TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 35
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts of the case are that the assessee company is engaged in the business of mining, quarrying, stone crushing and breaking, drilling, blasting, ground levelling and transportation of aggregates on contract basis. For the purposes of executing its projects such as laying stones along highways or runways, the assessee was required to procure boulders and stones from nearby quarries. In the process, it utilized adjoining land parcels for excavation, mining and transportation. In consideration of the right to use such land, compensation or royalty was paid to the landowners, whether private persons or governmental authorities, or to those in lawful possession or control thereof. Such payments were customary in the trade and were uniformly described as royalty for extraction of boulders and stones. 4. It is pertinent to note that this was by no means the first year of such expenditure. From assessment years 2008-09 to 2019-20, similar royalty payments had been incurred and consistently accepted in scrutiny assessments framed under section 143(3). During the year under consideration, the assessee had incurred an aggregate royalty expenditure of about Rs.2.46 crores, out of which Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome tax act, 1961. 3. In view of the above, I have reason to believe that the amount of Rs. 31,96,000/- has escaped assessment in the hands of M/s. Balaji Infratech & Constructions Pvt Ltd for the A.Y 2012-13 within the meaning of section 147 of the Income Tax Act, 1961 and hence, the case of the assessee needs to be reopened by issue of notice u/s 148 of the Income Tax Act, 1961." 5.1. From a plain reading of the reasons, it is manifest that the foundation for reopening was the view that the payment of Rs.31,96,000 made to Mr. Arun Gajanan Adhikari was not genuine, as the ownership of the land in question was held by M/s. Twinkle Plantations Pvt. Ltd., and not by the said individual. The Assessing Officer, therefore, inferred that the royalty ought to have been paid to the company and not to Mr. Adhikari, and in the absence of evidence that the latter had transferred the sum to the company, concluded that the expenditure was not for business purposes and hence not allowable under section 37(1). 6. Pursuant to the said reasons, notice under section 148 of the Act was issued on 31st March 2017. The assessee, in response, raised detailed objections vide letter dated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontemporaneous documentation. The essence of the assessee's submissions was thus "It is an established fact that the assessee company is in the business of earth moving and quarrying. Royalty payments to both government and private parties have been made year after year and accepted in scrutiny assessments. The payment to Mr. Adhikari was made through proper banking channels with due deduction of tax at source. The relationship between Mr. Adhikari and M/s. Twinkle Plantations Pvt. Ltd. is of no consequence to the assessee, which has merely paid royalty for use of land as per the agreement. The expenditure, therefore, satisfies the test of section 37(1)." 8. The Assessing Officer, however, brushed aside the assessee's submissions and disallowed the royalty expenditure. He observed that the land in question was registered in the name of M/s. Twinkle Plantations Pvt. Ltd., and therefore any agreement entered into by the assessee with Mr. Adhikari, who was merely the holder of a Power of Attorney, lacked legal validity. According to the Assessing Officer, the Power of Attorney executed by M/s. Twinkle Plantations Pvt. Ltd. did not specifically provide for any remuneration ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate that the expenditure was bogus nor any new information to justify the reopening. The Assessing Officer has simply re-evaluated the same set of documents, which constitutes nothing but a change of opinion. It is well settled that a change of opinion, howsoever reasoned, does not confer jurisdiction under section 147 once an assessment under section 143(3) has attained finality. Therefore, even at the threshold, the assumption of jurisdiction for reopening the assessment is unsustainable in law. 12. Coming now to the merits, the Revenue's objection essentially turns on the legal status of the Power of Attorney holder. It is not in dispute that M/s. Twinkle Plantations Pvt. Ltd., the owner of the land, had executed an irrevocable Power of Attorney in favour of Mr. Arun Gajanan Adhikari on 15th October 2003. By virtue of this, he was vested with rights to deal with the land, including granting permission to others for quarrying and mining. When the assessee entered into an agreement with him for extraction of boulders and stones, the payment was made towards royalty for use of the land. The question, therefore, is whether such payment can be regarded as invalid merely because it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egal title continues to vest in another. The holder of such Power of Attorney, for all practical purposes, is clothed with authority to deal with the property, including its commercial exploitation. Therefore, the argument that the agreement between the assessee and Mr. Adhikari lacked legal sanctity cannot be accepted. The assessee, having paid royalty to the person duly authorized to grant such rights, has discharged a legitimate business liability, the expenditure being wholly and exclusively incurred for the purpose of its business. 13. The essence of section 37(1) is that any expenditure, not being capital or personal in nature and laid out wholly and exclusively for the purposes of business, is to be allowed as deduction. The legislative command is not that the expenditure must be incurred in a manner the Assessing Officer deems most appropriate, but that it should be incurred bona fide and in the course of carrying on business. The Assessing Officer is not to substitute his own business judgment for that of the assessee. Here, the payment of royalty to Mr. Arun Adhikari was made under a subsisting agreement with a person duly empowered to grant such rights, supported by b....