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ACIT, Circle-5, Kolkata Versus M/s Essel Mining & Inds. Ltd.

2016 (3) TMI 500 - ITAT KOLKATA

Addition of expenditure towards payment of NPV - allowance u/s 37(1) - revenue v/s capital expenditure - Held that:- Considering a decision of the Hon'ble ITAT, Kolkata Bench in the case of ACIT vs M/s. Ghanashyam Mishra [2014 (1) TMI 1581 - ITAT KOLKATA] 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. - Decided .....

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action of oil. The assessee explored the chances of development in the field of oil exploration for which it had to submit tenders and incur expenditure in that regard. The assessee was not a successful bidder. The expenditure in question was disallowed by the revenue by treating them as capital expenditure. The Hon'ble Bombay 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 .....

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e are therefore of the view that the CIT(A) rightly treated these expenditure as one incurred 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).- Decided in favour of assessee

Addition on or period' expenses - Held that:- The sum of ₹ 2,00,000/- was incurred as consultation charges paid as advance in the financial year 2004-05 for implementation of ERP and in the financial ye .....

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, FCA ORDER Per Shri N. V. Vasudevan, JM This is an appeal by the Revenue directed against the order dated 27.10.2009 of CIT(A)- V, Kolkata relating to A.Y.2006-07. 2. Ground No.1 raised by the revenue reads as follows :- "1. That the Ld.CIT(A) erred on fact as well as law by deleting the addition of 'Net Present Value' (NPA) of Rs, 1,68,94,820/-, although it is capital in nature and hence cannot be allowed u/s. 37(1) of the I.T. Act, 1961. The Hon'ble Supreme Court has levied i .....

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re 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 ₹ 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 .....

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the Assessee, the payment of NPV was an essential payment required to be made by the Assessee for continuing its existing mining operation in Keonjhor Division of Orissa. The non-payment of NPV would have resulted in adverse consequences including the stoppage of day to day mining operations and thus for the purpose of carrying on its mining business the Assessee was compulsorily required to incur the expenditure towards payment of NPV. 4. The NPV represented a levy towards compensation for div .....

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ssee that whenever an undertaking was under an obligation to make certain payments as per the directions of the government, the concerned undertaking would be compulsorily required to make such payment in its own business interest and, accordingly, the Assessee had to follow the same. The Assessee further clarified that the payment of NPV being a statutory requirement which had to be complied with by the Assessee wholly and exclusively for the purpose of carrying on of its business, the incurrin .....

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itions so laid down was to see as to whether (a) the benefit of the expenditure incurred is for several years or for one year; (b) whether the expenditure is nonrecurring outlay or recurring outlay; (c) whether it is lump sum payment or periodic payment. According to the AO the expenditure in question satisfied all the conditions for being treated as a capital expenditure. He therefore disallowed the claim of assessee for deduction for the aforesaid sum as revenue expenditure. 6. On appeal by th .....

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ein 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 comp .....

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; ITA No.1521/Kol/2009 "1. That on the facts and circumstances of the case, ld. CIT(A) has erred in law as well as on facts in concluding(vide his order, page-14) that the assessee did not get any fresh right to mining by making payment of ₹ 1,45,00,000/-. 2. That on the facts and circumstances of the case, ld. CIT(A) has erred in law as well as on facts in not considering the order of the Ministry of Environment & Forests (F.C. Division), dated 10.12.2005, circulated vide F.No.8- .....

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Ch. Conservator of Forest, Bhubaneswar, Orissa. 4. That on the facts and circumstances of the case, ld. CIT(A) has erred in law as well as on facts in not considering the fact that expenses made to acquire any right of business is a capital expenditure and hence, not allowable. 5. That on the facts and circumstances of the case, ld. CIT(A) has erred in law as well as on facts in applying the ratio of the case of Bikaner Gypsums Ltd.[(1991) 187 ITR 39, 49 (SC)] in the case of the assessee, which .....

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under:- "12. The question before us is as to whether the payment being NPV made by the assessee for obtaining 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 precauti .....

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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, and one of the conditions of the permission should be that there should be compensatory afforestation, then the responsibility of the same should be that of user agency. Hon'ble Apex Co .....

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beneficial in public interest. It is a fee which falls in entries 47 of List-III of 7th Schedule of the Constitution. The fund set up is a part of economic and social planning which comes within Entry 23 of List III and the charge which is levied for that purpose would come under Entry 47 of List III. In that context, it was held by Their Lordships that levy of NPV is a fee that means every mining agency using and converting forest land to non-forest purpose has to pay a fee for continuing carr .....

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penditure does not acquire any capital asset. Payments made for removal of restriction, obstruction or disability may result in acquiring benefits to the business but that by itself would not acquire any capital asset.' 13. We observe that by making this payment of NPV, no tangible asset come into existence. Further the said payment is a pre-condition to enable the assessee to carry on its mining activities and as such it is not a voluntary one That payment was made on the basis of direction .....

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. 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 .....

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y be endured for an indefinite future. 14. We observe that in the case before us, assessee has got right to carry on mining operations in 1982 and 1985, i.e. long time ago before the assessee was asked to pay NPV as per direction of Hon'ble High Court and consequently assessee was compelled to make the payment to facilitate to continue its mining business. Therefore, the above decision of Hon'ble Apex Court in the case of Bikaner Gypsums Limited (supra) squarely applies to the case of as .....

