M/s Indo Gold Mines Pvt Ltd , Bangalore V. The Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 92/BANG/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1717 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 09-01-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Depreciation; Revenue expenditure
• Section: 143(1)

Judgement Text

ITA NO.92/BANG/2018 INDO GOLD MINES PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.92/BANG/2018 & ITA NO.1837/BANG/2016 ASSESSMENT YEAR: 2013-14 & 2012-13 INDO GOLD MINES PVT. LTD. NO.15, GOLF COURSE ROAD OFF HAL AIRPORT ROAD BENGALURU 560 008 PAN NO :AABCI3718D VS. DCIT CIRCLE-3(1)(1) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, A.R. RESPONDENT BY : SHRI KANNAN NARAYANAN, D.R. DATE OF HEARING : 28.06.2021 DATE OF PRONOUNCEMENT : 02.07.2021 O R D E R PER BENCH:- THE ASSESSEE HAS FILED THESE APPEALS CHALLENGING TH E ORDERS PASSED BY LD. CIT(A)-3, BENGALURU AND THEY RELATE T O THE ASSESSMENT YEAR 2012-13 AND 2013-14. SINCE THE ISS UE URGED IN THESE APPEALS IS IDENTICAL IN NATURE, THEY WERE HEA RD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. THE SOLITARY ISSUE URGED IN BOTH THE YEARS IS WHETHER THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISA LLOWANCE OF LOSS CLAIMED BY THE ASSESSEE ON THE REASONING THAT THE A SSESSEE HAS NOT SET UP ITS BUSINESS. ITA NO.92/BANG/2018 INDO GOLD MINES PVT. LTD., BANGALORE PAGE 2 OF 8 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE HEREIN IS A JOINT VENTURE COMPANY FORMED W ITH THE PURPOSE OF UNDERTAKING THE BUSINESS OF EXPLORATION OF MINER ALS. THE LD A.R SUBMITTED THAT THE ASSESSEE COMPANY WAS INCORPORATE D IN THE YEAR 2006. THE COMPANY WAS JOINTLY FORMED BY M/S. INDO- GOLD LIMITED, AUSTRALIA AND M/S METAL MINING INDIA PVT. LTD. THE FORMER ONE IS A FOREIGN COMPANY AND THE LATER ONE IS A DOMESTIC COM PANY. 3. THE ASSESSEE HAS NOT STARTED COMMERCIAL PRODUCTI ON, I.E., EXTRACTION OF MINERALS DURING THE YEARS UNDER CONSI DERATION. HOWEVER, THE ASSESSEE HAD INCURRED EXPENDITURE ON E MPLOYEE COST, EXPLORATION COST, DEPRECIATION AND OTHER EXPENSES. THE ASSESSEE CLAIMED ENTIRE EXPENSES AS ITS BUSINESS LOSS IN BOT H THE YEARS UNDER CONSIDERATION AND ACCORDINGLY SOUGHT CARRY FORWARD OF LOSSES. SINCE THE ASSESSEE DID NOT GENERATE ANY REVENUE AND THE A .O. TOOK THE VIEW THAT THE ASSESSEE HAS NOT STARTED ANY ACTIVITY . THE INDIAN SHARE HOLDER OF THE ASSESSEE COMPANY, VIZ., M/S MET AL MINING INDIA P LTD HAD OBTAINED RECONNAISSANCE LICENSE FROM THE GOVERNMENT AND THE SAME WAS NOT RECOGNIZED BY THE AO. HENCE, THE A.O. TOOK THE VIEW THAT THE LOSS CLAIMED BY THE ASSESSEE CANN OT BE CONSIDERED AS BUSINESS LOSS AND HENCE IT IS NOT ELIGIBLE TO BE CARRIED FORWARD. ACCORDINGLY, HE DISALLOWED THE BUSINESS LOSS CLAIME D IN BOTH THE YEARS AND ACCORDINGLY DETERMINED THE TOTAL INCOME A S NIL IN BOTH THE YEARS UNDER CONSIDERATION. 