ACIT, Jaipur V. RAJASTHAN STATE MINES & MINERALS LTD., Jaipur

ITA 144/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5472 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Business expenditure; Diversion of income; Source of fund; Question of law; Wrong claim; Tax effect; Capital receipt; Revised return; Revenue expenditure; Capital expenditure
• Section: 37(1); 80G; 32; 37

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA-@ ITA NO.144/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2010-11 . THE ACIT, CIRCLE-6, JAIPUR. CUKE VS. RAJASTHAN STATE MINES & MINERALS LTD., LALKOTHI, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAACR 7857 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO.124/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2010-11 . RAJASTHAN STATE MINES & MINERALS LTD., LALKOTHI, JAIPUR. CUKE VS. THE ACIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAACR 7857 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY S BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI M.S. MEENA (CIT D/R) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04 .01.2016. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 12/02/2016. VKNS'K@ ORDER PER SHRI LALIET KUMAR, J.M. THESE ARE TWO CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF LD. CIT (A)-II, JAIPUR DATED 05.12.2013 FO R THE ASSESSMENT YEAR 2010-11. IN THE APPEAL BEARING ITA NO. 144/JP/2014, OF THE RE VENUE THE FOLLOWING GROUNDS ARE RAISED BY THE DEPARTMENT :- 2 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN ALLOWING THE COMPENSATION PAID TO FARMERS AMOUNTING TO RS. 1,67, 47,786/- FOR USING THEIR LAND FOR MINERAL EXTRACTION WITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE IS OF CAPITAL NATURE. 2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN DIRECTING TO DELETE ADDITION OF RS. 10.00 LAKHS MADE BY THE AO BY DISAL LOWING OF CONTRIBUTION TO STATE RENEWAL FUND DESPITE THE FACT THAT IT WAS AN APPLICATION OF INCOME AND NOT EXPENDITURE INCURR ED FOR BUSINESS EXPEDIENCY. 3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN HOLDING P RIOR PERIOD EXPENSES AS ALLOWED EXPENSE EVEN WHEN IT IS NOT COH ERENCE WITH THE ACCOUNTING POLICIES FOLLOWED BY THE ASSESS EE. 4) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E 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 DISALL OWING OF CONTRIBUTION TO SOCIAL WELFARE ACTIVITIES DESPITE T HE FACT THAT IT WAS NOT AN ALLOWABLE BUSINESS EXPENDITURE. SIMILARLY, IN THE APPEAL BEARING ITA NO. 124/JP/201 4, 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. 3 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 3) LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 50,00,000/- PAID TO THE DEPARTMENT OF MINING AND GE OLOGY FOR COMPUTERIZATION OF IT DATA. 4) LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE REDUCTION OF CLA IM U/S 80IA FOR RS. 3,80,44,554/- BY NOT CONSIDERING THE I NCOME FROM SALE OF CERS AT RS. 36,20,742/- & LIQUIDATED DA MAGES AT RS. 3,44,23,812/- AS DERIVED FROM THE BUSINESS O F POWER GENERATION UNDERTAKING. 5) LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING AOS VIEW BY NOT CONS IDERING THE INCOME OF RS. 85,26,824/- FROM SALE OF CERS AS C APITAL RECEIPT. 6) LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE AOS VIEW BY NOT ALLOWING THE DEDUCTION OF RS. 2,94,04,000/- IN RESPECT OF MI NES CLOSURE EXPENSES CLAIMED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. WE SHALL BE DECIDING BOTH THESE APPEALS BY THIS COM POSITE ORDER. GROUND NO. 1 OF REVENUE IN APPEAL NO 144/ 14 : 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS 1,67,47,786/- IN ITS PROFIT & LOSS ACCOUNT ON ACCOUNT OF COMPENSATION FOR MINERAL. THE AO ASKED THE ASSESSE E TO JUSTIFY ITS CLAIM OF REVENUE EXPENDITURE. THE LD. A/R OF THE ASSESSEE VIDE WRIT TEN SUBMISSION DATED 24.12.2012 EXPLAINED AS UNDER : 4 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. REGARDING DEVELOPMENT CHARGES OF RS. 1,67,47,786 /- PAID TO FARMERS FOR EXTRACTION OF GYPSUM , WE MAY SUBMIT THAT THE A SSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MINING . DURING THE YEAR IT EXTRACTED GYPSUM FROM THE LAND OF VARIOUS FARMERS. WHILE EXTRACTING THE GYPSUM FROM THE LAND THERE ARE DAMAGES TO THE STANDING CROPS AND LA NDS OF THE FARMERS. FARMERS ARE ALSO COMPENSATED FOR THE DEPRIVATION OF THEIR LAND TILL IT IS IN THE USE OF THE ASSESSEE. TO COMPENSATE THE LOSS ON THESE ACCOUNTS TO THE FARMERS/OWNER OF THE LAND, ASSESSEE PAYS RS. 10/- P ER M.T. ON GYPSUM TAKEN OUT FROM THE RESPECTIVE FARMS. THEREFORE, THE CHARGES PAID BY THE ASSESSEE COMPANY TO THE FARMERS ON PER M.T. BASIS I S NOTHING BUT THE COST INCURRED TOWARDS EXCAVATION OF GYPSUM WHICH IS REVE NUE EXPENDITURE. ASSESSEE COMPANY HAS NOT ACQUIRED ANY ASSET OR ANY ENDURING BENEFIT BY MAKING SUCH PAYMENT. ASSESSEE HAS TO MAKE PAYMENT EACH AND EVERY TIME WHEN THE GYPSUM IS EXTRACTED FROM THE LAND AND IF NO GYPSUM IS EXTRACTED NO PAYMENT IS REQUIRED TO BE MADE. THIS I TSELF SHOWS THAT THE PAYMENT MADE TO FARMERS ARE NOT FOR LONG TERM BENEF IT RATHER IT IS REGULAR PAYMENT AND AN INTEGRAL PART OF THE COST OF GYPSUM. HENCE THE SAME IS ALLOWABLE AS REVENUE EXPENDITURE. FURTHER IN EARLIE R YEARS ALSO SIMILAR ADDITION WAS DELETED BY LD. CIT (A) AND DEPARTMENT APPEAL WAS DISMISSED BY HONBLE ITAT JAIPUR BENCH. THE AO CONSIDERED THE SUBMISSION OF THE ASSESSEE BU T THE SAME WAS NOT ACCEPTABLE TO THE AO. THE AO WAS OF THE VIEW THAT RIGHT TO SALE M INERALS EMBEDDED IN THE EARTH LIES WITH THE GOVERNMENT AND THE GOVERNMENT ALONE CAN EI THER SALE THESE RIGHTS OR SALE THE MINERALS DIRECTLY. THEREFORE, THE CLAIM OF THE ASSE SSEE 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 USIN G THEIR LAND, WHICH MAY BECOME UNUSABLE FOR AGRICULTURAL PURPOSES. THEREFORE, TRE ATING 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. 5 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 3. BEING AGGRIEVED BY THE ORDER OF AO, ASSESSEE FIL ED APPEAL BEFORE LD. CIT (A) WHO ALLOWED THE CLAIM OF THE ASSESSEE BY DELETING THE A DDITION. THE OBSERVATION OF THE LD. CIT (A) IS AS UNDER :- 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER D ISALLOWED COMPENSATION PAID TO FARMERS. APPELLANT SUBMITTED THAT THIS ISSU E IS COVERED IN ITS FAVOUR BY THE ORDER OF ITAT IN ITS OWN CASE IN ASSESSMENT YEAR 2006-07 AND EARLIER YEARS. I HAVE GONE THROUGH THE ORDER OF ITA T FOR ASSESSMENT YEAR 2006-07 DATED 31.03.2010. THE RELEVANT EXTRACT OF T HE ORDER IN PARA-14 IS AS UNDER:- WE FIND THAT ISSUE RAISED BY THE DEPARTMENT IN THI S GROUND HAS ALREADY BEEN DECIDED BY THIS BENCH OF ITAT IN THE A SSESSEE OWN CASE FOR ASSESSMENT YEAR 2002-03, WHEREIN COMPENSAT ION PAID TO FARMERS FOR USING THEIR LAND WAS ALLOWED. THE FINDI NG 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 O F COST OF GYPSUM ONLY AND NO CAPITAL ASSET IS ACQUIRED BY THE ASSESSEE BY INCURRING THIS EXPENDITURE. NATURE OF LOSS TO FARME RS IS IMMATERIAL WHILE JUDGING THE NATURE OF EXPENSE IN THE HANDS OF ASSESSEE AND THEREFORE SAME CANNOT BE BASIS FOR TREATING THE EXP ENDITURE AS CAPITAL IN NATURE. THE CIT (A) HAS RIGHTLY ALLOWED THE EXPENDITURE AS REVENUE WHICH DOES NOT CALL FOR ANY INTERFERENCE. AGAIN FOR ASSESSMENT YEAR 2003-04 AND 2004-05 SUCH EXPENDITURE WAS ALLOWED BY ITAT IN ORDER DATED 26.06.2009. WE T HEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT (A). THE SAME IS THUS UPHELD. FROM THE ABOVE, IT IS CLEAR THAT THIS ISSUE IS DECI DED IN FAVOUR OF APPELLANT IN ALL EARLIER YEARS. RESPECTFULLY FOLLOWING THE DE CISION OF ITAT IN APPELLANTS OWN CASE, ADDITION ON ACCOUNT OF COMPEN SATION PAID TO FARMERS MADE BY THE AO IS DELETED. NOW THE REVENUE IS BEFORE US. 6 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 4. WE FIND THAT THE ISSUE RAISED IN THIS GROUND HAS ALREADY BEEN DECIDED BY THE ITAT IN ASSESSEES OWN CASE IN ITA NO. 740 & 783/JP /2009 FOR THE A.Y. 2006-07 DATED 31.03.2010 AND ALSO IN ITA NO. 466/JP/2006 DECIDED ON 26.06.2009 IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE EARLIER JUDGM ENTS OF THE ITAT, WE DISMISS THE GROUND OF THE REVENUE. FOR READY REFERENCE PARA 14 OF THE ITAT ORDER IN ITA 783/JP/2009 IS REPRODUCED HEREIN BELOW :- 14. WE FIND THAT ISSUE RAISED BY THE DEPARTMENT I N THIS GROUND HAS ALREADY BEEN DECIDED BY THIS BENCH OF ITAT IN ASSES SEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO 466/JP/2006 DATED 26.6.2009, WHEREIN COMPENSATION PAID TO FARMERS FOR USING THEI R LAND WAS ALLOWED. THE FINDING OF THE BENCH IN PARA 40 OF THE SAID ORD ER IS REPRODUCED AS UNDER :- WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AND FIND THAT THE PAYMENT MADE BY THE ASSESSEE TO FARMERS IS A PA RT OF COST OF GYPSUM ONLY AND NO CAPITAL ASSET IS ACQUIRE D BY THE ASSESSEE BY INCURRING THESE EXPENDITURE. NATURE OF LOSS TO FARMERS IS IMMATERIAL WHILE JUDGING THE NATURE OF E XPENSE IN THE HANDS OF THE ASSESSEE AND THEREFORE SAME CANNOT BE BASIS FOR TREATING THE EXPENDITURE AS CAPITAL IN NA TURE. THE LD. CIT (A) HAS RIGHTLY ALLOWED THE EXPENDITURE AS REVENUE WHICH DOES NO CALL FOR ANY INTERFERENCE. THUS GROUN D 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 CIT (A). THE SAME IS THUS UPHELD. THE GROUND OF THE DEPARTME NT IS THUS DISMISSED. THEREFORE THIS ISSUE IS DECIDED AGAINST THE REVENUE . 