TaxTMI 
TaxTMI 
2019 (9) TMI 977
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.... arising out of ITA No. 70/CIT(A)-11/BNG/2015-16 and ITA No. 391/CIT(A)-11/BNG/2017-18. Out of these two appeals filed before ld. CIT(A), one appeal i.e. ITA No. 391/CIT(A)- 11/BNG/2017-18 was filed on 16.10.2017 before ld. CIT(A) and this appeal was directed against the order passed by the AO u/s. 143(3) r.w.s. 263 of the IT Act and the remaining one appeal is filed before ld. CIT(A) in ITA No. 70/CIT(A)- 11/BNG/2015-16 on 23.04.2015 against the original assessment order passed by the AO u/s. 143(3) of the IT Act. But in both the appeals filed before the Tribunal, the only issue on merit raised by assessee is regarding disallowance of depreciation amounting to Rs. 1,85,25,192/- in addition to the issue regarding charging of interest u/s. 234D of the IT Act of Rs. 11,18,296/- raised by the assessee in ITA No. 513/Bang/2019. The remaining one appeal i.e. ITA No. 514/Bang/2019 is for Assessment Year 2014-15 and the same is directed against the order of ld. CIT(A)- 11, Bangalore dated 17.01.2019. 2. The grounds raised by the assessee in ITA No. 511/Bang/2019 are as under. "1. That the order of the authorities below in so far as it is against the assessee is opposed to law,....
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....mitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered." 3. The grounds raised by the assessee in ITA No. 512/Bang/2019 are as under. "1. That the order of the authorities below in so far as it is against the assessee is opposed to law, facts, circumstances, natural justice, equity all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. The order is based on surmise, suspicion and conjuncture and is in blatant disregard to the evidence on record, law, fact, and judicial pronouncement of higher authorities and courts, hence requires to be cancelled. 4. The authorities below erred in disallowing depreciation amounting to Rs. 1,85,25,192/-. 5. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered." 4. The grounds raised by the assessee in ITA No. 513/Bang/2019 are as under. "1. That the order of the authorities below in so far as it is against the a....
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.... in holding that order of assessment was erroneous and prejudicial to the interests of revenue. 5. The Learned CIT erred in assuming jurisdiction u/s 263 of the IT Act by issue of notice dt.10.05.2016 when the issue was a subject matter of appeal before the CIT-Appeals. 6. The order u/s 263 passed by the Learned CIT dt 28.03.2017 is against the law having regard to the facts, circumstances and law on the issue and hence liable to be cancelled as admittedly there were two views on the issue and when valid discretion is exercised no such order can be made. 7. The Learned CIT erred in issuing direction to the assessing officer to modify the assessment by withdrawing the deduction allowed u/s 35D of the Act. 8. The Learned CIT erred in issuing direction to the assessing officer to charge the interest leviable u/s 234D of the Act. 9. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered." 7. The ld. AR of assessee has filed the written submissions which are reproduced hereinbelow for ready reference. ....
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.... the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under s. 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee." The assessee has relied on the decision of the Delhi High Court in the case of Ranbaxy Laboratories Ltd vs CIT - 336 ITR 136 (PBI - I page 87, relevant page 95) wherein the Court concurring with the Jet Airways cited supra has held as under: " 21. In view of our above discussions, the Tribunal was right in holding that the AO had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive." The decisions of the Jet Airways & Ranbaxy Laboratories cited supra came up for consideration by the jurisdictional High Court in the case of N.Govindaraju vs ITO - 377 ITR 243 (PBI - 2 page 199, relevant page 211) and also relied on by the DR where....
