Sesa Mining Corporation Limited, Panaji V. DCIT, Circle - 1(1), Panaji

ITA 7/PAN/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7902 (ITAT-PANAJI)
• Duration Of Justice: 3 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 07-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 143(3); 14A; 37(1); 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI – VIRTUAL COURT BEFORE SHRI INTURI RAMA RAO, AM AND SHRI S. S. VISWANETHRA RAVI, JM आयकर अपील सं. / ITA No.07/PAN/2018 िनधाᭅरण वषᭅ / Assessment Year : 2012-13 Sesa Mining Corporation Limited, Sesa Ghor, 20 EDC Complex, Patto, Panaji-403001. PAN : AAACD7444G .......अपीलाथᱮ / Appellant बनाम / V/s. DCIT, Circle-1(1), Panaji. ......ᮧ᭜यथᱮ / Respondent Assessee by : Shri Vijay Gupta Revenue by : Shri Sourabh Nayak सुनवाई कᳱ तारीख / Date of Hearing : 11.11.2021 घोषणा कᳱ तारीख / Date of Pronouncement : 23.11.2021 आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)-1, Panaji (‘CIT(A)’ for short) dated 03.10.2017 for the assessment year 2012-13. 2. Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of mining. The return of income for the assessment year 2012-13 was filed by the assessee on 25.09.2012 declaring total income of Rs.42,91,45,190/-. Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax, Circle-1(1), Panaji (‘the Assessing Officer’) vide order dated 26.03.2015 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.55,73,70,077/-. While doing so, the Assessing Officer made (i) addition of Rs.3,18,107/- under the 2 ITA No.07/PAN/2018 provisions of section 14A as expenditure incurred for earning the exempt income; (ii) disallowance of additional depreciation of Rs.12,14,31,489/- on the plant & machinery purchased during the year under consideration; and, (iii) disallowance of capital expenditure of Rs.64,75,291/- incurred by the assessee for providing infrastructure facilities in villages around the mines like construction, renovations, maintenance of schools buildings, bore walls, toilets etc. The Assessing Officer was of the opinion that as result of this expenditure an asset is created and, accordingly, held to be capital expenditure and disallowed the same. 3. Being aggrieved by the above action of the Assessing Officer, an appeal was preferred before the ld. CIT(A), who vide impugned order confirmed the addition of Rs.3,18,107/- made under the provisions of section 14A and also confirmed the addition of Rs.64,75,291/- as capital expenditure. However, as regards to the disallowance of additional depreciation, the same was allowed by the ld. CIT(A) in favour of the assessee. 4. Being aggrieved by the above decision of the ld. CIT(A), the appellant is in appeal before us in the present appeal. 5. The ld. AR contended that no addition u/s 14A should be made without giving a finding as to how the contention of the assessee that the assessee incurred the expenditure was incorrect. Further, it is submitted that as regards to the expenditure incurred on providing infrastructure facilities in the mining areas, the expenditure was incurred to earn goodwill in locality where the mines were situated and the same is allowable as deduction in the light of 3 ITA No.07/PAN/2018 the decision of the Hon’ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, 223 ITR 101 (SC). 6. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities. 7. We heard the rival submissions and perused the material on record. The first issue raised by the assessee in the grounds of appeal relates to the addition made u/s 14A by the Assessing Officer as confirmed by the ld. CIT(A). The Assessing Officer made addition of Rs.3,18,107/- u/s 14A r.w.r. 8D [Rs.15,090/- under Rule 8D(2)(ii) and Rs.3,03,017/- under Rule 8D(2)(iii)] rejecting the contention of the appellant that no expenditure was incurred to earn the exempt income and no borrowed funds were invested for the purpose of making the investment in mutual funds. The findings of the Assessing Officer were also confirmed by the ld. CIT(A). On going through the Balance Sheet, it is clear that the assessee had not incurred any interest expenditure. The expenditure incurred is only on bank guarantee charges which is not incurred for providing bank guarantee charges to BCH Electricity Department and, therefore, the question of any disallowance of interest under Rule 8D(2)(ii) does not arise. As regards to the disallowance under Rule 8D(2)(iii), the contention of the appellant is that no expenditure was incurred to earn the exempt income. It is remained uncontroverted by the lower authorities. The Jurisdictional High Court in the case of CIT vs. Sociedade De Fomento Industrial Pvt. Ltd., 429 ITR 207 held that in the absence of any evidence that the assessee had incurred any indirect expenditure, no addition can be made by holding as under :- 4 ITA No.07/PAN/2018 “50. In CIT v. Calcutta Knitwears, (2014) 6 SCC 444, the Supreme Court has observed that the language of a taxing statute should ordinarily be read and understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative animation. A taxing statute should be strictly construed; common-sense approach, equity, logic, ethics and morality have no role to play. Nothing is to be read in; nothing is to be implied; one can only look fairly at the language used and nothing more and nothing less. In fact, Calcutta Knitwears echoes the King's Bench decision in Cape Brandy Syndicate v. IRC, (1921) 1 KB 64, which has felicitously held that in a taxing statute, one has to look at what is clearly said. There is no room for any internment. There is no equity about a tax. There is no presumption as to a tax. 51. So, in the face of the above facts and in the light of the above- quoted judicial dicta, we reckon the Tribunal has correctly held that the Assessee has been entitled to the exemption under section 14A of the IT Act, read with Rule 8D of the IT Rules, as well.” 8. As a result of the above discussion, it is clear that in the absence of any evidence that the assessee had incurred any indirect expenditure, no addition can be made u/s 14A of the Act. Accordingly, the first issue raised by the assessee in the grounds of appeal stands allowed. 