TMI Blog2015 (6) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 less an undisputed position, given the nature of overburden removal expenses as we have discussed earlier, that a part of the overburden removal expenses is admittedly revenue expenditure, but if we have to uphold the stand of the authorities below, entire overburden removal expenses is required to be treated 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 natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease 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 unavoidable or not, these expenses continue to be deductible. - 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 event, there is no material brought on record by the Assessing Officer to demonstrate that these expenses are capital expenses. Keeping in view of these discussions, as also bearing in mind entirety of the case and the accepted past history of the case, we deem it fit and proper to uphold the stand of the CIT(A) on this issue - Decided in favour of assessee. - I.T.A. No. 18/Jab/2014, I.T.A. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure. 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 kept a separate account - Mines Development Expenditure reflected in Schedule G of the audit report 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). 5) Because the question of applicability of Section 35-E was considered by the Delhi Bench of the Tribunal at length in arriving at the final conclusion that it is a revenue expenditure 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 ignorin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutting, which is of the same character as overburden removal, was revenue in nature. A reference was also made to Hon ble Supreme Court s judgment in the case of 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 of burden in the absence of which coal extraction was not possible. The assessee also relied upon the judicial precedents in the cases of Bombay Steam Navigation Co Ltd Vs CIT (56 ITR 52), CIT Vs J A Trivedi Bros (177 ITR 983), CIT Vs Amalgamated Jambad Syndicate Pvt Ltd (117 ITR 698), CIT Vs Katras Jharia Coal Co Ltd (118 ITR 6) and CIT Vs Rajendra Trading Co Pvt Ltd (146 ITR 637). The assessee further pointed out that a coordinate bench of this Tribunal, in assessee s own cases for the assessment year 1997 -98 and 1998-99 and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation, inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases . While she agreed that the determining factors, on the question as to what constitutes capital expenditure and what constitutes revenue expenditure, will largely depend on the nature of business, she observed that it is undeniable 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, unless the coal is exposed, profit earning process cannot be said to have taken place . The Assessing Officer also repudiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 present case the expenses incurred are prior to reaching the seam level. The assessee s reliance of Rajendra Trading Co s case was rejected on the ground that the issue in the said case was altogether different. 7. The Assessing Officer then referred to, and analysed, Hon ble Supreme Court s judgment in the case of CIT Vs R B Seth Moolchand (86 ITR 640) to conclude that the ratio of this decision supported the stand of the Assessing Officer. As regards decisions by the coordinate benches of this Tribunal, 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 befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing activity is commenced on the coal blocks allotted and the virgin block on which activity is commenced happens to be a tract of land where trees, bushes, etc. are generally present and beneath the soil, shale, stones etc. connecting the coal seam are present and all the layers above the coal seam are cumulatively called as overburden. In order to exploit a mine, the prospective operator conducts all gamut 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 the instant case, the appellant has 11 projects and all are contiguous. The appellant has created a criteria of its own and defined that all the activities involved till attaining 25% of rated capacity in a given mine, is a 'development mine' and thereafter, the 'revenue mine'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious 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 fact, the appellant, has convinced the Hon'ble ITAT by presenting a slide-show during the course of appellate proceedings that the OBR and coal mining activities are inextricable and continued simultaneously, the mines being open cast and contiguous. Accordingly, the Hon'ble Tribunal has allowed the claim. However, in view of the totality of the activities performed by the appellant, which it appears was not brought before the Hon'ble Tribunal, I respectfully disagree for the following 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but he has also held these decisions to be incorrect. He has himself stated, in so many words, that he would rather respectfully disagree with the stand of the Tribunal than to follow these decisions. The binding nature of the decisions of the judicial 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 judicial authority, placed at a higher tier of judicial hierarchy than him; all he, as a judicial authority, was expected to do was to loyally follow the views taken by the higher judicial forum. In this regard, we may only refer to the following observations made by Hon'ble Supreme Court in the case of Assistant Collector of Central Excise vs. Dunlop India Ltd. [(1985) 154 ITR 172 (SC)], where the Hon'ble Supreme Court itself has quote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crucial, however, is to appreciate the fact that overburden removal process is not a onetime process in one coal mining site because even in between the coal seams below the surface levels, there could be unrelated layers of soil or rocks which are required to be removed before one can reach the second or third coal seam, and because the same coal seam may be at different levels below the surface as it need not be parallel to the surface level all along. These aspects could be appreciated with the help of following diagrams:- (This diagram, as shown by the appellant during the hearing, shows different coal seams 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 that removal of overburden is a prior necessary condition before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all along and has been accepted by the income 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 development mine to a revenue mine, earliest of the fol lowing conditions is applied:- (a) achieving 25% rated capacity of mine; (b) two years from the point of time of reaching the coal seam; and (c) the area becoming profit earning i.e. sale minus - entire expenditure on OBR and other expenses. This is a standard practice adopted all along and has