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Assistant Commissioner of Income Tax Circle 1 (1) , Bilaspur Versus Jindal Power Limited

2016 (7) TMI 203 - ITAT RAIPUR

Overburden removal expense - revenue or capital expenditure - Held that:- The overburden removal is a continuous process even as the coal extraction is on and there is removal of overburden from between the coal seams as well. It is not a onetime process 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, .....

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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 of the matter than the view taken by the coordinate .....

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a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur, under a statutory obligation, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a .....

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nsibility on voluntary basis, can be said to be “wholly and exclusively for the purposes of business”. There is no dispute that the expenses in question are not incurred under the aforesaid statutory obligation. For this reason also, as also for the basic reason that the Explanation 2 to Section 37(1) comes into play with effect from 1st April 2015, we hold that the disabling provision of Explanation 2 to Section 37(1) does not apply on the facts of this case. - Decided against the revenue. - I. .....

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rned CIT(A) s deleting the disallowance of ₹ 63,14,66,537, on account of overburden removal, by holding that overburden removal expense is revenue expenditure in nature. Grievance of the assessee is that since coal can be extracted from the quarries only after removal of overburden, the expenditure is directly bringing the quarry in its working condition and thus it gives enduring advantage over several years (and) therefore the said expenditure should be capitalized to the cost of coal qu .....

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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 ₹ 63,14,66,537 on account of mine development expenses . As he probed the matter further, it was noticed that this expense rep .....

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nto existence and the removal of overburden was an ongoing process. It was also explained that while the coal seam is 3-4 meters in depth, the overburden varies from 1 meters to 10 meters, and that, after removal of coal, the excavated area is required to be filled back by removing overburden of new areas. The Assessing Officer, however, rejected these arguments and held the expenses of ₹ 63,14,66,537 to be capital in nature, and, accordingly, not deductible in computation of business inco .....

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which can be debited to the profit and loss account being durable in nature. The assessee has entered into the Agreement with the Government of Chhattisgarh that he had to return the land to the Govt. duly habitable and usable by the public, hence such overburden removal has to be virtually the reserve for future development/improvement of the land and improvement of the land is always capital in nature as it adds the value to the land which is reduced due to extraction of coal. In a nutshell, e .....

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ssee carried the matter in appeal before the CIT(A). While doing so, learned CIT(A) observed as follows: I 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 .....

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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. CIT, 124 ITR 1 (SC). 5. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 6. We have heard the rival contentions, perused the material on .....

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oordinate bench has held as follows: 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 'overburden removal' in this process. We have had the benefit of perusing the visuals in the paper book filed by the Assessing Officer, as also the benefit of presentations by the assessee on this aspect, in addition to, whatever its worth, our own research on this process. 17. Op .....

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s 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 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 surf .....

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verburden 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 .....

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vations 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 prior to, "extraction of coal" and, for this reason, it is a capital expenditure. The CIT(A) also follows the same path as he assumes that once co .....

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en 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………. 8. Learned representatives fairly agree that the issue before us is squarely covered, in favour of the assessee, by this judicial precedent as well, even though learned Departmental Representative rather dutifully relied upon the stand of the As .....

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to return the land in a habitable stage, shows that removal of overburden is a part of the process in as much as what is removed is to be filled back and then plantations are to be done. The overburden removal is a continuous process even as the coal extraction is on and there is removal of overburden from between the coal seams as well. It is not a onetime process that the removal of overburden takes the assessee to a stage where the coal can be extracted without any further activities to be ca .....

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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 .....

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dicial precedent does not affect its binding nature unless, of course, the challenge is successful and the judicial precedent is overturned or reversed. That s not the case before us. 9. In view of the above discussions, in our considered view, learned CIT(A) was quite correct in following the binding judicial precedents by way of decisions of this Tribunal, and thus deleting the impugned disallowance. We approve and confirm his action, and decline to interfere in the matter. 10. Ground no. 1 an .....

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as (facts of) most of the cases ae distinguishable from (facts of the) present case . 12. So far this grievance of the Assessing Officer is concerned, the relevant material facts, as discernible from material on record, are like this. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed a deduction of ₹ 24,45,435 on account of expenses incurred on discharging corporate social responsibility. In response to the questions of t .....