9. The second issue raised by the assessee in the grounds of appeal relates to the addition of Rs.64,75,291/- on account of expenditure incurred on providing the infrastructure facilities in the mining areas. During the previous year relevant to the assessment year under consideration, the appellant had incurred the expenditure on the following expenses :- Sr.No. Particulars Amount (Rs.) 1 Contribution for construction of Crematorium at Bicholim 11,88,487 2 Contribution for construction/ repair work of Temple of Bicholim 34,86,804 3 Contribution paid to Sangath – Society for child development and family guidance – Promotion of health and education of childrens in schools in Bicholim 18,00,000 64,75,291 5 ITA No.07/PAN/2018 10. The business of mining of iron ore and its mines are located in Bicholim Talukain in North Goa which is surrounded by many villages where people are living. The appellant in order to minimize the impact of mining operations on the environment, the society and stakeholders to carry on mining in a peaceful manner had continuously strived to champion the best practices in environmental initiatives and up-liftment of the society and its stakeholders. Accordingly the appellant provided infrastructure facilities and various other facilities as listed above thereby empowering the villagers in providing them good standard of living and for allowing the appellant to carry on the mining operations peacefully in the society where there is a growing awareness towards the environmental deterioration and overall impact on the society and stakeholders. Further the expenses are necessary to continue in the business, protecting the goodwill and reputation, defending attacks and increasing business competitiveness. 11. The first item of contribution was made by the appellant accordance with the minutes of meeting held on 19/07/2011 wherein existing crematorium which was in the mining lease was shifted to another location, so that the appellant could carry out its mining activity with ease. The copy of the minutes of the meeting is included in the Paper book at page no.141 to 143. 12. The second item of contribution was made by the appellant toward re- construction of the temple which was situated very close to the mining operation of the Appellant. At the request of the committee of Shree Lairai Sausthan where the Appellants carries its mining operations. The copy of such 6 ITA No.07/PAN/2018 request letter and management approval which is self-explanatory is included in the Paper book at page no.144 to 147. 13. The third item of contribution was made by the appellant was towards social initiative aimed at promoting adolescent health and education among the students in and around the mines of the appellant. The copy of such agreement is included in the Paper book at page no.148 to 153. 14. It will be seen from above that all the contribution was made to strengthen the Appellants engagement with stakeholders in the local communities situated in the vicinity of its mining operations in Bicholim as a gesture of the compensation towards various demands and grievances of villagers as to the alleged damages owing to appellant's mining activity in the area and was meant to pre-empt any compensation claim and to maintain smooth functioning of appellant’s operation and the cordial relation with said villagers. The motive behind incurring the said expenditure was to protect the business goodwill and to keep strong healthy relation within the area of its mining operations and with that to increasing its business competitiveness. The expenditure was to run the business more efficiently and conveniently and as a matter of business prudence, there was justification on the part of the appellant to contribute such amounts. The Assessing Officer disallowed the same holding it to be capital expenditure. Even before the ld. CIT(A), the same was confirmed. 15. Being aggrieved, the appellant is in appeal before us in the present appeal. 7 ITA No.07/PAN/2018 16. It is stated that the expenditure was incurred by the assessee company in order to buy goodwill peace of locality where the mining area of the appellant is situated and, therefore, the expenditure was incurred wholly and exclusively for the purpose of business. It is submitted that in the light of the following decisions, the same should be allowed as revenue expenditure :- (i) PCIT vs. Gujarat Narmada Valley Fertilizer and Chemicals Ltd., 422 ITR 164 (Gujarat); and, (ii) Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, 223 ITR 101 (SC). 17. On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities. 