DCIT, Jaipur V. M/S RAJASTHAN STATE MINES & MINERALS LTD., Jaipur

ITA 547/JPR/2011

• Counselvise Citation: 54723114 RSA 2011
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Assessee Lawyers: VARUN BANSAL
• Keywords: Capital asset; Depreciation; Business expenditure; Maximum Marginal Rate; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 547/ JP/2011 ASSESSMENT YEAR 2005-06 PAN: AAACR 7857 H D.C.I.T. CIRCLE-6, JAIPUR V M/S RAJASTHAN STATE MINES & MINERALS LTD., C-89-90 LAL KOTHI SCHEME, JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI SUBHASH CHANDRA ASSESSEE BY: SHRI VARUN BANSAL DATE OF HEARING: 17-10-2011 DATE OF PRONOUNCEMENT: 21 -10-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)- II, JAIPUR DATED 21.3.2011. 2. THE FIRST GRIEVANCE OF THE REVENUE IS THAT THE L D. CIT(A) HAS ERRED IN HOLDING THAT THE EXPENSES CLAIMED AS COMPENSATION F OR ROCK PHOSPHATE OF RS. 11,50,27,957/- ARE ALLOWABLE AS REVENUE EXPENDITURE . 3. BEFORE US, THE LD. AR HAS SUBMITTED THAT THE ISS UE RAISED BY THE REVENUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE B Y THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 IN I.T. A NO. 740 AND 783/- 2 JP/20/2009. IT WILL BE USEFUL TO REPRODUCE PARA NO . 12 OF THE ORDER DATED 31.3.2010:- 12- WE FIND THAT ISSUE RAISED BY THE DEPARTMENT IN THIS GROUND HAS BEEN DECIDED BY THIS BENCH OF ITAT IN ASSESSEES OWN CAS E FOR ASSESSMENT YEAR 2002-03 IN ITA NO. 466/JP/2006 DATED 26.06.2009, WH EREIN COMPENSATION PAID FOR ROCK PHOSPHATE WERE ALLOWED. THE FINDING O F THE BENCH AS CONTAINED IN PARA 8 OF ITS ORDER IS REPRODUCED BELOW:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE WAS DEALT IN DETAIL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 1990-91 AND 1997-98. THE DIFFERENCE BETWEEN THIS YEAR AND THOSE ASSESSMENT YEARS UPTO A.Y. 2001-02 I S THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE COMPANY HAS ENTER ED INTO A FORMAL AGREEMENT WITH THE STATE GOVERNMENT FOR MINING LEAS E. THIS LEASE IS FOR THIRTY YEARS (PB 280-299) FROM 25.6.2001, ACCOR DING TO WHICH ASSESSEE IS REQUIRED TO PAY AMOUNT OF LICENSE FEES FOR HIGH GRADE ROCK PHOSPHATE SOLD ON PER TON BASIS TO THE GOVERNMENT O F RAJASTHAN AS DETERMINED VIDE ORDER DATED 15.09.2000. THE LD. CIT (A) HAS CONSIDERED THIS PAYMENT AS ILLEGAL AND VOID HAVING NO EFFECT SINCE ACCORDING TO HIM THE STATE GOVERNMENT HAS NO POWER TO GRANT SUCH LEASE WITHOUT PRIOR APPROVAL OF CENTRAL GOVERNMENT AND HAS NO AUTHORITY TO COLLECT SUCH AMOUNT WHICH IS NOT PRESC RIBED UNDER THE MMRD ACT. WE HAVE CAREFULLY GONE THROUGH THE MINES AND MINERALS DEVELOPMENT ACT, 1957 AND AGREE WITH THE CONTENTION OF THE L. AR THAT STATE GOVERNMENT CAN GRANT LEASE IN RESPECT OF MINE RALS MENTIONED IN FIRST SCHEDULE ONLY WITH THE PRIOR APPROVAL OF THE CENTRAL GOVERNMENT