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2019 (2) TMI 2128 - AT - Income TaxCharacterization of receipts - treating interest receipts credited to capital work in progress as taxable under the head income from other sources as against the claim of assessee that the same should be reduced from expenditure incurred during construction period - HELD THAT - Exactly similar issue has been raised by the assessee with regard to the treatment of interest income which has been held to be income from other sources by the departmental authorities. As on the similar facts the issue has already been decided by the Hon ble Rajasthan High Court in assessee s favour 2018 (7) TMI 2369 - RAJASTHAN HIGH COURT respectfully following the same we do not find any merit in the action of the lower authorities for treating the interest income as income from other sources. Disallowing the mandatory CSR expenses - As decided in favour of the assessee by the order of the Hon ble Rajasthan High Court 2018 (7) TMI 2369 - RAJASTHAN HIGH COURT wherein deleted the disallowance made on account of mandatory SCR expenses. Exactly similar expenses have been disallowed by the Assessing Officer during the years under consideration. As the facts and circumstances during the years under consideration are same no merit in the disallowances made by the Assessing Officer in respect of the CSR expenses. Allowance of amortization of expenses on surface rights - As in assessee s own case for the A.Y. 2012-13 wherein we found that the issue with regard to allowing of amortization of surface rights was restored back by the Tribunal to the file of the Assessing Officer with certain directions. The ITAT in AY 2012-13 has observed that admittedly the expenditure has been incurred through RSMML but it is not clear whether the RSMML has also claimed such expenditure. Therefore the AO was directed to verify whether RSMML has made any claim on the same expenditure which the assessee has claimed. Respectfully following the order of the Tribunal we restore the issue back to the Assessing Officer for verifying the same in terms of the direction of the Tribunal in assessee s own case. Deduction in respect of mines closure expenses - Respectfully following the order of the Tribunal in assessee s own case for A.Y. 2012-13 2017 (10) TMI 1085 - ITAT JAIPUR we do not find any reason to interfere in the order of the ld. CIT (A) deleting the disallowance in respect of mines closure plan. We direct accordingly.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in the appeals for assessment years 2013-14 and 2014-15 are:
2. ISSUE-WISE DETAILED ANALYSIS Interest Receipts Credited to Capital Work in Progress (CWIP) Legal Framework and Precedents: The issue revolves around whether interest income credited to CWIP is taxable as income from other sources or should be adjusted against construction period expenditure. The Hon'ble Rajasthan High Court in the assessee's own case for AY 2012-13, after considering various judicial pronouncements including the Supreme Court decision in Bokaro Steel Ltd., held that interest receipts related to construction activity should be reduced from the capital expenditure and not taxed as income from other sources. Court's Interpretation and Reasoning: The Court noted that the facts and circumstances for AY 2013-14 and 2014-15 were identical to AY 2012-13, where the High Court ruled in favor of the assessee. The Tribunal had earlier confirmed the taxation of interest receipts as income from other sources for AY 2012-13, which was challenged before the High Court. The High Court, by its order dated 24/07/2018 and subsequent modification on 08/08/2018, clarified that the interest receipts should not be taxed as income from other sources but should be adjusted against the construction expenditure. Key Evidence and Findings: The interest receipts amounting to Rs. 7.34 crores were credited to CWIP during the construction period. The assessee claimed that these receipts have a direct nexus with the borrowed funds on which interest was paid, and thus should reduce the construction cost rather than be taxed separately. Application of Law to Facts: Following the High Court's ruling, the Tribunal held that the interest receipts are not income but a reduction in expenditure, thus directing deletion of the addition made by the AO and confirmed by CIT(A). Treatment of Competing Arguments: The Revenue argued for taxing interest receipts as income from other sources, relying on the AO and CIT(A) orders and earlier Tribunal decision. However, the Tribunal gave precedence to the binding High Court decision in the assessee's own case, which favored the assessee's position. Conclusion: The addition of Rs. 7.34 crores as taxable income from other sources was deleted, and the interest receipts were to be reduced from the capital work in progress. Set-off of Interest Expense Against Interest Receipts This issue was raised by the assessee but was not specifically adjudicated upon in the present order beyond the direction to reduce interest receipts from CWIP. The nexus between interest paid and interest received was acknowledged, implying that the interest expense debited to CWIP should be allowed to be set off against interest income. The absence of explicit contrary findings suggests acceptance of the assessee's contention in line with the treatment of interest receipts. Mandatory CSR Expenses Legal Framework and Precedents: The issue was whether mandatory CSR expenses, incurred pursuant to environmental clearance conditions by the Ministry of Environment & Forests (MOEF), qualify as business expenditure deductible under the Act. The Hon'ble Rajasthan High