ACIT, Circle - 5, Kolkata, Kolkata V. M/s. Essel Mining & Industries Ltd., Kolkata

ITA 56/KOL/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4932 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 21-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2010
• Court: TRIBUNAL
• Department Lawyers: SNEHOTPAL DATTA
• Assessee Lawyers: D S DAMLE
• Keywords: Capital asset; Business expenditure; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A, KO LKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED, AM] ITA NO.56/KOL/2010 ASSESSMENT YEAR : 2006-07 A.C.I.T., CIRCLE-5, .-VERSUS- M/S. ESSEL MINING & INDS.LTD. KOLKATA KOLKATA (PAN:AAACE6607L) (APPELLANT ) (RESPONDENT) FOR THE APPELLANT : SHRI. SNEHOTPAL DATTA, JCIT, SR .DR FOR THE RESPONDENT : SHRI D.S.DAMLE, FCA DATE OF HEARING : 10.02.2016. DATE OF PRONOUNCEMENT : 02.03.2016. ORDER PER SHRI N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE DIRECT ED AGAINST THE ORDER DATED 27.10.2009 OF CIT(A)- V, KOLKATA RELATING TO A.Y.2006-07. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLL OWS :- 1. THAT THE LD.CIT(A) ERRED ON FACT AS WELL AS LA W BY DELETING THE ADDITION OF 'NET PRESENT VALUE' (NPA) OF RS, 1,68,94,820/-, ALTHOUGH IT IS CAPITAL IN NATURE AND HENCE CANNOT BE ALLOWED U/S. 37(1) OF THE I.T. ACT, 1961. THE HONBLE SUPREME COURT HAS LEVIED IT ON MINE OWNERS AS FEES/COMPENSATION FOR THE EARL IER YEARS DURING WHICH THEY HAVE TAKEN OUT 'ORES' FROM 'MOTHER EARTH'. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF RAISING OF ORE, MANUFACTURE OF FERRO ALLOYS. THE ASSESSEE IS ALSO E NGAGED IN TRADING OF IRON ORE AND MINING ORE. IN THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF A SUM OF RS.1,68,94,820/- TOWA RDS NET PRESENT VALUE OF BROKEN AREA (NPV). THE NATURE OF THIS PAYMENT WAS THAT THE ASSESSEE, AS WE HAVE ALREADY SEEN, IS ENGAGED IN THE BUSINESS OF MINING OF ORE. THE ASSESSEE FOR CONTINUATION OF MINING ON FOREST AREAS/LAND HAD BEEN REQUIRED TO PA Y RS.1,68,94,820 TOWARDS NET ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 2 PRESENT VALUE OF BROKEN AREA(NPV). THE SAID PAYMENT HAD BEEN MADE TO THE DIVISIONAL FOREST OFFICER IN PURSUANCE OF THE FORES T (CONSERVATION) ACT, 1980 AND AS PER DEMAND NOTICE DATED 24.11.05 FROM THE DIVISIONA L FOREST OFFICER AND AS PER ORDER DATED 14-16.02.2005 ISSUED BY MINISTRY OF ENV IRONMENT & FORESTS (F. C. DIVISION), GOVERNMENT OF INDIA. FOR THE PURPOSES OF OBTAINING TEMPORARY WORKING PERMISSION FOR MINING THE ABOVE-MENTIONED PAYMENT W AS A PRE-CONDITION. AS PER .THE SUPREME COURT ORDER IN WRIT PETITION (CIVIL) NO. 20 2 OF 1995, NPV WAS TO BE DEPOSITED BY THE USER AGENCY WITH THE STATE FOREST DEPARTMENT AND THE STATE FOREST DEPARTMENT WAS TO MAINTAIN A FUND IN ACCORDANCE WIT H THE GUIDELINES ISSUED UNDER THE FOREST (CONSERVATION) ACT, 1980. ACCORDING TO T HE ASSESSEE, THE PAYMENT OF NPV WAS AN ESSENTIAL PAYMENT REQUIRED TO BE MADE BY THE ASSESSEE FOR CONTINUING ITS EXISTING MINING OPERATION IN KEONJHOR DIVISION OF O RISSA. THE NON-PAYMENT OF NPV WOULD HAVE RESULTED IN ADVERSE CONSEQUENCES INCLUDI NG THE STOPPAGE OF DAY TO DAY MINING OPERATIONS AND THUS FOR THE PURPOSE OF CARRY ING ON ITS MINING BUSINESS THE ASSESSEE WAS COMPULSORILY REQUIRED TO INCUR THE EXP ENDITURE TOWARDS PAYMENT OF NPV. 4. THE NPV REPRESENTED A LEVY TOWARDS COMPENSATION FOR DIVERSION OF THE FOREST LAND INTO MINING ACTIVITIES AND THE LAND IN RESPECT OF WHICH THE PAYMENT WAS MADE, WAS OWNED BY THE FOREST DEPARTMENT. BY MAKING THE P AYMENT OF NVP, NO TANGIBLE ASSET CAME INTO EXISTENCE. THE ASSESSEE ALSO SUBM ITTED THAT THE PAYMENT OF NPV WAS NOT A VOLUNTARY PAYMENT AND IT WAS A PAYMENT ON TH E BASIS OF THE DIRECTION GIVEN BY THE DIVISIONAL FOREST OFFICER, KEONJHOR WORKING UND ER THE MINISTRY OF ENVIRONMENT AND FOREST, GOVERNMENT OF INDIA. IT WAS FURTHER SUB MITTED BY THE ASSESSEE THAT WHENEVER AN UNDERTAKING WAS UNDER AN OBLIGATION TO MAKE CERTAIN PAYMENTS AS PER THE DIRECTIONS OF THE GOVERNMENT, THE CONCERNED UNDERTA KING WOULD BE COMPULSORILY REQUIRED TO MAKE SUCH PAYMENT IN ITS OWN BUSINESS I NTEREST AND, ACCORDINGLY, THE ASSESSEE HAD TO FOLLOW THE SAME. THE ASSESSEE FURTH ER CLARIFIED THAT THE PAYMENT OF NPV BEING A STATUTORY REQUIREMENT WHICH HAD TO BE C OMPLIED WITH BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON OF ITS BUSINESS, THE INCURRING OF SUCH EXPENDITURE SHOULD BE CONSIDERED AS HAVING DIR ECT NEXUS WITH THE BUSINESS ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 3 ACTIVITIES OF THE ASSESSEE. THE ASSESSEE THUS SUBM ITTED THAT BEFORE THE AO THAT THE PAYMENT OF NPV SHOULD BE CONSIDERED AS AN ALLOWABLE REVENUE EXPENDITURE. 