ACIT, Circle - 5, Kolkata V. M/s. Ghanashyam Misra & Sons (P) Ltd., Kolkata

ITA 1521/KOL/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75027 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 13-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 28-08-2009
• Court: TRIBUNAL
• Department Lawyers: SABOORUL HASAN USMANI SRDR
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER ITA NO. 122 / KOL / 2009 & ITA NO.1521/KOL/2009 ASSESSMENT YEARS :2005-06 & 2006-07 ACIT, CIRCLE-5, KOLKATA, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAVAN, 8 TH FLOOR, KOLKATA 700 001 V/S . M/S GHANASHYAM MISRA & SONS (P) LTD., 7, WATERLOO STREET, KOLKATA 700 001 [ PAN NO.AABCG7469 F ] / APPELLANT .. / RESPONDENT) /BY ASSESSEE SHRI SOUMITRA CHOUDHURY, AR /BY RESPONDENT SHRI SABOORUL HASAN USMANI, SR-DR /DATE OF HEARING 17-12-2013 ! /DATE OF PRONOUNCEMENT 27-01-2014 ' ' ' ' / // / O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE TWO APPEALS BY REVENUE ARE ARISING OUT OF DI FFERENT ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOLKATA IN APPEAL NOS. CIT(A)- V/KOL/237, 298/KOL/CIR-5/07-08-08-09 DATED 26-11-20 08 AND 04-06-2009. ASSESSMENTS WERE FRAMED BY ACIT, CIRCLE-5 KOLKATA U /S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS DIFFERENT ORDERS DATED 31-12-2008 AND 31-12-2007 FOR ASSESSMENT YEAR S 2005-06 AND 2006- 07 RESPECTIVELY. ITA NO.122 & 1521/KOL/2009 A.YS. 05-06 & 06-07 ACIT CIR-5 KOL V. M/S. GHANASHYAM MISRA & SONS (P) LTD. PA GE 2 2. ONLY COMMON ISSUE IN THESE TWO APPEALS OF REVENU E IS AS REGARDS TO THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF EXPENSES OF NET PRESENT VALUE (NPV FOR SHORT) AS COMPENSATION PAID BY THE A SSESSEE TO FOREST DEPARTMENT FOR UTILIZATION OF FOREST LAND FOR NON-F OREST PURPOSES. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1 IN ITA NO. 122/KOL/2009 FOR AY 2005-06 AND IN ITA NO.1521/KOL/2009 FOR AY 2006-07 FOLLOWING GROUNDS NO. 1 TO 5:- ITA NO.122/KOL/09 1) THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE, LD. CIT(A) HAD ERRED IN LAW AS WELL ON FACTS BY NOT CONSIDERING TH AT NET PRESENT VALUE IS A COMPENSATION, PAID BY THE ASSESSEE TO TH E FOREST DEPTT., FOR UTILIZATION OF FOREST LAND FOR NON-FOREST PURPO SE. HONBLE SUPREME COURT HAS CATEGORIZED SUCH PAYMENTS AS FEES TO BE P AID BY THE MINE OWNERS TO THE FOREST DEPTT., QUANTIFIED ON THE BASI S OF THE PERIOD FOR WHICH THE MINE OWNERS TAKING OUT DIFFERENT ORES, FR OM THE MOTHER EARTH. THEREFORE THE NV IS DIRECTLY LINKED TO THE E ARLIER PREVIOUS YEARS WHICH IS NOT ALLOWABLE AS THE BUSINESS EXPENDITURE OF TH9E CURRENT FINANCIAL YEAR U/S.37(1). ITA NO.1521/KOL/2009 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN CONCLUDING(VIDE HIS ORDER, PAGE-14) THAT THE ASSESSEE DID NOT GET ANY FRESH RIGHT TO MI NING BY MAKING PAYMENT OF RS.1,45,00,000/-. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT CONSIDERING THE O RDER OF THE MINISTRY OF ENVIRONMENT & FORESTS (F.C. DIVISION), DATED 10.12. 2005, CIRCULATED VIDE F.NO.8-41/2003-FC, BY VIRTUE OF WHICH THE ASSE SSEE GOT RIGHT OF MINING OVER AN ADDITIONAL 25 HECTOR OF BROKEN UP FO REST AREA., 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT CONSIDERING THE F ACT THAT THE ASSESSEE PAID RS.1,45,00,000/- FOR GETTING THE RIGHT OF MINI NG OVER AN ADDITIONAL 25 HECTOR OF BROKEN UP FOREST AREA, WHICH IS EVIDEN T FROM THE LETTER OF THE DFO, RAIRANGPUR DIVISION VIDE MEMO NO.5114 DATED 28 .11.2005 AND ADDRESSED TO THE CH. CONSERVATOR OF FOREST, BHUBANE SWAR, ORISSA. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT CONSIDERING THE F ACT THAT EXPENSES ITA NO.122 & 1521/KOL/2009 A.YS. 05-06 & 06-07 ACIT CIR-5 KOL V. M/S. GHANASHYAM MISRA & SONS (P) LTD. PA GE 3 MADE TO ACQUIRE ANY RIGHT OF BUSINESS IS A CAPITAL EXPENDITURE AND HENCE, NOT ALLOWABLE. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN APPLYING THE RATIO OF THE CASE OF BIKANER GYPSUMS LTD.[(1991) 187 ITR 39, 49 (SC)] IN THE CASE OF THE ASSESSEE, WHICH IS NOT AT ALL APPLICABLE. IN THAT CASE THE EX PENSE OF SHIFTING OF RAILWAY TRACK WAS INCURRED BY THE ASSESSEE FOR THE SMOOTH OPERATION OF THEIR BUSINESS. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE ORDER OF CIT(A), WHEREIN THE ISSUE HAS BEEN ALLOWED IN FAVOUR OF ASSESSEE BY OBSERVING VIDE PARA-5(V) AS UNDER:- 5.(V) I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS. DURING THE APPELLATE PROCEEDING THE APPELLANT WAS ASKED TO SHO W WHEN THIS MINING LEASE WERE EXECUTED WHICH GAVE THE APPELLANT THE RI GHT TO MINING IN THE AREAS ASSIGNED TO IT? THE APPELLANT SUBMITTED THE L EASE DEEDS WHEREIN IT IS FOUND THAT THE LEASE DEEDS WERE EXECUTED IN T HE YEAR 1980. SINCE THEN THE APPELLANT WAS ENGAGED IN THE MINING OPERAT ION AS A LICENSEE. THUS, ONE THING IS CLEAR THAT THE APPELLANT DID NOT GET ANY FRESH RIGHT TO MINING BY MAKING THIS PAYMENT OF RS.3,24,80,000/- U NDER THE ORDER OF THE S.C. THE APPELLANT WAS ALREADY RUNNING A BUSINE SS SINCE 1980 AND DURING THE COURSE OF BUSINESS SOME PAYMENT WAS REQU IRED TO BE MADE BY THE APPELLANT COMPANY IN PURSUANCE OF SOME S.C. ORDER. THIS PAYMENT NEITHER GAVE THE APPELLANT ANY FRESH RIGHT TO ACQUIRE ANY CAPITAL ASSET NOR ANY EXTENSION OF RIGHT. ON THE OT HER HAND, HAD THIS PAYMENT WAS NOT MADE THE APPELLANT WOULD HAVE BEEN LIABLE FOR CONTEMPT. SO THIS PAYMENT MAY BE CONSTRUED AS SOME RESTRICTION, OBSTRUCTION OR DISABILITY. SIMPLY BECAUSE THIS IS A ONETIME PAYMENT, THE SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE. I AM THEREFORE, INCLINED TO ACCEPT THE CONTENTION OF THE APPELLANT THAT THE RATIO OF THE DECISION OF THE BIKANER GYPSUMS LTD.