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placed to substantiate the claim that the entire expenses of ₹ 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 min .....

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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 charity and though laudable, they could not be said to have been incurred for the purpose of business. In view of the above facts and circumstances of the case the amount of Rs.24.45 lakhs stated to have been incurred for corporate social responsibility is disallowed and added back to the income returned. Penalty proceedings u/s. 271(1)( .....

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e Business is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members .....

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tly oppose its mandatory nature, made the spending voluntary. But the debate continues. CSR is not philanthropy and CSR activities are purely voluntary. To provide companies with guidance in dealing with the above mentioned expectations, while working closely within the framework of national aspirations and policies, voluntary guidelines for CSR and their implementation have been developed. While the guidelines have been prepared for the Indian context, enterprises that have a transnational pres .....

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ed, 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-gradatio .....

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icals Ltd. 243 ITR 284 (Ker.), Palani Andavar Mills Vs. CIT 110 ITR 284 (Ker.), Mysore Kirloskar Ltd. Vs. CIT 166 ITR 836 (Mad.), CIT Vs. Rajasthan Spinning & Weaving Mills Ltd. 281 ITR 408 (Raj.), Bhatar Heavy Electrical Ltd. Vs. DCIT 98 TTJ 565 (Del.), Simbholi Sugar Mills Ltd. Vs. CIT 45 ITR 125, etc.. Similarly, construction of roads and culverts for providing easier access for its workman and movement of goods are admissible expenditure u/s 37 of the Act. [Relied on CIT Vs. Coats Viyell .....

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nancial assistance claimed to have been given to villagers and various samities amounting to ₹ 12,40,809/- include expenses on purchase of lac for cultivation program, financial assistance to O.P. Jindal Samaj Kalyan Samiti, pooja expenses and such expenses were neither substantiated with proper evidences nor have any nexus with the CSR policies of the appellant company. In the given facts and circumstances of the case, such expenses totaling to ₹ 3,71,650/- are held as inadmissible. .....

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nses being in the nature of voluntary expenses, which are not mandatory, and which the assessee was not statutorily required to incur, are not admissible deduction in computation 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 .....

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on 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 benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order to indirectly facilitat .....

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rown that the sum of Sterling Pound 31,784 was not money wholly and exclusively laid out for the purpose of the trade under the rule above referred to, they found deduction was admissible-thus in effect, though not 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." It will, therefore, be clear that even if an expense is incurred voluntarily, it may still be constru .....

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e 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 expenditu .....

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enefited 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 I .....

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donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because an expenditure is in the nature of donation, or, to use the words of the CIT(A), promoted by altruistic motives , it does not cease to be an expenditure deductible under section 37(1). In Mysore Kirloskar Ltd. s case (supra), Their Lordships have observed that even if the contributions by the assessee is in the forms of donations, but if it could be termed as expenditure of the cat .....

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he observations of Hon ble Supreme Court in the case of Sri Venkata Satyanarayna Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101 2: *. . . any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee s business or which results in the benefit to the assessee s business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities .....

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ble or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under section 37(1) of the Act when such payment had been made for the purpose of assessee s business. 8. In the case of CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 1, Hon ble Madras High Court has upheld deductibility of the amount spent by the assessee even on bringing drinking water to locality and in aiding local school. While d .....

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he 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 .....

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siness expenditure eligible for deduction under section 37(1) of the Act. What is the expenditure for the implementation of 20-point plant after all? It is solely for the welfare of the oppressed classes of society, for which even the Constitution of India sanctions positive discrimination, and for contribution to all around development of villages, which has always been the central theme of Government s development initiatives. An expenditure of such a nature cannot but be, to use the words emp .....

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on 2 to Section 37(1), with effect from 1st April 2015, which provides that for the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession , the expenses incurred in discharging corporate so .....

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7(1), which has been introduced with effect 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 .....

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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 keeping in view the law of today and in force and not tomorrow s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not f .....

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to be some kind of a dichotomy in the tax legislation but the well settled legal position is that when a legislation confers a benefit on the taxpayer by relaxing the rigour of pre-amendment law, and when such a benefit appears to have been the objective pursued by the legislature, it would a purposive interpretation giving it a retrospective effect but when a tax legislation imposes a liability or a burden, the effect of such a legislative provision can only be prospective. We have also noted t .....

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