DCIT., Circle-16(1), Hyderabad, Hyderabad V. M/s National Mineral Development Corporation Limited, Hyderabad

ITA 1593/HYD/2014

• Counselvise Citation: 159322514 RSA 2014
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-02-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 16-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: LAKSHMI NIVAS SHARMA
• Keywords: Depreciation; Additional depreciation; Revenue expenditure
• Section: 143(3); 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1593/HYD/2014 ASSESSMENT YEAR: 2011-12 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(1), HYDERABAD NATIONAL MINERAL DEVELOPMENT CORPORATION LTD., HYDERABAD PAN AAACN 7325A (APPELLANT) (RESPONDENT) REVENUE BY SHRI D. SUDHAKAR RAO ASSESSEE BY SHRI LAKSHMINIVAS SHARMA DATE OF HEARING 25-02-2015 DATE OF PRONOUNCEMENT 20-03-2015 O R D E R PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-V, HYDERABAD DATED 01/08/2014 FOR AY 2011-12 . 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE IS A PUBLIC SECTOR UNDERTAKING ENGAGED IN MINERAL EXPLORATION. FOR THE AY UNDER CONSIDERATION, ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 27/09/2011 ADMITTING TOTAL INCOME OF RS. 9710,93,49 ,602. ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED DETERMINING THE TOTAL INCOME OF ASSESSEE AT RS. 9855,25,99,590 BY MAKING THE FOLLOW ING ADDITIONS: I) MINE CLOSURE OBLIGATION RS. 10,55,00,000 II) DEPRECIATION ON INTANGIBLE ASSETS RS. 18,00,47 ,281 III) DEMURRAGES ON SHIPMENT CHARGES RS. 5,54,00, 000 2 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. IV) EXPENSES ON ACCOUNT OF CORPORATE SOCIAL RESPONSIBILITY RS. 37,33,00,000 V) ADDITIONAL DEPRECIATION RS. 25,80,00,000 VI) 40(A)(IA) FOR NON DEDUCTION OF TAX RS. 42,88,1 5,332 VII) EXPENDITURE RELATING TO EARLIER YEARS RS. 4 ,21,87,375 VIII) DISALLOWANCE OF INTEREST U/S 115P RS. 7,62 ,78,605 3. ON APPEAL BY THE ASSESSEE BEFORE THE CIT(A), THE CIT(A) ALLOWED THE GROUNDS RAISED BY THE ASSESSEE IN RESPE CT OF THE AFORESAID ISSUES. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. GROUND NOS. 1 & 6 ARE GENERAL IN NATURE. GROUND NO.2 IS AS FOLLOWS: THE CIT(A) ERRED IN GRANTING RELIEF TO THE ASSESSEE IN RESPECT OF MINE CLOSURE OBLIGATION IN VIEW OF THE FACT THAT IT IS NOT AN ASCERTAINED LIABILITY AND IF AT ALL ANY EXPENDITURE IS TO BE ALLOWED, IT SHOULD BE SPREAD OVER EVENLY FOR ALL TH E YEARS SINCE THE DATE OF COMMENCEMENT OF MINING OPERATIONS TILL THE DATE OF CLOSURE OF MINING ACTIVITIES. 5. IN THE PROFIT & LOSS ACCOUNT, ASSESSEE DEBITED R S. 10.55 CRORES TOWARDS MINE CLOSURE OBLIGATION. THIS WAS A PROVISI ON MADE TOWARDS EXPECTED FUTURE LIABILITY TO CLOSURE OF MINES WHICH ARE EXPLOITED BY THE COMPANY. ASSESSEE EXPLAINED THAT THIS IS A STATUTOR Y LIABILITY FOR WHICH A SEPARATE FUND HAD BEEN CREATED BY THE COMPANY WIT H LIC. AO DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND DISALLOWED THE MINE CLOSURE OBLIGATION ON THE GROUND THAT THE FUND CREATED IS FOR MEETING A LIABILITY WHICH IS CONTINGENT UPON CERTAI N FUTURE EVENTS LIKE DISASTERS AND FLOODS AND IS THEREFORE NOT AN ALLOWA BLE REVENUE EXPENSE. 