TATA STEEL LTD., MUMBAI V. DY,CIT-2(3), MUMBAI

ITA 1447/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8567 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 18-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANTANU K SAIKIA
• Assessee Lawyers: DINESH VYAS
• Keywords: Capital asset; Business expenditure; Rectification of order; Revenue expenditure; Capital expenditure
• Section: 37(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , BEFORE SHRI RAJENDRA, A.M. AND SHRI PAWAN SINGH,J.M . ./ITA NO.1447/MUM/2012, / ASSESSMENT YEAR: 2006-07 ./ITA NO.1412/MUM/2014, / ASSESSMENT YEAR: 2006-07 TATA STEEL LTD. BOMBAY HOUSE,24, HOMI MODY STREET, FORT,MUMBAI-400 020. PAN: AAACT 2803 M VS. DCIT-2(3) AAYAKAR BHAVAN, MK RD. MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SANTANU K. SAIKIA-CIT-DR ASSESSEE BY: SHRI DINESH VYAS / DATE OF HEARING: 11.01.2017 ! / DATE OF PRONOUNCEMENT:03.02.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ,, , -PER RAJENDRA,AM: CHALLENGING THE ORDER, DATED 16.12.2011,PASSED U/S. 263 OF THE CIT-2 AND THE ORDER DTD.29. 11.2013 OF THE CIT(A)-6,MUMBAI,THE ASSESSEE HAS FIL ED THE ABOVE MENTIONED TWO APPEALS FOR THE YEAR UNDER CONSIDERATION.ASSESSEE-COMPANY ,ENGA GED IN THE BUSINESS OF MANUFACTURE AND SALE OF STEEL,FILED ITS RETURN OF INCOME ON 20/11/2 006 DECLARING TOTAL INCOME OF RS.44,22,82, 61,971/-.THE ASSESSING OFFICER(AO) COMPLETED THE AS SESSMENT U/S.143(3) ON 29/12/2009, DETERMINING ITS INCOME AT RS.4,489.32 CRORES. THE C IT INITIATED REVISIONARY PROCEEDINGS U/S. 263 OF THE ACT,VIDE HIS NOTICE DATED 11/05/2001 AND VIDE HIS ORDER DATED 16/12/2011 PASSED U/S.263 OF THE ACT, HE SET ASIDE THE ORIGINAL ASSES SMENT ORDER ON THREE ISSUES. HE DIRECTED THE AO TO PASS THE ASSESSMENT ORDER AFRESH.THE DISPUTED ISSUES ON WHICH THE ORIGINAL ASSESSMENT ORDER WAS SET ASIDE WERE AS FOLLOWS: I )ALLOWABILITY OF THE ASSESSEES CONTRIBUTION TO THE COMPENSATORY AFFORESTATION FUND (CAF), AMOUNTING TO RS.212.52 CRORES II)ALLOWABILITY OF PRIOR PERIOD EXPENSES AMO UNTING TO RS.9.54 CRORES III)ALLOWABILITY OF PROCESSING CHARGES AMOUN TING TO RS.57.96 CRORES THE AO IN PURSUANCE OF ORDER OF CIT COMPLETED THE F RESH ASSESSMENT ORDER U/S.143(3) R.W.S. 263 ON 01/03/2013.HE DISALLOWED THE CONTRIBUTION MA DE BY THE ASSESSEE TO CAF. HOWEVER, HE DID NOT MAKE ANY DISALLOWANCE IN RESPECT OF THE TWO REMAINING ISSUES.THE ASSESSEE HAS,AS STATED EARLIER,CHALLENGED THE REVISIONARY ORDER OF CIT AND THE ORDER PASSED BY THE FIRST APPELLATE AUTHORITY(FAA) ON 29.11.2013. ITA/1447/MUM/2012(06-07) 2. VIDE HIS NOTICE U/S.263 THE CIT-2 MUMBAI, INFORMED THE ASSESSEE AS UNDER :- 1447&1412-TATA STEELLTD.