WHILE IN CASE OF GRANTING OF LEASE IN RESPECT OF MI NERALS OTHER THAN THOSE MENTIONED IN SCHEDULE FIRST NO SUCH PRIOR APP ROVAL OF CENTRAL GOVERNMENT IS REQUIRED. ROCK PHOSPHATE IS NOT A MIN ERAL MENTIONED IN FIRST SCHEDULE. THE MINERALS SPECIFIED IN THE FI RST SCHEDULE ARE HYDRO CARBON ENERGY MINERALS, ATOMIC MINERALS AND M ETALLIC AND NON METALLIC MINERALS, WHICH DO NOT COVER THE ROCK PHOS PHATE AS SUCH. WE THEREFORE DO NOT FIND ANY MERIT IN THE FINDING OF L D. CIT(A) THAT THE STATE GOVERNMENT IS NOT AUTHORIZED TO GRANT MINING LEASE FOR ROCK PHOSPHATE AND THEREFORE PAYMENT IS ILLEGAL. WE ARE OF EH VIEW THAT THE PAYMENT IS AS PER THE LAW. SO FAR AS THE QUESTION O F EXPENDITURE BEING CAPITAL OR REVENUE IS CONCERNED, WE FIND THAT THIS ISSUE HAS COME UP FOR A DETAILED DISCUSSION BEFORE THIS BENCH OF CLAI M OF THE ASSESSEE 3 WAS ALLOWED. THEREAFTER AGAIN THIS ISSUE CAME UP FO R CONSIDERATION FOR A.Y. 1991-92 TO 1994-95 WHERE THE CLAIMED WAS A LLOWED. IN A.Y. 1997-98 THE HONBLE ITAT IN ITA NO. 500/JP/2000 DAT ED 09.03.2005 HAS ALLOWED THE CLAIM VIDE PARA 4 OF ITS ORDER. WE HAVE ALSO ALLOWED THE SIMILAR CLAIM A.Y. 1995-96 TO 2001-02 BY DISMIS SING THE APPEAL OF REVENUE. BY FOLLOWING OUR EARLIER DECISIONS. WE ALL OW THE GROUND NO. 1 AND 1.1 OF THE ASSESSEE BY DIRECTING THE A.O. TO ALLOW THIS PAYMENT AS REVENUE EXPENDITURE. AGAIN FOR ASSESSMENT YEARS 2003-04 AND 2004-05, SUC H EXPENDITURE HAS BEEN ALLOWED BY THE ITAT IN ORDER DATED 26.6.20 09. THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOL LOWING THE SAID DECISIONS. 4. HENCE FOLLOWING THE ORDER IN THE CASE OF THE ASS ESSEE, WE ARE HOLDING THAT THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO TREAT THE COMPENSATION EXPENSES AS REVENUE EXPENSES. 5. SECOND GROUND OF APPEAL IS THAT THE LD. CIT(A) H AS ERRED IN HOLDING THAT THE EXPENSES CLAIMED AS PAYMENT FOR DEVELOPMEN T CHARGES OF 20,52,27,181/- PAID TO THE STATE GOVT ARE ALLOWABLE REVENUE EXPENDITURE. 6. THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSE SSEE WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2006-07. IT WILL BE USE FUL TO REPRODUCE PARA NO. 13 FROM THE TRIBUNAL ORDER DATED 31.3.2010:- 13 WE FIND THAT ISSUE RAISED BY THE DEPARTMENT I N THIS GROUND HAS BEEN DECIDED BY THIS BENCH OF ITAT IN ASSESSEES OW N CASE FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 466/JP/2006 DATE D 26.06.2009, WHEREIN DEVELOPMENT CHARGES PAID FOR EXTRACTION OF GYPSUM AND LIME 4 STONE WERE ALLOWED. THE FINDING OF THE BENCH IN PAR A 9 OF THE SAID ORDER IS REPRODUCED AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FIND FORCE IN THE ARGUMENT SIN THE LD. A/R. THERE IS NO BASIS WITH LO WER AUTHORITIES TO HOLD THAT PAYMENT IS CAPITAL IN NATURE OR UNLAWFUL. ANY EXPENDITURE WHICH SPRANG DIRECTLY FROM CARRYING ON THE BUSINESS