TaxTMI 
TaxTMI 
2026 (6) TMI 1324
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....ssue which is covered as illegal mining by the Hon. Supreme court, but is issue of mine in Rajasthan where the only issue is about deduction of mining expenses. therefore these appeals were heard separately. 3. In ITA No. 1896/Bang/2025, the Assessing Officer has challenged the deletion of the addition of Rs. 51.33 crores claimed as mine development expenditure under section 37(1), which was not routed through the profit and loss account. The Revenue contends that the CIT(A) erred in treating the expenditure as revenue in nature, particularly when the assessee had reflected the mine development expenditure as an asset in its balance sheet and disclosed in the notes to accounts that such expenditure would be amortised upon commencement of commercial production. According to the Revenue, this treatment indicates the assessee's own understanding that the expenditure was capital in nature and was covered by section 35 E of the Act. 4. The assessee has also filed ITA No. 1830/Bang/2025. The issues raised in that appeal are as follows: a. The CIT(A) erred in confirming the Assessing Officer's action of treating Rs. 11,09,96,181, being the amount realised during the mine de....
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....16,43,69,725 on overburden removal. After adjusting revenue of Rs. 11,09,96,181 from lignite extracted up to completion of the initial mine cut, it capitalized the net amount of Rs. 5,33,73,544 in its books for amortisation over the contract period. In return of income, however, it claimed the same amount as revenue expenditure under section 37, contending that, as a contractor with no ownership or prospecting rights, the expenditure was incurred wholly for business and did not create any enduring capital benefit, particularly since it would be lost on termination of the contract. 8. During assessment, the Assessing Officer noted that Rajasthan State Mines and Minerals Ltd. and Rajasthan West Power Ltd. had formed Barmer Lignite Mining Company Ltd. to develop and operate lignite mines for supply to RWPL's power plant. BLMCL later engaged the assessee to mine lignite from the Jalipa and Kapurdi mines in Barmer, Rajasthan, for 30 years from 1 April 2010. The assessee was to mine and deliver lignite as per the agreement, with the price linked to approval by the Rajasthan Electricity Regulatory Commission. For A.Y. 2012-13, the assessee claimed mine development expenditure of Rs. 16....
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....assessee by allowing the expenditure under section 37 instead of section 35E. Respectfully following that decision, the CIT(A) allowed the net mine development expenditure of Rs. 5,33,73,544 under section 37 and allowed ground no. 1 of the assessee's appeal. 10. The learned Departmental Representative, Shri Shivanand Kalakeri, relied on the assessment order and supported the disallowance. He submitted that the claim was rightly rejected because the expenditure was not routed through the profit and loss account and the assessee's accounting treatment itself indicated that section 35E applied. He therefore contended that the CIT(A) erred in allowing the claim under section 37. 11. The learned authorised representative, Shri Rakesh Joshi, Chartered Accountant, supported the order of the CIT(A). He submitted that the CIT(A) had correctly followed the coordinate Bench decision in the assessee's own case, which was reproduced and applied in the impugned order. He accordingly argued that the CIT(A)'s order called for no interference. 12. We have considered the rival submissions and examined the CIT(A)'s order. A similar disallowance of mine development expenditure under section 3....
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.... 8.7 In the present case, originally, M/s Rajasthan State Mines and Minerals Ltd and M/s Rajasthan West Power Ltd (RWPL), after entering into a Joint Venture Agreement in 2006 to develop and operate mines for supply of lignite to RWPL power plant, have incorporated M/s. Barmer Lignite Mining Company Limited (BLMCL) to carry out the said activities and perform the obligations as per the Joint Venture Agreement. Later, BLMCL, in turn entered into an agreement (hereinafter referred to as 'the agreement') with the assessee company, during the year under consideration, for carrying out mining operations for mining of lignite from Jalipa and Kapurdi Lignite Mines in Rajasthan for a period of thirty years with effect from 1-4-2010. Notably, before entering in to the agreement, unsatisfied with the report of the Geological Survey of India (GSI) given to BLMCL regarding reserves of lignite at the specified sites, the assessee engaged a private German agency M/s. Vattenfall Europe Mining AG, for the purpose of vetting the report of the GSI. After receipt of such a report to its satisfaction from the said agency which was paid a fee of Rs. 2,61,67,491/-signed the agreement with BL....
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.... extracted from the next lignite/minerals/ores seam level, and also because even to reach other segments of the same lignite/minerals/ores 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 lignite/minerals/ores level. Of course, there is a difference in the character of overburden removal expenses till the regular, lignite/minerals/ores extraction process starts vis-a-vis the overburden removal expenses after the regular lignite/minerals/ores extraction starts, and this approach is implicit in the accounting policy which treats the overburden removal expenses, till the point of time a mine is a development mine and the regular lignite/minerals/ores extraction on commercial basis has not yet started, as a capital expenditure. 8.11 In other words, entire expenses incurred on the overburden removal by excavation contractor, no matter what be the stage of lignite/minerals/ores extraction levels in that mine, are cannot be treated as capital expenditure. That would essentially lead to a situation that even when overburden removal is a part of the process ....
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....en removal expenses to be considered in connection with Section 35E of the Act. However, the Id. CIT(A) proceeded on the basis that Section 35E governs treatment of any expenses which are relatable to development of a mine and the present assessee is not engaged in Development of mine as it is not owned by it and the assessee is only an excavation contractor only engaged in extraction of lignite ores from the mines owned by third party. 8.13 A plain reading of this section 35E of the Act reveals that this section applies to an assessee who is engaged in any operations relating to prospecting for, or extraction or production of, any mineral" but it applies only with respect to the expenditure specified in Section 35E (2). While the assessee fulfils the criterion so far as activity of the assessee is concerned, the question is whether overburden removal expenses on revenue mines can meet the criterion set out in Section 35E (2). Let us examine that aspect of the matter. 8.14 Section 35E (2), so far as relevant for our adjudication, provides that (a) the expenses should be incurred, after 31st March 1970, during the year of commercial production and any one or more o....
