TaxTMI 
TaxTMI 
2024 (12) TMI 1564
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....thus not allowable as expenditure? 2 Whether in the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting addition made by the AO for amount of Rs. 6,05,00,000/- by treating the interest earned during pre-operative period as income chargeable to tax under other sources, while such interest income earned during pre operative period is not business income and cannot set off from other business expense of pre operative period In ITA No. 453/JP/2023 1. Whether in the facts and circumstances of the case and in law the Ld. CIT (A) has erred in upholding the assessee's claim for Mines Closure Plan of Rs. 4,65,19,308/- as admissible expenditure in the year under consideration without appreciating the fact that the said amount set apart by the assessee was in the nature of a provision and thus not allowable as expenditure? 2 Whether in the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting addition made by the AO for amount of Rs. 5,32,00,000/- by treating the interest earned during pre-operative period as income chargeable to tax under other sources, while such interest income earned during....
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....o be awarded to the assessee. In ITA No. 461/JP/2023 1. Ld. CIT(A), NFAC has erred on facts and in law in upholding the order of AO in not allowing the claim of amortization/depreciation of surface rights of Rs. 17,99,09,899/-. He has further erred in confirming the disallowance by not following the direction/finding of Hon'ble ITAT on this issue for A.Y. 2012-13. 2. the appellant craves to alter, amend and modify any ground of appeal. 3. Necessary cost to be awarded to the assessee." In ITA No. 462/JP/2023 1. The Ld. CIT(A), NFAC has erred on facts and in law in upholding the order of AO in not allowing the claim of amortization/depreciation of surface rights of Rs. 20,49,93,079/-. He has further erred in confirming the disallowance by not following the direction/finding of Hon'ble ITAT on this issue for A.Y. 2012-13. 2. The Ld. CIT (A), NFAC has erred on facts and in law in upholding the order of AO in making disallowance of Rs. 4,32,88,800/- under Explanation 2 to section 37 of the Act ignoring that assessee has not claimed any expenditure on Corporate Social Responsibility (CSR) but claimed expenditure on Corporate Environment ....
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....t lignite mining activities at Kapurdi and Jalipa at Barmer District for captive use of lignite based thermal power plant of RWPL. It is thus a subsidiary of RSMML and therefore, a Government Company. The assessee commenced its lignite mining activities from October, 2011 at Kapurdi Mines. 4. The Government of Rajasthan (GOR) decided to allow power projects in the private sector and invited international competitive solicitations for setting up a lignite mining cum thermal power project at village Jalipa and Kapurdi, District Barmer in Rajasthan. Under an Implementation Agreement (IA) dated 29th May 2006 (PB 1-38), RWPL was allowed to set up its power plant and a separate JV company was to be formed as a mining company for mining lignite to be supplied for the thermal power plant of RWPL. As per clause 3.5(i) of IA (PB 9), the mining lease of captive lignite mine was granted to M/s. RSMML by Government of Rajasthan and as per clause 3.5(ii) (PB 10) the mining lease was to be transferred to JV Company after obtaining prior approval of Government of India. However, M/s. RSMML was not to take any financial obligation on this account. 5. Under the provisions of IA, GOR took unto ....
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....pplying and obtaining for mining lease and its subsequent transfer of user right to JV company for a period of 30 years, acquisition of land under the Land Acquisition Act, environmental clearance from Ministry of Environment & Forest (MOEF), getting NOC from GOR for carrying out mining activity by JV company, etc. M/s. RSMML was also taking necessary steps during A.Y. 2012-13 to secure another lignite mining lease at Village Jalipa, Barmer which is also transferred to assessee with associated rights following the same process vide agreement dated 25th May, 2015. However, GOR refused to transfer the mining land acquired by M/s. RSMML to the assessee vide letter dated: 14.09.2012 (PB 62) and thus assessee has only the right to extract the mineral over a period of 30 years on such mining land. 9. To execute its obligations under IA and JV agreement for acquiring and transferring mining lease, obtaining various approvals and permissions and acquisition of land for the Kapurdi mining project and Jalipa mining project, M/s. RSMML incurred expenditure on payment of compensation to the land losers and other expenses. As per the JV agreement, assessee reimbursed entire expenditure as ab....