AND WAS INCIDENTAL TO IT IS ALLOWABLE AS DEDUCTION. THE LD. A/R HAS DEMONSTRATED THAT THE DEVELOPMENT CHARGES PAID TO T HE GOVERNMENT FOR EXTRACTING GYPSUM AND LIMESTONE IS RECOVERED FR OM THE CUSTOMER AS A SEPARATE ITEM IN THE BILL. THUS WHEN THE RECOV ERY OF DEVELOPMENT CHARGES IS INCLUDED IN THE INCOME, ON MATCHING PRIN CIPLE, THE PAYMENT MADE TOWARDS DEVELOPMENT CHARGES TO THE GOVERNMENT IS TO BE ALLOWED AS REVENUE EXPENDITURE. THE PAYMENT IS MADE FOR COMMERCIAL EXPEDIENCY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS. THERE IS NO ILLEGALITY IN SUCH PAYMENT AS VIEWED BY LD. CIT(A). HENCE THE A.O. IS DIRECTED TO ALLOW THE EXPENDITURE. THUS GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. AGAIN FOR ASSESSMENT YEAR 2004-05, SUCH EXPENDITURE HAS BEEN ALLOWED BY THE ITAT IN ORDER DATED 26.6.2009. THE LD. CIT(A) H AS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE SAID DECISIONS. WE, T HEREFORE, DO NOT FIND REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A). TH E SAME IS THUS UPHELD. 7. FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR EARLIER YEARS, WE HOLD THAT THE LD. CIT(A) WAS JUST IFIED IN HOLDING THAT THE PAYMENT FOR DEVELOPMENT CHARGES PAID TO THE STATE G OVT ARE ALLOWABLE AS REVENUE EXPENDITURE. 8. THIRD GROUND OF APPEAL IS THAT THE LD. CIT(A) HA S ERRED IN ALLOWING COMPENSATION PAID TO FARMERS AMOUNTING TO RS. 91,1 9,192/- FOR USING THEIR 5 LAND FOR MINERAL EXTRACTION WITHOUT APPRECIATING TH E FACT THAT THE EXPENDITURE IS OF CAPITAL NATURE. 9. THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSE SSEE VIDE TRIBUNAL ORDER DATED 31.3.2010. IT WILL BE USEFUL TO REPRODUCE PA RA NO. 14 OF THE TRIBUNAL ORDER DATED 31.3.2010: 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 ORDER IS REPRODUCED AS UNDER: WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSION AND F IND THAT HE PAYMENT MADE BY THE ASSESSEE TO FARMERS IS A PART O F COST OF GYPSUM ONLY AND NO CAPITAL ASSET IS ACQUIRED BY THE ASSESS EE BY INCURRING THESE EXPENDITURE. NATURE OF LOSS TO FARMERS IS IMM ATERIAL WHILE JUDGING THE NATURE OF EXPENSE IN THE HANDS OF THE A SSESSEE AND THEREFOE SAME CANNOT BE BASIS FOR TREATING THE EXPE NDITURE AS CAPITAL IN NATURE. THE LD. CIT(A) HAS RIGHTLY ALLOWED THE E XPENDITURE AS REVENUE WHICH DOE SNO CALL FOR ANY INTERFERENCE. TH US GROUND NO. 1 OF THE REVENUE IS DISMISSED. AGAIN FOR ASSESSMENT YEAR 2003-04 AND 2004-05, SUC H EXPENDITURE WERE ALLOWED BY THE ITAT IN ORDER DATED 26.6.2009. THE LD. CIT(A) AHS 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. 6 10. FOLLOWING THAT ORDER, WE HOLD THAT THE LD. CIT( A) WAS JUSTIFIED IN DIRECTING THE AO TO ALLOW COMPENSATION PAID TO FARM ERS TO THE EXTENT OF RS. 91,19,192/- AS ALLOWABLE REVENUE EXPENDITURE. 