6. ON APPEAL BY ASSESSEE BEFORE THE CIT(A), CIT(A) ALLOWED THE GROUND OF ASSESSEE FOLLOWING THE DECISION OF HIS PR EDECESSOR FOR AY 3 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. 2008-09 AND DECISIONS OF ITAT IN ASSESSEES OWN CAS E FOR AY 2006- 07, 2008-09 AND 2010-11. AGGRIEVED, REVENUE IS IN A PPEAL BEFORE US. 7. THE LD. DR HAS RELIED UPON THE ORDER OF AO. THE LD. AR OF ASSESSEE CONTENDED THAT THIS LIABILITY IS FOR MEETI NG THE OBLIGATION OF MINE CLOSURE AND RESTORATION OF ENVIRONMENT AS PER MINES & MINERALS DEVELOPMENT AND REGULATION AC 1957 (MMDR 1957) AT T HE TIME OF CLOSURE OF THE MINES. HE SUBMITTED THAT THE PROVISI ON HAS BEEN ESTIMATED ON THE BASIS OF TECHNICAL ASSESSMENT AND CHARGED TO P&L ACCOUNT AS AND WHEN THE MINING TAKES PLACE. HE SUB MITTED THAT THE ISSUE IS DECIDED IN FAVOUR OF ASSESSEE BY THE COORD INATE BENCHES OF ITAT, HYDERABAD IN ASSESSEES OWN CASES FOR AYS 200 6-07, 2008-09, 2009-10 AND 2010-11. HE POINTED OUT THAT THE AO HAS ALLOWED MINE CLOSURE OBLIGATION FOR AYS. 2005-06 AND 2007-08. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS MA TERIAL ON RECORD. THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2010-11 (APPEAL FILED BY REVENUE) IN ITA NO. 1793/HYD/2013 VIDE ORD ER DATED 9 TH MAY, 2014 WHILE DEALING WITH THE SIMILAR ISSUE, HELD AS FOLLOWS: 46. GROUND NO.2 PERTAINS TO THE ISSUE OF MINE CLOS URE OBLIGATION OF RS.12.13 CRORES. THE FACTS ARE THAT A SSESSEE IS A PUBLIC SECTOR UNDERTAKING AND DEBITED THE ABOVE AMO UNT TOWARDS MINE CLOSURE OBLIGATION. THIS WAS A PROVISI ON MADE TOWARDS EXPECTED FUTURE LIABILITY TO CLOSE MINES WH ICH ARE EXPLOITED BY THE ORGANIZATION. ASSESSEE EXPLAINED T HAT THAT THIS IS A STATUTORY LIABILITY FOR WHICH A SEPARATE FUND HAS BEEN CREATED WITH LIC. THE A.O. DID NOT AGREE AND DISALL OWED THE OBLIGATION ON THE REASON THAT IT IS A CONTINGENT UP ON CERTAIN FUTURE EVENTS. THEREFORE, IT WAS NOT ALLOWABLE AS R EVENUE EXPENDITURE. CONSIDERING THE DETAILED SUBMISSIONS A ND ALSO THE ORDERS OF HIS PREDECESSOR IN THE EARLIER YEAR I.E., A.Y. 2008- 09, THE LD. CIT(A) ALLOWED THE EXPENDITURE. 47. AT THE OUTSET, IT WAS SUBMITTED THAT THIS ISSUE WAS CRYSTALISED IN FAVOUR OF THE ASSESSEE AGAINST THE R EVENUE BY ITAT IN EARLIER YEARS AND IN THE LATER YEAR IN A.Y. 2008-09 IN 4 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. ITA.NO.714 & 885/HYD/2012 DATED 28.02.2014 DECISION IS AS UNDER : 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS CITE D. IN AY 2006-07, THE COORDINATE BENCH IN ASSESSEES OWN CAS E (SUPRA), HELD AS FOLLOWS: 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RE CORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. IT IS OBSERVED THAT THE BASIS OF CALCULATION FOR THE RELE VANT AY 2006-07 FOR RS. 71.18 CRORES WAS SUBMITTED DURING T HE ORIGINAL ASSESSMENT AND ACCEPTED BY THE AO. THE DETAILED CALCULATION OF RS. 21.31 CRORES CHARGED TO P&L A/C (ON THE BASIS OF RS. 71.18 CRORES) WAS ALSO ENC LOSED AND PRODUCED BEFORE THE CIT. HENCE, THE CIT IS WRON G IN HIS OBSERVATION THAT THE ESTIMATE OF RS. 21.31 CROR E IS EXCESSIVELY ON A HIGHER SIDE AND ABSOLUTELY NO REAL ISTIC OR RATIONAL BASIS FOR SUCH CALCULATION. 