4. THE LD. CIT(A) AGREED WITH THE VIEW WITH THE A.O . THAT THE ASSESSEE HAS NOT ACQUIRED ANY MINING RIGHTS AND HEN CE, IT CANNOT BE SAID THAT THE COMPANY SET UP ITS BUSINESS IN THE SE TWO YEARS. THE LD. CIT(A) PLACED HIS RELIANCE ON THE DECISION RENDERED BY BENGALURU BENCH OF TRIBUNAL IN THE CASE OF KINGFISH ER TRAINING AND ITA NO.92/BANG/2018 INDO GOLD MINES PVT. LTD., BANGALORE PAGE 3 OF 8 AVIATION SERVICES LTD. (2011) 8 ITR (TRIB.) 692. A CCORDINGLY, THE LD. CIT(A) DISMISSED THE APPEALS FILED BY THE ASSESSEE FOR BOTH THE YEARS UNDER CONSIDERATION. 5. THE LD. A.R. SUBMITTED THAT THE ASSESSEE IS I N THE BUSINESS OF EXPLORATION OF MINERALS AND IT WILL FIRST OBTAIN RE CONNAISSANCE LICENSE FROM THE GOVERNMENT FOR EXPLORING AVAILABIL ITY OF MINERALS IN A PARTICULAR AREA. HE SUBMITTED THAT ONE OF THE SH AREHOLDERS M/S. METAL MINING INDIA LTD. HAD OBTAINED RECONNAISSANCE LICENSE WAY BACK IN THE YEAR 2005 ITSELF. HE SUBMITTED THAT TH E EXPLORATION AND EXTRACTION MINERALS IS A LONG PROCESS AND HENCE THE ASSESSEE SHOULD BE CONSIDERED AS HAVING SET UP ITS BUSINESS, ONCE T HE OFFICE IS SET UP AND APPLICATION FOR LICENSE IS FILED. THE LD. A .R. FURTHER SUBMITTED THAT THE ASSESSEE HAS DECLARED LOSS IN TH E PAST YEARS ALSO AND THE RETURN OF INCOME FILED FOR THOSE YEARS HAVE BEEN ACCEPTED U/S 143(1) OF THE ACT. ONLY DURING THE TWO YEARS U NDER CONSIDERATION, THE A.O. HAS RAKED UP THE ISSUE OF S ETTING UP OF BUSINESS AND ACCORDINGLY, DISALLOWED THE CLAIM. 6. THE BENCH POINTED OUT TO THE LD. A.R. THAT THERE IS A SPECIFIC PROVISION, VIZ., SECTION 35E OF THE ACT, WHICH DEAL S WITH THE CLAIM FOR DEDUCTION OF EXPENDITURE ON PROSPECTING OF CERT AIN MINERALS. THE LD. A.R. SUBMITTED THAT, AS PER THE PROVISIONS OF SEC.35E OF THE ACT, THE REVENUE EXPENDITURE INCURRED BY THE ASSESS EE DURING THE YEAR OF COMMERCIAL PRODUCTION AND IN ANY ONE OR MOR E OF THE 4 YEARS IMMEDIATELY PRECEDING THAT YEAR SHALL BE AMOR TIZED FOR A PERIOD OF 10 YEARS. THUS THE PROVISIONS OF SECTION 35E OF THE ACT DEAL WITH THE EXPENDITURE INCURRED UPTO 4 YEARS IMM EDIATELY PRECEDING THE YEAR OF COMMENCEMENT OF COMMERCIAL PR ODUCTION AND NOT BEYOND THAT. HE SUBMITTED THAT THE ASSESSEE CO ULD NOT ITA NO.92/BANG/2018 INDO GOLD MINES PVT. LTD., BANGALORE PAGE 4 OF 8 COMMENCE ITS COMMERCIAL PRODUCTION ON ACCOUNT OF CE RTAIN LITIGATIONS TILL DATE. SINCE THE YEARS UNDER CONSI DERATION FALLS BEYOND THE PERIOD OF FOUR YEARS MENTIONED IN SEC.35 E OF THE ACT, THE LD A.R CONTENDED THAT NORMAL PROVISIONS OF THE ACT SHOULD APPLY TO THE YEARS UNDER CONSIDERATION. 7. THE LD. D.R. SUPPORTED THE ORDER PASSED BY LD. C IT(A). THE LD. D.R. ALSO PLACED HIS RELIANCE ON THE DECISION R ENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF ALD AUTOMO TIVE PVT. LTD., WHEREIN IT WAS HELD THAT WHEN THE ASSESSEE FA ILED TO PRODUCE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM THAT BUS INESS WAS SET UP AND IT WAS READY TO COMMENCE, EXPENDITURE INCURRED BY THE ASSESSEE PRIOR TO SETTING UP OF BUSINESS COULD NOT BE ALLOWED. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS NOT PROVED THAT IT HAS SET UP OF THE BUSINESS. 8. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE R ECORD. AS NOTICED EARLIER, THE PROVISIONS OF SECTION 35E OF T HE ACT DEALS WITH THE CLAIM FOR DEDUCTION OF EXPENDITURE INCURRED ON PROSPECTING OF MINERALS. ACCORDING TO THIS SECTION, ALL REVENUE EX PENDITURE INCURRED IN THE YEAR OF COMMENCEMENT OF COMMERCIAL PRODUCTION AND WITHIN 4 YEARS IMMEDIATELY PRECEDING THAT YEAR IS ALLOWED TO BE AMORTIZED IN 10 YEARS. WE NOTICE THAT NEITHER THE AO NOR THE LD. CIT(A) HAS EXAMINED THE APPLICABILITY OF PROVISIONS OF SECTION 35E OF THE ACT TO THE FACTS OF THE PRESENT CASE. LD. A.R. , HOWEVER, SUBMITTED THAT THE PROVISIONS OF SECTION 35E OF THE ACT ONLY DEALS WITH THE EXPENDITURE INCURRED WITHIN 4 YEARS PRIOR TO THE YEAR OF COMMENCEMENT OF COMMERCIAL PRODUCTION AND IT DOES N OT DEAL WITH THE CLAIM BEYOND PRECEDING 4 YEARS. HE SUBMITTED T HAT OTHER ITA NO.92/BANG/2018 INDO GOLD MINES PVT. LTD., BANGALORE PAGE 5 OF 8 PROVISIONS OF THE INCOME TAX ACT SHOULD APPLY IN RE SPECT OF EXPENDITURE INCURRED BEYOND PRECEDING 4 YEARS. 9. THE LD. A.R. HAS CONTENDED THAT THE TAX AUTHORI TIES ARE NOT CORRECT IN LAW IN HOLDING THAT THE ASSESSEE HAS NOT SET UP ITS BUSINESS. HE SUBMITTED THAT THE TAX AUTHORITIES HA VE TAKEN THE VIEW THAT THE ASSESSEE SHOULD HAVE COMMENCED COMMER CIAL PRODUCTION IN ORDER TO HOLD THAT IT HAS SET UP ITS BUSINESS. HE SUBMITTED THAT SETTING UP OF BUSINESS AND ACTUAL CO MMENCEMENT OF COMMERCIAL PRODUCTION ARE TWO DIFFERENT THINGS AND FOR THE PURPOSE OF ALLOWING REVENUE EXPENDITURE AS DEDUCTION, IT IS ENOUGH THAT THE BUSINESS IS SET UP. HE SUBMITTED THAT THE ACTIVITY OF EXPLORATION AND EXTRACTION OF MINERALS IS A LONG PROCESS AND HE NCE THE MOMENT THE ASSESSEE SETS UP THE OFFICE AND APPLIES FOR LIC ENSE FOR UNDERTAKING EXPLORATION ACTIVITIES, THE BUSINESS SH OULD BE TREATED AS HAVING BEEN SET UP. 10. IT IS WELL SETTLED PROPOSITION OF LAW THAT SE TTING UP OF BUSINESS AND COMMENCEMENT OF PRODUCTION ARE TWO DIFFERENT ACTIVITIES. ONCE THE BUSINESS IS SET UP, THE ASSES SEE WOULD BE ENTITLED FOR DEDUCTION OF REVENUE EXPENSES. IN CAS E OF BUSINESS RELATING TO EXPLORATION AND EXTRACTION OF MINERAL S, THE ACTIVITY OF EXPLORATION OF MINERALS ITSELF IS A LONG PROCESS. ONCE A PERSON IDENTIFIES THE AREA, WHERE MINERALS ARE AVAILABLE, THEN ONLY THE ACTIVITY OF EXTRACTION OF MINERALS WOULD START, THA T TOO, IF IT IS VIABLE TO UNDERTAKE THOSE ACTIVITIES. HENCE GENERATION OF REVENUE, AS OBSERVED BY THE TAX AUTHORITIES, SHOULD NOT BE THE CRITERIA FOR DETERMINING THE DATE OF SETTING UP OF BUSINESS. T HE FACT THAT THE GENERATION OF REVENUE WOULD TAKE SEVERAL YEARS IS W ELL RECOGNIZED IN SEC.35E OF THE ACT, WHICH PROVIDES FOR AMORTIZATION OF EXPENSES ITA NO.92/BANG/2018 INDO GOLD MINES PVT. LTD., BANGALORE PAGE 6 OF 8 INCURRED IN PREVIOUS FOUR YEARS PRECEDING THE YEAR OF COMMERCIAL PRODUCTION. 