TMI Blog2019 (9) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... d accordingly ground nos. 1 to 10 are rejected. Disallowance of depreciation - assessee has acquired the mining lease and license for extraction of Iron Ore and license no. 2552 was granted by the Government of Karnataka - HELD THAT:- This is true that mining lease has been obtained by the assessee but the impugned payment paid to Chief Conservator of Forests was not on account of acquiring mining lease and right for extraction of iron ore by mining lease. This payment is on account of Compensatory Afforestation in future for which present net value has been paid by assessee to State Forest department and hence, this argument has no merit. Consortium members commenced hydrocarbons operations in the Sakhalin Block and they held 40% interest in the hydrocarbon project. Later on, the assignment agreement dated 10.02.2001 was entered into and as per this agreement, 50% of their share in the Sakhalin PSA and in a joint operating agreement to OVI for a consideration of ₹ 15,590.96 million. Consequent to the acquisition of such rights and licenses, the assessee became a consortium member and the assignors were relieved from obligation under the Sakhalin PSA to that extent. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Out of this bunch of five appeals, there is one appeal filed by the assessee for Assessment Year 2011-12. This appeal is filed by the assessee against the order of ld. CIT(A)-11, Bangalore dated 17.01.2019. Out of the remaining four appeals, three appeals are filed by the assessee for Assessment Year 2012-13, one appeal directed against the order of Pr.CIT (Central) dated 28.03.2017 passed by her u/s. 263 of the IT Act and these two appeals are directed against the combined order of ld. CIT(A)-11, Bangalore dated 17.01.2019 which are arising out of ITA No. 70/CIT(A)-11/BNG/2015-16 and ITA No. 391/CIT(A)-11/BNG/2017-18. Out of these two appeals filed before ld. CIT(A), one appeal i.e. ITA No. 391/CIT(A)- 11/BNG/2017-18 was filed on 16.10.2017 before ld. CIT(A) and this appeal was directed against the order passed by the AO u/s. 143(3) r.w.s. 263 of the IT Act and the remaining one appeal is filed before ld. CIT(A) in ITA No. 70/CIT(A)- 11/BNG/2015-16 on 23.04.2015 against the original assessment order passed by the AO u/s. 143(3) of the IT Act. But in both the appeals filed before the Tribunal, the only issue on merit raised by assessee is regarding disallowance of depreciation amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to ₹ 2,47,00,256/-. 12. The appellant denies the liabilities of interest u/s 234B 234C of the Act. Further prays that the interest if any should be levied only on returned income. 13. No opportunity has been given before levy of interest u/s 234B and 234C of the Act. 14. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234B and 234C of the Act. 15. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered. 3. The grounds raised by the assessee in ITA No. 512/Bang/2019 are as under. 1. That the order of the authorities below in so far as it is against the assessee is opposed to law, facts, circumstances, natural justice, equity all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. The order is based on surmise, suspicion and conjuncture and is in blatant disregard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he grounds raised by the assessee in ITA No. 863/Bang/2017 are as under. 1. That the above order of the Commissioner of Income Tax in so far it is against the assessee is against the law, facts, circumstances, natural justice, equity and all other known principles of law. 2. The Learned CIT erred in assuming jurisdiction u/s 263 without first satisfying that the assessment order dated 24.03.2015 is erroneous and prejudicial to interest of revenue. 3. The Learned CIT erred in issuing notice u/s 263 when there was no error prejudicial to the interest of revenue attracting proceedings u/s 263. 4. The Learned CIT erred in holding that order of assessment was erroneous and prejudicial to the interests of revenue. 5. The Learned CIT erred in assuming jurisdiction u/s 263 of the IT Act by issue of notice dt.10.05.2016 when the issue was a subject matter of appeal before the CIT-Appeals. 6. The order u/s 263 passed by the Learned CIT dt 28.03.2017 is against the law having regard to the facts, circumstances and law on the issue and hence liable to be cancelled as admittedly there were two views on the issue and when valid di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2014 on the issue of under invoicing as there was no escapement of income. Hence the notice issued u/s 148 of the Act became invalid. However, the AO chose to make addition on a completely new issue i.e., depreciation on Mining Lease and licence which did not have any live connection with the reasons recorded. Such an addition was made without issuing a fresh notice as per law. On this issue the assessee has relied on the decision of the Bombay High Court in the case of CIT vs Jet Airways (I) Ltd - 331 ITR 236 (PBI I page 78, relevant page 86) wherein the Court has held as under: 21 .However, if after issuing a notice under s. 