5. THE AO WAS HOWEVER OF THE VIEW THAT THE PAYMENT IN QUESTION WAS A ONETIME PAYMENT. HE HELD THAT IN VARIOUS JUDICIAL PRONOUNCE MENTS GENERAL PRINCIPLE TO DECIDE WHEN AN EXPENDITURE CAN BE CONSIDERED AS CAPITAL OR REVENUE HAVE BEEN LAID DOWN. THREE MAJOR CONDITIONS SO LAID DOWN WAS TO SEE AS T O WHETHER (A) THE BENEFIT OF THE EXPENDITURE INCURRED IS FOR SEVERAL YEARS OR FOR O NE YEAR; (B) WHETHER THE EXPENDITURE IS NONRECURRING OUTLAY OR RECURRING OUTLAY; (C) WHE THER IT IS LUMP SUM PAYMENT OR PERIODIC PAYMENT. ACCORDING TO THE AO THE EXPENDITU RE IN QUESTION SATISFIED ALL THE CONDITIONS FOR BEING TREATED AS A CAPITAL EXPENDITU RE. HE THEREFORE DISALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION FOR THE AFORESAID S UM AS REVENUE EXPENDITURE. 6. ON APPEAL BY THE ASSESSEE CIT(A) HELD THAT THE E XPENDITURE WAS REVENUE EXPENDITURE AND HAD TO BE ALLOWED AS DEDUCTION. 7. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HA S PREFERRED THE PRESENT GROUND OF APPEAL BEFORE THE TRIBUNAL. 8. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR T HE ASSESSEE BROUGHT TO OUR NOTICE A DECISION OF THE HONBLE ITAT, KOLKATA BENCH IN TH E CASE OF ACIT VS M/S. GHANASHYAM MISHRA IN ITA NO.122/KOL/2009 AND ITA NO .1521/KOL/2009 FOR A.Y.2005-06 AND 2006-07 ORDER DATED 27.01.2014 WHER EIN IN RESPECT OF AN IDENTICAL PAYMENT MADE BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MINING THIS TRIBUNAL HAD ALLOWED THE DEDUCTION HOLDING THAT THE SAME AS REVE NUE EXPENDITURE. THE FOLLOWING WERE THE OBSERVATIONS OF THE TRIBUNAL. THE QUESTION THAT WAS CONSIDERED BY THE TRIBUNAL IN THE AFORESAID DECISION WAS AS FOLLOWS : - ITA NO.122/KOL/09 1) THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAD ERRED IN LAW AS WELL ON FACTS BY NOT CONSIDERING THAT NET PRESENT VALUE IS A COMPENSATION, PAID BY THE ASSESSEE TO THE FOREST DEPTT., FOR UTILIZATION OF F OREST LAND FOR NON-FOREST PURPOSE. HONBLE SUPREME COURT HAS CATEGORIZED SUCH PAYMENTS AS FEES TO BE PAID BY THE MINE OWNERS TO THE FOREST DEPTT., QUANTIFIED ON THE BASI S OF THE PERIOD FOR WHICH THE MINE ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 4 OWNERS TAKING OUT DIFFERENT ORES, FROM THE MOTHER E ARTH. THEREFORE THE NV IS DIRECTLY LINKED TO THE EARLIER PREVIOUS YEARS WHICH IS NOT A LLOWABLE AS THE BUSINESS EXPENDITURE OF THE 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 MINING 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 ORDER OF THE MIN ISTRY OF ENVIRONMENT & FORESTS (F.C. DIVISION), DATED 10.12.2005, CIRCULATED VIDE F.NO.8 -41/2003-FC, BY VIRTUE OF WHICH THE ASSESSEE GOT RIGHT OF MINING OVER AN ADDITIONAL 25 HECTOR OF BROKEN UP FOREST 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 FACT THAT THE AS SESSEE PAID RS.1,45,00,000/- FOR GETTING THE RIGHT OF MINING OVER AN ADDITIONAL 25 HECTOR OF BROKEN UP FOREST AREA, WHICH IS EVIDENT FROM THE LETTER OF THE DFO, RAIRANGPUR DIVI SION VIDE MEMO NO.5114 DATED 28.11.2005 AND ADDRESSED TO THE CH. CONSERVATOR OF FOREST, BHUBANESWAR, 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 FACT THAT EXPENS ES MADE TO ACQUIRE ANY RIGHT OF BUSINESS IS A CAPITAL EXPENDITURE AND HENCE, NOT AL LOWABLE. 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 BI KANER GYPSUMS LTD.[(1991) 187 ITR 39, 49 (SC)] IN THE CASE OF THE ASSESSEE, WHICH IS NOT AT ALL APPLICABLE. IN THAT CASE THE EXPENSE OF SHIFTING OF RAILWAY TRACK WAS INCURRED B Y THE ASSESSEE FOR THE SMOOTH OPERATION OF THEIR BUSINESS. 