TMI Blog2017 (4) TMI 1282X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(iii) is concerned it is only the investment which yield dividend income that should be considered for the purpose of applying the formula as held by this tribunal in the case of REI Agro Ltd. (2013 (9) TMI 156 - ITAT KOLKATA) which has since been affirmed by the Jurisdictional Calcutta High Court. In view of the above we find no merits in the ground raised by the revenue. Treatment to the NPV expenditure - revenue OR capital in nature - Held that:- As decided in assessee's own case the above expenditure paid by the assessee as NPV to enable the assessee to carry on its mining business is revenue in nature, which is allowable as business expenditure under section 37(1) of the Act. - Revenue appeal dismissed. - IT(SS)A Nos.36 to 38/Kol/2015 - - - Dated:- 5-4-2017 - Hon ble Shri N.V.Vasudevan, JM M.Balaganesh, AM For the Appellant: Shri G.Mallikarjuna, CIT(DR) For the Respondent: Shri Subash Agarwal, Advocate ORDER PER N.V.VASUDEVAN, JM: These are appeals by the Revenue against three orders all dated 08.12.2014 of CIT(A)-20, Kolkata relating to A.Y.2010-11, 2011-12 2012-13. Since the common issues are involved in these three appeals they were h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income chargeable under the head Profits and gains of business or profession . Explanation to Sec.37(1) lays down as follows: For the removal of doubts, 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. The stand of the assessee was that these payments were not in the nature of penalty for infringement of law and were purely in the nature of compensatory charges and therefore cannot be disallowed under Explanation to section 37(1) of the Act. The assessee explained the nature of railway punitive charges that the charges though called Punitive Chartes in the terminology of the railways did not actually relate to any offence or infringement of law, On the contrary, it was in the nature of additional freight on overload of goods beyond the permissible limit. The Assessee submitted that the goods are loaded for despatch to customers through Railway Wagons. When the Assessee loads the goods for despatch through Railway Wagons actual measureme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unitive charges for overloading makes it amply clear that such charges were actually in the nature of additional freight for overloading beyond the permissible carrying capacity and were not in the nature of penalty for any offence or infringement of law. The charges were in fact compensatory in nature for transportation of goods loaded beyond the permissible carrying capacity and it was only in the terminology of the railways that such charges are called punitive charges but in commercial parlance it is not in the nature of penalty for infraction of law. Therefore Explanation to section 37(1) of the Act will not apply to such charges. 5. In support of the claim of assessee the assessee placed reliance on the following judicial pronouncements wherein it was held that railway punitive charges were compensatory payments and cannot be disallowed under Explanation to section 37(1) of the Act. 1. M/s Taurian Iron Steel Co vs ACIT, ITA No. 847 1613/M/2010 2. Western Coalfields Ltd vs DCIT, ITA Nos. 289 290/Nag/2006 261/Nag/2008 3. Agarwal Roadlines (P) Ltd vs DCIT, ITA No. 668/Ahd/2009 4. DCIT vs Bharat C Gandhi, ITA No. 4270/Mum/2009 6. The AO did not agree wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome (i.e. C of clause iii below) 45000000 (i) Total Asset as on the 1st day of the previous year 4807332117 (ii) Total Asset as on the last day of the previous year 5772221441 C Average of (i) (ii) 5289776779 Disallowance under clause (ii) 280411 Disallowance under clause (iii) (A) Total Investment (Opening) 45000000 (B) Total Investment (Closing) 45000000 (C) Average Investment (A+B)/2) 45000000 (D) Indirect Expense Disallowance @0.50% of (C) 225000 Total Disallowance : Clause (i)+(ii)+(iii) 505411 As such ₹ 5,05,411 was added back to the total income of the assessee under this head. 12. Before CIT(A) the assessee submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce out of interest expenditure was justified. The contention of the assessee is also supported by the decision of the jurisdictional High Court in the case of Britannia Industries Ltd 280 ITR 525 (Cal). In view of the above, the addition of ₹ 2,80,411/- made under rule 8D(2)(ii) is deleted. The assessee has contended before me that the investments have yielded no dividend income during the year and therefore no disallowance could lawfully be made under rule 8D(2)(iii) in view of the decision of the jurisdictional ITAT in the case of REI Agro Ltd (ITA No.1331/Kol/2011). The AO may verify the contentions of the assessee in this regard. The. AO shall then re-compute the disallowance under rule 8D(2)(iii) in view of the decision of the jurisdictional ITAT in the case of REI Agro Ltd (supra) by considering only those investments which yielded tax free dividend income during the year. Ground no.4 is partly allowed. Ground no 2 and 5 being general in nature are dismissed. 