M/s The Sandur Manganese & Iron Ores Ltd., Bellary V. DCIT, Bellary

ITA 559/BANG/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7496 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 25-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HARINDER KUMAR CITA
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 234B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.585/BANG/2013 ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY. VS. M/S. SANDUR MANGANESE & IRON ORES LTD., LAKSHMIPUR, SANDUR 583 119. PAN: AAACT 7495D APPELLANT RESPONDENT ITA NOS.558 & 559/BANG/2013 ASSESSMENT YEARS : 2007-08 & 2008-09 M/S. SANDUR MANGANESE & IRON ORES LTD., LAKSHMIPUR, SANDUR 583 119. PAN: AAACT 7495D VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY. APPELLANT RESPONDENT REVENUE BY : SHRI HARINDER KUMAR, CIT(A)-3 ASSESSEE BY : SHRI S. PARTHASARATHI, ADVOCATE DATE OF HEARING : 28.07.2017 DATE OF PRONOUNCEMENT : 11.10.2017 ITA NOS.585, 558 & 559/BANG/2013 PAGE 2 OF 20 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE ARE CROSS APPEALS PREFERRED BY THE ASS ESSEE AS WELL AS REVENUE AGAINST THE RESPECTIVE ORDERS OF CIT(APPEALS). SIN CE THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, PREFER TO ADJUDICATE THESE APPE ALS ONE AFTER THE OTHER. ITA NO.585/BANG/2013 2. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF CIT(APPEALS) ON A SOLITARY GROUND THAT CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.107,05,56,400 ON ACCOUNT OF CAPITAL EXPENDITURE BEING NET PRESENT VALUE PAID TO FOREST DEPARTMENT. 3. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD IN THIS REGARD ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXTRACTION O F MANGANESE AND IRON ORE AND EXPORTING THE SAME IN THE NAME & STYLE OF M /S. SANDUR MANGANESE & IRON ORES LTD. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE AO HAS NOTED THAT ASSESSEE HAS CLAIMED A SUM OF RS.107 ,05,56,400 AS NET PRESENT VALUE (NPV) PAYABLE TO FOREST DEPARTMENT AS A REVENUE EXPENDITURE, BUT THE AO TREATED THE SAME AS CAPITAL EXPENDITURE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. WHILE MAKING THE DISALLOWANCE, THE AO HAS OBSERVED THAT THE SUM PAID BY THE ASSESSEE R EPRESENTS THE NET PRESENT VALUE AND COMPENSATORY AFFORESTATION EXPENS ES PAID TO FOREST DEPARTMENT. NPV IS PAID FOR TRANSFER TO COMPENSATO RY AFFORESTATION ITA NOS.585, 558 & 559/BANG/2013 PAGE 3 OF 20 MANAGEMENT AND PLANNING AGENCY (CAMPA). THE PAYMEN T IS MADE BY EACH USER TOWARDS REGENERATION OF FOREST FOR DIVERS ION OF FOREST TO NON- FOREST USE. IT WAS FURTHER OBSERVED THAT ONE TIME LUMP SUM PAYMENT OF RS.107.05 CRORES HAS TO BE MADE TO THE CONSERVATOR OF FORESTS, BANGALORE ON THE BASIS OF DECISION OF THE HONBLE SUPREME COU RT. THIS EXPENDITURE IS NON-RECURRING IN NATURE AND THE BENEFIT OF THIS EXP ENDITURE WILL BE ENJOYED BY THE ASSESSEE OVER SEVERAL YEARS I.E., DURING THE ENTIRE PERIOD OF LEASE OF THE MINE. IT WAS ALSO OBSERVED BY THE AO THAT THI S PAYMENT OF NPV IS NOT FOR REMOVAL OF RESTRICTION OR OBSTRUCTION, BUT TO F ACILITATE THE ASSESSEE TO MINE DURING THE LEASE PERIOD AND IS INEXTRICABLY LI NKED TO THE MINING RIGHTS OF THE ASSESSEE. WITHOUT PAYMENT OF THE NPV, THE A SSESSEE CANNOT DO THE MINING ACTIVITIES. HE ACCORDINGLY TREATED THE SAME TO BE CAPITAL EXPENDITURE AND ADDED BACK TO THE TOTAL INCOME OF T HE ASSESSEE. