2015 (6) TMI 36 - AT - Income Tax

Revision u/s 263 - assessee has claimed Overburden removal expenses (OBR) expenses as revenue nature u/s 37 (1) - Held that - In the impugned revision proceedings, learned Commissioner started by pointing out that the AO did not realize that the matter was decided on the basis of accepting CoD verdict but the CoD itself has outlived its utility as was held by Hon ble Supreme Court in the case of Electronics Corporation (2011 (2) TMI 3 - Supreme Court), but what he concluded was that the said assessment order was passed in haste, without making necessary inquiries warranted and also not appreciating the correct set of facts . In our humble understanding, lack of proper inquiries, which an Assessing Officer ought to have conducted on the facts of the said case, is altogether a different reason from a claim having been allowed on the basis of CoD decision which is no longer legally valid. In view of the above discussions, as also bearing in mind entirety of the case, we are of the considered view that the impugned revision order is contrary to the scheme of law, and should be quashed for this reason also. The Assessing Officer has noted that it was also brought to notice of the department that departmental request for approval of the same i.e. pursuing appeal against Overburden Removal Expenses being held to be deductible under section 37(1) was rejected by the CoD . It was in this backdrop and apparently with due deference to the views expressed by the CoD that the Assessing Officer decided not to make this disallowance in this assessment year. Once such a high powered committee as the Committee on Disputes, set up in the Cabinet Secretariat under directions of Hon ble Supreme Court, decides that admissibility of deduction in respect of overburden removal expenses need not be carried to the judicial forums and the income tax department should not agitate its grievance against its admissibility, it is certainly a possible, and desirable, view of the mater that the income tax authorities should stop making an issue of this deduction. It is well settled in law, as held in the case of the Malabar Industrial Co Ltd Vs CIT 2000 (2) TMI 10 - SUPREME Court , that, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. The stand of the Assessing Officer, on the facts of this case and notwithstanding the subsequent legal developments in the case of the Electronics Corporation (supra), was one of the possible views of the matter and it was not unsustainable in law . For this reason also, it was not a fit case for invoking revision powers by the learned Commissioner. Thus the impugned revision order is indeed unsustainable, in law and on facts, for more reasons than one - Decided in favour of assesse.

Summary

Issues Involved:
1. Deductibility of overburden removal expenses.
2. Deductibility of amortization of onetime payment of lease rent and afforestation charges.
3. Validity of the revision order under section 263 of the Income Tax Act, 1961.

Detailed Analysis:

1. Deductibility of Overburden Removal Expenses:
The assessee claimed a deduction of Rs. 2,74,740.33 lakhs for overburden removal expenses under section 37(1) of the Income Tax Act, 1961. The Assessing Officer allowed this deduction based on previous Tribunal decisions and the fact that the Committee on Disputes (CoD) had declined permission for further litigation on similar disallowances. The Commissioner of Income Tax (CIT) initiated revision proceedings, arguing that the Supreme Court had recalled the requirement for CoD approval, making the assessment order erroneous and prejudicial to the revenue's interest. However, the Tribunal found that overburden removal is a continuous process in open cast mining and should be treated as revenue expenditure once the mine reaches a certain level of production. The Tribunal also emphasized judicial discipline, noting that the CIT(A) had no authority to disregard binding Tribunal decisions. The Tribunal concluded that the overburden removal expenses were correctly allowed as revenue expenditure.

2. Deductibility of Amortization of Onetime Payment of Lease Rent and Afforestation Charges:
The assessee claimed a deduction of Rs. 1,074.24 lakhs for the amortization of onetime lease rent and afforestation charges under section 35E of the Income Tax Act, 1961. The CIT argued that the assessee had not claimed these expenses in the return of income and that the Assessing Officer had allowed them without proper inquiry. The Tribunal noted that the expenses were incurred in the assessment year 2004-05 and were being amortized over ten years as allowed under section 35E. The Tribunal found that the CIT(A) had incorrectly mixed up the principles of mercantile accounting with the provisions of section 35E. The Tribunal concluded that the amortization of these expenses was correctly allowed.

3. Validity of the Revision Order under Section 263:
The CIT set aside the assessment order under section 263, arguing that the Assessing Officer had not conducted proper inquiries and had relied on the CoD's decision, which was no longer valid. The Tribunal found that the CIT had not mentioned the lack of inquiry in the show-cause notice, making it impermissible to use this ground for revision. The Tribunal also noted that the CoD's decision to decline permission for further litigation should still be respected, even though the requirement for CoD approval had been recalled. The Tribunal emphasized that the Assessing Officer's decision was one of the possible views and was not "unsustainable in law." Therefore, the Tribunal vacated the revision order, finding it unsustainable in law and on facts.

Conclusion:
The Tribunal allowed the appeal, concluding that the overburden removal expenses and the amortization of onetime lease rent and afforestation charges were correctly allowed as deductions. The revision order under section 263 was found to be invalid due to procedural and substantive errors.