18. We heard the rival submissions and perused the material on record. The second issue raised by the assessee in the grounds of appeal relates to the disallowance of expenditure of Rs.64,75,291/- on account of expenditure incurred on providing the infrastructure facilities in the mining areas where the business of the appellant is located. The appellant had laid down factual foundation establishing the business expediency for incurring the expenditure as stated above. The submission made on this behalf remained uncontroverted by the lower authorities. As a result of this expenditure, the assessee had not derived any benefit of enduring the nature nor was result in creation of any asset of enduring nature. Therefore, the ratio of the decision of the Hon’ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. (supra) is squarely applicable. It must also be stated herein that the expenditure was incurred in terms of the agreement entered into with the residents of the locality where the business is being carrying on. Therefore, the 8 ITA No.07/PAN/2018 ratio of the decision of the Hon’ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. (supra) is squarely applicable. Recently, the Hon’ble Karnataka High Court in the case of Kanhaiyalal Dudheria vs. JCIT, 418 ITR 410 held that this kind of expenditure should be allowed as a deduction of revenue expenditure after referring to following judicial precedents :- (i) CIT v. Nainital Bank Ltd., 62 ITR 638 (SC); (ii) CIT v. Delhi Safe Deposit Co. Ltd., 133 ITR 756 (SC); (iii) CIT v. Panipat Woollen & General Mills Co. Ltd., 103 ITR 66 (SC); (iv) Eastern Investments Ltd. v. CIT, 20 ITR 1 (SC); (v) CIT v. Infosys Technologies Ltd., 360 ITR 714 (Kar.); (vi) Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT, 223 ITR 101 (SC); and, (vii) S.A. Builders Ltd. v. CIT, 288 ITR 1 (SC). 19. The relevant observation of the Hon’ble Karnataka High Court in the case of Kanhaiyalal Dudheria (supra) as under :- “28. In the light of the analysis of the case laws above referred to, it cannot be gain said by the revenue that contribution made by an assessee to a public welfare cause is not directly connected or related with the carrying on of the assessee's business. As to whether such activity undertaken and discharged by the assessee would benefit to the assessee's business has to be examined in the light of the observations made by us herein above. Tribunal committed a serious error in arriving at a conclusion that MOU entered into between the assessee and the Government of Karnataka is opposed to public policy and void under Section 23 of the Contract Act. In fact, Hon'ble Apex Court in case of Sri Venkata Satyanarayana Rice Mill Contractors company's case referred to herein supra has held that where a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Ministers Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business cannot be regarded as payment opposed to public policy. It came to be further held making of a donation for charitable or public cause or in the public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under Section 37(1) of the Act, when such payment has been made for the purposes of assessee's business. In fact, it can be noticed under the MOU in question which came to be entered into by the assessee with Government of Karnataka was on account of the clarion call 9 ITA No.07/PAN/2018 given by the then Chief Minister of Karnataka in the hour of crisis to all the Philanthropist, industrial and commercial enterprises to extended their whole hearted support and the entire logistic support has been extended by the Government of Karnataka namely, providing land and design of the house to be constructed, approval of layout and to take care of all local problems. Infact, the State Government had also agreed to exempt such of those persons who undertake to execute the work from the purview of sale tax, royalty, entry tax and other related State taxes and is said to have extended to the appellant also. In this background it cannot be construed that MOU entered into between the assessee and the Government of Karnataka is opposed to public policy. 29. In the facts on hand, it requires to be noticed that assessee is carrying of business of iron ore and also trading in iron ore. Thus, day in and day out the assessee would be approaching the appropriate Government and its authorities for grant of permits, licenses and as such the assessee in its wisdom and as prudent business decision has entered into MOU with the Government of Karnataka and incurred the expenditure towards construction of houses for the needy persons, not only as a social responsibility but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit which is the ultimate object of conducting business and as such, expenditure incurred by the assessee would be in the realm of "business expenditure". Hence, the orders passed by the authorities would not stand the test of law and is liable to be set aside.” 20. The facts of the present case are identical to the facts of the case decided by the Hon’ble Karnataka High Court in the case of Kanhaiyalal Dudheria (supra). Respectfully following the decision of the Hon’ble Karnataka High Court (supra), we hold that this expenditure should allowed as revenue expenditure. Accordingly, the second issue raised by the assessee in the grounds of appeal stands allowed. 21. In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 23 rd day of November, 2021. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) ᭠याियक सद᭭य/JUDICIAL MEMBER लेखा सद᭭य/ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 23 rd November, 2021. Sujeet 10 ITA No.07/PAN/2018 आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-1, Panaji. 4. The Pr. CIT, Panaji. 5. DR, ITAT, Panaji. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.