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TMI Blog2016 (3) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee had claimed deduction of a sum of Rs. 1,68,94,820/- towards Net Present Value of broken area (NPV). The nature of this payment was that the assessee, as we have already seen, is engaged in the business of mining of ore. The assessee for continuation of mining on forest areas/land had been required to pay Rs. 1,68,94,820 towards Net Present Value of Broken Area(NPV). The said payment had been made to the Divisional Forest Officer in pursuance of the Forest (Conservation) Act, 1980 and as per Demand Notice dated 24.11.05 from the Divisional Forest Officer and as per Order dated 14-16.02.2005 issued by Ministry of Environment & Forests (F. C. Division), Government of India. For the purposes of obtaining Temporary Working Permission for mining the above-mentioned payment was a pre-condition. As per .the Supreme Court Order in Writ Petition (Civil) No. 202 of 1995, NPV was to be deposited by the user agency with the State Forest Department and the State Forest Department was to maintain a Fund in accordance with the Guidelines issued under the Forest (Conservation) Act, 1980. According to the Assessee, the payment of NPV was an essential payment required to be made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. On appeal by the assessee CIT(A) held that the expenditure was revenue expenditure and had to be allowed as deduction. 7. Aggrieved by the order of CIT(A) the Revenue has preferred the present ground of appeal before the Tribunal. 8. At the time of hearing the learned counsel for the assessee brought to our notice a decision of the Hon'ble ITAT, Kolkata Bench in the case of ACIT vs M/s. Ghanashyam Mishra in ITA No.122/Kol/2009 and ITA No.1521/Kol/2009 for A.Y.2005-06 and 2006-07 order dated 27.01.2014 wherein in respect of an identical payment made by an assessee engaged in the business of mining this Tribunal had allowed the deduction holding that the same as revenue expenditure. The following were the observations of the Tribunal. The question that was considered by the Tribunal in the aforesaid decision was as follows :- "ITA No.122/Kol/09 1) That under the facts and circumstances of the case, ld. CIT(A) had erred in law as well on facts by not considering that Net Present Value is a compensation, paid by the assessee to the Forest Deptt., for utilization of forest land for non-forest purpose. Hon'ble Supreme Court has categorized such payments as fees to be pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining forest clearance for mining on the forest area/land under the Forest (Conservation) Act, 1980 is allowable as rev expenditure or not. It is relevant to state that Hon'ble Apex Court in the case of T.N. Godavaram Thirumalpad (supra) has observed that forests are vital components to sustain life support system on the earth. Therefore, thee is an absolute need to take all precautionary measures when forest lands are sought to be directed for non-forest use. Hon'ble Apex Court stated that when forest land is used/diverted for non-forest purposes and there is consequential loss of benefits accruing from the forests, the User Agency of such land be required to compensate for the diversion. Hon'ble Apex Court observed that the User Agency be required to make payment of Net Present Value (NPV) of such diverted land so as to utilize the amounts so received for getting back in long run the benefits which are lost by such diversion. Hon'ble Apex Court vide its guidelines for determination of NPV directed the Ministry of Environment and Forests to formulate a scheme providing that whenever any permission is granted for change of use of forest land for non-forest purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to continue to carry on its mining activities, we are of the considered view that the said payment is wholly and exclusively for the purpose of carrying on its business. Hence, incurring of such expenses should be considered as having direct nexus with the business activities of the assessee. By making this payment of NPV, the assessee has not got any fresh right to mining, but the said payment has been made to overcome any restriction or obstruction or disability that has arisen in continuing of mining business. We are of the considered view that since it is a one-time payment, it could not be considered as capital in nature. Hon'ble Apex Court has held in Empire Jute Company Ltd. - vs - CIT [124 ITR 1] that there may be cases where expenditure, even if incurred for obtaining an advantage of any enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. Hon'ble Apex Court observed that if the advantage consisted of merely in facilitating the concerned assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s business to be carried on more efficiently or more profitability while leaving the fixed capital untouched, expenditure would be on revenue account, even though the advantage may endure for an indefinite future. Ahmedabad Bench, ITAT in Joint Commissioner of Income Tax -vs.- Dewerson Industries Limited - [2005 TIOL 236 (AHD.)] held that payments of similar nature to Ministry of Forest and Environment, Government of Gujarat were allowable as business expenditure. ITAT, Mumbai Bench in Industrial development Bank of India -vs.- Deputy Commissioner of Income Tax [91 ITD 34] held that expenditure by assessee in accordance with statutory guidelines is allowable business expenditure. Hon'ble Calcutta High Court in CIT -vs.