7 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. GROUND NO 2 OF REVENUE IN APPEAL NO 144/ 14 : 5. AT THE TIME OF ASSESSMENT, THE AO NOTED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 10,00,000/- AS CONTRIBUTION TO STATE RENEWAL FU ND IN THE PROFIT & LOSS ACCOUNT. HE ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM FOR DEDUCTI ON. IN COMPLIANCE, THE ASSESSEE VIDE LETTER DATED 24.12.2012 SUBMITTED THE EXPLANATION A S UNDER :- DURING THE YEAR CORPORATION HAS PROVIDED AN AMOUN T OF RS. 10,00,000/- TOWARDS STATE RENEWAL FUND. THE STATE PUBLIC RENEWA L FUND WAS SET UP AS A SOCIAL SAFETY NET FOR THE WORKERS LIKELY TO BE AFFECTED BY RESTRUCTURING IN THE STATE PUBLIC ENTERPRISES. THE OBJECTIVES OF T HE STATE RENEWAL FUND ARE AS UNDER :- I) TO PROVIDE ASSISTANCE TOWARDS COST OF RETIRING AND REDEPLOYMENT OF EMPLOYEES, FOLLOWING MODERNIZATION AND RESTRUCTURIN G OF PUBLIC SECTOR UNDERTAKING. II) TO PROVIDE FUNDS TOWARDS COMPENSATION/VOLUNTARY RET IREMENT SCHEME AFFECTING THE EMPLOYEES AS A RESULT OF RESTRUCTURING/WINDING UP/DIS-ENGAGEMENT/CLOSURE OF ANY STATE PUBLIC ENTERPRISES, III) TO PROVIDE ASSISTANCE TOWARDS GAINFUL SELF-EMPLOYME NT TO THE EMPLOYEES CONSEQUENT TO THE RESTRUCTURING/WINDING-U P/CLOSURE OF SUCH UNDERTAKING, UNDER SCHEMES TO BE APPROVED BY T HE STATE GOVERNMENT, AND IV) ANY OTHER ASSISTANCE/RELIEF PROGRAM FOR ANY CATEGOR Y OF WORKERS TO BE DECIDED BY THE STATE GOVERNMENT. FROM THE ABOVE IT CAN BE NOTED THAT THE PURPOSE OF STATE RENEWAL FUND IS THE SAFETY OF THE EMPLOYEES WORKING UNDER THE STATE OWNED ENTITIES IN CASE OF RESTRUCTURING/WINDING UP/CLOSURE OF THE UND ERTAKINGS HENCE THE CONTRIBUTION MADE TO THE ABOVE AFORESAID FUND IS SO LELY FOR THE PURPOSE OF THE WELFARE AND BENEFIT OF THE EMPLOYEES AND SAME I S ALLOWABLE AS REVENUE EXPENSES U/S 37(1) OF THE ACT. 8 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. THE AO HAS GONE THROUGH THE SUBMISSION OF THE ASSES SEE BUT HE DID NOT FIND IT SATISFACTORY. THE AO DISCUSSED THE PRINCIPLES RELA TING TO DIVERSION OF INCOME BY OVERRIDING TITLE. HE IS OF THE VIEW THAT IF A THIRD PERSON BECOMES ENTITLED TO RECEIVE AN AMOUNT UNDER AN OBLIGATION OF AN ASSESSEE EVEN BEFO RE HE COULD CLAIM TO RECEIVE IT AS HIS INCOME, THERE WOULD BE A DIVERSION OF INCOME BY OVERRIDING TITLE BUT WHEN AFTER RECEIPT OF THE INCOME BY THE ASSESSEE, THE SAME IS PASSED ON TO A THIRD PERSON IN DISCHARGE OF THE OBLIGATION OF THE ASSESSEE, IT WIL L BE A CASE OF APPLICATION OF INCOME BY THE ASSESSEE AND NOT OF DIVERSION OF INCOME BY OVER RIDING TITLE. THE AO OBSERVED THAT WHERE A CO-OPERATIVE SOCIETY TRANSFER PART OF THE N ET PROFIT TO A RESERVE FUND AS A REQUIREMENT OF STATUTE, THE QUESTION ARISES, WHETHE R SUCH AMOUNT COULD BE ALLOWED EITHER AS A BUSINESS EXPENDITURE OR AS INCOME DIVER TED BY OVERRIDING TITLE. THE TEST IN SUCH CASE IS THE PURPOSE FOR WHICH THE AMOUNT IS SE T APART, THE BENEFICIARIES OF SUCH RESERVES AND THE RIGHT OF THE COMPANY OVER SUCH RES ERVES. THE AO CITED THE JUDGMENT OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. JODHPUR CO-OPERATIVE MARKETING SOCIETY (2005) 275 ITR 372 (RAJ.) WHEREIN THE HONB LE 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 RE NEWAL FUND DOES NOT LEAD TO DIVERSION OF INCOME BY OVERRIDING TITLE, IT IS MERELY AN APPLICA TION OF INCOME. THUS THE AO HELD THAT TRANSFER OF RS. 10,00,000/- TO STATE RENEWAL FUND I S NOT ALLOWABLE AND THE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE BEING APP LICATION OF FUND. 9 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 5.1. ON APPEAL BY THE ASSESSEE BEFORE LD. CIT (A), THE LD. CIT (A) DELETED THE ADDITION BY OBSERVING AS UNDER : 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASS ESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER D ISALLOWED CONTRIBUTION MADE TO STATE RENEWAL FUND BY TREATING THE SAME AS DIVERSION OF INCOME. HOWEVER, APPELLANT SUBMITTED THAT THIS ISSUE IS COV ERED IN ITS FAVOUR BY THE ORDER OF ITAT. IT IS SEEN THAT SIMILAR ADDITION WAS MADE IN AY 2006-07 IN THE CASE OF THE APPELLANT, BUT IT WAS DECIDED BY HONBLE ITAT BENCH A, JAIPUR IN ITA NO. 783/JP/2009 & 740/JP/2009 IN A.Y. 2006-07 THROUGH ORDER DATED 31.03.2010 IN FAVOUR OF THE APP ELLANT, WHERE IN PARA 15 HONBLE TRIBUNAL RELIED UPON ITS DECISION DATED 22.05.2009 IN CASE OF RAJASTHAN STATE SEEDS CORPORATION LTD, WHEREIN RELY ING UPON HONBLE RAJASTHAN HIGH COURT DECISIONS IN THE CASE OF CIT V S. RAJASTHAN SPINNING AND WEAVING MILLS LTD. 274 ITR 465 AND CIT VS. SHRI RAJASTHAN SYNTEX LTD. 221 CTR 410 HELD THAT THE CONTRIBUTION MADE BY THE ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS CONNECTED OR RELATED W ITH HIS BUSINESS IS AN ALLOWABLE DEDUCTION U/S 37 AS IT WAS PROVIDED FOR T HE BENEFIT OF THE EMPLOYEES. HONBLE TRIBUNAL DISTINGUISHED THE DECIS ION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. JODHPUR CO-OPERATIVE MARKETING SOCIETY 275 ITR 372 (RAJASTHAN) STATING T HAT IN THAT CASE THE AMOUNT WAS SET APART FOR THE SHAREHOLDERS OF THE SO CIETY WHEREAS IN THE PRESENT CASE AMOUNT WAS PROVIDED FOR THE BENEFIT OF THE EMPLOYEES AND THE CONTRIBUTION MADE TO STATE RENEWAL FUND WAS FOU ND ALLOWABLE U/S 37(1). RESPECTFULLY FOLLOWING THE DECISION OF ITAT IN APPELLANTS OWN CASE, ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 6. NOW THE REVENUE IS BEFORE US. 6.1. WE FIND THAT THE ISSUE IS ALREADY COVERED BY T HE ORDER OF ITAT PASSED IN ITA NO. 740 & 783/JP/2009 FOR THE A.Y. 2006-07. WE ARE BOU ND BY THE ORDER PASSED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE. WE ARE REPROD UCING HEREIN BELOW THE ORDER PASSED BY THE TRIBUNAL VIDE ORDER DATED 31.3.2010 TO THE F OLLOWING EFFECT :- 10 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 15. WE FIND THAT ISSUE RAISED BY THE DEPARTMENT I N THIS GROUND HAS BEEN DECIDED BY THIS BENCH OF ITAT IN CASE OF RAJAS THAN STATE SEEDS CORPORATION LTD. FOR ASSESSMENT YEAR 2006-07 IN ITA NO. 233/JP/2009 DATED 22.5.2009, WHEREIN CONTRIBUTION T O 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 PERUSE D THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT AS PER T HE MEMORANDUM OF STATE RENEWAL FUND SET UP BY THE STATE GOVERNMEN T, IT IS CREATED WITH THE OBJECT OF PROVIDING A SAFETY NET F OR 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. RAJASTH AN SPINNING AND WEAVING MILLS LTD. 274 ITR 465 HAS OBSERVED THA T IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD B E INCURRED IN COURSE OF BUSINESS. THE EXPENSES CAN BE INCURRED VO LUNTARILY AND WITHOUT NECESSITY. ANY CONTRIBUTION MADE BY THE ASS ESSEE TO A PUBLIC WELFARE FUND WHICH IS CONNECTED OR RELATED W ITH HIS BUSINESS IS AN ALLOWABLE DEDUCTION U/S 37. AGAIN THE COURT I N CASE OF CIT VS. SHRI RAJASTHAN SYNTAX LTD. 221 CTR 410 HELD THAT WH ERE ASSESSEE GAVE CONTRIBUTION TO THE EMPLOYEES WELFARE FUND, THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. THE CASE RELIED BY A.O OF CIT VS. JODHPUR CO-OPERATIVE MARKETING SOCIETY 275 ITR 372 (RAJ.) IS DISTINGUISHABLE AS IN THIS CASE THE AMOUNT WAS SET APART FOR THE SHAREHOLDERS OF THE SOCIETY WHEREAS IN THE PRESENT CASE AMOUNT WAS PROVIDED FOR THE BENEFIT OF THE EMPLOYEES. IN V IEW OF THIS THE CONTRIBUTION MADE TO STATE RENEWAL FUND IS ALLOWABL E U/S 37(1). THE LD. CIT (A) HAS ALLOWED THE CLAIM OF THE ASSESS EE BY FOLLOWING THE SAID DECISION. WE, THEREFORE, DO NOT FIND REASON TO INTE RFERE WITH THE ORDER OF LD. CIT (A). THE SAME IS THUS UPHELD. THE GROUND OF THE DEPARTMENT IS THUS DISMISSED. THEREFORE THIS GROUND NO. 2 OF REVENUE APPEAL IS D ECIDED AGAINST THE REVENUE . 11 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. GROUND NO OF REVENUE IN APPEAL NO 144/ 14 : 7. THE ASSESSEE HAS CLAIMED DEDUCTION FOR PRIOR PER IOD EXPENSES OF RS. 99,10,464/- IN THE PROFIT AND LOSS ACCOUNT. OUT OF IT, THE ASSE SSEE ITSELF ADDED BACK AN AMOUNT OF RS. 70,87,228/- IN COMPUTING THE TOTAL INCOME. THER EFORE, THE ASSESSEE WAS CALLED UPON TO EXPLAIN WHY THE CLAIM FOR DEDUCTION FOR PRIOR PE RIOD EXPENSES ON REMAINING AMOUNT OF RS. 28,23,236/- SHOULD NOT BE DISALLOWED AS THE ASSESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IN RESPONSE THERE TO, ASSESSEE FILED THE REPLY TO THE NOTICE. THE AO AFTER CONSIDERING THE REPLY HAS ALLO WED A SUM OF RS. 23,83,123/- AND HAS THUS DISALLOWED A SUM OF RS. 4,40,113/- AS PRIO R PERIOD EXPENSES AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE AO H AS DISALLOWED THE EXPENSES ON THE FOLLOWING HEADS :- ROYALTY AND DEED RENT RS. 1,95,507/- SALARY & WAGES RS. 1,15,914/- EMPLOYEE WELFARE RS. 74,732/- SAMPLING ANALYSIS RS. 53,896/- POSTAGE, TELEGRAM & TELEPHONE RS 64/- TOTAL : RS. 4,40,113/- 8. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT (A), WHO HAS DELETED THE DISALLOWANCE OF RS. 4,40,113/- MADE BY THE BY RELYING UPON THE EARLIER DECISION OF ITAT. THE CONCLUSION ARRIVED AT BY THE LD. CIT (A) IS MENTIONED IN PARA 4.3. OF HIS ORDER AS UNDER :- 12 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASS ESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. FROM THE SUBMISSION OF THE APPELLANT IT IS CLEAR THAT HONBLE ITAT, JAIPUR BENCH HAS BEEN ALLO WING PRIOR PERIOD EXPENSES IN THE CASE OF VARIOUS GOVERNMENT UNDERTAK INGS IN THE YEAR IN WHICH SUCH EXPENSES ARE FINALLY SANCTIONED AND APPR OVED. EVEN IN THE APPELLANTS OWN CASE THE ISSUE HAS BEEN DECIDED IN FAVOR OF THE APPELLANT IN AY 2000-01 BY HONBLE JAIPUR BENCH ITAT VIDE ORD ER 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. 