8.1. THE TRIBUNAL ON THE ABOVE ISSUE HELD AS FOLLOW S :- 4. LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THA T ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE TRIBUNALS DECISION OF CO-ORDINATE 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. G ODAVARAM THIRUMALPAD (SUPRA) HAS OBSERVED THAT FORESTS ARE VITAL COMPONENTS TO SUSTA IN LIFE SUPPORT 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 / DIVERTED FOR NON-FOREST PURPO SES AND THERE IS CONSEQUENTIAL LOSS OF BENEFITS ACCRUING FROM THE FORESTS, THE USER AGENCY OF SUCH LAND BE REQUIRED TO COMPENSATE FOR THE DIVERSION. HONBLE APEX COURT OB SERVED THAT THE USER AGENCY BE REQUIRED TO MAKE PAYMENT OF NET PRESENT VALUE (NPV) OF SUCH DIVERTED LAND SO AS TO UTILIZE THE AMOUNTS SO RECEIVED FOR GETTING BACK IN LONG RUN THE BENEFITS WHICH ARE LOST BY SUCH DIVERSION. HONBLE APEX COURT VIDE ITS GUID ELINES FOR DETERMINATION OF NPV ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 5 DIRECTED THE MINISTRY OF ENVIRONMENT AND FORESTS TO FORMULATE A SCHEME PROVIDING 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 PERMISS ION SHOULD BE THAT THERE SHOULD BE COMPENSATORY AFFORESTATION, THEN THE RESPONSIBILITY OF THE SAME SHOULD BE THAT OF USER AGENCY. HONBLE APEX COURT OBSERVED THAT THE MONEY SO RECEIVED TOWARDS NPV SHOULD BE USED FOR NATURAL ASSISTED RE-GENERATION, FOREST MANAGEMENT, PROTECTION, INFRASTRUCTURE DEVELOPMENT, WILDLIFE PROTECTION AND MANAGEMENT, SUPPLY OF WOOD AND OTHER FOREST PRODUCE SAVING DEVICES AND OTHER ALLIE D ACTIVITIES. IN THE CONTEXT, HONBLE APEX COURT OBSERVED THAT NPV WILL NOT FALL UNDER AR TICLE 110 OR 199 OR 195 OF THE CONSTITUTION. IT WAS OBSERVED THAT SUCH PAYMENTS WE RE LEVIED FOR RENDERING SERVICE WHICH THE STATE CONSIDERS BENEFICIAL IN PUBLIC INTE REST. IT IS A FEE 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 ENTRY 23 OF LIST III AND THE CHARGE WHICH IS LEVIED FOR THAT PURPOSE WOULD COME UNDER ENTRY 47 OF LIST III. IN THAT CONTEXT, IT WAS HELD BY THEIR LORDSHIPS THAT LEVY OF NPV IS A FEE THAT MEAN S EVERY MINING AGENCY USING AND CONVERTING FOREST LAND TO NON-FOREST PURPOSE HAS TO PAY A FEE FOR CONTINUING CARRYING ON OF THE BUSINESS. WE AGREE WITH LD. AR THAT NON-PAYM ENT OF THIS NPV COULD LEAD TO CONSEQUENCES, INTER ALIA, TO THE STOPPAGE OF THE BU SINESS. THE HONBLE APEX COURT HA HELD IN THE CASE 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 BUSINESS FOR THE PURPOSE OF REMOVAL OF ANY RESTRICTION OR OBSTRUCTION OR DISABILITY WOULD BE ON REVENUE ACCOU NT, PROVIDED THE EXPENDITURE DOES NOT ACQUIRE ANY CAPITAL ASSET. PAYMENTS MADE FOR RE MOVAL OF RESTRICTION, OBSTRUCTION OR DISABILITY MAY RESULT IN ACQUIRING BENEFITS TO THE BUSINESS BUT THAT BY ITSELF WOULD NOT ACQUIRE 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-CONDIT ION TO ENABLE THE ASSESSEE TO CARRY ON ITS MINING ACTIVITIES AND AS SUCH IT IS NOT A VOLUN TARY ONE THAT PAYMENT WAS MADE ON THE BASIS OF DIRECTION GIVEN BY THE DIVISIONAL FOREST O FFICER WORKING IN THE MINISTRY OF ENVIRONMENT AND FORESTS, GOVERNMENT OF INDIA. SINCE THE SAID PAYMENT OF NPV BEING A STATUTORY REQUIREMENT AND HAS TO BE PAID BY THE ASS ESSEE TO CONTINUE TO CARRY ON ITS MINING ACTIVITIES, WE ARE OF THE CONSIDERED VIEW TH AT THE SAID PAYMENT IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON ITS BUSI NESS. HENCE, INCURRING OF SUCH EXPENSES SHOULD BE CONSIDERED AS HAVING DIRECT NEXU S 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 OVERC OME ANY RESTRICTION OR OBSTRUCTION OR DISABILITY THAT HAS ARISEN IN CONTINUING OF MINI NG BUSINESS. WE ARE OF THE CONSIDERED VIEW THAT SINCE IT IS A ONE-TIME PAYMENT, IT COULD NOT BE CONSIDERED 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 IF INCUR RED FOR OBTAINING AN ADVANTAGE OF ANY ENDURING BENEFIT, MAY, NONETHELESS, BE ON REVEN UE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. HONBLE APEX COURT OBSERVED THAT IF THE ADVANTAGE CONSISTED OF MERELY IN FACILITATING THE CONCERNED ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS T O BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNT OUCHED, EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY BE E NDURED FOR AN INDEFINITE FUTURE. ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 6 14. WE OBSERVE THAT IN THE CASE BEFORE US, ASSESSEE HAS GOT RIGHT TO CARRY ON MINING OPERATIONS IN 1982 AND 1985, I.E. LONG TIME AGO BEF ORE THE ASSESSEE WAS ASKED TO PAY NPV AS PER DIRECTION OF HONBLE HIGH COURT AND CONS EQUENTLY ASSESSEE WAS COMPELLED TO MAKE THE PAYMENT TO FACILITATE TO CONTINUE ITS M INING BUSINESS. THEREFORE, THE ABOVE DECISION OF HONBLE APEX COURT IN THE CASE OF BIKAN ER GYPSUMS LIMITED (SUPRA) SQUARELY APPLIES TO THE CASE OF ASSESSEE AND IT COU LD 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 AMOUNT OF RS.6.20 CRORE S TOWARDS CONTRIBUTION TO MINERALS EXPLORATION FUND SET UP BY GOVERNMENT OF I NDIA. THE SAID PAYMENT WAS REQUIRED ON THE DIRECTION OF STATE POLLUTION CONTRO L BOARD AND MINISTRY OF ENVIRONMENT AND FORESTS AS A CONDITION TO RENEW ASSESSEES CLEA RANCE CERTIFICATE. THE FUND WAS SET UP FOR PERIPHERAL DEVELOPMENT WORKS. IT WAS HELD TH AT THE SAID PAYMENT IS NOT A VOLUNTARY ONE AND IT IS A PAYMENT ON THE BASIS OF T HE DIRECTION GIVEN BY THE GOVERNMENT OF INDIA, MINISTRY OF MINES, UNDER WHICH THE ASSESS EE-COMPANY COMES. WHEN A PAYMENT IS MADE AS PER SPECIFIC DIRECTION OF GOVERNMENT OF INDIA, IT CANNOT BUT BE IN THE BUSINESS INTEREST OF THE ASSESSEE-COMPANY TO ABIDE BY SUCH D IRECTIONS OF THE GOVERNMENT OF INDIA. ACCORDINGLY, THIS PAYMENT IS A STATUTORY REQUIREMEN T AND THE EXPENDITURE HAS BEEN CONSIDERED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE O F BUSINESS AND HAS GOT A DIRECT CONNECTION WITH THE BUSINESS ACTIVITY OF THE COMPAN Y. IT WAS HELD THAT SINCE THE ASSESSEE-COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE PROVISIONS HAD BEEN MADE ON THE BASIS OF OFFICE ORDER, THE SAM E WAS RIGHTLY ACCOUNTED FOR IN THE CONCERNED YEA O ACCRUING OF THE LIABILITY AND IT WA S HELD THAT THE SAME WAS ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT . SPECIAL BENCH, ITAT, KOLKATA IN PEERLESS SECURITIES LIMITED VS- JOINT COMMISSIONER OF INCOME TAX [ 93 TTJ 325 (SB)] HELD THAT IF THE ADVANTAGE CONSISTS OF MERELY IN FA CILITATING THE ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT O F ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABILITY W HILE LEAVING THE FIXED CAPITAL UNTOUCHED, EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. AHMEDABAD BENCH, I TAT IN JOINT COMMISSIONER OF INCOME TAX VS.- DEWERSON INDUSTRIES LIMITED [2005 TIOL 236 (AHD.)] HELD THAT PAYMENTS OF SIMILAR NATURE TO MINISTRY OF FOREST AN D ENVIRONMENT, GOVERNMENT OF GUJARAT WERE ALLOWABLE AS BUSINESS EXPENDITURE. ITA T, MUMBAI BENCH IN INDUSTRIAL DEVELOPMENT BANK OF INDIA VS.- DEPUTY COMMISSIONER OF INCOME TAX [ 91 ITD 34 ] HELD THAT EXPENDITURE BY ASSESSEE IN ACCORDANCE WITH STA TUTORY GUIDELINES IS ALLOWABLE BUSINESS EXPENDITURE. HONBLE CALCUTTA HIGH COURT I N CIT VS.- RUNGTA MINES PVT. LT. [ 205 ITR 335 ] HELD THAT WHERE A TRADER, IN HIS CAPACITY AS A TR ADER, BY COMPULSION OF STATUTORY OBLIGATION, HAS TO INCUR AN EXPENDITURE A S A COMPELLING REQUISITE FOR CARRYING ON HIS TRADE, THE EXPENDITURE RESULTING IN A CAPITA L ASSET IN THE HANDS OF A THIRD PARTY, IS TO BE TAKEN AS REVENUE EXPENDITURE BECAUSE NO ASSET ARISES TO THE TRADER BY REASON OF SUCH EXPENDITURE. IT WAS FURTHER HELD THAT WHERE LA W IMPOSES ON THE ASSESSEE, AN OBLIGATION TO INCUR EXPENSES FOR BEING PERMITTED TO PURSUE ITS TRADING ACTIVITY, THE EXPENDITURE WOULD BE AN OUTGOING FROM THE PROFITS O F 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 THAT THE ABOVE EXPEN DITURE OF RS.3,95,56,500/- PAID BY THE ASSESSEE AS NPV TO ENABLE THE ASSESSEE TO CARR Y ON ITS MINING BUSINESS IS REVENUE IN NATURE, WHICH IS ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 7 THEREFORE, WE UPHOLD THE ORDER OF LD. CIT(APPEALS) BY REJECTING GROUND NO.1 OF THE APPEAL TAKEN BY THE DEPARTMENT. 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/200 9 DATED 05-08-2011. 