12. THE CIT IS NOT CORRECT IN INVOKING THE PROVISIONS OF SECTION 263 A S WE FIND THAT THE ISSUE IS DEBATABLE AND WHEN TWO VIEWS ARE POSSIBLE THE AO HAS TAKEN ONE VIEW. THE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT REP ORTED IN 243 ITR 83 AS WELL AS CIT VS. MAX INDIA LTD. REPORT ED IN 295 ITR 282 HAS HELD THAT WHEN THERE ARE TWO VIEWS POSSIBLE AND THE AO HAS TAKEN ONE VIEW, THE ORDER O F THE AO CANNOT BE CONSIDERED AS ERRONEOUS AND HENCE THE CIT CANNOT EXERCISE REVISIONAL POWER U/S 263. AS POINTE D OUT ABOVE, THE PROVISIONS FOR AN ACCRUED EXISTING LIABI LITY, EVEN THOUGH, THE ACTUAL EXPENDITURE MAY TAKE PLACE AT A LATER DATE, IS AN ALLOWABLE DEDUCTION AND THE CIT E RRED IN TREATING IT AS AN UNASCERTAINED LIABILITY. THEREFOR E, WE SET ASIDE THE ORDER OF THE CIT PASSED U/S 263 AND THE O RDER OF THE AO IS RESTORED. 9.1 THE ABOVE DECISION RELIED UPON BY THE AR OF THE ASSESSEE, THOUGH, IT WAS DELIVERED IN ASSESSEES OW N CASE FOR AY 2006-07 CANNOT BE APPLIED TO THE FACTS OF THE CASE AS THAT ORDER WAS DELIVERED BY THE TRIBUNAL IN CONNECTION WITH THE ORDER PASSED U/S 263. THE ORDER PASSED U/S 263 READ WITH SECTION 143(3) AND THE ORD ER PASSED U/S 143(3) READ WITH SECTION 251 ARE STANDIN G ON DIFFERENT FOOTING. THE SCOPE OF SECTION 263 IS NOT PAR WITH THE PROVISIONS OF SECTION 251 OF THE ACT. BEING SO, WE CANNOT BORROW SUPPORT FROM THE ORDER OF THE TRIBUNA L PASSED IN ITA NO. 991/HYD/2011 FOR AY 2006-07, ON WHICH RELIANCE PLACED BY THE ASSESSEES COUNSEL. IN THE PRESENT CASE, THERE IS A CATEGORICAL FINDING GIVEN BY THE 5 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. CIT(A) THAT THERE ARE CERTAIN MINES NOT YET COMMENC ED. ON THAT MINE CLOSURE OBLIGATION WORKS OUT TO RS. 4,98,058/- CANNOT BE ALLOWED. FURTHER, MINES AT KUMARASWAMY AND LALPUR WHERE THERE IS NO PRODUCTION , BEING SO, NO OBLIGATION IS ALLOWABLE. FURTHER, ASSE SSEE HAS NOT GIVEN YEAR-WISE BREAKUP. BEING SO, THE CIT( A) DIRECTED THE AO TO ASCERTAIN THE ACCOUNT OF YEAR-WI SE MINING, WHICH HAS BEEN DONE FROM THE REMAINING MINE S AND ALLOW MINE CLOSURE OBLIGATION TO THE EXTENT MIN ING DONE CORRESPONDING TO THE CURRENT YEAR. HE FURTHER GAVE A DIRECTION TO THE AO IF THE ASSESSEE FAILS TO PROVID E SUCH DATA, THEN, PRORATA HAS TO BE APPLIED. THUS, THE CI T(A) HAS GIVEN A CATEGORICAL FINDING IN PARAS 4.3 & 4.4 OF HIS ORDER. THEREFORE, WE DO NOT FIND ANY INFIRMITY ON T HAT PART OF THE ORDER AND ACCORDINGLY, WE CONFIRM THE SAME. THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 48. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE H OLD THAT MINE CLOSURE OBLIGATION IS NOT A CONTINGENT LIABILITY BU T ASCERTAIN LIABILITY. HOWEVER, IT HAS TO BE VERIFIED THAT WHET HER ASSESSEE HAS MADE THE CLAIM ON THE MINES WHICH ARE IN WORKIN G CONDITION WHICH ARE BEING OPERATED OR NOT. IF THE ASSESSEE HA S MADE THE CLAIM ON MINES WHICH HAVE NOT STARTED OPERATIONS, T HE SAME CANNOT BE ALLOWED. AS RIGHTLY HELD BY THE CIT(A) IN A.Y. 2008- 09, ASCERTAINABILITY OF LIABILITY IS TO BE ASCERTAI NED YEAR-WISE. THEREFORE, TO THAT EXTENT, FOLLOWING THE COORDINATE BENCH DECISION, WE DIRECT THE ASSESSEE TO FURNISH THE REL EVANT DATA TO THE A.O. TOWARDS THE MINES CLOSURE OBLIGATION AND A .O. IS DIRECTED TO VERIFY AND ALLOW THE AMOUNT ACCORDINGLY . SUBJECT TO THE ABOVE OBSERVATIONS, THE GROUND NO.2 IS CONSIDER ED AS ALLOWED FOR STATISTICAL PURPOSES. 9. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY I DENTICAL TO THAT OF AY 2010-11, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THAT YEAR, WE REMIT THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY AND ALLOW THE ASSESSEES CLAIM FOLLOWING THE DECISION OF COORDINATE BENCH IN AY 2010-11. THIS GR OUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NOS. 3 & 4 ARE AS FOLLOWS: 3. THE CIT(A) ERRED IN LAW AND IN FACTS IN HOLDING THA T THE LEASEHOLD LAND IS AN INTANGIBLE ASSET AND DEPRECIAT ION ON SUCH ASSET IS ALLOWABLE WHEN INTANGIBLE ASSETS ARE SUCH ASSETS WHICH CANNOT BE TOUCHED OR CAN BE SEEN. 6 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. 4. THE CIT(A) ERRED IN HOLDING THAT THE LEASEHOLD R IGHTS ON LAND IS AN INTANGIBLE ASSET AND DEPRECIATION ON SUC H AN ASSET IS ALLOWABLE IN ACCORDANCE WITH THE BUSINESS EXIGENCIE S OF THE ASSESSEE, WITHOUT APPRECIATING THAT LEASEHOLD RIGHT S ON LANDS ARE NOT SPECIFIED IN ANY BLOCK OF ASSETS TO BE ELIG IBLE FOR DEPRECIATION. 11. ASSESSEE HAS CLAIMED A SUM OF RS. 18,00,47,281 DURING THE YEAR TOWARDS DEPRECIATION OF INTANGIBLE ASSETS. WHE N AO ASKED ASSESSEE TO EXPLAIN THE NATURE OF THE ASSETS ACQUIR ED AND THE ALLOWABILITY OF SUCH DEPRECIATION, IT WAS REPLIED I N THE LETTER DATED 17/01/04 THAT THE INTANGIBLE ASSETS ARE MAINLY LEAS E HOLD LAND ACQUIRED FROM VARIOUS STATE GOVERNMENTS WHICH CAN B E USED OVER A CERTAIN PERIOD. THE AO OBSERVED THAT THE LANDS ARE NOT OWNED BY ASSESSEE COMPANY BUT ARE OBTAINED ON LEASE FROM STA TEMENT GOVT. FOR CERTAIN PERIOD AND THE PERIOD FOR WHICH THE LAND IS TO BE HELD HAS NOT BEEN EXPLAINED AND THE PURPOSE FOR WHICH THE LAND A CQUIRED IS ALSO NOT EXPLAINED. HE OBSERVED THAT EVEN IF IT IS CONSI DERED THAT THE LAND IS TAKEN ON LEASE FOR THE PURPOSES OF EXPLOITATION OF MINING, IT CANNOT BE TREATED AS PLANT & MACHINERY, FOR WHICH DEPRECIA TION IS AVAILABLE UNDER THE IT PROVISIONS. HE FURTHER OBSERVED THAT T HE PROVISIONS OF SECTION 32(1) ARE NOT APPLICABLE TO ASSETS WHICH AR E IN THE FORM OF LAND SINCE THE ASSETS FOR WHICH DEPRECIATION IS ADM ISSIBLE UNDER THE IT ACT IS SPECIFIED UNDER RULE 5 OF IT RULES. FURTH ER, IT WAS OBSERVED THAT THE INTANGIBLE ASSETS ARE DEFINED AS KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. IN VIEW OF THE ABOVE OBSERVATIONS, AO HELD THAT SINCE LAND DOES NOT FORM AN INTANGIBLE ASSET, THE DEPRECIATION CLAIMED BY ASSESSEE FOR SUC H ASSET IS NOT ADMISSIBLE. ACCORDINGLY HE DISALLOWED THE DEPRECIAT ION CLAIM OF ASSESSEE. 12. ON APPEAL, THE CIT(A) FOLLOWING THE DECISION OF THE COORDINATE BENCHES OF HYDERABAD IN ASSESSEES OWN CASE FOR AYS 2008-09 AND 7 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. 201011, ALLOWED THE ASSESSEES CLAIM OF DEPRECIATIO N. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS IN APPEAL BEFORE US . 