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2015 (6) TMI 204 - ITAT JABALPUR

2015 (6) TMI 204 - ITAT JABALPUR - TMI - Disallowance of OBR (overburden removal expenses) - revenue expenditure or capital expenditure entitled to deduction on by under Section 35-E of the Act @ 10% amortization - Held that:- deduction under section 37(1) could not be declined on the ground that the expenditure in question was eligible for deduction under section 35 E. The deduction under section 35 E is normally available in respect of the expenditure which is not eligible for deduction under .....

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the Assessing Officer seem to be purely hypothetical and in the realm of conjectures and surmises inasmuch as not one instance is shown in which the overburden removal expenses, booked in the accounts as revenue expenditure, actually pertain to removal of overburden only at the surface level and should be, therefore, treated as capital expenditure. Similarly, while declining the deduction of overburden removal as capital expenditure, the Assessing Officer, as also the CIT(A), has not treated any .....

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eated as capital expenditure eligible only for amortization under section 35D. In any case, there is nothing on record to establish, or even suggest, that expenses incurred on removal of overburden at the surface level, which were capital expenditure in nature, have been claimed as revenue deduction on the strength of coal mining in another piece of land within that coal mine. Thus disallowance deleted - Decided in favour of assessee.

Disallowance in respect of 1/10th of One Time Leas .....

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iture which was originally incurred in the assessment year 2004-05. Merely because the expense was originally incurred in the previous year relevant to the assessment year 2004-05, as long as it is otherwise eligible for amortization under section 35E, the deduction under section 35E to the amount so amortized cannot be declined. - Decided in favour of assessee.

Disallowance of Education Expenses - CIT(A) deleted the addition - Held that:- This issue is covered, in favour of the asses .....

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our of the assessee, only to the extent that the matter was set aside to the file of the Assessing Officer for examining relevant details and compare these with the items on which expenditure has been allowed in the case of South Eastern Coalfield (supra). - Decided in favour of revenue for statistical purposes.

Disallowance of ‘Other Miscellaneous Welfare Expenses’ - Held that:- As long as expenses are incurred wholly and exclusively for the purposes of earning the income from busine .....

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e. - Decided in favour of assessee.

Disallowance of ‘Other Development Expenses’ and “roads, culverts and drains in coal mines” - CIT(A) allowed claim - Held that:- All the mines, in respect of which these expenses are incurred, are revenue mines from which coal is being extracted. No part of this expenditure, therefore, needs to be capitalized, particularly as there is nothing in the development or initial stage. These are routine expenses for maintenance of a running mine. In any ev .....

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and H S Srivastava, Senior Advocates, along with Abhijeet Srivastava and Hemant Sidhwani For the Respondent : Abhishek Shukla along with Munmun Sharma ORDER Per Pramod Kumar AM: 1. These cross appeals are directed against the order dated 31st October, 2013 passed by the learned Commissioner (Appeals) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2010-11. 2. Starting with the appeal filed by the assessee, we find that in ground nos. 1 to 6, .....

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ls) is perverse, arbitrary and unsustainable in law and on facts. 2) Because, the ld. authorities below erred in law and on facts in holding that the removal of overburden (OBR) is not a revenue expenditure but a capital expenditure entitled to deduction on by under Section 35-E of the Act @ 10% amortization. 3) Because, the order of the learned authorities below is arbitrary, unjust and vitiated in law as being based on assumptions suspicion, conjecture and surmises regarding the nature overbur .....

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mmissioner of Income Tax (2009) 309 CTR (AT) 134. After personally inspecting the actual working at site. The Cuttack Bench of the Tribunal in ITA 9/CTK/2012 Jitendra Nath Patnayak Vs JCIT dated 14.03.2012 has also similarly held OBR as revenue expenditure. 4) Because the learned CIT confused and misunderstood the overburden removal carried on by the assessee wrongly treating it as prospecting and developing so as to be covered under Section 35-E (para 3.15) overlooking that the assessee had kep .....

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ture allowable under Section 37 and by considering the decision of the jurisdictional High Court in the case of R.J. Trivedi (HUF) vs. CIT 166 ITR 856-MP, CIT vs. Kirkend Coal Co. Ltd., 77 ITR 530-SC and other decisions of different High Courts. The Jabalpur Bench of the Tribunal also held it as revenue expense in various appeals. 6) Because the ld. Authorities below erred in holding that by incurring OBR a capital asset has been obtained ignoring the fact that the coal seam reached is actually .....

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y assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of ₹ 2,28,463.02 lakhs, in respect of the overburden removal costs, and claimed a deduction in respect of the same. The Assessing Officer noted that the overburden refers to waste sitting over the ore body and that the main business activity of the assessee is to remove the top overburden and extract coal from open cast mines . It was also noted that this issue has been contentious and has been .....

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erburden. It was also explained by the assessee that in open cast coal mine project, total overburden removal expenses are estimates and added to the cost of mining, and a ratio, called average ratio , is computed , with reference total overburden removal (in cubic meters) to coal removal (in tons), for the entire project life. However, give the variations in thickness of the overhead, this average ratio cannot be constant for all the accounting periods concerned, even as the overhead removal pr .....