11. FIFTH GROUND OF APPEAL IS THAT THE LD. CIT(A) H AS ERRED IN ALLOWING 1/10 TH OF THE MINES DEVELOPMENT EXPENSE WITHOUT APPRECIAT ING THE FACT THAT THESE EXPENSES ARE OF CAPITAL NATURE. 12. THE FACTS ON THIS ISSUE HAVE BEEN MENTIONED BY THE LD. CIT(A) IN PARA 8 OF THE ORDER. THE LD. CIT(A) HAS ALSO MENTIONED THE ARGUMENTS OF THE ASSESSEE IN PARA 8 OF THE ORDER. IT WILL BE USEFUL TO REPRODUCE PARA 8 OF THE TRIBUNAL ORDER:- 8 IN THE SIXTH GROUND OF APPEAL, THE APPELLANT H AS CHALLENGED DISALLOWANCE OF MINES DEVELOPMENT EXPENSES OF RS. 3 ,36,67,085/- CHARGED TO PROFIT AND LOSS ACCOUNT AS A RESULT OF CEASING OF THE MINING ACTIVITIES OF KASNAU AND MATASUKH MINES. THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER REFERENCE, THE ASSESSEE HAS CLAIMED AMOUNT OF RS. 3,36,67,085/- TOWARDS PROSPECTING AND DEVELO PMENT OF KASNAU- MATASUKH LIGNITE MINES INCURRED IN THE FINANCIAL YE AR 2002-03. THE EXPENDITURE WAS CLAIMED BY THE ASSESSEE IN THE ASSE SSMENT YEAR 2003- 04 (I.E. IN THE YEAR OF ITS INCURRENCE). HOWEVER, SAME WAS DISALLOWED IN THE ASSESSMENT PROCEEDINGS AND CONFIRMED; BY THE LD. CIT(A)-II IN APPEAL NO. 197/05-06 DATED 23.3.2006, WITH A DIRECT ION THAT THE APPELLANT CAN CLAIM THIS EXPENDITURE ONLY U/S 35E A S AND WHEN THIS MINE WOULD START FUNCTIONING. THE MINES STARTED FU NCTIONING IN THE FINANCIAL YEAR 2003-04 I.E. IN THE ASSESSMENT YEAR 2004-05. HOWEVER, SINCE THE APPEAL BEFORE LD. CIT(A) FOR THE ASSESSME NT YEAR 2003-04 WAS NOT FINALIZED TILL THE DATE OF THE ASSESSMENT O RDER PASSED BY THE AO, THE SAME WAS NOT CONSIDERED FOR ASSESSMENT YEAR 2004-05. DURING THE YEAR UNDER CONSIDERATION DUE TO UNPRECED ENTED HUGE QUANTITY OF SALINE WATER AT THESE AREAS, MINING ACT IVITIES WERE SUSPENDED BY THE ASSESSEE. IN ABSENCE OF VIABILITY OF RE-FUNCTIONING 7 OF THE MINES, THE ASSESSEE CLAIMED THE EXPENDITURE IN ASSESSMENT YEAR UNDER CONSIDERATION. THE AO OBSERVED THAT MINES DE VELOPMENT EXPENDITURE BEING A CAPITAL EXPENDITURE WAS ALLOWED U/S 35E IN LIEU OF DEPRECIATION ON CAPITAL ASSETS. IN THE CASE OF NAT IONAL MINERAL DEVELOPMENT CORPORATION LTD. (282 ITR 135), THE HON 'BLE ITAT HELD THAT WRITING OFF OF MINES WAS CAPITAL LOSS WHICH CO ULD NOT BE ALLOWED AS DEDUCTION. ACCORDINGLY HE DISALLOWED THE CLAIM OF THE ASSESSEE. BEFORE ME, THE COUNSEL OF THE APPELLANT ARGUED THAT THE CLAIM OF THE ASSESSEE WAS CONSIDERED BY LD. CIT(A) IN ASSESSMENT YEAR 2003-04 WHEREIN LD. CIT(A) HELD THAT THE ASSESSEE CAN CLAIM THE EXPENSES IN 10 YEARS IN EQUAL INSTALLMENTS U/S 35E FROM THE ASS ESSMENT YEAR IN WHICH THE MINES WOULD START FUNCTIONING. THE MINES STARTED FUNCTIONING IN THE FINANCIAL YEAR 2003-04 I.E. IN A SSESSMENT YEAR 2004- 05. HOWEVER, SINCE THE APPEAL BEFORE LD. CIT(A) F OR THE ASSESSMENT YEAR 2003-04 WAS NOT FINALIZED TILL THE DATE OF THE ASSESSMENT ORDER PASSED BY THE AO, THE SAME WAS NOT