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( APPEALS) WITH THE SUBMISSION THAT PAYMENT OF NPV WAS MADE IN PURSUANC E OF SUPREME COURT JUDGMENT BY THE USERS OF FOREST LAND FOR NON- FOREST PURPOSES AT THE SPECIFIED RATES DEPENDING UPON THE DENSITY OF THE F OREST LAND WITH REGARD TO THE PRESENCE OF FLORA AND FAUNA IN THE COURSE OF MI NING ACTIVITIES. THE PAYMENT WAS REQUIRED TO BE MADE AT THE TIME OF RENE WAL OF LEASE FOR MINING. THE AMOUNT PAYABLE IN PURSUANCE OF SUPREME COURT JUDGMENT CRYSTALLIZED DURING THE YEAR AT RS.107.05 CRORES WH ICH WAS CLAIMED BY THE ASSESSEE. RELIANCE WAS PLACED UPON THE ORDER OF THE TRIBUNAL BANGALORE BENCH IN THE CASE OF M/S. RAMGAD MINERALS & MINING PVT. LTD. DATED ITA NOS.585, 558 & 559/BANG/2013 PAGE 4 OF 20 09.04.2009 IN ITA NO.1012/BANG/2008 IN WHICH IT WAS HELD THE EXPENDITURE TO BE A REVENUE EXPENDITURE AND THE TRIBUNAL HAS AL LOWED THE SAME IN THE YEAR WHEN THE DEMAND WAS RAISED BY THE GOVERNMENT I N PURSUANCE OF THE JUDGMENT OF THE SUPREME COURT. IT WAS FURTHER CONT ENDED THAT REVENUE HAS CHALLENGED THE ORDER OF THE TRIBUNAL IN APPEAL BEFO RE THE HIGH COURT AND THE HONBLE HIGH COURT WAS PLEASED TO DISMISS THE A PPEAL OF THE REVENUE VIDE ITS JUDGMENT DATED 06.01.2012 IN ITA NO.5021/2 009. A COPY OF THE JUDGMENT WAS PLACED ON RECORD. 5. THE CIT(APPEALS) RE-EXAMINED THE ISSUE IN THE LI GHT OF THE ORDER OF THE TRIBUNAL WHICH WAS LATER ON APPROVED BY THE HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAMGAD MINERALS & MINING PVT. LTD. (SUPRA). FOLLOWING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COU RT, THE CIT(APPEALS) HAS ALLOWED THE CLAIM OF ASSESSEE TO BE REVENUE EXPENDI TURE. 6. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL B EFORE THE TRIBUNAL AND PLACED HEAVY RELIANCE ON THE ORDER OF THE AO. 7. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE, ON THE OTHER HAND, BESIDES PLACING RELIANCE ON THE ORD ER OF CIT(APPEALS), HAS INVITED OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF RAMGAD MINERALS & MINING PVT. LTD. (SUPRA) AND THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAMGAD MINERALS & MINING PVT. LTD. (SUPRA). COPY OF THE JUDGMENT OF THE HONBLE HIGH COURT IS P LACED ON RECORD, WHEREIN THE HONBLE HIGH COURT HAS APPROVED THE ORDER OF THE ITA NOS.585, 558 & 559/BANG/2013 PAGE 5 OF 20 TRIBUNAL ALLOWING THE CLAIM OF THE ASSESSEE. OUR A TTENTION WAS ALSO INVITED THAT AGAINST THIS JUDGMENT OF HON'BLE JURISDICTIONA L HIGH COURT, THE REVENUE HAS PREFERRED SLP BEFORE THE HONBLE APEX COURT AND THE SLP WAS ALSO DISMISSED. COPY OF SLP NO.33057/2012 IS ALSO PLACE D ON RECORD. SINCE THE CIT(APPEALS) HAS ADJUDICATED THE ISSUE FOLLOWIN G THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT, WHICH WAS LATER ON APPROVED BY THE HONBLE APEX COURT, WE FIND NO INFIRMITY IN THE ORD ER OF CIT(APPEALS). WE, HOWEVER, EXTRACT THE RELEVANT PORTION OF THE ORDER OF CIT(APPEALS) HEREUNDER:- I HAVE GONE THROUGH THE FACTS OF THE CASE, CONTENT S OF THE ASSESSMENT ORDER, WRITTEN SUBMISSION OF THE ASSESSE E AND CASE LAWS REFERRED AND RELIED BY THE AO AND ASSESSEE. TH E HON'BLE ITAT., B, BENCH BANGALORE IN THE CASE OF M/S. RAMGA D MINERALS & MINING PRIVATE LTD., BALADOTA ENCLAVE, HOSPET VS. THE ACIT, CIRCLE- 1, BELLARY, IT WAS OBSERVED THAT, 'WE FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL THAT PAYMENTS TO THE GOVERNMENT ARE TO BE PAID ONCE THE MINING LEASE IS OBTAINED AND SUCH PAYMENTS ARE GOVERNED BY VARIOUS ACTS ALONG WI TH THE APEX COURT MAKING A RULING FOR STATE GOVERNMENTS TO PART ICIPATE IN THE GRANTING OF MINING LEASE BY RECOVERING COMPENSATION WHEN THEIR FORESTS ARE UPROOTED. THEREFORE FOR THIS PURPOSE, T HE FUNDS ARE USED FOR A NATURAL REGENERATION WHICH THE ASSESSEE PARTICIPATES INDIRECTLY. THEREFORE AT NO POINT OF TIME COULD IT BE SAID THAT THE ASSESSEE HAD INCURRED A CAPITAL EXPENDITURE GIVING THE ASSESSEE A