Bombay High Court Upholds Tata Steel's Classification Of Rs. 212.52 Crore CAF Contribution As Revenue Expenditure

Bombay High Court Upholds Tata Steel's Classification Of Rs. 212.52 Crore CAF Contribution As Revenue Expenditure

The Bombay High Court has ruled in favour of Tata Steel, affirming its right to classify the Rs. 212.52 crore contribution to the Compensatory Afforestation Fund (CAF) as a revenue expenditure.

Justices K. R. Shriram and Neela Gokhale, presiding over the bench, have cited the Precedent set by the Bombay High Court (Goa Bench) in The Commissioner of Income Tax v. Dr. Prafulla R. Hede, and anr. acknowledging that contributions to the CAF are to be considered revenue expenditures rather than capital.

The respondent, engaged in the manufacturing of iron and steel products, filed the income tax return for the assessment year 2006–2007, declaring their total income. Subsequently, the return was processed under Section 143(1), followed by an assessment under Section 143(3), which concluded with the income being determined at Rs. 4489.32 crore.

Under Section 263, the Commissioner of Income Tax (CIT) issued a notice to the assessee, setting aside the original assessment order on three specific issues. The directive to the Assessing Officer (AO) was to reevaluate and issue a fresh assessment order accordingly.

The raised issue pertained to the eligibility of the assessee's contribution amounting to Rs. 212.52 crore to the CAF.

The assessee filed an appeal with the Income Tax Appellate Tribunal (ITAT). The ITAT noted that similar issues had been ruled in favor of the assessee by multiple benches of the ITAT, as well as in cases involving sister concerns of the assessee. Consequently, the CIT's invocation of the provisions of Section 263 of the Income Tax Act was deemed unjustified.

The court, in its dismissal of the department's appeal, affirmed that the assessee had the right to classify the contribution of Rs. 212.52 crores to the CAF as revenue expenditure rather than capital in nature.