order, allowed both appeals filed by the Assessee. It observed that similar issues had been decided in favor of the Assessee by various ITAT Benches and sister concerns. The ITAT held that the Commissioner of Income Tax was not justified in invoking the provisions of Section 263 of the Act. The Assessee raised three substantial questions of law, including the justification of the CIT's actions and the nature of the afforestation expenditure. The main issue in this appeal was whether the Assessee was entitled to treat the contribution to the CAF as capital or revenue expenditure.The judgment cited a previous decision by the Bombay High Court (Goa Bench) in a similar case, where it was held that the contribution to the CAF should be treated as revenue expenditure and not capital in nature. Additionally, a Special Leave Petition filed by the Revenue against the aforementioned decision was dismissed. Consequently, the court concluded that no substantial question of law arose in the present case and dismissed the appeal.