Jitendra Nath Patnaik, Keonjhar V. JCIT, Sambalpur

ITA 9/CTK/2012

• Counselvise Citation: 922114 RSA 2012
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 16-02-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 06-01-2012
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: S C BHADRAAR
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM, AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 09/CTK/2012 (ASSESSMENT YEAR 2008 - 09) JITENDRA NATH PATNAIK, BONEIKALA, JODA, KEONJHAR, ORISSA PAN: ABFPP 3817 J VERSUS JT. COMMISSIONER OF INCOME - TAX, RANGE 1(1), SAMBALPUR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI S.C.BHADRA,AR FOR THE RESPONDENT SMT. PARAMITA TRIPATHY, DR DATE OF HEARING : 16.02.2012 DATE OF PRONOUNCEMENT : 14.03.2012 ORDER SHRI K.K.G UPTA, AM : THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DT.21.11.2011 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE ONLY GROUND RAISED IN THIS APPEAL IS AGAINST THE DISALLOWANCE OF EXPENDITURE OF 39,80,990 UNDER THE HE AD OVERBURDEN CUTTING AND REMOVAL OF ORE HOLDING THE SAME AS CAPITAL IN NATURE. 3. THE UNDISPUTED FACTS RELEVANT TO THE ISSUE ARE THAT THE ASSESSEE IS CARRYING ON BUSINESS OF MINING OPERATION BY OBTAINING LEASE OF IRON ORE MINES FROM GOVERNMENT OF ORISS A. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED EXPENSES ON ACCOUNT OF PICKING AND DRESSING CHARGES OF 40,63,315 INCURRED FOR CUTTING OF OVERBURDEN TO REACH THE LAYER OF IRON ORE AND OVERBURDEN REMOVAL CHARGES OF 39,80,990 INCURRED FOR TRANSPORTING OF OVERBURDEN. THE ASSESSING OFFICER ANALYZED THE VARIOUS STAGES OF THE MINING ACTIVITIES BY OBSERVING THAT IN MINING, THE ORE DEPOSIT IS EMBEDDED IN SOIL BENEATH THE HEAVY OVERBURDEN. THE OVERBURDEN CONSISTS OF HARD STONE ON THE TOP AND SUB SEQUENTLY OVERBURDEN IN THE FORM OF SOFT STONE, EARTH AND MORUM. THE ORE CAN BE EXPLOITED AND IT REQUIRES ENTIRE CUTTING OR OVERBURDEN FROM THE TOP OF THE ORE BODY AND THERE AFTER WINNING THE ORES. AFTER OVERBURDEN IS ITA NO.09/CTK/2012 2 BLASTED ON THE TOP IT IS LIFTED AND REMOVED TO A MARKED DUMP. IN THE PROCESS OF RAISING OF IRON ORE FURTHER SEGREGATION OF THE ORE IS DONE AND THE ORE IN THE LUM P FORM IS BROKEN TO SIZE BEFORE BEING SHIFTED FROM THE FACES TO THE CRUSHER OR SCREEN. FOR PRODUCTION, DRILLING AND BLASTING IS EXTENSIVELY USED. FOR OVERBURDEN CUTTING, BLASTING IS REQUIRED AND THEREAFTER FOR MINERAL ORE RAISING , BLASTING IS ALSO REQUIRED . DEEP HOLES ARE MADE IN THE STRATA AND THEREAFTER THE SAME ARE BLASTED IN THE MINES. THE ORE AFTER BROKEN INTO PIECES IS SHIFTED FROM THE FACES TO A LOWER BENCH AND THERE AFTER REMOVED TO VARIOUS DUMPS. THE UN - EVEN PORTION OF THE QUERY IS LEVELED TO MAKE S YSTEMATIC BENCHES. ONCE