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TMI Blog2016 (7) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... nd so it is capital in nature". While ground of appeal accepts that the issue is covered by the decision of a coordinate bench, grievance of the Assessing Officer is that the CIT(A) ought not to have followed the said decision as "the issue is not settled and (appeal against this coordinate bench decision) is pending before the Hon'ble High Court". 3. Briefly stated, the relevant material facts, as discernible from material on record, are like this. The assessee is engaged in the business of generation of thermal power, and the assessee has also taken the coal mines on lease from the State Government. The assessee extracts coal from the mines, and the process used in the extraction of coal mines in open cast coal lines. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of Rs. 63,14,66,537 on account of 'mine development expenses'. As he probed the matter further, it was noticed that this expense represents expenses on removal of overburden to mine the coal om mines. It was explained by the assessee that "the coal is found under the earth under different seams having soil/stone layer in between" and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the submission made by the Ld. AR carefully. The Assessing Officer has disallowed ongoing expenses on OBR by treating it as capital in nature. The same has been incurred for exploitation of each successive coal seam present in multiple layers. It is a continuous process even for the same layer. The procedure for extracting coal by removing over burden in open cast mine is similar to what has been adopted by the subsidiaries of Coal India Limited and other coal mines. The issue has been settled in favour of the Western Coalfields Ltd. by Hon'ble Tribunal, Nagpur in favour of Northern Coalfield Limited by Hon'ble Tribunal, Delhi. That apart, overburden removal expenses in open cast mining has been held as revenue in nature in the case of CIT, Bihar & Orissa Vs Kirkend Coal Co. 77 ITR 530 (SC), CIT vs. J.A. Trivedi Bros. 117 ITR 983 (Bom), CIT, West Bengal vs. Amalgamated Jambad Syndicate Pvt. Ltd. 117 ITR 698, CIT, West Bengal III vs. Katras Jharia Coal Company. Ltd. 118 ITR 6 (Cal.), CIT vs. Rajendra Trading Company (P) Ltd. 146 ITR 637 (Cal.), R.J. Trivedi (HUV) vs. CIT 116 ITR 856 (MP), Bikaner Gypsum Ltd. Vs. CIT 187 ITR 39 (SC), Empire Jute Company. Ltd. Vs. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) (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 removal of coal" and 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". Learned Commissioner has upheld this action by observing that "The appellant is having 11 projects of coal mining, which are contiguous to one another" and that "Therefore, the OBR in project, being contiguous to others, cannot be treated as revenue merely because the process of coal mining has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess that the removal of overburden takes the assessee to a stage where the coal can be extracted without any further activities to be carried out so far as overburden removal is concerned. The mechanism of open cast mining, on the first principles, is such that removal of overburden is a continuous process. For these reasons also, removal of overburden cannot seen in an isolated manner as a capital expenditure. Ironically, even as the case involves substantial tax revenue, the manner in which the authorities below have dealt with the matter, as would be evident from extracts reproduced earlier, is somewhat superficial and leaves a lot to be desired. The authorities below have not even set out, or dealt with, break up or the exact nature of expenses or the complete details of nature of work carried out under, what is termed as, mine development. Be that as it may, under the scheme of the Act, it is not for this Tribunal to supplement the work of the Assessing Officer or to go the areas which he has left untouched. Given this legal position, the views of the coordinate bench are equally applicable on the facts before us as well. We, therefore, see no reasons to take any other view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is found that no material has been placed to substantiate the claim that the entire expenses of Rs. 732.98 lakhs was incurred on purposes shown in the written reply. Particular of villages and communities where such development activities were carried out and nature of each and every activity with the quantum of expenditure incurred thereon also has not been furnished. No material whatsoever has been placed in support of existence of such facts. It is mentioned here that the South Eastern Coalfields Limited deals with the mining and extraction of coal only whereas assessee mines the coal as well as produces the power. Similar nature of claims had been made by South Eastern Coalfields Limited, the Government controlled company and disallowed for last several years by the department and confirmed by ITAT Bench, Patna vide their order in the case of Central Coalfields Ltd., Ranchi (which is also a subsidiary of Coal India Limited) for the A. Yr. 1983-84 to 1986-87 (common order) dated 18/10/2000 had upheld the order of the CIT(A), who had upheld the total disallowance made by the Assessing Officer for those years on similar issue considering the expenses were in the nature of chari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seas operations as well. Since the guidelines are voluntary and not prepared in the nature of a prescriptive roadmap, they are not intended for regulatory or contractual use. The CSR policy of the appellant company includes adoption of more than 42 villages for overall up-gradation, 10+2 co-educational O.P. Jindal School, O.P. Jindal Institute of Technology having state-of-the-art infrastructure, spread over 25 acres and AICTE affiliated, O.P. Jindal Institute of Power Technology - CEA affiliated, diploma courses to be started from September 2008. Other initiatives include adoption of various government run ITIs in Chhattisgarh, Multi-specialty O.P. Jindal Hospital & Research Centre. The expenses incurred on water supply for perennial availability of portable water, roads and culverts, toilets and others, water tanks, other community works, temple renovation, school building renovation etc. in the villages for up-gradation are part of implementation of CSR policies of the company. The expenses were made for the welfare of the employees as well. Similar expenses on community development and welfare of employees were allowed as admissible expenses by the Hon'ble ITAT Nagpur Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of business income, we are of the considered view that 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, i.e. 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 expense that could be allowed as a deduction should be such as a hardnosed, and perhaps devoid of senses of compassion, businessman alone would incur in furtherance of his business pursuits. We find guidance from a passage from the judgment of House of Lords in the case of Atherton vs. British Insulated & Helsbey Cables Ltd. (1925) 10 Tax Cases 155 (HL), referred to with approval by the Hon'ble Supreme Court in the case of CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC), which reads as follows: "It was made clear in the above cited cases of Usher's Wilshire Brewery vs. Bruce (supra) and Smith vs. Incorporated Council 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 benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 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." 17. The next issue is whether it is for the purposes of business or not. We may, in this regard, usefully refer to the observations of a coordinate bench of this Tribunal, speaking through one of us (i.e. the Accountant Member) and in the case of Hindustan Petroleum Corporation Ltd Vs DCIT [(2005) 96 ITD 186 (Bom)], as follows: 7. We find that as held by Hon'ble Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 1, while 'the basic requirements for invoking sections 37(1) and 80G are quite different', 'but nonetheless the two sections are not mutually exclusive'. Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locality and in aiding local school. While doing so, Their Lordships observed as follows: The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for the society at large and the locality in which business is located in particular. Being a good corporate citizen brings goodwill of the local community as also with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill . . . . 9. Let us now take a look at the undisputed facts of this case. The assessee is a company owned by the Government of India and working under the control and directions of the Government of India. As the statement of facts clearly sets out, the expenditure on 20-Point Programmes was incurred in view of specific directions of the Government of India. This factual aspect is not even disputed or challenged by the Revenue at any stage. It cannot but be in the business interest of the assessee-company to abide by the directions of the Government of India which also owns the assessee-company. In any event, as observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1st April 2015, cannot be construed as to disadvantage to the assessee in the period prior to this amendment. This disabling provision, as set out in Explanation 2 to Section 37(1), refers only to such corporate social responsibility expenses as under Section 135 of the Companies Act, 2013, and, as such, it cannot have any application for the period not covered by this statutory provision which itself came into existence in 2013. Explanation 2 to Section 37(1) is, therefore, inherently incapable of retrospective application any further. In any event, as held by Hon'ble Supreme Court's five judge constitutional bench's landmark judgment, in the case of CIT Vs Vatika Townships Pvt Ltd [(2014) 367 ITR 466 (SC)], the legal position in this regard has been very succinctly summed up by observing that "Of the various rules guiding how legislation has to be interpreted, one established rule is that unless a contrary intention appears, legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it ke ..... X X X X Extracts X X X X X X X X Extracts X X X X
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