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The ACIT, Circle-6, Jaipur Versus Rajasthan State Mines & Minerals Ltd. and Vica-Versa

2016 (2) TMI 1118 - ITAT JAIPUR

Compensation paid to farmers for using their land for mineral extraction - justification for claim of revenue expenditure - Held that:- We find that the issue raised in this ground has already been decided by the ITAT in assessee’s own case for earlier AYs holding that the payment made by the assessee to farmers is a part of cost of Gypsum only and no capital asset is acquired by the assessee by incurring this expenditure. Nature of loss to farmers is immaterial while judging the nature of expen .....

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37 as it was provided for the benefit of the employees - Decided in favour of assessee - Deduction for prior period expenses - Held that:- In our view the case of the revenue is required to be dismissed as the case of the assessee is squarely covered by the earlier order of the Tribunal for AY 2009-10, even otherwise, in view of the judgment in the matter of CIT vs. Excel Industries Ltd. (2013 (10) TMI 324 - SUPREME COURT), the appeal of the revenue is required to be dismissed as the rate of .....

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the ld. CIT (A) confirmed the disallowance of ₹ 50,000/- in respect of payment made to Rose Society by relying on the decision of Hon’ble ITAT in assessee’s own case for AY 2008-09 where the disallowance made by AO in respect of payment made to Rose Society was confirmed by Hon’ble ITAT - Disallowance of social welfare expenses - Held that:- The payment made to Rose Society amounting to ₹ 50,000/-, in our view is not in respect of any activity connected necessarily and exclusivel .....

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e land for the assessee - Held that:- With the passage of guidelines for protecting the environment, now it is the duty of the lesser/assessee to submit and execute the mine closing plan so as to ensure that the land is used subsequent to the closure of the mining operation. Even otherwise, the mining activity is done not on the surface of the earth but on the core towards the lower side of the surface. The surface, can be put to use for beneficial purposes after the term of lease/mining activit .....

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ation done by the superior authority. This is the only way the judicial system works. The AO is a quasi judicial authority and bound to follow the principle laid down by the Tribunal and not the vice versa. Therefore, the submission of the ld. A/R for the assessee on this count is also rejected. However, it is made clear that the assessee would be entitled to all benefits as available in law and the assessee will not be subjected to double taxation for the A.Y. 2011-12. The AO is directed to giv .....

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duty of the Government to computerize its department. Once the assessee is paying the lease rent and other charges to the Government for acquiring the rights to mines and minerals, the department, is not expected to ask any amount over and above the statutory charges. Any contribution made by the assessee to the Government for computerization, would be at its own cost and pay-roll. That cost incurred by the assessee for computerization of the department, in our view is not going to benefit the .....

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, is payable in many cases on ad valorem basis. Similarly, sales tax, if not exempt, is also payable. The standing charges obviously do not form part of the supply made and are not treated as sale consideration or the price of the goods on which excise duty or the sales tax etc. would be or is payable. Keeping in view the nature and character of the standing charges, evidence and finding regarding nature and character of the manufacturing activity undertaken, it cannot be said that the said char .....

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ee - Not allowing the income of the assessee from sale of CERs as capital receipt - Held that:- CER is capital receipt and the AO is directed to treat the sale of CER as capital receipt. Thus the ground of the assessee on account of sale of CER is allowed. - Deduction in respect of mines closure expenses - Held that:- As per matching principle as well as the mercantile system of accounting, the liability is allowable in principle under section 37 of the Act. In view of the above, the gro .....

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he Assessment Year 2010-11. In the appeal bearing ITA No. 144/JP/2014, of the Revenue the following grounds are raised by the department :- 1) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in allowing the compensation paid to farmers amounting to ₹ 1,67,47,786/- for using their land for mineral extraction without appreciating the fact that the expenditure is of capital nature. 2) Whether on the facts and in the circumstances of the cas .....

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by the assessee. 4) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in directing to delete addition of ₹ 2,34,990/- made by the AO by disallowing of contribution to social welfare activities despite the fact that it was not an allowable business expenditure. Similarly, in the appeal bearing ITA No. 124/JP/2014, the assessee has raised the following grounds :- 1) Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in co .....

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Tax (Appeals) has erred on facts and in law in confirming the reduction of claim u/s 80IA for ₹ 3,80,44,554/- by not considering the income from sale of CERs at ₹ 36,20,742/- & liquidated damages at ₹ 3,44,23,812/- as derived from the business of power generation undertaking. 5) Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in upholding AO s view by not considering the income of ₹ 85,26,824/- from sale of CERs as capital receipt. 6) Ld. Commis .....