-VS. CIT, (1991) 187 ITR 39 , 49 (SC) WILL APPLY IN THIS CASE WHEREIN THE SC HAS HELD WHERE THE ASSESSEE HAS AN EXISTING RIGHT TO CARRY ON A BUSINESS, ANY EXPENDIT URE MADE BY IT DURING THE COURSE OF BUSINESS FOR THE PURPOSE OF REMOVAL O F ANY RESTRICTION OR OBSTRUCTION OR DISABILITY WOULD BE ON REVENUE ACCOU NT, PROVIDED THE EXPENDITURE DOES NOT ACQUIRE ANY CAPITAL ASSET. PAY MENTS MADE FOR REMOVAL OF RESTRICTION, OBSTRUCTION OR DISABILITY M Y RESULT IN ACQUIRING BENEFITS TO THE BUSINESS BUT THAT BY ITSELF WOULD N OT ACQUIRE ANY CAPITAL ASSET. 5.(VI) THE RATIO OF THE DECISION OF THE ENTERPRISIN G ENTERPRISES AS QUOTED BY THE AO WILL NOT APPLY IN THIS CASE AS IN THIS CA SE THE APPELLANT, WHICH ITA NO.122 & 1521/KOL/2009 A.YS. 05-06 & 06-07 ACIT CIR-5 KOL V. M/S. GHANASHYAM MISRA & SONS (P) LTD. PA GE 4 HAD TAKEN A QUARRY ON LEASE FOR 10 YEARS, CLAIMED D EDUCTION OF A PROPORTIONATE PART OF THE RENT AS DEDUCTION. THE AP PELLATE TRIBUNAL HELD THAT THE LEASE RENT PAID WAS CAPITAL EXPENDITURE AN D THE HIGH COURT AFFIRMED THE DECISION OF THE APPELLATE TRIBUNAL. TH E APPELLANT PREFERRED AN APPEAL TO THE SC WHICH DISMISSED THE APPEAL BY H OLDING THAT THE HIGH COURT WAS RIGHT IN NOT INTERFERING WITH THE OR DER OF THE APPELLATE TRIBUNAL. 5.(VII) IN THEN INSTANT CASE, THE APPELLANT HAS NOT ACQUIRED ANY CAPITAL ASSET BY MAKING THIS PAYMENT. THE ASSET HAD ALREADY BEEN ACQUIRED LONG AGO. THIS PAYMENT AROSE BECAUSE OF SUPREME COU RT ORDER. SO, THOUGH, THIS IS ONETIME PAYMENT, THE SAME WAS NOT M ADE TO ACQUIRE ANY ASSET. THE PAYMENT MAY BE TREATED AS TO REMOVE SOME OBSTACLE / RESTRICTION OR DISABILITY BUT CERTAINLY NOT FOR ACQ UIRING ANY ASSET. THUS, THIS PAYMENT CANNOT BE TREATED AS CAPITAL EXPENDITU RE. THE PAYMENTS REVENUE IN NATURE AND ALLOWABLE AS A BUSINESS EXPEN DITURE U/S. 37(1) OF THE I.T. ACT. THE ADDITION MADE ON THIS COUNT BY TH E AO IS NOT CORRECT AND IS DELETED. THE APPEAL THEREFORE IS ALLOWED . 4. LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY TRIBUNALS DECISION OF CO-ORD INATE BENCH IN THE CASE OF ACIT V. RUNGTA SONS (P) LTD. IN ITA NO.933/KOL/2009 DATED 05-08-2011, WHEREIN THE ISSUE IS DISCUSSED IN PARA-12 TO 15 AS UNDER:- 12, THE QUESTION BEFORE US IS AS TO WHETHER THE PA YMENT BEING NPV MADE BY THE ASSESSEE FOR OBTAINING FOREST CLEARANCE FOR MINING ON THE FOREST AREA / LAND UNDER THE FOREST (CONSERVATION) ACT, 1980 IS ALLOWABLE AS REV EXPENDITURE OR NOT. IT IS RELEVANT TO STATE THAT HONBLE APEX COURT IN THE CASE OF T.N. GODAVARAM THIRUMALPAD (SUPRA) HAS OBSERVED THAT FORESTS ARE VITAL COMPONENTS TO SUSTAIN LIFE SUPPOR T SYSTEM ON THE EARTH. THEREFORE, THEE IS AN ABSOLUTE NEED TO TAKE ALL PRE CAUTIONARY MEASURES WHEN FOREST LANDS ARE SOUGHT TO BE DIRECTED FOR NON -FOREST USE. HONBLE APEX COURT STATED THAT WHEN FOREST LAND IS USED / D IVERTED FOR NON-FOREST PURPOSES AND THERE IS CONSEQUENTIAL LOSS OF BENEFIT S ACCRUING FROM THE FORESTS, THE USER AGENCY OF SUCH LAND BE REQUIRED T O COMPENSATE FOR THE DIVERSION. HONBLE APEX COURT OBSERVED THAT THE USE R AGENCY BE REQUIRED TO MAKE PAYMENT OF NET PRESENT VALUE (NPV) OF SUCH DIVERTED LAND SO AS TO UTILIZE THE AMOUNTS SO RECEIVED FOR G ETTING BACK IN LONG RUN THE BENEFITS WHICH ARE LOST BY SUCH DIVERSION. HON BLE APEX COURT VIDE ITS GUIDELINES FOR DETERMINATION OF NPV DIRECTED TH E MINISTRY OF ENVIRONMENT AND FORESTS TO FORMULATE A SCHEME PROVI DING THAT WHENEVER ANY PERMISSION IS GRANTED FOR CHANGE OF US E OF FOREST LAND FOR NON-FOREST PURPOSES, AND ONE OF THE CONDITIONS OF THE PERMISSION SHOULD BE THAT THERE SHOULD BE COMPENSATORY AFFORES TATION, THEN THE RESPONSIBILITY OF THE SAME SHOULD BE THAT OF USER A GENCY. HONBLE APEX ITA NO.122 & 1521/KOL/2009 A.YS. 05-06 & 06-07 ACIT CIR-5 KOL V. M/S. GHANASHYAM MISRA & SONS (P) LTD. PA GE 5 COURT OBSERVED THAT THE MONEY SO RECEIVED TOWARDS N PV SHOULD BE USED FOR NATURAL ASSISTED RE-GENERATION, FOREST MAN AGEMENT, PROTECTION, INFRASTRUCTURE DEVELOPMENT, WILDLIFE PROTECTION AND MANAGEMENT, SUPPLY OF WOOD AND OTHER FOREST PRODUCE SAVING DEVICES AND OTHER ALLIED ACTIVITIES. IN THE CONTEXT, HONBLE APEX COURT OBSE RVED THAT NPV WILL NOT FALL UNDER ARTICLE 110 OR 199 OR 195 OF THE CONSTIT UTION. IT WAS OBSERVED THAT SUCH PAYMENTS WERE LEVIED FOR RENDERING SERVIC E WHICH THE STATE CONSIDERS BENEFICIAL IN PUBLIC INTEREST. IT IS A FE E WHICH FALLS IN ENTRIES 47 OF LIST-III OF 7 TH SCHEDULE OF THE CONSTITUTION. THE FUND SET UP IS A PART OF ECONOMIC AND SOCIAL PLANNING WHICH COMES WITHIN ENT RY 23 OF LIST III AND THE CHARGE WHICH IS LEVIED FOR THAT PURPOSE WOU LD COME UNDER ENTRY 47 OF LIST III. IN THAT CONTEXT, IT WAS HELD BY THE IR LORDSHIPS THAT LEVY OF NPV IS A FEE THAT MEANS EVERY MINING AGENCY USING A ND CONVERTING FOREST LAND TO NON-FOREST PURPOSE HAS TO PAY A FEE FOR CONTINUING CARRYING ON OF THE BUSINESS. WE AGREE WITH LD. AR T HAT NON-PAYMENT OF THIS NPV COULD LEAD TO CONSEQUENCES, INTER ALIA, TO THE STOPPAGE OF THE BUSINESS. THE HONBLE APEX COURT HA HELD IN THE CAS E OF BIKANER GYPSUMS LTD.