Cit, Jaipur v. Rajasthan State Mines & Minerals Ltd

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. D.B. Income Tax Reference No.1/2000 CIT, Jaipur Vs. Rajasthan State Mines & Minerals Ltd. DATE OF ORDER ::: 15.9.2016 HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE BANWARI LAL SHARMA Mr. Anuroop Singhi, for the petitioner.Mr. Sanjay Jhanwar, for the respondent. ***** BY the Court:- (per Hon'ble Jhaveri, J.) 1.By way of this reference, the following questions havebeen referred by the Income Tax Appellate Tribunal, Jaipurunder Section 256(1) of the Income Tax Act, 1961 to thisCourt: “1. Whether on the facts and in thecircumstances of the case, the AppellateTribunal was justified in allowing the sum of Rs.6croresasrevenueexpenditurenotwithstanding the fact that the assesseeclaimed deduction of Rs. 6 crores as leasemoney in addition to royalty/deed/rent/landtax and was of capital nature? 2. Whether on facts and in the circumstancesof the case, the Appellate Tribunal was justifiedin allowing the prospecting charges of Rs. 2.96crores for survey reports for mining operationas revenue expenditure notwithstanding thefact that expenditure resulted in enduringbenefits to the assessee and thus was capitalexpenditure, not related to assessment year1992-93 as the liability was accepted by the company only on 28.8.1992 relevant toassessment year 1993-94?” 2.Counsel for the Department has contended that in view of the D.B. Income Tax Reference No. 77/1995, whichhas been answered against the department vide judgmentdated 21.4.2016, first issue will not arise in this mattersince in the case of the same assessee, the issue hasalready decided against the department. Therefore, both thecounsel has contested on the second issue which reads asunder:- “2. Whether on facts and in the circumstancesof the case, the Appellate Tribunal was justifiedin allowing the prospecting charges of Rs. 2.96crores for survey reports for mining operationas revenue expenditure notwithstanding thefact that expenditure resulted in enduringbenefits to the assessee and thus was capitalexpenditure, not related to assessment year1992-93 as the liability was accepted by thecompany only on 28.8.1992 relevant toassessment year 1993-94?” 3.Mr. Anuroop Singhi, learned counsel appearing for thedepartment has taken us to the paragraph no.4 of the orderof the Assessing Officer and contended that whileconsidering the claim of the assessee the Assessing Officergave reasons on page no.5 (a,b,c,d,e). He further contendedthat CIT (Appeals) has also confirmed the order of the AO. 4. The Tribunal while considering the claim of theassessee observed in paragraphs no.13, 14, 15 & 16 as under:- 3.Mr. Anuroop Singhi, learned counsel appearing for thedepartment has taken us to the paragraph no.4 of the orderof the Assessing Officer and contended that whileconsidering the claim of the assessee the Assessing Officergave reasons on page no.5 (a,b,c,d,e). He further contendedthat CIT (Appeals) has also confirmed the order of the AO. 4. The Tribunal while considering the claim of theassessee observed in paragraphs no.13, 14, 15 & 16 as under:- “13. The next ground of appeal is in regardto disallowance of Rs. 2.96 crores paid asprospecting charges to Government ofRajasthan. The assesee-company is miningcontractor to the Government of Rajasthan alayer the assessee-company use to receiveremuneration for excavating various mineralsfrom the mines. Mines are owned by themining department of Government ofRajasthan and the assessee-company use tocarry out excavation work as perplan/directions of the mining department.With effect from 1-4-1998, the assessee-company started excavating minerals act itsown and thereby ceased to work as acontractor to the Government of Rajasthan.Before carrying out actual excavation, aminor must now the spots where excavationshould be carried out and for that purposecorresponding or survey must be carried out.In view of these facts, assessee-companyrequested the Government of Rajasthan togive various survey records to facilitate themining operation of the appellant. TheGovernment of Rajasthan gave the appellantvarious survey reports and demanded from itRs. 2.96 crore as prospecting charges videdemand notice dated 19-3-91. This amountis not allowed as deduction in 91-92 becausethe liability was not provided in the accounts.By a specific resolution the Board of Directorsin a meeting had on 29-8-92 passedresolution. “Resolved that the approval of the Board beand is hereby approached for payment of Rs.2.96 crores to the Directions of Mines &Geology towards pro-rata prospectingexpenses of Jhamarkotra Roak Phosphatedeposits.” Since the liability was accepted, sum wasprovided in the accounts and claimedaccordingly. 14.The ld. A.R. further argued that thiscannot be treated as a capital expenditurebecause no tangible or intangible asset cameinto existence on this account. This is clearlya revenue expenditure and should, therefore,be allowed as per the accounting principles./In this connection, reliance was placed on thedecision of the Supreme Court in the case ofAlembic Chemical Works Co. Ltd. v. CIT, 177ITR 377 and the decision of the Bombay HighCourt in the case of CIT v. PannalalNarottamdas & Co. 67 ITR 667. It was alsoargued that this expenditure cannot beconsidered u/s 35E. Section 35E wasintroduced for meeting the expenditureincurred before the commercial operationsstarted. Once commercial operations startedany expenditure in relation to meeting theexpenses on a that account, even on theground of expansion, the expenditure cannotbe disallowed and a reliance on this accountis placed on the decision of 58 ITD 332. 