THE O R E IS FOUND IN A PARTICULAR BENCH OR A BENCH OR A PLACE , IT HAS TO BE EXPOSED FROM ALL SIDES TO BRING IT INTO A SHAPE OF QUERY MAKING BENCHES RAGING FROM 3.5 METERS HEIGHT TO 6 METERS HEIGHT. CONSIDERING ABOVE OPERATION, THE AS SESSING OFFICER HELD THAT THE EXPENDITURE INCURRED IN THE ABOVE OPERATIONS IS PROSPECTIVE EXPENDITURE WITHIN THE AMBIT OF SECTION 35E OF THE I.T.ACT, 1961 AND AS SUCH, CAPITAL NATURE, BY RELYING ON THE DECISION IN T HE CASE OF MUTHALAH CHETTAIR (M. L.M) V. CIT [ 101 ITR 209 (MAD) ] AND DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE COMMISSIONER OF INCOME - TAX (APPEALS). 4. BEFORE THE LEARNED CIT(A), IT WAS CONTENDED BY THE ASSESSEE THAT THE WORD PROSPECTING MEANS EF FORTS OR POSSIBILITY OF FINDING MINERALS IN SOME PARTICULARS ARE. THERE IS NO RELATION OF OVERBURDEN CUTTING AND REMOVAL EXPENSES WITH THE EXPENSES RELATING TO PROSPECTING AS IT IS A POST - PROSPECTIVE ACTIVITY WHICH IS REVENUE NATURE. RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF NEYVELI LIGNITE CORPORATION LTD., V. ASST.COMMISSIONER OF INCOME - TAX [120 TTJ 1096 AND AMALAGAMATED JAMBAD SYNDICATE PVT. LTD. V. CIT, WEST BENGAL III (117 ITR 698). IT WAS ALSO SUBMITTED THAT THE ASSESSEE OWNS OPEN CAST IRON M INE WHICH HAS BEEN IDENTIFIED LONG BACK AND MINING OPERATION ITA NO.09/CTK/2012 3 STARTED FROM THE YEAR 1960 AND BASICALLY NO PRE - DEVELOPMENT ACTIVITY IN RELATION TO SUCH MINES APART FROM MINING OF IRON ORE. THE EXPENDITURE HAS BEEN INCURRED IN CONTINUOUS BASIS IN REMOVAL OF O VERBURDEN SO AS TO EXTRACT THE IRON ORE. THE PRODUCTION OF IRON ORE AND OVERBURDEN CUTTING AND REMOVAL ARE INTERDEPENDENT AND CO - EXIST AND WERE INALIENABLE. THEREFORE, THE ABOVE EXPENDITURE IS ALLOWABLE BEING REVENUE IN NATURE. THE LEARNED CIT(A) ALLOWED T HE PICKING AND DRESSING EXPENDITURE OF 40,63,315 INCURRED BY THE ASSESSEE IS ALLOWABLE AS REVENUE EXPENDITURE BUT DISALLOWED THE CLAIM OF 39,80,990 AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER BY HOLDING THE SAME AS CAPITAL NATURE. HE RELIED ON THE DECISIONS IN THE CASE OF COLTNESS I RON CO. V. BLACK [(1881) 1 TC 287 (HL), MORANT V. WHEAT GR ENVILE MINING CO. [(1984) 3 TC 298 (QB)], IN RE, ADDILE & SONS (19875) 1 TC 1 AND UNITED COLLIERIES LTD V. COMMRS. OF INL.REV (1929) 12 TC 1248 (C.SESS) FOR THE PROPOSITION THAT THE EXPENDITURE INCU RRED FOR SINKING NEW PITS IS OF CAPITAL NATURE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. SHRI S.C.BHADRA, LEARNED AR OF THE ASSESSEE CONTENDED THAT THE ASSESSEE IS CARRYING ON BUSINESS OF MINING OPERATION BY OBTAINING LEASE OF IRON ORE MINES FROM GOVERNMENT OF ORISSA. PRIOR TO OBTAINING MINING LEASE AT BHANJPALI, KOIRA IN SUNDARGARH DISTRICT, HE APPLIED AND