Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-2, Mumbai, dated 29.03.2017 which in turn arises from the order passed by the A.O under Sec.143(3) of the Income Tax Act, 1961 (for short „I.T. Act‟), dated 27.03.2015. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal: “1. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of Rs. 16,41,654/- being provision for enhanced compensation on land acquisition made by the Assessing Officer without considering the fact that the court has not yet quantified the exact compensation and interest payable.
2. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition on account of acquisition of land expenses of Rs.53,09,116/- without appreciating P a g e | ACIT-1(2)(2) Vs. Indian Rare Earths Ltd that the expense is related to the acquisition of land and cannot be revenue expenditure.
3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of Rs. 1,20,61,377/- on account of school expenses at Orissa, without appreciating that the expense is related to the running of the school and not wholly and exclusively for the purpose of business. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal.”
2. Briefly stated, the assessee company which is engaged in the business of mineral separation and production of rare earth compound had filed its return of income for A.Y. 2012-13 on 29.09.2012, declaring total income at Rs.331,23,40,080/-. Subsequently, the income of the assessee was assessed under Sec. 143(3) of the I.T. Act at Rs. 333,72,82,571/- after inter alia making the following additions/disallowances:
Sr. No. Particulars Amount 1. Disallowance of provision for the enhanced Rs. 16,42,000/- compensation on land acquisition 2. Disallowance of Land Acquisition Expenses Rs. 53,09,116/- 3. Disallowance of School expenses Rs.1,20,61,377/-
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee did find favour with the same and deleted the aforesaid additions/disallowances made by the A.O.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short „D.R‟) relied on the order passed by the A.O. It was submitted by the ld. D.R that the CIT(A) had wrongly deleted the aforementioned additions/disallowances made by the A.O. The ld. D.R took us through the facts of the case in context of the issues under consideration before us. It was the contention of the ld. D.R. that as observed by the A.O, the P a g e | ACIT-1(2)(2) Vs. Indian Rare Earths Ltd amount of Rs.16,41,654/- debited by the assessee in its Profit and loss account was in respect of a provision for enhanced compensation and the CIT(A) had wrongly deleted the same. The ld. D.R taking us through the facts relevant to the issue under consideration submitted that the assessee had acquired some land at Village: Choura and the seller in respect of the said acquisition of land had sought some enhanced compensation from the assessee and had filed a suit in the court. In the mean time, the assessee company during the pendency of the litigation had made a provision for compensation in anticipation of court ruling against it. The ld. D.R averred that the expenditure incurred by the assessee for acquisition of land as rightly observed by the A.O was required to be capitalized and was not to be allowed as a revenue expenditure. Alternatively, it was submitted by him that as the court had not quantified any enhanced compensation and the liability to pay such compensation had yet not crystallised, therefore, the provision made by the assessee could not be allowed as a deduction and had rightly been disallowed by the A.O. Insofar, the expenditure claimed by the assessee for running and maintenance of school in Orissa was concerned, it was submitted by him that no such details were filed by the assessee before the A.O and the same were for the first time furnished before the CIT(A). It was submitted by him that as the details of the number of teachers was never provided by the assessee to the A.O thus he had no occasion to verify the veracity of the said claim.
Per contra, the ld. Authorized Representative (for short „A.R‟) relied on the order of the CIT(A). The ld. A.R took us through the relevant observations of the CIT(A) in context of the aforesaid additions/disallowances and submitted that the additions had rightly been deleted by the CIT(A).