Court in the assessee's own case for AY 2012-13 had ruled in favor of the assessee, allowing such expenses. Court's Interpretation and Reasoning: The Tribunal observed that the CSR expenses of Rs. 2 crores were mandatory and incurred wholly and exclusively for business purposes, as per environmental clearance terms. The High Court had deleted the disallowance of similar expenses in the earlier year, which was binding on the Tribunal. Key Evidence and Findings: The CSR expenses were incurred as mandatory conditions for environmental clearance, directly linked to the mining business operations. Application of Law to Facts: Following the High Court's decision, the Tribunal held that such mandatory CSR expenses are allowable deductions and directed deletion of the disallowance made by the AO and confirmed by CIT(A). Treatment of Competing Arguments: The Revenue had disallowed the CSR expenses, but no contrary binding precedent was placed on record. The Tribunal found no merit in the Revenue's stand. Conclusion: The disallowance of mandatory CSR expenses was deleted, and the expenses were allowed as business expenditure. Amortization of Surface Rights Legal Framework and Precedents: The issue concerned the allowance of amortization of expenses on surface rights claimed by the assessee. The Tribunal in AY 2012-13 had remanded this issue to the AO with directions to verify whether the related expenditure was also claimed by the joint venture partner RSMML, to avoid double claim. Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) had remanded the issue to AO, but the assessee contended that all relevant details were already available with CIT(A), and thus remand was unnecessary. Key Evidence and Findings: The assessee provided Notes to Accounts of RSMML indicating that RSMML had not treated the surface rights amount as an asset or liability and had not claimed expenditure on it. The title of land was mutated to RSMML and shown at nominal value. Application of Law to Facts: The Tribunal, following its earlier order for AY 2012-13, held that the AO must verify if RSMML has claimed any expenditure on the surface rights to prevent double claim. Therefore, the issue was restored to AO for verification as per the Tribunal's directions. Treatment of Competing Arguments: The assessee argued for direct allowance, but the Tribunal emphasized the need for AO's verification to ensure correctness. Conclusion: The issue of amortization of surface rights was remanded to AO for verification in line with earlier Tribunal directions. Credit of TDS on Interest Income The assessee challenged the remand of the issue regarding allowance of TDS credit on interest income. The Tribunal did not elaborate on this ground in the present order, indicating no interference with the remand direction given by CIT(A). Deduction for Mine Closure Plan Expenses Legal Framework and Precedents: The deduction of expenses related to mine closure plans was contested by the Revenue. The Tribunal in the assessee's own case for AY 2012-13 had allowed such deduction after detailed analysis, relying on the guidelines issued by the Ministry of Coal, Government of India, and relevant judicial precedents including Supreme Court decisions. Court's Interpretation and Reasoning: The Tribunal noted that mine closure is an inevitable and ascertainable liability arising from mining activities. The liability is not contingent but a present obligation as per the Ministry of Coal's guidelines. The provision for mine closure expenses is required to be made in the books of account and is deductible under section 37(1) of the Income Tax Act. Key Evidence and Findings: The assessee had debited Rs. 5.56 crores towards mine closure charges, which were provisioned and not yet deposited. The amount was included in the transfer price of lignite to the power company, avoiding double taxation. Application of Law to Facts: Following the earlier Tribunal decision and the judgment of the jurisdictional High Court, the Tribunal affirmed the allowance of mine closure expenses as deductible business expenditure. Treatment of Competing Arguments: The Revenue failed to place any contrary binding precedent and argued for disallowance. The Tribunal rejected this, finding the Revenue's stance contrary to law. Conclusion: The deduction for mine closure plan expenses was allowed, and the disallowance was deleted. Identical Issues for AY 2014-15 Since the facts and issues for AY 2014-15 were identical to AY 2013-14, the Tribunal applied the same findings mutatis mutandis for the later year. 3. SIGNIFICANT HOLDINGS "Taking into consideration the decision of Supreme Court in the case of Bokaro Steel Ltd. (supra) and other judgments cited supra, both the issues are answered in favour of the assessee and against the department." The Tribunal established the principle that interest receipts credited to capital work in progress during the construction period are not taxable as income from other sources but must be reduced from the construction expenditure. It affirmed that mandatory CSR expenses incurred pursuant to environmental clearance conditions qualify as deductible business expenses. The Tribunal held that mine closure plan expenses constitute an ascertainable liability and are deductible under section 37(1) of the Income Tax Act, even if only provisioned and not yet paid, following the guidelines of the Ministry of Coal and binding judicial precedents. It confirmed the necessity of verifying potential double claims of amortization expenses on surface rights by remanding the matter to the AO, ensuring correct allowance. Final determinations:
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