GRANTED PROSPECTING LICENCE TO PROSPECT FOR IRON ORE IN THE LAND SPECIFIED IN THE AGREEMENT WITH THE GOVERNMENT OF ORISSA. THE PROSP ECTING PERIOD WAS LIMITED TO TWO (2) YEARS. HE HAS FURNISHED THE COPY OF PROSPECTING LICENCE GRANTED ON 25.08.1992, WHICH IS PLACED AT PAGE IS PLACED IN PAGE - 21 OF THE PAPER BOOK. HE SUBMITTED THAT A FTER PROSPECTING AND SUBMITTING MINING PLAN, MINING LEASE WAS GRANTED TO THE ASSESSEE 1 APRIL 1997 FOR A TERM OF 30 YEARS. HE HAS FURNISHED THE COPY OF MINING LEASE AGREEMENT , WHICH IS PLACED AT PAGES - 25 TO 27 OF THE PAPER BOOK. BASING ON THESE TWO DOCUMENTS, THE LEARNED AR OF THE ITA NO.09/CTK/2012 4 ASSESSEE THAT THE ASSESSEE CAR RIED OUT PROSPECTING ACTIVITIES OF IRON ORE FROM 25.08.1992 AND COMMERCIAL PRODUCTION COMMENCED FROM 1 APRIL 1997. THEREFORE, THE ASSESSEE IS CARRYING ON COMMERCIAL PRODUCTION OF IRON ORE FOR MORE THAN 11 YEARS CONTINUOUSLY. IN VIEW OF THE ABOVE, HE CONTEN DED THAT W HEN THE MINING LEASE IS CONTINUING AND THE OPERATION IS GOING ON FOR LAST 11 YEARS, THE QUESTION OF PROSPECTING AS CONTAINED IN SECTION 35 (E) OF INCOME TAX ACT DOES NOT ARISE. HE FURTHER SUBMITTED THAT A S PER THE MINING REGULATION , ANY PERSON CA N APPLY FOR MINING LEASE BY SIMPLY MAKING A REQUEST TO THE GOVERNMENT. AFTER CONSIDERING HIS APPLICATION, GOVERNMENT ISSUES PROSPECTING LICENCE IN GENERAL FOR TWO (2) YEARS TO E XPLORE THE AVAILABILITY OF LRON/ MANGANESE ORE, IN THAT PARTICULAR AREA AND THE ESTIMATED QUANTITY OF MINERAL CONTAINED IN THAT AREA. IF THE PROSPECTING IS SUCCESSFULLY DONE, THEN THE APPLICANT PREPARES MINING PLANS WITH THE HELP OF THE APPROVED CONSULTANTS AND SUBMITS THE SAME TO THE GOVERNMENT, ALONG WITH THE APPLICATION TO GRANT MI NING LEASE. AFTER COMPLETION OF SO MANY FORMALITIES, THE MINING LEASE IS GRANTED FOR A SPECIFIC PERIOD. AFTER OBTAIN ING THE MINING LICENCE, FOREST CL EARANCE, THE APPLICANT CAN ONLY START ITS BUSINESS OF MINING. NO BODY CAN START COMMERCIAL PRODUCTION WITHOU T OBTAINING PROSPECTING LICENCE AND CARRY OUT THE PROSPECTING ACTIVITIES. THE ASSESSEE IS DOING COMMERCIAL PRODUCTION OF IRON ORE FOR MORE THAN 11 YEARS. THEREFORE, BY NO STRETCH OF IMAGINATION, ANY EXPENDITURE INCURRED IN THE ASSESSMENT YEAR UNDER CONSIDE RATION CAN BE ATTRIBUTED TO THE PROSPECTING ACTIVITIES. T HERE WERE NO PRE - DEVELOPMENT ACTIVITIES IN RELATION TO PROSPECTING ANY MINERALS APART FROM MINING OF IRON ORE. THE REMOVAL OF OVERBURDEN IS A CONTINUOUS OPERATION WHICH IS CARRIED ON SIMULTANEOUSLY W ITH THE PRODUCTION OF IRON ORE. THEREFORE, THE AUTHORITIES BELOW ERRED IN HOLDING THE OVERBURDEN REMOVAL CHARGES OF 39,80,990 AS CAPITAL NATURE AND THUS DISALLOWED THE CLAIM OF THE ITA NO.09/CTK/2012 5 ASSESSEE. HE, THEREFORE, PRAYED TO SET ASIDE THE IMPUGNED ORDERS OF THE LO WER AUTHORITIES AND TO ALLOW THE CLAIM OF THE ASSESSEE. 