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.... 12. In view of the facts it is unchallenged facts that to carry on mining operation the assessee company which is a joint venture between M/s. Rajasthan State Mines and Mineral Ltd., RSMML, (Govt. of Rajasthan under taking) and M/s. Raj West Power Ltd. (RWPL) Paid charges to the owners of land so that minerals i.e. lignite can be extracted for a period of 30 years. It is also observed that the owner ship of land will not be transferred to the assessee or the joint venture partner, i.e. M/s. Raj West Power Ltd. (RWPL). In view of this, the right of extraction of lignite by the assessee are in the nature of mining lease with a certain period and as per geological survey there is a definite quantity of lignite exists in the mines and only a certain quantity each year can be extracted. 13. The minerals extracted by the assessee is to be used in their captive power plant for generation of power means the lignite extracted will contribute as raw material for production of power. The assessee earned revenue from the sale of power which is duly refracted in the financial of the assessee and not under challenge by the revenue in that case how the cost of procuring raw material can be d....
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....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 to one-tenth of the expenditure specified in sub-section (2) (such one-tenth being hereafter in this sub-section referred to as the instalment); or (b) such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that previous year arising from the commercial exploitation [whether or not such commercial exploitation is as a result of ....
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....amation- (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 subsection (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 as they would have applied to the demerged company, if the demerger had not taken place.] (8) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure specified in sub-section (2), the expenditure in respect of which deduction is s....
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....unts so obtained by issue of debentures are used by the company for the purposes of its business. This would, therefore, be expenditure. In the light of the ratio laid down by the Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) liabilities incurred for the purpose of obtaining the loan would be revenue expenditure. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3 lakhs in that accounting year. This conclusion was not justified looking to the nature of the liability. It was true that the liability had been incurred in the accounting year. But the liability was a continuing liability which stretched over a period of 12 years. It was, therefore, a liability spread over a period of 12 years. Ordinarily, the revenue expenditure which is incurred wholly and exclusively for the purpose of business, must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify....
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....f the road which was not the property of the assessee was undoubtedly connected with and advantageous to the business activity of the assessee. Though it conferred upon the assessee an enduring advantage for the benefit of its business, it did not secure to the assessee any tangible, or intangible asset and further the enduring advantage gained by the assessee was chiefly to facilitate the assessee's business operations with greater efficiency and profitability without touching fixed capital of the assessee and there was no addition to or expansion of the profitmaking apparatus. Keeping in view, the discussion above the Bench declined to interfere with the order of the Commissioner (Appeals) on this ground also." 17. In view of the discussions (supra), ground taken by the assessee for Financial Year 2016-2017 to 2018-19 & 2020-21 is allowed and the AO is directed to allow the same. 18. Ground No. 2 (A.Y. 2016-17) The Ld. CIT(A), NFAC has erred on facts and in law in upholding the action of AO in levying interest u/s. 234A of the Act amounting to Rs. 16,34,544/- for delay in filing the return by one month by not considering the fact that when assessee has entered into specifie....
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....s and Rs. 1,25,00,000/- for Jalipa Mines) and Rs. 5,42,74,770/- in A.Y. 2020-21 (Rs. 2,42,74,770/- for Kapurdi Mines and Rs. 3,00,00,000/- for Jalipa Mines) as CER expenses. The AO held that prima facie the expenses claimed is in the nature of application of income not allowable u/s. 37(1) of the Act. Further the claim of the assessee that the same has been allowed by Hon'ble Rajasthan High Court in assessee's own case for A.Y. 2012-13 to 2014-15 is irrelevant as Explanation 2 to section 37 effective from 01.04.2015 specifically disallows such expenses. Against the decision of Hon'ble Rajasthan High Court revenue has preferred appeal before Hon'ble Supreme Court and the matter has not reached finality. Accordingly he disallowed the claim of assessee. 25. The Ld. CIT (A) at Pg 37-49, para 10 & 10.1 of the order after verbatim reproducing the finding of AO for A.Y. 2018-19 upheld the order of AO. It is observed that Ministry of Environment and Forest (MOEF), Government of India while according its environment clearance for Kapurdi Mines vide letter no. J11015/472/2007-IA-II (M) dated: 10.12.2008 as amended from time to time (PB 158-181) imposed a specific condition vide point no. ....