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.... his setting up a new unit" which, as is the settled legal position, inadmissible for deduction as revenue expenses. This also indicates that Section 35 E belongs to the same genus as Section 35 D which allows deduction, though spread over a ten-year period, in respect of expenses which are not otherwise admissible for deduction. 8.16 The same principle, in our considered view, is equally applicable in the context of Section 35E as well. Therefore, as long as an expenditure is admissible for deduction under section 37, there cannot be any occasion to invoke Section 35E so as to force amortization of such an expenditure over ten years rather than allow it in the year of incurring the expenditure. 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....
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.... excluded from the expenditure eligible for amortisation under s. 35E: (1) Expenditure on the acquisition of the site of the source of any of the specified minerals or groups of associated minerals or of any rights in or over such site. (2) Expenditure on the acquisition of the deposits of any of the specified minerals or groups of associated minerals or of any rights in or over such deposits. (3) Expenditure of a capital nature in respect of any building. machinery, plant or furniture for which allowance by way of depreciation is admissible under s. 32. 52. The amortisation of the qualifying expenditure will be allowed in equal instalments over a 10-year period against the profits arising from the commercial exploitation 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. Accordi....
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....17 For the reasons set out above, in our considered view. deduction under section 37(1) could not be declined on the ground that the expenditure in question was eligible for deduction under section 35E. The deduction under section 35E is normally available in respect of the expenditure which is not eligible for deduction under section 37 (1) and just because the deduction under section 35E may be available in respect of an expenditure, even if that be so. cannot be reason enough to decline the deduction under section 37 (1). Of course, it is besides the fact that once the commercial production had commenced in the respective mines, there was no occasion to invoke the provisions of Section 35E in respect of any expenditure incurred in the years after the year of commercial production. 8.18 On the contrary to this, the ld. D.R. submitted that assessee in its annual accounts disclosing its accounting policies stated that mine development expenses as a deferred revenue expenditure and this will be written off as per the accounting policies disclosed once the company starts accounting revenue on this account of commencement of regular excavation of lignite. 8.19 In the....
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....ing to Rs. 294,58,47,713/-. Out of the said expenditure, a sum of Rs 6,86,44,114/ was disallowed in the computation of income u/s 40A(ii) and 43B for non-deduction of TDS and non-payment of statuary dues during the year and a net sum of Rs 287,72,03,599/- was claimed as deduction being revenue expenditure incurred wholly and exclusively for the purpose of its business as mining contractor u/s 37 of the Act. As per the accounting policy of the company vide Note no 1.17 of notes to accounts the Assessee Company amortizes the Mining development expenditure in proportion of quantity of lignite mined vis-a-vis the total minable reserves. However, such amortization is not permissible under the Income Tax Act, 1961. It is now well settled that revenue expenditure is allowable in entirety in the year in which it is incurred though it is written off in the books over a period of years. Further, it is also well settled law that the treatment of any particular expenditure/income in the accounts has no bearing on the allowance or otherwise under the Act. Accordingly, the Assessee Company has claimed the said expenditure in the current year in which such expenditure is incurred u/s 37 of the Ac....
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....ing Officer are dismissed. 16. In the result, the appeal filed by the Assessing Officer is dismissed. 17. In the assessee's appeal, the following two grounds have been raised: a. The CIT(A) erred in confirming the Assessing Officer's action of treating Rs. 11,09,96,181, being the amount realised during the mine development period, as business income without properly considering the facts and circumstances of the case. b. Without prejudice to the above, the CIT(A) ought to have allowed relief in respect of the gross mine development expenses of Rs. 16,43,69,007, instead of restricting the relief to the net mine development expenses of Rs. 53,33,73,544. 18. The learned authorized representative submitted that the receipt of Rs. 11.09 crore had been confirmed by the learned CIT(A). However, while allowing the expenditure, the CIT(A) allowed only Rs. 5.33 crore, being the net amount, instead of the gross mine development expenditure of Rs. 16 crore. Referring to paragraph 25 of the appellate order, he submitted that the addition of Rs. 11.09 crore was confirmed while deduction was restricted to Rs. 5.33 crore. According to him, allowing only the net expenditu....
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....sessee raised the following additional grounds before the CIT(A), which were dealt with by the CIT(A) as under: "1. The learned Assessing Officer ought to have allowed Mine development expenditure of Rs. 5,39,93,410/- of AY 2011-12 not claimed in the previous assessment year due to non-deduction of TDS now claimed as the TDS has been made. 2. The learned Assessing Officer failed to appreciate that said expenditure is allowable as per section 40(a)(ia) of the income Tax Act, 1961. The appellant has simply submitted that by oversight while raising the grounds of appeal, the enclosed "additional grounds of appeal" were omitted to be raised in original form 35 dated 30.03.2015. As per provisions of section 250(5) of the Act, additional grounds may only be admitted if the appellant satisfies the appellate authority that there was a reasonable cause which prevented the raising of such grounds at the time of filing the appeal. In the present case, no cogent or reasonable explanation has been provided by the appellant for the delay in raising these grounds. Further, the appellant has not submitted any evidence that it has already exhausted remedies available to i....