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CIT Vs Kirkend Coal Co Ltd (77 ITR 530) in which it was held that expenditure incurred for stowing operations in coal mining business is revenue expenditure eligible for deduction. It was pointed out that the apex court came this conclusion on the basis of the fact that stowing is an operation carried out in the process of extraction of coal and unless it is carried out, extraction of coal is not possible. In effect, thus, it was contended that similar was the position with regard to the removal .....

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ment year 1997 -98 and 1998-99 and in the matter of proceedings under section 263, has held that Overburden Removal Expenses, in respect of revenue coal mines , is a revenue expenditure in nature. The attention of the Assessing Officer was further invited to a series of decisions of the Commissioner (Appeals) wherein the same issues has been decided in favour of the assessee. It was further pointed out that another coordinate bench of this Tribunal, Nagpur bench this time, had decided the same i .....

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gth of these submissions, the assessee urged the Assessing Officer not to go ahead with her proposal of treating this expense as capital expense, and allow deduction in respect of the same as revenue expenditure. 4. None of these submissions, however, impressed the Assessing Officer. 5. The Assessing Officer noted that the line of demarcation between what constitutes revenue expenditure and what constitutes capital expenditure, on the facts of a particular case, is very thin and (this issue) is .....

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that, none of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at .....

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deniable that removal of overburden is a prior necessary condition before removal of coal . It was further noted that even if the entire project area is divided into smaller units, the removal of overburden and extraction of coal in these small units cannot be done simultaneously. It was then observed, which seems to the fundamental justification of this disallowance, that in any given unit, the condition of removing overburden first, before extraction of coal, shall always remain unaltered, and .....

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situation and then proceeded to reason that this (fact situation as perceived by the AO) does not support the case of the assessee at all . The Assessing Officer then further proceeded to observe that as regards the contention that by removing the overburden no permanent asset comes into existence, it (contention) is of no avail as by this process (overburden removal), the assessee has acquired benefit if exposed coal belt for extraction, transport and sale . It was further observed that the ex .....

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ent under the Income Tax Act. It was thus concluded that, on the facts of this case, the overburden removal expenses is a capital expenses. 6. Turning to the judicial precedents relied upon by the assessee, the Assessing Officer observed that as for judicial precedents in the cases of Amalgamated Jambad Syndicate (supra) and Katras Jharia Coal (supra), the findings in these cases were based on admitted statements of the assessee which were believed by the Tribunal . As for Hon ble Supreme Court .....

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hing the coal . Similarly, Hon ble jurisdictional High Court s decision in the case of R J Trivedi (supra) was stated to be irrelevant on the ground that fault stone removal is integral to the extraction process, whereas overburden removal was stated to be an exercise carried out prior to extraction of coal. As for the JA Trivedi Brother s case (supra), the Assessing Officer took the stand that in the said case, the assessee already reached reef/ seem and expenses is subsequent but in the presen .....

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nal, the Assessing Officer observed that these decisions are in challenge before the Hon ble High Court. Similar was the stand in respect of the decisions of the CIT(A) which were stated to be in challenge before this Tribunal. As for assessee s reliance on a coordinate bench s decision in the case of Western Coalfield Limited (supra), it was pointed out that the amount debited to the profit and loss account was on the basis of average or standard ratio which was implied accepted by the Assessin .....

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g Officer was of the view that this decision could not be treated as an authority on this issue. 8. On the basis of this elaborate reasoning, the Assessing Officer concluded that the expenditure on overburden removal expenses was capital expenditure in nature . 9. The Assessing Officer the noted that with due deference to Hon ble ITAT judgments, it is stated that the relevance of the OBR expenses can be examined in connection with section 35E which has neither been pleaded nor considered by Hon .....

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have gone through the observations of the A.O. and submissions of the appellant. The precise issue involved in this ground of appeal is whether expenditure incurred on OBR is allowable as revenue expenditure as claimed by the assessee or it has to be restricted to 1/10th of the claim by applying provisions of section 35E of the Act. Before proceeding to address the issue, it is necessary to understand the prevailing facts, the concept of overburden removal, development mine, revenue mine, nature .....

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amut of activities starting from cutting of the trees, bushes and removing the overburden to reach the coal seam. While granting permission for cutting the trees, the concerned authority also puts a condition of afforestation i.e., planting of trees on the sites offered by them to compensate the trees lost and the miner complies with this requirement. The coal seam cannot be exposed and approached without removal of OBR. Therefore, the activity of OBR is preoperative to the winning of coal. In t .....

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e of reaching the coal seam (c) The area becoming profit earning i.e. sale minus - entire expenditure on OBR and other expenses. Thus, all expenses incurred in a development mine are capitalized and that incurred in a revenue mine are claimed as revenue expenditure. As stated above, it was stated that total OBR and total coal to be mined during the project life is estimated and planned in the Project Report and OBR expenditure is added to the total cost of coal output in order to ascertain total .....

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mining operation/ profit earning process in open cast coal mining industry and the expenditure incurred for removal of overburden is allowable as revenue expenditure u/s 37(1) and the appellant does not acquire / possess any benefit of enduring nature or asset by incurring such expenditure. 3.11. The appellant did not bring forth any material to substantiate its claims. The activity of completion of OBR or achievement of 25% rated capacity or commencement of earning of profit whichever has never .....

