THE COMMISSIONER OF INCOME TAX., vs. DR. PRAFULLA R. HEDE AND AND ANR.,

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TXA/15/2012HC BombayHCBM05000049201206 February 2012Author: U. V. BAKRE,S. C. DHARMADHIKARI3 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the payment made by the assessee was towards the loss of forestry on the diverted forest land and did not create any forest asset for the assessee, as the land belonged to a third party. The Tribunal concluded that the Commissioner of Income Tax's assumption that the expenditure provided an enduring benefit was erroneous. The Tribunal found that the Assessing Officer's order allowing the deduction as revenue expenditure was a possible view of the matter and, in the given facts and circumstances, could not be considered erroneous and prejudicial to the interest of the revenue, thus not requiring interference under Section 263. The High Court agreed with the Tribunal's findings, stating that the expenditure was for commercial expediency and should not be treated as capital in nature. The High Court found no question of law arising from the Tribunal's decision.

What were the facts?

The assessee, Dr. Prafulla R. Hede, held a mining lease. Following a Supreme Court order and a notification by the Government of Goa, a demand of Rs. 2,13,98,160/- was raised for the net present value (NPV) of forest land diverted for mining. The assessee claimed this payment as a deduction for afforestation charges, treating it as revenue expenditure. The Assessing Officer allowed this deduction. However, the Commissioner of Income Tax (CIT) invoked Section 263, holding the Assessing Officer's order erroneous and prejudicial to the revenue, arguing the expenditure was capital in nature and provided enduring benefit. The CIT's order was challenged before the Income Tax Appellate Tribunal (ITAT).

What were the issues?

1. Whether the assessment order, allowing the deduction of afforestation charges as revenue expenditure, was erroneous and prejudicial to the interest of the revenue, warranting revision under Section 263 of the Income Tax Act, 1961? Assessee's Contentions (as inferred from the ITAT's decision and the High Court's agreement): The payment was for the loss of forestry on diverted land, not for creating any forest asset for the assessee. The land belonged to a third party. The Assessing Officer's view was a possible and reasonable interpretation of the facts. Revenue's Contentions (as inferred from the CIT's action and the appeal): The expenditure incurred for afforestation charges provided the assessee with an enduring benefit for many years and was therefore of a capital nature. The Assessing Officer failed to consider relevant judgments and erroneously allowed the deduction.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 15 OF 2012 THE COMMISSIONER OF INCOME TAX., ... Appellant Versus DR. PRAFULLA R. HEDE AND AND ANR., ... Respondents Ms. Asha A. Desai, Advocate for the appellant. Coram:- S. C. DHARMADHIKARI & U. V. BAKRE, JJ. Date:- 6th February, 2012 P.C.:- Heard Ms. Dessai appearing on behalf of the appellant-The Commissioner of Income Tax. 2. This appeal challenges the order of the Income Tax Appellate Tribunal, Panaji Bench, Panaji in ITA Nos.135/PNJ/2011 and 136/PNJ/2011 dated 29th August, 2011, by which the two appeals against the order dated 24th March, 2011 made under Section 263 of the Income Tax Act, of the learned Commissioner of Income Tax, Panaji, Goa have been allowed. 3. Respondent No.1 before us was holding a mining lease for a period of 20 years, made effective from 30th October, 1987. The said lease was granted upto the period expiring on 22nd November, 2007 after the title of concessions had been converted and declared as mining lease w.e.f. 22.11.1987 by virtue of Goa, Daman and Diu Mining Concessions (Abolition and Declaration as Mining Leases) Act, 1987. Referring to an order passed on 30th October, 2002, in the case of T.N. Godavarman Thirumalpad vs. Union of India of the Hon'ble Supreme Court of India directing the user agencies for whom the forest land was diverted to pay the net present value for such diversion after 30th October, 2002, that a notification was issued by the Government of Goa, Forest Department, notifying that the user has to pay the present value depending upon the quality and density of forest on the land in question. Pursuant to this notification, the Deputy Conservator of Forest, North Goa Division, Ponda, Goa determined the net present value to be paid by the assessee in respect of the mining lease at Rs.2,13,98,160/- and raised a demand vide letter dated 11th April, 2005. After referring to the classification of the amount and the payment by the assessee, what emerges from the record is that the assessee claimed afforestation charges as deduction of income from the business. Clarification was given in response to the queries raised by the assessing authority. The assessee claimed this as a revenue expenditure and the Assessing Officer duly examined the claim and allowed the deduction as revenue expenditure. However, the learned Commissioner of Income Tax, Panaji reached a conclusion that the Assessing Officer failed to note several judgments and erroneously concluded that the expenditure incurred as compensation for afforestation charges has given the assessee an enduring benefit for many years and that the amount should be added to the income of the assessee for the assessment year as an expenditure of capital nature which the Assessing Officer has failed to do. The Commissioner of Income Tax, Panaji interfered with the Assessment Order under Section 143(3) of the Income Tax Act, 1961. 4. Aggrieved and dissatisfied with this order of the Commissioner of Income Tax, Panaji, Goa dated 24th March, 2011, that the assessee carried the matter in appeal to the Income Tax Appellate Tribunal, Panaji Bench, Panaji, which delivered the

impugned order.

5.

The only question before the Tribunal was, whether the assessment order could be said to be erroneous and prejudicial to the interest of revenue and, therefore, required to be set aside in the revisional jurisdiction ? On the facts admitted and emerging from the record, the Tribunal concluded that the payment as stated is towards

the loss of forestry on the forest land that has been diverted and no forest asset for the assessee is created by making such payment of net profit value. The land in fact belongs to a third party. The assumption on which the Commissioner of Income Tax proceeded is wholly erroneous. The Tribunal concluded that the order of the Assessing Officer was a possible view of the matter and in the given facts and circumstances, could not have been said to be erroneous and prejudicial to the interest of the revenue, requiring interference under Section 143(3) of the Income Tax Act, 1961. 6. Without examining the broad question and the contour of the powers conferred on the revisional authority, in the present facts and circumstances, we are of the view that the findings of the appellate Tribunal, particularly in paragraphs 13 to 15 of the impugned order are consistent with the materials placed on record. We agree with them and we are of the opinion that they do not give rise to any question of law, requiring interference by this Court in its appellate powers. The expenditure so incurred is for commercial expediency and should not be treated as expenditure of capital nature. The judgments that the Tribunal has referred to are on similar facts and given in similar circumstances. We do not find any reason to interfere with its conclusion, as no question of law arises for our determination and consideration.

7.

After hearing the learned Counsel appearing for the Department, we are of the view that there is no merit in this appeal and it is, accordingly, dismissed. There will be no order as to costs. S. C. DHARMADHIKARI, J. U. V. BAKRE, J. ssm.

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