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2023 (1) TMI 274 - HC - Income TaxDeduction u/s 35E - amount paid to the Commissioner of Geology and Mining department, Government of Gujarat - Assessee is a Government company doing the business of acting as a nodal agency for augmenting power generation in the State of Gujarat - HELD THAT:- Expenditure referred to in subsection( 1) has to be incurred by the assessee after the 31st Day of March, 1970 at any time during the year of commercial production and any one or more of the four years immediately preceding that year, wholly and exclusively on any operation relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or group of associated minerals and therefore, as per sub-section(2) of section 35E when the commercial production of the appellantassessee has started in the year 2018-2019, the appellant is not entitled to deduction under section 35E of the Act, 1961. Clause(a) of subsection( 5) of section 35E defines “operation relating to prospecting” which means any operation undertaken for the purpose of exploring, locating or providing deposits of any mineral and includes any such operation which proves to be infructuous or abortive. It is not in dispute that the assessee has claimed expenditure in the nature of operation relating to prospecting and as per sub-section(4) of section 35E of the Act, 1961, the assessee has claimed 1/10th of the expenditure specified in sub-section(2). Therefore, in the facts of the case when the assessee has not started any commercial production for the year under consideration or any of the previous four years, the assessee is not entitled to deduction under section 35E of the Act, 1961. Insofar as proposed question no.1 is concerned, we are of the view that concurrent findings of fact arrived at by the CIT(Appeals) and the Tribunal warrants no interference in the impugned orders so as to give rise to any question of law muchless any substantial question of law as proposed or otherwise. Alternative claim of assessee to grant entire expenditure u/s 37 - CIT (Appeals) as well as the Tribunal have rejected the claim of the assessee for deduction under section 37(1) of the Act, 1961 on the ground that when the assessee has claimed expenditure under section 35E of the Act, it purports to be in nature of capital expenditure and therefore, deduction cannot be allowed under section 37(1) - HELD THAT:- The alternative claim of the appellant prima facie requires consideration under section 37(1) of the Act, 1961 and therefore, we admit proposed question no.2. Disallowing depreciation claimed in relation to leased assets - CIT(Appeals) as well as Tribunal confirmed the disallowance made by AO of the depreciation on leased assets on the ground that the transaction was considered as financial arrangement between the appellant and the Gujarat Electricity Board - HELD THAT:- As in view of concurrent findings of fact arrived at by both the authorities below that the transaction entered into by the assessee with that of GEB is in the nature of financial transaction and lease rent is also not taxed in the hands of the assessee while disallowing the depreciation claimed on the leased assets, the decision of Gujarat Gas Co. Ltd. [2008 (9) TMI 126 - GUJARAT HIGH COURT] relied upon by the assessee would not be applicable in the facts of the present case. This Court held that the corresponding lease rental was taxed as business income in the hands of Gujarat Gas Company Limited which was not disturbed by the Assessing Officer despite having initiated action under section 147 of the Act, 1961 for treating the transaction as a non-genuine transaction and as rental income was taxed in the hands of Gujarat Gas Company Ltd., depreciation was also granted by the Tribunal and therefore, it was held that no question of law much-less substantial question of law arises from the order passed by the Tribunal allowing the depreciation on the leased assets to Gujarat Gas Company Ltd. In the present case, facts are converse as both the authorities below on findings of fact as recorded here-in-above have come to the conclusion that the transaction entered into between the assessee and the GEB is in the nature of financial transaction and therefore, neither the rental income is taxed in the hands of the assessee and at the same time, depreciation is also not allowed on the leased assets. Insofar as question no.(3) is concerned, no legal infirmity exists in the order of the Tribunal so as to give rise to any question of law much-less substantial question of law as proposed or otherwise.
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