TaxTMI 
TaxTMI 
2016 (2) TMI 1118
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.... made by the AO by disallowing of contribution to State Renewal Fund despite the fact that it was an application of income and not expenditure incurred for business expediency. 3) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in holding prior period expenses as allowed expense even when it is not coherence with the accounting policies followed by the assessee. 4) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in directing to delete addition of Rs. 2,34,990/- made by the AO by disallowing of contribution to social welfare activities despite the fact that it was not an allowable business expenditure. Similarly, in the appeal bearing ITA No. 124/JP/2014, the assessee has raised the following grounds :- 1) Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of Rs. 50,000/- out of social welfare expenses. 2) Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the disallowance of Rs. 1,01,45,489/- in respect of amortization of mining and leasehold land. ....
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.... extracted from the land and if no Gypsum is extracted no payment is required to be made. This itself shows that the payment made to farmers are not for long term benefit rather it is regular payment and an integral part of the cost of Gypsum. Hence the same is allowable as revenue expenditure. Further in earlier years also similar addition was deleted by ld. CIT (A) and department appeal was dismissed by Hon'ble ITAT Jaipur Bench." The AO considered the submission of the assessee but the same was not acceptable to the AO. The AO was of the view that right to sale minerals embedded in the earth lies with the Government and the Government alone can either sale these rights or sale the minerals directly. Therefore, the claim of the assessee that the above mentioned amount has been paid to the farmers for purchase of Gypsum is incorrect. Actually it is a sort of compensation paid to the farmers for using their land, which may become unusable for agricultural purposes. Therefore, treating the contention of the assessee as incorrect, the AO disallowed the claim of Rs. 1,67,47,786/- and added to the income of the assessee. 3. Being aggrieved by the order of AO, assessee filed appea....
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..... We find that issue raised by the department in this ground has already been decided by this Bench of ITAT in assessee's own case for assessment year 2002-03 in ITA No 466/JP/2006 dated 26.6.2009, wherein compensation paid to farmers for using their land was allowed. The finding of the Bench in para 40 of the said order is reproduced as under :- "We have carefully heard the rival submissions and find that the payment made by the assessee to farmers is a part of cost of gypsum only and no capital asset is acquired by the assessee by incurring these expenditure. Nature of loss to farmers is immaterial while judging the nature of expense in the hands of the assessee and therefore same cannot be basis for treating the expenditure as capital in nature. The ld. CIT (A) has rightly allowed the expenditure as revenue which does no call for any interference. Thus ground no. 1 of the revenue is dismissed." Again for assessment year 2003-04 and 2004-05, such expenditure were allowed by the ITAT in order dated 26.06.2009. The ld. CIT (A) has allowed the claim of the assessee by following the said decisions. We, therefore, do not find any reason to interfere with the order of....
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....e is passed on to a third person in discharge of the obligation of the assessee, it will be a case of application of income by the assessee and not of diversion of income by overriding title. The AO observed that where a co-operative society transfer part of the net profit to a reserve fund as a requirement of statute, the question arises, whether such amount could be allowed either as a business expenditure or as income diverted by overriding title. The test in such case is the purpose for which the amount is set apart, the beneficiaries of such reserves and the right of the company over such reserves. The AO cited the judgment of Hon'ble Rajasthan High Court in the case of CIT vs. Jodhpur Co-operative Marketing Society (2005) 275 ITR 372 (Raj.) wherein the Hon'ble Court has concluded that such reserves under the control of the society were for the ultimate benefit or the society as well as its shareholders, so that such amount could not be excluded from the income of the society. Hence, it is clear that transfer to renewal fund does not lead to diversion of income by overriding title, it is merely an application of income. Thus the AO held that transfer of Rs. 10,00,000/- to Stat....