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account on account of compensation for Mineral. The AO asked the assessee to justify its claim of revenue expenditure. The ld. A/R of the assessee vide written submission dated 24.12.2012 explained as under : Regarding development charges of ₹ 1,67,47,786/- paid to farmers for extraction of gypsum , we may submit that the assessee company is engaged in the business of mining . During the year it extracted Gypsum from the land of various farmers. While extracting the Gypsum from the land th .....

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Assessee company has not acquired any asset or any enduring benefit by making such payment. Assessee has to make payment each and every time when the gypsum is extracted from the land and if no Gypsum is extracted no payment is required to be made. This itself shows that the payment made to farmers are not for long term benefit rather it is regular payment and an integral part of the cost of Gypsum. Hence the same is allowable as revenue expenditure. Further in earlier years also similar additi .....

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rect. Actually it is a sort of compensation paid to the farmers for using their land, which may become unusable for agricultural purposes. Therefore, treating the contention of the assessee as incorrect, the AO disallowed the claim of ₹ 1,67,47,786/- and added to the income of the assessee. 3. Being aggrieved by the order of AO, assessee filed appeal before ld. CIT (A) who allowed the claim of the assessee by deleting the addition. The observation of the ld. CIT (A) is as under :- 2.3. I h .....

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already been decided by this bench of ITAT in the assessee own case for assessment year 2002-03, wherein compensation paid to farmers for using their land was allowed. The finding of the bench in para-40 of the said order is reproduced as under:- We have carefully heard the rival submissions and find that the payment made by the assessee to farmers is a part of cost of Gypsum only and no capital asset is acquired by the assessee by incurring this expenditure. Nature of loss to farmers is immater .....

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s issue is decided in favour of appellant in all earlier years. Respectfully following the decision of ITAT in appellant s own case, addition on account of compensation paid to farmers made by the AO is deleted. Now the revenue is before us. 4. We find that the issue raised in this ground has already been decided by the ITAT in assessee s own case in ITA No. 740 & 783/JP/2009 for the A.Y. 2006-07 dated 31.03.2010 and also in ITA No. 466/JP/2006 decided on 26.06.2009 in favour of the assessee .....

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of the said order is reproduced as under :- We have carefully heard the rival submissions and find that the payment made by the assessee to farmers is a part of cost of gypsum only and no capital asset is acquired by the assessee by incurring these expenditure. Nature of loss to farmers is immaterial while judging the nature of expense in the hands of the assessee and therefore same cannot be basis for treating the expenditure as capital in nature. The ld. CIT (A) has rightly allowed the expendi .....

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e revenue . Ground No 2 of Revenue in appeal no 144/ 14 : 5. At the time of assessment, the AO noted that the assessee has debited a sum of ₹ 10,00,000/- as contribution to State Renewal Fund in the Profit & Loss account. He asked the assessee to justify its claim for deduction. In compliance, the assessee vide letter dated 24.12.2012 submitted the explanation as under :- During the year Corporation has provided an amount of ₹ 10,00,000/- towards State Renewal Fund. The State Pub .....

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osure of any State Public Enterprises, iii) To provide assistance towards gainful self-employment to the employees consequent to the restructuring/winding-up/closure of such undertaking, under schemes to be approved by the State Government, and iv) Any other assistance/relief program for any category of workers to be decided by the State Government. From the above it can be noted that the purpose of State Renewal Fund is the safety of the employees working under the State owned entities in case .....

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t under an obligation of an assessee even before he could claim to receive it as his income, there would be a diversion of income by overriding title but when after receipt of the income by the assessee, the same is passed on to a third person in discharge of the obligation of the assessee, it will be a case of application of income by the assessee and not of diversion of income by overriding title. The AO observed that where a co-operative society transfer part of the net profit to a reserve fu .....

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ncluded that such reserves under the control of the society were for the ultimate benefit or the society as well as its shareholders, so that such amount could not be excluded from the income of the society. Hence, it is clear that transfer to renewal fund does not lead to diversion of income by overriding title, it is merely an application of income. Thus the AO held that transfer of ₹ 10,00,000/- to State Renewal Fund is not allowable and the same is added to the total income of the asse .....