13. Aggrieved by the order of CIT(A) the revenue has raised ground no.2 before the Tribunal. 14. We have heard the rival submissions. The ld. DR placed reliance on the order of AO and the ld. Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (3) In the facts and circumstances of the case Ld. CIT(A) is erred in treating the NPV as revenue item where its true nature is capital in nature. 20. The assessee as we have already seen is in the business of mining. It had incurred an expenditure of ₹ 32,16,09,530/- which was a payment of Net Present Value (NPV) to the State Government for the purpose of carrying out mining operations. The nature of the NPV is that it is a charge by the state government as per the directions of the Apex Court and as per the guidelines issued by the Ministry of Environment Forest to enable the assessee to utilize forest land for mining purposes. The said payment of NPV was for the purpose of carrying out afforestation activity in the area in which mining is carried out so as to maintain the green layer of the soil. The expenditure by way payment of NPV was a statutory obligation towards maintaining the environmental balance and was is in the nature of revenue expenses. The expenditure was incurred not for the purposes of obtaining any asset but for smooth running of the business of mining and no enduring benefit was being obtained by the assessee. The NPV was one-time payment, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agency of such land be required to compensate for the diversion. Hon'ble Apex Court observed that the User Agency be required to make payment of Net Present Value (NPV) of such diverted land so as to utilize the amounts so received for getting back in long run the benefits which are lost by such diversion. Hon'ble Apex Court vide its guidelines for determination of NPV directed the Ministry of Environment and Forests to formulate a scheme providing that whenever any permission is granted for change of use of forest land for non-forest purposes, and one of the conditions of the permission should be that there should be compensatory afforestation, then the responsibility of the same should be that of user agency. Hon ble Apex Court observed that the money so received towards NPV should be used for natural assisted re-generation, forest management, protection, infrastructure development, wildlife protection and management, supply of wood and other forest produce saving devices and other allied activities. In the context, Hon'ble Apex Court observed that NPV will not fall under Article 110 or 199 or 195 of the Constitution. It was observed that such payments were levied for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court has held in Empire Jute Company Ltd. -vs.- CIT [124 ITR 1] that there may be cases where expenditure, even if incurred for obtaining an advantage of any enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. Hon'ble Apex Court observed that if the advantage consisted of merely in facilitating the concerned assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, expenditure would be on revenue account, even though the advantage may be endured for an indefinite future. 14. We observe that in the case before us, assessee has got right to carry on mining operations in 1982 and 1985, i.e. long time ago before the assessee was asked to pay NPV as per direction of Hon'ble High Court and consequently assessee was compelled to make the payment to facilitate to continue its mining business. Therefore, the above decision of Hon'ble Apex Court in the case of Bikaner Gypsums Limited (supra) squarely applies to the case of assessee and it could not be capital in nature. 14.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory guidelines is allowable business expenditure. Hon'ble Kolkata High Court in CIT -vs.- Rungta Mines Pvt. Ltd. [205 ITR 335] held that where a trader, in his capacity as a trader, by compulsion of statutory obligation, has to incur an expenditure as a compelling requisite for carrying on his trade, the expenditure resulting in a capital asset in the hands of a third party, is to be taken as revenue expenditure because no asset arises to the trader b reason of such expenditure. It was further held that where law imposes on the assessee, an obligation to incur expenses for being permitted to pursue its trading activity, the expenditure would be an outgoing from the profits of the trade. 15. In view of the above decision and the facts of the case before us, we hold that Id. CIT(Appeals) has rightly held that the above expenditure of ₹ 3,95,56,500/- paid by the assessee as NPV to enable the assessee to carry on its mining business is revenue in nature, which is allowable as business expenditure under section 37(1) of the Act. Therefore, we uphold the order of Id. CIT(Appeals) by rejecting Ground No. 1 of the appeal taken by the Department. Hence, Ground No.1 is reject ..... X X X X Extracts X X X X X X X X Extracts X X X X
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