AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2015 (6) TMI 204
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts in support of this grievance rather than the independent grievances requiring our adjudication in their own right, are reproduced below for the sake of completeness: "1) Because, the order of the ld. Income Tax Commissioner (Appeals) is perverse, arbitrary and unsustainable in law and on facts. 2) Because, the ld. authorities below erred in law and on facts in holding that the removal of overburden (OBR) is not a revenue expenditure but a capital expenditure entitled to deduction on by under Section 35-E of the Act @ 10% amortization. 3) Because, the order of the learned authorities below is arbitrary, unjust and vitiated in law as being based on assumptions suspicion, conjecture and surmises regarding the nature overburden and its removal in rejecting the claim of the assessee that it is revenue expenditure allowable under Section 37 of the Act overlooking the decisions of the learned Delhi Bench of the Tribunal in assessee's own case for 4 different years after viewing the actual mining operations in video film Jabalpur Bench and the decision of the Nagpur Bench of the Tribunal in the case of Western Coalfields Ltd. vs. CIT and Chennai Bench in the case of Neyveli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emove the top overburden and extract coal from open cast mines'. It was also noted that "this issue has been contentious and has been in litigation". It was in this backdrop that the assessee was required the assessee to show cause as to why the expenses incurred on removing the overburden not be treated as a capital expenditure. It was explained by the assessee that "the removal of top overburden and extraction of coal was a continuous process, and, unless the overburden is removed first, coal cannot be exposed and extracted". It was also explained that extraction of coal from open cast mines is not possible without removal overburden. It was also explained by the assessee that in open cast coal mine project, total overburden removal expenses are estimates and added to the cost of mining, and a ratio, called 'average ratio', is computed , with reference total overburden removal (in cubic meters) to coal removal (in tons), for the entire project life. However, give the variations in thickness of the overhead, this 'average ratio' cannot be constant for all the accounting periods concerned, even as the overhead removal process is a continuous and ongoing process. It was thus contend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessment year 1994-95. On the strength of these submissions, the assessee urged the Assessing Officer not to go ahead with her proposal of treating this expense as capital expense, and allow deduction in respect of the same as revenue expenditure. 4. None of these submissions, however, impressed the Assessing Officer. 5. The Assessing Officer noted that the line of demarcation between what constitutes revenue expenditure and what constitutes capital expenditure, on the facts of a particular case, is "very thin and (this issue) is one of the most vexed questions in the computation of business income". She was of the view that every case has its own special circumstances and set of facts which differentiate it from other cases. A reference was made to Hon'b le Supreme Court's decision in the case of CIT Vs Madras Auto Services Pvt Ltd (223 ITR 468), and then the Assessing Officer referred to an observation from Hon'ble Supreme Court's judgment, in the case of R B Seth Moolchand Suganchand Vs CIT (80 ITR 647) to the effect that, "none of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another is not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e mines has the same nature" and that while such expenditure on development mines is capitalized and such expenditure on revenue mines is charged to the profit and loss account as revenue expenditure. It was pointed out that what constitutes a development mine and what constitutes a revenue mine depends on some conditions but that such conditions, such as coal production reaching 25% of its annual production capacity, is wholly unrelated for the treatment under the Income Tax Act. It was thus concluded that, on the facts of this case, the overburden removal expenses is a capital expenses. 6. Turning to the judicial precedents relied upon by the assessee, the Assessing Officer observed that as for judicial precedents in the cases of Amalgamated Jambad Syndicate (supra) and Katras Jharia Coal (supra), the findings in these cases were based on "admitted statements of the assessee which were believed by the Tribunal". As for Hon'ble Supreme Court's judgment in the case of Kirkend Coal (supra), it was observed that stowing could not be equated with overburden removal because while stowing is related to underground mining, the overburden removal is in the case of open cast mining. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....easoning, the Assessing Officer concluded that "the expenditure on overburden removal expenses was capital expenditure in nature". 9. The Assessing Officer the noted that "with due deference to Hon'ble ITAT judgments, it is stated that the relevance of the OBR expenses can be examined in connection with section 35E which has neither been pleaded nor considered by Hon'ble bench". The Assessing Officer then proceeded to grant deduction in respect of 1/10th of these expenses under section 35E. In effect, thus, the balance amount of Rs. 2,05,616.72 lakhs was added back to the income of the assessee. 10. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) upheld the action of the Assessing Officer, and, while doing so, inter alia, observed as follows: 3.9. I have gone through the observations of the A.O. and submissions of the appellant. The precise issue involved in this ground of appeal is whether expenditure incurred on OBR is allowable as revenue expenditure as claimed by the assessee or it has to be restricted to 1/10th of the claim by applying provisions of section 35E of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f OB cover and coal seam, the Average Ratio cannot be maintained uniformly in different accounting periods and the ratio at a given place of working may be higher or lower than the Average Ratio. Therefore, as per the appellant, removal of overburden and extraction of coal is a continuing mining operation/ profit earning process in open cast coal mining industry and the expenditure incurred for removal of overburden is allowable as revenue expenditure u/s 37(1) and the appellant does not acquire / possess any benefit of enduring nature or asset by incurring such expenditure. 3.11. The appellant did not bring forth any material to substantiate its claims. The activity of completion of OBR or achievement of 25% rated capacity or commencement of earning of profit whichever has never happened in one previous year. Thus, the time taken for the reaching the coal seam is certainly more than the period of one previous year. Therefore, the subtraction of entire expenditure on OBR from the sale value of a given year shows distorted picture of taxable profits for a previous year. It becomes further complex because 100% extraction of coal in a given mine is not and cannot be achieved in a g....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order to reach the stage of OBR, the appellant removes trees on the earmarked area and has a coupled compensating obligation conducts afforestation. This activity is also done simultaneously. Thus, if the appellant's analogy is to be accepted as the afforestation expenses also need to be allowed as revenue expenditure. The Hon'ble Tribunal has upheld the order of the A.O. treating such expenditure as eligible for deduction u/s 35E. Thus, the OBR expenditure is only a part of mine development expenditure, and, therefore, it has to be given the treatment of mine development as given with reference to the mine development expenditure. In fact, this issue was considered by the Hon'ble ITAT in the appellant's own case in appeal for the assessment years 1988-89 and held that provisions of sec. 35E are applicable for such expenditure. Accordingly, the action of the A.O. invoking the provisions of sec. 35E is upheld and this ground of appeal is dismissed. 11. The assessee is not satisfied with the stand so taken by the CIT(A), and is in further appeal before us. 12. We have heard the rival contentions, perused the material on record and duly considered facts of the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se observations of the highest judicial forum, which binds all us under Article 141 of the Constitution of India, and, to quote the oft quoted words of the House of Lords, permits his "better wisdom to yield to the higher wisdom" of the judicial forums above him in the judicial hierarchy. 15. However, that is not the only reason of our inability to approve the conclusions arrived at by the learned CIT(A). 16. Coming to the merits of the impugned disallowance, it is first of all necessary to understand as to what is the nature of 'open cast meaning' and the activity of 'overburden removal' in this process. We have had the benefit of perusing the visuals in the paper book filed by the Assessing Officer, as also the benefit of presentations by the assessee on this aspect, in addition to, whatever its worth, our own research on this process. 17. Open cast coal mining, in sharp contrast with underground mining or, for that purpose, any extractive method requiring tunnelling into the earth, is a method whereby coal is extracted from an open pit after removal of the overburden i.e. surface material covering the coal. This surface material could be plants and vegetation, top soil,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nly prior to, "extraction of coal" and, for this reason, it is a capital expenditure. The CIT(A) also follows the same path as he assumes that once coal seam is reached at a particular place, the overburden removal could only take place at a contiguous place in that site or, what he terms as, a contiguous project. 20. However, this fundamental factual assumption seems to be incorrect because, as the preceding discussions show, there are layers of material such as rocks and soil, between the two or more coal seams at the same place, which are required to be removed before coal can be extracted from the next coal seam level, and also because even to reach other segments of the same coal seam, which need not always be parallel to the surface, overburden is required to be removed. Overburden removal process does not, therefore, come to a halt upon reaching the coal level. Of course, there is a difference in the character of overburden removal expenses till the regular coal extraction process starts vis - à-vis the overburden removal expenses after the regular coal extraction starts, and this approach is implicit in the accounting policy which treats the overburden removal exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... question relating to assessment does not vary wi th the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions, if decided by a Court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated." One of the decisions referred to by the Full Bench was the case of