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....at the rate of 1/10th. The CIT-A similarly held the view of the AO that since the assessee is not the owner of the mines, depreciation is not allowable. The view of the AO & CIT-A is incorrect as the assessee has acquired the mining lease and licence rights for extraction of iron ore vide Mining Lease and Licence No.2552 granted by the Government of Karnataka. The Government by way of granting the mining lease and licence has given the assessee the right to extract iron ore in the Donimalai Range. Thus the assessee has become the owner of such right. The mining lease and licence acquired by the assessee for extraction of iron ore is in the nature of business or commercial right falling under the category of intangible asset eligible for depreciation u/s 32(1)(ii) of the Act. Thus the Mining lease and licence is a capital asset which enables the assessee to do its business of Mining. On this issue the assessee has relied on the decision of the ITAT Delhi in the case of ONGC Videsh Ltd vs DCIT - 127 TTJ 497 (PBI - I page 100, relevant page 109,110) wherein the Tribunal in paras 14 & 14A has held as under: " 14.......If it is an asset being the right then it....
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....t page 244 & 245) wherein the tribunal on a similar issue has allowed depreciation. In this case the assessee had claimed depreciation on intangible asset of licence granted to the assessee for running container trains on Indian Railways Network for twenty years and the AO had observed that it was deferred revenue expenditure to be amortized over a period of 20 years. The Tribunal in para 7 paper book page 245 has held as under: "7......It is observed that this Tribunal while deciding identical issue on similar facts held that license fee paid by assessee was to acquire a commercial right to operate trains on Indian Railway track for 20 years which was transferable. It is also observed that such right is significant to the business of assessee and without the license assessee could not have run its container on railway track. This Tribunal for A.Y. 200809 in assessee's own case vide order dated 18/01/2017 held that, commercial right acquired by assessee by way of this license for earning enduring benefit for a period of 20 years would amount to capital asset. It is also observed that this view of Tribunal derives support from decision of Hon'ble Delhi High Court in....
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.... at Annexure A to the assessment order. This lease has been obtained upon fulfilment of the conditions outlined by the Government of India Ministry of Environment and Forests dt.13.09.2006 (copy of the letter enclosed as Annexure B) towards which an expenditure of Rs. 9,43,51,400/- has been incurred. The letter of Sri.M.Srinivasulu dt.31.10.2006 to the Deputy Conservator of Forests, Bellary stating the fulfilment of conditions and requesting for grant of mining lease is enclosed as Annexure C for ready reference (copy of the letter is also enclosed to the assessment order). [Condition 1 - user agency shall transfer the cost of compensatory afforestation to the state forest department - Paid Rs. 72,62,800/- towards the same. Condition 2 - fencing, protection and regeneration of the safety zone area shall be done Paid Rs. 5,88,573/- towards the same. Condition 6 - state government shall charge the Net present value of the dead rent on area made available on lease under this proposal from the user agency as per orders of Supreme court - Paid Rs. 8,65,00,000/- towards the same as per demand notice raised by the Conservator of Forests, Bellary (copy of demand ....
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....on may be allowed on the Intangible asset. ITA 512/B/19 AY 2012-13 143(3) AO disallowed Depreciation and allowed amortisation as per section 35D at 1/10^th Depreciation may be allowed on the Intangible asset on WDV basis ITA 863/B/17 AY 2012-13 263 CIT directed AO to withdraw amortisation allowed u/s 35D at 1/10th and levy 234D interest Since three views are possible (i.e., depreciation at 25%/ amortization at 1/20th/ application of section 35D and amortization at 1/10th) the order u/s 263 is not maintainable. Reliance is placed on the decisions of SC in Malabar Industrial Co Ltd (PBI - 2 page 253) and Karnataka High court in Sasken Communication Technologies Ltd (FBI - 2 page 259) ITA 513/B/19 AY 2012-13 143(3) rws 263 AO disallowed Depreciation and allowed amortisation at 1/20^th Depreciation may be allowed on the Intangible asset on WDV basis ITA 514/B/19 AY 2014-15 143(3) AO disallowed Depreciation and allowed amortisation at 1/20^th Depreciation....