CONSIDERED FOR A SSESSMENT YEAR 2004-05. LATER ON, THE ASSESSEE HAD MOVED AN APPLI CATION J/S 154 BEFORE THE AO TO ALLOW THE CLAIM OF ASSESSEE U/S 35 E WHICH WAS STILL PENDING FOR DISPOSAL. THEREFORE, HE PLEADED THAT E XPENSES OF RS. 33,66,708/- BEING 1/10 TH OF TOTAL MINES EXPENSES CLAIMED BY THE ASSESSEE BE ALLOWED U/S 35E. THE COUNSEL OF THE AP PELLANT ALTERNATIVELY ARGUED THAT THE BUSINESS OF ASSESSEE WAS TO DEVELOP MINES AND DO MINING. IT WAS THE ROUTINE BUSINESS A CTIVITY FOR THE ASSESSEE TO DEVELOP THE MINES. THE ASSESSEE COMPAN Y WAS REQUIRED TO CONTINUOUSLY DEVOTE ITS RESOURCES TOWARDS THE DEVEL OPMENT OF NEW MINES. FOR SUSTAINING THE GROWTH IN ITS BUSINESS, IT HAD TO CONTINUOUSLY MAKE EFFORTS AND STRIVE FOR INCREASING ITS MARKET SHARE BY EXPLORING VARIOUS NEW MINES. IN ORDER TO RUN NEW M INES, EXPENSES HAD TO BE INCURRED ON THE STUDY AND DEVELOPMENT OF NEW MINES. IT IS EQUALLY TRUE THAT IN SUCH TYPE OF FUNCTIONING WHERE THE MINERAL TO BE EXTRACTED, IS NOT SEEN ON THE SURFACE AND IT CAN ON LY BE ESTIMATED THROUGH VARIOUS STUDIES, THERE ARE CHANCES THAT MAN Y ESTIMATE MAY NOT PROVE CORRECT DUE TO THE TECHNO-ECONOMIC NON-VI ABILITY. THEREFORE, ALTHOUGH THE BUSINESS NEEDS TO CARRY OUT ALL REQUIRED RESEARCH BUT IT IS NOT NECESSARY THAT ALL OF THEM W ILL BE ADOPTED BY SUCH BUSINESS. IF THE DEVELOPMENT OF MINES STARTED BASED ON THE STUDIES AND LATER ON IT IS DECIDED FOR NOT PROCEEDI NG FURTHER DUE TO UN FORESEEN CIRCUMSTANCES, THE AMOUNT SPENT ON DEVELOP MENT TURNS INTO LOSSES. THE PRESENT CASE OF KASNAU MATASUKH MINES IS THE SAME, THAT THE APPELLANT COMPANY HAD TO CEASE ITS FUNCTIONING DUE TO RUSHING OF 8 HEAVY WATER RESULTING INTO THE CONVERSION OF WHATEV ER DEVELOPMENT EXPENSES RESULTING INTO LOSS. THEREFORE, THE COMPL ETE EXPENSES ARE ALLOWABLE U/S 37(1) OF THE ACT. THE REVENUE LOSS OR LOSS INCIDENTAL TO CARRYING ON EXISTING BUSINESS ARE ALLOWABLE WHILE COMPUTING TAXABLE INCOME OF THE ASSESSEE AND THIS PRINCIPLE IS SET O UT BY HON'BLE SUPREME COURT AS WELL AS VARIOUS HIGH COURTS IN MAN Y PRONOUNCEMENTS. RELIANCE WAS PLACED ON THE DECISIO N OF BADRIDAS V. CIT (34 ITR 10), CALCUTTA CO LTD. V. CIT (37 ITR 9) , CIT V. MYSORE SUGAR LTD. (46 ITR 649) AND RAMCHANDRAN V. CIT (11 1 ITR 263). THE LD. CIT(A) HAS RECORDED HIS FINDINGS AS UNDER: I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPE LLANT. I HAVE ALSO PERUSED THE ORDERS OF HON'BLE ITAT. THE OBSERVATI ONS OF HON'BLE ITAT, JAIPUR FOR ASSESSMENT YEAR 2003-04 IN ITS ORD ER NO. 607/JP/20/2006 DATED 26.6.2009 ARE REPRODUCED AS UN DER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. THE EXPENDITURE OF RS.3,36,67 ,085/- IS RIGHTLY HELD BY THE LD. CIT(A) AS ALLOWABLE U/S 35E AS AND WHEN THE MINE WOULD START FUNCTIONING AS THESE EXPENDITURE ARE TO WARDS PROSPECTING OF MINES WHICH IS