Hoystead vs. Commissioner of Taxation (1926) AC 155 (PC). Speaking for the Judicial Committee, Lord Shaw stated : "Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle-namely, that of a setti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the provisions of ss. 60 to 63 of the Act and on the finding that the trust was revocable". Their Lordships held that, on the peculiar facts of this case, it would not really matter whether the trust was revocable or not inasmuch as, to quote the words of Their Lordships, "even if the trust was revocable, the property was not to go back to the Satguru on revocation". Quite clearly, therefore, while revocability of trust was taken as an important part of the question before Their Lordships, in the ul timate analysis and on the peculiar facts of this case, that aspect of the matter was not really determinative on the issue of trust being eligible for exemption. It is in this backdrop that the caveat put in by Their Lordships needs to be appreciated. This decision cannot be an authority for the proposition that in all cases where trust is a revocable trust, the benefit of exemption under section 11 and 12 will nevertheless be applicable. What has been decided in this case is the admissibility of tax exemption in the case of revocability of trust but then, as Their Lordships stated in so many words, this decision is confined to the facts of this case and is not of general application. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., and, on that basis, concluded that it has been rightly treated as revenue expenditure. It is, therefore, clear that when overburden removal is carried out in the process of extraction of coal and the extraction of coal is not possible without doing so, such overburden expenses is required to be treated as revenue expenses. Reverting to the facts of this case in this light, we find that once a mine has been treated as a revenue mine, the coal mining is clearly in progress because at least one of the three criterions has been met, i.e. reaching the coal seam over two years ago, production having reached 25% of the rated capacity or the coal extraction revenue exceeding the expenses incurred, including the overburden removal expenses. In such circumstances, clearly that coal extraction is taking place and yet further overburden is required to be removed for continuing with coal extraction. Such overburden removal can only be in the process of extraction of coal and further coal protection is not possible unless that overburden is removed. Given the nature of expenses, in the light of the foregoing discussions, such an inference is clearly incorrect and unsustainable in law. 27. W....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals: Provided that there shall be excluded from such expenditure any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure. (3) Any expenditure- (i) on the acquisition of the site of the source of any mineral or group of associated minerals referred to in sub-section (2) or of any rights in or over such site; (ii) on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or (iii) of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 32, shall not be deemed to be expenditure incurred by the assessee for any of the purposes specified in sub-section (2). (4) The deduction to be allowed under sub-section (1) for any relevant previous year shall be- (a) an amount equal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fied by such accountant and setting forth such particulars as may be prescribed. (7) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation- (i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place. (7A) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of demerger,- (i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous year in which the demerger takes place; and (ii) the provisions of this section shall, as far as may be, apply to the resulting company a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ears after the year in which commercial production starts because in such a situation the expenses in question are anyway admissible as revenue expenses. In form no. 3 AE prescribed by the Central Board of Direct Taxes, with respect to claim of deduction under section 35E, it is, inter alia, required of the auditor to state "Name(s) of mineral(s) or group(s) of associated minerals in respect of which operation relating to prospecting or development were undertaken" and the "year of commercial production". If the deduction under section 35E in respect of mine development was to be given even in the years subsequent to the year in which commercial production has given, the year of commercial production would not have any relevance. As far as the fact situation that we are dealing with is concerned, it is an undisputed position that commercial production has begun in all the mines and, for this reason alone, Section 35 E would not have any application on the facts of this case. 33. As regards the limitation placed in Section 35E (8), in our humble understanding, this limitation does not come into play unless the assessee, on his own, claims the deduction under section 35E and the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....What was meant to be a concession and what was intended to confer a benefit to the assessee, if such an approach is adopted, will end up becoming a disincentive and burden to the assessee. Section 35 E, as can be seen in the stand taken by the Central Board of Direct Taxes vide circular no. 76 dated 19th March 1971, was meant to be a "benefit" and not a "restriction on the deductions available to the assessee". While introducing this Section, the