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

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य,राजे�� के अनुसार लेखा सद�य लेखा सद�य राजे�� के अनुसार राजे�� के अनुसार -Per Rajendra,AM: राजे�� के अनुसार 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 filed the above mentioned two appeals for the year under consideration.Assessee-company ,engaged in the business of manufacture and sale of steel,filed its return of income on 20/11/2006 declaring total income of Rs.44,22,82, 61,971/-.The Assessing Officer(AO) completed the assessment u/s.143(3) on 29/12/2009, determining its income at Rs.4,489.32 crores. The CIT 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 assessment 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 assessee’s contribution to the Compensatory Afforestation Fund (CAF), amounting to Rs.212.52 crores ii)Allowability of prior period expenses amounting to Rs.9.54 crores iii)Allowability of processing charges amounting to Rs.57.96 crores The AO in pursuance of order of CIT completed the fresh assessment order u/s.143(3) r.w.s. 263 on 01/03/2013.He disallowed the contribution made 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)

“During the relevant assessment year the company had contributed Rs.212.52 crores towards fund and capitalised in the books of account 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 account 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 not 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 company 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 notes to cash flow statement that interest of Rs.3.76 crores was capitalised. During the year purchase 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 deduction while arriving at taxable income. As the company itself in books of account amortised the amount of Rs.497,53,451/- and capitalised interest amount of Rs.3.76 crores, it concludes 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 irregular.” In response to the show cause notice the assessee made 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 had hardly made any scrutiny/ enquiry.He further observed as under :- “Without pre-empting the individual satisfaction of the A.O., it cannot be ruled out that in case detailed scrutiny as above had been done and all the relevant facts collected, the result would have been different. It is now judicially accepted fact that the lack of scrutiny in framing an order renders the same as erroneous. Since the likely errors as pointed out above have huge tax implications,therefore, it is clearly a case where the assessment framed is erroneous and prejudicial to the interest of revenue.” Finally,he set aside the order passed by AO and directed the AO to fram a fresh assessment order with regard to above mentioned three issues.

3.During the course of hearing before us,the Authorised 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 had called for necessary details and had allowed the expenditure,that the issue of contribution to CAF stood decided in favour of the assessee by the orders of the Tribunal before 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 dt.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

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Cement Co.Ltd.(ITA/6289/Mum/2003dt.09.03.2011)and Orissa Forest Development Corporation Ltd.(80ITD300)

3.1.He also relied upon the case of T.N. Godavarman Thirumuilpad of the Hon’ble Apex Court(IA No.566 in WP(C)202/1995 dt.29.10.2002 )along with the matters of Tata Power ITA(ITA/226/Bom/1991,dt.5.9.2001),Tata Hydro(335/Mum/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, that 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 revenue.The Departmental Represen - tative(DR)stated that mater could be decided on merits.

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 of 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 Benches of the Tribunal . In case of the sister concerns, the Tribunal had decided the issue in their 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 Annexure-B confirmed the ordr of the Assessing Authority.The appellate Tribunal vide annexure-a has made the following observation. “We find force in the submission of the learned counsel that pavements to the Government are to be paid once the mining lease is obtained and such payments are governed by various acts along with the Apex Court making a ruling for State Governments to participate in the granting of mining lease by recovering compensation when their forests are uprooted.Therefore, for this purpose, the funds are used for a natural regeneration which the assessee participates indirectly. Therefore, at no point of time could it be said that the assessee had incurred capital expenditure giving the assessee a benefit of enduring nature for the purpose of earning segmented income to render the same to income tax. In other words, the authorities below have not pointed out the income generated against the purported deferred revenue expenditure so proposed 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 made 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 not 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:

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5.As stated earlier,the appeal is against the order of CIT(A)-6. First Ground of appeal is about contribution towards Govt. of India’s CAF.In the earlier para of our order we have discussed the issue at length and have decided it favour if the 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 consequential 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 provisions 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 referred 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.(supra),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 such an interest is to be levied only on the returned income. We agree with such a contention and direct the A.O. to levy interest u/s 234C only on the basis of returned income of the assessee.” Respectfully,following the above we decide Ground No.3 in favour of the assessee.

As a result,both the appeals filed by the assessee for AY 2006-07 stand allowed. फलतः िनधा�रती �ारा िन.व. 2006-07 के िलए दािखल क� गई दोन� अपील� मंजूर क� जाती ह�. Order pronounced in the open court on 3rd February, 2017. आदेश क� घोषणा खुले %यायालय म� 'दनांक 3 फरवरी, 2017 को क� गई । Sd/- Sd/- ( पवन�सह/Pawan Singh) (राजे�� / RAJENDRA) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; 'दनांक/Dated : 03.02.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ, 2. Respondent /-.यथ, 4

1447&1412-Tata SteelLtd.(06-07)