BENEFIT OF ENDURING NATURE FOR THE PURPOSE OF EARNI NG SEGMENTED INCOME TO RENDER THE SAME TO INCOME TAX. IN OTHER W ORDS, THE AUTHORITIES BELOW HAVE NOT POINTED OUT THE INCOME G ENERATED AGAINST THE PURPORTED DEFERRED REVENUE EXPENDITURE SO PROPOSED BY THEM IN THEIR IMPUGNED ORDERS. THE AMOUNT WAS IN CURRED AS A REVENUE EXPENDITURE AND IS DIRECTED TO BE ALLOWED I N THE YEAR IT HAS BEEN INCURRED. RESPECTABLY FOLLOWING THE JUDGME NT OF THE HONBLE ITAT, THE ADDITION MADE BY THE AO DISALLOWE D AND THIS GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NOS.585, 558 & 559/BANG/2013 PAGE 6 OF 20 8. SINCE NO INFIRMITY IN THE ORDER OF THE CIT(APPEA LS) IS NOTICED, WE APPROVE THE ORDER OF THE CIT(APPEALS). ITA 558/BANG/2013 9. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1) ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT (APPEALS) ERRED IN PASSING THE ORDER IN THE MANNER HE DID. 2) THE LEARNED CIT (APPEALS) OUGHT TO HAVE ACCEPTE D THE EXPLANATION OFFERED BY THE APPELLANT AND OUGHT TO H AVE HELD THAT THE COMPENSATORY AFFORESTATION EXPENDITURE OF RS 5, 65,47,944/- WAS TO BE ALLOWED AS REVENUE EXPENDITURE AS CLAIMED BY THE APPELLANT. 3) THE LEARNED CIT (APPEALS) OUGHT TO HAVE APPRECI ATED THAT THE EXPENDITURE INCURRED DID NOT RESULT IN ANY ACQU ISITION OF ASSET AND THE PAYMENTS WERE FOR CARRYING ON THE MINING OP ERATIONS AND CONSEQUENTLY THEY WERE LIABLE TO BE ALLOWED AS REVE NUE EXPENDITURE IN FULL AS CLAIMED BY THE APPELLANT. 4) THE LEARNED CIT(APPEALS) OUGHT TO HAVE ALLOWED THE FOREST LEASE RENTALS OF RS 2,77,51,446/ - IN FULL A S CLAIMED BY THE APPELLANT. 5) THE LEARNED CIT(APPEALS) OUGHT TO HAVE APPRECIA TED THAT THE ADDITIONAL RENTALS WERE CRYSTALLIZED DURING THE RELEVANT YEAR AND CONSEQUENTLY THE APPLICANT WAS ENTITLED TO THE DEDUCTION AS CLAIMED IN FULL. 6) WITHOUT PREJUDICE, THE ADDITIONS AND DISALLOWAN CES ARE EXCESSIVE, ARBITRARY AND UNREASONABLE AND OUGHT TO BE DELETED IN FULL. 7) THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING TH E CHARGING OF INTEREST UNDER SECTIONS 234B AND 234D O F THE ACT. ITA NOS.585, 558 & 559/BANG/2013 PAGE 7 OF 20 8) FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEA L MAY BE ALLOWED. 10. GROUND NO.1 IS GENERAL IN NATURE. WITH REGARD TO GROUND NOS. 2 & 3 WHICH RELATE TO DISALLOWANCE OF RS.5,65,47,944, THE FACTS BORNE OUT FROM THE RECORD ARE THAT IT WAS NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAS CLAIMED THE COMPENSATORY AFFO RESTATION EXPENSES AS REVENUE EXPENDITURE. THE AO OBSERVED THAT PAYMENT WAS MADE BY EACH OF THE USER OF THE FOREST LAND FOR MINING TOWARDS R EGENERATION OF FOREST FOR DIVERSION OF FOREST TO NON-FOREST USE, THUS IT WAS INEXTRICABLY LINKED TO THE MINING RIGHTS OF THE ASSESSEE. WITHOUT PAYMENT OF NPV AND COMPENSATORY AFFORESTATION EXPENSES, THE RENEWAL OF MINING LEASE WOULD NOT BE POSSIBLE. THE AO ACCORDINGLY TREATED THIS EXPENDITURE AS CAPI TAL EXPENDITURE AND DISALLOWED THE CLAIM OF THE ASSESSEE. 11. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) WITH THE SUBMISSION THAT THE NATURE OF THE PAYMENT OF THIS C OMPENSATORY AFFORESTATION EXPENSES IS ALSO SIMILAR TO PAYMENT O F NPV. THEREFORE, THE REASONS GIVEN FOR DELETING THE DISALLOWANCE OF NPV BE APPLIED HERE AND THIS PAYMENT SHOULD ALSO BE TREATED AS REVENUE EXPE NDITURE. 