200 9-10. RESPECTFULLY FOLLOWING HONBLE ITATS ORDER IN THE CASE OF THE A PPELLANT 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 TH E APPELLANTS SUBMISSION SHOWS THAT THE LIABILITY FOR THE EXPENSES GOT CRYST ALLIZED 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 O RDER PASSED BY THE TRIBUNAL IN THE ASSESSEES 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 A SSESSEE AND HAS DISMISSED THE GROUND OF THE REVENUE. 13 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 9.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD. IN OUR VIEW THE CASE OF THE REVENUE IS REQUIRED TO BE DISM ISSED AS THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE EARLIER ORDER OF THE TRIBUN AL IN ITA NO. 33/JP/2013 FOR AY 2009-10, EVEN OTHERWISE, IN VIEW OF THE JUDGMENT IN THE MATTER OF CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 295 (SC), THE APPEAL OF THE REVENUE IS REQUIRED TO BE DISMISSED AS THE RATE OF TAX REMAIN THE SAME IN THE PRESENT Y EAR AS WELL AS IN THE SUBSEQUENT YEAR. THEREFORE, THERE WILL NOT BE ANY TAX EFFECT A ND THE ENTIRE EXERCISE OF THE REVENUE IS ONLY ACADEMIC IN NATURE. IN THE LIGHT OF THE AB OVE, THE THIRD GROUND OF THE REVENUE IS ALSO DISMISSED. GROUND NO 4 OF REVENUE IN APPEAL NO 144/ 14 : 10. ASSESSEE HAS DEBITED A SUM OF RS. 5,12,84,990/- TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF DONATION. OUT OF WHICH, RS. 5,10,00,000/ - WAS PAID TO CHIEF MINISTER RELIEF FUND ON WHICH DEDUCTION WAS CLAIMED U/S 80G @ 100%. THE REMAINING AMOUNT OF RS. 2,84,990/- WAS CLAIMED BY THE ASSESSEE U/S 37(1). IN RESPECT OF THE CLAIM OF DEDUCTION, THE ASSESSEE HAS SUBMITTED THAT THOUGH T HE PAYMENTS WERE DEBITED IN THE DONATION EXPENSES ACCOUNT BUT THESE ARE IN THE NATU RE OF PUBLICITY AND SALES PROMOTION EXPENSES. HENCE THE SAME IS ALLOWABLE U/S 37(1). I N THE ASSESSMENT YEAR 2006-07 HONBLE ITAT HAS ALLOWED THE PAYMENT MADE BY THE AS SESSEE TO WILD LIFE DEVELOPMENT SAMITI AND TO THE INSPECTOR GENERAL OF POLICE FOR O RGANIZING THE ROAD SAFETY WEEK BY 14 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. HOLDING THAT THE AMOUNT WAS PAID BY THE ASSESSEE IN DISCHARGE OF ITS SOCIAL OBLIGATION IN THE AREA AND THEREFORE ALLOWABLE U/S 37(1). 10.1. THE AO CONSIDERED THE SUBMISSION BUT COULD NO T FIND IT ACCEPTABLE. THE AO OBSERVED THAT ASSESSEE HAS NOT BEEN ABLE TO PROVE T HE BUSINESS EXPEDIENCY OF THE EXPENDITURE INCURRED TOWARDS SOCIAL WELFARE EXPENSE S NEITHER HE EXPLAINED THAT WHAT BENEFIT IT HAD DERIVED FROM INCURRING THESE EXPENSE S. THE AO, THEREFORE, DISALLOWED THE CLAIM OF EXPENSES OF RS. 2,84,990/-. 11. ON APPEAL BEFORE LD. CIT (A), THE LD. CIT (A) D ELETED THE DISALLOWANCE AMOUNTING TO RS. 2,34,990/- BY HOLDING THAT THE SAME WERE CON TRIBUTIONS MADE FOR VARIOUS ACTIVITIES WHICH ALSO INVOLVED DISPLAY OF APPELLANT S BANNER AND THEREFORE THESE EXPENSES HAD ADVERTISEMENT AND PUBLICITY VALUE FOR THE APPEL LANT. HOWEVER, THE LD. CIT (A) CONFIRMED THE DISALLOWANCE OF RS. 50,000/- IN RESPE CT OF PAYMENT MADE TO ROSE SOCIETY BY RELYING ON THE DECISION OF HONBLE ITAT IN ASSES SEES OWN CASE FOR AY 2008-09 WHERE THE DISALLOWANCE MADE BY AO IN RESPECT OF PAYMENT M ADE TO ROSE SOCIETY WAS CONFIRMED BY HONBLE ITAT. 12. NOW THE REVENUE IS BEFORE US. 12.1. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. AFTER GOING THROUGH THE ORDER OF THE LD. CIT (A), WE FIND NO IN FIRMITY IN THE ORDER PASSED BY LD. CIT (A), THEREFORE, NO INTERFERENCE IS CALLED FOR. THUS THE GROUND OF THE REVENUE IS DISMISSED. 15 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 13. IN THE RESULT, REVENUES APPEAL IS DISMISSED. GROUND NO. 1 OF ASSESSEE : 14. GROUND NO. 1 RELATED TO CONFIRMING THE DISALLOW ANCE 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. 50,00 0/-, IN OUR VIEW IS NOT IN RESPECT OF ANY ACTIVITY CONNECTED NECESSARILY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS AND DO NOT QUALIFY THE EXPENDITURE U/S 37 OF THE IT ACT. EV EN 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 DISM ISS GROUND NO. 1 OF THE ASSESSEE. GROUND NO. 2 OF ASSESSEE : 16. GROUND NO. 2 RELATES TO CONFIRMING THE DISALLOW ANCE OF RS. 1,01,45,489/- IN RESPECT OF AMORTIZATION OF MINING LAND AND LEASEHOL D LAND. 17. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS ACQUIRED THE MINING LAND FROM THE STATE GOVERNMENT FOR EXCAVATION OF ROCK-PHOSPHA TE, GYPSUM, LIGNITE AND LIMESTONE. THESE LANDS ARE CLASSIFIED IN THE BOOKS OF ACCOUNTS AS MINING LAND AND LEASEHOLD LAND. THESE LANDS WERE GIVEN BY THE STATE GOVERNMENT BY EXECUTING MINING LEASE IN FAVOUR OF THE ASSESSEE. IN CASE OF MINING LAND, THE PERIOD FOR EXCAVATION OF MINERAL IS GRANTED FOR 20 YEARS AND IN RESPECT OF L EASEHOLD LAND, THE LEASE IS FOR 30 YEARS OR 99 YEARS. THE ASSESSEE WAS GRANTED THE MI NING LAND/LEASEHOLD RIGHTS IN 16 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. RESPECT OF THE MINES ON THE BASIS OF THE PREMIUM/CO ST PAID BY IT FOR ACQUIRING THE SAID LAND. AS PER THE ASSESSEE, SINCE THE PERIOD FOR EXC AVATION OF MINING LAND IS FOR 20 YEARS, THEREFORE, THE ASSESSEE HAS SOUGHT TO AMORTIZED THE COST FOR A PERIOD OF 20 YEARS. ACCORDINGLY, THE ASSESSEE CLAIMED AMORTIZATION OF M INING LAND AT RS. 91,27,344/- AND LEASEHOLD LAND T RS. 10,18,505/-. SINCE THE ASSESSE E WAS TREATING AMORTIZATION OF THESE AMOUNTS IN ITS BOOKS OF ACCOUNT AS MENTIONED HEREIN ABOVE, THEREFORE, THE AO, AFTER GOING THROUGH THE WRITTEN SUBMISSION DATED 05.02.20 13, HAS DISALLOWED THE AMORTIZATION BY REFERRING TO SECTION 35D(2) OF THE IT ACT. 18. THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT (A), WHO HAS CONFIRMED THE FINDING OF THE AO. THE REASONING GIVEN BY THE LD. CIT (A) IN PARA 6.3 OF HIS ORDER IS AS UNDER :- 6.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER D ISALLOWED AMORTISATION OF MINING LAND AND LEASEHOLD LAND ON THE GROUND THA T NO SUCH AMORTISATION OF LAND IS ALLOWABLE UNDER SECTION 35 D. APPELLANT SUBMIT5TED THAT IT WAS CLAIMING DEDUCTION UNDER SECTION 37(1) AND NOT UNDE R SECTION 35D. THE BASIS OF APPELLANTS CLAIM IS THAT MINING LAND AND LEASEHOLD LAND ARE WASTING ASSETS AND THEREFORE COST NEEDS TO BE AMORT ISED OVER THE ECONOMIC LIFE. APPELLANT ALSO MENTIONED THAT IN EAR LIER YEARS, THIS CLAIM WAS ALLOWED BY THE AO. APPELLANT PAID FOR MINING LAND WHICH IS APPELLANTS ASSET. SIMILARLY PAYMENT FOR LONG-TERM LEASE OF LAND ALSO RESULTS IN ACQUISITION OF ASSET. LAND IS NOT DEPRECIABLE ASSET AND THEREFORE CLAIM O F DEPRECIATION CANNOT BE MADE FOR LAND. THE PURPOSE OF ACQUIRING MINING L AND 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 THER EFORE THERE IS NO QUESTION OF AMORTISING OR CLAIMING ANY DEDUCTION IN RESPECT OF LAND. SINCE APPELLANT SUBMITTED THAT ITS CLAIM IS NOT UNDER SEC TION 35D BUT UNDER SECTION 37(1), THIS HAS TO BE SEEN AS PER THE PROVI SIONS OF SECTION 37(1). UNDER THE SECTION NO EXPENSE OF CAPITAL NATURE IS A LLOWABLE. IT IS NOT IN 17 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. DISPUTE THAT EXPENSE FOR MINING LAND AND LEASEHOLD LAND IS CAPITAL EXPENSE AND THE SAME CANNOT BE CLAIMED AS REVENUE UNDER SEC TION 37(1). ONCE THE EXPENSE FALLS IN THE CATEGORY OF CAPITAL EXPENS E, IT GOES OUTSIDE THE PURVIEW OF SECTION 37(1). THERE ARE SOME DEDUCTIONS AVAILABLE FOR CAPITAL EXPENSE SUCH AS DEPRECIATION UNDER SECTION 32, AMOR TISATION UNDER SECTION 35D ETC. IF NO DEDUCTION IS AVAILABLE IN RE SPECT OF ANY CAPITAL ASSET UNDER THESE PROVISIONS, THE SAME CANNOT BE CLAIMED UNDER SECTION 37(1) WHEREIN ANY CLAIM OF CAPITAL EXPENSE IS SPECIFICALL Y PROHIBITED. THE DECISION RELIED UPON BY THE APPELLANT IN THE CASE O F SUN PHARMA IS ON DIFFERENT FACTS. NOMINAL LEASE CHARGES WERE TREATED AS REVENUE SINCE THE SAME WAS CONSIDERED NECESSARY FOR CONDUCTING BUSINE SS. IT NOWHERE ALLOWED AMORTISATION OF LAND COST ON THE GROUND THA T MINING LANDS ARE DEPLETING ASSETS. THE DECISION OF APEX COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION IS ALSO NOT APPLI CABLE TO THE FACTS OF THIS CASE. BY PURCHASING MINING LAND, APPELLANT GOT ABSO LUTE RIGHT OVER THE SAID LAND WHICH ALSO INCLUDES MINING. EVEN AFTER MINING IS OVER, APPELLANTS RIGHT OVER LAND REMAINS. THEREFORE, I DO NOT FIND A NY LOGIC IN CLAIMING AMORTISATION OF MINING LAND AND LEASEHOLD LAND EXPE NSE UNDER SECTION 37(1) IN WHICH NO CAPITAL EXPENSE IS ALLOWABLE. THE REFERENCE OF ACCOUNTING STANDARD BY THE APPELLANT IS ALSO OF NO HELP SINCE IN THE ACCOUNTING STANDARD ALSO NO AMORTISATION OF MINING LAND IS PROVIDED. EVEN OTHERWISE, EXPENSE IS TO BE CLAIMED AS PER THE PROV ISIONS OF IT ACT IF THE SAME IS IN CONFLICT WITH THE ACCOUNTING STANDARD. T HE ARGUMENT OF THE APPELLANT THAT IN EARLIER YEARS, THE SAME WAS ALLOW ED IS NO JUSTIFICATION FOR MAKING ANY WRONG CLAIM. ASSESSING OFFICER IS FREE T O TAKE REMEDIAL MEASURES IF ANY CLAIM WAS ALLOWED BY MISTAKE. CONSI DERING ALL THESE FACTS, I FIND THAT THE AMORTISATION OF CLAIM OF MIN ING LAND AND LEASEHOLD LAND UNDER SECTION 37(1) MADE BY THE APPELLANT IS N OT SUSTAINABLE IN LAW. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFF ICER IS CONFIRMED. 19. NOW THE ASSESSEE IS BEFORE US. 19.1. THE CONTENTION OF THE ASSESSEE BEFORE US IS T HAT THE SOLE PURPOSE OF ACQUISITION OF MINING LAND IS TO EXPLOIT IT FOR EXTRACTION OF M INERAL RESOURCES AND EXTRACTION OF SUCH MINERAL IS THE ONLY ECONOMIC USE OF THE LAND FOR TH E ASSESSEE. THEREFORE, USEFUL LIFE OF THE LAND, CONSIDERING THE MATCHING CONCEPT OF ACCOU NTANCY, HAS TO BE CHARGED OFF OVER THE LEASE PERIOD OF SUCH LAND TO ARRIVE AT THE CORR ECT PROFITS FOR THE YEAR. SUCH 18 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. AMORTIZATION OF WASTING LAND IS AN EXPENDITURE INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND, THEREFORE, THE SAME IS ALL OWABLE U/S 37(1) OF THE ACT. THE LD. A/R FOR THE ASSESSEE RELIED UPON THE JUDGMENTS PASS ED IN THE MATTER OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT, 225 ITR 802 (SC), DCIT VS. SUN PHARMACEUTICALS IND. LTD., 329 ITR 479 (GUJ.). THE LD. A/R FOR THE ASSESSEE FURTHER CONTENDED THAT THE ASSESSEE HAS ACQUIRED THE MINING LAND FROM THE STATE GOVERNMENT OR OTHERWISE, IS A LICENSE TO CARRY ON THE MINING. IT WAS FURTHER CONTENDED THAT THE LICENSE TO CARRY ON THE MINING IS AN INTANGIBLE ASS ET 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, VID E ITS ORDER DATED 25/06/2012, ON WHICH RELIANCE PLACED BY THE ASSESSE E, WHEREIN IT HAS BEEN HELD AS FOLLOWS: 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE CONTENTION OF THE LEARNED C OUNSEL FOR THE ASSESSEE FOR THE SIMPLE REASON THAT THE DENIAL OF CLAIM OF D EPRECIATION HAS BEEN MADE ON MISINTERPRETATION OF LAW AND THE APPLICABIL ITY THEREOF. EXPLANATION TO SECTION 32(1)(II) LEANS IN FAVOUR OF THE ASSESSEE TO THE EXTENT THAT IT IS THE ACTUAL ACTION OF PUT TO USE W HICH ENTITLES THE ASSESSEE TO CLAIM DEPRECIATION. A STRAIGHT LINE METHOD OF CLAIM ING THE WRITING OFF OF LEASE HOLD RIGHTS FOR THE PERIOD OF LEASE CANNOT BE DENIED TO THE ASSESSEE FOR THE SIMPLE REASON IT BEING INTANGIBLE ASSET HAS BEEN WRITTEN OFF WHICH PERTAINS TO LAND BEING A INTANGIBLE ASSET. IT IS NO BODYS CASE THAT THE LAND EITHER BELONGED TO THE LESSEE OR TO THE GOVERNMENT. THIS SIMPLY INDICATES THAT A DEPLETION OF THE LAND AGAINST THE PAYMENT OF PREMIUM IT WAS LEASED 19 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. HAS TO BE CLAIMED AFTER CAPITALIZATION THEREOF BY T HE ASSESSEE WHICH IS FOR THE PURPOSE OF ITS MAIN BUSINESS. ALL EXPENSES ARE INCURRED FOR THE PURPOSE OF BUSINESS AND ARE INCIDENTAL TO THE HOLDING OF RI GHTS WERE CLAIMED U/S.32(1)(II) BEING THE LICENSE TO CARRY OUT THE MI NING THEREFORE COULD NOT BE DENIED INSOFAR AS THE GOVERNMENT AND THE LESSEE ARE IN CONTROL OF THE ASSET. THE DEFINITION OF DEPRECIATION THEREFORE HAS BEEN MISCONSTRUED FOR THE PURPOSE OF ALLOWING DEDUCTION BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) IN HOLDING A VIEW ON THE PROMULGATIO N OF SECTION 32(1)(II) WITH EFFECT FROM THE YEAR 1998-99 WHICH HAS BEEN FU RTHER AMENDED W.E.F. ASSESSMENT YEAR 2003-04. IN THIS VIEW OF THE MATER, WE ARE INCLINED TO HOLD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION AS CHARGED TO THE P & L ACCOUNT IN ACCORDANCE WITH ITS BUSINESS EXIGENCIES. WE DIRECT ACCORDINGLY. ON THE CLAIM OF DEDUCTION U/S 80G, THE A.O., IS DIR ECTED TO VERIFY THE RECEIPTS AND ALLOW THE DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF INCOME-TAX ACT,1961. 19.2. THE LD. A/R FURTHER SUBMITTED THAT IN THE YEA R 2011-12 THE ASSESSEE HAS CHANGED THE METHOD OF AMORTIZING THE COST OF MINING LAND OV ER THE PERIOD OF MINING LEASE TO MINERAL ACTUALLY PRODUCED DURING THE YEAR TO THE TO TAL ESTIMATED MINEABLE RESERVES. IT WAS FURTHER CONTENDED THAT AS A RESULT OF THIS CHAN GE IN THE PROCEDURE FOR AMORTIZING, THE ASSESSEE HAS WRITTEN BACK AN AMOUNT OF RS. 5,79 ,10,317/- CLAIMED IN THE EARLIER YEARS AS PER THE CHANGED SYSTEM AS EVIDENT FROM SCH EDULE OF FIXED ASSETS AND HAS OFFERED FOR TAX. BASED ON THIS, THE AO HAS COMPLETE D THE ASSESSMENT FOR THE ASSESSMENT YEAR 2011-12 WHERE THE WRITTEN BACK OF A MORTIZATION OF RS. 5,79,10,137/- HAS BEEN TAXED. ON THE BASIS OF THE ABOVE, IT WAS C ONTENDED THAT IF THE ORDERS PASSED BY THE AUTHORITIES BELOW HAVE BEEN CONFIRMED, THE A SSESSEE WOULD BE TAXED DOUBLE ON THE SAME AMOUNT. THEREFORE, THE AMORTIZATION OF MIN ING LAND CLAIMED SHOULD BE ALLOWED IN FAVOUR OF THE ASSESSEE. THE LD. A/R SOU GHT TO DISPUTE THE REASONING GIVEN BY LD. CIT (A) WHILE DECLINING THE CLAIM OF THE ASSESS EE ON THE GROUND THAT THE LAND IN 20 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. QUESTION IS A DEPRECIABLE ASSET AND THEREFORE THE R EASONING GIVEN BY THE LD. CIT (A) IS NOT CORRECT. ON THE OTHER HAND, THE LD. D/R FOR THE REVENUE SUP PORTED THE ORDER PASSED BY THE LD. CIT (A). 20. NOW THE ASSESSEE IS BEFORE US. 20.1. THE VEXED QUESTION BEFORE US IS THE AMORTIZAT ION OF AMOUNT PAID FOR GETTING THE MINING LAND / LEASEHOLD LAND BY THE ASSESSEE. WHETH ER IT IS REQUIRED TO BE TREATED AS REVENUE EXPENDITURE AND IS REQUIRED TO BE ALLOWED U NDER 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 UND ER :- SEC. 37(1) : ANY EXPENDITURE (NOT BEING EXPENDITU RE 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 BUSI NESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. [EXPLANATION : FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED T O HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DE DUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE.] [(2B) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SEC TION (1), NO ALLOWANCE SHALL BE MADE IN RESPECT OF EXPENDITURE I NCURRED BY AN ASSESSEE ON ADVERTISEMENT IN ANY SOUVENIR, BROCHURE, TRACT, PAMPHLET OR THE LIKE PUBLISHED BY A POLITICAL PARTY.] 21 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. SECTION 37, THEREFORE, CONTEMPLATES THAT IF THE NAT URE OF EXPENDITURE IS NOT THE CAPITAL/PERSONAL IN NATURE, AND IS LAID OUT OR EXPE NDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION, THEN IT IS REQUI RED TO BE ALLOWED BY THE AUTHORITY. IN OUR VIEW, THE EXPENDITURE WHICH WERE INCURRED FOR G ETTING THE MINING LAND ON LEASEHOLD BASIS OR MINING BASIS, IS TO BE TREATED AS CAPITAL EXPENDITURE BECAUSE THE LESSEE WILL HAVE THE ENDURING BENEFIT FOR MAKING SUCH AN INVEST MENT. OUR VIEW IS ALSO FORTIFIED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE MATTER OF ADITYA MINERALS VS. CIT (1999) 8 SSC 97 AND ALSO BY THE JUDGMENT OF HONBLE SUPREM E COURT IN THE MATTER OF ENTERPRISING ENTERPRISES VS. DCIT IN THE CIVIL APPEAL NO. 5656 OF 2006 WHEREBY HONBLE SUPREME COURT HAS HELD THAT WHERE THE ENTIRE AMOUN T OF LEASE IS PAID EITHER AT A TIME OR IN INSTALLMENT, IT WOULD BE A CAPITAL EXPENDITUR E. THEREFORE, WE ARE BOUND BY THE JUDGMENTS PASSED BY THE HONBLE SUPREME COURT. THUS THE EXPENSES LAID BY THE ASSESSEE FOR THE PURPOSES OF GETTING THE MINING LAN D AND LEASEHOLD LAND, ARE REQUIRED TO BE TREATED AS CAPITAL EXPENDITURE. THE AO IS, THERE FORE, DIRECTED TO TREAT THE AMOUNT PAID FOR GETTING THE MINING LAND AND LEASEHOLD LAND AS CAPITAL EXPENDITURE. THE AO IS FURTHER DIRECTED TO GIVE ALL BENEFITS AS A CAPITAL EXPENDITURE. THE JUDGMENT RELIED UPON BY THE ASSESSEE OF HONBLE SUPREME COURT IN THE MAT TER OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT, 225 ITR 802 IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. HOWEVER, THE JUDGMENT OF HONBLE SUPREME COURT IN THE MATTER OF ENTERPRISING ENTERPRISES (2007) 160 TAXMAN 188 (SC) IS SQUARELY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND FURT HER THE SAID JUDGMENT IS OF LATER DATE 22 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. AND, THEREFORE, IS REQUIRED TO BE FOLLOWED BY THE B ENCH. 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 APP LICABILITY 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 WIL L 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 T HE 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, TH E MINING ACTIVITY IS DONE NOT ON THE SURFACE OF THE EARTH BUT ON THE CORE TOWARDS THE LO WER 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 THE ASSESSMENT FOR THE A.Y. 2011- 12 ON THE BASIS OF THE WRITTEN BACK OF THE AMORTIZATION OF THE ASSETS AMOUNTING TO RS. 5,79,10,137/-. IN OUR VIEW THE ASSESSEE WAS TAXED ON THE BASIS OF THE SUBMISSION M ADE BY IT BEFORE THE AO BEFORE THE ASSESSMENT FOR THE A.Y. 2010-11 IS FINALIZED. THE M ERE ACCEPTANCE OF THE METHODOLOGY BY THE AO FOR A.Y. 2011-12 WILL NOT WITHHOLD US TO DECIDE THE ISSUE ON MERIT AND IN LAW FOR THE A.Y. 2010-11. AS PER THE LAW AND PRINCIPL E, THE AUTHORITIES SITUATED IN LOWER LADDER/TIRE OF HIERARCHY IS REQUIRED TO ABIDE LAW/A DJUDICATION DONE BY THE SUPERIOR AUTHORITY. THIS IS THE ONLY WAY THE JUDICIAL SYSTEM WORKS. THE AO IS A QUASI JUDICIAL 23 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. AUTHORITY AND BOUND TO FOLLOW THE PRINCIPLE LAID DO WN BY THE TRIBUNAL AND NOT THE VICE VERSA. THEREFORE, THE SUBMISSION OF THE LD. A/R FO R THE ASSESSEE ON THIS COUNT IS ALSO REJECTED. HOWEVER, IT IS MADE CLEAR THAT THE ASSESS EE WOULD BE ENTITLED TO ALL BENEFITS AS AVAILABLE IN LAW AND THE ASSESSEE WILL NOT BE SUBJE CTED TO DOUBLE TAXATION FOR THE A.Y. 2011-12. THE AO IS DIRECTED TO GIVE EFFECT TO THE ABOVE SAID DIRECTION AND NULLIFY THE EFFECT OF DOUBLE TAXATION, IF ANY, AS CLAIMED BY TH E ASSESSEE. IN THE LIGHT OF THE ABOVE, GROUND NO. 2 OF THE ASSESSEE IS DISMISSED. GROUND NO. 3 OF ASSESSEE : 21. GROUND NO. 3 RELATES TO CONFIRMING THE DISALLOW ANCE OF RS. 50,00,000/- PAID TO THE DMG FOR COMPUTERIZATION OF ITS DATA. 21.1. THE ASSESSEE HAS PAID RS. 50,00,000/- TO THE DEPARTMENT OF MINING & GEOLOGY (DMG) BY WAY OF CONTRIBUTION TOWARDS EXPENDITURE ON COMPUTERIZATION OF MINES DEPARTMENT OF THE GOVERNMENT OF RAJASTHAN. THE TAX AUDITOR IN FORM 3CD HAS REPORTED THAT THE PAYMENT SO MADE BY THE ASSESSEE WAS NOT DI RECTLY FOR THE PURPOSE OF THE BUSINESS. THE AO DISALLOWED THE SAID CONTRIBUTION TO DMG AND HAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 22. ON APPEAL BY THE ASSESSEE, THE LD. CIT (A) HAS UPHELD THE REASONING GIVEN BY THE AO. THE REASONING GIVEN BY THE LD. CIT (A) IS MENTIONED IN PARA 7.3 OF HIS ORDER AS UNDER :- 24 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 7.