P a g e | ACIT-1(2)(2) Vs. Indian Rare Earths Ltd 6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. Insofar, the disallowance of Rs.16,41,654/- that was made by the A.O on the ground that the same pertained to the provision for enhanced compensation on land acquisition is concerned, we find that it was observed by the CIT(A) that the A.O had misconceived the facts and had wrongly made the said addition/disallowance. It was noticed by the CIT(A) that the amount of Rs.16,41,654/- booked by the assessee as a revenue expenditure comprised of viz. (i) interest on service tax on payments made to transporters (Rs.12,40,970/-); (ii) interest on Kerala State General Tax (Rs.92,637/-); and (iii) Interest on leasehold land acquisition payments (Rs.3,08,047/-). Apart therefrom, it was observed by the CIT(A) that during the year under consideration the liability to pay service tax to the transporters was to be borne by the service availer. It was noticed by him that the assessee as a service availer had paid service tax in respect of the amount paid to the transporters for movement of raw materials to its factory premises. However, as there were certain errors while computing the service tax liability on the part of the assessee, thus pursuant to the audit conducted by the service tax authorities certain additional payment became payable by the assessee. The principal amount that was paid by the assessee towards the additional liability of service tax was added to the material cost while for the interest of Rs.12,40,970/- was debited as “interest-others” in the profit and loss account. The assessee in order to fortify its aforesaid claim had placed on record the copy of the orders of the service tax department, proof of challan for making the payment and the internal note prepared for the payment that was made. The CIT(A) observed that as the payment of interest on service tax was in the nature of a revenue expenditure and had rightly been claimed by the assessee, therefore, the same was to be allowed while computing the income of the assessee. As regards the payment of Rs. 3,08,047/-, it was observed by P a g e | 5 A.Y. 2012-13 ACIT-1(2)(2) Vs. Indian Rare Earths Ltd the CIT(A) that the assessee in the course of its business would take land falling in the vicinity of its factory on short term lease for mining purpose and thereafter would hand over the same back to the owners. It was observed by the CIT(A) that as the amount of Rs.3,08,047/- paid by the assessee was towards compensation payable in respect of one such lease transaction and was paid to the State Government of Kerala which was a nodal agency for land acquisition, thus the same was clearly in the nature of a revenue expenditure and was to be allowed as a deduction while computing the income of the assessee. Apart therefrom, it was observed by the CIT(A) that as the interest paid by the assessee on account of late deposit of the amounts under the Kerala State General Tax was in the nature of a revenue expenditure, hence the same too was allowable as a deduction while computing the income of the assessee. On the basis of his aforesaid deliberations the CIT(A) deleted the addition of Rs.16,41,654/-.
We have deliberated at length on the issue under consideration and are in agreement with the view taken by the CIT(A) that the A.O on the basis of misconceived facts had made an addition of Rs. 16,41,654/- in the hands of the assessee. The ld. D.R had also not placed before us any such material or raised any such contention which could persuade us to conclude that the factual observations of the CIT(A) suffer from any infirmity. We thus being of the considered view that the aforesaid expenses aggregating to Rs. 16,41,654/- viz. (i). interest on service tax on transport of goods :Rs. 12,40,970/-; (ii). Interest on Kerala State General Tax : Rs. 92,637/-; and (iii). Interest on leasehold land acquisition payments : Rs. 3,08,047/-, being in the nature of a revenue expenditures were allowable as a deduction while computing the income of the assessee, thus finding no infirmity in the order of the CIT(A) who had rightly deleted the addition of Rs.16,41,654/- made by the A.O, uphold his order. The Ground of appeal No. 1 raised by the revenue is dismissed.
P a g e | ACIT-1(2)(2) Vs. Indian Rare Earths Ltd 8. We shall now advert to the disallowance of Rs.53,09,116/- made by the A.O in context of impugned land acquisition expenses. The A.O while disallowing the aforesaid expenses of Rs. 53,09,116/- which were booked by the assessee under the head „miscellaneous expenditure‟ had observed that the same pertained to acquisition of land. The A.O held a conviction that as the expenditure incurred by the assessee was in context of acquiring land, hence the same was required to be capitalized and could not have been claimed by the assessee as a revenue expenditure.
We have deliberated at length on the issue under consideration and find that the bifurcated details of the miscellaneous expenditure of Rs. 53,09,116/- booked by the assessee in its profit and loss account for the year under consideration was as under:
Sr. No. Particulars Amount 1. Engagement Fees Rs. 39,200/- 2. Encumbrance Certificate fee Rs. 10,780/- 3. Scrutiny Charges to Advocate Rs. 24,500/- 4. Sweeping Charges Rs. 11,000/- 5. Building Evaluation Charges, Rs. 14,000/- etc.