5. ON THE OTHER HAND, LD. SR-DR HAS NOT DENIED THAT THE CO-ORDINATE BENCH DECISION IS NOT APPLICABLE TO THE PRESENT FACTS OF THE CASE BUT HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T.N. GODAVARMAN THIRUM ULPAD V. UNION OF INDIA AND OTHERS (2006) 1 SCC DATED 26-09-2005.ACCORDING TO L D. SR-DR THE NPV IS CONSIDERED AS 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 EXPENDIT URE, THIS LIABLE U/S 37(1) OF THE ACT. ONCE, THIS THE POSITION ISSUE IS SQUARELY COVERED I N FAVOUR OF ASSESSEE AND WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A), HENCE , BOTH THE APPEALS OF REVENUE ARE DISMISSED. 8.2. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL WE HOLD THAT ORDER OF CIT(A) AND DISMISS GROUND NO.1 RAISED BY THE REVENU E. 9. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLO WS :- 2. THAT THE LD. CIT(A) ERRED ON FACT AS WELL AS LA W BY DELETING THE ADDITION OF RS.1,34,08,905/- WHICH WAS UTILISED FOR STARTING A NEW PROJECT, LATER ON ABANDONED ALTHOUGH THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF KANORIA CHEMICALS & INDUSTRIES VS. CIT (1995) 78 TAXMANN 455 (CAL.) S QUARELY APPLIES IN IT. 10. THE ASSESSEE HAD CLAIMED IN THE PROFIT AND LOSS ACCOUNT AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS A SUM OF RS.1,34,08, 905/-. THE AUDITOR IN THE ACCOUNTING POLICIES AND NOTES ON ACCOUNTS HIGHLIGHT ED THE AFORESAID EXPENDITURE AS INCURRED BY THE ASSESSEE TOWARDS EXPLORATION OF VAR IOUS NEW PROJECTS BY THE ASSESSEE WHICH HAVE BEEN CHARGED TO THE PROFIT AND LOSS ACCO UNT AND CANNOT BE ALLOWED AS DEDUCTED TREATING THE SAME AS REVENUE EXPENDITURE. THE ASSESSEE POINTED OUT THAT A TENDER WAS INVITED BY EASTERN COALFIELDS LTD. (ECL) FOR ASSISTING ECL IN EXPANSION OF PRODUCTION OF ITS RAJMAHAL OCP AND CORRESPONDING OV ER BURDEN REMOVAL. THE TENDER WAS AN INTERNATIONAL COMPETITIVE BIDDING INVITED BY THE ECL. FOR THE PURPOSES OF BIDDING THE ASSESSEE HAD TO INCUR EXPENSES AGGREGAT ING TO RS.L,34,08,905 BY WAY OF PAYMENTS TO CONSULTANTS, TRAVELLING AND OTHER RELAT ED EXPENSES. ACCORDING TO THE ASSESSEE, SINCE THE ASSESSEE WAS ALREADY ENGAGED PR IMARILY IN THE BUSINESS OF MINING AND SALE OF IRON ORE IN DOMESTIC MARKET AS WELL AS OVERSEAS, ITS ACT OF BIDDING OF TENDER ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 8 WAS IN THE PROCESS OF CARRYING ON ITS DAY TO DAY BU SINESS OPERATIONS. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT SUBMITT ING TENDERS AND BIDS IN THE FIELD OF MINING AND CORRESPONDING OVER BURDEN REMOVAL, WAS A HIGHLY SOPHISTICATED TECHNICAL TASK FOR WHICH THE ASSESSEE HAD TO INCUR SUBSTANTIA L EXPENDITURE BEFORE SUBMITTING THE BID. IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT INC URRING OF THE EXPENSES TOWARDS PAYMENTS TO CONSULTANTS WHO ACTED AS ADVISERS AND A SSISTED IN THE PREPARATION OF TENDER DOCUMENTS, THEIR TRAVELLING EXPENSES AND OTH ER RELATED EXPENSES, WAS WHOLLY OF REVENUE NATURE. BY INCURRING THOSE EXPENSES THE ASS ESSEE HAD NEITHER ACQUIRED ANY CAPITAL ASSET NOR HAD ACQUIRED ANY BENEFIT OF ENDUR ING NATURE. THE ASSESSEE HOWEVER WAS NOT SUCCESSFUL IN OBTAINING THE BID. THE ASSESS EE SUBMITTED THAT THOUGH IT HAD NOT BEEN SUCCESSFUL IN OBTAINING THE BID, THE RELEVANT EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITURE. 10.1. THE ASSESSING OFFICER HOWEVER WAS OF THE VIEW THAT EXPENDITURE FOR ANY NEW PROJECT COULD NOT BE TREATED AS REVENUE EXPENDITURE AND THAT SHOULD BE CAPITALISED AS PRELIMINARY EXPENSES. ACCORDING TO THE ASSESSING OF FICER THE EXPENSES HAD BEEN INCURRED FOR ESTIMATING CAPITAL AND OPERATING COSTS TOWARDS BIDDING FOR THE CONTRACT. HE THEREFORE DISALLOWED THE CLAIM OF THE ASSESSEE F OR DEDUCTION OF THE AFORESAID SUM AS REVENUE EXPENDITURE. 11. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED T HE ADDITION MADE BY AO OBSERVING AS FOLLOWS :- I HAVE GONE THROUGH THE A/R'S SUBMISSIONS AND PERU SED THE VIEWS TAKEN IN THE ABOVE- REFERRED COURT/TRIBUNAL DECISIONS AS REGARDS THE AL LOWABILITY OF EXPENSES, TOWARDS BIDDING. I ASKED THE AIR TO SUBMIT THE DETAILS OF E XPENSES AGGREGATING TO RS.13,408.905 AS WELL AS THE RELEVANT EVIDENCES. ON GOING THROUGH THE AFORESAID DETAILS I OBSERVE THAT THE APPELLANT'S ACT OF BIDDING OF TENDER WAS IN THE PROCESS OF CARRYING ON ITS DAY TO DAY BUSINESS OPERATIONS. BY INCURRING THE EXPENSES ON T RAVELLING, CONSULTATIONS, ETC. IN RELATION TO THE BIDDING THE APPELLANT HAD NEITHER A CQUIRED ANY CAPITAL ASSET NOR IT HAD ACQUIRED ANY BENEFIT OF ENDURING NATURE. IT IS ALSO TO BE NOTED THAT FAILURE TO SECURE A BID DOES NOT MAKE THE EXPENDITURE DISALLOWABLE. IN THE ASSESSMENT ORDER THE AO TREATED THE ENTIRE EXPENDITURE ALLEGEDLY AS AN EXPENDITURE FOR STARTING A NEW PROJECT AND ON THE BASIS OF HIS SUCH OBSERVATION HE CONSIDERED THE EXP ENDITURE AS ALLEGEDLY OF CAPITAL NATURE. AS EXPLAINED BY THE A/R THE THREE COURT DEC ISIONS AS REFERRED TO BY THE AO ARE DISTINGUISHABLE FROM THE APPELLANT'S CASE AND SO TH OSE CAN BE APPLIED IN THE APPELLANTS CASE. I AM INCLINED TO ACCEPT THE APPELLANTS EXP LANATIONS THAT THE EXPENDITURE INCURRED ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 9 BY THE APPELLANT FOR BIDDING SHOULD BE CONSIDERED AS HAVING BEEN INCURRED FOR EXPLORING THE POSSIBILITY OF EXTENDING THE APPELL ANTS EXISTING MINING BUSINESS AND CONSEQUENTLY THE ENTIRE EXPENDITURE AGGREGATING TO RS.13,408,904 SHOULD BE ALLOWED IRRESPECTIVE OF THE FACT THAT THE APPELLANT ULTIMAT ELY FAILED TO SECURE THE BIDDING. ACCORDINGLY, I DELETE THE DISALLOWANCE OF RS.13,408 ,904. 12. THE LEARNED DR REITERATED THE STAND OF THE AO A S REFLECTED IN THE ORDER OF ASSESSMENT. THE LEARNED COUNSEL FOR THE ASSESSEE RE LIED ON THE ORDER OF CIT(A). 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT PA GE 97 OF THE ASSESSEES PAPER BOOK A COPY OF THE TENDER FOR INTERNATIONAL COMPETI TIVE BIDDING FLOATED BY EASTERN COALFIELD LIMITED HAS BEEN FILED. A PERUSAL OF THE SAME SHOWS THAT EASTERN COALFIELD LIMITED HAD INVITED SEALED TENDERS IN THREE PARTS F ROM TECHNICALLY, FINANCIALLY SOUND INTERESTED PARTIES FROM INDIA AND ABROAD WITH RELEV ANT EXPERIENCE IN MINING AND EXTRACTION OF COAL FOR ASSISTING EASTERN COALFIELD S LIMITED IN EXPANSION OF THE COAL PRODUCTION OF RAJMAHAL OCP FROM 10.5 MTY LEVEL TO 1 7 MTY CAPACITY LEVEL AND CORRESPONDING OVERBURDEN REMOVAL. IT IS A PLEA OF T HE ASSESSEE THAT SINCE THE ASSESSEE WAS ENGAGED PRIMARILY IN THE BUSINESS OF MINING AND SALE OF IRON ORE HAD EXPLORED THE POSSIBILITY OF BIDDING FOR THE AFORESAID TENDER. IN THIS REGARD THE ASSESSEE APPOINTED CONSULTANTS UNDERTOOK TRAVELLING AND INCURRED OTHER RELATED EXPENSES AND THE DETAILS OF THESE EXPENSES ARE GIVEN AT PAGE 26 OF THE ASSESSEE S PAPER BOOK. THE SAME HAD BEEN FILED BY THE ASSESSEE BEFORE AO. THE AO HAD NOT DIS PUTED THE GENUINENESS AND INCURRING OF THE EXPENDITURE, NOR THE PURPOSE FOR W HICH THE SAME WERE INCURRED. HE PROCEEDED ON THE ASSUMPTION THAT THIS EXPENDITURE W AS IN CONNECTION WITH SUPPORTING A NEW PROJECT WHICH WAS ULTIMATELY ABANDONED. HE PR IMARILY PLACED RELIANCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF KANORIA CHEMICALS & INDUSTRIES LTD. VS CIT (1995) 78 TAXMAN 455 (CAL) W HEREIN IT WAS HELD THAT EXPENDITURE INCURRED IN CONNECTION WITH SUPPORTING A NEW PROJECT WHICH HAD TO BE ABANDONED IS OF CAPITAL IN NATURE. THE AO ALSO PLA CED RELIANCE ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTR A CEMENT & CHEMICAL INDUSTRIES LTD. VS CIT 196 ITR 237 AND CIT VS AMBICA MILLS LTD . 236 ITR 921. IN BOTH THE DECISION IT WAS HELD THAT THE EXPENDITURE INCURRED FOR FEASIBILITY REPORT FOR PUTTING UP A NEW PROJECT WHICH DID NOT MATERIALIZE IS A CAPITAL EXPENDITURE. THIS CONCLUSION OF THE ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 10 CIT(A) IN OUR VIEW WAS NOT CORRECT FOR THE REASON T HAT THE ASSESSEE WAS ALREADY ENGAGED IN THE BUSINESS OF MINING AND WAS EXPLORING THE POSSIBILITY OF DOING THE SAME BUSINESS BY WAY OF EXPANSION OF THE EXISTING BUSINE SS. IN THE DECISIONS REFERRED TO BY AO, NEW PROJECTS WERE SOUGHT TO BE EXPLORED BY ASSE SSEE UNCONNECTED WITH THE BUSINESS WHICH THE ASSESSEE WAS CARRYING ON. THEREF ORE THOSE DECISIONS WERE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL TO THE DECISION RENDERED BY THE HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT-5 VS M/S. ESSAR OIL LTD IN ITA NO.921 OF 2006 D ATED 16.10.2008. IN THE AFORESAID DECISION THE HONBLE BOMBAY HIGH