13. THE LD. DR RELIED ON THE ORDER OF THE AO. LD. A R OF ASSESSEE CONTENDED THAT LEASEHOLD RIGHTS FALL UNDER PART B O F DEPRECIATION SCHEDULE IN INTANGIBLE ASSETS OF RULE 5 OF THE IT RULES AS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. TH E ACCOUNTING POLICY/METHOD IS CONSISTENTLY FOLLOWED BY NUMBER OF YEARS AND WAS ALLOWED AS DEDUCTION. HE SUBMITTED THAT THE ISSUE I S COVERED BY THE DECISIONS OF COORDINATE BENCHES OF ITAT, HYDERABAD FOR AY 2008-09, 2009-10 AND 2010-11 IN ASSESSEES OWN CASE. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIAL ON RECORD. ON PERUSAL OF RECORD, WE FI ND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISIONS OF THE COORDINATE BENCHES OF ITAT, HYDERABAD IN ASSESSEES OWN CASE. IN AY 2010-11 IN ITA NO. 1795/HYD/2012, THE COORDINATE BENCH WHILE DEALING S IMILAR ISSUE, HELD AS FOLLOWS: 36. GROUND NO.3 PERTAINS TO DEPRECIATION ON INTANG IBLE ASSETS. ASSESSEE CLAIMED AN AMOUNT OF RS.16,77,48,219/- TOW ARDS DEPRECIATION ON INTANGIBLE ASSETS. IN THE COURSE OF SCRUTINY PROCEEDINGS, ASSESSEE WAS ASKED TO EXPLAIN THE NATU RE OF THE ASSETS ACQUIRED AND THE LIABILITY OF SUCH DEPRECIAT ION. IT WAS EXPLAINED THAT INTANGIBLE ASSETS ARE MAINLY LEASE H OLD LANDS ACQUIRED FROM VARIOUS STATE GOVERNMENTS WHICH CAN B E USED FOR CERTAIN PERIOD. A.O. NOTED THAT FROM THE ABOVE EXPL ANATION THAT THE LANDS ARE NOT OWNED BY THE ASSESSEE COMPANY BUT ARE OBTAINED ON LEASE FROM STATE GOVERNMENT AND THE PER IOD OF LEASE ALSO WAS NOT EXPLAINED. A.O. WAS OF THE OPINI ON THAT LAND WAS TAKEN ON LEASE FOR THE PURPOSE OF EXPLOITATION OF MINING AND IT CANNOT BE TREATED AS PLANT AND MACHINERY FOR WHI CH DEPRECIATION WAS ALLOWABLE UNDER THE INCOME TAX PRO VISIONS. HE WAS OF THE OPINION THAT THE LEASE HOLD RIGHTS DO ES NOT COME WITHIN THE PURVIEW OF INTANGIBLE ASSETS SO AS TO AL LOW DEPRECIATION. THEREFORE, THE CLAIM OF ASSESSEE WAS DISALLOWED AND AMOUNT WAS ADDED BACK. 36.1. ON APPEAL, LD. CIT(A) FOLLOWING HIS PREDECESS OR ORDER FOR A.Y. 2008-09 CONFIRMED THE DISALLOWANCE. AT THE OUT SET IT WAS SUBMITTED THAT THE ISSUE IN A.Y. 2008-09 WAS DECIDE D IN FAVOUR 8 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. OF THE ASSESSEE IN ASSESSEES OWN CASE BY ORDER OF THE ITAT B BENCH IN ITA.NO.714 & 885/HYD/2012 DATED 28.02.2014 WHEREIN THE CLAIM WAS ALLOWED BY HOLDING AS UNDER : 22. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIE S AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. SIMILAR CAME UP FO R CONSIDERATION BEFORE THE COORDINATE BENCH OF ITAT, CUTTACK IN CASE EAST INDIA MINERALS LTD. VS. JCIT I N ITA NO. 224/CTK/2012, VIDE ITS ORDER DATED 25/06/2012, ON WHICH RELIANCE PLACED BY THE ASSESSEE, WHEREIN IT H AS BEEN HELD AS FOLLOWS: 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE SIMPLE REASON THAT THE DENIAL OF CLAIM OF DEPRECIATION 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 AC TION OF PUT TO USE WHICH ENTITLES THE ASSESSEE TO CLAIM DEPRECIATION. A STRAIGHT LINE METHOD OF CLAIMING TH E WRITING OFF OF LEASE HOLD RIGHTS FOR THE PERIOD OF LEASE CA NNOT BE DENIED TO THE ASSESSEE FOR THE SIMPLE REASON IT BEI NG INTANGIBLE ASSET