- Rungta Mines Pvt. Ltd. [205 ITR 335] held that where a trader, in his capacity as a trader, by compulsion of statutory obligation, has to incur an expenditure as a compelling requisite for carrying on his trade, the expenditure resulting in a capital asset in the hands of a third party, is to be taken as revenue expenditure because no asset arises to the trader by reason of such expenditure. It was further held that where law imposes on the assessee, an oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account and cannot be allowed as deducted treating the same as revenue expenditure. The assessee pointed out that a tender was invited by Eastern Coalfields Ltd. (ECL) for assisting ECL in expansion of production of its Rajmahal OCP and corresponding over burden removal. The tender was an International Competitive Bidding invited by the ECL. For the purposes of Bidding the Assessee had to incur expenses aggregating to Rs. 1,34,08,905 by way of payments to Consultants, Travelling and other related expenses. According to the Assessee, since the Assessee was already engaged primarily in the business of mining and sale of iron ore in domestic market as well as overseas, its act of bidding of tender was in the process of carrying on its day to day business operations. The Assessee submitted before the Assessing Officer that submitting tenders and bids in the field of mining and corresponding over burden removal, was a highly sophisticated technical task for which the Assessee had to incur substantial expenditure before submitting the bid. It was also submitted by the Assessee that incurring of the expenses towards payments to Consultants who acted as advisers and assisted in the prepara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequently the entire expenditure aggregating to Rs. 13,408,904 should be allowed irrespective of the fact that the appellant ultimately failed to secure the bidding. Accordingly, I delete the disallowance of Rs. 13,408,904." 12. The learned DR reiterated the stand of the AO as reflected in the order of assessment. The learned counsel for the assessee relied on the order of CIT(A). 13. We have considered the rival submissions. At page 97 of the assessee's paper book a copy of the tender for International Competitive Bidding floated by Eastern Coalfield Limited has been filed. A perusal of the same shows that Eastern Coalfield Limited had invited sealed tenders in three parts from technically, financially sound interested parties from India and abroad with relevant experience in mining and extraction of coal for assisting 'Eastern Coalfields Limited in expansion of the coal production of Rajmahal OCP from 10.5 MTY level to 17 MTY capacity level and corresponding overburden removal. It is a plea of the assessee that since the assessee was engaged primarily in the business of mining and sale of iron ore had explored the possibility of bidding for the aforesaid tender. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court upheld the order of Tribunal holding that the expenditure was revenue expenditure. In our view the facts of the aforesaid case are identical to the case of the assessee. Therefore the conclusion drawn by the CIT(A) in our view is correct and does not call for any interference. Accordingly ground no.2 by the revenue is dismissed. 14. Ground No.3 raised by the revenue reads as follows :- "3. That The Ld. CIT(A) erred on fact as well as law by deleting the addition of bad debts written off' although it does not qualify the provisions of Sections 36(2) read with Section 36(1)(vii) of the Income tax Act, 1961." 15. The assessee claimed as deduction a sum of Rs. 9,09,900/- under the head bad debts written off. The AO found that the following amounts cannot be allowed as deduction on account of bad debts written off : (i) Advances against expenses Rs.5,898/- (ii) Security Deposit Rs.10,000/- (iii) Outstanding Advances Rs.6,430/- (iv) Loans against computer and vehicle Rs.38,748/- Total Rs.60,976/- As these expenditures have never been treated as income in the credit side of Profit and Loss Account, therefore, Rs. 60,976/- was not allowed as bad debts wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred for the purpose of business of the assessee and allowable as deduction u/s 37(1) of the Act. We do not find any ground to interfere in the order of CIT(A). Consequently ground no.3 raised by the revenue is dismissed. 20. Ground No.4 raised by the revenue reads as follows :- "4. That the Ld, CIT(A) erred on fact as well as law by deleting the addition on or period' expenses of Rs. 2,03,474/-, although the assessee is maintaining its books of accounts on mercantile basis and there is no provision under I.T.Act 1961 to allow 'prior period' expenses." 21. The assessee incurred Software expenses aggregating to Rs. 11,30,951. On being asked by the Assessing Officer the Assessee submitted the details in respect of the Software expenses. The Assessing Officer found from the details of the aforesaid expenditure furnished by the Assessee that two sums of Rs. 3,474 towards Assets utilisation charges and Rs. 2,00,000 towards Consultancy charges for development, customisation and implementation of ERP, were in relation to earlier year and so those two sums aggregating to Rs. 2,03,474 was to be disallowed as prior period expenses. 22. Before CIT(A), the Asssessee pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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