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under s. 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. The assessee has relied on the decision of the Delhi High Court in the case of Ranbaxy Laboratories Ltd vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the above decisions, since in this case the very foundation based on which the notice was issued is unsustainable in law, the assessment requires to be quashed in the interest of justice. II) On merits, the addition is made towards disallowance of depreciation on Mining lease and licence. The view of the AO is that since the assessee is not the owner of the mining lease, the expenditure incurred cannot be classified as intangible asset. Also since the mining lease is for a period of 20years the AO is of the view that the expenditure incurred has to be amortized and allowed at the rate of 1/20th. The AO for the AY 2012-13 however took a different view and invoked section 35D and amortised at the rate of 1/10th. The CIT-A similarly held the view of the AO that since the assessee is not the owner of the mines, depreciation is not allowable. The view of the AO CIT-A is incorrect as the assessee has acquired the mining lease and licence rights for extraction of iron ore vide Mining Lease and Licence No.2552 granted by the Government of Karnataka. The Government by way of granting the mining lease and licence has given the assessee the right to extract ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an intangible asset-As per r. 5 of BSE Rules, membership is a personal permission from the Exchange which is nothing but a licence which enables the member to exercise rights and privileges attached thereto-It is this licence which enables the member to access the market-Therefore, the right of membership which includes right of nomination is a licence or akin to licence which is one of the items falling in s. 32(1)(ii)-Hence, depreciation is allowable on the cost of the Membership Card The decision of the Supreme Court stated supra has also been relied upon by the Delhi Tribunal in the case of Container Corporation of India Ltd vs DCIT in ITA 5098 5101/De1/2014 dt. 31.05.2018 (PBI - 2 page 238, relevant page 244 245) wherein the tribunal on a similar issue has allowed depreciation. In this case the assessee had claimed depreciation on intangible asset of licence granted to the assessee for running container trains on Indian Railways Network for twenty years and the AO had observed that it was deferred revenue expenditure to be amortized over a period of 20 years. The Tribunal in para 7 paper book page 245 has held as under: 7 ...It is observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stamp duty and Registration charges paid to Sub-registrar of Sandur for forest agreement Registration 1,05,690 Mining Lease Registration charges and Stamp duty paid to Subregistrar, Sandur 49,32,533 Refer Annexure A Total 9,88,01,025 The depreciation was originally allowed in intimation u/s 143(1) dt.27.01.2012 for AY 201112 (PBI - 2 page 153). In support of the above, briefly the facts are as below: Shri.M.Srinivasulu was the holder of Mining Lease and Licence No.2552 granted by the Government of Karnataka - Department of Mines and Geology for a period of 20 years with effect from 03.07.2007 containing an area of 134 hectares in Donimalai Range, Sandur Taluk, Bellary for extraction of iron ore (copy of the mining lease is enclosed as Annexure A). An expenditure of ₹ 9,96,43,470/- has been incurred towards acquisition of the said lease and licence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree Gavi Siddeshwara Minerals transferred the said lease to the partnership firm Shree Gavi Siddeshwara Minerals vide Government order dt.15.01.2010 (PBI - 2 page 166) sanctioning the assignment on 27.01.2010. Enclosed as Annexure F for ready reference (Copy of the Transfer order is enclosed as Annexure D to assessment order also available at PBI - 1 page 96). Upon transfer of Mining lease and licence to the appellant, the same has been considered as an intangible asset in the books of accounts. On the basis of the above details the AO has allowed 1/20th of ₹ 9,88,01,025/- which is the same cost on which the assessee has claimed the depreciation. Thus the cost of acquisition is not an issue in dispute. In view of the above, it is requested that the assessee's claim of depreciation be allowed in the interest of justice and oblige. In summary all the assessee's appeals for various assessment years are as below: Appeal No. and AY Appeal against order u/s Action of the AO Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA 514/B/19 AY 2014-15 143(3) AO disallowed Depreciation and allowed amortisation at 1/20 th Depreciation may be allowed on the Intangible asset on WDV basis 8. The ld. DR of revenue supported the orders of authorities below. It is also submitted that the reasons recorded by the AO for reopening is not relevant and, in this regard, he placed reliance on the judgment of Hon'ble Karnataka High Court rendered in the case of Shri N. Govindaraju Vs. ITO Anr. as reported in (2015) 377 ITR 0243 (Karn), copy available on pages 199 to 213 of the paper book. In particular, he drawn our attention to para no. 44 of this judgment. 