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sessee's clearance certificate. The Fund was set up for peripheral development works. It was held that the said payment is not a voluntary one and it is a payment on the basis of the direction given by the Government of India, Ministry of Mines, under which the assessee-company comes. When a payment is made as per specific direction of Government of India, it cannot but be in the business interest of the assessee-company to abide by such directions of the Government of India. Accordingly, th .....

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enditure under section 37(1) of the Act. Special Bench, ITAT, Kolkata in Peerless Securities Limited -vs- Joint Commissioner of Income Tax [93 TTJ 325 (SB)] held that if the advantage consists of merely in facilitating the assessee's trading operations or enabling the management and conduct of assessee'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 .....

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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, .....

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t. Therefore, we uphold the order of ld. CIT(Appeals) by rejecting Ground No.1 of the appeal taken by the Department. Hence, Ground No.1 is rejected." Similarly, this issue is also covered by the Co-ordinate Bench decision in the case of ACIT v. Freegrade & Co. Ltd. in ITA No. 934/Kol/2009 dated 05-08-2011. 5. On the other hand, Ld. SR-DR has not denied that the Co-ordinate Bench decision is not applicable to the present facts of the case but he relied on the decision of Hon'ble Sup .....

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evenue are dismissed." 8.2. Respectfully following the decision of the Tribunal we hold that order of CIT(A) and dismiss ground No.1 raised by the revenue. 9. Ground No.2 raised by the revenue reads as follows :- "2. That the Ld. CIT(A) erred on fact as well as law by deleting the addition of ₹ 1,34,08,905/- which was utilised for starting a new project, later on abandoned although the decision of Hon'ble Calcutta High Court in the case of Kanoria Chemicals & Industries v .....

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e 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 ₹ 1,34,08,905 by way of payments to Consultants, Travelling and other related expenses. According to the Assessee, since the Asses .....

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as also submitted by the Assessee that incurring of the expenses towards payments to Consultants who acted as advisers and assisted in the preparation of tender documents, their travelling expenses and other related expenses, was wholly of revenue nature. By incurring those expenses the Assessee had neither acquired any capital asset nor had acquired any benefit of enduring nature. The Assessee however was not successful in obtaining the bid. The Assessee submitted that though it had not been su .....

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resaid sum as revenue expenditure. 11. On appeal by the assessee, the CIT(A) deleted the addition made by AO observing as follows :- "I have gone through the A/R's submissions and perused the views taken in the above referred Court/Tribunal decisions as regards the allowability of expenses, towards bidding. I asked the AIR to submit the details of expenses aggregating to ₹ 13,408.905 as well as the relevant evidences. On going through the aforesaid details I observe that the appel .....

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middot; new project and on the basis of his such observation he considered the expenditure as allegedly of capital nature. As explained by the A/R the three Court decisions as referred to by the AO are distinguishable from the appellant's case and so those can be applied in the appellant's case. I am inclined to accept the appellant's explanations that the expenditure incurred by the appellant for bidding should be considered as having been incurred for exploring the possibility of e .....

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ns. 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 1 .....

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before AO. The AO had not disputed the genuineness and incurring of the expenditure, nor the purpose for which the same were incurred. He proceeded on the assumption that this expenditure was in connection with supporting a new project which was ultimately abandoned. He primarily placed reliance on the decision of the Hon'ble Calcutta High Court in the case of Kanoria Chemicals & Industries Ltd. Vs CIT (1995) 78 Taxman 455 (Cal) wherein it was held that expenditure incurred in connectio .....

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as not correct for the reason that the assessee was already engaged in the business of mining and was exploring the possibility of doing the same business by way of expansion of the existing business. In the decisions referred to by AO, new projects were sought to be explored by Assessee unconnected with the business which the assessee was carrying on. Therefore those decisions were not applicable to the facts of the assessee's case. The facts of the assessee's case are identical to the .....

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ure in that regard. The assessee was not a successful bidder. The expenditure in question was disallowed by the revenue by treating them as capital expenditure. The Hon'ble Bombay 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 .....

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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, ₹ 60,976/- was not allowed as bad debts written off as per section 36(2) read with section 36(1)(vii) of the Income Tax Act, 1961 (Act). 16. On appeal by the ass .....

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enclature bad debts written off. The assessee thus pointed out that reference made by AO to the provision of section 36(1)(vii) of the Act r.w..s. 36(2) of the Act was not relevant. 17. CIT(A) on consideration of the aforesaid submissions deleted the addition made by AO by observing as follows :- "I have gone through the AJR's submissions and also perused the Assessment Order. It is observed that in the Assessment Order the AO has just noted that since the specified sums aggregating to .....

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t earlier in course of its business and accordingly, those should be considered as having been wholly and exclusively incurred in connection with the appellant's business. So the disallowance of ₹ 60,976 made by the AO is deleted." 18. Aggrieved by the order of CIT(A) the revenue has preferred ground no.3 before the Tribunal. 19. We have heard the learned DR, who relied on the order of AO. We are of the view that the amount in question was admittedly connected with the business of .....

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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 ₹ 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 ₹ 11,30,951. On being asked by the Assessing O .....

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(A), the Asssessee pointed out that the Assessing Officer failed to appreciate that advance payment of ₹ 2,00,000/- was made in earlier year towards implementation of ERP and the assessee rightly claimed the total expenditure of ₹ 10,96,214/- on completion of implementation of ERP in the assessment year 2006-07. 23. The CIT(A) deleted the addition made by AO observing as follows:- "I have gone through the submissions made by the A/R as well as the details submitted by him in res .....

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