been accepted as such. There is no good reason to disturb the well settled factual aspect which permeates from year to year and which has reached finality. It 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 asp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nough that subsequent light or ingenuity might suggest some traverse which had not been taken. These observations were made in a case where taxation was in issue. This Court in Parashuram Pottery Works Co. Ltd. vs. ITO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC) stated : At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should 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 to the effect that Counsel for the Revenue had told us that the facts of this case being very special, nothing should be said in a manner which would have general application. We are inclined to accept this submission and would like to state in clear terms that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 case. The reasons, however, continue to bind the lower judicial forums. 25. There is, thus, no merit in the stand of the revenue that the observations made by Hon ble Supreme Court, in the context of principles of consistency and in the case of Radhasoam Satsang (supra), cannot be construed to be of general application. 26. We have also noted that while the Assessing Officer and the CIT(A) have impliedly held that a mine cannot be treated as revenue mine even after reaching 25% of rated capacity, 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, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in connection with section 35E which has neither been pleaded nor considered by Hon ble bench and the CIT(A) has stated that Section 35E of the Act was introduced to deal with amortisation of expenditure on prospecting and developing of certain minerals 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 mine . 28. It would be, therefore, appropriate to take a look at the nature and scope of Section 35 E and examine its applicabi lity on the facts of this case. 29. Section 35 E of the Act, which was introduced by the Taxation Laws (Amendment) Act 1970 and with effect from 1st April 1971 and was amended by the Finance Act 1999 w.e.f. 1st April 2000, provides as follows: 35 E- Deduction for expenditure on prospecting, etc., for certain minera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion) 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-section (2)] of any mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals as aforesaid in respect of which the expenditure was incurred, whichever amount is less: Provided that the amount of the instalment relating to any relevant previous year, to the extent to which it remains unallowed, shall be carried forward and added to the instalment relating to the previous year next following and deemed to be part of that instalment, and so on, for 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 means the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is so allowed shall not qualify for deduction under any other provision of this Act for the 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 meet the criterion set out in Section 35E (2). Let us examine that aspect of the matter. 31. Section 35E (2), so far as relevant for our adjudication, provides that (a) the expenses should be incurred, after 31st March 1970, during the year of commercial production and any one or more of the four years immediately preceding that year; and (b) the expenses should be incurred wholly and exclusively on (i) any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule; or (ii) on the development of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as section 37(1), on the ground that the assessee has been grante d a deduction under section 35 E and the limitation under section 35E (8) has thus come into play. In any event, section 35E (8) is clearly intended to avoid a double deduction rather than restrict an otherwise admissible deduction. It is only elementary that expenditure incurred by an assessee before commencement of his business is normally not deductible, and that, in the case of units engaged in production or extraction of any minerals etc, the 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 35E (8), the CBDT circular no. 76 dated 19th March 1971, in paragraph 55, draws parity with Section 35D. Section 35D, as a plain reading of the section would show, comes into play in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the specified minerals or associated minerals commences. The term operation relating to prospecting comprises operation undertaken for the purpose of exploring, locating or proving deposits of any mineral and in particular includes any such operation which turns out to be infructuous or abortive. Where the expenditure on prospecting for, or development of, the specified minerals is wholly or partly met directly or indirectly by any other person or authority, the amortisation will be 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph 46 and also subject to the requirement that the assessee furnishes along with his return of income for the first year in which the amortisation is claimed, the report of such audit in a form to be prescribed for the purpose, duly signed and verified by the chartered accountant or other person setting forth such particulars as may 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 the amalgamation takes place and the remaining previous years of the 10-year period will be allowed to the amalgamated company and not to the amalgamating company. 55. As under s. 35D, it has been specifically provided in s. 35E (8) that where deduction under s. 35E is claimed and allowed for any assessment year in respect of any expenditure qualifying for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated 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 litigation before Hon ble Courts above, and, therefore, such a decision cannot be revisited now. It is also pointed out that, whether the tax administration takes up the matter in further appeals before the Hon ble Courts above or not, the decisions of this Tribunal, unless reversed by higher tiers in the judicial hierarchy, continue to bind the tax authorities. The binding nature of the decisions of this Tribunal, according to the learned counsel, is not dependent on the acceptance of these decisions 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 judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances to recall the directions of this Court in its various orders reported as (i) 1995 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 Committee in case it has not been so pleaded and in the absence of the clearance, the proceedings would not be proceeded with . In the subsequent directions, referred to in this judgments, there were other procedural and peripheral issues with respect to these basic directions. Clearly, therefore, all that has changed, so far as this legal development is concerned, is that the Courts and Tribunals will not demand clearance of the CoD before proceedings with inter se litigation between the Government entities. That does not, however, mean, as rightly pointed out by the learned counsel, that in the cases i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to disturb this criterion. In any case, the authorities below have neither suggested any alternative criterion, which will be appropriate on the facts of this case, nor have they have demonstrated that the facts implicit in their stand actually exist. As a matter of fact, the apprehensions of 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 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 less an undisputed position, given the nature of overburden removal expenses as we have discussed earlier, that a part of the overburden removal expenses is admittedly revenue expenditure, but if we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 capital Expenditure. 