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....to believe/ grounds referred therein) on which the whole structure of additions were made is itself not sustainable in the eyes of law or it (reasons to believe/ grounds referred therein ) does not have any live connection with the additions made, in that eventuality no such additions is sustainable. However if the CIT (A) comes to the conclusion that there is a live connection and the reasons to reopen is interdependent and interwoven with the addition made then said additions are sustainable in the eyes of law." 10. From above para, it comes out that in that case, the issue regarding validity of reopening of the assessment was restored back by the Tribunal to the file of ld. CIT(A) because earlier this issue was not decided by ld. CIT(A) and hence, in our considered opinion, this Tribunal order is not relevant for deciding the issue in the present case regarding the validity of reassessment proceedings. In addition to that, various other judgments are cited by ld. AR of assessee including that of Hon'ble Bombay High Court rendered in the case of CIT Vs. Jet Airways (I) Ltd. as reported in 331 ITR 236 and of Hon'ble Delhi High Court rendered in the case of Ranbaxy Laboratories ....
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.... 19. During assessment proceedings, AO held that the same cannot be classified as pre-operative and preliminary expenditure as appellant did not incur the said amount and that appellant was not owner of the said mine. It is noted that appellant had classified the said amount as intangible asset in its balance sheet as mining lease and licence and claimed depreciation @ 25 %. 20. However, AO during the course of assessment proceedings observed that an amount of Rs. 9.43,51,400/- was paid to Chief Conservator of Forests for diversion of 134 hectares of forest land in favour of lease holder for extraction of iron ore . The said amount was paid by Sh. M. Srinivasulu. Further AO has brought out the fact that an amount of Rs. 49,32,535/- was paid for mining registration charges and stamp duty to Sub Registrar, Sandur. The AO states that appellant had not shown how the said expenditure can be classified as an intangible asset wherein depreciation can be claimed. It is noted that the amount was paid to Forest department for it to acquire compensatory aforestation and also as a Net Present Value. 21. Further the expenditure was originally incurred by mining ....
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....e further noted that the amount was paid to Forest department for it to acquire compensatory afforestation and also as a Net Present Value. In course of hearing, the bench wanted to note regarding the nature and basis of this payment and in reply, it was submitted by ld. AR of assessee that the amount of Rs. 865 Lakhs was paid against demand notice dated 26.10.2006 as per which this amount was claimed towards net present value of the forest area diverted to the user agency as per the orders of Hon'ble Supreme Court dated 03.10.2002 and 01.08.2003 in IA No. 566 in WP (C) No. 202/1995 and as per the guidelines issued by the Ministry vide letter No. 5-1/1998-FC (Pt. II) dated 18.09.2003 and 22.09.2003 in this regard. He submitted that along with the written submissions filed by him, he will submit the relevant letter from Government of India, Ministry of Environment & Forests dated 13.09.2006 and also letter dated 31.10.2006 submitted by Shri M. Srinivasulu to the Deputy Conservator of Forests, Bellary Circle, Bellary and the demand notice dated 26.10.2006 as per which a demand of Rs. 865 Lakhs has been raised. Along with the written submissions filed by ld. AR of assessee, these docu....
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.... ground cover 46.00 6.20 285.20 3 Dry scrub and Dry thorn forest with density below 0.1 35.00 6.80 238.00 4 Dry deciduous forest with density 0.1 and above 21.50 7.40 159.10 Total 134.00 865.00 3) Therefore, you are hereby requested to pay a sum of Rs. 865.00 (Rupees Eight crores sixty five lakhs) only being the Net Present Value of the forest land of 134 ha. under different categories as prescribed by the Government of Karnataka in their Notification No:FEE-247-FGL- 2002 dated: 17-1-2004. The above amount of Net Present value should be paid in the form of Demand Draft drawn in favour of the Principal Chief Conservator of Forests. Bangalore at any Nationalized Banks. within 15 days from the date of receipt of this demand notice." 13. As per the letter dated 13.09.2006 issued by the Government of India, Ministry of Environment and Forests (F.C. Division), it is stated that this land of 134 ha. of forest land was diverted in favour of M/s. M. Srinivasulu Iron Ore Mining in Donimalai RF, Sandur Taluk, in Bellary district of Karnataka subject to various conditions and one such condition is th....