15. The ID. D.R., on the other hand, arguedthat the assessee made provision of thisamount and provision of any amount is notallowable expenditure. In this connection, herelies upon the decision of the Kerala HighCourt cited at 203 ITR 714 and AllahabadHigh Court cited at 199 ITR 81. 16. We have examined the facts of this caseas well as the arguments put-forth by therival parties and have also examined the caselaws relied upon by them and are of theopinion that the contentions raised by the ID.A.R. On behalf of the assessee carries force.Following the decisions of the various courtsrelief upon by the ID. A.R. And also thedecision of the Supreme Court cited at AIR1955 page 169, we are of the view that thefirst appellate authority was not reasonablein not allowing the claim of the assessee onthis account. This addition is, therefore,deleted. “ 16. We have examined the facts of this caseas well as the arguments put-forth by therival parties and have also examined the caselaws relied upon by them and are of theopinion that the contentions raised by the ID.A.R. On behalf of the assessee carries force.Following the decisions of the various courtsrelief upon by the ID. A.R. And also thedecision of the Supreme Court cited at AIR1955 page 169, we are of the view that thefirst appellate authority was not reasonablein not allowing the claim of the assessee onthis account. This addition is, therefore,deleted. “ 5.Mr. Singhi, learned counsel has relied upon thedecision of the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Mumbai-III vs. EMCO Ltd. reported in (2015) 10 SCC 321 wherein in para no.21 it has been held as under:- "The perfunctory manner in which the appealof the assessee is allowed, cannot becountenanced. If the Tribunal was confirmingthe decision of the Authority below, may bedetailed discussion was not required as thereasons given in detail could be found in theorder appealed against, though even in sucha case brief reasons are to be given by theTribunal, in particular, to meet the argumentswhich are advanced by the appellant whilechallenging such an order. However, in theinstant case, we find that there is a detaileddiscussion in the order of the Commissioneron the facts of the case. Those facts are notadverted to or dealt with. The decision of theCommissioner is overruled with singleobservation that the case is covered by thejudgment in Escorts JCB Ltd., withoutdiscussing as to how it was so covered. Thisis notwithstanding the fact that the decisionas to which is the 'place of removal' dependsupon the facts of each case." 6.The other judgment which is relied upon in the case of Ravi Yashwant Bhoir vs. District Collector Raigad & ors. reported in (2012) 4 SCC 407 whereinin para no.46, it has been held as under:- “46. The emphasis on recording reason isthat if the decision reveals the `inscrutableface of the sphinx', it can be its silence,render it virtually impossible for the courts toperform their appellate function or exercisethe power of judicial review in adjudging thevalidity of the decision. Right to reason is anindispensable part of a sound judicial system,reasons at least sufficient to indicate anapplication of mind of the authority beforethe court. Another rationale is that the affected party can know why the decision hasgone against him. One of the salutaryrequirements of natural justice is spelling outreasons for the order made. In other words,a speaking out, the inscrutable face of thesphinx is ordinarily incongruous with ajudicial or quasi-judicial performance.” 7. He further contended that for assessment year 1991-92 in the case of the same assessee, the tribunal in paragraphno.10, has observed as under:- “10. We have examined the facts of thisground of appeal and are of the opinion thatissue in question already stands decided bythe Tribunal in favour of the assessee and,therefore, following the decision of thisBench AO is directed to allow this claim.” 8. Therefore, he contended that in view of the fact thatthough notice was given on 19.3.1991 for the assessmentyear 1991-92 and decided to make payment only on28.8.1992 i.e. assessment year 1993-94, there were claimswhich were made in year 1992-93 are not admissible andthe tribunal has committed serious error while passing thenon speaking order giving decision in favour of theassessee. 9. Counsel for the respondent Mr. Sanjay Jhanwar hasrelied upon the order of the Assessing Officer for theassessment year 1991-92, more particularly paragraphNo.3.1 which reads as under:- “In order to strengthen its case, it is statedthat the assessee decided that no liability onthis account should be provided in the books 8. Therefore, he contended that in view of the fact thatthough notice was given on 19.3.1991 for the assessmentyear 1991-92 and decided to make payment only on28.8.1992 i.e. assessment year 1993-94, there were claimswhich were made in year 1992-93 are not admissible andthe tribunal has committed serious error while passing thenon speaking order giving decision in favour of theassessee. 