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....7 in ITA No. 233/JP/2009 dated 22.5.2009, wherein contribution to State Renewal Fund was allowed. The finding of the Bench in para 6 of the said order is reproduced as under : "We have considered the rival submission and perused the material available on record. We find that as per the memorandum of State Renewal Fund set up by the State Government, it is created with the object of providing a safety net for the workers likely to be effected by restructuring in the State Public Enterprises. We are thus of the view that the contribution made to the said fund is solely for the purpose of welfare and benefit of the employees. The Rajasthan High Court in case of CIT Vs. Rajasthan Spinning and Weaving Mills Ltd. 274 ITR 465 has observed that it is for the assessee to decide whether any expenditure should be incurred in course of business. The expenses can be incurred voluntarily and without necessity. Any contribution made by the assessee to a Public Welfare fund which is connected or related with his business is an allowable deduction u/s 37. Again the Court in case of CIT Vs. Shri Rajasthan Syntax ltd. 221 CTR 410 held that where assessee gave contribution to the Employees We....
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....s are finally sanctioned and approved. Even in the appellant's own case the issue has been decided in favor of the appellant in AY 2000-01 by Hon'ble Jaipur Bench ITAT vide order dated 22.12.2006. My predecessors have allowed prior period expenses in orders dated 10.08.2011 in AY 2008-09 and 18.10.2012 in A.Y. 2009-10. Respectfully following Hon'ble ITAT's order in the case of the appellant in AY 2000-01 dated 22.12.2006 in ITA No. 600/JP/2003, the AO is directed to delete the addition of Rs. 4,40,.113/- because the table in the appellant's submission shows that the liability for the expenses got crystallized in the year under consideration." 9. Now the revenue is before us. 9.1. The ld. D/R for the revenue has supported the order passed by the AO and has submitted that the expenses which are not required to be allowed has rightly been disallowed by the AO. 9.2. On the contrary, the ld. A/R relied upon the order passed by the Tribunal in the assessee's own case in ITA No. 33/JP/2013 dated 30.04.2015 whereby the Tribunal has allowed the claim of prior period expenses of the assessee and has dismissed the ground of the revenue. 9.3. We have heard rival contentions and per....
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....e decision of Hon'ble ITAT in assessee's own case for AY 2008-09 where the disallowance made by AO in respect of payment made to Rose Society was confirmed by Hon'ble ITAT. 12. Now the revenue is before us. 12.1. We have heard rival contentions and perused the material on record. After going through the order of the ld. CIT (A), we find no infirmity in the order passed by ld. CIT (A), therefore, no interference is called for. Thus the ground of the revenue is dismissed. 13. In the result, Revenue's appeal is dismissed. Ground No. 1 of Assessee : 14. Ground no. 1 related to confirming the disallowance of Rs. 50,000/- out of social welfare expenses. 15. We have heard the rival parties and perused the material on record. The payment made to Rose Society amounting to Rs. 50,000/-, in our view is not in respect of any activity connected necessarily and exclusively for the purpose of business and do not qualify the expenditure u/s 37 of the IT Act. Even otherwise, similar ground of the assessee has been dismissed by the Tribunal in its earlier order. Therefore, respectfully following the order passed by the Tribunal, we dismiss ground no. 1 of the assessee. Ground no....
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....made for land. The purpose of acquiring mining land may be mining but it cannot be said that after exhausting the mines, land has no value. On the other hand, land is appreciating asset and therefore there is no question of amortising or claiming any deduction in respect of land. Since appellant submitted that its claim is not under section 35D but under section 37(1), this has to be seen as per the provisions of section 37(1). Under the section no expense of capital nature is allowable. It is not in dispute that expense for mining land and leasehold land is capital expense and the same cannot be claimed as revenue under section 37(1). Once the expense falls in the category of capital expense, it goes outside the purview of section 37(1). There are some deductions available for capital expense such as depreciation under section 32, amortisation under section 35D etc. If no deduction is available in respect of any capital asset under these provisions, the same cannot be claimed under section 37(1) wherein any claim of capital expense is specifically prohibited. The decision relied upon by the appellant in the case of Sun Pharma is on different facts. Nominal lease charges were treat....
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....ing. It was further contended that the license to carry on the mining is an intangible asset under section 2(11) of the IT Act. For that purpose, the ld. A/R relied upon the order of the Tribunal in the matter of NMDC Ltd. vs. JCIT in ITA No. 714/Hyd/2012 dated 28.02.2014 where in para 22 it has been held as under :- "22. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. Similar came up for consideration before the coordinate bench of ITAT, Cuttack in case East India Minerals Ltd. Vs. JCIT in ITA No. 224/CTK/2012, vide its order dated 25/06/2012, on which reliance placed by the assessee, wherein it has been held as follows: "7. We have heard the rival contentions of the parties and perused the material available on record. Considering the facts and circumstances of the case, we uphold the contention of the learned Counsel for the assessee for the simple reason that the denial of claim of depreciation has been made on misinterpretation of law and the applicability thereof. Explanation to Section 32(1)(ii) leans in favour of the assessee to the extent that it is the actual action of pu....