ALLOWABLE U/S 35E HENCE THE SAME IS RIGHTLY DISALLOWED BY THE LD. CIT(A). SO FAR AS THE EXPEND ITURE ALLOWED BY THE LD. CIT(A) ARE CONCERNED, WE FIND NO REASON TO INTERFERE WITH THE SAME, SINCE THEY ARE IN RESPECT OF EXISTING MINES/ OTHERWISE ALLOWABLE AS REVENUE EXPENDITURE. THE COUNSEL OF THE APPELLANT HAS BROUGHT TO MY NOTI CE THAT SAID MINE HAS STARTED FUNCTIONING FROM ASSESSMENT YEAR 2004-0 5AND THERE IS MATERIAL CHANGE IN THE FACTS DURING THE YEAR AS COM PARED TO THE PRECEDING YEARS. RESPECTFULLY FOLLOWING THE DECISI ON OF HON'BLE ITAT AND MY PREDECESSOR FOR EARLIER YEARS, I DIRECT THE AO TO ALLOW 1/10 TH OF THE EXPENDITURE AMOUNTING TO RS. 33,66,708/-. T HE BALANCE ADDITION OF RS. 3,03,00,377/- MADE BY THE AO IS CON FIRMED. THIS GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. 12 WE HAVE HEARD BOTH THE PARTIES. SUCH EXPENDITUR E WAS DIRECTED BY THE LD. CIT(A) TO BE ALLOWED U/S 35E AS AND WHEN THE MI NES STARTED FUNCTIONING. 9 DURING THE YEAR UNDER REFERENCE, THE MINES STARTED FUNCTIONING AND THEREFORE, 1/10 TH OF THE EXP HAS BEEN CONSIDERED AS ALLOWABLE BY TH E LD. CIT(A). WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD . CIT(A). THE LD. CIT(A) HAS RIGHTLY ALLOWED 1/10 TH OF MINES DEVELOPMENT EXPENSES U/S 35E OF THE ACT. 13. SIXTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE ADDITION OF RS. 10.00 LAKHS MADE BY THE AO BY DISALLOWING OF CONTRIBUTION TO STATE RENEWAL FUND DESPITE THE FACT THAT IT WAS APPLICATION OF INCOME AND NOT EXPENDITURE INCUR RED FOR BUSINESS EXPEDIENCY. 14. THIS ISSUE IS ALSO COVERED IN FAVOUR OF ASSESSE E BY THE ORDER OF THE TRIBUNAL DATED 31.3.2010. IT WILL BE USEFUL TO REP RODUCE PARA 15 FROM THE ORDER DATED 31.3.2010: 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 THE MEMORA NDUM OF STATE RENEWAL FUND SET UP BY THE STATE GOVERNMENT, IT IS CREATED WITH THE OBJECT OR PROVIDING A SAFETY NET FOR THE WORKERS LI KELY TO BE EFFECTED BY RESTRUCTURING IN THE STATE PUBLIC ENTERPRISES. WE A RE THUS OF THE VIEW THAT THE CONTRIBUTION MADE TO THE SAID FUND IS SOLE LY FOR THE PURPOSE OF WELFARE AND BENEFIT OF THE EMPLOYEES. THE RAJASTHAN HIGH COURT IN CASE OF CIT VS. RAJASTHAN SPINNING AND WEAVING MILL S LTD. 274 ITR 465 HAS OBSERVED THAT IT IS FOR THE ASSESSEE TO DEC IDE WHETHER ANY 10 EXPENDITURE SHOULD BE INCURRED IN COURSE OF BUSINES S. THE EXPENSES CAN BE INCURRED VOLUNTARILY AND WITHOUT NECESSITY. ANY CONTRIBUTION MADE BY THE ASSESSEE TO A PUBLIC WELFARE FUND WHICH IS CONNECTED OR RELATED WITH HIS BUSINESS IS AN ALLOWABLE DEDUCTION U/S 37. AGAIN THE COURT IN CASE OF CIT VS. SHRI RAJASTHAN SYNTAX LTD. 221 CTR 410 HELD THAT WHERE ASSESSEE GAVE CONTRIBUTION TO THE EMPLOY EES WELFARE FUND, THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE . THE CASE RELIED BY A.O. OF CIT VS JODHPUR CO OPERATIVE MARKETING S OCIETY 275 ITR 372 (RAJ.) IS DISTINGUISHABLE AS IN THIS CASE THE A MOUNT 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 CONTRIBUTIN MADE TO STATE RENEWAL FUND IS ALLOWABLE U/S 37(1). THE LD. CIT(A) HAS ALLOWED THE CLAIM OF EH ASSESSEE BY FOLLOWING THE SAID DECISION. WE, THEREFORE, DO NOT FIND REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). THE SAME IS THUS UPHELD. 15. FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO DELETE THE ADDITIONS OF RS. 10.00 LAKHS MADE ON ACCOUNT OF CO NTRIBUTION TO STATE RENEWAL FUND. 16. IN 7 TH GROUND OF APPEAL, THE LD. CIT(A) HAS ERRED IN DELE TING ADDITION OF RS. 17,219/- MADE BY THE AO ON ACCOUNT OF BELAT ED DEPOSIT OF EMPLOYEES CONTRIBUTION IN RESPECT OF PF AND ESI WITHOUT APPR ECIATING THE FACT THAT THE PROVISIONS OF SECTION 43B(B) OF THE ACT ARE NOT APP LICABLE IN RESPECT OF EMPLOYEES CONTRIBUTION. 17. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF M/S INSTRUMENTATION LTD., KOTA IN I.T.A NO. 331/JP/20/2 011 VIDE ORDER DATED 11 5.8.2011. IT WILL BE USEFUL TO REPRODUCE PARA 4.2 AND 4.3. OF THAT ORDER AS UNDER:- 4.2 THE ABOVE REFERRED ISSUE STANDS DECIDED AGA INST THE REVENUE BY THE TRIBUNAL IN THE CASE OF SOMA BLOCK PRINTS (P ) LTD. IN I.T.A NO. 1173/JP/20/2010 DATED 28 TH APRIL, 2011 FOR THE ASSESSMENT YEAR 2007- 08. IT WILL BE USEFUL TO REPRODUCE PARA 5.2. FROM THE ABOVE DECISION:- 5.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENU E BY THE TRIBUNAL IN THE CASE OF M/S SWASTIK METAL CASTING V . ACIT (I.T.A NO. 964/JP/20/2010) VIDE ORDER DATED 20.4.20 11. IT WILL BE USEFUL TO REPRODUCE 3.2 AND 3.3 OF THE ABOVE RE FERRED CASE: 3.2 THE LD. CIT(A) HELD THAT THE EMPLOYEES CONTRIB UTION TO PF AND ESI IS NOT TO BE ALLOWED AS THE SAME HAS NOT BEEN PAID WITHIN THE STIPULATED TIME AS PROVIDED IN RESPECTIV E ACT OF PF AND ESI. THE LD. CIT(A) CONFIRMED THE ACTION OF TH E AO. 3.3 WE HAVE HEARD BOTH THE PARTIES. HON'BLE APEX C OURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD., 319 ITR 30 6 HAS HELD THAT THE PROVISO INTRODUCED BY THE FINANCE ACT, 200 3 IS CURATIVE IN NATURE AND IS RETROSPECTIVE. HOWEVER, WE ARE CO NCERNED WITH THE ASSESSMENT YEAR 2007-08. THE HON'BLE APEX COURT HAS REFERRED TO THE EXPLANATION GIVEN IN SECTION 36(1)( V)(A) OF THE ACT. THE ISSUE OF EMPLOYEES CONTRIBUTION COVERED U/S 43B HAS BEEN CONSIDERED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SABRI ENTERPRISES, 298 ITR 141. THE HON'BLE APEX COURT HAS UPHELD THE DECISION OF HON'BLE KARNA TAKA HIGH COURT IN THE CASE OF CIT V. SABRI ENTERPRISES (SUPR A) WHILE DECIDING THE APPEAL IN THE CASE OF CIT V. ALOM EXTR USIONS LTD. (SUPRA). HON'BLE APEX COURT HAS DISMISSED THE SLP IN THE CASE OF CIT V. VINAY CEMENT 313 ITR 1 (ST.) WHILE DISMIS SING THE SLP, THE HON'BLE APEX COURT HAS