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06-11-2019, Tata Steel, Section 40(a)(ii), 14A, 133(6), Tribunal Mumbai

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6 months 3 weeks ago #11346 by amit
Section - 40(a)(ii), 14A, 133(6)
Order Date - 06-11-2019
Favouring - Partly allowed for statistical purposes
Court - Tribunal Mumbai
Appellant - Tata Steel Limited
Respondent - ACIT
Citation - 1119Taxpundit82
Appeal No. - ITA No. 4043/Mum/2012
Asstt. Year - 2006-07



These three appeals of Revenue and assessee are arising out of the orders of the Commissioner of Income Tax (Appeals)]- 6, Mumbai, [in short CIT(A)], in ITA Nos. CIT(A)-6/IT129,244/2009-10,2010-11 dated 22.06 2012. The Assessments were framed by the Asst. Commissioner of Income Tax 2(2), Mumbai (in short ACIT/ITO/ AO) for the A.Ys. 2005-06, 2006-07 vide orders dated 26.12.2008, 29.12.2009 under section 143(3) of the Income-tax Act, 1961 (hereinafter „the Act‟). ITA No. 5616/Mum/2012 for AY 2005-06 – Assessee Appeal

2. The ground Nos. 1 to 1.1 raised by assessee were stated to be not pressed by the learned AR at the time of hearing. The same is reckoned as statement made from the bar and accordingly, the ground Nos. 1 and 1.1 are dismissed as not pressed.

3. The ground Nos. 2 to 2.5 raised by the assessee are with regard to action of the learned CIT(A) upholding the disallowance of expenditure incurred on feasibility study.

4. We have heard rival contentions and gone through the facts and circumstances of the case. This issue is a recurring issue in the case of assessee from AY 1986-87 onwards. The assessee submitted that it has incurred expenditure on feasibility study on a recurring basis year on year and during the year under consideration, the expenditure incurred thereon was ₹5,04,60,373/- which was claimed as revenue expenditure. The learned AO treated the same as capital expenditure and granted depreciation at 25% while completing the assessment. The assessee submitted that the said payment for feasibility study was incurred in connection with its manufacturing activity. The said expenses were incurred for the purpose of excavation of raw materials, i.e. water, power minerals, etc. for production of Steel. These expenses are recurring in nature and does not result in acquiring any enduring benefit in the capital field. The learned AR has vehemently pleaded that the learned AO erred in observing that said expenditure pertains to import of technical knowhow in relation to a specific plant commissioned at Jamshedpur He argued that this statement made by the learned AO is factually incorrect. The learned AR submitted that the said expenditure has been incurred for Titania project in Tamil Nadu. The learned AR further elaborated that a Memorandum of Understanding (MOU) was entered into with Government of Tamil Nadu on 27.06.2002 in connection with this Titania Project which involves mining, mineral separation and value addition i.e. Pigments production in phases subject to techno-economic viability. The feasibility study was conducted with the help of consortium partners comprising of Outokumpu– Finland‟s physical separation division based in USA, AutokumpuLurgi, Germany, Pincock- Allen and Holt, USA, a resource and mineral consulting company and L&T. All these facts were also duly submitted by the assessee before the learned AO .

5. We find that the learned CIT(A) had observed that this expenditure was incurred for a new project which had possibly not started and is not in the nature of Revenue expenditure. The learned CIT(A) had further observed that since the project had not started, the assessee would not be eligible even for depreciation on the same.

6. We find that the assessee had submitted that the feasibility studies were conducted in connection with the prospect for various minerals, which would provide the insight to the management of the assessee for decision making process. It is merely identification of minerals, which may be taken up for the development of steel business of the assessee and does not amount to initiation of new business but, on the other hand, it forms part of the development activities of the assessee‟s existing business. We find that the ld AR had further stated that the feasibility study was undertaken as part of the vision and strategic growth plans in the “materials” sector. The learned AR pleaded that the assessee examined various business opportunities apart from its primary focus on steel business. He argued that the preliminary analysis indicated that assessee can be one of the lowest cost producers in the world in heavy mineral sands business. Hence, it was proposed in the present mineral business to develop and process the minerals such as Zircon, limenite, etc. for producing the titanium metal. The proposed study would involve mineral and separation of limenite and other valuable minerals from inland heavy mineral sand deposits in the districts of Tuticorin and Tirunelveli in the state of Tamil Nadu and its upgradation to synthetic Rutile later to Titanium Di-Oxide and ultimately to Titanium metal. This entire modus operandi of the aforesaid process had been duly explained by the assessee before the lower authorities. Hence, it can be safely concluded that the feasibility study was conducted for prospecting various minerals which will cater to the current steel and mineral business. We also find that the assessee has submitted before the lower authorities that it had undertaken the entire process for production of Titanium metal in different phases and hence, it would not be correct to state that the company had started mining for Titanium, which is used in paint industry, sunscreen, coloring etc., and not for the purpose of excavation of water, power, mineral etc. for production of steel. The learned AR also drew our attention to the Objects clause provided in the Memorandum of Association and argued that the study was undertaken to analyze the minerals for determining the viability with regard to production of Titanium metal which also involved inter se production of Titanium Di-Oxide. The main object of the assessee company was to manufacture Titanium metal having its utility in steel business of the assessee company.

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