12. THE CIT(APPEALS) RE-EXAMINED THE ISSUE IN THE L IGHT OF ASSESSEES CONTENTIONS AND HAS CONFIRMED THE DISALLOWANCE HAVI NG OBSERVED THAT PAYMENT IS MADE BY EACH OF THE USER OF THE FOREST L AND FOR MINING TOWARDS ITA NOS.585, 558 & 559/BANG/2013 PAGE 8 OF 20 REGENERATION OF FOREST FOR DIVERSION OF FOREST TO N ON-FOREST USE. THUS, IT WAS INEXTRICABLY LINKED TO MINING RIGHTS OF THE APPELLA NT. WITHOUT PAYMENT OF COMPENSATORY AFFORESTATION EXPENSES, THE RENEWAL OF MINING LEASE WOULD NOT BE POSSIBLE. THE ASSESSEE HAS MADE THE PAYMENT FOR CONTINUING HIS RIGHT OF MINING WHICH IS ENDURING, HENCE THE PAYMEN T MADE BY THE ASSESSEE IS CONSIDERED AS CAPITAL EXPENDITURE. 13. AGGRIEVED, THE ASSESSEE HAS PREFERRED APPEAL BE FORE THE TRIBUNAL WITH THE SUBMISSION THAT THE NATURE OF PAYMENT OF C OMPENSATORY AFFORESTATION EXPENSES IS SIMILAR TO THAT OF PAYME NT OF NPV. THEREFORE, PAYMENT OF COMPENSATORY AFFORESTATION EXPENSES SHOU LD BE TREATED AS REVENUE EXPENDITURE. 14. THE LD. DR, ON THE OTHER HAND, HAS CONTENDED TH AT IN THE CASE OF NPV, THE PAYMENT WAS MADE ON ACCOUNT OF JUDGMENT OF APEX COURT. BUT IN THE INSTANT CASE, THE COMPENSATORY AFFORESTATION EX PENSES ARE TO BE PAID BY THE ASSESSEE AS PER THE AGREEMENT OF LICENCE OF MINING, MEANING THEREBY, THE ASSESSEE KNOWS SINCE THE BEGINNING THA T THIS MUCH OF EXPENDITURE IS TO BE INCURRED FOR OBTAINING LICENCE OF MINING. THEREFORE, IT IS INEXTRICABLY LINKED TO THE MINING RIGHTS OF THE ASS ESSEE. THEREFORE, IT IS A CAPITAL EXPENDITURE. 15. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT NPV TO THE FORES T DEPARTMENT WAS PAID ON ACCOUNT OF THE JUDGMENT OF THE APEX COURT. THE LESS ER OF THE LAND FOR ITA NOS.585, 558 & 559/BANG/2013 PAGE 9 OF 20 MINING WAS NOT AWARE OF THE NPV PAYABLE TO FOREST D EPARTMENT AT THE TIME OF OBTAINING THE LEASE FROM THE GOVERNMENT. IT WAS PAID ON ACCOUNT OF THE JUDGMENT OF THE APEX COURT DURING THE PENDENCY OF T HE MINING LEASE. BUT THE AMOUNT PAID UNDER THE HEAD COMPENSATORY AFFORE STATION EXPENSES WAS KNOWN TO THE ASSESSEE AT THE TIME OF LEASING OF THE MINING LAND. IT IS COMPULSORY FOR EACH AND EVERY USER OF MINING LAND T O PAY THE AFFORESTATION EXPENSES TO FOREST DEPARTMENT TO COMPENSATE THE USE OF FOREST LAND FOR MINING TOWARDS REGENERATION OF FOREST FOR DIVERSION OF FOREST TO NON-FOREST USE. SINCE THIS PAYMENT IS INEXTRICABLY LINKED TO THE MINING RIGHTS OF THE ASSESSEE, THIS PAYMENT IS OF CAPITAL NATURE AND THE LOWER AUTHORITIES HAVE RIGHTLY TREATED THE SAME ACCORDINGLY. WE ACCORDING LY FIND NO INFIRMITY IN THE ORDER OF CIT(APPEALS). 16. APROPOS GROUND NOS. 4 & 5 RELATING TO DISALLOWA NCE OF LEASE RENTAL PAYMENTS, THE FACTS BORNE OUT FROM THE RECORD IN TH IS REGARD ARE THAT THE FOREST LAND WAS ALLOTTED FOR MINING PURPOSE BY THE FOREST DEPARTMENT UNDER LEASE TO THE ASSESSEE WHICH WERE REQUIRED TO BE REN EWED PERIODICALLY. AS PER THE LEASE AGREEMENT ENTERED, THE LEASE HOLDER I S REQUIRED TO PAY THE LEASE RENT EVERY YEAR @ RS.50,000/HECTARE AND RS.18 7.50/HECTARE AS SUPERVISION CHARGES TO THE FOREST DEPARTMENT. THE LEASE RENTAL IS PAYABLE ANNUALLY. FOR ACTUAL USAGE OF LAND, ROYALTY IS PAI D BASED ON TONNAGE OF ORE MINED AND SOLD. THUS THE LEASE RENTAL BECOMES A FI XED EXPENDITURE (THE AMOUNT VARYING DEPENDING ON THE RATES APPLIED ON TH E LAND ALLOTTED TO THE LEASE HOLDER). THE ASSESSEE CLAIMED IT TO BE REVENU E EXPENDITURE AND ITA NOS.585, 558 & 559/BANG/2013 PAGE 10 OF 20 CLAIMED AN EXPENDITURE OF RS.3,10,63,145 ON THIS AC COUNT. MAJOR PART OF LEASE RELATE TO 1994 TO 2006 NOT RELEVANT TO IMPUGN ED ASSESSMENT YEAR I.E., AY 2007-08. THE LEASE RENT RELATABLE TO AY 2007-08 IS ONLY RS.33,11,699. CONSIDERING THIS, BALANCE AMOUNT OF RS.2,77,51,446 NOT RELATABLE TO IMPUGNED ASSESSMENT YEAR, THE AO DISALLOWED THE SAM E. 17. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT(APPEALS) WITH THE SUBMISSION THAT THE AO HAS FA ILED TO APPRECIATE THAT THE DEMAND WAS RAISED ONLY IN THE RELEVANT YEAR IN WHICH IT GOT CRYSTALLIZED IN ACCORDANCE WITH THE GOVERNMENT NOTIFICATION. BE FORE THE CIT(APPEALS) THE ASSESSEE HAS ADMITTED THAT THE DEMAND STOOD VAC ATED BY THE JUDGMENT OF THE HIGH COURT AND THEREFORE THE SAME WOULD BE AMENABLE TO SECTION 41(1) OF THE ACT, WHEN THE DISPUTE REACHES FINALITY AND IN THAT YEAR THE APPELLANT MAY OFFER THE INCOME FOR TAXATION. 18. THE CIT(APPEALS) RE-EXAMINED THE ISSUE, BUT WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HE ACCORDI NGLY CONFIRMED THE ORDER OF THE AO DISALLOWING THE CLAIM OF ASSESSEE, HAVING OBSERVED THAT LEASE RENTAL BECOMES A FIXED EXPENDITURE EVERY YEAR AND IT IS LIKE ANY OTHER REVENUE EXPENDITURE INCURRED BY THE COMPANY. OUT O F TOTAL CLAIM FOR FOREST LEASE RENTAL PAYMENTS, MAJOR PART OF LEASE RENT PAY ABLE RELATE TO 1994 TO 2006 AND NOT RELEVANT TO THE AY 2007-08. 19. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND DURING THE COURSE OF HEARING, IT WAS O BSERVED THAT NO DOUBT ITA NOS.585, 558 & 559/BANG/2013 PAGE 11 OF 20 LEASE RENT IS REVENUE EXPENDITURE AND IT SHOULD BE DEBITED TO THE ACCOUNT EVERY YEAR WHEN IT BECOMES DUE. THE ASSESSEE WAS A LSO ASKED TO FILE SOME EVIDENCE IN SUPPORT OF HIS CONTENTION THAT FOR CERTAIN REASONS THE LEASE RENT WAS NOT PAID AND DISPUTES WERE SETTLED D URING THE IMPUGNED ASSESSMENT YEAR. BUT NO EVIDENCE WAS FURNISHED ON B EHALF OF THE ASSESSEE. UNDISPUTEDLY LEASE RENT IS RECURRING EXP ENDITURE AND IT SHOULD BE PAID EVERY MONTH. SINCE THE ASSESSEE HAS BEEN F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE LEASE RENTAL SHOULD BE DE BITED TO ITS BOOKS OF ACCOUNT IN THEIR RESPECTIVE YEARS UNLESS ANY DISPUT E IS RAISED. WE THEREFORE DO NOT FIND ANY FORCE IN THE CONTENTION O F THE ASSESSEE IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE THAT CRYSTALLIZ ATION WAS DONE IN THE IMPUGNED ASSESSMENT YEAR. SINCE THE ASSESSEE HAD D EBITED THE ENTIRE EXPENDITURE IN THIS REGARD IN THE IMPUGNED ASSESSME NT YEAR, WE FIND NO INFIRMITY IN THE ORDER OF CIT(APPEALS) WHO HAS RIGH TLY DISALLOWED THE PRIOR PERIOD EXPENSES. ITA 559/BANG/2013 20. IN THIS APPEAL, THE ASSESSEE HAS ASSAILED THE O RDER OF CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT (APPEALS) ERRED IN PASSING THE ORDER IN THE MAN NER HE DID. 2. THE LEARNED CIT (APPEALS) OUGHT TO HAVE APPRECI ATED THAT THE APPELLANT HAVING PAID FBT ON THE PROVISION OF M EDICAL ITA NOS.585, 558 & 559/BANG/2013 PAGE 12 OF 20 EXPENSES, THE APPELLANT WAS ENTITLED TO THE DEDUCTI ON OF RS.30,01,400/ - IN FULL. 3. THE LEARNED CIT (APPEALS) OUGHT TO HAVE ALLOWED THE DEDUCTION OF RS.30,40,011 / - BEING THE PROVISION F OR LEAVE TRAVEL ALLOWANCE AS THE SAME WAS AN ASCERTAINED LIABILITY AND THUS LIABLE TO BE ALLOWED UNDER MERCANTILE SYSTEM OF ACCOUNTING AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT EAR TH MOVERS LTD. VS. CIT, 245 ITR 428 (SC). 4. THE LEARNED CIT (APPEALS) OUGHT TO HAVE ALLOWED THE FOREIGN TRAVEL EXPENSES TO THE TUNE OF RS.38,05,986 / - AS THE EXPENDITURE WAS IN THE COURSE OF BUSINESS AND FOR T HE PURPOSE OF BUSINESS AND ALSO FOR THE EXPANSION OF THE BUSINESS AND ACCORDINGLY LIABLE TO BE ALLOWED IN FULL AS REVENUE EXPENDITURE. 5. THE LEARNED CIT (APPEALS) OUGHT TO HAVE ALLOWE D STAMP FEE FOR REGISTRATION AND PROCESSING FEE OF THE MINI NG LEASE AMOUNTING TO RS.24,82,670/ - SINCE THE EXPENDITURE INCURRED WAS IN THE COURSE OF BUSINESS AND NO NEW CAPITAL ASSET HAS EMERGED ON ACCOUNT OF THE EXPENDITURE. 