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....the amortization of mining land claimed should be allowed in favour of the assessee. The ld. A/R sought to dispute the reasoning given by ld. CIT (A) while declining the claim of the assessee on the ground that the land in question is a depreciable asset and therefore the reasoning given by the ld. CIT (A) is not correct. On the other hand, the ld. D/R for the Revenue supported the order passed by the ld. CIT (A). 20. Now the assessee is before us. 20.1. The vexed question before us is the amortization of amount paid for getting the mining land / leasehold land by the assessee. Whether it is required to be treated as revenue expenditure and is required to be allowed under sec. 37(1) of the Act or not ? For the purpose of allowing any expenditure, it is necessary to look into the nature of expenditure. Section 37 of the Act provides as under :- " Sec. 37(1) : Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income charg....
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....case and further the said judgment is of later date and, therefore, is required to be followed by the Bench. The judgment of NMDC Ltd. vs. JCIT (supra) is not applicable to the facts and circumstances of the case as in the said judgment the issue was not with respect to applicability of section 37 but was in respect to allowing the depreciation u/s 32 of the Act. The submission of the ld. A/R for the assessee is that the value of wasting asset will depreciate with the extraction of mineral, in our view, is preposterous. In our view, with the passage of guidelines for protecting the environment, now it is the duty of the lesser/assessee to submit and execute the mine closing plan so as to ensure that the land is used subsequent to the closure of the mining operation. Even otherwise, the mining activity is done not on the surface of the earth but on the core towards the lower side of the surface. The surface, can be put to use for beneficial purposes after the term of lease/mining activity is over and it can be exploited for commercial purposes by the owner/appropriate authority. The contention of the assessee is that the assessee will be double taxed as the AO has already completed ....
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....he user of the computerisation. Appellant also stated that its business being mining, the computerisation of the mining Department would have helped its business activity. Assessing Officer found that the claim of expenses not allowable under any provisions of IT acts. Appellant submitted decision of Rajasthan High Court in which construction of Dam was held to be revenue expense as against capital expense however this decision is not relevant here since the claim was not treated as capital by the AO. Appellant is an undertaking owned by Government of Rajasthan and payment of contribution was made at the instruction of Government of Rajasthan. The contribution for computerization cannot be held to be an expense incurred wholly and exclusively for the purpose of business. In fact computerization was already carried out from the funds provided to information technology department and this contribution was made subsequently on the ground that it was promised in 2007-08. There is no direct nexus between appellant's business and computerization of mining department. Any upgradation of any Government department may indirectly help any PSU but that does not mean that the public s....
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.... CIT vs. Hindustan Zinc Ltd. (2010) 322 ITR 478 (Raj.)(HC) Lakshmiji Sugar Mills Co. P. Ltd. vs. CIT 82 ITR 376 (SC) CIT vs. Dhanrajgiriji Raja Narasingirji 91 ITR 544 (SC) CIT vs. Delhi Safe Deposit Co. Ltd. 133 ITR 756 (SC) On the basis of above said judgments, it was submitted that the amount was spent with a view to have the benefit as the assessee will have the better usability of the information which is required to conduct the business of the assessee in coordination with the department of Mines & Geology. It was prayed that the expenditure incurred by the assessee may kindly be allowed. 23.2. On the contrary, the ld. D/R for the revenue supported the order of ld. CIT (A) and has submitted that the expenditure made by the assessee is not wholly and exclusively for the purpose of business of the assessee and is, therefore, required to be disallowed. 23.3. We have gone through the records and have considered the rival contentions and applied our mind. In our view, ground no. 3 of the assessee is required to be dismissed. It is an admitted fact that the assessee is one of the beneficiaries of the computerization. There are other lakhs of....