9. We have considered the rival submissions. First of all, we decide the appeal of the assessee for Assessment Year 2011-12 in ITA No. 511/Bang/2019. As per ground nos. 1 to 10 of this appeal, the issue in dispute is regarding validity of reassessment proceedings. We have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not relevant for deciding the issue in the present case regarding the validity of reassessment proceedings. In addition to that, various other judgments are cited by ld. AR of assessee including that of Hon ble Bombay High Court rendered in the case of CIT Vs. Jet Airways (I) Ltd. as reported in 331 ITR 236 and of Hon ble Delhi High Court rendered in the case of Ranbaxy Laboratories Ltd. Vs. CIT as reported in 336 ITR 136 but the judgment of Hon'ble Karnataka High Court rendered in the case of Shri N. Govindaraju Vs. ITO Anr. (supra) is available before us and as per this judgment, it was held that reopening is valid. In that case also, it was noted in para 1 of the judgment that if the reasons for reopening are (a) and (b) and during fresh assessment proceedings u/s. 147 of the Act, income is found to have escaped from assessment for some other reason say (c) and (d), then, if reasons (a) and (b) do not survive and no addition can be made for such reasons, can additions be made on the basis of reasons or grounds (c) and (d). In the present case also, this is the objection of the assessee before us that reasons were recorded in respect of under invoicing and no addition has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng registration charges and stamp duty to Sub Registrar, Sandur. The AO states that appellant had not shown how the said expenditure can be classified as an intangible asset wherein depreciation can be claimed. It is noted that the amount was paid to Forest department for it to acquire compensatory aforestation and also as a Net Present Value. 21. Further the expenditure was originally incurred by mining licence holder Mr. M. Srinivasulu. The mining lease was transferred to the appellant later. Therefore, AO held that the said expenditure did not fall under the head preliminary and pre-operative expenditure as claimed in earlier years or as intangible asset as claimed in the current AY. The AO further states that transfer of mining lease no 2552 had taken place as per Rule 37 of MCR 1960 from Sh. M. Srinivasulu to the appellant on 27/01/2010 and the period of lease was specified as 20 years. As appellant derived 36% share in mining ore, the expenditure was amortised by AO and held to be allowable over a period of 20 years @ 1/20th for each year after commencement of business. 22. During appellate proceedings, appellant has not rebutted findings of AO with fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten submissions filed by him, he will submit the relevant letter from Government of India, Ministry of Environment Forests dated 13.09.2006 and also letter dated 31.10.2006 submitted by Shri M. Srinivasulu to the Deputy Conservator of Forests, Bellary Circle, Bellary and the demand notice dated 26.10.2006 as per which a demand of ₹ 865 Lakhs has been raised. Along with the written submissions filed by ld. AR of assessee, these documents have been submitted and from the same, it is seen that ₹ 865 Lakhs has been recovered from the assessee on account of net present value of the forest area of 134 ha. Diverted to the assessee for mining purpose and this net present value has been fixed as per Government order dated 17.01.2004 at different rates for different types of forest area as per the details given in demand notice dated 26.10.2006 and for ready reference, we reproduce the contents of this demand notice as under. DEMAND NOTICE Sub:- Diversion of 134 ha. of forest land in favour of M/s M.Srinivasulu for extraction of Iron Ore Mining in Donimalai Reserve Forest, Sandur taluk, Bellary Recovery of Net Present Value. Ref:- 1) Letter No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .00 6.80 238.00 4 Dry deciduous forest with density 0.1 and above 21.50 7.40 159.10 Total 134.00 865.00 3) Therefore, you are hereby requested to pay a sum of ₹ 865.00 (Rupees Eight crores sixty five lakhs) only being the Net Present Value of the forest land of 134 ha. under different categories as prescribed by the Government of Karnataka in their Notification No:FEE-247-FGL- 2002 dated: 17-1-2004. The above amount of Net Present value should be paid in the form of Demand Draft drawn in favour of the Principal Chief Conservator of Forests. Bangalore at any Nationalized Banks. within 15 days from the date of receipt of this demand notice. 