Miscellaneous Expenses Rs. 4,145/- 7. Establishment Charges Rs.52,05,491/- Total Rs.53,09,116/- We find that the major portion of the expenditure of Rs.52,05,491/- (out of total expenditure of Rs. 53,09,116/-) was incurred by the assessee towards maintenance of the office of the land acquisition unit of the Government of India. On a perusal of the facts, it emerges that the said expenditure was incurred by the assessee pursuant to an understanding between the Government of Kerala and the assessee, as per which the assessee was to bear the expenditure of the land acquisition unit set up by the State Government at the site of the assesses business. The aforesaid expenditure comprised of viz. (i) reimbursement of salary; (ii) rent; (iii) electricity; and (iv) other office maintenance expenditure of the P a g e | ACIT-1(2)(2) Vs. Indian Rare Earths Ltd Government of Kerala at the site of the assessee. In our considered view as the assessee in the normal course of its business of mining rare earth minerals was continuously taking lands on lease for extraction of minerals, thus the aforesaid expenditure incurred by it pursuant to an understanding with the Government of Kerala whose intervention was involved at every stage of its mining activity, was thus clearly in the nature of a revenue expenditure that was incurred by the assessee in the course of its business and the same could not be held as being in the nature of a capital expenditure. Apart therefrom, we find from a perusal of the order of the CIT(A) that the expenses on maintenance of the Government of Kerala employees by the assessee had been in existence since long. Rather, the allowability of such expenditure was also one of the issue involved in the appeal of the assessee for A.Y. 1997-98, wherein the Tribunal while disposing off the appeal viz. dated 06.07.2007 had directed that the same was to be allowed as a deduction, observing as under:
“This is apparent from the G.O. No. 471/96/ID dated 9.5.1996 wherein it has been clearly mentioned that sanction is accorded subject to the condition that the entire establishment cost, salary, pension conditions should be met by the assessee. Admittedly, the assessee has been carrying on the business of mining at the site in Kerala for more than 20 years and such expenditure is being incurred year after year.” We further find that as observed by the CIT(A), during the year under consideration the Special Tehsildar (I.A. Kerala), vide his order dated 05.05.2009 had sanctioned 13 posts exclusively for looking after the assesses land. Rather, it was observed by him that as per the order of the Joint Secretary to the State Government of Kerala minerals and metals department 75% of the establishment cost was to be borne by the assessee. The relevant extract of the aforesaid order is as under:
The Establishment charges of 12 posts mentioned above shall be completely by Rare Earths Limi ted 75% the establi shm ent charge s of p osts menti one d all be met by Kerala Minerals and Metals and Indian Rare Earths Limits as envisaged in G.O.(Rt) 1454/07/ID dated 14/11/2007.
P a g e | ACIT-1(2)(2) Vs. Indian Rare Earths Ltd We are of the considered view that as the aforementioned expenditure incurred by the assessee pursuant to an understanding with the State government of Kerala was in the course of its business of mining, hence the same being clearly in the nature of a revenue expenditure was to be allowed as a deduction while computing its income for the year under consideration. Apart therefrom, we find that the issue under consideration as regards the allowability of the aforesaid expenditure is squarely covered by the order passed in the assesses own case by a coordinate bench of the ITAT “A” Bench, Mumbai in M/s Indian Rare Earth Ltd. Vs. JCIT (Sr.-6), Mumbai [ITA No. 1664/Mum/2003; dated 06.07.2007]. We thus finding ourselves to be in agreement with the view taken by the Tribunal, thus are of the considered view that the amount of Rs. 53,09,116/- incurred by the assessee was rightly claimed as a revenue expenditure. We thus not finding any infirmity in the order of the CIT(A) wherein the latter had ordered deletion of the addition of Rs. 53,09,116/- made by the A.O, uphold his order in context of the issue under consideration. The Ground of appeal
No. 2 raised by the revenue is dismissed.
10. We shall now advert to the disallowance of the expenditure incurred by the assessee on running and maintenance of Atomic Energy Central School Oscom, (Orissa Sand Complex) amounting to Rs.1,20,61,377/-, which had been deleted by the CIT(A). We find from a perusal of the orders of the lower authorities that the assessee had incurred expenses pertaining to running of Atomic Energy Central School Oscom (Orissa Sand Complex). It was the claim of the assessee before the A.O that they were providing funds for running of the school in the area where they were carrying out the mining operations. Apart therefrom, it was submitted by the assessee that the aforesaid school catered to the wards of all the residents of that area as well as those of the adjoining areas and was not restricted to only the children of the employees. However, the A.O P a g e | ACIT-1(2)(2) Vs. Indian Rare Earths Ltd not finding favour with the said claim of the assessee disallowed the said expenses by observing that as the employees of the assessee were drawing educational allowance from the assessee as per the government rules, therefore, the aforementioned expenses incurred on running of the school was not allowable as a deduction.
11. We have deliberated at length on the issue before us and find from a perusal of the orders of lower authorities that the aforementioned school viz. Atomic Energy Central School, Oscom was being run at the place where the assessee had set up its manufacturing units viz. Chatrapur, Orissa. Rather, the assesses major business activity of mining of Rare Earth Minerals and also processing beneficiation of illiminite from the mining activity was being carried out at Chatrapur, Orissa. Apart therefrom, we find from the order of the CIT(A) that the Central school established in Chatrapur, viz. Atomic Energy Central School, Orissa had been operative for over a decade and was providing education to the children of the employees of the assessee as well as the wards of the local residents and those of the adjoining areas. The expenses incurred by the assessee on running and maintenance of the aforementioned school during the year under consideration was comprised of the following :