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....ars Rs. Per kwh 2 yrs 4.50 per kwh 4 yrs 5.00 per kwh 6 yrs 5.50 per kwh 8 yrs 6.00 per kwh 10 yrs 6.50 per kwh 12 yrs 7.00 per kwh 14 yrs 7.50 per kwh 16 yrs 8.00 per kwh 18 yrs 8.50 per kwh 20 yrs 9.00 per kwh It was contended by the ld. A/R for the assessee that the assessee has received an amount of Rs. 36,20,742/- on sale of CERs on which it claimed deduction u/s 80IA. The AO has disallowed the claim of the assessee. The reasoning given by the AO at page 14 of his order is as under :- " Reply of the assessee has been considered but it is not satisfactory. As per Section 80 IA of the I.T. act, 1961 deduction is allowed only on the profit and gains derived from eligible business. In the case liquidated damages and sale of CERs are not profit and gain derived from eligible business as these are not trading receipt from the eligible business. The word 'derived from' also explained by the Hon'ble Gauhati High Court in the case of CIT Vs. Meghalaya Steels Ltd., (12 Taxmann.com 451 (Gau.) 2011) as under : " The expression 'derived from' occurring in section 80-IB in relation to the ....
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....o the profits and gains relatable to or attributable to' the business of the industrial undertaking and not in the category of profits and gains derived from the business. Further, the claim of the assessee that the income from sale of CERs is a capital receipt and not revenue income is also not justified at all as the assessee has derived it from the day to day activity of generation of power. Further Hon'ble Supreme Court in the case of Liberty India 317 ITR 218 is squarely applicable here wherein it was held by the Supreme Court that duty drawback receipts/DEPB license benefits do not form part of net profits of the Industrial undertaking for the purpose of sec.80IA or 80IB. The nature of Carbon Trading income is also similar to that of duty drawback and DEPB license income. Otherwise also assessee has itself offered income from sale of CERs in its profit and loss account form past many years. He has neither claimed it as capital receipt in the original return nor in the revised return. Therefore in view of the decision Goetze India (Supra) claim of the assessee is not tenable." 24.2. On appeal before ld. CIT (A), the ld. CIT (A) confirmed the disallowance by holding....
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....m the net minimum guaranteed power generation, the amount received by the assessee on account of levy of charges on the supplier can be treated as an income received by the assessee is eligible for deduction under section 80IA of the Act or not. For the purpose of adjudication of this issue, it is necessary to reproduce the relevant clauses of the agreement entered between the assessee and M/s. Suzlon Energy Ltd, which has been provided at page 89 of the paper book. Para 36 & 37 of the Agreement provides as under :- " 36. Bidder shall give the net minimum guaranteed generation per annum per MW after considering proposed configuration of maximum and all local conditions, wind speed, directions etc. for evaluation of their offer. However, bids providing net minimum guarantee of generation of less than 16 lacs kwh/MW are unlikely to be considered. 37. For shortfall from the net minimum net minimum guaranteed generation, a levy the following rates from the date of commissioning will be leviable & operative recoverable from their annual instalments. Years Rs. Per kwh 2 yrs 4.50 per kwh 4 yrs 5.00 per kwh 6 yrs 5.50 per kwh 8 yrs 6.00 per k....
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....the cost price of the products purchased by Hindustan Lever Limited from the assessee. It is not a part of the purchase/sale price. The standing charges, which have been paid are not towards the sale price but on account of the fact that Hindustan Lever Limited did not place the prescribed or the stipulated purchase orders for supply of products/articles. This had resulted in non-production and the charges which have been paid were to compensate the assessee for failure to produce and then market its products. This becomes clear when we examine Annexure 3 to the agreement. 16. The aforesaid formula for computation of sale price stipulates that the cost or the selling price was computed under clauses 1 to 11. However, as Hindustan Lever Limited was unable to place purchase orders in respect of the normative fixed stipulated number, they were liable to pay and have paid the standing charges. These are not charges payable for the supplies made or towards price of the products sold but for non/under utilization or idle plant/machinery etc. due to lack of orders. The payment was for nonproduction/ manufacture. 17. The products or the articles supplied are goods. Excise....