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6-07 in the case of the appellant, but it was decided by Hon ble ITAT Bench A , Jaipur in ITA No. 783/JP/2009 & 740/JP/2009 in A.Y. 2006-07 through order dated 31.03.2010 in favour of the appellant, where in para 15 Hon ble Tribunal relied upon its decision dated 22.05.2009 in case of Rajasthan State Seeds Corporation Ltd, wherein relying upon Hon ble Rajasthan high Court decisions in the case of CIT vs. Rajasthan Spinning and Weaving Mills Ltd. 274 ITR 465 and CIT vs. Shri Rajasthan Syntex .....

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amount was provided for the benefit of the employees and the contribution made to State Renewal Fund was found allowable u/s 37(1). Respectfully following the decision of ITAT in appellant s own case, addition made by the assessing officer is deleted. 6. Now the revenue is before us. 6.1. We find that the issue is already covered by the order of ITAT passed in ITA No. 740 & 783/JP/2009 for the A.Y. 2006-07. We are bound by the order passed by the Tribunal in the case of the assessee. We are .....

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ission and perused the material available on record. We find that as per the memorandum of State Renewal Fund set up by the State Government, it is created with the object of providing a safety net for the workers likely to be effected by restructuring in the State Public Enterprises. We are thus of the view that the contribution made to the said fund is solely for the purpose of welfare and benefit of the employees. The Rajasthan High Court in case of CIT Vs. Rajasthan Spinning and Weaving Mill .....

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e is allowable as business expenditure. The case relied by A.O of CIT Vs. Jodhpur Co-operative Marketing Society 275 ITR 372 (Raj.) is distinguishable as in this case the amount was set apart for the shareholders of the society whereas in the present case amount was provided for the benefit of the employees. In view of this the contribution made to State Renewal Fund is allowable u/s 37(1). The ld. CIT (A) has allowed the claim of the assessee by following the said decision. We, therefore, do no .....

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ee was called upon to explain why the claim for deduction for prior period expenses on remaining amount of ₹ 28,23,236/- should not be disallowed as the assessee has been following the mercantile system of accounting. In response thereto, assessee filed the reply to the notice. The AO after considering the reply has allowed a sum of ₹ 23,83,123/- and has thus disallowed a sum of ₹ 4,40,113/- as prior period expenses and added the same to the total income of the assessee. The AO .....

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IT (A) is mentioned in para 4.3. of his order as under :- 4.3. I have considered the facts of the case; assessment order and appellant s written submission. From the submission of the appellant it is clear that Hon ble ITAT, Jaipur Bench has been allowing prior period expenses in the case of various Government undertakings in the year in which such expenses are finally sanctioned and approved. Even in the appellant s own case the issue has been decided in favor of the appellant in AY 2000-01 by .....

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sideration. 9. Now the revenue is before us. 9.1. The ld. D/R for the revenue has supported the order passed by the AO and has submitted that the expenses which are not required to be allowed has rightly been disallowed by the AO. 9.2. On the contrary, the ld. A/R relied upon the order passed by the Tribunal in the assessee s own case in ITA No. 33/JP/2013 dated 30.04.2015 whereby the Tribunal has allowed the claim of prior period expenses of the assessee and has dismissed the ground of the reve .....

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sequent year. Therefore, there will not be any tax effect and the entire exercise of the revenue is only academic in nature. In the light of the above, the third ground of the revenue is also dismissed. Ground No 4 of Revenue in appeal no 144/ 14 : 10. Assessee has debited a sum of ₹ 5,12,84,990/- to the Profit & Loss account on account of donation. Out of which, ₹ 5,10,00,000/- was paid to Chief Minister Relief Fund on which deduction was claimed u/s 80G @ 100%. The remaining am .....

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ty week by holding that the amount was paid by the assessee in discharge of its social obligation in the area and therefore allowable u/s 37(1). 10.1. The AO considered the submission but could not find it acceptable. The AO observed that assessee has not been able to prove the business expediency of the expenditure incurred towards social welfare expenses neither he explained that what benefit it had derived from incurring these expenses. The AO, therefore, disallowed the claim of expenses of & .....

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see s own case for AY 2008-09 where the disallowance made by AO in respect of payment made to Rose Society was confirmed by Hon ble ITAT. 12. Now the revenue is before us. 12.1. We have heard rival contentions and perused the material on record. After going through the order of the ld. CIT (A), we find no infirmity in the order passed by ld. CIT (A), therefore, no interference is called for. Thus the ground of the revenue is dismissed. 13. In the result, Revenue s appeal is dismissed. Ground No. .....