Central Board Direct Taxes had this to say: 48. New s. 35E, also inserted by s. 8 of the Amending Act, provides for the amortisation of expenditure incurred wholly and exclusively on any operations relating to prospecting for the specified minerals or groups of associated minerals or on the development of a mine or other natural deposit of any such mineral or group of associated minerals. The minerals and the groups of associated minerals for the purposes of this provision have been specified in a new Seventh Schedule inserted by s. 58 of the Amending Act. 49. As in the case of preliminary expenses, amortisation in respect of expenditure on prospecting for, and development of, the specified minerals, will also be allowed only in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of any mine or other natural deposit of any of the specified minerals or associated minerals in respect of which the expenditure was incurred, not only where such commercial exploitation resulted from the operations of prospecting or development in question but also where commercial production had been established as a result of operations undertaken earlier. However, the amortisation will not be allowable against any other income of the assessee. Accordingly, it has been specifically provided that where the instalment of amortisable expenditure relating to a given year cannot be wholly absorbed by the profit against which the amortisation is to be allowed, the unabsorbed amount shall be carried over to the subsequent year and added to that year's instalments and so on for succeeding previous years. Such carry over will be allowed only up to and including the 10th previous year as reckoned from the year of commercial production. If there is any unabsorbed amount at the end of the 10th year, it will lapse. 53. As in the case of amortisation of preliminary expenses under s. 35D, the amortisation of expenditure on prospecting for, and development of, specified minerals is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 35 E in respect of any expenditure incurred in the years after the year of commercial production. 36. It has also been the stand of the revenue that judicial precedents, by the co-ordinate benches, in the earlier assessment years cannot be good law because even though the revenue authorities had not accepted these decisions in principle but the matter could not be carried before the Hon'ble Courts above, for want of clearance of the Committee on Disputes (CoD) in the Cabinet Secretariat in terms of Hon'ble Supreme Court's judgment in the case of Oil & Natural Gas Commission Vs Collector of Central Excise [(1992) 104 CTR 31 (SC)]. It is submitted that now that the clearance of the CoD is no longer condition precedent for pursuing the litigation before Hon'ble Courts above, as subsequently held by a five judge bench of Hon'ble Supreme Court in the case of Electronics Corporation of India Limited Vs Union of India [ (2011) 332 ITR 58 (SC)], these judicial precedents cannot be said to be good in law. Learned senior counsel for the assessee, on the other hand, submits that these were the cases in which the permission for challenging the decisions of the coordinate benches we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an opportunity of conciliation before an in-house committee. [see: para 3 of the order dt. 7th Jan., 1994 (supra)]. Whilst the principle and the object behind the aforestated orders is unexceptionable and laudatory, experience has shown that despite best efforts of the CoD, the mechanism has not achieved the results for which it was constituted and has in fact led to delays in litigation. We have already given two examples hereinabove. They indicate that on same set of facts, clearance is given in one case and refused in the other. This has led a PSU to institute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators, civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely....
X X X X Extracts X X X X
X X X X Extracts X X X X
....remains unaffected by these administrative decisions. As long as the decisions of this Tribunal are not reversed by the Hon'ble Courts above, these decisions continue to be binding on us as also on the CIT(A). The reason as to why these judicial rulings have not been tinkered with by the Hon'ble Courts above is not relevant, but the fact that these judicial rulings are not tinkered with by the Hon'ble Courts above gives these judicial rulings that binding force. The stand of the revenue so canvassed before us does not, therefore, meet our approval. 39. One of the argument before us was that a mine covers a huge area and merely because coal extraction is on, even on commercial basis, in a particular small area within this mine should not be construed to mean that overburden removal expenses from all over the mine area could be treated as revenue expenditure. 40. We are unable to find any legally sustainable merits in this objection either. The criterion on the basis which call is taken as to be whether a mine can be treated as a development mine or as a revenue mine is, as we have noted in paragraph 22 earlier in this order, is uniform all along not only in this case of this a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the learned CIT(A) erred in upholding the disallowance of Rs. 1973.38 lakhs towards CMPDIL Expenses. These grounds of appeal, for the sake of completeness, are reproduced below: "7) Assessee had incurred & Claimed expenditure of Expansion/Continuation of Existing Mines under the head of "Mines Development Expenditure" reflected in Schedule G of the audit report in which total payment was shown at Rs. 2049.85 Lakhs out of which payment of Rs. 1973.38 lakhs has been disallowed as payment to expert authority M/s CMDIL and stands disallowed (para 7 of the order). 