6. SMT.PARAMITA TRIPATHY, LEARNED DR, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A). RELYING ON THE DECISIONS, AS RELIED ON BY THE LEARNED CIT(A), SHE CONTENDED THAT THE EXPEND ITURE INCURRED FOR SINKING NEW PITS IS OF CAPITAL NATURE AND THEREFORE, THE DISALLOWANCE AS CONFIRMED BY THE LEARNED CIT(A) IS JUSTIFIED, WHICH NEEDS NO INTEREFERENCE. 7. HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AS SESSING OFFICER HAS HELD THE EXPENDITURE IN QUESTION AS INCURRED IN OPERATION RELATING TO PROSPECTING MINE S WITHIN THE AMBIT OF DEFINITION OF SECTION 35E OF THE I.T.ACT,1961. OPERATION RELATING TO PROSPECTING HAS BEEN DEFINED IN SECTION 35E(5) MEANS ANY OPERATION UNDERTAKEN FOR THE PURPOSES OF EXPLORING, LOCATING OR PROVING DEPOSITS OF ANY MINERAL AND INCLUDES ANY SUCH OPERATION WHICH PROVES TO BE INFRUCTUOUS OR ABORTIVE. FROM THE UNDISPUTED FACTS AS NOTICED EARLIER, WE FIND THAT THE ASSESSEE IS CARRYING ON BUSINESS OF MINING OPERATION BY OBTAINING LEASE OF IRON ORE MINES FROM GOVERNMENT OF ORISSA AND THE COMMERCIAL PROD UCTION COMMENCED 11 YEARS BACK AND THE EXPENDITURE IN QUESTION IS OVERBURDEN REMOVAL CHARGES. A PLAIN READING OF THE PROVISIONS CONTAINED IN SECTION 35E OF THE I.T.ACT CLEARLY SHOWS THAT EXPENDITURE WHICH IS COVERED BY THE PROVISIONS OF SECTION 35 E IS ONLY THE EXPENDITURE WHICH RELATES TO EXCLUSIVELY ON ANY OPERATIONS RELATING TO PROSPECTING FOR ANY MINERAL. THAT MEANS ONLY EXPENDITURE WHIC H IS COVERED IS THE ONE WHICH IS INCURRED ON THE OPERATIONS FOR PROSPECTING OF ANY MINERAL. THE WORD OPERATION RELATING TO PROSPECTING , AS DEFINED IN SECTION 35E(5) MEANS ANY OPERATION UNDERTAKEN FOR THE PURPOSES OF EXPLORING, LOCATING OR PROVING DEPOSIT S OF ANY MINERAL, AND INCLUDES ANY SUCH OPERATION WHICH PROVES TO BE INFRUCTUOUS OR ABORTIVE . IN THE ITA NO.09/CTK/2012 6 INSTANT CASE ON HAND, CONSIDERING THE EXPENDITURE INCURRED ON ACTIVITIES AS NOTICED EARLIER IT CAN HARDLY BE SAID THAT THERE WERE ANY PRE - DEVELOPMENT ACTIV ITIES IN RELATION TO PROSPECTING ANY MINERALS APART FROM MINING OF IRON ORE. THE EXPENDITURE IN QUESTION ON ACCOUNT REMOVAL OF OVERBURDEN IS A CONTINUOUS OPERATION WHICH IS CARRIED ON SIMULTANEOUSLY WITH THE PRODUCTION OF IRON ORE AND AS SUCH, WE ARE OF TH E CONSIDERED VIEW THAT THE PROVISION OF SECTION 35E IS NOT APPLICABLE TO THE INSTANT CASE. WE FIND SUPPORT FROM THE DECISION OF ITAT, CHENNAI BENCH IN THE CASE OF NEYVELI LIGNITE CORPORATION LTD., V. ACIT (2009) 120 TTJ (CHENNAI ) 1096 , RELIED ON BY THE ASS ESSEE . WE ALSO FIND SUPPORT FROM THE DECISION IN THE CASE OF CIT V. AMALGAMATED JAMBAD SUYNDICATE PVT. LTD., (1979) 117 ITR 