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he Tribunal in its earlier order. Therefore, respectfully following the order passed by the Tribunal, we dismiss ground no. 1 of the assessee. Ground no. 2 of Assessee : 16. Ground no. 2 relates to confirming the disallowance of ₹ 1,01,45,489/- in respect of amortization of mining land and leasehold land. 17. Brief facts of the case are that the assessee has acquired the mining land from the State Government for excavation of Rock-Phosphate, Gypsum, Lignite and Limestone. These lands are c .....

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ee, since the period for excavation of mining land is for 20 years, therefore, the assessee has sought to amortized the cost for a period of 20 years. Accordingly, the assessee claimed amortization of mining land at ₹ 91,27,344/- and leasehold land t ₹ 10,18,505/-. Since the assessee was treating amortization of these amounts in its books of account as mentioned herein above, therefore, the AO, after going through the written submission dated 05.02.2013, has disallowed the amortizati .....

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d that it was claiming deduction under section 37(1) and not under section 35D. The basis of appellant s claim is that mining land and leasehold land are wasting assets and therefore cost needs to be amortised over the economic life. Appellant also mentioned that in earlier years, this claim was allowed by the AO. Appellant paid for mining land which is appellant s asset. Similarly payment for long-term lease of land also results in acquisition of asset. Land is not depreciable asset and therefo .....

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apital nature is allowable. It is not in dispute that expense for mining land and leasehold land is capital expense and the same cannot be claimed as revenue under section 37(1). Once the expense falls in the category of capital expense, it goes outside the purview of section 37(1). There are some deductions available for capital expense such as depreciation under section 32, amortisation under section 35D etc. If no deduction is available in respect of any capital asset under these provisions, .....

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lso not applicable to the facts of this case. By purchasing mining land, appellant got absolute right over the said land which also includes mining. Even after mining is over, appellant s right over land remains. Therefore, I do not find any logic in claiming amortisation of mining land and leasehold land expense under section 37(1) in which no capital expense is allowable. The reference of accounting standard by the appellant is also of no help since in the accounting standard also no amortisat .....

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y the appellant is not sustainable in law. Accordingly, the addition made by the assessing officer is confirmed. 19. Now the assessee is before us. 19.1. The contention of the assessee before us is that the sole purpose of acquisition of mining land is to exploit it for extraction of mineral resources and extraction of such mineral is the only economic use of the land for the assessee. Therefore, useful life of the land, considering the matching concept of accountancy, has to be charged off over .....

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ontended that the assessee has acquired the mining land from the State Government or otherwise, is a license to carry on the mining. It was further contended that the license to carry on the mining is an intangible asset under section 2(11) of the IT Act. For that purpose, the ld. A/R relied upon the order of the Tribunal in the matter of NMDC Ltd. vs. JCIT in ITA No. 714/Hyd/2012 dated 28.02.2014 where in para 22 it has been held as under :- 22. We have heard the arguments of both the parties a .....

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old the contention of the learned Counsel for the assessee for the simple reason that the denial of claim of depreciation has been made on misinterpretation of law and the applicability thereof. Explanation to Section 32(1)(ii) leans in favour of the assessee to the extent that it is the actual action of put to use which entitles the assessee to claim depreciation. A straight line method of claiming the writing off of lease hold rights for the period of lease cannot be denied to the assessee for .....

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ghts were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset. The definition of depreciation therefore has been misconstrued for the purpose of allowing deduction by the Assessing Officer and the learned CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended w.e.f. Assessment Year 2003-04. In this view of the m .....

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g lease to mineral actually produced during the year to the total estimated mineable reserves. It was further contended that as a result of this change in the procedure for amortizing, the assessee has written back an amount of ₹ 5,79,10,317/- claimed in the earlier years as per the changed system as evident from Schedule of Fixed Assets and has offered for tax. Based on this, the AO has completed the assessment for the Assessment Year 2011-12 where the written back of amortization of S .....

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iven by the ld. CIT (A) is not correct. On the other hand, the ld. D/R for the Revenue supported the order passed by the ld. CIT (A). 20. Now the assessee is before us. 20.1. The vexed question before us is the amortization of amount paid for getting the mining land / leasehold land by the assessee. Whether it is required to be treated as revenue expenditure and is required to be allowed under sec. 37(1) of the Act or not ? For the purpose of allowing any expenditure, it is necessary to look int .....