8) The Assessee is engaged in the business of mining/extraction/production of Coal from open Cast mines. CMPDIL, another subsidiary of CIL is conducting technical support services to NCL for regular mining operation. CMPDIL is conducting Mine survey in Existing running mines in order to determine whether the mining is being carried in right direction. In addition, CMPDIL is rendering regularly other services such as OB & Coal Measurement, environment studies mining safety studies, engineering services etc. this enables NCL to optimize coal production by mining in right direction. 9) Because, the order of the ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appeal before the CIT(A) but without any success. Learned CIT(A) noted that "the expenses incurred towards CMPDIL at Rs. 1,973.38 lakhs actually pertain to project planning, environmental study, mining safety study, engineering study etc" and that "thus the payment made to CMPDIL has to be treated as capital expenditure". Learned CIT(A) further observed that "the appellant's contention that they were in continuous mining activity carries little force as he did not bring forth any material to show that this expenditure belongs particularly to revenue mines, because, in all, the appellant is having 11 projects in hand during the relevant accounting period ad it is not possible to accept the appellant's stand without any corroborative material". The disallowance was thus confirmed. The assessee is aggrieved and is in further appeal before us. 46. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 47. We have noted that these expenses have been treated as capital expenses by the Assessing Officer only on the ground of the 'enduring benefit in nature' which by implication suggests....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal. Such deviations from accepted past history of the case, as canvassed before us by the revenue authorities, are made only in exceptional situation and no such case has been successfully made out before us. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to direct the Assessing Officer to delete this disallowance of Rs. 1,973.98 lakhs as well. The assessee gets the relief accordingly. 48. Ground numbers 7 to 11 are also thus allowed. 49. That leaves us with ground numbers 12 to 15 which deal with assessee's grievance against the CIT(A)'s upholding the disallowance of Rs. 1,23.42 lakhs in respect of 1/10th of One Time Lease Payment of Rs. 1,234.20 lakhs. The related grounds of appeal are as follows: C) Amortization of One Time Lease Expenditure 12) The Assessee incurred expenditure of One Time Lease payment Rs. 1234.2 Lakhs in A/Y 2004-05. CIT(A) allowed the same under section 35 E, in 10 installments vide order dated. l3) In A/Y 2010-11 claimed 1/10 of expenditure incurred in A/Y 2004-05 i.e. 123.42 Lakhs (1/10 of 1234.2 Lakhs). 14) Because, the order of the ld. Income Tax Commissioner (Appeals) is perverse,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anding, is not expenditure relating to assessment year 2004- 05 but amortization of eligible expenditure which was originally incurred in the assessment year 2004-05. Merely because the expense was originally incurred in the previous year relevant to the assessment year 2004-05, as long as it is otherwise eligible for amortization under section 35E, the deduction under section 35E to the amount so amortized cannot be declined. 53. In view of the above discussions, as also bearing in mind entirety of the case, we see no legally sustainable merits in the impugned disallowance. We, accordingly, direct the Assessing Officer to delete this disallowance of Rs. 123.42 lakhs as well. 54. Ground nos. 12 to 15 are also, therefore, allowed. 55. In the result, the appeal of the assessee is allowed. 56. Turning to the appeal filed by the Assessing Officer, we find that the Assessing Officer has raised the following grievances: "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in: 1. Deleting the addition of Rs. 880.04 Lakhs on account of expenses incurred on education. 2. Deleting the addition of Rs. 235.49 lakhs on account of expenses on communit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A) who deleted the said disallowance. While doing so, learned CIT(A) observed as follows: 4.1. ....................the appellant has contended that the reasons for incurring the expenditure are detailed in the assessment order. It was incurred for providing grants/ to meet deficit part of expenditure for running the schools that were arranged for offering education facilities to the children of the employees as per terms of National Coal Wage Agreement. The expenditure was incurred exclusively for the purposes of business to comply with the contractual obligations and therefore, the same is allowable as business expenditure. It was also contended that such expenditure was allowed in appeal in past several years. Therefore, the same may be allowed u/s 37(1) of the Act. 4.2. I have gone through the observations of the A.O. and submissions of the appellant. The expenditure was held allowable u/s 37(1) in the past. The CIT (Appeals), Jabalpur has also allowed the claim in the preceding year. The obligatory nature of the expenditure also justifies deduction. Accordingly, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls, running and management of primary dispensary, water supply arrangement, electric supply arrangement. The expenditure is primarily in the nature of welfare as the benefit of the expenditure ensures to the employees of the company who