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lopment of the mine and cannot be set off against the sale value of coal in one given year. 3.12. The charging section 4 mandates chargeability of the total income of the previous year. Therefore, all expenses relatable to the previous year for earning the income are eligible/ allowable. In the instant case, the assessee has claimed that the activity of mining is a continuous process and the OBR is also a continuous process. Accordingly, it is eligible for deduction as revenue expenditure. In fa .....

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reasons:- (i). The appellant is having 11 projects of coal mining, which are contiguous to one another. Therefore, the OBR in project, being contiguous to others, cannot be treated as revenue merely because the process of coal mining has started in one of the projects. (ii). The appellant has not given the size of each coal block in area, but it is made out from the submissions that the OBR is continuously made with reference to the raising of coal; that the area of the mine is quite large. Und .....

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rred by the appellant relates to afforestation which is closely associated with afforestation of the mine area which held not allowable as revenue expenditure and 1/10th of the expenditure was allowed u/s. 35E of the Act. 3.15. Another conspicuous fact pertinent to discuss here is that in order to reach the stage of OBR, the appellant removes trees on the earmarked area and has a coupled compensating obligation conducts afforestation. This activity is also done simultaneously. Thus, if the appel .....

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the appellant's own case in appeal for the assessment years 1988-89 and held that provisions of sec. 35E are applicable for such expenditure. Accordingly, the action of the A.O. invoking the provisions of sec. 35E is upheld and this ground of appeal is dismissed. 11. The assessee is not satisfied with the stand so taken by the CIT(A), and is in further appeal before us. 12. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light .....

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ial forums is not dependent on the seal of approval by the lower judicial forums. Declining to follow the binding judicial precedents by questioning the correctness of these decisions, rather than loyally following these decisions, is simply a breach of judicial discipline. The conscious defiance of the Tribunal decision by the learned CIT(A) is, therefore, a matter of serious concern and it must be deprecated. Learned CIT(A) had no business to disagree, even if respectfully, with the views of a .....

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ot;We desire to add and as was said in Cassell & Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary for us to say so again that "in the hierarchical system of Courts" which exists in our country, "it is necessary for each lower tier", including the High Court, "to accept loyally the decision of the higher tiers". "It is inevitable in hierarchical system of Courts that there are decisions of the Supreme appellate Tribunal which do no .....

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ticle 141 of the Constitution of India, and, to quote the oft quoted words of the House of Lords, permits his better wisdom to yield to the higher wisdom of the judicial forums above him in the judicial hierarchy. 15. However, that is not the only reason of our inability to approve the conclusions arrived at by the learned CIT(A). 16. Coming to the merits of the impugned disallowance, it is first of all necessary to understand as to what is the nature of open cast meaning and the activity of ove .....

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burden i.e. surface material covering the coal. This surface material could be plants and vegetation, top soil, rocks and other material covering the coal. Obviously, open cast mining is economic when the coal seam is not much below the surface level. Such large opencast mines can cover an area of many square kilometres, as indeed in the case of this assessee. 18. What is very crucial, however, is to appreciate the fact that overburden removal process is not a onetime process in one coal mining .....

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and intervening layers of overburden which are required to be removed before reaching the next level of coal seam. In between Purewa top seam and Purewa bottom seam, shown on the left, there are layers of overburden which is required to be removed before the coal extraction can be done from the next coal seam level) 19. Let us, at this stage, go back to the line of reasoning adopted by the Assessing Officer. She has justified the disallowance, inter alia, on the ground that, it is undeniable tha .....

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tiguous to others, cannot be treated as revenue merely because the process of coal mining has started in one of the projects . Quite clearly, these observations show that , in the understanding of the authorities below, once overburden is removed so as to reach the coal seam that is end of the overburden removal so far as that site is concerned. The Assessing Officer proceeds on this assumption as she is of the view that removal of overburden is an activity which take place prior to, and only pr .....

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coal seams at the same place, which are required to be removed before coal can be extracted from the next coal seam level, and also because even to reach other segments of the same coal seam, which need not always be parallel to the surface, overburden is required to be removed. Overburden removal process does not, therefore, come to a halt upon reaching the coal level. Of course, there is a difference in the character of overburden removal expenses till the regular coal extraction process start .....

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tax department not only in assessment of this assessee but also in the assessments of other similarly placed assessees such as subsidiaries of the Coal India Limited. As the learned CIT(A) has noted, in the extracts reproduced earlier in this order, until the point of time when coal production in a mine reaches 25% of rated capacity in a given mine, it is generally treated as a 'development mine' and thereafter, the 'revenue mine'. It is also noted that for converting a developme .....

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t is indeed true that the principles of res judicata do not apply to the income tax assessments but, as is the settled position of law, once a factual aspect of the matter, which permeates different assessment years, has reached finality one way or the other, there is no good reason to disturb the same. We may, in this regard, refer to the following observations of Hon ble Supreme Court, in the case of Radhasoami Satsang Vs CIT [(1992) 193 ITR 321 (SC)]: 8. One of the contentions which learned s .....

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owing opinion : "The principle to be deducted from these two cases is that where the question relating to assessment does not vary wi th the income every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions, if decided by a Court on a reference made to it would be res judicata in that the .....

