Tata Steel Entitled To Treat Contribution Of Rs. 212.52 Crores To CAF As Revenue Expenditure: Bombay High Court

The Bombay High Court has held that Tata Steel is entitled to treat the contribution of Rs. 212.52 crores to the Compensatory Afforestation Fund (CAF) as revenue expenditure.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has relied on the decision of 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 a contribution to CAF will be revenue expenditure and not capital in nature.

The respondent or assessee is in the business of manufacturing iron and steel products. The assessee had filed the return of income for the assessment year 2006–2007, declaring total income. The return of income was processed under Section 143(1), and later assessment under Section 143(3) was completed, determining the income at Rs. 4489.32 crore.

The Commissioner of Income Tax (CIT), exercising powers under Section 263, issued a notice to the assessee and set aside the original assessment order on three issues, with a direction to the Assessing Officer (AO) to pass the assessment order afresh.

The issue raised was with respect to the allowability of the assessee's contribution to the Compensatory Afforestation Fund (CAF), amounting to Rs. 212.52 crore.

The assessee filed appeals before the Income Tax Appellate Tribunal (ITAT). The ITAT observed that the identical issue has been decided in favour of the assessee by various benches of the ITAT and also in the case of sister concerns of the assessee. The CIT was not justified in invoking the provisions of Section 263 of the Income Tax Act.

The court, while dismissing the appeal of the department, held that the assessee was entitled to treat the contribution of Rs. 212.52 crores to CAF as revenue expenditure and not as capital in nature.

Counsel For Appellant: Suresh Kumar

Counsel For Respondent: Nishant Thakkar

Case Title: PCIT Versus Tata Steel

Case No.: Income Tax Appeal (IT) No. 1143 Of 2018

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