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASS ESSMENT ORDER AN APPELLANTS WRITTEN SUBMISSION. ASSESSING OFFICER D ISALLOWED APPELLANTS CONTRIBUTION OF RS. 50 LAKHS TO DEPARTMENT OF MINES AND GEOLOGY FOR COMPUTERISATION OF DATA. APPELLANT SUBMITTED THAT T HE CONTRIBUTION WAS MADE AT THE INSTRUCTION OF SECRETARY MINES, GOVERNM ENT OF RAJASTHAN THAT ASSESSEE WAS ONE OF THE USER OF THE COMPUTERISATION . APPELLANT ALSO STATED THAT ITS BUSINESS BEING MINING, THE COMPUTER ISATION OF THE MINING DEPARTMENT WOULD HAVE HELPED ITS BUSINESS ACTIVITY. ASSESSING OFFICER FOUND THAT THE CLAIM OF EXPENSES NOT ALLOWABLE UNDE R ANY PROVISIONS OF IT ACTS. APPELLANT SUBMITTED DECISION OF RAJASTHAN HIG H 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 INSTRUC TION 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 T HE FUNDS PROVIDED TO INFORMATION TECHNOLOGY DEPARTMENT AND THIS CONTRIBU TION WAS MADE SUBSEQUENTLY ON THE GROUND THAT IT WAS PROMISED IN 2007-08. THERE IS NO DIRECT NEXUS BETWEEN APPELLANTS BUSINESS AND COMPU TERIZATION OF MINING DEPARTMENT. ANY UPGRADATION OF ANY GOVERNMENT DEPAR TMENT MAY INDIRECTLY HELP ANY PSU BUT THAT DOES NOT MEAN THAT THE PUBLIC SECTOR UNDERTAKING WILL BEAR THE COST OF UPGRADATION OF GO VERNMENT DEPARTMENT. EXPENDITURE FOR GOVERNMENT DEPARTMENT ARE MET FROM T HE BUDGET PASSED BY THE STATE LEGISLATURE AND THE SAME NEED NOT BE C ONTRIBUTED BY PUBLIC SECTOR UNDERTAKINGS. IF THE CONTROLLING DEPARTMENT FORCED ANY PSU TO CONTRIBUTE FOR THE UPGRADATION OF THE DEPARTMENT, T HE SAME WILL NOT 25 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. BECOME BUSINESS EXPENSE OF THE PSU. IT IS NOT THE E XPENSE INCURRED BY THE STATE DEPARTMENT EXCLUSIVELY FOR THE PURPOSE OF APPELLANT. ACCORDINGLY, APPELLANT DOES NOT HAVE ANY EXCLUSIVE RIGHT ON THE ASSET CREATED FROM THE CONTRIBUTION. BEING OWNER OF THE A PPELLANT, STATE DEPARTMENT CAN GET ANY CONTRIBUTION FROM THE APPELL ANT BUT IT WILL NOT BECOME BUSINESS EXPENSE ALLOWABLE U/S 37(1). THE EX PENSES HAS TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THIS CONTRIBUTION CANNOT BE CONSIDERED AS INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF APPELLANTS BUSINESS. ACCORDINGLY, T HE DISALLOWANCE MADE BY THE AO IS CONFIRMED. 23. FEELING AGGRIEVED BY THE ORDER PASSED BY LD. CI T (A), THE ASSESSEE IS IN APPEAL BEFORE US. 23.1. THE LD. A/R FOR THE ASSESSEE CONTENDED THAT T HE SECRETARY, MINES & PETROLEUM DEPARTMENT, GOVERNMENT OF RAJASTHAN VIDE ITS LETTER DATED 05.07.2007 INFORMED THE ASSESSEE THAT THE INFORMATION TECHNOLOGY & COMMUNIC ATION DEPARTMENT HAS APPROVED THE DEPARTMENTAL COMPUTERIZATION PROJECT COSTING RS . 4.43 CRORES OVER THE PERIOD OF FIVE YEARS. THE ASSESSEE WAS REQUESTED TO CONTRIBUTE RS. 50 LACS TO THE MINES DEPARTMENT TO FACILITATE COMPUTERIZATION OF THE DEPARTMENT. I T WAS CONTENDED BY THE LD. A/R FOR THE ASSESSEE THAT IN THE BOARD OF DIRECTORS MEETING HEL D ON 22.08.2007 IT WAS RESOLVED TO CONTRIBUTE RS. 50 LACS AS ONE TIME NON-RECURRING EX PENDITURE FOR THE YEAR 2007-08 FOR COMPUTERIZATION OF THE DEPARTMENT. SINCE THE DEPAR TMENT OF MINES & GEOLOGY (DMG) HAS VIDE LETTER DATED 26.10.2009 REQUESTED TO PROVI DE THE CONTRIBUTION OF RS. 50 LACS AS 26 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. AGREED IN THE EARLIER, THEREFORE, THE SAID CONTRIBU TION WAS PAID TO THEM AND ACCORDINGLY THE ASSESSEE HAS CLAIMED THE EXPENDITURE OF RS. 50 LACS TO BE ALLOWED UNDER SECTION 37(1) OF THE ACT. FOR THIS PURPOSE, THE LD. A/R OF THE ASSESSEE BUTTRESSED THE ARGUMENT AFTER RELYING ON THE FOLLOWING JUDGMENTS :- RIO TINTO INDIA (P) LTD. VS. ACIT 52 SOT 629 (DEL.)(TRIB.) CIT VS. CHEMICALS & PLASTICS INDIA LTD. 292 ITR 115 (MAD.)(HC) 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 SUBMIT TED THAT THE AMOUNT WAS SPENT WITH A VIEW TO HAVE THE BENEFIT AS THE ASSESSEE WILL HAV E THE BETTER USABILITY OF THE INFORMATION WHICH IS REQUIRED TO CONDUCT THE BUSINE SS OF THE ASSESSEE IN COORDINATION WITH THE DEPARTMENT OF MINES & GEOLOGY. IT WAS PRA YED 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 27 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE AND IS, THEREFORE, REQUIRED TO BE DISALLOWED. 23.3. WE HAVE GONE THROUGH THE RECORDS AND HAVE CON SIDERED 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 MINE OWNE RS/LICENCEES WHO ARE/WILL BE BENEFITTED BY WAY OF COMPUTERIZATION OF THE DEPARTM ENT. MOREOVER, IT IS THE BOUNDEN DUTY OF THE GOVERNMENT TO COMPUTERIZE ITS DEPARTMEN T. ONCE THE ASSESSEE IS PAYING THE LEASE RENT AND OTHER CHARGES TO THE GOVERNMENT FOR ACQUIRING THE RIGHTS TO MINES AND MINERALS, THE DEPARTMENT, IS NOT EXPECTED TO ASK AN Y AMOUNT OVER AND ABOVE THE STATUTORY CHARGES. ANY CONTRIBUTION MADE BY THE ASS ESSEE TO THE GOVERNMENT FOR COMPUTERIZATION, WOULD BE AT ITS OWN COST AND PAY-R OLL. THAT COST INCURRED BY THE ASSESSEE FOR COMPUTERIZATION OF THE DEPARTMENT, IN OUR VIEW IS NOT GOING TO BENEFIT THE ASSESSEE EXCLUSIVELY AND WHOLLY. IT MAY BE A GOOD-W ILL GESTURE OR AN EFFORT TO OBLIGE THE BUREAUCRATS BY THE ASSESSEE. WE ARE NOT EXPRESSING ANY OPINION/REQUIREMENT OF PAYING SUCH HUGE AMOUNT TO THE DEPARTMENT FOR THE PURPOSE OF COMPUTERIZATION. THE JUDGEMENT CITED BY THE LD. A/R FOR THE ASSESSEE ARE NOT APPLICABLE AND IN OUR VIEW THE AUTHORITIES BELOW HAVE RIGHTLY DISALLOWED THE EXPEN DITURE. ACCORDINGLY THE ORDER PASSED BY THE AUTHORITIES BELOW ON THIS ACCOUNT IS UPHELD AND THE GROUND IS DISMISSED. GROUND NO. 4 & 5 OF ASSESSEE : 28 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 24. GROUND NO. 4 RELATES TO CONFIRMING THE REDUCTIO N OF CLAIM U/S 80IA FOR RS. 3,80,44,554/- BY NOT CONSIDERING THE INCOME FROM SA LE OF CERS AT RS. 36,20,742/- AND LIQUIDATED DAMAGES AT RS. 3,44,23,812/- AS DERIVED FROM THE BUSINESS OF POWER GENERATION UNDERTAKING. GROUND NO. 5 RELATES TO NOT ALLOWING THE INCOME OF THE ASSESSEE FROM SALE OF CERS OF RS. 85,26,824/- AS CAP ITAL RECEIPT. 24.1. BRIEF FACTS ARE THAT THE ASSESSEE HAS INSTALL ED WIND POWER PLANTS AT DIFFERENT LOCATIONS AND IN DIFFERENT YEARS THROUGH M/S. SUZLO N ENERGY LTD. AT THE TIME OF ENTERING INTO SET UP OF THE POWER PLANT, THE ASSESSEE AND M/ S. SUZLON ENERGY LTD. HAS ENTERED INTO AN AGREEMENT WHEREBY THE RESPECTIVE DUTY AND R ISE HAVE BEEN PROVIDED. AS PER CLAUSE 36, THE ASSESSEE IS ENTITLED TO MINIMUM GUAR ANTEE GENERATION PER ANNUM PER MW AND IN CASE M/S. SUZLON ENERGY POWER PLANTS FAIL TO YIELD REQUIRED POWER GENERATION, THE SAID COMPANY WAS LIABLE TO PAY THE LIQUIDATED DAMAGES TO THE ASSESSEE. IN FACT, CLAUSE 37 PROVIDES AS UNDER :- 37. FOR SHORTFALL FROM THE NET MINIMUM NET MINIMU M GUARANTEED GENERATION, A LEVY THE FOLLOWING RATES FROM THE DA TE OF COMMISSIONING WILL BE LEVIABLE & OPERATIVE RECOVERABLE FROM THEIR ANNU AL 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 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 29 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. IT WAS CONTENDED BY THE LD. A/R FOR THE ASSESSEE TH AT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS. 36,20,742/- ON SALE OF CERS ON WHICH I T CLAIMED DEDUCTION U/S 80IA. THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE. THE R EASONING 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 I S 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 DE RIVED FROM ELIGIBLE BUSINESS AS THESE ARE NOT TRADING RECEIPT FROM THE ELIGIBLE BUSINESS. THE WORD DERIVED FROM ALSO EXPLAINED BY THE HONB LE GAUHATI HIGH COURT IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD., (12 T AXMANN.COM 451 (GAU.) 2011) AS UNDER : THE EXPRESSION DERIVED FROM OCCURRING IN SECTIO N 80-IB IN RELATION TO THE BUSINESS OF AN INDUSTRIAL UNDERTAKING IS NARROWER I N CONNOTATION THAN THE EXPRESSION ATTRIBUTABLE TO THE BUSINESS OF AN INDU STRIAL ACTIVITY. THEREFORE, WHILE ATTRIBUTABLE TO AS USED IN SOME OTHER SECTIO NS OF THE ACT, MAY COVER SOURCES OF INCOME BEYOND THE FIRST DEGREE. IT IS KE EPING THIS DISTINCTION IN MIND THAT IT MUST BE HELD THAT TRANSPORT SUBSIDY AN D INTEREST SUBSIDY CANNOT BE SAID TO BE DERIVED FROM THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. AT BEST, IT CAN ONLY BE ANCILLARY TO THE PROFITS AND GAINS RELATABLE TO OR ATTRIBUTABLE TO THE BUSINESS OF THE INDUSTRIA L UNDER TAKING AND NOT IN THE CATEGORY OF PROFITS AND GAINS DERIVED FROM IT S INDUSTRIAL ACTIVITY. FURTHER, SIMILAR ISSUE HAD BEEN DISCUSSED IN THE OR DER OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218/183 TAXMAN 349. IN THE CASE THE HONBLE SUPREME COURT OF INDIA OBSERVED THAT: THE 1961 ACT BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES, NAMELY, INVESTMENT-LINKED INCENTIVES AND PROFIT-LINKED INCE NTIVES. CHAPTER VI-A WHICH PROVIDES FOR INCENTIVES IN THE FORM OF TAX DE DUCTIONS ESSENTIALLY BELONG TO THE CATEGORY OF PROFIT-LINKED INCENTIVES . THEREFORE, WHEN S.80- IA/80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BU SINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCEN TIVES. WHAT ATTRACTS THE INCENTIVES U/S. 80-IA/80-IB IS THE GENERATION OF PR OFITS (OPERATIONAL PROFITS). 