-VS.- CIT (SUPRA) AT PAGE 49 AS UNDER:- WHERE THE ASSESSEE HAS AN EXISTING RIGHT TO CARRY ON A BUSINESS, ANY EXPENDITURE MADE BY IT DURING COURSE OF BUSINES S FOR THE PURPOSE OF REMOVAL OF ANY RESTRICTION OR OBSTRUCTIO N OR DISABILITY WOULD BE ON REVENUE ACCOUNT, PROVIDED THE EXPENDITU RE DOES NOT ACQUIRE ANY CAPITAL ASSET. PAYMENTS MADE FOR REMOVA L OF RESTRICTION, OBSTRUCTION OR DISABILITY MAY RESULT I N ACQUIRING BENEFITS TO THE BUSINESS BUT THAT BY ITSELF WOULD NOT ACQUIR E ANY CAPITAL ASSET. 13. WE OBSERVE THAT BY MAKING THIS PAYMENT OF NPV, NO TANGIBLE ASSET COME INTO EXISTENCE. FURTHER THE SAID PAYMENT IS A PRE-CONDITION TO ENABLE THE ASSESSEE TO CARRY ON ITS MINING ACTIVITI ES AND AS SUCH IT IS NOT A VOLUNTARY ONE THAT PAYMENT WAS MADE ON THE BASIS OF DIRECTION GIVEN BY THE DIVISIONAL FOREST OFFICER WORKING IN THE MIN ISTRY OF ENVIRONMENT AND FORESTS, GOVERNMENT OF INDIA. SINCE THE SAID PA YMENT OF NPV BEING A STATUTORY REQUIREMENT AND HAS TO BE PAID BY THE ASSESSEE TO CONTINUE TO CARRY ON ITS MINING ACTIVITIES, WE ARE OF THE CONSIDERED VIEW THAT THE SAID PAYMENT IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON ITS BUSINESS. HENCE, INCURRING OF SUCH EXPENSES SHOULD BE CONSIDERED AS HAVING DIRECT NEXUS WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. BY MAKING THIS PAYMENT OF NPV, THE ASSESS EE HAS NOT GOT ANY FRESH RIGHT TO MINING, BUT THE SAID PAYMENT HAS BEEN MADE TO OVERCOME ANY RESTRICTION OR OBSTRUCTION OR DISABILI TY THAT HAS ARISEN IN CONTINUING OF MINING BUSINESS. WE ARE OF THE CONSID ERED VIEW THAT SINCE IT IS A ONE-TIME PAYMENT, IT COULD NOT BE CONSIDERE D AS CAPITAL IN NATURE. HONBLE APEX COURT HAS HELD IN EMPIRE JU9TE COMPANY LTD. VS-CIT [ 124 ITR 1 ] THAT THERE MAY BE CASES WHERE EXPENDITURE, EVEN I F INCURRED ITA NO.122 & 1521/KOL/2009 A.YS. 05-06 & 06-07 ACIT CIR-5 KOL V. M/S. GHANASHYAM MISRA & SONS (P) LTD. PA GE 6 FOR OBTAINING AN ADVANTAGE OF ANY ENDURING BENEFIT, MAY, NONETHELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENE FIT MAY BREAK DOWN. HONBLE APEX COURT OBSERVED THAT IF THE ADVAN TAGE CONSISTED OF MERELY IN FACILITATING THE CONCERNED ASSESSEES TRA DING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY W HILE LEAVING THE FIXED CAPITAL UNTOUCHED, EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY BE ENDURED FOR AN INDEFINI TE FUTURE. 14. WE OBSERVE THAT IN THE CASE BEFORE US, ASSESSEE HAS GOT RIGHT TO CARRY ON MINING OPERATIONS IN 1982 AND 1985, I.E. L ONG TIME AGO BEFORE THE ASSESSEE WAS ASKED TO PAY NPV AS PER DIRECTION OF HONBLE HIGH COURT AND CONSEQUENTLY ASSESSEE WAS COMPELLED TO MA KE THE PAYMENT TO FACILITATE TO CONTINUE ITS MINING BUSINESS. THER EFORE, THE ABOVE DECISION OF HONBLE APEX COURT IN THE CASE OF BIKANER GYPSUMS LIMITED (SUPRA) SQUARELY APPLIES TO THE CASE OF ASSESSEE AN D IT COULD NOT BE CAPITAL IN NATURE. 