HAS BEEN WRITTEN OFF WHICH PERTAIN S TO LAND BEING A INTANGIBLE ASSET. IT IS NOBODYS CASE THAT THE LAND EITHER BELONGED TO THE LESSEE OR TO THE GOVERN MENT. THIS SIMPLY INDICATES THAT A DEPLETION OF THE LAND AGAINST THE PAYMENT OF PREMIUM IT WAS LEASED HAS TO BE CLAI MED AFTER CAPITALIZATION THEREOF BY THE ASSESSEE WHICH IS FOR THE PURPOSE OF ITS MAIN BUSINESS. ALL EXPENSES ARE INCURRED FOR THE PURPOSE OF BUSINESS AND ARE INCIDE NTAL TO THE HOLDING OF RIGHTS WERE CLAIMED U/S.32(1)(II) BE ING THE LICENSE TO CARRY OUT THE MINING THEREFORE COULD NOT BE DENIED INSOFAR AS THE GOVERNMENT AND THE LESSEE ARE IN CONTROL OF THE ASSET. THE DEFINITION OF DEPRECIATIO N 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 FURTHER AMENDED W.E.F. ASSESSMENT YEAR 200 3- 04. IN THIS VIEW OF THE MATER, WE ARE INCLINED TO H OLD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION AS CHARGED TO THE P & L ACCOUNT IN ACCORDANCE WITH ITS BUSINESS EXIGE NCIES. WE DIRECT ACCORDINGLY. ON THE CLAIM OF DEDUCTION/S. 80G, THE A.O., IS DIRECTED TO VERIFY THE RECEIPTS AND AL LOW THE DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF INCO ME-TAX ACT,1961. 9 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. 22.1 SINCE THE ISSUE UNDER CONSIDERATION IS MATERIA LLY IDENTICAL TO THAT OF THE CASE DECIDE BY THE TRIBUNA L IN THE CASE OF EAST INDIA MINERALS LTD., RESPECTFULLY FOLL OWING THE SAME, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRE CT THE AO TO DELETE THE ADDITION MADE IN THIS REGARD. 37. RESPECTFULLY FOLLOWING, WE ALLOW THE ASSESSEES CLAIM. GROUND NO.3 OF THE ASSESSEE IS ALLOWED. 15. AS THE ISSUE UNDER CONSIDERATION IS IDENTICAL T O THAT OF AY 2010- 11 IN ASSESSEES OWN CASE(SUPRA), FOLLOWING THE DEC ISION OF COORDINATE BENCH IN THAT YEAR, WE UPHOLD THE ORDER OF CIT(A) IN ALLOWING THE DEPRECIATION CLAIM OF ASSESSEE. THIS G ROUND OF REVENUE IS DISMISSED. 16. GROUND NO. 5 READS AS FOLLOWS: THE CIT(A) ERRED IN ALLOWING THE CLAIM OF EXPENSES INCURRED TOWARDS CORPORATE SOCIAL RESPONSIBILITY, WITHOUT AP PRECIATING THAT SUB-SECTION (1) OF SECTION 37 HAS BEEN AMENDED BY THE FINANCE ACT, 2014 BY WAY OF INSERTION OF EXPLANATIO N (2) AS PER WHICH THE EXPENDITURE INCURRED BY THE ASSESSEE ON T HE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRE D TO IN SECTION 135 OF THE COMPANIES ACT, 2013 SHALL NOT BE DEEMED TO BE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF BUSINESS OR PROFESSION, AND THAT THE AMENDMENT BY W AY OF THE EXPLANATION IS CLARIFICATORY IN NATURE AND AS SUCH WOULD APPLY RETROSPECTIVELY. 17. ASSESSEE INCURRED AN AMOUNT OF RS. 37,33,00,000 TOWARDS FLOOD RELIEF, PAYMENTS MADE TO VARIOUS COLLECTORATES ETC. AND CLAIMED THAT THESE PAYMENTS WERE IN THE NATURE OF BUSINESS EXPEN DITURE AND HENCE ALLOWABLE AS DEDUCTION. AO ASKED THE ASSESSEE AS TO WHY THE EXPENDITURE INCURRED TOWARDS CORPORATE SOCIAL RESPO NSIBILITY SHOULD NOT BE DISALLOWED SINCE SUCH EXPENDITURE IS NOT REL ATED TO THE BUSINESS OF THE ASSESSEE. ASSESSEE REPLIED VIDE LET TER DATED 17/01/2014. AFTER CONSIDERING THE CONTENTS IN THAT LETTER, THE AO HELD THAT THE EXPENDITURE INCURRED BY ASSESSEE