9. Counsel for the respondent Mr. Sanjay Jhanwar hasrelied upon the order of the Assessing Officer for theassessment year 1991-92, more particularly paragraphNo.3.1 which reads as under:- “In order to strengthen its case, it is statedthat the assessee decided that no liability onthis account should be provided in the books of accounts till the disposal of its request. Itis also stated that the request has beenturned down and the company had alreadydecided to provide for the liability in theaccounts for the year 1991-92. It is claimedthat the assessee is following mercantilesystem of accounting and therefore, thisliability is admissible as it received the noticeof demand during the accounting year underconsideration.” 10.The observations of the Assessing Officer whileconsidering non admissible claim in paragraphs 3.5 (i to vi)reads as under:- (i) The assessee's has not, till the year end,accepted this as a liability even of contingentnature, not to speak of as certained liability.It is also admitted by the assessee that thename would be accounted for in the accountsof f.y. 1991-92 which would be relevant forthe a.y. 92-93. (ii) Even if it in accepted that the assesseehas to pay this amount then also it is not inthe nature of revenue expenditure rather it iscapital in nature. The benefit which mayaccrue to the assesse, in of enduring natureane even according to sec. 35-K prospectingcharged are of capital nature. It is a sort ofpremium to be paid by the assessee to obtainan asset of enduring nature. (iii) Even the assessee is not entitled for anamortization u/s 35E of the I.T. Act becausethe expenses on prospecting have not beenincurred by the assessee the the expenses donot relate to the prospecting for any mineralor group of an Associated Minerals specifiedin Part-A or Part-B respectively of theSeventh Schedule, that Sub-section 6 of sec.35E speaks that such amortization isallowable in the case of amalgamation only tothe amalgamated companies. In this case,the expenses were incurred by the MiningDeptt. Of Govt. of Rajasthan and not by thecompany. (iv) The expenses has to pay this amount aspremium and pre-condition to the leaseagreement and he himself has not incurredany expenditure on the prospecting of therock phosphate. (v) The expenses were incurred by the MiningDeptt. Before March, 1988 during which theassessee company was only a contractor tothe Govt. of Rajasthan and the expensesincurred by the State Govt. were for its ownbusiness purposes. Now it is a part of thecost of the project known as JhamrkotraIntegrated Project. (vi) The assessee could not produce any suchevidence which could show that there wasany contract between the Mining Deptt. Andthe assessee to this regard that the expenseswould be reimbursed by the assesseecorporation. Therefore, the claim of Rs.2.96 crores is not admissible. 11.He relied upon the decision of Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs.Commissioner of Income Tax, reported in(1989) 177ITR 0377 andEmpire Jute Co. Ltd. vs. Commissioner of (vi) The assessee could not produce any suchevidence which could show that there wasany contract between the Mining Deptt. Andthe assessee to this regard that the expenseswould be reimbursed by the assesseecorporation. Therefore, the claim of Rs.2.96 crores is not admissible. 11.He relied upon the decision of Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs.Commissioner of Income Tax, reported in(1989) 177ITR 0377 andEmpire Jute Co. Ltd. vs. Commissioner of Income Tax, reported in (1980) 124 ITR 0001andcontended that under mercantile system, the expenses wereshown in the year 1992-93 and even while assessmentorder was passed for the year 1991-92, the assessee wasmade clear that he is accepting the liability and he furthercontended that he will not make payment which was madeby the State Government for the expenditure incurred forthe survey which is being done. Therefore, the Corporationhad no other option to make payment which has no capitalvalue. 12. We have heard the counsel for the petitioner as well ascounsel for the respondent. 13.Taking into consideration the fact initially theCorporation has not accepted the liability, therefore, theobservations which are made by the Tribunal for the year1991-92 were in the peculiar facts where the liability wasnot accepted but subsequently for the year 1992-93, theCorporation has accepted the liability which was shown inthe books of account and in view of the matter additionsmade by the tribunal for the relevant year would not beapplicable in the changed circumstances. Since, theyaccepted the liability, the resolution which is sought to bepassed on 28.8.1992 was administrative formality but forthe Income-tax purpose it is shown in the books of accountmercantile system, therefore, though the point raised by Mr.Singhi is remained an academic issue but facts and law inmercantile system which is debited for the relevant year i.e.1992-93. 14.On first point, the contentions raised by Mr. Singhi hasa doubt but in view of the consideration by us the relevantyear debited entry in the books of account for the year1992-93, therefore, resolution is passed subsequently butsince it was mercantile system for the year 1992-93, it willcome into force. 15. The contention which has been raised by Mr. Singhi isrequired to be accepted, it can only be one time revenueexpenditure and subsequent claim of the assessee will notbe acceptable and if his claim is made and accepted, it willbe for the department to recover the tax from the assessee.16.In that view of the matter, the issue is answered infavour of the assessee and against the Department for therevenue expenses (Rs.2,96,000/-) of year 1992-93 only onetime. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. Brijesh7.