13. As per the letter dated 13.09.2006 issued by the Government of India, Ministry of Environment and Forests (F.C. Division), it is stated that this land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Advisory Committee, in-principle approval of the Central Government is hereby granted for diversion of 134.00 ha of forest land in favour of Mis M. Srinivasulu Iron Ore Mining in Donimalai RF. Sandur Taluk, in Bellary district of Karnataka subject to fulfilment of the following conditions: 1. (i) The User Agency shall identify and acquire equal extent of non-forest land for Compensatory Afforestation, which shall be mutated in favour of the State Forest Department. (ii) The land identified for the purpose of CA shall be clearly depicted on a Survey of India toposheet of 1:50,000 scale. (iii) The User Agency shall transfer the cost of Compensatory Afforestation to the State Forest Department. (iv) The non-forest land identified for raising Compensatory Afforestation shall be notified by the State Government as RF under Section-4 or PF under Section-29 of the Indian Forest Act, 1927 or under the relevant Section(s) of the local Forest Act. as the case may be, within a period of six months. The Nodal Officer (Forest Conservation) shall report compliance in this regard. (v) CA scheme shall be prepared with proper earmarking of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi - 110 003. 9. After receipt of the compliance report on fulfilment of the conditions mentioned above, the proposal shall be considered for final approval under Section-2 of the Forest (Conservation) Act, 1980. 10. Transfer of forest land shall not be effected till final approval is granted by the Central Government in this regard. 14. As per the above letter, it is seen that diversion of 134 ha. of forest land in favour of the assessee was subject to certain conditions and one of the condition was that the User Agency i.e. the assessee shall identify and acquire equal extent of non-forest land for Compensatory Afforestation, which shall be mutated in favour of the State Forest Department. This was the second condition that the land identified for the purpose of Compensatory Afforestation shall be clearly depicted on a Survey of India toposheet of 1:50,000 scale and the third condition is this that the User Agency shall transfer the cost of Compensatory Afforestation to the State Forest Department. As per condition no. 6, this was the condition that the State Government shall charge the Net Present Value of the forest area diverted under the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease and license for extraction of Iron Ore and license no. 2552 was granted by the Government of Karnataka. This is true that mining lease has been obtained by the assessee but the impugned payment of ₹ 9,43,51,400/- paid to Chief Conservator of Forests was not on account of acquiring mining lease and right for extraction of iron ore by mining lease. This payment is on account of Compensatory Afforestation in future for which present net value has been paid by assessee to State Forest department and hence, this argument has no merit. Reliance has been placed on a Tribunal order rendered in the case of ONGC Videsh Ltd. Vs. DCIT as reported in (2010) 37 SOT 0097, copy available on pages 100 to 111 of the paper book. In that case, as per the facts noted by the Tribunal in para 2 of this Tribunal order, it is noted that the consortium members commenced hydrocarbons operations in the Sakhalin Block and they held 40% interest in the hydrocarbon project. Later on, the assignment agreement dated 10.02.2001 was entered into and as per this agreement, 50% of their share in the Sakhalin PSA and in a joint operating agreement to OVI for a consideration of ₹ 15,590.96 million. Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licence cannot be categorised as preliminary and preoperative expenditure. The objection of CIT is this that having held so, the AO erred in allowing the expenditure to be amortised as per the provisions of section 35D because this section relates to amortisation of preliminary expenditure and hence, the AO has failed to apply the law correctly. This finding of CIT could not be controverted by the learned AR of the assessee and hence, we find no infirmity in the order of CIT. The judgments cited by the learned AR of the assessee do not render any help to the assessee in the present case. In fact, Para 5 of the judgment of Hon ble apex court in the case cited above supports the case of the revenue. In this para, it was held that an incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. In the present case, once the AO held that the expenditure incurred by the assessee for obtaining the mining lease licence cannot be categorised as preliminary and preoperative expenditure and thereafter, allowing amortisation u/s 35 D is nothing but incorrect application of law. In the case of CIT vs. Sasken Communication Technologies ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