ARE NOT R ELATED TO THE BUSINESS OF ASSESSEE AS THEY ARE IN THE NATURE OF D ONATIONS WHICH IS NOT ALLOWABLE EXPENDITURE UNDER THE PROVISIONS OF T HE IT ACT. HE, 10 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. THEREFORE, DISALLOWED THE SAME. THE CIT(A) AFTER CO NSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE DECIS IONS OF ITAT IN ASSESSEES OWN CASE FOR AY 2010-11 AND 2008-09 DIRE CTED THE AO TO ALLOW THE SAID EXPENDITURE SUBJECT TO THE OBSERVATI ONS OF THE ITAT IN THE SAID YEARS. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 18. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIAL ON RECORD. WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH IN ASSESS EES OWN CASE FOR AYS. 2005-06 TO 2010-11. IN AY 2010-11 IN ITA NO. 1 795/HYD/2013 VIDE ORDER DATED 09 TH MAY, 2014, THE COORDINATE BENCH HELD AS FOLLOWS: 40. GROUND NO.5 PERTAIN TO CLAIM OF RS.71,20,08,35 4/- ON CORPORATE SOCIAL RESPONSIBILITY STATED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ASSESSEE HAS INCURRED THE ABOVE AMOUNT ONLY TO OPERATE MINES IN REMOTE PLACES. IT WAS SUBMITTED THAT THE EXPENDITURE WAS N ECESSARY FOR THE SMOOTH CONDUCT OF THE BUSINESS SUCH AS INSTALLI NG TRAFFIC SIGNALS AT CIRCLE NEAR THE VICINITY OF THE OFFICE, FLOOD RELIEF ETC., AND FOLLOWING THE UNION GOVERNMENTS CSR POLICY, NM DC HAS TO CREATE BUDGET MANDATORILY AT RS.104 CRORES (2% O F PBT) WHEREAS, COMPANY HAS SPENT ONLY RS.71.20 CRORES. TH E A.O. HOWEVER, HELD THAT THE AMOUNT IS NOT RELATED TO THE BUSINESS OF THE ASSESSEE AND THEY ARE IN THE NATURE OF DONATION S WHICH CANNOT BE ALLOWED UNDER SECTION 37(1). LD. CIT(A) C ONFIRMED THE SAME. 41. AT THE OUTSET, IT WAS SUBMITTED THAT SIMILAR IS SUE WAS ALLOWED BY THE ITAT IN EARLIER YEARS AND THE LATEST BEING ITA.NO.714 & 885/HYD/2012 DATED 28.02.2014 WHEREIN THIS ISSUE WAS EXAMINED AND ALLOWED VIDE PARA 35 AS UNDE R : 35. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE RECORD. WE FIND THAT THE ISSUE IN DISPUTE IS SQ UARELY COVERED BY THE DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2005-06 IN ITA NO. 1791/HYD/2008 DATED 30/09/2009 WHEREIN IT HAS BEEN HELD AS FOLLOWS: 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON REC ORD. NO DOUBT THE ASSESSEE INCURRED AN EXPENDITURE OF RS . 11 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. 5,00,00,000/- AS CONTRIBUTION FOR ESTABLISHING A ME DICAL COLLEGE. THE FACT THAT THE ASSESSEE IS HAVING A MIN ING UNIT AND A STEEL PLANT IN CHATTISGAARH IS NOT DISPUTE. T HE OBJECTION OF THE DEPARTMENT APPEARS TO BE THAT THE MEDICAL COLLEGE WAS LOCATED AT A DISTANCE OF 16 KMS . AND THE ASSESSEE, INSTEAD OF PROVIDING RELIEF TO THE AF FECTED PEOPLE, DIRECTLY INCURRED THE EXPENDITURE FOR ESTAB LISHING THE MEDICAL COLLEGE. THE FACT REMAINS THAT ONE OF T HE CONDITIONS FOR CONTRIBUTING THE MONEY WAS TO GIVE F REE MEDICAL TREATMENT TO THE ADIVASIS WHO WERE AFFECTED BY THE ASSESSEES PROJECT IN THE LOCALITY. MOREOVER, T HE EMPLOYEES OF THE ASSESSEE AND THEIR DEPENDENTS WERE TO BE TREATED FREE OF COST. FIVE SEAS WERE RESERVED IN THE MEDICAL COLLEGE FOR THE CHILDREN OF THE EMPLOYEES O F THE