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weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle-namely, that of a setting to rest rights of litigants, applies to the case where a point, fundamental to the decision taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also .....

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ld not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity." Assessments are certainly quasi-judicial and these observations equally apply. 22. While dealing with Hon ble Supreme Court s judgment in the case of Radhasoami Satsang (supra), we may also deal with the observation, relied upon by the revenue authorities, appearing at the end of this judgment t .....

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istency, which have been highlighted above, are not for general application. 23. We are unable to see any merits in the interpretation so canvassed before us. What Their Lordships were called upon to adjudicate in this appeal, as evident from the question which was reproduced at page 323 of the r was whether income derived by Radhasoami Satsang, on the facts of this case, was entitled to exemption under section 11 and 12 of the Income Tax Act. The reason why this issue was decided against the as .....

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the property was not to go back to the Satguru on revocation . Quite clearly, therefore, while revocability of trust was taken as an important part of the question before Their Lordships, in the ul timate analysis and on the peculiar facts of this case, that aspect of the matter was not really determinative on the issue of trust being eligible for exemption. It is in this backdrop that the caveat put in by Their Lordships needs to be appreciated. This decision cannot be an authority for the prop .....

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d by Their Lordships, is wholly fallacious. This observation is in the context of the decision and not the reasons of the decision. The decision is holding the trust eligible for tax exemption de hors revocability of the assessee trust. The reasons for this decision, inter alia, include impact of revocability in this peculiar fact situation as indeed the principles of consistency. The decision does not hold good in all fact situations because of the peculiarity of the facts in this particular ca .....

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even after two years from the point of time of touching the coal seam or even after revenues generated by the coal extraction exceed the expenses on overburden removal, whichever is earlier, they have not identified any criterion for treating a coal mine as revenue mine. In other words, therefore, entire expenses incurred on the overburden removal, no matter what be the stage of coal extraction levels in that mine, are treated as capital expenditure. That would essentially lead to a situation th .....

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g that this expenditure has been treated as revenue expenditure as "stowing is an operation carried out in the process of extraction of coal and unless it is carried out extraction of coal is not possible irrespective of the fact whether depillaring has been done or not in this year , and, on that basis, concluded that it has been rightly treated as revenue expenditure. It is, therefore, clear that when overburden removal is carried out in the process of extraction of coal and the extractio .....

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the overburden removal expenses. In such circumstances, clearly that coal extraction is taking place and yet further overburden is required to be removed for continuing with coal extraction. Such overburden removal can only be in the process of extraction of coal and further coal protection is not possible unless that overburden is removed. Given the nature of expenses, in the light of the foregoing discussions, such an inference is clearly incorrect and unsustainable in law. 27. We have also no .....

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nerals and the very purpose of this section was to address the treatment to be given for expenses relatable to development of a mine. In the instant, the A.O. has invoked the provisions of this sec. considering the prevailing facts of the case . While the Assessing Officer thus requires the overburden removal expenses to be examined in connection with Section 35 E, the CIT(A) seems to proceed on the basis that Section 35E governs treatment of any expenses which are relatable to development of a .....

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person (other than a company) who is resident in India, is engaged in any operations relating to prospecting for, or extraction or production of, any mineral and incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each one of the relevant previous years a deduction of an amount equal of one-tenth of the amount of such expenditure. (2) The expenditure referred .....

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iated minerals: Provided that there shall be excluded from such expenditure any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure. (3) Any expenditure- (i) on the acquisition of the site of the source of any mineral or group of associated minerals referred to in sub-section (2) or of any righ .....

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evant previous year shall be- (a) an amount equal to one-tenth of the expenditure specified in subsection (2) (such one-tenth being hereafter in this sub-section referred to as the instalment); or (b) such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that previous year arising from the commercial exploitation [whether or not such commercial exploitation is as a result of the operations or development referred to in sub-sectio .....

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succeeding previous years, so, however, that no part of any instalment shall be carried forward beyond the tenth previous year as reckoned from the year of commercial production. (5) For the purposes of this section,- (a) "operation relating to prospecting" means any operation undertaken for the purpose of exploring, locating or proving deposits of any mineral, and includes any such operation which proves to be infructuous or abortive; (b) "year of commercial production" mean .....

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ible under sub-section (1) unless the accounts of the assessee for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth suc .....

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as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place. (7A) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of demerger,- (i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous .....

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same or any other assessment year 30. A plain reading of this section reveals that this section applies to an assessee who is engaged in any operations relating to prospecting for, or extraction or production of, any mineral but it applies only with respect to the expenditure specified in Section 35E (2). While the assessee fulfils the criterion so far as activity of the assessee is concerned, none of the authorities below has examined whether overburden removal expenses on revenue mines can me .....

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d in Part A or Part B, respectively, of the Seventh Schedule; or (ii) on the development of a mine or other natural deposit of any such mineral or group of associated minerals. There are certain exclusion clauses but those exclusions are not relevant for the present purposes. 32. Coming back to the scope of Section 35 E, the concept of commercial production is crucial to this section inasmuch as in the cases in which there cannot be commercial production, such as in the cases of prospecting simp .....