6. THE LEARNED CIT (APPEALS) OUGHT TO HAVE FOLLOWE D THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN EMP IRE JUTE CO.LTD VS. CIT, 124 ITR 1 (SC) AND ALLOWED THE STAM P FEE FOR REGISTRATION AND PROCESSING FEE INCURRED IN FULL. 7. THE LEARNED CIT (APPEALS) OUGHT TO HAVE ALLOWED THE MINING LEASE RENT TO THE TUNE OF RS.21,81,32,476 / - SINCE THE EXPENDITURE HAVING GOT CRYSTALLIZED DURING THE RELE VANT ASSESSMENT YEAR, THE SAME WAS REQUIRED TO BE ALLOWE D IN FULL AS CLAIMED BY THE APPELLANT. 8. WITHOUT PREJUDICE, THE DISALLOWANCES ARE EXCESS IVE, ARBITRARY AND UNREASONABLE AND OUGHT TO BE DELETED IN FULL. 9. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING T HE LEVY OF INTEREST UNDER SECTIONS 234B & 234C OF THE ACT. 10. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE U RGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEA L MAY BE ALLOWED. ITA NOS.585, 558 & 559/BANG/2013 PAGE 13 OF 20 21. GROUND NO.1 IS GENERAL IN NATURE. APROPOS GRO UND NO.2, IT IS NOTICED THAT THE AO HAS DISALLOWED THE PROVISION FO R MEDICAL EXPENSES HAVING OBSERVED THAT THE COMPANY IS REIMBURSING THE MEDICAL EXPENSES BASED ON THE EMPLOYEES CLAIM AND LIABILITY AGAINST MEDICAL REIMBURSEMENT ACCRUES ON SUBMISSION OF MEDICAL REIMBURSEMENT CLAI M BY EMPLOYEES AND HENCE THE AMOUNT OF PROVISION MADE IN THE P&L ACCOU NT AT RS.30,01,400 TOWARDS MEDICAL ELIGIBILITY FOR FUTURE CLAIM IS CON TINGENT LIABILITY AND NOT AN ACCRUED LIABILITY. THE AO ACCORDINGLY PROPOSED TO DISALLOW THE SAID AMOUNT. THE AO HAS ALSO OBSERVED THAT ASSESSEE I S NOT MAKING PAYMENT TOWARDS MEDICAL ALLOWANCE BASED ON PERCENTAGE OF SA LARY AS CONTENDED AND IN THAT THERE IS NO NEED TO MAKE A PROVISION TO WARDS MEDICAL ELIGIBILITY FOR FUTURE CLAIM. IT WAS ALSO ASCERTAINED BY THE A O THAT THE AMOUNT OF PROVISION MADE AT RS.30,01,400 HAS NOT BEEN CONSIDE RED TO BE PART OF SALARY AND IT WAS NOT CONSIDERED AS INCOME FROM SAL ARY IN THE HANDS OF EMPLOYEES FOR DEDUCTING TAX U/S. 192 FOR THE YEAR 3 1.03.2008. IT WAS EXPLAINED TO THE AO THAT THE ASSESSEE HAS REIMBURSE D MEDICAL EXPENSES AS CLAIMED BY THE EMPLOYEES DURING THE YEAR TO THE EXTENT OF RS.47,63,680 AND THIS AMOUNT HAS BEEN ADJUSTED AGAINST THE OPENI NG BALANCE OF PROVISION BROUGHT FORWARD AT RS.22,33,722 AND OUT O F THE PROVISION MADE DURING THE YEAR AT RS.45,31,058, THE ASSESSEE HAS M ADE A PROVISION FOR FUTURE CLAIM TO THE EXTENT OF RS.30,01,400. 22. THE AO FURTHER OBSERVED THAT LIABILITY TO PAY R EIMBURSEMENT OF MEDICAL EXPENSES ARISES IN FUTURE ON INCURRING OF M EDICAL EXPENSES BY ITA NOS.585, 558 & 559/BANG/2013 PAGE 14 OF 20 EMPLOYEES AND PUTTING FORTH THEIR CLAIM FOR REIMBUR SEMENT OF THE SAID EXPENSES AND SUCH CLAIM HAS TO BE IN ACCORDANCE WIT H THE SCHEME DEVISED BY THE ASSESSEE COMPANY. THUS THE LIABILITY TO PAY THE REIMBURSEMENT OF MEDICAL EXPENSES IS A CONTINGENT LIABILITY AND NOT LIABILITY IN PRAESENTI. THE AO FURTHER HELD THAT IT IS SETTLED PRINCIPLE OF LAW THAT CONTINGENT LIABILITY CANNOT BE ALLOWED AS AN EXPENDITURE U/S. 37 OF THE ACT AND PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN T HE CASE OF INDIAN MOLASSES CO. (P) LTD. V. CIT, 37 ITR 66 (SC) AND THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. KESAR SUGAR WORKS LTD., 239 ITR 398 . THE AO ACCORDINGLY DISALLOWED THE PROVISION OF R S.30,01,400 MADE TOWARDS MEDICAL LIABILITY FOR FUTURE CLAIM AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 23. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL AND FILED WRITTEN SUBMISSIONS BEFORE THE CIT(APPEALS). THE CIT(APPEA LS) RE-EXAMINED THE CLAIM OF ASSESSEE AND WAS NOT CONVINCED WITH THE CO NTENTION OF THE ASSESSEE AND HE ACCORDINGLY CONFIRMED THE ORDER OF AO, HAVING OBSERVED THAT PAYMENT WAS NOT MERELY CONTINGENT BUT THE LIAB ILITY ITSELF WAS ALSO CONTINGENT. 24. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL REITERATING ITS CONTENTIONS AS RAISED BEFO RE THE CIT(APPEALS). BEFORE THE CIT(APPEALS), THOUGH THE ASSESSEE HAS CO NTENDED THAT IT HAS PAID FRINGE BENEFIT TAX ON THESE PAYMENTS, BUT NO E VIDENCE HAS BEEN FILED ITA NOS.585, 558 & 559/BANG/2013 PAGE 15 OF 20 IN THIS REGARD. UNDISPUTEDLY, THE PAYMENT OF MEDIC AL REIMBURSEMENT WAS MADE ON RECEIPT OF CLAIM FROM THE EMPLOYEES. THE S AID PAYMENT CAN BE MADE DURING THE FINANCIAL YEAR. IN THE ABSENCE OF CLAIM, THERE IS NO ASCERTAINED LIABILITY WHICH ARE TO BE DISCHARGED BY THE ASSESSEE. THEREFORE, WE FIND OURSELVES IN AGREEMENT WITH THE ORDER OF CIT(APPEALS) THAT LIABILITY ITSELF IS A CONTINGENT LIABILITY. T HEREFORE THE PROVISION FOR CONTINGENT LIABILITY HAS TO BE DISALLOWED. WE THER EFORE CONFIRM THE ORDER OF CIT(APPEALS) AS WE FIND NO ERROR IN IT. 25. APROPOS GROUND NO.3 RELATING TO DISALLOWANCE OF LEAVE TRAVEL ALLOWANCE OF RS.30,40,011, THE CLAIM OF PROVISION O F LEAVE TRAVEL ALLOWANCE WAS ALSO DISALLOWED BY THE AO FOR THE SIMILAR REASO NS AS THE PAYMENT OF MEDICAL REIMBURSEMENT. FOR THE SAME REASONS AS DIS CUSSED IN THE FOREGOING PARAGRAPHS, WE FIND NO INFIRMITY IN THE O RDER OF CIT(APPEALS) AND WE CONFIRM THE SAME. 26. APROPOS GROUND NO.4, WHICH RELATES TO THE DISAL LOWANCE OF FOREIGN TRAVEL EXPENSES TO THE TUNE OF RS.38,05,986, WE FIN D THAT THE AO HAS MADE A DISALLOWANCE FOR FOREIGN TRAVEL EXPENSES ON THE G ROUND THAT THE EXPENDITURE RELATE TO NEW PROJECT IN ACQUIRING MINE AT THAILAND. SINCE THE EXPENDITURE RELATING TO NEW PROJECT ON ACQUISITION OF MINE IS A CAPITAL EXPENDITURE AND NOT INCURRED IN CONNECTION WITH BUS INESS CARRIED ON BY THE ASSESSEE. ITA NOS.585, 558 & 559/BANG/2013 PAGE 16 OF 20 27. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(AP PEALS) WITH THE SUBMISSION THAT IT WAS EXTENSION OF EARLIER BUSINES S, THEREFORE IT SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THE CIT(APPEALS) WAS NOT CONVINCED WITH IT AND HE DISALLOWED THE SAME HAVING ACCEPTED THE FINDINGS OF THE AO THAT FOREIGN TRAVEL WAS UNDERTAKEN FOR NEW PROJECT OF QUARY AND NEW MINES AT THAILAND. 28. NOW THE ASSESSEE IS BEFORE THE TRIBUNAL AND REI TERATED ITS ARGUMENTS AS RAISED BEFORE THE CIT(APPEALS), WHEREA S THE LD. DR HAS CONTENDED THAT IT IS FOR THE ASSESSEE TO ESTABLISH THAT EXPENDITURE WAS INCURRED FOR THE BUSINESS EXIGENCIES AND NOT FOR SE TTING UP OF A NEW PROJECT IN THE BUSINESS. 29. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS UNDERTAKEN THE FOREIGN TRAVEL IN CONNECTION WITH TH E PURCHASE OF MINES AT THAILAND. THE ASSESSEE CLAIMED EXPENDITURE INCURRE D THEREON AS REVENUE EXPENDITURE ON THE GROUND OF EXPANSION OF OLD BUSIN ESS, BUT NO DETAILS IN SUPPORT OF ITS CLAIM WERE FURNISHED. IT IS ALSO NO T DISPUTED THAT THE ASSESSEE HAS PURCHASED MINES AT THAILAND, THEREFORE EXPENDITURE INCURRED IN ACQUIRING CAPITAL ASSET HAS TO BE CAPITAL EXPEND ITURE. THE CIT(APPEALS) HAS ADJUDICATED THE ISSUE IN DETAIL IN HIS ORDER AN D WE FIND NO INFIRMITY THEREIN. ACCORDINGLY, WE CONFIRM HIS ORDER. ITA NOS.585, 558 & 559/BANG/2013 PAGE 17 OF 20 30. APROPOS GROUND NO.5 & 6, IT IS NOTICED THAT STA MP DUTY FOR REGISTRATION AND PROCESSING FEE OF THE MINING LEASE WAS CLAIMED TO BE REVENUE EXPENDITURE BY THE ASSESSEE, BUT THE AO TRE ATED THE SAME TO BE CAPITAL EXPENDITURE HAVING RELIED UPON THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF HOTEL RAJMAHAL V. CIT, 152 ITR 218 . 31. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS), BUT THE CIT(APPEALS) HAS FOLLOWING THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT CONFIRMED THE ORDER OF AO AS MINING LEAS E WAS OBTAINED FOR 20 YEARS AND THE EXPENDITURE INCURRED RELATING TO OBTA INING MINING LEASE IS OF CAPITAL NATURE. 