14.1 A SIMILAR ISSUE ALSO CAME BEFORE HONBLE KARNA TAKA BENCH OF ITAT IN THE CASE OF NATIONAL ALUMINIUM CO. LTD.-VS.-DCIT [ 101 TTJ (CTK) 949 ]. IN THE SAID CASE, ASSESSEE-COMPANY DEBITED AN AM OUNT OF RS.6.20 CRORES TOWARDS CONTRIBUTION TO MINERALS EXP LORATION FUND SET UP BY GOVERNMENT OF INDIA. THE SAID PAYMENT WAS REQUIR ED ON THE DIRECTION OF STATE POLLUTION CONTROL BOARD AND MINI STRY OF ENVIRONMENT AND FORESTS AS A CONDITION TO RENEW ASSESSEES CLEA RANCE CERTIFICATE. THE FUND WAS SET UP FOR PERIPHERAL DEVELOPMENT WORK S. IT WAS HELD THAT THE SAID PAYMENT IS NOT A VOLUNTARY ONE AND IT IS A PAYMENT ON THE BASIS OF THE DIRECTION GIVEN BY THE GOVERNMENT OF INDIA, MINISTRY OF MINES, UNDER WHICH THE ASSESSEE-COMPANY COMES. WHEN A PAYM ENT IS MADE AS PER SPECIFIC DIRECTION OF GOVERNMENT OF INDIA, I T CANNOT BUT BE IN THE BUSINESS INTEREST OF THE ASSESSEE-COMPANY TO ABIDE BY SUCH DIRECTIONS OF THE GOVERNMENT OF INDIA. ACCORDINGLY, THIS PAYME NT IS A STATUTORY REQUIREMENT AND THE EXPENDITURE HAS BEEN CONSIDERED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HAS GOT A DIRECT CONNECTION WITH THE BUSINESS ACTIVITY OF THE COMPANY. IT WAS H ELD THAT SINCE THE ASSESSEE-COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE PROVISIONS HAD BEEN MADE ON THE BASIS OF OFFICE ORDER, THE SAME WAS RIGHTLY ACCOUNTED FOR IN THE CONCERNED YEA O AC CRUING OF THE LIABILITY AND IT WAS HELD THAT THE SAME WAS ALLOWABLE AS BUSI NESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. SPECIAL BENCH, ITAT , KOLKATA IN PEERLESS SECURITIES LIMITED VS- JOINT COMMISSIONER OF INCOM E TAX [ 93 TTJ 325 (SB)] HELD THAT IF THE ADVANTAGE CONSISTS OF MERELY IN FACILITATING THE ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAG EMENT AND CONDUCT OF ASSESSEES BUSINESS TO BE CARRIED ON MOR E EFFICIENTLY OR MORE PROFITABILITY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANT AGE MAY ENDURE ITA NO.122 & 1521/KOL/2009 A.YS. 05-06 & 06-07 ACIT CIR-5 KOL V. M/S. GHANASHYAM MISRA & SONS (P) LTD. PA GE 7 FOR AN INDEFINITE FUTURE. AHMEDABAD BENCH, ITAT IN JOINT COMMISSIONER OF INCOME TAX VS.- DEWERSON INDUSTRIES LIMITED [20 05 TIOL 236 (AHD.)] HELD THAT PAYMENTS OF SIMILAR NATURE TO MIN ISTRY OF FOREST AND ENVIRONMENT, GOVERNMENT OF GUJARAT WERE ALLOWABLE A S BUSINESS EXPENDITURE. ITAT, MUMBAI BENCH IN INDUSTRIAL DEVEL OPMENT BANK OF INDIA VS.