Benefit not derived on Compulsory Afforestation done over Land not owned by Assessee: ITAT upholds deletion of Addition made on NPV [Read Order]

In a ruling in favour of Orissa Minning Corporation the Cuttack Bench, of the Income Tax Appellate Tribunal ( ITAT ), held that benefits were not derived from compulsory afforestation done on land not owned by the assessee and upheld the deletion of addition made on NPV.

Shri Siddharth Ranjan appeared for the assessee and Shri M.K.Gautam appeared  for the Revenue

The appellant revenue challenged the action of the CIT(A) in deleting the addition made on account of Net Present Value (NPV) paid towards the acquisition of forest land and compensatory afforestation. It was contended by the appellant that the assessee had been treated the same as revenue expenditure while the AO held that as liable to be treated as capital expenditure

 The appellant contended that the afforestation was required to bring back the land to its original state which it was before the mining operation was done and stated that a new capital asset came into existence which was of an enduring benefit.

The respondent-assessee relied on the decision made in the case of Orissa Forest Development Corporation Ltd. Vs. JCIT where the tribunal held that “the expenditure towards afforestation of new trees over different years in areas from which the trees had been felled and exploited and sometimes in new areas also as per policies and directives of Central as well as State Government are to be treated as revenue expenditure and, therefore, allowable”.

It was submitted by the respondent that the afforestation was a compulsory part of the mining process and the expenditure is liable to be treated as revenue expenditure. Further stated that the land did not belong to the assessee and the assessee gained no enduring benefit from the land. 

The court observed that the assessee was engaged in mining activities and it was a pre-condition that the assessee had to restore the land to its original form and the assessee derives no enduring benefit as the land was not owned by him.

The Coram consists of Shri George Mathan, judicial member and Shri Arun Khodpia, accountant member upheld the order of CIT(A) which deletes the addition made by the AO to the NPV and dismissed the appeal filed by the revenue.

To Read the full text of the Order CLICK HERE

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