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pplication in the years after the year in which commercial production starts because in such a situation the expenses in question are anyway admissible as revenue expenses. In form no. 3 AE prescribed by the Central Board of Direct Taxes, with respect to claim of deduction under section 35E, it is, inter alia, required of the auditor to state Name(s) of mineral(s) or group(s) of associated minerals in respect of which operation relating to prospecting or development were undertaken and the year .....

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case. 33. As regards the limitation placed in Section 35E (8), in our humble understanding, this limitation does not come into play unless the assessee, on his own, claims the deduction under section 35E and the deduction is granted to the assessee. It cannot, therefore, be open to the Assessing Officer to first thrust the deduction under section 35 E even though he does not seek the same, and then deny deduction in respect of qualifying expenditure under any other section, such as section 37(1) .....

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e business cannot ordinarily be deemed to have commenced unless the commercial production starts. It is in this backdrop that the scheme of Section 35 E needs to be understood. In our humble understanding, the provisions of Section 35 E are enabling provisions to allow deduction in respect of capital expenditure which is not otherwise deductible and these provisions cannot be put to use to restrict the deductibility of expenses which are anyway deductible. While explaining the scope of Section 3 .....

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s revenue expenses. This also indicates that Section 35 E belongs to the same genus as Section 35 D which allows deduction, though spread over a ten year period, in respect of expenses which are not otherwise admissible for deduction. 34. The same principle, in our considered view, is equally applicable in the context of Section 35 E as well. Therefore, as long as an expenditure is admissible for deduction under section 37, there cannot be any occasion to invoke Section 35E so as to force amorti .....

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e to the assessee . While introducing this Section, the Central Board Direct Taxes had this to say: 48. New s. 35E, also inserted by s. 8 of the Amending Act, provides for the amortisation of expenditure incurred wholly and exclusively on any operations relating to prospecting for the specified minerals or groups of associated minerals or on the development of a mine or other natural deposit of any such mineral or group of associated minerals. The minerals and the groups of associated minerals f .....

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y declares its dividends in India, and regardless of the pattern of its share- holding. It will also not be available to non-resident taxpayers generally. 50. The expenditure to be amortised under s. 35E will be the expenditure incurred under the specified heads after 31st March, 1970, during a 5-year period ending with the "year of commercial production", i.e., the previous year in which, as a result of any operation relating to prospecting commercial production of any one or more of .....

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admissible only in respect of the balance, if any, of such expenditure. Further, where any property or rights are brought into existence as a result of the expenditure and the assessee realises any sale, salvage, compensation or insurance moneys in respect of such property or rights, the amount so realised will be set-off against the expenditure and only the balance, if any, will be eligible for amortisation. 51. The following categories of expenditure are specifically excluded from the expendit .....

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iation is admissible under s. 32. 52. The amortisation of the qualifying expenditure will be allowed in equal instalments over a 10-year period against the profits arising from the commercial exploitation of any mine or other natural deposit of any of the specified minerals or associated minerals in respect of which the expenditure was incurred, not only where such commercial exploitation resulted from the operations of prospecting or development in question but also where commercial production .....

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ing previous years. Such carry over will be allowed only up to and including the 10th previous year as reckoned from the year of commercial production. If there is any unabsorbed amount at the end of the 10th year, it will lapse. 53. As in the case of amortisation of preliminary expenses under s. 35D, the amortisation of expenditure on prospecting for, and development of, specified minerals is also subject to the requirements that, where the assessee is a person other than a company or a co-oper .....

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y be prescribed. 54. The amortisation under s. 35E is also available only to the assessee who incurs the expenditure. However, in the case of an Indian company the benefit of amortisation (emphasis by underlining supplied by us) is preserved where the undertaking of the company is transferred to another Indian company under a scheme of amalgamation within the 10-year period of amortisation. In such an event, the amortisation of the outstanding instalments in respect of the previous year in which .....

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he Act for the same or any other assessment year. (Emphasis, by underlining, supplied by us) 35. For the reasons set out above, in our considered view, deduction under section 37(1) could not be declined on the ground that the expenditure in question was eligible for deduction under section 35 E. The deduction under section 35 E is normally available in respect of the expenditure which is not eligible for deduction under section 37 (1) and just because the deduction under section 35 E may be ava .....

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earlier assessment years cannot be good law because even though the revenue authorities had not accepted these decisions in principle but the matter could not be carried before the Hon ble Courts above, for want of clearance of the Committee on Disputes (CoD) in the Cabinet Secretariat in terms of Hon ble Supreme Court s judgment in the case of Oil & Natural Gas Commission Vs Collector of Central Excise [(1992) 104 CTR 31 (SC)]. It is submitted that now that the clearance of the CoD is no lo .....

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y the Committee on Disputes. He submits that the permission not being granted by the CoD is one thing, and the permission being declined by the CoD is quite another. While in the former case, according to the learned counsel, the matter could still be agitated before the Hon ble Courts above, in the latter situation, as in the present case, there is a conscious decision of the Government of India, which continues to be binding on the tax administration, not to pursue the matter in further litiga .....

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by the tax administration. There are well considered decisions of the coordinate benches directly on the issue, these decisions have not been disturbed by the Hon ble Courts above and, admittedly, the material facts and circumstances of the case are the same as in the earlier years. Learned counsel thus submits that there is no good reasons for us to deviate from these decisions. 37. There is no dispute that Hon ble Supreme Court s subsequent judgment in the case of Electronics Corporation of I .....