(06-07) 2 DURING THE RELEVANT ASSESSMENT YEAR THE COMPANY H AD CONTRIBUTED RS.212.52 CRORES TOWARDS FUND AND CAPITALISED IN THE BOOKS OF ACCOUN T UNDER THE HEAD DEVELOPMENT OF PROPERTY, BUT IN COMPUTING TAXABLE INCOME CLAIMED SUCH CONTRIBUTION AS BUSINESS EXPENDITURE U/S. 37(1) OF THE INCOME TAX ACT, 1961. SINCE THE CONTRIBUTION IS FOR MINING LEASE RIGHTS, SAME SHOULD HAVE BEEN DISALLOWED AS CAPITAL EXPENDITURE. IT IS SEEN FROM RECORDS THAT RS.47,49,82,836/- ON A CCOUNT OF PRIOR PERIOD EXPENSES ARE NOT ADMISSIBLE EXPENDITURE AS THE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING FOR INCOME. EXPENDITURE IS REQUIRED TO BE CREDITED AND DEBITED RESPECTIVELY IN THE YEAR IN WHICH THE TRANSACTIONS ARE MADE AND IF THE EXPENSES ARE N OT PAID IN THAT YEAR, IT SHOULD HAVE BEEN DECLARED AS PAYABLE IN THE AUDITED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET. IT IS FURTHER NOTICED FROM THE RECORDS THAT THE COM PANY THE HAS INCURRED RS.57,96,77,391/- ON ACCOUNT OF PROCESSING CHARGES OF LONG TERM LOANS AND AMORTISED RS.4,97,53,451/- IN BOOKS OF ACCOUNTS. IT IS ALSO NOTICED FROM THE NOTE S TO CASH FLOW STATEMENT THAT INTEREST OF RS.3.76 CRORES WAS CAPITALISED. DURING THE YEAR PUR CHASE ON FIXED ASSETS WAS RS.2245.85 CRORES. THE ASSESSEE COMPANY IN ITS COMPUTATION OF INCOME UNDER INCOME TAX CLAIMED ENTIRE PROCESSING CHARGES OF RS.57,96,77,391/- AS DEDUCTIO N WHILE ARRIVING AT TAXABLE INCOME. AS THE COMPANY ITSELF IN BOOKS OF ACCOUNT AMORTISED TH E AMOUNT OF RS.497,53,451/- AND CAPITALISED INTEREST AMOUNT OF RS.3.76 CRORES, IT C ONCLUDES THAT THE PROCESSING CHARGES ARE INCURRED FOR LONG TERM LOANS FOR FINANCING CAPITAL ASSETS. THUS CLAIMING DEDUCTION OF RS.57,96,77,391/- AS REVENUE EXPENDITURE IS IRREGUL AR. IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE M ADE SUBMISSIONS WITH REGARD TO PAYMENTS MADE TOWARDS CAF,PRIOR PERIOD EXPENSES AND PROCESSING CHARGES IN DETAIL.AFTER CONSIDERING THE SAME THE CIT OBSERVED THAT THE AO H AD HARDLY MADE ANY SCRUTINY/ ENQUIRY.HE FURTHER OBSERVED AS UNDER :- WITHOUT PRE-EMPTING THE INDIVIDUAL SATISFACTION O F THE A.O., IT CANNOT BE RULED OUT THAT IN CASE DETAILED SCRUTINY AS ABOVE HAD BEEN DONE AND A LL THE RELEVANT FACTS COLLECTED, THE RESULT WOULD HAVE BEEN DIFFERENT. IT IS NOW JUDICIALLY ACC EPTED FACT THAT THE LACK OF SCRUTINY IN FRAMING AN ORDER RENDERS THE SAME AS ERRONEOUS. SIN CE THE LIKELY ERRORS AS POINTED OUT ABOVE HAVE HUGE TAX IMPLICATIONS,THEREFORE, IT IS C LEARLY A CASE WHERE THE ASSESSMENT FRAMED IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE. FINALLY,HE SET ASIDE THE ORDER PASSED BY AO AND DIR ECTED THE AO TO FRAM A FRESH ASSESSMENT ORDER WITH REGARD TO ABOVE MENTIONED THR EE ISSUES. 3. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR) STATED THAT IN THE COVERING LETTER TO THE RETURN OF INCOME THE ASSESSEE HAD MADE A SPECIFIC NOTE ABOUT THE CAF(NOTE NO.XIV-PG.