REFERRED TO DECISIO N OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT V. G EORGE WILLIAMSON (ASSAM) LTD., 284 ITR 619. IN THE CASE BEFORE HON'BLE GAUHATI HIGH COURT THE ISSUE WAS IN RESPECT OF CONTRIBUTION OF PF AND ESI RELATING TO EMPLOYEES SH ARES. IT IS NOTICED FROM THE AUDIT REPORT THAT ALL THE PAYMENTS HAVE BEEN PAID BEFORE THE DUE DATE OF FILING OF RETURN AND TH EREFORE, THE 12 LD. CIT(A) WAS NOT JUSTIFIED IN NOT DELETING THE SU M OF RS. 1,50,294/- . THE SAME IS DELETED. THUS THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLO WANCE MADE BY THE AO. 4.3- MOREOVER, THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. AIMIL LTD., 321 ITR 508 HAS HELD THAT NO DISALLO WANCE CAN BE MADE IN RESPECT OF EMPLOYERS P.F CONTRIBUTION A ND EMPLOYEES P.F CONTRIBUTION IN CASE SUCH CONTRIBUTIO NS ARE PAID BEFORE DUE DATE OF FILING. IT IS NOT IN DISPU TE BEFORE US THAT THE CONTRIBUTION HAVE NOT BEEN PAID BEFORE DUE DATE OF FILING OF RETURN. WE THEREFORE, HOLD THAT EH LD. CIT(A) WAS JUSTIFIED IN DELETING THE EMPLOYERS P.F CONTRIBUTION AND EMPLOYE ES P.F. CONTRIBUTION. 18. FOLLOWING THAT ORDER WE HOLD THAT THE LD. CIT(A ) WAS JUSTIFIED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS. 17,2 19/-. 19. THE LAST GRIEVANCE OF THE REVENUE IS THAT THE L D. CIT(A) HAS ERRED IN ALLOWING EXPENDITURE OF RS. 1.00 LAKH FOR SPONSORSH IP OF DESERT FESTIVAL AT JAISALMER DESPITE THE FACT THAT THIS WAS NOT INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 20. WE HAVE HEARD BOTH THE PARTIES. LD. AR SUBMITT ED THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE TRIBUNAL DAT ED 31.3.2010. IN THAT CASE THE TRIBUNAL OBSERVED THAT SMALL AMOUNTS CONTRIBUTE D TO CERTAIN FUND BY THE ASSOCIATE ENTERPRISE IN DISCHARGING OF SOCIAL OBLIG ATION IN THE AREA IS ALLOWABLE EXPENDITURE. IT WAS SUBMITTED THAT THE E XPENDITURE IS IN THE NATURE AND PROMOTION OF SALES EXPENDITURE. WE ARE NOT AWAR E AS TO WHETHER THE ASSESSEE COMPANY IS HAVING ITS MINES IN JAISELMER D ISTT. MOREOVER DESERT 13 FESTIVAL IS ORGANIZED BY THE STATE TOURISM DEPARTME NT. IN CASE BANNERS ARE EXHIBITED IN THE DESERT FESTIVAL, THEN EXPENDITURE WILL BE ALLOWABLE TO THE EXTENT. THE EXPENDITURE WILL BE ALSO ALLOWABLE IN CASE THE ASSESSEE ADVERTISES IN THE NAME OF THE COMPANY IN THE SOUVEN IR DURING THE COURSE OF FESTIVAL. SINCE NO SUCH EVIDENCE HAS BEEN PLACED, T HEREFORE, WE FEEL THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE EXPEND ITURE. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 1 -10-2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 21 /10/2011 SURESH COPY FORWARDED TO :- 1. THE D.C.I.T. CIRCLE6, JAIPUR 2. M/S RAJASTHAN STATE MINES & MINERALS LTD. 3. THE LD. CIT 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.39/JP /11) A.R, ITAT, JAIPUR 14 15 16 17 18 19