30 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. IN VIEW OF THE ABOVE DISCUSSION IT MAY BE CONCLUDED THAT SECTION 80IA OF THE ACT PROVIDES FOR ALLOWING OF A DEDUCTION IN RES PECT OF PROFITS AND GAINS DERIVED FROM THE BUSINESS OF THE ASSESSEE AND THERE BY PARLIAMENT INTENDED TO COVER SOURCES OF PROFITS AND GAINS NOT BEYOND THE FIRST DEGREE. THERE MUST BE DIRECT NEXUS BETWEEN THE GENERATION O F PROFITS AND GAINS AND THE SOURCES OF PROFIT AND GAINS, THE LATTER BEI NG DIRECTLY RELATABLE TO THE BUSINESS OF THE ASSESSEE. ANY OTHER SOURCE, NOT FAL LING WITHIN THE FIRST DEGREE, COULD IN A SENSE BE DESCRIBED AS ANCILLARY TO THE BUSINESS OF THE ASSESSEE. AS THE SECTION 80IA OF THE ACT HAS USED W ORK DERIVED FROM INSTEAD OF ATTRIBUTABLE TO THEREFORE THIS SECTION DOES NOT INTEND TO COVER SOURCES BEYOND THE FIRST DEGREE. KEEPING THIS DISTI NCTION IN MIND IT CAN BE SAID THAT LIQUIDATED DAMAGES AND SALE OF CERS ARE N OT INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. I T CAN ONLY BE ANCILLARY TO THE PROFITS AND GAINS RELATABLE TO OR ATTRIBUTABLE TO THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AND NOT IN THE CATEGORY OF P ROFITS 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 ACTIVIT Y OF GENERATION OF POWER. FURTHER HONBLE 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 BENE FITS DO NOT FORM PART OF NET PROFITS OF THE INDUSTRIAL UNDERTAKING FOR TH E PURPOSE OF SEC.80IA OR 80IB. THE NATURE OF CARBON TRADING INCOME IS ALSO S IMILAR TO THAT OF DUTY DRAWBACK AND DEPB LICENSE INCOME. OTHERWISE ALSO AS SESSEE 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 RE CEIPT 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 THAT IN VIEW OF THE JUDGMENT OF HONBLE SUP REME COURT IN THE CASE OF LIBERTY INDIA LTD. VS. CIT, 317 ITR 218 (SC), THERE IS NO F IRST DEGREE NEXUS WITH THE OPERATIONS OF THE UNDERTAKING AND THUS THE ASSESSEE IS NOT ENT ITLED TO DEDUCTION U/S 80IA. 25. NOW THE ASSESSEE IS BEFORE US. 31 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 25.1. THE LD. A/R FOR THE ASSESSEE HAS SUBMITTED TH AT LIQUIDATED DAMAGES ARE THE CHARGES PAID BY M/S. SUZLON ENERGY LTD TO THE ASSESS EE DUE TO SHORT FALL IN MINIMUM GUARANTEED POWER GENERATION. THESE CHARGES ARE NOT HING BUT THE INCOME FROM SALE OF POWER ONLY, AS IT WAS THE COMMITMENT OF THE SUPPLIE R OF WIND MILL AT THE TIME OF INSTALLATION THAT THE WIND MILL AFTER ERECTION WILL YIELD THE REQUIRED OUT PUT OF POWER UNIT. IN FACT, ON ACCOUNT OF FAILURE OF THE WIND MILL TO PRODUCE THE REQUIRED POWER UNIT, THE SUPPLIER M/S. SUZLON ENERGY LTD WAS FULFILLING THE SHORTFALL BY MAKING THE PAYMENT OF FIXED AMOUNT PER UNIT WHICH IS GENERATED LESS. THE AMOUNT SO RECEIVED BY IT, IS ON ACCOUNT OF RUNNING OF THE BUSINESS AND WILL FALL WI THIN THE REALM OF PROFIT AND GAIN DERIVED BY THE ASSESSEE FROM POWER UNDERTAKING BUSI NESS OF GENERATION OF POWER. THE ASSESSEE RELIED UPON THE FOLLOWING JUDGMENTS :- CIT VS. PRAKASH OILS LTD. 58 DTR 279 (MP) CIT VS. ADVANCE DETERGENTS LTD. 339 ITR 81 (2011) (DEL.HC) DCIT VS. M/S. ANDHRA EXPRESSWAY LTD. IN ITA NO. 38 05/DEL/2009 DATED 26.03.2010 (ITAT DELHI BENCH) 25.2. THE LD. D/R FOR THE REVENUE HAS SUBMITTED THA T THE LIQUIDATED DAMAGES RECEIVED BY THE ASSESSEE WERE ON ACCOUNT OF AGREEMENT WITH M /S. SUZLON ENERGY LTD. (EQUIPMENT SUPPLIER) AND NOT FROM THE REGISTERED IN DUSTRIAL UNDERTAKING. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80IA. IT WAS FURTHER SUBMITTED THAT IN SECTION 80IA THERE IS A DELIBERATE USER OF THE W ORDS PROFITS AND GAINS DERIVED BY UNDERTAKING. IT WAS SUBMITTED THAT THE WORD DERIVE D IS HAVING SIGNIFICANT IMPORTANCE IN DECIDING THE CHARACTER OF INCOME RECEIVED BY THE AS SESSEE. IN THE PRESENT CASE, THE 32 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. LIQUIDATED DAMAGES ARE NOT DERIVED BY THE ASSESSEE FROM ANY QUALIFIED BUSINESS. HOWEVER, IT IS DERIVED ON ACCOUNT OF BREACH OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE EQUIPMENT SUPPLIER. 26. NOW THE ASSESSEE IS BEFORE US. 26.1. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. THE CORE ISSUE WHICH REQUIRES ADJUDICATION AND DECISION IS W HETHER THE SHORT FALL FROM THE NET MINIMUM GUARANTEED POWER GENERATION, THE AMOUNT REC EIVED BY THE ASSESSEE ON ACCOUNT OF LEVY OF CHARGES ON THE SUPPLIER CAN BE T REATED AS AN INCOME RECEIVED BY THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IA OF THE ACT OR NOT. FOR THE PURPOSE OF ADJUDICATION OF THIS ISSUE, IT IS NECESSARY TO R EPRODUCE THE RELEVANT CLAUSES OF THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND M/S. SUZ LON 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 CONFIGURATI ON OF MAXIMUM AND ALL LOCAL CONDITIONS, WIND SPEED, DIRECTIONS ETC. F OR EVALUATION OF THEIR OFFER. HOWEVER, BIDS PROVIDING NET MINIMUM GUARANTEE OF GE NERATION 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 DA TE OF COMMISSIONING WILL BE LEVIABLE & OPERATIVE RECOVERABLE FROM THEIR ANNU AL 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 KWH 10 YRS 6.50 PER KWH 33 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 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 IN PARA 37 OF THE AGREEMENT, THE PARTIES HAVE USED THE WORD LEVY AND ON THE BASIS OF LEVY, THE CHARGES FOR THE SHORTFALL FROM THE NET MI NIMUM GUARANTEE HAS BEEN DERIVED. THE LEVY INCLUDED, IN OUR VIEW, THE PENALTY AS WELL AS THE COMPENSATION FOR FAILURE TO PROVIDE THE NECESSARY COMMITTED ENERGY BY THE MACHI NES. SINCE THE CHARGES ARE PAYABLE BY M/S. SUZLON ENERGY LTD FOR FAILURE TO PER FORM THE CONTRACT, IN OUR VIEW, THE SAME WOULD NOT FALL WITHIN THE FIRST DEGREE OF INCO ME. THE INCOME DERIVED ON ACCOUNT OF LIQUIDATED DAMAGES, ARE NOT DIRECT AND PROXIMATE RE SULT OF RUNNING OF THE BUSINESS ACTIVITIES BY THE ASSESSEE. WHAT IS CONTEMPLATED UN DER SECTION 80IA IS THE INCOME DERIVED FROM BUSINESS. FOR THE PURPOSE OF ASCERTAIN ING THE INCOME DERIVED FROM THE BUSINESS, WE ARE REQUIRED TO SEE THE IMMEDIATE SOUR CE OF THE REVENUE GENERATION. IN OUR VIEW, THE IMMEDIATE SOURCE OF REVENUE GENERATIO N IS NOT RUNNING OF THE WIND MILL RATHER IT IS BREACH OF THE CONTRACT/FAILURE OF THE MACHINE TO PERFORM OPTIMUM POWER GENERATION AS PROVIDED UNDER THE CONTRACT. THE IMM EDIATE SOURCE WILL BE FIRST DEGREE AND NOT THE SECOND OR THIRD DEGREE SOURCE. THE HON BLE SUPREME COURT IN THE MATTER OF PANDIAN CHEMICALS LTD. VS. CIT (2003) 262 ITR 278 A ND LIBERTY INDIA VS. CIT, 317 ITR 218 HAD LAID DOWN THE AUTHORITIES ON THE SUBJECT. IN THE IDENTICAL FACTS AND CIRCUMSTANCES, HONBLE DELHI HIGH COURT IN THE MATT ER OF PINE PACKAGING PVT. LTD. VS. CIT (2012) 23 TAXMAN.COM 369 IN PARA 15 TO 19 HAS H ELD AS UNDER :- 34 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 15. IN THE PRESENT CASE, THE STANDING CHARGES WERE PAY ABLE BECAUSE HINDUSTAN LEVER LIMITED DID NOT PLACE PURCHASE ORDERS FOR THE NORMA TIVE PRODUCTION POSSIBLE. IN OTHER WORDS, THE ASSESSEE WAS NOT GIVEN PURCHASE ORDERS E QUAL TO THE NORMATIVE PRODUCTION POSSIBLE. THE ASSESSEE, THEREFORE, DID NOT PRODUCE OR MANUFACTURE THE PRODUCTS BECAUSE OF LACK OF ORDERS OR FAILURE OF HINDUSTAN LEVER LIMITE D TO PLACE PURCHASE ORDERS FOR THE POSSIBLE NORMATIVE PRODUCTION. PAYMENT HAS BEEN MAD E FOR NON-PRODUCTION AND NOT BECAUSE OF UNSOLD PRODUCTION, AND THEREFORE THE FAI LURE TO BUY. IN THESE CIRCUMSTANCES, IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE ASS ESSEE THAT THE STANDING CHARGES HAVE BEEN PAID ARE TOWARDS THE COST PRICE OF THE PRODUCT S 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 S ALE PRICE BUT ON ACCOUNT OF THE FACT THAT HINDUSTAN LEVER LIMITED DID NOT PLACE THE PRES CRIBED OR THE STIPULATED PURCHASE ORDERS FOR SUPPLY OF PRODUCTS/ARTICLES. THIS HAD RE SULTED 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 W E EXAMINE ANNEXURE 3 TO THE AGREEMENT. 16. THE AFORESAID FORMULA FOR COMPUTATION OF SALE PRIC E STIPULATES THAT THE COST OR THE SELLING PRICE WAS COMPUTED UNDER CLAUSES 1 TO 11. H OWEVER, AS HINDUSTAN LEVER LIMITED WAS UNABLE TO PLACE PURCHASE ORDERS IN RESPECT OF T HE 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 PRODU CTS SOLD BUT FOR NON/UNDER UTILIZATION OR IDLE PLANT/MACHINERY ETC. DUE TO LACK OF ORDERS. THE PAYMENT WAS FOR NON- PRODUCTION/MANUFACTURE. 