-5 OF THE PB),THAT THE AO HA D CALLED FOR NECESSARY DETAILS AND HAD ALLOWED THE EXPENDITURE,THAT THE ISSUE OF CONTR IBUTION TO CAF STOOD DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL BEFOR E THE CIT HAD PASSED ORDER U/S.263 ON 16.12.2011.HE REFERRED TO CASES OF RAMGAD MINERALS & MININGS PVT. LTD.(ITA/5021/ / 2009 DT.06/01/2012),P. ABUBAKAR(ITA/725/BANG/2009 D T.22/01/2010);RUNGTA SONS (P) LTD.(ITA/933/KOL/2009 DT.05.08.2011);FREEGRADE & CO . LTD.(ITA/934/KOL/2009 DT.05.08. 2011);ORISSA MINING CORPN LTD.(ITA/76,266 & 240/CTK /2010 DT.12.08.2011);ASSOCIATED 1447&1412-TATA STEELLTD.(06-07) 3 CEMENT CO.LTD.(ITA/6289/MUM/2003DT.09.03.2011)AND O RISSA FOREST DEVELOPMENT CORPORATION LTD.(80ITD300) 3.1. HE ALSO RELIED UPON THE CASE OF T.N. GODAVARMAN THI RUMUILPAD OF THE HONBLE APEX COURT(IA NO.566 IN WP(C)202/1995 DT.29.10.2002 )ALO NG WITH THE MATTERS OF TATA POWER ITA(ITA/226/BOM/1991,DT.5.9.2001),TATA HYDRO(335/MU M/1995)AND TATA CHEMICALS LTD.(ITA/2658/MUM/2002,DT.26.7.2006)HE STATED THAT THE TRIBUNAL HAD ALLOWED THE CLAIM MADE BY THE ASSESSEE IN ALL THREE GROUP CONCERNS, T HAT THE AO HIMSELF HAD NOT TAKEN ANY ACTION WITH REGARD TO REMAINING TWO ITEMS,THAT CIT HAD FAILED TO PROVE THAT ORIGINAL ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE.THE DEPARTMENTAL REPRESEN - TATIVE(DR)STATED THAT MATER COULD BE DECIDED ON MER ITS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE CIT HAD INVOKED THE PROVISIONS OF SECTION 263 O F THE ACT WITH REGARD TO THREE ISSUES, THAT AFTER DUE VERIFICATION THE AO HAD DROPPED TWO ISSUES OUT OF THE THREE AND HAD PASSED ORDER ABOUT THE FIRST ISSUE I.E CONTRIBUTION TO CAF .WE FURTHER FIND THAT IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN VARIOUS BENCHE S OF THE TRIBUNAL . IN CASE OF THE SISTER CONCERNS, THE TRIBUNAL HAD DECIDED THE ISSUE IN THE IR FAVOUR.WE WOULD LIKE TO REFER TO THE CASE OF RAMGAD MINERALS AND MINING PVT. LD. (SUPRA ) AND IT READS AS UNDER: 3.THE COMMISSIONER OF INCOME TAX VIDE ORDER AT ANN EXURE-B CONFIRMED THE ORDR OF THE ASSESSING AUTHORITY.THE APPELLATE TRIBUNAL VIDE ANN EXURE-A HAS MADE THE FOLLOWING OBSERVATION . WE FIND FORCE IN THE SUBMISSION OF THE LEARNED COU NSEL THAT PAVEMENTS TO THE GOVERNMENT ARE TO BE PAID ONCE THE MINING LEASE IS OBTAINED AND SUCH PAY MENTS ARE GOVERNED BY VARIOUS ACTS ALONG WITH THE APEX COURT MAKING A RULING FOR STATE GOVERNMENT S TO PARTICIPATE IN THE GRANTING OF MINING LEASE BY RECOVERING COMPENSATION WHEN THEIR FORESTS ARE U PROOTED.THEREFORE, FOR THIS PURPOSE, THE FUNDS ARE USED FOR A NATURAL REGENERATION WHICH THE ASSES SEE PARTICIPATES INDIRECTLY. THEREFORE, AT NO POINT OF TIME COULD IT BE SAID THAT THE ASSESSEE HAD INCU RRED CAPITAL EXPENDITURE GIVING THE ASSESSEE A BENEFIT OF ENDURING NATURE FOR THE PURPOSE OF EARNI NG SEGMENTED INCOME TO RENDER THE SAME TO INCOME TAX. IN OTHER WORDS, THE AUTHORITIES BELOW H AVE NOT POINTED OUT THE INCOME GENERATED AGAINST THE PURPORTED DEFERRED REVENUE EXPENDITURE SO PROPO SED BY THEM IN THEIR IMPUGNED ORDERS. THE AMOUNT WAS INCURRED AS A REVENUE EXPENDITURE TO BE ALLOWED IN THE YEAR IT HAS BEEN INCURRED. 