ASSESSEE. IN FACT ADMISSION WAS ALSO GIVEN TO THE C HILDREN OF THE EMPLOYEES OF THE ASSESSEE AS PER THE CONDITI ON STIPULATED WHILE CONTRIBUTING THE MONEY. THE ASSESS EE ALSO HAD A REPRESENTATION IN THE BOARD. IN VIEW OF THE ABOVE, IN OUR OPINION, THE CONTRIBUTION OF RS. 5 CR ORES IS ONLY A WELFARE MEASURE FOR THE UPLIFTMENT OF THE AD IVASIS IN THE LOCALITY WHERE THE MINING UNIT WAS SITUATED AND ALSO FOR THE WELFARE OF THE EMPLOYEES OF THE ASSESSEE. T HIS CONTRIBUTION WOULD DEFINITELY GO A LONG WAY IN COND UCTING THE ASSESSEES MINING BUSINESS IN A PROFITABLE MANN ER. WHEN THE ASSESSEE IS HAVING A MINING UNIT IN A REMO TE CORNER OF THE COUNTRY, THE COOPERATION OF THE VILLA GERS IS VERY MUCH REQUIRED FOR CONDUCTING THE BUSINESS. MOR E PARTICULARLY, THE COOPERATION OF THE PEOPLE WHO ARE AFFECTED BY THE MINING OPERATION OF THE ASSESSEE IS REQUIRED. MERELY BECAUSE THE HOSPITAL AND MEDICAL COLLEGE ARE SITUATED 16 KMS AWAY FROM THE UNIT, THA T WILL NOT DETER THE MEDICAL INSTITUTION IN GIVING TREATME NT TO THE AFFECTED PEOPLE. MOREOVER, ADMISSION WAS GIVEN TO T HE CHILDREN OF THE ASSESSEES EMPLOYEES IN THE MEDICAL COLLEGE. THEREFORE, INDIRECTLY THE CONTRIBUTION MAD E BY THE ASSESSEE TAKES CARE OF THE EDUCATION OF THE EMPLOYE ES CHILDREN. THIS WOULD CERTAINLY BE A WELFARE MEASURE ON THE PART OF THE ASSESSEE FOR CARRYING OUT THE BUSIN ESS IN AN EFFECTIVE AND EFFICIENT MANNER. THEREFORE, IN OU R OPINION, THE CONTRIBUTION OF RS. 5,00,00,000 HAS TO BE TREATED AS REVENUE EXPENDITURE FOR THE PURPOSE OF T HE BUSINESS. THEREFORE, WE DO NOT FIND ANY JUSTIFICATI ON IN DISALLOWING THE SUM. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ENTIRE ADDI TION. 36. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTI CAL TO THAT OF AY 2005-06, WE DELETE THE ADDITIONS MADE UN DER THE HEADS FROM (I) TO VII). 12 ITA NO. 1593/HYD/2014 NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. 36.1 HOWEVER, WE MAKE IT CLEAR THAT THE EXPENDITURE INCURRED AT RS. 3,48,04,548/- SHOWN AS MISCELLANEOU S EXPENSES CANNOT BE ALLOWED AS THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF EXPENDITURE, THEREFORE, IN THE ABSENCE OF REQUISITE INFORMATION THE SAID EXPENDITU RE CANNOT BE ALLOWED. ACCORDINGLY, THIS GROUND IS PART LY ALLOWED. 42. AO IS DIRECTED TO EXAMINE THE EXPENDITURE IN TH IS YEAR ALSO AND ALLOW ACCORDINGLY. GROUND NO.5 IS CONSIDERED AL LOWED. 19. AS THE ISSUE IS SIMILAR TO AY 2010-11, FOLLOWIN G THE DECISION OF THE COORDINATE BENCH IN THAT YEAR, WE UPHOLD THE O RDER OF CIT(A) IN ALLOWING THE CLAIM OF ASSESSEE. THIS GROUND OF REVE NUE IS DISMISSED. 20. IN THE RESULT, APPEAL OF REVENUE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2015 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 20 TH MARCH, 2015 KV COPY TO:- . 1. DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), ROOM NO. 612, 6 TH FLOOR, AAYAKAR BHAVAN, L.B. STADIUM ROAD, BASHEERBAGH, HYDERABAD 500 004. 2. M/S NATIONAL MINERAL DEVELOPMENT CORPORATION LTD ., KHAIJ BHAVAN, 10-3-311/A, CASTLE HILLS, MASAB TANK, HYDERABAD. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD 5. THE DR, ITAT, HYDERABAD