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bts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.] [(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or .....

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for making such an investment. Our view is also fortified by the judgment of Hon ble Supreme Court in the matter of Aditya Minerals vs. CIT (1999) 8 SSC 97 and also by the judgment of Hon ble Supreme Court in the matter of Enterprising Enterprises vs. DCIT in the Civil Appeal No. 5656 of 2006 whereby Hon ble Supreme Court has held that where the entire amount of lease is paid either at a time or in installment, it would be a capital expenditure . Therefore, we are bound by the judgments passed b .....

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oration Ltd. vs. CIT, 225 ITR 802 is not applicable to the facts and circumstances of the case. However, the judgment of Hon ble Supreme Court in the matter of Enterprising Enterprises (2007) 160 Taxman 188 (SC) is squarely applicable to the facts and circumstances of the case and further the said judgment is of later date and, therefore, is required to be followed by the Bench. The judgment of NMDC Ltd. vs. JCIT (supra) is not applicable to the facts and circumstances of the case as in the said .....

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ubsequent to the closure of the mining operation. Even otherwise, the mining activity is done not on the surface of the earth but on the core towards the lower side of the surface. The surface, can be put to use for beneficial purposes after the term of lease/mining activity is over and it can be exploited for commercial purposes by the owner/appropriate authority. The contention of the assessee is that the assessee will be double taxed as the AO has already completed the assessment for the A.Y. .....

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required to abide law/adjudication done by the superior authority. This is the only way the judicial system works. The AO is a quasi judicial authority and bound to follow the principle laid down by the Tribunal and not the vice versa. Therefore, the submission of the ld. A/R for the assessee on this count is also rejected. However, it is made clear that the assessee would be entitled to all benefits as available in law and the assessee will not be subjected to double taxation for the A.Y. 2011 .....

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penditure on computerization of Mines Department of the Government of Rajasthan. The tax auditor in Form 3CD has reported that the payment so made by the assessee was not directly for the purpose of the business. The AO disallowed the said contribution to DMG and has added back to the total income of the assessee. 22. On appeal by the assessee, the ld. CIT (A) has upheld the reasoning given by the AO. The reasoning given by the ld. CIT (A) is mentioned in para 7.3 of his order as under :- 7.3. I .....

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would have helped its business activity. Assessing Officer found that the claim of expenses not allowable under any provisions of IT acts. Appellant submitted decision of Rajasthan High Court in which construction of Dam was held to be revenue expense as against capital expense however this decision is not relevant here since the claim was not treated as capital by the AO. Appellant is an undertaking owned by Government of Rajasthan and payment of contribution was made at the instruction of Gov .....

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irectly help any PSU but that does not mean that the public sector undertaking will bear the cost of upgradation of Government department. Expenditure for Government department are met from the budget passed by the state legislature and the same need not be contributed by public sector undertakings. If the controlling department forced any PSU to contribute for the upgradation of the Department, the same will not become business expense of the PSU. It is not the expense incurred by the State Dep .....

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. Accordingly, the disallowance made by the AO is confirmed. 23. Feeling aggrieved by the order passed by ld. CIT (A), the assessee is in appeal before us. 23.1. The ld. A/R for the assessee contended that the Secretary, Mines & Petroleum Department, Government of Rajasthan vide its letter dated 05.07.2007 informed the assessee that the Information Technology & Communication Department has approved the departmental computerization project costing ₹ 4.43 crores over the period of fi .....

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ontribution of ₹ 50 lacs as agreed in the earlier, therefore, the said contribution was paid to them and accordingly the assessee has claimed the expenditure of ₹ 50 lacs to be allowed under section 37(1) of the Act. For this purpose, the ld. A/R of the assessee buttressed the argument after relying on the following judgments :- Rio Tinto India (P) Ltd. vs. ACIT 52 SOT 629 (Del.)(Trib.) CIT vs. Chemicals & Plastics India Ltd. 292 ITR 115 (Mad.)(HC) CIT vs. Hindustan Zinc Ltd. (20 .....

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ayed that the expenditure incurred by the assessee may kindly be allowed. 23.2. On the contrary, the ld. D/R for the revenue supported the order of ld. CIT (A) and has submitted that the expenditure made by the assessee is not wholly and exclusively for the purpose of business of the assessee and is, therefore, required to be disallowed. 23.3. We have gone through the records and have considered the rival contentions and applied our mind. In our view, ground no. 3 of the assessee is required to .....