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owered Committee" (HPC), later on called as "Committee of Secretaries" (CoS) and finally termed as "Committee on Disputes" (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD. The machinery contemplated was only to ensure that no litigation comes to Court without the parties having had an opportunity of conciliation before an in-house committee. [se .....

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itute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let .....

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5 Supp (4) SCC 541 dt. 11th Oct., 1991 (supra) (ii) (2004) 6 SCC 437 dt. 7th Jan., 1994 (supra) and (iii) (2007) 7 SCC 39 dt. 20th July, 2007 (supra). (Emphasis by underling supplied by us) 38. What Their Lordships have thus recalled are the directions issued in its earlier orders. These directions, as set out in the judgment dated 11th October 1991, were that It shall be the obligation of every Court and every Tribunal where such a dispute is raised hereafter to demand a clearance from the Comm .....

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entities. That does not, however, mean, as rightly pointed out by the learned counsel, that in the cases in which the CoD was of the considered view that the inter se litigation between the Government entities should not be pursued, that decisions has no effect on the parties before the CoD. In our considered view, Hon ble Supreme Court s decision in the case of Electronics Corporation of India Ltd (supra) cannot be treated as authority for the proposition that even when CoD has declined permis .....

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cial ruling s binding nature remains unaffected by these administrative decisions. As long as the decisions of this Tribunal are not reversed by the Hon ble Courts above, these decisions continue to be binding on us as also on the CIT(A). The reason as to why these judicial rulings have not been tinkered with by the Hon ble Courts above is not relevant, but the fact that these judicial rulings are not tinkered with by the Hon ble Courts above gives these judicial rulings that binding force. The .....

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he basis which call is taken as to be whether a mine can be treated as a development mine or as a revenue mine is, as we have noted in paragraph 22 earlier in this order, is uniform all along not only in this case of this assessee but in the case of other similarly placed assessees, and the revenue authorities have accepted that criterion all along. It is a purely a factual matter which permeates through different assessment years, and for the detailed reasons discussed earlier, there is no good .....

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ts as revenue expenditure, actually pertain to removal of overburden only at the surface level and should be, therefore, treated as capital expenditure. Similarly, while declining the deduction of overburden removal as capital expenditure, the Assessing Officer, as also the CIT(A), has not treated any part of this expenditure, which essentially includes the expenditure incurred on removing overburden in the process of coal mining and production, as revenue expenditure. It seems to be more or les .....

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at the surface level, which were capital expenditure in nature, have been claimed as revenue deduction on the strength of coal mining in another piece of land within that coal mine. 41. In view of these discussions, as also bearing in mind entirety of the case, we consider it fit and proper to direct the Assessing Officer to delete the disallowance of ₹ 2,05,616.72 lakhs. The assessee gets the relief accordingly. 42. Ground nos. 1 to 6 are thus allowed in the terms indicated above. 43. Tur .....

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port in which total payment was shown at ₹ 2049.85 Lakhs out of which payment of ₹ 1973.38 lakhs has been disallowed as payment to expert authority M/s CMDIL and stands disallowed (para 7 of the order). 8) The Assessee is engaged in the business of mining/extraction/production of Coal from open Cast mines. CMPDIL, another subsidiary of CIL is conducting technical support services to NCL for regular mining operation. CMPDIL is conducting Mine survey in Existing running mines in order .....

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ary, unjust and vitiated in law as being based on assumptions suspicion, conjecture and surmises regarding the nature of CMPDIL Expenditure rejecting the claim of the assessee that it is revenue expenditure allowable under Section 37 of the Act overlooking the decisions of the learned Delhi Bench of the Tribunal in assessee's own case & in case of Dy. Commissioner of IT Vs Assam Asbester Ltd., 2003 185 CTR (GAW) 223. 11) Because the ld. Authorities below erred in holding that CMPDIL is c .....

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nvited her attention to the submissions made in this regard and also to the fact that in the preceding assessment years, this expense has been allowed in appeal. She rejected the submissions of the assessee and disallowed this expense by observing as follows: 9.2 With regards to CMPDIL Expenses it is my opinion that the contention of the assessee that the nature of expenditure of revenue nature and is allowable u/s 37(1) of IT Act cannot be accepted. The assessee itself had stated that the expen .....

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ect planning/implementation/equipment utilization study etc. This is clearly capital expenditure and therefore the same is disallowed. 45. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) noted that the expenses incurred towards CMPDIL at ₹ 1,973.38 lakhs actually pertain to project planning, environmental study, mining safety study, engineering study etc and that thus the payment made .....

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s thus confirmed. The assessee is aggrieved and is in further appeal before us. 46. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 47. We have noted that these expenses have been treated as capital expenses by the Assessing Officer only on the ground of the enduring benefit in nature which by implication suggests that it s a preparatory work for mine development but then what such an approac .....

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y of the Coal India Limited, is admittedly providing technical support and services to the assessee it the mining operations. It conducts mine survey in the existing mines in order to ensure that the mining is carried out in the right direction and in the optimal manner. We have also noted that it is beyond and dispute and controversy that none of the mines of the assessee is a development mine, and, as such, the expenses of this nature cannot said to be relating to preparatory work or of capita .....