COURT TOOK A VIEW THAT THE EXPENDITURE OF A SIMILAR NATURE WAS REVENUE EXPENDITURE. THE ASSESSEE IN THA T CASE WAS IN THE BUSINESS OF OPERATION OF RIGS FOR EXTRACTION OF OIL. THE ASSESS EE EXPLORED THE CHANCES OF DEVELOPMENT IN THE FIELD OF OIL EXPLORATION FOR WHI CH IT HAD TO SUBMIT TENDERS AND INCUR EXPENDITURE IN THAT REGARD. THE ASSESSEE WAS NOT A SUCCESSFUL BIDDER. THE EXPENDITURE IN QUESTION WAS DISALLOWED BY THE REVENUE BY TREATI NG THEM AS CAPITAL EXPENDITURE. THE HONBLE BOMBAY HIGH COURT UPHELD THE ORDER OF T RIBUNAL HOLDING THAT THE EXPENDITURE WAS REVENUE EXPENDITURE. IN OUR VIEW TH E FACTS OF THE AFORESAID CASE ARE IDENTICAL TO THE CASE OF THE ASSESSEE. THEREFORE TH E CONCLUSION DRAWN BY THE CIT(A) IN OUR VIEW IS CORRECT AND DOES NOT CALL FOR ANY INTER FERENCE. ACCORDINGLY GROUND NO.2 BY THE REVENUE IS DISMISSED. 14. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLL OWS :- 3. THAT THE LD. CIT(A) ERRED ON FACT AS WELL AS LA W BY DELETING THE ADDITION OF BAD DEBTS WRITTEN OFF' ALTHOUGH IT DOES NOT QUALIFY THE PROVISIONS OF SECTIONS 36(2) READ WITH SECTION 36(L)(VII) OF THE INCOME TAX ACT, 1961. 15. THE ASSESSEE CLAIMED AS DEDUCTION A SUM OF RS.9 ,09,900/- UNDER THE HEAD BAD DEBTS WRITTEN OFF. THE AO FOUND THAT THE FOLLOWING AMOUNTS CANNOT BE ALLOWED AS DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF : (I) ADVANCES AGAINST EXPENSES RS.5,898/- (II) SECURITY DEPOSIT RS.10,000/- (III) OUTSTANDING ADVANCES RS.6,430/- ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 11 (IV) LOANS AGAINST COMPUTER AND VEHICLE RS.38,748/- TOTAL RS.60,976/- AS THESE EXPENDITURES HAVE NEVER BEEN TREATED AS IN COME IN THE CREDIT SIDE OF PROFIT AND LOSS ACCOUNT, THEREFORE, RS.60,976/- WAS NOT AL LOWED AS BAD DEBTS WRITTEN OFF AS PER SECTION 36(2) READ WITH SECTION 36(1)(VII) OF T HE INCOME TAX ACT, 1961 (ACT). 16. ON APPEAL BY THE ASSESSEE, THE CIT(A) FOUND THA T THESE WERE PAYMENTS MADE BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS AND RELA TED TO THE BUSINESS OF THE ASSESSEE IN THE EARLIER YEARS AND SERVICES FOR WHICH THESE PAYM ENTS WERE MADE CAN NEITHER BE PROCURED BY THE ASSESSEE NOR THE ASSESSEE COULD GET REFUND FOR THE AFORESAID SUM. THESE WERE WRITTEN OFF AND CHARGED TO THE PROFIT AN D LOSS ACCOUNT. THE ASSESSEE THUS POINTED OUT THAT IT WAS AN ALLOWABLE DEDUCTION U/S 37(1) OF THE ACT THOUGH IT HAS BEEN CLAIMED IN THE NOMENCLATURE BAD DEBTS WRITTEN OFF. THE ASSESSEE THUS POINTED OUT THAT REFERENCE MADE BY AO TO THE PROVISION OF SECTION 36 (1)(VII) OF THE ACT R.W..S. 36(2) OF THE ACT WAS NOT RELEVANT. 17. CIT(A) ON CONSIDERATION OF THE AFORESAID SUBMI SSIONS DELETED THE ADDITION MADE BY AO BY OBSERVING AS FOLLOWS :- I HAVE GONE THROUGH THE AJR'S SUBMISSIONS AND ALSO PERUSED THE ASSESSMENT ORDER. IT IS OBSERVED THAT IN THE ASSESSMENT ORDER THE AO HAS JUST NOTED THAT SINCE THE SPECIFIED SUMS AGGREGATING TO RS.60,976 HAD NOT BEEN TREATED AS INCOME IN THE CREDIT SIDE OF THE APPELLANT'S PROFIT & LOSS ACCOUNT, THOSE WERE NOT T O BE ALLOWED AS BAD DEBTS WRITTEN OFF U/S 36(2) READ WITH SECTION 36(1)(VII). I AM INCLIN ED TO ACCEPT THE APPELLANT'S SUBMISSIONS THAT THE ALLOWABILITY OF THE CONCERNED SUMS AGGREGATING TO RS.60,976 SHOULD BE CONSIDERED U/S 37(1) AND NOT U/S 36(1 )(V II)/36(2). THESE WRITE OFFS WERE ACTUAL LOSS SUFFERED BY THE APPELLANT IN RESPECT OF CERTAIN ADVANCES MADE BY IT EARLIER IN COURSE OF ITS BUSINESS AND ACCORDINGLY, THOSE SHOUL D BE CONSIDERED AS HAVING BEEN WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE APPELLANTS BUSINESS. SO THE DISALLOWANCE OF RS.60,976 MADE BY THE AO IS DELETED . 18. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS PREFERRED GROUND NO.3 BEFORE THE TRIBUNAL. ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 12 19. WE HAVE HEARD THE LEARNED DR, WHO RELIED ON THE ORDER OF AO. WE ARE OF THE VIEW THAT THE AMOUNT IN QUESTION WAS ADMITTEDLY CON NECTED WITH THE BUSINESS OF THE ASSESSEE AND THE SUM IN QUESTION WAS SPENT BY THE A SSESSEE FOR THE PURPOSE OF BUSINESS. THE ASSESSEE COULD NEITHER GET REFUND OF THE AFORESAID SUMS NOR THE SERVICES FOR WHICH THE AFORESAID PAYMENTS WERE MADE. WE ARE THEREFORE OF THE VIEW THAT THE CIT(A) RIGHTLY TREATED THESE EXPENDITURE AS ONE INC URRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND ALLOWABLE AS DEDUCTION U/S 37(1) O F THE ACT. WE DO NOT FIND ANY GROUND TO INTERFERE IN THE ORDER OF CIT(A). CONSEQU ENTLY GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 20. GROUND NO.4 RAISED BY THE REVENUE READS AS FOLL OWS :- 4. THAT THE LD, CIT(A) ERRED ON FACT AS WELL AS LA W BY DELETING THE ADDITION ON OR PERIOD' EXPENSES OF RS. 2,03,474/-, ALTHOUGH THE AS SESSEE IS MAINTAINING ITS BOOKS OF ACCOUNTS ON MERCANTILE BASIS AND THERE IS NO PROVIS ION UNDER I.T.ACT 1961 TO ALLOW 'PRIOR PERIOD' EXPENSES. 21. THE ASSESSEE INCURRED SOFTWARE EXPENSES AGGREGA TING TO RS.11,30,951. ON BEING ASKED BY THE ASSESSING OFFICER THE ASSESSEE S UBMITTED THE DETAILS IN RESPECT OF THE SOFTWARE EXPENSES. THE ASSESSING OFFICER FOUND FROM THE DETAILS OF THE AFORESAID EXPENDITURE FURNISHED BY THE ASSESSEE THAT TWO SUMS OF RS.3,474 TOWARDS ASSETS UTILISATION CHARGES AND RS.2,00,000 TOWARDS CONSULT ANCY CHARGES FOR DEVELOPMENT, CUSTOMISATION AND IMPLEMENTATION OF ERP, WERE IN RE LATION TO EARLIER YEAR AND SO THOSE TWO SUMS AGGREGATING TO RS.2,03,474 WAS TO BE DISAL LOWED AS PRIOR PERIOD EXPENSES. 22. BEFORE CIT(A), THE ASSSESSEE POINTED OUT THAT T HE ASSESSING OFFICER FAILED TO APPRECIATE THAT ADVANCE PAYMENT OF RS. 2,00,000/- W AS MADE IN EARLIER YEAR TOWARDS IMPLEMENTATION OF ERP AND THE ASSESSEE RIGHTLY CLAI MED THE TOTAL EXPENDITURE OF RS.10,96,214/- ON COMPLETION OF IMPLEMENTATION OF E RP IN THE ASSESSMENT YEAR 2006- 07. 23. THE CIT(A) DELETED THE ADDITION MADE BY AO OBSE RVING AS FOLLOWS :- I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE A/R AS WELL AS THE DETAILS SUBMITTED BY HIM IN RESPECT OF THE SOFTWARE EXPENSES AGGREGAT ING TO RS.1,103,591. I OBSERVE THAT ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 13 RS.2,00,000 TOWARDS CONSULTATION CHARGES HAD BEEN P AID BY THE APPELLANT AS ADVANCE IN THE FINANCIAL YEAR 2004-05 AND ON COMPLETION OF THE PROCESS OF IMPLEMENTATION OF ERP IN THE FINANCIAL YEAR 2005-06 THE SAID ADVANCE WAS ADJUSTED AS A PART OF SOFTWARE EXPENSES. THIS IS A PROPER SYSTEM OF ACCOUNTING UND ER THE MERCANTILE METHOD OF ACCOUNTING AND HENCE THIS SHOULD NOT BE CONSIDERED AS ANY ALLEGED 'EARLIER YEAR EXPENDITURE'. ACCORDINGLY I DELETE THE DISALLOWANCE OF RS.200,000 MADE BY THE AO AND HOLD THE SAID SUM OF RS.200,000 AS ALLOWABLE IN THE ASSESSMENT YEAR 2006-07. AS REGARDS THE OTHER SUM OF RS.3,474, IN VIEW OF TH E FACT THAT THE LIABILITY FOR THE SAID SUM HAD BEEN SETTLED IN THE FINANCIAL YEAR 2005-06, I ACCEPT THE APPELLANT'S SUBMISSION THAT THE SUM OF RS.3,474 SHOULD BE CONSIDERED AS AL LOWABLE IN THE ASSESSMENT YEAR 2006-07. ACCORDINGLY THE DISALLOWANCE OF RS.3,474 I S DELETED. 24. AGGRIEVED BY THE ORDER OF CIT(A) REVENUE HAS P REFERRED GROUND NO.4 BEFORE THE TRIBUNAL. 25. AFTER HEARING THE RIVAL SUBMISSIONS WE ARE OF T HE VIEW THAT THE ORDER OF CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. THE SUM OF RS.2 ,00,000/- WAS INCURRED AS CONSULTATION CHARGES PAID AS ADVANCE IN THE FINANCI AL YEAR 2004-05 FOR IMPLEMENTATION OF ERP AND IN THE FINANCIAL YEAR 2005-06 WAS IMPLE MENTED AND ADVANCE PAYMENT ADJUSTED AS PART OF SOFTWARE EXPENSES. THE ACCRUAL OF EXPENDITURE WAS THEREFORE RIGHTLY SHOWN IN A.Y.2006-07 BY THE ASSESSEE AND ALSO A SUM OF RS.3,474/- WAS TREATED AS ALLOWABLE IN A.Y.2006-07, WHEN THE SUM IN QUESTION WAS ULTIMATELY SETTLED. WE DO NOT FIND ANY MERITS IN GROUND NO.4 AND THE SAME IS ACCORDINGLY DISMISSED. 26. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 02.03.2016. SD/- SD/- [WASEEM AHMED] [N.V.VASUDEVAN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 02.03.2016. R.G.(.P.S.) ITA NO.56/KOL/2010 M/S. ESSEL MINING & INDUSTRIES LTD. A.YR.2006-07 14 COPY OF THE ORDER FORWARDED TO: 1. M/S. ESSEL MINING & INDUSTRIES LTD., 10, CAMAC S TREET, KOLKATA-700017. 2 THE A.C.I.T., CIRCLE-5, KOLKATA. 3. CIT(A)-V, KOLKATA 4. CIT-II, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES