The Bombay High Court in a ruling in favour of Tata Steel limited held that a contribution of Rs. 212.52 Crores to the Compensatory Afforestation Fund (“CAF”) amounts to Revenue Expenditure. The Court dismissed the appeal.
Tata Steel Ltd, the respondent assessee is engaged in the business of manufacturing of iron and steel products. Assessee had filed the return of income for Assessment Year 2006-2007 on 20th November 2006 declaring a total income of Rs. 44,22,82,61,971/-. The return of income was processed under Section 143(1) of the Act and later assessment under Section 143(3) of the Act was completed on 29th December 2009 determining the income at Rs. 4489.32 crores.
The Commissioner of Income Tax (“CIT”) exercising powers under Section 263 of the Act, issued a notice dated 11th May 2011 to assessee and by an order dated 16th December 2011, set aside the original assessment order on three issues with a direction to the Assessing Officer (“AO”) to pass the assessment order afresh. Only one of the three issues we are concerned with in this appeal and that relates to allowability of Assessee’s contribution to the Compensatory Afforestation Fund (“CAF”) amounting to Rs. 212.52 crores.
The AO passed an order dated 1st March 2013 under Section 143(3) read with Section 263 of the Act. The AO disallowed the contribution made by Assessee to CAF. Aggrieved by the order, an appeal was preferred by Assessee to the Commissioner of Income Tax (Appeals) (“CIT(A)”), who dismissed the appeal by an order dated 29th November 2013.
The Assessee filed two appeals before the Income Tax Appellate Tribunal (“ITAT”), one impugning the order passed by the CIT on 16th December 2011 under Section 263 of the Act and the other against the order dated 29th November 2013 passed by the CIT(A).
The ITAT allowed both appeals and observed that an identical issue has been decided in favour of Assessee by various Benches of ITAT and also in the case of sister concerns of Assessee. Relying upon the order passed by The Commissioner of Income Tax and Another v. M/s. Ramgad Minerals & Minings Pvt. Ltd., the ITAT heldthat the CIT was not justified in invoking the provisions of Section 263 of the Act.
A division bench of Justice K R Shriram & Justice Dr Neela Gokhale found that the Bombay High Court (Goa Bench) in the case of The Commissioner of Income Tax v. Dr. Prafulla R. Hede and Another has accepted that contribution to CAF will be revenue expenditure and not capital in nature. The court dismissed the Appeal. Mr. Suresh Kumar appeared for Appellant and Mr. Nishant Thakkar, Ms. Jasmin Amalsadvala & Mr. Bhavesh Bhatia appeared for Respondent assessee
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