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made by the CIT(A) to the effect that there is nothing to show that these expenses are incurred in respect of revenue mines, is, therefore, wholly unwarranted and it only shows his not applying the mind to the facts of the case. While the AO disallowed the expenses that it is capital expenditure in nature, the CIT(A) upheld it on the ground that there is no material to come to the conclusion that this expenditure pertains to revenue mines. The basis on which the CIT(A) upheld the disallowance i .....

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uccessfully made out before us. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to direct the Assessing Officer to delete this disallowance of ₹ 1,973.98 lakhs as well. The assessee gets the relief accordingly. 48. Ground numbers 7 to 11 are also thus allowed. 49. That leaves us with ground numbers 12 to 15 which deal with assessee s grievance against the CIT(A) s upholding the disallowance of ₹ 1,23.42 lakhs in respect of 1/10th .....

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ppeals) is perverse, arbitrary and unsustainable in law and on facts. 15) Because the learned CIT (A) & ACIT confused and misunderstood the same as Prior period Expenditure & erred in disallowing the same. 50. As far as this disallowance of ₹ 123.42 lakhs is concerned, it was made by the Assessing Officer by noting that the assessee has been getting an allowance on 1/10th of expenditure incurred on onetime payment for lease rent/ afforestation charges since 2005-06 and the same is .....

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cantile method of accounting (and that) therefore the deduction of ₹ 123.42 lakhs for instalment pertaining to the assessment year 2004-05 cannot be sought or allowed in the assessment year 2010-11, being a prior year item . The assessee is aggrieved of the stand so taken by the CIT(A) and is in appeal before us. 51. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 52. We find it difficu .....

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ith the principles of mercantile accounting. It is not anybody s case that the assessee was not eligible for deduction under section 35E in respect of this expenditure on account of onetime lease rent and afforestation charges, nor is it the case that the entire related expenditure has already been allowed as deduction and nothing survives for being allowed as deduction now. What has been claimed, in our humble understanding, is not expenditure relating to assessment year 2004- 05 but amortizati .....

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ce. We, accordingly, direct the Assessing Officer to delete this disallowance of ₹ 123.42 lakhs as well. 54. Ground nos. 12 to 15 are also, therefore, allowed. 55. In the result, the appeal of the assessee is allowed. 56. Turning to the appeal filed by the Assessing Officer, we find that the Assessing Officer has raised the following grievances: On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in: 1. Deleting the addition of ₹ 880.04 Lakhs on account of exp .....

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r has resorted to the same by observing as follows: 6.1 The assessee was asked as to why the Expenses on Education should not be disallowed as the expenditure was found to be not for business. The assessee has submitted as under :- 6.2 The assessee operates in remote areas of Madhya Pradesh and Uttar Pradesh where its Coal Mines are located. Due to the nature of mining operations presence of employees/personnel are required near the mining areas. These places do not have proper educational facil .....

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educational institutions in the company s area. The Assessee provides grants/bears the deficit part of the expenditure for running and maintenance of the school and in return, the employees children get the facility to study in these schools. This arrangement is as per terms of the National Coal Wage Agreement entered into by the coal companies including NCL, with the employees unions, under the aegis of the Government of India. In fact, this arrangement exists in case of most of the PSUs operat .....

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Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A) who deleted the said disallowance. While doing so, learned CIT(A) observed as follows: 4.1. ………………..the appellant has contended that the reasons for incurring the expenditure are detailed in the assessment order. It was incurred for providing grants/ to meet deficit part of expenditure for running the schools that were arranged for offering .....

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pellant. The expenditure was held allowable u/s 37(1) in the past. The CIT (Appeals), Jabalpur has also allowed the claim in the preceding year. The obligatory nature of the expenditure also justifies deduction. Accordingly, the addition of ₹ 880.04 lakhs made by the A.O. is deleted and the appeal is allowed on this score. 59. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 60. We have heard the rival contentions, perused the material o .....

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enses as the expenses were not incurred in terms of National Coal Wage Agreement entered into with the employee unions. Learned representatives fairly agree that the material facts and circumstances of the case are the same, and, as the Assessing Officer has also admitted in so many words, the disallowance was made only to keep the issue alive. In view of these discussions, and respectfully following the esteemed views of the coordinate benches, we uphold the relief granted by the CIT(A) and dec .....

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7.1 The assessee has incurred an amount of ₹ 235.49 lakhs under the head Expenses on Community Development . The assessee was asked as to why the same should not be disallowed as the expenditure was found to be not for business. This expenditure is incurred in communities and villages surrounding the coal mines of assessee where a large number of local employees of the assessee reside. The employees do not reside in the company s township but in their own residence nearby areas. The expen .....

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nvironmentally due to mining of coal. As a result, there is resentment among the residence. The company therefore, incurs these expenditures in order to prevent any unrest among the local people and to maintain peace and harmony in order to be able to continue with its business operations smoothly. Thus, expenditure is incurred wholly, necessarily and exclusively for the purpose of company s business and claimed in the line of staff welfare expenditure u/s 37(1). The ITAT, Nagpur Bench in the ca .....