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.... 1. (i) The User Agency shall identify and acquire equal extent of non-forest land for Compensatory Afforestation, which shall be mutated in favour of the State Forest Department. (ii) The land identified for the purpose of CA shall be clearly depicted on a Survey of India toposheet of 1:50,000 scale. (iii) The User Agency shall transfer the cost of Compensatory Afforestation to the State Forest Department. (iv) The non-forest land identified for raising Compensatory Afforestation shall be notified by the State Government as RF under Section-4 or PF under Section-29 of the Indian Forest Act, 1927 or under the relevant Section(s) of the local Forest Act. as the case may be, within a period of six months. The Nodal Officer (Forest Conservation) shall report compliance in this regard. (v) CA scheme shall be prepared with proper earmarking of fund for planting, and maintenance for at least five years. 2. Fencing, protection and regeneration of the safety zone area (7.5 metre strip all along the outer boundary of the mining lease area) shall be done at the project cost. Besides this. afforestation on degraded forest land, to be s....
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....entral Government in this regard." 14. As per the above letter, it is seen that diversion of 134 ha. of forest land in favour of the assessee was subject to certain conditions and one of the condition was that the User Agency i.e. the assessee shall identify and acquire equal extent of non-forest land for Compensatory Afforestation, which shall be mutated in favour of the State Forest Department. This was the second condition that the land identified for the purpose of Compensatory Afforestation shall be clearly depicted on a Survey of India toposheet of 1:50,000 scale and the third condition is this that the User Agency shall transfer the cost of Compensatory Afforestation to the State Forest Department. As per condition no. 6, this was the condition that the State Government shall charge the Net Present Value of the forest area diverted under the proposal from the User Agency as per the Orders of the Hon'ble Supreme Court of India dated 30.10.2002 and 01.08.2003. As per letter dated 31.10.2006 which is submitted by assessee to the Deputy Conservator of Forests, Bellary Circle, Bellary, it is stated that the assessee has made cost of Compensatory Afforestation to the State Fore....
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....his payment is on account of Compensatory Afforestation in future for which present net value has been paid by assessee to State Forest department and hence, this argument has no merit. Reliance has been placed on a Tribunal order rendered in the case of ONGC Videsh Ltd. Vs. DCIT as reported in (2010) 37 SOT 0097, copy available on pages 100 to 111 of the paper book. In that case, as per the facts noted by the Tribunal in para 2 of this Tribunal order, it is noted that the consortium members commenced hydrocarbons operations in the Sakhalin Block and they held 40% interest in the hydrocarbon project. Later on, the assignment agreement dated 10.02.2001 was entered into and as per this agreement, 50% of their share in the Sakhalin PSA and in a joint operating agreement to OVI for a consideration of Rs. 15,590.96 million. Consequent to the acquisition of such rights and licenses, the assessee became a consortium member and the assignors were relieved from obligation under the Sakhalin PSA to that extent. The dispute in that case was regarding this that the rights and licenses acquired by that assessee, it was claimed that it is intangible asset and on it, depreciation @ 25% should be ....
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....t be controverted by the learned AR of the assessee and hence, we find no infirmity in the order of CIT. The judgments cited by the learned AR of the assessee do not render any help to the assessee in the present case. In fact, Para 5 of the judgment of Hon'ble apex court in the case cited above supports the case of the revenue. In this para, it was held that an incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. In the present case, once the AO held that the expenditure incurred by the assessee for obtaining the mining lease licence cannot be categorised as preliminary and preoperative expenditure and thereafter, allowing amortisation u/s 35 D is nothing but incorrect application of law. In the case of CIT vs. Sasken Communication Technologies Ltd. (Supra), it is noted by Hon'ble Karnataka High Court that at the relevant point of time, two views were existing on the word "profit" in section 80HHC and this section was amended eleven times and there was a great complication and hence, two views were inherently possible and hence, subsequent amendment in the year 2005 even though retrospective would not attract the ....