4.IT IS NOT IN DISPUTE THAT THE SAID PAYMENT WAS MA DE AS CONTRIBUTION TO COMPENSATORY AFFORESTATION AS PER THE DIRECTIONS OF THE SUPREME COURT. IT IS NOT PERMISSIBLE FOR THE ASSESSEE TO MAKE PHASE-WISE PAYMENT. IN THAT VIEW, THE ORDER OF THE APPELLATE TRIBUNAL IS SOUND AND PROPER. APPEAL IS DISMISSED. CONSIDERING THE ABOVE WE HOLD THAT THE CIT-2 WAS NO T JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT WITH REGARD TO ANY OF THE THREE ISSUES.EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE . ITA/1412/MUM/14: 1447&1412-TATA STEELLTD.(06-07) 4 5. AS STATED EARLIER,THE APPEAL IS AGAINST THE ORDER O F CIT(A)-6. FIRST GROUND OF APPEAL IS ABOUT CONTRIBUTION TOWARDS GOVT. OF INDIAS CAF.IN THE EA RLIER PARA OF OUR ORDER WE HAVE DISCUSSED THE ISSUE AT LENGTH AND HAVE DECIDED IT FAVOUR IF T HE ASSESSEE.FOLLOWING THE SAME, GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. 6. BEFORE US, THE AR STATED THAT GROUND NO.2 WAS CONS EQUENTIAL IN NATURE AND GROUND NO.4 HAD BECOME INFRUCTUOUS,IN VIEW OF THE RECTIFICATION ORDER,HENCE,BOTH THE GROUNDS ARE NOT BEING ADJUDICATED. 7. GROUND NO.3 PERTAINS TO INTEREST CHARGED U/S. 234C OF THE ACT.WHILE COMPUTING THE INCOME OF THE ASSESSEE,THE AO CHARGED INTEREST AS PER PRO VISIONS OF SECTION 234 C,WITH REFERENCE TO SHORTFALL IN ADVANCE TAX. 7.1. BEFORE US,AR ARGUED THAT INTEREST U/.S 234C COULD BE CHARGED WITH REFERENCE TO SHORT FALL IN THE ADVANCE TAX PAYABLE ON RETURNED INCOME.HE RE FERRED TO THE CASES OF ARAMAX INDIA PVT. LTD.(ITA/798/MUM/2014-AY.2009-10,DT.28.11.2014)AND SLK SOFTWARE SERVICES LTD.(ITA/ 604/BANG/2015-AY.10-11,DT.7.8.15)THE DR STATED THAT THE MATTER SHOULD BE DECIDED ON MERITS. WE FIND THAT IN CASE OF ARAMAX INDIA PVT. LTD.(SUPR A),THE TRIBUNAL ,AT PAGE -23 PARA 9 HAS HELD AS UNDER :- 9.IN GROUND NO.20, THE ASSESSEE HAS CHALLENGED THE LEVY OF INTEREST U/S 234C. IN THIS REGARD, THE LEARNED SENIOR COUNSEL SUBMITTED THAT S UCH AN INTEREST IS TO BE LEVIED ONLY ON THE RETURNED INCOME. WE AGREE WITH SUCH A CONTENTION AN D DIRECT THE A.O. TO LEVY INTEREST U/S 234C ONLY ON THE BASIS OF RETURNED INCOME OF THE AS SESSEE. RESPECTFULLY,FOLLOWING THE ABOVE WE DECIDE GROUND N O.3 IN FAVOUR OF THE ASSESSEE. AS A RESULT,BOTH THE APPEALS FILED BY THE ASSESSEE FOR AY 2006-07 STAND ALLOWED. 2006-07 . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2017. 3 2017 SD/- SD/- ( /PAWAN SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 03.02.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 1447&1412-TATA STEELLTD.(06-07) 5 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.