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....use revenue has filed appeal before Hon'ble Supreme Court cannot be a reason to disallow the claim of assessee. It is further bring to the notice of the bench that the appeal of the Revenue before the Hon'ble Supreme Court has also been dismissed and this fact is on record and accepted by both the parties concerned. In view of above, disallowance confirmed by Ld. CIT (A) is set-aside and the AO is directed to allow the same. Ground No. 2 (A.Y. 2018-19 & 2020-21) is allowed for both the years. 28. Ground No. 3 (A.Y. 2018-19) The Ld. CIT (A), NFAC has erred on facts and in law in upholding the order of AO in making addition of Rs. 7,88,184/- on account of interest on income tax refund pertaining to A.Y. 2016-17 by not appreciating that the same was withdrawn while completing the assessment u/s. 143(3) of the Act dated: 13.11.2018. 29. It is observed that the assessee filed the return for A.Y. 2016-17 on 29.11.2016 at nil income under normal provisions of the Act and at book profit of Rs. 14,07,63,643/- u/s. 115JB. As per the return tax payable was Rs. 3,04,80,822/- against which tax paid was Rs. 3,92,38,518/-. Thus refund of Rs. 87,57,700/- was claimed. 30. It is observed th....
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.... Rs. 5,05,170/-) was raised. 35. It is observed that the assessee before the Ld. CIT (A) also submitted that interest u/s. 244A should be computed from 01.04.2018 to 18.12.2019, i.e. for 21 months on Rs. 91,84,945/- which comes to Rs. 9,64,419/- but AO has incorrectly calculated it at Rs. 5,05,170/-. The Ld. CIT(A), however, at Para 12, Pg 40 observed that AO has not made any manual computation while allowing interest u/s. 244A of the Act and the same was computed as per e-filed return. The appellant failed to substantiate the claim with detailed working and thus dismissed the ground of assessee. 36. It is observed that the AO appears to have calculated interest u/s. 244A of the Act in the computation sheet enclosed attached with order u/s. 143(3) of the Act at Rs. 5,05,170/- for a period of 11 months from 01.11.2018 to 06.08.2019 i.e. for the period after filing the return of income instead of from 01st April of the relevant A.Y. This has resulted in reducing the amount of interest u/s. 244A of the Act. Thus the calculation of interest is prima facie incorrect. 37. The interest u/s 244A of the Act is required to be calculated from 1st April of the relevant A.Y. to the dat....
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.... is to be estimated as per the guidelines provided in the Para 5.2 and 5.3 of the said guidelines. 41. As per the guidelines, a sum of Rs. 6 lakhs per hectare (base rate for August 2009) of total project area for an open cast mine with escalation based on WPI as notified by Government from time to time was determined as the mine closure cost of an open cast mine. Further the guidelines mandate that annual closure cost is to be computed considering the total leasehold area at the above mentioned rates and dividing the same by entire life of the mine in years. 42. Accordingly the assessee started making provision for mine closure cost from A.Y. 12-13 and onwards on the total mine area of 3223.51 hectares and deposited the said amount in an Escrow Account compounded @ 5% annually. The assessee till 31.03.2016 has made the provision for mine closure cost and deposited the same in Escrow account maintained with PNB (PB 110) as under:- F.Y. Provision for mine closure cost Cumulative provision Amount deposited in Escrow Account 2011-12 Rs. 7,45,56,667/- Rs. 7,45,56,667/- - 2012-13 Rs. 7,82,84,500/- Rs. 15,28,41,167/- - 2013-14 Rs. 8,21,98,72....
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.... In this A.Y. provision was also made for mine closure cost of Jalipa mines at Rs. 5.77 crores. 45. For A.Y. 2020-21 the mine closure cost was worked out as under:- S. No. Financial Year Revised Amount of MCC (Taking Area 2914.36 hectares) 1. 2011-2012 Rs. 6,74,06,326 ( 2,08,95,96,120 / 31) 2. 2012-2013 Rs. 7,07,76,643 (6,74,06,326*1.05) 3. 2013-2014 Rs. 7,43,15,475 (7,07,76,643*1.05) 4. 2014-2015 Rs. 7,80,31,249 (7,43,15,475*1.05) 5. 2015-2016 Rs. 8,19,32,811 (7,80,31,249*1.05) 6. 2016-2017 Rs. 8,60,29,452 (8,19,32,811*1.05) 7. 2017-2018 Rs. 9,03,30,925 (8,60,29,452*1.05) 8. 2018-2019 Rs. 9,48,47,471 (9,03,30,925*1.05) 9. 2019-2020 Rs. 9,95,89,845 (9,48,47,471*1.05) Total Rs. 74,32,60,197/- Less: Provided till 31.03.2019 Rs. 64,36,70,352/- Balance provided during the year Rs. 9,95,89,845/- In this A.Y. provision was also made for mine closure cost of Jalipa mines at Rs. 6.37 crores. 46. All the above amount was deposited in the escrow account maintained with PNB (PB 110-118). The AO disallowed the claim of....