- DEPUTY COMMISSIONER OF INCOME TAX [ 91 ITD 34 ] HELD THAT EXPENDITURE BY ASSESSEE IN ACCORDANCE WITH STATUTOR Y GUIDELINES IS ALLOWABLE BUSINESS EXPENDITURE. HONBLE CALCUTTA HI GH COURT IN CIT VS.- RUNGTA MINES PVT. LT. [ 205 ITR 335 ] HELD THAT WHERE A TRADER, IN HIS CAPACITY AS A TRADER, BY COMPULSION OF STATUTORY OB LIGATION, HAS TO INCUR AN EXPENDITURE AS A COMPELLING REQUISITE FOR CARRYI NG ON HIS TRADE, THE EXPENDITURE RESULTING IN A CAPITAL ASSET IN THE HAN DS OF A THIRD PARTY, IS TO BE TAKEN AS REVENUE EXPENDITURE BECAUSE NO ASSET AR ISES TO THE TRADER BY REASON OF SUCH EXPENDITURE. IT WAS FURTHER HELD THAT WHERE LAW IMPOSES ON THE ASSESSEE, AN OBLIGATION TO INCUR EXP ENSES FOR BEING PERMITTED TO PURSUE ITS TRADING ACTIVITY, THE EXPEN DITURE WOULD BE AN OUTGOING FROM THE PROFITS OF THE TRADE. 15. IN VIEW OF THE ABOVE DECISION AND THE FACTS OF THE CASE BEFORE US, WE HOLD THAT LD. CIT(APPEALS) HAS RIGHTLY HELD THA T THE ABOVE EXPENDITURE OF RS.3,95,56,500/- PAID BY THE ASSESSE E AS NPV TO ENABLE THE ASSESSEE TO CARRY ON ITS MINING BUSINESS IS REVENUE IN NATURE, WHICH IS ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THEREFORE, WE UPHOLD THE ORDER OF LD. C IT(APPEALS) BY REJECTING GROUND NO.1 OF THE APPEAL TAKEN BY THE DE PARTMENT. HENCE, GROUND NO.1 IS REJECTED. SIMILARLY, THIS ISSUE IS ALSO COVERED BY THE CO-ORD INATE BENCH DECISION IN THE CASE OF ACIT V. FREEGRADE & CO. LTD. IN ITA NO. 934/KOL/2009 DATED 05-08- 2011. 5. ON THE OTHER HAND, LD. SR-DR HAS NOT DENIED THA T THE CO-ORDINATE BENCH DECISION IS NOT APPLICABLE TO THE PRESENT FAC TS OF THE CASE BUT HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF T.N. GODAVARMAN THIRUMULPAD V. UNION OF INDIA AND OTHERS (2006) 1 SCC DATED 26-09- 2005.ACCORDING TO LD. SR-DR THE NPV IS CONSIDERED A S FEE. WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THIS CO-ORDINATE BENCH DECISION OF NPV PAID BY ASSESSEE IS HELD TO BE REVENUE EXPENDITURE, THIS LI ABLE U/S 37(1) OF THE ACT. ONCE, THIS THE POSITION ISSUE IS SQUARELY COVERED I N FAVOUR OF ASSESSEE AND WE ITA NO.122 & 1521/KOL/2009 A.YS. 05-06 & 06-07 ACIT CIR-5 KOL V. M/S. GHANASHYAM MISRA & SONS (P) LTD. PA GE 8 FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A ), HENCE, BOTH THE APPEALS OF REVENUE ARE DISMISSED. 6. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT 27/0 1/2014 SD/- SD/- (ABRAHAM P GORGE) ( MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP #$%- 27 01/2014 + ' ' ' ' ,,- ,,- ,,- ,,- .- .- .- .- / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. $1$,2 3 / CONCERNED CIT 4. 3- / CIT (A) 5. - 56 ,,,2, ,2!, / DR, ITAT, KOLKATA 6. 69: ;< / GUARD FILE. BY ORDER/ ' , =/> $ ,2!, +