TMI Blog2016 (8) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07. 2. The facts of the case are that the assessee i.e. M/S Northern Coalfields Limited is a Mini Ratna Government of India controlled company with its head office at Singrauli (MP) and had came into existence on 28 th November 1985, When it took over the coal mines of Singrauli division of Central Coal fields (CCL) and is a subsidiary company of Coal India Limited whose 90% shares are held by President of India. All commercial activities of the assessee company are under Government Directives. Its accounts are also duly audited by the Comptroller and Auditor General of India. It is engaged in the business of mining and production of coal. The assessee has 10 coal mines as tabulated below: S. No Location of Mines Sanction date of Mine Year of Commencement of Production i JHINGUDRA 03/1965 1966-97 ii BINA 08/1974 1976-77 iii JAYANT 09/1974 1977-78 iv KAKRI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of an aggregate expenditure incurred of R.s 2466.34 crores (which represented expenditure on removal of overburden and was a revenue expenditure) despite the fact that such a disallowance made in all the preceding Assessment Years stood deleted on appeal by the Tribunal vide its following orders:- S. No ITA No. AY Pages of PB A. ITA No. 29/JAB/2014 dated 18.05.2015 2011-12 328-334 B. ITA No. 18/JAB/2014 dated 05.05.2015 2010-11 335-385 C. ITA No 97/JAB/2014 dated 05.05.2015 2008-09 386-420 D. ITA No. 58/JAB/2010 2008-09 421-442 E. ITA No. 111 dated 21.04.2006 1999-00 443-459 F. ITA 43/JAB/2002 dated 25/03/2004 1998-99 460-529 G. ITA 42/JAB/2002 dated 25/03/2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not have any correlation with each other i.e. vis-a-vis the month wise production and the month wise expenditure. The Commissioner of Income Tax (Appeals) has also ignored that in the preceding years too, month wise expenditure and production was considered and examined by the A.O. and that in any case was no determinative and could not be determinative about the nature of expenditure incurred. 7. That the learned Commissioner of Income Tax (Appeals) has completely misread and misapplied the matching principle vis-a-vis month wise production and month wise expenditure incurred on OBR to determine the nature of expenditure incurred. 8. That the learned Commissioner of Income Tax (Appeals) has failed to comprehend that the month wise expenditure and month wise production of coal does not determine the character of the expenditure incurred and the same does not have any direct or indirect effect on the watching principle 9. That the learned Commissioner of Income Tax (Appeals) has further erred in holding that the books of accounts maintained by the assessee has been rejected by the A.O. when he has applied the provisions of section 145(3) of the Income Tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come which was as per the statutory provisions of law and has also been upheld by the Tribunal. 14. The findings recorded by the learned Commissioner of Income Tax (Appeals) in his order and drawing support from the appellate order in assessee's own case for the A. Y. 1988-89 (page 104 of the order) shows non-application of mind and distortion of the facts in arriving at a conclusion contrary to the conclusion arrived by the Hon'ble Income Tax Appellate Tribunal in the aforesaid case, as the facts and circumstances of the aforesaid assessment year were different from the facts and circumstances of the instant assessment year. 14.1 That the learned Commissioner of Income Tax Appeals has grossly erred in failing appreciate that in assessment year 1988-89, the issue before the Hon ble Tribunal was in respect of claim of assessee in respect of mine development expenditure under section of mine development expenditure under section 35E of the Act, failing to appreciate that aforesaid expenditure was claimed in respect of the 'development mines' and not in respect of 'revenue mines' and since during the instant year all the mines have started commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the only issue involved in the instant appeal is whether the expenditure incurred is revenue expenditure or capital expenditure and if it is a capital expenditure, whether the expenditure on OBR is to be allowed under section 35E (2) of the Act on spread over basis and if so in respect of which of the mines and for which of the assessment years. 7. The Ld. AR also submitted that the order of the Hon'ble High Court of Madhya Pradesh recalling its order dated 24.04.2015 (to which the Ld, CIT (A) has referred in the impugned order), in fact does not overturn the finding of the order of the Tribunal. It was submitted that the observation of the learned CIT (A) in respect of the order of the High Court of Madhya Pradesh recalling its order dated 24.04.2015 was wholly irrelevant as order of the Tribunal was still subsisting. The Ld. AR submitted that all what had been done by the High Court by recalling its order was to hold that it incorrectly held that no question of law arose from the order of Tribunal and rightly so since the Hon'ble High Court already had earlier admitted the appeal when it had framed the question of law which were pending for adjudication. 8. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debited in the books under the head 'development of mine' 11. The Ld. AR also submitted that the aforesaid issue is no longer res integra as the nature of expenditure incurred had first been examined by the Tribunal way back on 25.03.2004 for AY 1997-98 and 1998-99, wherein after extensive discussion the Tribunal negated the contention of the revenue that whatever was covered u/s 35E was to be allowed in prescribed instalments and whatever was outside the year of commercial production i.e. incurred thereafter should be disallowed on the ground that expenditure incurred by the assessee was revenue expenditure, The ITAT held that expenditure cannot be disallowed unless it is capital expenditure, personal expenditure or an expenditure which was prohibited by the Act. It was submitted that the aforesaid order has further been followed by the Tribunal in its orders for the AY 19990000 and AY 2008-09. 12. The Ld. AR further submitted that recently, while deciding the appeals for the AY 2010-11, the Tribunal once again threadbare examined the disallowance of aforesaid expenditure in its order dated 05.05.2015 which is reported in (2015] 69 SOT 637 (Jabalpur - Trib.). The af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However CIT(A) deleted the addition on the basis of Judgment of ITAT, Jabalpur 14. The Ld. CIT DR Shri Ravi Jain supported the orders of- the Assessing Officer and the Ld. CIT (A). 15. We have heard the rival submissions and perused the records. We concur with the submissions of the Ld. Senior Advocate Shri C.S. Aggarwal that the issue has been examined threadbare by the Jabalpur Bench of the ITAT in I. T. A. Nos. 18/Jab/2014 and 55/Jab/2014 for Assessment Year 2010-11 wherein the Coordinate Bench has settled the issue in favour of the assessee. The relevant paragraphs are being reproduced for a ready reference as under:- 8.51 It is submitted that recently, while deciding the appeals for the AY 2010-11, Tribunal once again threadbare examined the disallowance of aforesaid expenditure in its order dated 05.05.2015 which is reported in [2015] 69 SOT 637 (Jabalpur - Tribe) XXXXX 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 mining and the activity of 'overburden removal' in this process. We have had the benefit of perusing the visuals in the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 started in one of the projects . Quite clearly these observations 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 coal seam is reached at a particular place, the overburden removal could only take place at a contiguous place in that site or, what he terms as, a contiguous project. 20. However, this fundamental factual assumption seems to be incorrect because, as the preceding discussions show, there are layers of material such as rocks and soil, between the two or more coal seams at the same place, which are required to be removed before coal can be ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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, no matter what be the stage of coal extraction levels in that mine, are treated as capital expenditure. That would essentially lead to a situation that even when overburden removal is a part of the process of extracting the coal from the lower seams, such expenditure will still be treated as capital expenditure. That is clearly an incongruous position and not sustainable in law. In the case of Kirkend Coal Co. (supra), Hon'ble Supreme Court had an occasion to adjudicate on the question as to whether or not the expenses incurred on stowing operations are capital expenses or revenue expenses. Their Lordships noted that there is a factual finding that this expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 35E governs treatment of any expenses which are relatable to development of a mine. XXXX 32. Coming back to the scope of Section 35 E, the concept of 'commercial production' is crucial to this section inasmuch as in the cases in which there cannot be commercial production, such as in the cases of prospecting simplictor, this section cannot have any application as was held by Hon'ble Delhi High Court in the case of CIT v. ACC Rio Tinto Exploration Ltd. ]20101 321 ITR 426/198 Taxman 203 (Mag.)/ 10 taxmann.com 72 (Delhi). Their Lordships had, in this context, inter alia, observed that, 'Upon a plain reading of the said provisions of s. 35E, it is apparent that unless and until there is commercial production, the provisions of s. 35E (1) would be unworkable , This is equally applicable in the case of mine development as well, inasmuch it has no application in the years after the year in which commercial production start because in such a situation the expenses in question are anyway admissible expenses. In form no 3 AE prescribed by the Central Board of Direct Taxes, with respect to claim of deduction under section 35E, it is, inter alia, required of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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