reside in such communities and villages. Additionally, the villages and communities being located in adjoining areas of the coal mines suffer environmentally due to mining of coal. As a result, there is resentment among the residence. The company therefore, incurs these expenditures in order to prevent any unrest among the local people and to maintain peace and harmony in order to be able to continue with its business operations smoothly. Thus, expenditure is incurred wholly, necessarily and exclusively for the purpose of company's business and claimed in the line of staff welfare expenditure u/s 37(1). The ITAT, Nagpur Bench in the case of SECL Vs. Jt. Commissioner of Income Tax (Asst.) as reported in Vol. 260 ITR page No.81 to 85 here the Hon'ble bench member has directed to A.O. to allow such expenditure. The Hon'ble ITAT, New Delhi Bench in the order dated 25.03.2004 for the asstt. year 97-99, 98-99 against the order of the CIT u/s 263 dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment years is under challenge before the Hon'ble ITAT, therefore, she has disallowed the claim. 5.1. In the course of appeal proceedings, the appellant has contended that the expenditure was incurred wholly, necessarily and exclusively for the purposes of business in terms of implementation of rehabilitation program of coal companies as per the contractual obligation to continue the business smoothly. The Hon'ble Tribunal has allowed the expenditure in the case of SECL. Similarly, such expenditure was held allowable by the CIT(appeals) in the preceding years in the appellant's case. Therefore, the same may be allowed. 5.2. I have gone through the observations of the A.O. and submissions of the appellant and copies of the orders filed. There is no change in the facts. Such expenditure was held allowable in the past. Accordingly, the A.O. is directed to allow the claim of Rs. 235.49 lakhs u/s.37(l) of the Act. Thus this ground of appeal is allowed. 65. The Assessing Officer is aggrieved and is in appeal before us. 66. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... given in earlier years for disallowing these expenses the expenses claimed at Rs. 621.14 lakhs is disallowed and added to the total income." 70. When, however, matter was carried in appeal before the CIT(A), he deleted the aforesaid disallowance on the basis of the reasoning set out below: This ground of appeal relates to the disallowance of Rs. 621.14 lakhs claimed under the head other Misc. Welfare Expenses. The A.O. has observed that the expenses were disallowed in the past for detailed reasons. Therefore, the same are disallowed. 6.1. In the course of appeal proceedings, the appellant has contended that these expenses include amounts spent on providing towels, water bottles to the works during the summer season and raincoats and gumboots provided in rainy season, torch cell provided to night shift workers and expenses incurred on May day, Independence day and Republic day celebrations, cultural programs, etc. Such expenditure was allowed in the earlier assessment years in appeal. Therefore, the same may be allowed. 6.2. I have gone through the observations of the A.O. and submissions of the appellant. Looking to the nature of expenses, I am of the considered opinion t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e; and it appears to me that the findings of the CIT in the present case, bring the payment in question within that description. They found (in words which I have already quoted) that payment was made for the sound commercial purpose of enabling the company to retain the existing and future members of staff and for increasing the efficiency of the staff; and after referring to the contention of the Crown that the sum of Sterling Pound 31,784 was not money wholly and exclusively laid out for the purpose of the trade under the rule above referred to, they found deduction was admissible-thus in effect, though not in terms, negativing the Crowns contentions. I think that there was ample material to support the findings of the CIT, and accordingly hold that this prohibition does not apply." 74. It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as 'wholly and exclusively '. Explaining this principle, Hon'ble Supreme Court has, in the case of Sassoon J David & Co. (P) Ltd. vs. CIT [(1979) 118 ITR 261 (SC)], has inter alia observed that : "It has to be observed here that the expression "wholly and exclusively" used in s. 10(2)(xv) of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....peal before us. 78. Having heard the rival contentions and having perused the material on record, we see no reasons to interfere in the conclusions arrived at by the learned CIT(A) in this regard. We have noted that all the mines, in respect of which these expenses are incurred, are revenue mines from which coal is being extracted. No part of this expenditure, therefore, needs to be capitalized, particularly as there is nothing in the development or initial stage. These are routine expenses for maintenance of a running mine. In any event, there is no material brought on record by the Assessing Officer to demonstrate that these expenses are capital expenses. Keeping in view of these discussions, as also bearing in mind entirety of the case and the accepted past history of the case, we deem it fit and proper to uphold the stand of the CIT(A) on this issue . We, therefore, approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 79. Ground no. 4 in the Assessing Officer is also, therefore, dismissed. 80. In the result, the appeal filed by the Assessing Officer is partly allowed for statistical purposes in the terms indicated above. 81. To su....