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....llowable u/s. 37(1) of the Act. In view of the decision of Supreme Court in case of Bharat Earth Movers Limited Vs. CIT 112 Taxman 61, Rotork Controls India Pvt. Ltd. Vs. CIT 314 ITR 62 and the decision of Rajasthan High Court in case of Udaipur Mineral Development Syndicate (P) Ltd. Vs. DCIT & Anr. 261 ITR 706. 50. The Ld. CIT (A) in assessee's own case for A.Y. 2012-13 considering the decision of coordinate bench, Jaipur in the case of M/s. RSMM Ltd. Vs. ACIT in ITA No. 144/JP/2014 &124/JP/2014 dated: 12.02.2016, allowed the claim of the assessee. Against this decision the department preferred an appeal before coordinate bench. The coordinate bench, Jaipur vide order dated: 12.10.2017 in ITA No. 510/JP/17 has dismissed the ground of department on this issue as per the discussion at Pg 49-52 of the order (PB 246-249). Against the said order department preferred an appeal before the Hon'ble High Court which has also been dismissed vide order dated: 17.04.2018 (PB 251-253). 51. It is observed that the mine closure cost is claimed as expenditure for fixation of the transfer price of lignite by Rajasthan Electricity Regulatory Commission (RERC). This is evident from th....
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....and on receipt of such requirement the assessee will be obliged to provide funds in the Escrow Account. Once the fund is deposited in the Escrow account, it is under the exclusive control of M/s. RSMML who will utilize the same for payment of compensation, for acquisition of land and other related expenses. In this process the fund remained unutilized with M/s. RSMML for few days intermittently, i.e. from the date of deposit by the assessee till the date of payment to the land owners by M/s. RSMML. Such fund because of auto sweep facility is transferred to FDR A/c. which earned interest as per the terms of escrow account. 55. It is observed that since the interest accrues in such Escrow Account, Government of Rajasthan (GOR) has given the direction vide order dated: 30.03.2011 (PB 142) that the interest earned by M/s. RSMML be refunded to the assessee. This was done with a view that the same would reduce the cost of the project so that the ultimate tariff cost of power to the consumers reduces. The interest expenditure capitalized on the borrowed funds in respect of Jalipa Project (as the same commenced operation in A.Y. 2018-19) and the amount of interest received from RSMML cr....
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....p;10.20 crores) is allotted to M/s. RSMML in form of shares issued for consideration other than cash and 49% capital (i.e. Rs. 9.80 crores) is allotted to M/s. RWPL in cash. The borrowed funds represent borrowing from the banks or the subordinate loans from M/s. RWPL. Thus the entire project has been funded out of interest bearing funds. The term loan has been obtained from bankers/ financial institutions at an average borrowing cost of 10.16% to 11.37% p.a. and the subordinate loan has been taken at rate of 10% p.a. (PB 144-146). 59. It is the above borrowed funds which have been utilized for depositing in Escrow Account for the purpose of acquiring land by M/s. RSMML and interest paid on such borrowing has been charged to CWIP. On the amount so deposited in the Escrow Account in the name of M/s. RSMML, the interest received is inextricably linked to the cost of the project and therefore, such interest receipt cannot be charged to tax as income from other sources but needs to be reduced from the cost of the project. Even the Government in its letter dated: 11.07.2011 (PB 143) has stated that expenditure related to land acquisition and expenditure incurred by M/s. RSMML can be a....
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....ich were made between the assessee-company and the contractors pertaining to these three receipts are arrangements which are intrinsically connected with the construction of its steel plant. The receipts have been adjusted against the charges payable to the contractors and have gone to reduce the cost of construction. They have, therefore, been rightly held as capital receipts and not income of the assessee from any independent source." 60. In the above decision, Hon'ble Supreme Court distinguished the decision in case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT by giving the following findings at Para 7 of his order:- "The appellant, however, relied upon the decision of this Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT (supra). That case dealt with the question whether investment of borrowed funds prior to commencement of business, resulting in earning of interest by the assessee would amount to the assessee earning any income. This Court held that if a person borrows money for business purposes, but utilises that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilised by the ....
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....enditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. By the same reasoning if the assessee receives any amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income." 61. Hon'ble Supreme Court in the following cases has also held that where any receipt is inextricably link to the funds borrowed for the purpose of capital investment, such receipt is in the nature of capital receipt which would go to reduce the capital asset. Respectfully, following the decision of Hon'ble Apex Court in the cases of CIT vs. Bokaro Steels Ltd. 236 ITR 315 and Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 and further relying on: CIT vs. Karnataka Power Corporation Ltd. 247 ITR 268 (SC) H....