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the statutory charges. Any contribution made by the assessee to the Government for computerization, would be at its own cost and pay-roll. That cost incurred by the assessee for computerization of the department, in our view is not going to benefit the assessee exclusively and wholly. It may be a good-will gesture or an effort to oblige the bureaucrats by the assessee. We are not expressing any opinion/requirement of paying such huge amount to the department for the purpose of computerization. T .....

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23,812/- as derived from the business of power generation undertaking. Ground no. 5 relates to not allowing the income of the assessee from sale of CERs of ₹ 85,26,824/- as capital receipt. 24.1. Brief facts are that the assessee has installed Wind Power Plants at different locations and in different years through M/s. Suzlon Energy Ltd. At the time of entering into set up of the power plant, the assessee and M/s. Suzlon Energy Ltd. has entered into an agreement whereby the respective duty .....

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rom their annual instalments. Years Rs. Per kwh 2 yrs 4.50 per kwh 4 yrs 5.00 per kwh 6 yrs 5.50 per kwh 8 yrs 6.00 per kwh 10 yrs 6.50 per kwh 12 yrs 7.00 per kwh 14 yrs 7.50 per kwh 16 yrs 8.00 per kwh 18 yrs 8.50 per kwh 20 yrs 9.00 per kwh It was contended by the ld. A/R for the assessee that the assessee has received an amount of ₹ 36,20,742/- on sale of CERs on which it claimed deduction u/s 80IA. The AO has disallowed the claim of the assessee. The reasoning given by the AO at page .....

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Ltd., (12 Taxmann.com 451 (Gau.) 2011) as under : The expression derived from occurring in section 80-IB in relation to the business of an industrial undertaking is narrower in connotation than the expression attributable to the business of an industrial activity. Therefore, while attributable to as used in some other sections of the Act, may cover sources of income beyond the first degree. It is keeping this distinction in mind that it must be held that transport subsidy and interest subsidy c .....

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India observed that: The 1961 Act broadly provides for two types of tax incentives, namely, investment-linked incentives and profit-linked incentives. Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of profit-linked incentives . Therefore, when S.80- IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives u/s. 80-IA/80-IB is the gene .....

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ssessee. Any other source, not falling within the first degree, could in a sense be described as ancillary to the business of the assessee. As the section 80IA of the Act has used work derived from instead of attributable to therefore this section does not intend to cover sources beyond the first degree. Keeping this distinction in mind it can be said that Liquidated damages and sale of CERs are not income derived from the industrial undertaking of the assessee. It can only be ancillary to the p .....

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was held by the Supreme Court that duty drawback receipts/DEPB license benefits do not form part of net profits of the Industrial undertaking for the purpose of sec.80IA or 80IB. The nature of Carbon Trading income is also similar to that of duty drawback and DEPB license income. Otherwise also assessee has itself offered income from sale of CERs in its profit and loss account form past many years. He has neither claimed it as capital receipt in the original return nor in the revised return. The .....

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submitted that liquidated damages are the charges paid by M/s. Suzlon Energy Ltd to the assessee due to short fall in minimum guaranteed power generation. These charges are nothing but the income from sale of power only, as it was the commitment of the supplier of wind mill at the time of installation that the wind mill after erection will yield the required out put of power unit. In fact, on account of failure of the wind mill to produce the required power unit, the supplier M/s. Suzlon Energy .....

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A No. 3805/Del/2009 Dated 26.03.2010 (ITAT Delhi Bench) 25.2. The ld. D/R for the revenue has submitted that the liquidated damages received by the assessee were on account of agreement with M/s. Suzlon Energy Ltd. (equipment supplier) and not from the registered industrial undertaking. Therefore, the assessee is not eligible for deduction under section 80IA. It was further submitted that in section 80IA there is a deliberate user of the words profits and gains derived by undertaking. It was sub .....

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ion is whether the short fall from the net minimum guaranteed power generation, the amount received by the assessee on account of levy of charges on the supplier can be treated as an income received by the assessee is eligible for deduction under section 80IA of the Act or not. For the purpose of adjudication of this issue, it is necessary to reproduce the relevant clauses of the agreement entered between the assessee and M/s. Suzlon Energy Ltd, which has been provided at page 89 of the paper bo .....

