Appeal granted on mining rights depreciation but compensation deduction allowed. Dismissed ground on revenue expenditure.

The Tribunal partially allowed the appeal by upholding the disallowance of depreciation on mining rights under Section 32 of the Income Tax Act, 1961. However, it directed the Assessing Officer to allow the deduction of Rs. 35,00,000 under Section 37(1) for compensation paid to the landowner for mining activities. The ground concerning the disallowance of revenue expenditure under Section 35(2AB) was dismissed as not pressed.

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Issues Involved:
1. Disallowance of depreciation on intangible assets (Mining Rights) under Section 32 of the Income Tax Act, 1961.
2. Disallowance of deduction under Section 37(1) of the Income Tax Act, 1961, for compensation paid to the landowner for using the land for mining.
3. Disallowance of revenue expenditure under Section 35(2AB) of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance of Depreciation on Intangible Assets (Mining Rights) under Section 32:
The assessee claimed depreciation on mining rights amounting to Rs. 44,81,811 under Section 32 of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the claim, stating that the expenditure was for acquiring land, not mining rights. The CIT(A) upheld this disallowance, noting that the payment did not result in acquiring any know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of a similar nature. The Tribunal confirmed this view, stating that the assessee did not acquire any intangible asset as defined under Clause (b) of Explanation 3 of Section 32.

2. Disallowance of Deduction under Section 37(1) for Compensation Paid to Landowner:
The assessee alternatively claimed a deduction of Rs. 35,00,000 under Section 37(1) for compensation paid to the landowner for using the land for mining. The CIT(A) referred to Section 35E and held that the amount could not be allowed as a deduction. The Tribunal, however, analyzed the applicability of Section 35E and concluded that it was not applicable since the expenditure was incurred much after the start of commercial production. The Tribunal further examined the applicability of Section 37(1) and referred to the legal proposition laid down by the Hon’ble Supreme Court in the case of Bikaner Gypsum Ltd. It held that the compensation paid was for removing an obstruction to facilitate mining operations and did not result in acquiring any capital asset. Therefore, the Tribunal directed the AO to allow the deduction of Rs. 35,00,000 under Section 37(1).

3. Disallowance of Revenue Expenditure under Section 35(2AB):
The assessee initially contested the disallowance of revenue expenditure amounting to Rs. 18,00,000 under Section 35(2AB). However, during the hearing, the assessee's representative submitted that they did not wish to press this ground. Consequently, this ground was dismissed as not pressed.

Conclusion:
The Tribunal allowed the appeal partly. It upheld the disallowance of depreciation on mining rights under Section 32 but directed the AO to allow the deduction of Rs. 35,00,000 under Section 37(1) for compensation paid to the landowner. The ground regarding the disallowance of revenue expenditure under Section 35(2AB) was dismissed as not pressed.

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