17. THE PRODUCTS OR THE ARTICLES SUPPLIED ARE GOODS. E XCISE DUTY, IF NOT EXEMPT, IS PAYABLE IN MANY CASES ON AD VALOREM BASIS. SIMILARLY, SALES TAX, IF NOT EXEMPT, IS ALSO PAYABLE. THE STANDING CHARGES OBVIOUSLY DO NOT FORM PART OF THE SUPPLY MADE AND ARE NOT TREATED AS SALE CONSIDERATION OR THE PRICE OF THE GOODS ON WHICH EXCISE DUTY OR THE SALES TAX ETC. WOULD BE OR IS PAYABLE. KEEPING IN VIEW THE NATURE AND CHARACTER OF THE STANDING CHARGES, EVIDENCE AND FINDING REGARDING NATURE AND CHARACTER OF THE MANUFACTURING ACTIVITY UNDERTAKEN, IT CANNOT BE SAID THAT THE SAID CHARGES WERE PAID FOR OR TOWARDS SALE CONSIDERATION OF THE GOODS SUPPLIED. THIS IS NOT A CASE WHERE GOODS WERE PRODUCED BUT NOT PURCHASED OR SUPPLIED ETC. THE FACTUAL MATRIX A S FOUND DOES NOT SUPPORT THE CLAIM OF THE APPELLANT UNDER SECTION 80IC OF THE ACT. WE ADD BY WAY OF CAVEAT THAT IN A GIVEN CASE, AND DEPENDING UPON THE FACTUAL MATRIX/EVIDENC E, CHARGES SIMILAR TO STANDING CHARGES MAY REPRESENT COST/SALE PRICE OR PRICE FOR FAILURE TO PURCHASE PRODUCED/MANUFACTURED GOODS. 18. LEARNED COUNSEL FOR THE PETITIONER HAD SUBMITTED T HAT THIS COURT IN CIT V. SPORTKING INDIA LTD. [2010] 324 ITR 283 /[2009] 183 TAXMAN 312 (DELHI) HAS HELD THAT PAYMENTS RECEIVED FROM INSURANCE COMPANY WAS COMPENSATION FO R THE GOODS DESTROYED BY FIRE AND THEREFORE, IS INCOME DERIVED FROM AN INDUSTRIAL UND ERTAKING. THE FACTS AND RATIO IS DIFFERENT AS THE GOODS WERE MANUFACTURED AND LATER ON WERE DESTROYED IN FIRE. THE INSURANCE COMPANY HAD MADE PAYMENT FOR THE GOODS PR ODUCED. SIMILARLY, IN CIT V. 35 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. DHARAM PAL PREM CHAND LTD. [2009] 317 ITR 353 / 180 TAXMAN 557 (DELHI) IT HAS BEEN HELD THAT KEEPING IN VIEW THE FACTUAL MATRIX, REFUN D OF EXCISE DUTY PAID WAS INCOME DERIVED FROM BY AN INDUSTRIAL UNDERTAKING. THE FACT UAL MATRIX AND THE NATURE AND CHARACTER OF PAYMENT, I.E., REFUND OF EXCISE DUTY I N THE SAID CASE WAS DIFFERENT. EXCISE DUTY MAY BE A PART OF SALE PRICE OR THE SALE CONSID ERATION RECEIVED, ESPECIALLY WHEN THE TAX BURDEN IS NOT PASSED ON AND PAYMENT IS MADE OUT OF THE SALE PROCEEDS. IN THE PRESENT CASE, ON INTERPRETATION OF THE AGREEMENT, IT IS CLE AR THAT THE STANDING CHARGES WERE PAID TO THE ASSESSEE WERE NOT TOWARDS THE COST PRICE OR THE SALE PRICE OF THE PRODUCTS. STANDING CHARGES WERE PAYMENTS MADE FOR NON-UTILIZATION OF T HE MACHINERY ETC., WHICH REMAINED IDLE AND WAS NOT OPERATED UPTO THE NORMATIVE PRODUC TION LEVELS AS STIPULATED IN THE AGREEMENT. SIMILAR DECISION OF THE GUWAHATI HIGH CO URT 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 AS SESSEE 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 REFU ND 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- CONTRAC TOR 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 W ORK. PRINCIPAL AMOUNT/INTEREST INCOME OF THE BONDS WERE TREATED AS INCOME DERIVED FROM BU SINESS OF AN INDUSTRIAL UNDERTAKING UNDER SECTION 80HHB OF THE ACT. THE SAID DECISION I S 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 GA INS DERIVED BY AN INDUSTRIAL DEVELOPMENT UNDERTAKING AS IT PARTAKES AND IS SALE CONSIDERATION. IN CIT V. VIDYUT CORPN. [2010] 324 ITR 221 (BOM.) , THE ASSESSEE HAD DISCOUNTED THE PROMISSORY NOTE D RAWN BY THE PURCHASER WITH ITS BANKERS. THE DISCOUNT CHARGE S DEDUCTED BY THE BANKS WERE SUBSEQUENTLY REIMBURSED TO THE ASSESSEE BY THE PURC HASERS. THEREFORE, THE REIMBURSED DISCOUNTED CHARGES, IT WAS HELD, WERE A COMPONENT O F THE SALE PRICE. IT WAS NOTHING BUT INTEREST PAID TOWARDS DELAYED PAYMENT OF THE SALE P RICE OF THE GOODS. THE BILL DISCOUNTING CHARGES WERE, THEREFORE, TREATED AS AN ELIGIBLE DED UCTION UNDER SECTION 80-IB OF THE ACT AS PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERT AKING. 19. IN VIEW OF THE AFORESAID DISCUSSION, THE QUESTION OF LAW ACCORDINGLY HAS TO BE ANSWERED IN AFFIRMATIVE, I.E., AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. THE APPEAL IS ACCORDINGLY DISMISSED. THERE WILL BE NO O RDER AS TO COSTS. IN VIEW OF THE ABOVE, THE GROUND OF THE ASSESSEE IS REJECTED. 26.1. THE SECOND PART OF THE GROUND IS WITH RESPECT TO THE TREATMENT OF THE REVENUE GENERATED ON ACCOUNT OF SALE OF CERS FOR RS. 85,26,8 24/-(80IA CLAIMED ON RS.36,20,742/-). 36 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 26.2. THE ASSESSEE HAS DECLARED RECEIPT OF RS. 85,2 6,824/- FRO SALES OF CERS DURING THE YEAR UNDER CONSIDERATION. IN COURSE OF ASSESSMENT P ROCEEDINGS, ASSESSEE CLAIMED THAT ENTIRE RECEIPTS SHOULD BE EXCLUDED IN COMPUTING THE TOTAL INCOME SINCE SUCH RECEIPT IS A CAPITAL RECEIPT AS HELD IN CASE OF MY HOME POWER LT D. VS. DCIT (2013) 21 ITR (TRIB.) 186 (HYD.). 26.3. THE AO OBSERVED THAT ASSESSEE HAS DERIVED INC OME FROM SALE OF CER FROM THE DAY TO DAY ACTIVITY OF GENERATION OF POWER. THE NAT URE OF CARBON TRADING IS SIMILAR TO DUTY DRAWBACK AND DEPB INCOME. ASSESSEE HIMSELF HAS TREATED IT AS NORMAL INCOME IN THE ORIGINAL RETURN/REVISED RETURN. HENCE, CLAIM TH E ASSESSEE THAT IT IS A CAPITAL RECEIPT IS NOT TENABLE IN VIEW OF THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF LIBERTY INDIA, 317 ITR 218 AS ALSO GOETZE INDIA LTD. VS. CI T, 284 ITR 323. 27. THE LD. CIT (A) CONFIRMED THE FINDINGS OF AO BY HOLDING THAT SALE PROCEEDS OF CERS ARE REVENUE RECEIPTS NOT ONLY FROM THE INTRINSI C NATURE OF THE ENTITLEMENT BUT ALSO BECAUSE THESE ARE CLOSELY CONNECTED WITH CARRYING O UT BUSINESS. THEY ARE TAXABLE U/S 28(IV) AS BENEFIT ARISING DURING THE COURSE OF CARR YING ON BUSINESS. 28. NOW THE ASSESSEE IS BEFORE US. 28.1. THE LD. A/R FOR THE ASSESSEE CONTENDED THAT T HE CER CANNOT BE EQUATED WITH RECEIPTS FROM THE DUTY DRAW BACK AND HAS SUBMITTED THAT THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. (SU PRA) 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. 37 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 28.2. THE LD. D/R FOR THE REVENUE HAS SUBMITTED THA T THE ORDER OF THE AO AS WELL AS LD. CIT (A) ARE CORRECT AND ARE BASED ON THE SOUND REAS ONING. 28.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. BEFORE WE DEAL WITH THE ISSUE, THE SALE OF CER IS SUBJECT MATT ER OF VARIOUS LITIGATIONS BEFORE THE TRIBUNAL AS WELL AS BEFORE HIGH COURT. THE COURTS H AVE 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 C ER IS CAPITAL RECEIPT AND THE AO IS DIRECTED TO TREAT THE SALE OF CER AS CAPITAL RECEIPT . THUS THE GROUND OF THE ASSESSEE ON ACCOUNT OF SALE OF CER IS ALLOWED. GROUND NO. 6 OF ASSESSEE : 29. GROUND NO. 6 RELATES TO NOT ALLOWING DEDUCTION OF RS. 2,94,04,000/- IN RESPECT OF MINES CLOSURE EXPENSES CLAIMED BY THE ASSESSEE. 29.1. IN THIS REGARD THE AO HAS MENTIONED AS UNDER :- 38 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. 3.10. DURING THE ASSESSMENT PROCEEDINGS THE ASSESS EE CLAIMED AS UNDER :- IN COMPLIANCE TO GUIDELINES DATED 27.08.2009, AS AMENDED FROM TIME TO TIME, BY MINISTRY OF COAL, GOVERNMENT OF IN DIA, FOR PREPARATION OF FINAL MINE CLOSURE, COMPANY HAS PROV IDED SUM OF RS. 2,49,04,000/- TOWARDS PROPORTIONATE MINES CLOSU RE EXPENSES FOR THE FINANCIAL YEAR 2009-10 IN THE BOOK OF ACCOU NTS PREPARED FOR FINANCIAL YEAR 2009-10 IN THE BOOKS OF ACCOUNTS PRE PARED FOR FINANCIAL YEAR 2011-12 AS PRIOR PERIOD EXPENSES OF RS. 2,49,04,000/- WHILE MAKING COMPUTATION OF TOTAL INC OME FOR THE ASSESSMENT YEAR 2012-13. AS THE ASSESSMENT PROCEEDI NGS FOR THE YEAR ARE UNDER PROGRESS, IT IS REQUESTED TO ALLOW T HE CLAIM OF THE ASSESSEE WHILE PASSING THE ASSESSMENT ORDER U/S 143 (3). COPY OF INCOME TAX RETURN ACKNOWLEDGEMENT, COMPUTATION OF T OTAL INCOME AND NOTES TO THE COMPUTATION ARE ENCLOSED FOR THE R EADY REFERENCE. I HAVE GONE THROUGH THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF TOWARDS PROPORTIONATE MINES CLOSURE EXPENSES FOR TH E FINANCIAL YER 2009- 10 AMOUNTING TO RS. 2,49,04,000/-. AS THE ASSESSEE ITSELF MENTIONED IN HIS REPLY THAT THE EXPENDITURE HAS NOT BEEN DEBITED IN THE BOOKS OF ACCOUNTS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THEREFO RE NO QUESTION OF ITS ALLOWABILITY ARISES. EVEN OTHERWISE, LEGALLY ALSO TH E CLAIM OF THE ASSESSEE IS NOT VALID IN VIEW OF THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT 284 ITR 323, THAT CLAIM OF DEDUCTION NOT MADE IN THE RETURN CANNOT BE ENTERTAINED BY AO OTHERWISE THAN BY FILING REVISED RETURN. 29.2. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT (A), WHO HAS DISALLOWED THE AMOUNT CLAIMED BY THE ASSESSEE ON TH E FOLLOWING REASONS MENTIONED IN PARA 9.3. OF HIS ORDER : 9.3. I HAVE CONSIDERED THE FACTS OF THE CASE; AS SESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION. APPELLANT CLAIMED M INES CLOSURE LIABILITY DURING ASSESSMENT PROCEEDING WHICH WAS NOT CLAIMED IN THE BOOKS OF ACCOUNTS. ASSESSING OFFICER DID NOT ALLOW THE SAME OF THE GROUND THAT 39 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. THESE EXPENSES WERE NOT CRYSTALLIZED AND DEBITED TO THE P&L ACCOUNT AND ALSO THE CLAIM WAS NOT MADE THROUGH THE RETURN OF I NCOME. APPELLANT SUBMITTED THAT AS PER THE CIRCULAR OF COAL MINISTRY , THIS LIABILITY IS CRYSTALLISED. HOWEVER, WHEN APPELLANT COULD NOT CRE ATE PROVISION IN THE BOOKS OF ACCOUNTS OR CLEARLY WORK OUT THE LIABILITY , HOW COULD THIS LIABILITY BE TREATED AS CRYSTALLISED TILL THE END OF ACCOUNTI NG YEAR. JUST BECAUSE MINISTRY HAS ISSUED SOME CIRCULAR, LIABILITY DOES N OT CRYSTALLISES. FOR CRYSTALLISING THE LIABILITY, THE EXPENSES MUST HAVE BEEN EITHER INCURRED OR PROVIDED. SUCH VAGUE ESTIMATION OF LIABILITY IS NO T A CRYSTALLISED LIABILITY ALLOWABLE UNDER SECTION 37(1). APPELLANT HAS NOT S TARTED ANY WORK IN THE DIRECTION OF THE SAID CIRCULAR. NO CONTRACT FOR MI NES CLOSURE WAS GIVEN AND THEREFORE THERE IS NO QUESTION OF ANY ASCERTAINED L IABILITY EXISTING DURING THE YEAR. AT THE MOST, IT CAN BE A CONTINGENT LIABI LITY WHICH IS NOT ALLOWABLE UNDER INCOME TAX ACT. ACCORDINGLY, THE CLAIM MADE B Y THE APPELLANT DURING ASSESSMENT PROCEEDINGS IN RESPECT OF MINES CLOSURE LIABILITY IS HELD TO BE NOT ALLOWABLE. 