11. WE NOTICE FROM THE FINANCIAL STATEMENTS THAT THE ASSESSEE HAS EMPLOYED PERSONNEL AND HAS STARTED EXPLORATION ACTI VITIES. THE RECONNAISSANCE LICENSE HAS BEEN OBTAINED BY ONE OF THE SHAREHOLDERS OF THE ASSESSEE COMPANY. HENCE, THERE APPEARS TO BE MERIT IN THE CONTENTION OF THE ASSESSEE THAT IT HAS SET UP ITS BUSINESS. HOWEVER, THE REAL QUESTION IS WHETHER TH E NORMAL PROVISIONS OF THE ACT SHALL APPLY TO THE YEARS UNDE R CONSIDERATION IN THE ASSESSEES CASE. AS OBSERVED EARLIER, THE PROV ISIONS OF SECTION 35E OF THE ACT IS APPLICABLE TO FACTS OF THE PRESEN T CASE, AS PER WHICH THE EXPENDITURE INCURRED WITHIN FOUR YEARS PR IOR TO THE YEAR OF COMMENCEMENT OF PRODUCTION HAVE TO BE ACCUMULATE D AND SHOULD BE AMORTISED IN SUCCEEDING TEN YEARS. THUS, THE SPECIAL PROVISIONS OF SECTION 35E CONTEMPLATES ACCUMULATION OF EXPENSES, I.E., THEY ARE NOT TREATED AS BUSINESS LOSS AS PE R NORMAL PROVISIONS OF THE ACT. HENCE THE QUESTION OF SETTING UP OF BUSINESS IS NOT RELEVANT FOR THE PROVISIONS OF SEC.35E OF THE ACT. 12. ADMITTEDLY, THE A.O. HAS NOT EXAMINED THE CAS E OF THE ASSESSEE IN TERMS OF SECTION 35E OF THE ACT. HOWEV ER, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS NOT COMMENCED EXTRA CTION ACTIVITIES AND ACCORDINGLY CONTENDED THAT NORMAL PR OVISIONS OF THE ACT SHOULD APPLY FOR THE YEARS PRECEDING THE FOUR YEARS PERIOD MENTIONED IN SEC.35E OF THE ACT. AS PER THE PROVIS IONS OF THE ACT, THE BUSINESS LOSS IS ALLOWED TO BE CARRIED FORWARD ONLY FOR A PERIOD OF EIGHT YEARS. FOR BOTH THE YEARS UNDER CONSIDERA TION, THE PRESCRIBED PERIOD OF EIGHT YEARS HAS ALREADY ELAPSE D. HENCE THE CLAIM OF THE ASSESSEE BECOMES ACADEMIC. IN ANY CA SE, THE QUESTION ITA NO.92/BANG/2018 INDO GOLD MINES PVT. LTD., BANGALORE PAGE 7 OF 8 WHETHER THE PROVISIONS OF SEC.35E SHOULD APPLY FOR THE YEARS BEYOND THE PRESCRIBED PERIOD OF FOUR YEARS OR NORMA L PROVISIONS OF THE ACT SHOULD APPLY APPEARS TO BE A DEBATABLE ONE. 13. AT THE TIME OF HEARING OF CASES, THE BENCH PROPOSED TO RESTORE THE MATTER TO THE FILE OF THE AO FOR EXAMINING ENTI RE ISSUE AFRESH IN TERMS OF SEC.35E OF THE ACT. BOTH THE PARTIES AGRE ED TO THE SAME. EVEN IF THE CONTENTION OF THE ASSESSEE THAT NORMAL PROVISIONS OF THE ACT SHOULD APPLY TO BOTH THE YEARS UNDER CONSIDERAT ION IS ACCEPTED FOR A MOMENT, CONSIDERING THE FACT THAT THE ASSESSE E HAS LOST ITS ELIGIBILITY TO CLAIM FOR SET OFF OF BROUGHT FORWARD OF LOSSES OF BOTH THE YEARS UNDER CONSIDERATION, WE ARE OF THE VIEW THAT NO USEFUL PURPOSE WOULD BE SERVED BY REMITTING THE MATTER TO THE FILE OF THE AO, SINCE IT WOULD BE ONLY AN ACADEMIC EXERCISE. HENCE WE LEAVE THE ENTIRE ISSUE OPEN AND WE ARE OF THE VIEW THAT T HEY MAY BE CONSIDERED IN AN APPROPRIATE YEAR BY THE TAX AUTHOR ITIES, IF IT IS FOUND NECESSARY. ACCORDINGLY, WE ARE OF THE VIEW T HAT THE GROUNDS URGED BY THE ASSESSEE IN THESE TWO YEARS DOES NOT R EQUIRE ADJUDICATION FOR THE PECULIAR REASONS STATED ABOVE. 14. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE TREATED AS DISMISSED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JULY, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 2 ND JULY, 2021. VG/SPS ITA NO.92/BANG/2018 INDO GOLD MINES PVT. LTD., BANGALORE PAGE 8 OF 8 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.