44. So far as this disallowance is concerned, the Assessing Officer has been very brief in her discussion. In the course of the assessment proceedings, she noticed that the assessee has claimed deduction in respect of CMPDIL Expenses amounting to ₹ 1,973.38 lakhs, and, on noticing that, required the assessee to show cause as to why this expenses not be disal lowed, on the ground that this is capital expenditure in nature. As noted in the assessment order, the assessee invited 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 Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to the effect that extraction of coal is a long process and the nature of work done have an enduring benefit to the assessee could have been relevant when coal extraction process had not started but that is not the case here. We have noted that the CMPDIL (i.e. Central Mine Planning Design Institute), a subsidiary 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 capital nature for that reason. When mining itself is an ongoing activity and the mines are in the nature of revenue mines, it is illogical to proceed on the basis that the expenditure I connection with such an ongoing mining process can be treated as capital in nature as in the nature of a preparatory activity. All the eleven mines of the assessee are revenue mines, and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.42 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 being allowed but, in the present case, the assessee has included an instalment pertaining to the assessment year 2004-05 which is unacceptable . Aggrieved by the disallowance so made, assessee carried the matter in appeal before the CIT(A) but without any success. In appeal, learned CIT(A) confirmed the action by observing that the claim for deduction made by the assessee included an amount of ₹ 123.42 lakhs pertaining to the assessment year 2004-05 and that the appellant is following mercantile 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and ₹ 45.22 lakhs on Roads, Culverts and drain in coal mines. 57. So far as the disallowance in respect of Education Expenses (Rs 880.04 lakhs) is concerned, the Assessing Officer 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 facilities for children. In absence of such facilities, the company will not get any person who works in its offices and mines. As such, the company has to make arrangements for educational facilities in the interest of the company s own business. However, as it is not possible for NCL to maintain educational institutions all by itself, Assessee has made arrangements with different schooling institutions like the Central School, DAV Public School, Delhi Public School etc. who have set up and managed edu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us. 60. 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. 61. We find that this issue is covered, in favour of the assessee in assessee s own case for the assessment years 1997-98 and 1998-99, by a coordinate bench s decision dated 25th March 2004 wherein, following the decision of another coordinate bench decision in the case of South Eastern Coalfield Limited Vs JCIT [(2002) 260 ITR (AT) 1], it was held that no disallowance can be made in respect of such expenses 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 decline to interfere in the matter. 62. Ground no. 1 of the Assessing Officer s appeal is thus dismissed. 63. As for the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.12.2007, 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.), Empire Jute Co. Ltd. V. CIT (1980) 124 ITR 1 (SC) Sarabhai M. Chemicals Pvt. Ltd. V. CIT (1981) 127 ITR 74 (Guj), CIT V. Rupa Rice Mill (1976) 104 ITR 249 (Orissa), CIT V. T.V. Sundaram Iyengar and Sons P. Ltd. (1990) 186 ITR 276 (SC) CIT V. Panbari Tea Company Ltd. (1985) 151 ITR 726 (P H) and CIT V. Madras Auto Srvice Pvt. Ltd. (1998) 233 ITR 486 (SC) 7.2 It is noticed that the expenditure incurred include expenses on temporary road, water supply for land oustees area. It is not directly and 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 departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant details and compare these with the items on which expenditure has been allowed in the case of South Eastern Coalfield (supra). In other words, the matter is to be examined again by the Assessing Officer limited to the extent of following the principles laid down by a coordinate bench in the above case. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench in assessee s own 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 Assessing Officer, i.e. disallowance of ₹ 621.14 lakhs in respect of Other Miscellaneous Welfare Expenses , the Assessing Officer has observed as follows: 8.1 The assessee had claimed ₹ 621.14 lakhs under the head Social overhead and other benefits to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal 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 expenses being in nature of expenses incurred on amenities to the staff members and for their general welfare, and yet she proceeded with disallowing the expenses as unrelated to business. As long as the expenses are for the welfare of the employees, even if in the nature of amenities to the employees and for social or cultural event, such an expense continues to be wholly and exclusively for the purposes of business. In our considered view, as long as expenses are incurred wholly and exclusively 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 expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under s. 10(2)(xv) of the Act even though there 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 business or profession shall be allowed . The introduction of the word necessarily in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word necessarily came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. 75. Looking to the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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