30. NOW THE ASSESSEE IS BEFORE US. 30.1. THE LD. A/R FOR THE ASSESSEE HAS SUBMITTED TH AT THE GOVERNMENT OF INDIA, MINISTRY OF COAL INTRODUCED GUIDELINES FOR PREPARAT ION OF MINE CLOSURE PLAN IN RESPECT OF COAL AND LIGNITE MINES ON 27.08.2009. AS PER PARA 2(III) OF THE GUIDELINES, ALL COAL MINE OWNERS WHO HAVE BEEN ACCORDED APPROVAL OF MINING PL ANS/PROJECTS REPORTS WITHOUT THE MINE CLOSURE PLANS AS PER THESE GUIDELINES, ARE ALS O REQUIRED TO PREPARE AND OBTAIN THE APPROVAL OF MINE CLOSURE PLAN AS PER THE GUIDELINES WITHIN A PERIOD OF ONE YEAR FROM THE ISSUE OF THESE GUIDELINES. THE SAID GUIDELINES HAVE ALSO PROVIDED THE COMPUTATION FOR CALCULATING THE ANNUAL CLOSURE COST IN ANNEXURE-1. IT IS FAIRLY ADMITTED BY THE LD. A/R FOR THE ASSESSEE THAT NEITHER THE EXPENDITURE HAS BEEN DEBITED IN THE BOOKS OF ACCOUNT TOWARDS THE CLOSURE OF THE MINES NOR ANY PLAN WAS S UBMITTED FOR OBTAINING THE APPROVAL OF MINE CLOSURE WITHIN ONE YEAR OF PUBLICATION OF S AID GUIDELINES BY THE AUTHORITY. THE 40 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. LD. A/R HAS SUBMITTED THAT THE AUDITOR GENERAL OFFI CE WHILE CONDUCTING THE SUPPLEMENTARY AUDIT OF ACCOUNTS FOR FINANCIAL YEAR 2010-11 HAS OBSERVED THAT THE ASSESSEE HAS NOT PROVIDED LIABILITY IN RESPECT OF M INES CLOSURE PLAN FOR ITS LIGNITE MINES AS PER THE SAID GUIDELINES ISSUED BY THE MINISTRY O F COAL. AS THE ASSESSEE HAS NOT MADE THE PROVISION FOR THE EXPENSES IN THE BOOKS OF ACCO UNT FOR THE A.Y. 2010-11 AND 2011- 12, THE ASSESSEE HAS MADE THE PROVISION OF RS. 15,1 5,36,000/- IN THE BOOKS OF ACCOUNTS FOR THE A.Y. 2012-13. IN THE BOOKS OF ACCOUNTS FOR THE A.Y. 2012-13, THE INDIVIDUAL BREAK UP OF ASSESSMENT YEARS 2010-11, 11-12 AND 12- 13 WERE GIVEN THE FOLLOWING MANNER :- ASSESSMENT YEAR AMOUNT (RS.) 2010-11 2,49,04,000/- 2011-12 4,69,61,000/- 2012-13 7,96,71,000/- TOTAL : 15,15,36,000/- DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS CLAIMED THE LIABILITY TOWARDS MINES CLOSURE PLAN AMOUNTING TO RS. 2,49,04,000/- F OR THE A.Y. 2010-11 (SUBJECT MATTER OF PRESENT APPEAL). THE AO AS WELL AS THE LD. CIT ( A) HAS REJECTED THE CLAIM OF THE ASSESSEE FOR THE REASONS MENTIONED HEREIN ABOVE. IT IS SUBMITTED BY THE LD. A/R FOR THE ASSESSEE, THAT THE AMOUNT OF RS. 2,49,04,000/- FOR THE YEAR UNDER CONSIDERATION IS REQUIRED TO BE ALLOWED AS THE SAID AMOUNT IS REQUIR ED TO BE DEPOSITED IN THE SCREW ACCOUNT OF THE OF THE SCHEDULED BANK AND IS REQUIRE D TO BE SPENT IN ACCORDANCE WITH THE 41 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. GUIDELINES LAID DOWN BY THE MINISTRY OF COAL. THE LD. A/R FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE MATTER OF KEDARNATH JUTE MFG CO. LTD., 82 ITR 363 (SC). THE LD. A/R OF THE ASSESSEE HAS S UBMITTED 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 WA S FURTHER SUBMITTED THAT A PROVISION OF LIABILITY EVEN IF ESTIMATED CANNOT BE DISALLOWED UN LESS 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 HONBLE 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 HONBLE RAJASTHAN HIGH COURT IN THE MATTER OF UDAIPUR MINERAL DEVELOP MENT 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 OV ERSEAS (P) LTD. VS. DCIT, 107 DTR 225. 30.2. ON THE OTHER HAND, THE LD. D/R FOR THE REVENU E HAS SUBMITTED THAT THE LIABILITY OF MINES CLOSING IS ONLY A VAGUE LIABILITY AND HAS NOT BEEN CRYSTALLIZED AND IS ONLY A CONTINGENT LIABILITY. IT WAS FURTHER SUBMITTED THA T UNLESS THE APPELLANT STARTED THE WORK IN THE DIRECTION OF SAID CIRCULAR/GUIDELINES, THERE IS NO QUESTION OF ASCERTAINING LIABILITY. 30.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. IN OUR VIEW, ONCE AN ASSESSEE WHETHER PRIVATE OR GOVERNMEN T TAKES ON LEASE A MINE, ITS CLOSURE IS INEVITABLE. A MINE CANNOT BE PERMITTED TO BE EXPLOITED INFINITELY AND INDEFINITELY. IN OUR VIEW, ONCE THE MINE IS EXPLOI TED, ITS CLOSURE AND REHABILITATION IS 42 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. NECESSARY. IN OUR VIEW, THE MINISTRY OF COAL, GOVE RNMENT OF INDIA HAD PROVIDED A STRUCTURE PROGRAMME/GUIDELINES FOR CLOSURE OF MINES . IN OUR OPINION, THE VIEW EXPRESSED BY THE AO AND LD. CIT (A) IS CONTRARY TO LAW AND WE DISAGREE WITH THE VIEW OF THE AUTHORITIES BELOW THAT THE LIABILITY IS A CONTI NGENT LIABILITY AND IS NOT ASCERTAINABLE LIABILITY. THE GUIDELINES LAID DOWN BY THE COAL MIN ISTRY, HAS ELABORATELY GIVEN THE CHART TO QUANTIFY THE LIABILITY AND THE MANNER IN WHICH T HE AMOUNT IS REQUIRED TO BE SPENT FOR CLOSURE OF THE MINES AND FOR RESTORING THE ECOLOGIC AL BALANCE AND ENVIRONMENT PROTECTION. THEREFORE, TO SAY THAT THE LIABILITY I S MERELY A CONTINGENT AND HAS NOT ARISES, IN OUR VIEW IS PREPOSTEROUS AND WITHOUT ANY MERIT. THE PROVISIONS ARE REQUIRED TO BE MADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. SINC E THE AMOUNT IS ASCERTAINABLE AND DISCERNABLE TO BE SPENT ON THE CLOSURE OF THE MINES , IN VIEW OF THE FORMULA GIVEN BY THE MINISTRY OF COAL, THEREFORE, IN OUR VIEW THE LIABIL ITY IS NOT A CONTINGENT LIABILITY AND IS REQUIRED TO BE MADE PROVISION IN PRESENTI AND IS RE QUIRED TO BE SPENT IN A FUTURE DATE. THE JUDGMENT REFERRED BY THE LD. A/R FOR THE ASSESS EE IN THE MATTER OF KEDARNATH JUTE MFG CO. LTD. (SUPRA) AND ALSO IN THE MATTER OF ROTO RK CONTROLS INDIA PVT LTD. (SUPRA) ARE SQUARELY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 30.4. WHEN THE ABOVE PRINCIPLES ARE APPLIED TO THE FACTS OF THE PRESENT CASE IT CAN BE NOTED THAT IN TERMS OF GUIDELINES DT. 27.08.2009 IS SUED BY GOVERNMENT OF INDIA, MINISTRY OF COAL EVEN THE EXISTING MINES WHO ARE OP ERATING WITHOUT THE APPROVAL OF MINE CLOSURE PLAN ARE REQUIRED TO OBTAIN A MINE CLO SURE PLAN APPROVED AS PER THESE GUIDELINES. AS PER THESE GUIDELINES MINE CLOSURE PL AN WILL HAVE TWO COMPONENTS I.E. 43 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. PROGRESSIVE OR CONCURRENT MINE CLOSURE PLAN AND FIN AL MINE CLOSURE PLAN. THE ASSESSEE HAS BEEN OPERATING LIGNITE MINES AT HIRAL, NAGOR AN D SONARI. AS A RESULT OF THE MINE CLOSURE PLANS ISSUED BY THE GOVERNMENT OF INDIA THE ASSESSEE HAS AN PRESENT OBLIGATION TO PROVIDE FOR THE EXPENDITURE WHICH IT HAVE TO FUN D ON CLOSURE OF THE MINES AND THUS IT HAS A PRESENT OBLIGATION AS A RESULT OF THE PAST EV ENTS, IT IS CERTAIN THAT AN OUTFLOW OF RESOURCES WOULD BE REQUIRED TO SETTLE THE OBLIGATIO N AND A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION WHICH IS MENTI ONED IN THESE GUIDELINES ITSELF. ACCORDINGLY, THE ASSESSEE HAS ESTIMATED THE EXPENDI TURE WHICH IT WOULD BE REQUIRED TO INCUR ON CLOSURE OF THE MINES BASED ON THESE GUIDEL INES. THEREFORE, ACCORDING TO THE MATCHING CONCEPT ALSO WHEN THE REVENUE FROM THE MIN ING ACTIVITY OF THESE MINES HAS BEEN RECOGNIZED IN INCOME, THE COST TO BE INCURRED TO EARN SUCH REVENUE HAS TO BE PROVIDED FOR. IN THESE CIRCUMSTANCES AND THE LEGAL POSITION, EVEN IF EXPENDITURE IS NOT ACTUALLY INCURRED IN THE YEAR UNDER CONSIDERATION B UT THERE IS AN OBLIGATION ON THE ASSESSEE TO INCUR THE EXPENDITURE FOR WHICH A RELIA BLE ESTIMATE CAN BE MADE HAS TO BE ALLOWED AS DEDUCTION. IN THE ASSESSEES CASE ALSO I T IS CERTAIN THAT ASSESSEE HAS TO INCUR THE EXPENDITURE ON CLOSURE OF MINE AND FOR WHICH A RELIABLE ESTIMATE HAS BEEN MADE AND THEREFORE THE PROVISION MADE FOR MINE CLOSURE E XPENSES IS ALLOWABLE U/S 37(1) OF THE ACT. 30.5. FURTHER, THE JUDGMENT IN THE MATTER OF BHARAT EARTH MOVERS LTD. VS. CIT, 112 TAXMAN 61 (SC) AND CALCUTTA COMPANY LTD., 37 ITR AR E APPLICABLE. BESIDES, IN THE SAID JUDGMENT IT WAS CATEGORICALLY HELD THAT THE MINES C LOSURE LIABILITY IS A ASCERTAINED 44 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD. LIABILITY .AS PER MATCHING PRINCIPLE AS WELL AS THE MERCANTILE SYSTEM OF ACCOUNTING, THE LIABILITY IS ALLOWABLE IN PRINCIPLE UNDER SECTION 3 7 OF THE ACT. IN VIEW OF THE ABOVE, THE GROUND OF THE ASSESSEE IS ALLOWED AND THE AO IS DIR ECTED TO GIVE THE BENEFIT OF DEDUCTION OF RS. 2,94,04,000/- TOWARDS MINES CLOSUR E EXPENSES IN THE A.Y. 2010-11. 31. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/02/2016 . SD/- SD/- VH-VKJ-EHUK YFYR DQEKJ (T.R. MEENA) (LALIET KUMAR) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 12/02/2016 DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT-M/S. RAJASTHAN STATE MINES & MINERALS LTD., LALKOTHI, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-6, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 124 & 144/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR 45 ITA NO. 124 & 144/JP/2014 AY 2010-11 RAJASTHAN STATE MINES & MINERALS LTD.