698 (CAL) , WHEREIN, HONBLE CALCUTTA HIGH CURT , BY APPLYING THE DECISION IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD. VS. CIT (1955) 27 ITR 34 (SC) , HELD THAT THE REMOVAL OF OVERBURDEN AND THE WINNING OF COAL WERE BOTH CONTINUOUS PROCESSES AND WERE BEING CARRIED ON SIMULTANEOUSLY FROM YEAR TO YEAR. THE REMOVAL OF OVERBURDEN CANNOT BE COMPARED TO THE OPENING OF A NEW PIT. ONCE A PIT IS OPENED THE SAME CONFERS A PERMANENT BENEFIT ON THE MINE AND CAN BE USED FOR WINNING COAL AT DIFFERENT SEAMS AND FOR THE PURPOSE OF REACHING NEW SEAMS. THE OVERBURDEN RESTING ON THE SURFACE OF A PARTICULAR AREA, IF REMOVED COULD ENABLE THE COMPANY ONLY TO R EACH THE COAL UNDER THAT AND NOT ANY FURTHER. IF ANY FURTHER SURFACE HAD TO BE EXPOSED, FURTHER OVERBURDEN HAD TO BE REMOVED. IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS IT IS PROPERLY ATTRIBUTABLE TO CAPITAL AND IS OF THE NATURE OF CAPITAL EXPENDITURE. ON THE OTHER HAND, IF SUCH AN EXPENDITURE IS MADE NOT FOR THE PURPOSE OF BRINGING INTO EXISTENCE ANY SUCH ASSET OR ADVANTAGE BUT FOR RUNNING THE BUSINESS OR WORKING IT WIT H A VIEW TO PRODUCE PROFITS IT IS A REVENUE EXPENDITURE. HENCE THE EXPENDITURE ITA NO.09/CTK/2012 7 INCURRED IN REMOVAL OF OVERBURDEN WAS OF REVENUE NATURE AND HENCE THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION. 8. WHILE SUSTAINING THE DISALLOWANCE IN QUESTION, THE LEARNED CIT (A) HAS REFERRED TO THE VARIOUS DECISIONS HOLDING THAT THE EXPENDITURE INCURRED FOR SINKING NEW PITS IS OF CAPITAL NATURE , WHICH DECISIONS , IN OUR CONSIDERED VIEW, ARE NOT ALL APPLICABLE TO THE FACTS OF THE INSTANT CASE SINCE REMOVAL OF THE OVERBURDEN , AS IN THE INSTANT CASE ON HAND , IS NOT SIMILAR TO THE SINKING NEW PITS. 9. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE REMOVAL OF OVERBURDEN IS BEING A CONTINUO US PROCESS WHILE EXTRACTING THE O RES, BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THE EXPENDITURE HAS BEEN INCURRED FOR PROSPECTING THE MINERAL OR FOR SINKING NEW PITS AS CONSIDERED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) RESPECTIVELY. THEREFORE, THE ADDITION OF 39,80,990 ON ACCOUNT OF OVERBURDEN REMOVAL CHARGES MADE DISALLOWING THE CLAIM OF THE ASSESSEE IS NOT JUSTIFIED. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD AND DIRECT DELETION OF THE SAID DISALLOWANCE/ADDITION BY A LLOWING THE APPEAL OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 14.03.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.09/CTK/2012 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: JITENDRA NATH PATNAIK, BONEIKALA, JODA, KEONJHAR, ORISSA 2. THE RESPONDENT: JT.COMMISSIONER OF INCOME - TAX, RANGE 1(1), SAMBALPUR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.