32. NOW THE ASSESSEE IS BEFORE US AND REITERATED IT S CONTENTIONS AS RAISED BEFORE THE CIT(APPEALS). 33. THE LD. DR, BESIDES PLACING RELIANCE UPON THE O RDER OF CIT(APPEALS) HAS CONTENDED THAT WHATEVER EXPENDITURE IS INCURRED BY WAY OF LICENCE FEES OR REGISTRATION CHARGES, THEY ALL ARE OF CAPITAL NA TURE. 34. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THE LOWER AUTHOR ITIES HAVE ADJUDICATED THE ISSUE FOLLOWING THE JUDGMENT OF HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF HOTEL RAJMAHAL (SUPRA) . SINCE THE LOWER AUTHORITIES HAVE DECIDED THE ISSUE FOLLOWING THE JUDGMENT OF THE HON'BLE JURISDI CTIONAL HIGH COURT, WE FIND NO INFIRMITY THEREIN. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(APPEALS). ITA NOS.585, 558 & 559/BANG/2013 PAGE 18 OF 20 35. APROPOS GROUND NOS. 7 TO 8, WE FIND THAT THE AO HAS DISALLOWED THE MINING LEASE RENT OF RS.21,81,32,476, HAVING OBSERV ED THAT THE SAID LEASE RENT RELATES TO THE PERIOD FROM 01.01.1974 TO 31.03 .2008. THE ASSESSEE EXPLAINED THAT SINCE THE FOREST DEPARTMENT DEMANDED THE PAYMENT VIDE NOTICE DATED 16.01.2008, THE LIABILITY ACCRUED DURI NG THE YEAR. THE AO DISPUTED THESE FACTS AND OBSERVED THAT LEASE RENT W AS PAYABLE ON ANNUAL BASIS AND LIABILITY TO PAY THE LEASE RENT ACCRUES A T THE END OF THE RESPECTIVE YEAR. HE, HOWEVER, ALLOWED THE LEASE RENT RELATING TO IMPUGNED ASSESSMENT YEAR AT RS.1,42,35,667, BUT THE REMAININ G AMOUNT WAS NOT ALLOWED AS IT WAS NOT CRYSTALLIZED DURING THE YEAR. 36. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) AND FILED WRITTEN SUBMISSIONS BEFORE HIM. THE WRITTEN SUBMIS SIONS WERE CONSIDERED BY THE CIT(APPEALS), BUT HE WAS NOT CONVINCED WITH IT. WHILE CONFIRMING THE ORDER OF THE AO, THE CIT(APPEALS) HAS OBSERVED THAT NO EVIDENCE WAS PLACED TO DEMONSTRATE THAT THE LIABILITY WAS CRYSTA LLIZED DURING THE IMPUGNED YEAR. THROUGH DEMAND NOTICE, IT CANNOT BE SAID THAT LIABILITY HAS BEEN CRYSTALLIZED DURING THE YEAR. THE CIT(APPEALS ) HAS ALSO OBSERVED THAT ONLY LEASE RENT IS TO BE PAID ANNUALLY, BUT TH ERE IS NO REASON TO DEFER IT. 37. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL REITERATING ITS CONTENTIONS, WHEREAS THE L D. DR HAS CONTENDED THAT ANNUAL LEASE RENT IS FIXED AT THE TIME OF GRANTING THE LICENCE FOR MINING. THEREFORE, IT IS A RECURRING LIABILITY AND HAS TO B E DEBITED EVERY YEAR, UNLESS ITA NOS.585, 558 & 559/BANG/2013 PAGE 19 OF 20 AND UNTIL THE ASSESSEE RAISED A DISPUTE WITH RESPEC T TO THE LIABILITY. NO EVIDENCE HAS BEEN PLACED ON RECORD TO DEMONSTRATE T HAT THIS LIABILITY WAS EVER DISPUTED BY THE ASSESSEE. THEREFORE, IT IS TO BE DEBITED TO THE PROFIT & LOSS ACCOUNT ANNUALLY EVERY YEAR. WE FIND NO EVID ENCE ON RECORD THAT THE LIABILITY WAS DISPUTED IN THE EARLIER YEARS AND IT IS CRYSTALLIZED ONLY IN THE IMPUGNED ASSESSMENT YEAR. MERE NOTICE OF DEMAND DO ES NOT DEMONSTRATE THAT LIABILITY WAS DISPUTED IN THE EARLIER YEARS AN D IT IS CRYSTALLIZED IN THE IMPUGNED ASSESSMENT YEAR. THEREFORE, WE FIND NO ME RIT IN THE CONTENTIONS OF THE ASSESSEE. ACCORDINGLY, WE CONFIRM THE ORDE R OF THE CIT(APPEALS), WHO HAS RIGHTLY DISALLOWED THE PRIOR PERIOD EXPENSE S. 38. IN THE RESULT, THE APPEALS OF THE REVENUE AND A SSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF OCTOBER, 2017. SD/- SD/- ( JASON P. BOAZ ) ( SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 11 TH OCTOBER, 2017. / D ESAI S MURTHY / ITA NOS.585, 558 & 559/BANG/2013 PAGE 20 OF 20 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.