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,2008, 20.12.2007, 29.08.2006, 03.08.2005, 04.10.2004, 30.09.2004, 03.09.2004, 19.08.2004 against the order of the AO has also decided that such expenditure is allowable business expenditure under section 37(1) for the asstt. year 1995-96, 1996-97, 2000-01, 2001-02, 2002-03. The A.O. has allowed such expenditure upto the A/Y 94-95. The assessee s claim is well supported in the case of Empire Jute Co. Ltd. V. CIT (1980) 124 ITR 1, CIT V. Premier Cotton Spinning Mills (1997) 223 ITR 440 (Ker.), Em .....

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exclusively for staff welfare. In this connection the following judgements have been relied upon. 108 ITR 358 (SC) 149 CTR (400) (Mad) 223 ITR 101 (SC) & 214 ITR 184 (All.) 7.3 The department is in appeal before ITAT on this point. In view of the merit of the case the claim of the assessee is disallowed and accordingly added back to the income of the assessee. 7.4 The assessee stated that for the detailed reply given on this issue for the asstt. year 2010-11 no disallowance be made. Therefo .....

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hat the expenditure was incurred in community and villages surrounding the appellant's coalmines. It is not directly and exclusively incurred for staff welfare. The relief allowed in earlier assessment years is under challenge before the Hon'ble ITAT, therefore, she has disallowed the claim. 5.1. In the course of appeal proceedings, the appellant has contended that the expenditure was incurred wholly, necessarily and exclusively for the purposes of business in terms of implementation of .....

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nditure was held allowable in the past. Accordingly, the A.O. is directed to allow the claim of ₹ 235.49 lakhs u/s.37(l) of the Act. Thus this ground of appeal is allowed. 65. The Assessing Officer is aggrieved and is in appeal before us. 66. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 67. We find that this issue is covered, in favour of the assessee, only to the extent that the mat .....

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n case, and we must restore the matter to the file of the Assessing Officer on the same lines and for the same limited purposes. The observations so made in the said case will apply mutatis mutandis in this case as well. With these observations, the matter stands restored to the file of the Assessing Officer. 68. Ground no. 2 of the Assessing Officer s appeal is thus allowed for limited purposes in the terms indicated above. 69. Coming to the third issue raised in the appeal filed by the Assessi .....

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son. Torch cell provided to workers for night shift duty. May Day, Independence Day, Republic Day celebration expenses, cultural programme/cultural activities among the employees etc. were clubbed together under this head and incurred exclusively for the purpose of business. 8.2 The assessee was asked as to why the expenditure be not disallowed as it is not related to business. It was stated that in earlier years also these expenses were disallowed and the Ld. CIT(A) allowed the same. For the re .....

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deleted the aforesaid disallowance on the basis of the reasoning set out below: This ground of appeal relates to the disallowance of ₹ 621.14 lakhs claimed under the head other Misc. Welfare Expenses. The A.O. has observed that the expenses were disallowed in the past for detailed reasons. Therefore, the same are disallowed. 6.1. In the course of appeal proceedings, the appellant has contended that these expenses include amounts spent on providing towels, water bottles to the works during .....

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ly relate to business purposes. Therefore, the A.O. is directed to allow the same as directed in the preceding assessment year. This ground of appeal is allowed. 71. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 72 We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 73. We have noted that the Assessing Officer does not dispute the nature of .....

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y for the purposes of earning the income from business or profession, merely because some of these expenses are incurred voluntarily and even without there being any legal or contractual obligation to incur the same, those expenses do not cease to be deductible in nature. In other words, it is not necessary that every deductible expense must be directly relevant for earning income but for which such an earning may not be possible. As long as expenses for the purposes of business, whether unavoid .....

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ra) and Smith vs. Incorporated Counci l of Law Reporting (1914) 6 Tax Cases 477 that a sum of money expended not with a necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitate, carrying on of business may yet be expended wholly and exclusively for the purpose of the trade; and it appears to me that the findings of the CIT in the present case, bring the payment in question within that .....

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ot in terms, negativing the Crowns contentions. I think that there was ample material to support the findings of the CIT, and accordingly hold that this prohibition does not apply." 74. It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be construed as wholly and exclusively . Explaining this principle, Hon ble Supreme Court has, in the case of Sassoon J David & Co. (P) Ltd. vs. CIT [(1979) 118 ITR 261 (SC)], has inter alia observed that : "I .....

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was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of s. 37 of the IT Act, 1961, which corresponds to s. 10(2)(xv) of the Act. An attempt was made in the IT Bill of 1961 to lay down the "necessity" of the expenditure as a condition for claiming deduction under s. 37. Sec. 37(1) in the Bill read "any expenditure…… laid out or expended wholly, necessarily and exclusively for the purposes of the busine .....

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law." 75. Looking to the nature of the expenses, and in the light of the above discussions, in our considered view, the CIT(A) was quite justified in deleting the disallowance of ₹ 621.12 lakhs in respect of, what has been termed as, Other Miscellaneous Welfare Expenses . We approve his action and decline to interfere in the matter. 76. Ground no. 3 of the Assessing Officer s appeal is, therefore, dismissed. 77. That takes us to fourth and last ground of appeal in the appeal filed by .....

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