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....on of the Guwahati High Court in CIT v. Meghalya Steels Ltd. [2011] 201 Taxman 135/ 12 taxmann.com 451 relates to refund of excise duty, which was required to be first paid and then refunded. The assessee claimed refund on completion of formalities because the exemption notification had stipulated that the excise duty should be first paid by the manufacturer and then the refund could be claimed. In CIT v. Arvind Construction Co. Ltd. [2009] 317 ITR 276 /[2008] 172 Taxman 5 (Delhi), the assessee had carried out construction work as a sub- contractor in Iraq. Consequent upon an agreement between the Governments of India and Iraq after the outbreak of war, bonds were issued as consideration for the construction work. Principal amount/interest income of the bonds were treated as income derived from business of an industrial undertaking under Section 80HHB of the Act. The said decision is based on peculiar facts and is hardly relevant to the factual matrix in question. Income paid on late payment received from customers has been considered as profit and gains derived by an industrial development undertaking as it partakes and is sale consideration. In CIT v. Vidyut Corpn. [2010] 324 ITR....
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....and has submitted that the judgment of Hon'ble Supreme Court in the case of Liberty India Ltd. (supra) is not applicable to the facts and circumstances of the case. The AO as referred above has treated the income from the sale of CER as revenue instead of capital income. 28.2. The ld. D/R for the revenue has submitted that the order of the AO as well as ld. CIT (A) are correct and are based on the sound reasoning. 28.3. We have heard rival contentions and perused the material on record. Before we deal with the issue, the sale of CER is subject matter of various litigations before the Tribunal as well as before High Court. The courts have consistently held that the sale of CER is capital receipt. For the purpose of clarity, the following decisions are cited below which clearly show that the sale of CER is a capital receipt :- My Home Power Ltd. vs. DCIT (2013) 21 ITR (Trib.) 186 (Hyd.) CIT vs. My Home Power Ltd. (2015) 365 ITR 82 (AP High Court) Shree Cement Ltd. vs. ACIT 100 DTR 33 (JP Trib.) Lanco Kondapalli Power Ltd. vs. JCIT (2015) 152 ITD 132 (Hyd.Trib.) In the light of the above, it is held that the of CER is capital receipt and th....
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.... the same of the ground that these expenses were not crystallized and debited to the P&L account and also the claim was not made through the return of income. Appellant submitted that as per the circular of coal Ministry, this liability is crystallised. However, when appellant could not create provision in the books of accounts or clearly work out the liability, how could this liability be treated as crystallised till the end of accounting year. Just because ministry has issued some circular, liability does not crystallises. For crystallising the liability, the expenses must have been either incurred or provided. Such vague estimation of liability is not a crystallised liability allowable under section 37(1). Appellant has not started any work in the direction of the said circular. No contract for mines closure was given and therefore there is no question of any ascertained liability existing during the year. At the most, it can be a contingent liability which is not allowable under income tax act. Accordingly, the claim made by the appellant during assessment proceedings in respect of mines closure liability is held to be not allowable." 30. Now the assessee is before us. 30....
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....s laid down by the Ministry of Coal. The ld. A/R for the assessee relied upon the judgment of Hon'ble Supreme Court in the matter of Kedarnath Jute Mfg Co. Ltd., 82 ITR 363 (SC). The ld. A/R of the assessee has submitted that the view of the ld. CIT (A) is incorrect as there is no provision under the Act that provided the claim of the provision for the liability is not allowable. It was further submitted that a provision of liability even if estimated cannot be disallowed unless it falls under the specific provision of disallowance under the Act. In this regard, the ld. A/R for the assessee relied upon the judgment of Hon'ble Supreme Court in the matter of Rotork Controls India Pvt. Ltd. vs. CIT, 314 ITR 62. The ld. A/R also relied upon the judgment of Hon'ble Rajasthan High Court in the matter of Udaipur Mineral Development Syndicate (P) Ltd. vs. DCIT, 261 ITR 706, Bharat Earth Movers Ltd. vs. CIT, 112 Taxman 61 (SC) and the decision of ITAT Jaipur Bench in the matter of Shree Salasar Overseas (P) Ltd. vs. DCIT, 107 DTR 225. 30.2. On the other hand, the ld. D/R for the revenue has submitted that the liability of mines closing is only a vague liability and has not been crystalli....