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e date of commissioning will be leviable & operative recoverable from their annual instalments. Years Rs. Per kwh 2 yrs 4.50 per kwh 4 yrs 5.00 per kwh 6 yrs 5.50 per kwh 8 yrs 6.00 per kwh 10 yrs 6.50 per kwh 12 yrs 7.00 per kwh 14 yrs 7.50 per kwh 16 yrs 8.00 per kwh 18 yrs 8.50 per kwh 20 yrs 9.00 per kwh In para 37 of the Agreement, the parties have used the word levy and on the basis of levy, the charges for the shortfall from the net minimum guarantee has been derived. The levy include .....

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om business. For the purpose of ascertaining the income derived from the business, we are required to see the immediate source of the revenue generation. In our view, the immediate source of revenue generation is not running of the wind mill rather it is breach of the contract/failure of the machine to perform optimum power generation as provided under the contract. The immediate source will be first degree and not the second or third degree source. The Hon ble Supreme Court in the matter of Pan .....

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was not given purchase orders equal to the normative production possible. The assessee, therefore, did not produce or manufacture the products because of lack of orders or failure of Hindustan Lever Limited to place purchase orders for the possible normative production. Payment has been made for non-production and not because of unsold production, and therefore the failure to buy. In these circumstances, it is not possible to accept the contention of the assessee that the standing charges have .....

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produce and then market its products. This becomes clear when we examine Annexure 3 to the agreement. 16. The aforesaid formula for computation of sale price stipulates that the cost or the selling price was computed under clauses 1 to 11. However, as Hindustan Lever Limited was unable to place purchase orders in respect of the normative fixed stipulated number, they were liable to pay and have paid the standing charges. These are not charges payable for the supplies made or towards price of the .....

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tc. would be or is payable. Keeping in view the nature and character of the standing charges, evidence and finding regarding nature and character of the manufacturing activity undertaken, it cannot be said that the said charges were paid for or towards sale consideration of the goods supplied. This is not a case where goods were produced but not purchased or supplied etc. The factual matrix as found does not support the claim of the appellant under Section 80IC of the Act. We add by way of cavea .....

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trial undertaking. The facts and ratio is different as the goods were manufactured and later on were destroyed in fire. The insurance company had made payment for the goods produced. Similarly, in CIT v. Dharam Pal Prem Chand Ltd. [2009] 317 ITR 353 / 180 Taxman 557 (Delhi) it has been held that keeping in view the factual matrix, refund of excise duty paid was income derived from by an industrial undertaking. The factual matrix and the nature and character of payment, i.e., refund of excise dut .....

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ot operated upto the normative production levels as stipulated in the agreement. Similar decision of the Guwahati High Court in CIT v. Meghalya Steels Ltd. [2011] 201 Taxman 135/ 12 taxmann.com 451 relates to refund of excise duty, which was required to be first paid and then refunded. The assessee claimed refund on completion of formalities because the exemption notification had stipulated that the excise duty should be first paid by the manufacturer and then the refund could be claimed. In CIT .....

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peculiar facts and is hardly relevant to the factual matrix in question. Income paid on late payment received from customers has been considered as profit and gains derived by an industrial development undertaking as it partakes and is sale consideration. In CIT v. Vidyut Corpn. [2010] 324 ITR 221 (Bom.), the assessee had discounted the promissory note drawn by the purchaser with its bankers. The discount charges deducted by the banks were subsequently reimbursed to the assessee by the purchase .....

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favour of the Revenue. The appeal is accordingly dismissed. There will be no order as to costs. In view of the above, the ground of the assessee is rejected. 26.1. The second part of the ground is with respect to the treatment of the revenue generated on account of sale of CERs for ₹ 85,26,824/-(80IA claimed on ₹ 36,20,742/-). 26.2. The assessee has declared receipt of ₹ 85,26,824/- fro sales of CERs during the year under consideration. In course of assessment proceedings, ass .....

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laim the assessee that it is a capital receipt is not tenable in view of the decision of Hon ble Supreme Court in the case of Liberty India, 317 ITR 218 as also Goetze India Ltd. vs. CIT, 284 ITR 323. 27. The ld. CIT (A) confirmed the findings of AO by holding that sale proceeds of CERs are revenue receipts not only from the intrinsic nature of the entitlement but also because these are closely connected with carrying out business. They are taxable u/s 28(iv) as benefit arising during the course .....

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the order of the AO as well as ld. CIT (A) are correct and are based on the sound reasoning. 28.3. We have heard rival contentions and perused the material on record. Before we deal with the issue, the sale of CER is subject matter of various litigations before the Tribunal as well as before High Court. The courts have consistently held that the sale of CER is capital receipt. For the purpose of clarity, the following decisions are cited below which clearly show that the sale of CER is a capital .....

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no. 6 relates to not allowing deduction of ₹ 2,94,04,000/- in respect of mines closure expenses claimed by the assessee. 29.1. In this regard the AO has mentioned as under :- 3.10. During the assessment proceedings the assessee claimed as under :- In compliance to guidelines dated 27.08.2009, as amended from time to time, by Ministry of Coal, Government of India, for preparation of Final Mine closure, company has provided sum of ₹ 2,49,04,000/- towards proportionate mines closure exp .....

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total income and notes to the computation are enclosed for the ready reference. I have gone through the claim made by the assessee in respect of towards proportionate mines closure expenses for the financial yer 2009- 10 amounting to ₹ 2,49,04,000/-. As the assessee itself mentioned in his reply that the expenditure has not been debited in the books of accounts for the assessment year under consideration therefore no question of its allowability arises. Even otherwise, legally also the cl .....

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rder and appellant s written submission. Appellant claimed mines closure liability during assessment proceeding which was not claimed in the books of accounts. Assessing officer did not allow the same of the ground that these expenses were not crystallized and debited to the P&L account and also the claim was not made through the return of income. Appellant submitted that as per the circular of coal Ministry, this liability is crystallised. However, when appellant could not create provision .....

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for mines closure was given and therefore there is no question of any ascertained liability existing during the year. At the most, it can be a contingent liability which is not allowable under income tax act. Accordingly, the claim made by the appellant during assessment proceedings in respect of mines closure liability is held to be not allowable. 30. Now the assessee is before us. 30.1. The ld. A/R for the assessee has submitted that the Government of India, Ministry of Coal introduced guideli .....

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ing the annual closure cost in Annexure-1. It is fairly admitted by the ld. A/R for the assessee that neither the expenditure has been debited in the books of account towards the closure of the mines nor any plan was submitted for obtaining the approval of mine closure within one year of publication of said guidelines by the authority. The ld. A/R has submitted that the Auditor General Office while conducting the supplementary audit of accounts for financial year 2010-11 has observed that the as .....

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en the following manner :- Assessment Year Amount (Rs.) 2010-11 2,49,04,000/- 2011-12 4,69,61,000/- 2012-13 7,96,71,000/- Total : 15,15,36,000/- During the assessment proceedings, the assessee has claimed the liability towards mines closure plan amounting to ₹ 2,49,04,000/- for the A.Y. 2010-11 (subject matter of present appeal). The AO as well as the ld. CIT (A) has rejected the claim of the assessee for the reasons mentioned herein above. It is submitted by the ld. A/R for the assessee, .....

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d. CIT (A) is incorrect as there is no provision under the Act that provided the claim of the provision for the liability is not allowable. It was further submitted that a provision of liability even if estimated cannot be disallowed unless it falls under the specific provision of disallowance under the Act. In this regard, the ld. A/R for the assessee relied upon the judgment of Hon ble Supreme Court in the matter of Rotork Controls India Pvt. Ltd. vs. CIT, 314 ITR 62. The ld. A/R also relied u .....

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further submitted that unless the appellant started the work in the direction of said Circular/guidelines, there is no question of ascertaining liability. 30.3. We have heard rival contentions and perused the material on record. In our view, once an assessee whether private or government takes on lease a mine, its closure is inevitable. A mine cannot be permitted to be exploited infinitely and indefinitely. In our view, once the mine is exploited, its closure and rehabilitation is necessary. In .....

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for closure of the mines and for restoring the ecological balance and environment protection. Therefore, to say that the liability is merely a contingent and has not arises, in our view is preposterous and without any merit. The provisions are required to be made in the books of account of the assessee. Since the amount is ascertainable and discernable to be spent on the closure of the mines, in view of the formula given by the Ministry of Coal, therefore, in our view the liability is not a con .....

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overnment of India, Ministry of Coal even the existing mines who are operating without the approval of mine closure plan are required to obtain a mine closure plan approved as per these guidelines. As per these guidelines mine closure plan will have two components i.e. progressive or concurrent mine closure plan and final mine closure plan. The assessee has been operating lignite mines at Hiral, Nagor and Sonari. As a result of the mine closure plans issued by the Government of India the assesse .....

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