Commissioner Of Income Tax, Jaipur-Ii ,Jaipur v. M/S Andhi Marbles Pvt. Ltd, Ram Bhawan, Ramgarh Mod, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 81 / 2012 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus M/S ANDHI MARBLES PVT. LTD, RAM BHAWAN, RAMGARH MOD, JAIPUR ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prateek Kedawat for Mr. R.B. MathurFor Respondent(s) : Mr. Naresh Gupta _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 31/08/2017 1.By way of this appeal the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal preferred by the department. 2.This court while admitting the matter framed the following question of law:- “Whether in the facts and circumstances of thecase, the expenditure done by the assessee indeveloping new mine plot outside the restrictedarea is of an enduring nature falling u/s 35E ora revenue expenditure.?” 3.Counsel for the appellant has taken us to the provision of35E which reads as under:- “35E. Deduction for expenditure onprospecting, etc., for certain minerals.-(1) Where an assessee, being an Indiancompany or a person (other than a company)who is resident in India, is engaged in anyoperations relating to prospecting for, orextraction or production of, any mineral andincurs, after the 31st day of March, 1970, anyexpenditure specified in sub-section (2), theassessee shall, in accordance with and subjectto the provisions of this section, be allowed foreach one of the relevant previous years adeduction of an amount equal to one-tenth ofthe amount of such expenditure. (2) The expenditure referred to in sub-section(1) is that incurred by the assessee after thedate specified in that sub-section at any timeduring the year of commercial production andany one or more of the four years immediatelypreceding that year, wholly and exclusively onany operations relating to prospecting for anymineral or group of associated mineralsspecified in Part A or Part B, respectively, ofthe Seventh Schedule or on the developmentof a mine or other natural deposit of any suchmineral or group of associated minerals : Provided that there shall be excluded from suchexpenditure any portion thereof which is metdirectly or indirectly by any other person orauthority and any sale, salvage, compensationor insurance moneys realised by the assesseein respect of any property or rights broughtinto existence as a result of the expenditure. (3) Any expenditure— (i) on the acquisition of the site of the sourceof any mineral or group of associated mineralsreferred to in sub-section (2) or of any rights inor over such site; (ii) on the acquisition of the deposits of suchmineral or group of associated minerals or ofany rights in or over such deposits; or (iii) of a capital nature in respect of anybuilding, machinery, plant or furniture forwhich allowance by way of depreciation isadmissibleundersection32, shall not be deemed to be expenditure incurredby the assessee for any of the purposesspecified in sub-section (2). (4) The deduction to be allowed under sub-section (1) for any relevant previous year shallbe— (a) an amount equal to one-tenth of theexpenditure specified in sub-section (2) (suchone-tenth being hereafter in this sub-sectionreferred to as the instalment); or (b) such amount as is sufficient to reduce to nilthe income (as computed before making thededuction under this section) of that previousyear arising from the commercial exploitation[whether or not such commercial exploitation isas a result of the operations or developmentreferred to in sub-section (2)] of any mine orother natural deposit of the mineral or any oneor more of the minerals in a group ofassociated minerals as aforesaid in respect ofwhich the expenditure was incurred,whichever amount is less : (4) The deduction to be allowed under sub-section (1) for any relevant previous year shallbe— (a) an amount equal to one-tenth of theexpenditure specified in sub-section (2) (suchone-tenth being hereafter in this sub-sectionreferred to as the instalment); or (b) such amount as is sufficient to reduce to nilthe income (as computed before making thededuction under this section) of that previousyear arising from the commercial exploitation[whether or not such commercial exploitation isas a result of the operations or developmentreferred to in sub-section (2)] of any mine orother natural deposit of the mineral or any oneor more of the minerals in a group ofassociated minerals as aforesaid in respect ofwhich the expenditure was incurred,whichever amount is less : Provided that the amount of the instalmentrelating to any relevant previous year, to theextent to which it remains unallowed, shall becarried forward and added to the instalmentrelating to the previous year next following anddeemed to be part of that instalment, and soon, for succeeding previous years, so, however,that no part of any instalment shall be carriedforward beyond the tenth previous year asreckoned from the year of commercialproduction. (5) For the purposes of this section,— (a) “operation relating to prospecting” meansany operation undertaken for the purposes ofexploring, locating or proving deposits of anymineral, and includes any such operation whichproves to be infructuous or abortive; (b) “year of commercial production” means theprevious year in which as a result of anyoperation relating to prospecting, commercialproduction of any mineral or any one or moreof the minerals in a group of associatedminerals specified in Part A or Part B,respectively, of the Seventh Schedule,commences; (c) “relevant previous years” means the tenprevious years beginning with the year ofcommercial production.” 4.He contended that new mine which was allotted to theassessee was a completely new business and the respondent isnot entitled to get benefit under Section 35E. 5.However, counsel for the respondent has taken us to thereasoning adopted by CIT(A) which reads as under:- “On perusal of assessment order it is seen thatthe appellant company was deriving income frommining of marbles blocks from the mines allottedto the appellant company by the StateGovernment at Andhi. Thereafter, the AO hasreferred provisions of S. 35E and has observedthat the appellant company has shown lesserproduction was compared to expenses debitedand from the mining return it was found that themines have been closed w.e.f. June, 2003 andthe subsequent sale was of the stock which waslying at the mines. Under these circumstances, ashow cause was given before treating variousexpenditures on consumable stores and spares,diesel, oil and lubricant, repair and maintenanceand on the wages aggregating at Rs. 96,54,828/-as capital expenses for the purpose of exploringa new site for the extraction of marble.Thereafter, the AO has reproduced the provisionsof S.35E and has given a finding that as per S.35E(1) if the expenditures have been incurred forthe operations relating to prospecting for orextraction or production of any material then iscovered u/s 35E(1). She has further given afinding that no commercial production hasstarted and the marble is covered under theseventh schedule part B since it is claimed formation which is named as dolomite. She hadalso referred the AR reply in which he has statedthat the appellant company has starteddeveloping a min pit on the area which was notcovered by the order of Supreme Court in whichhuge expenditures in the shape of consumables,diesel, oil and lubricants were incurred. Since, asper royalty return the mining was stopped fromthe month of June and therefore, the area onwhich new development has been done wasentirely a new project which is covered under theprovisions of S. 35E of I.T. Act. Thereafter, afurther show cause notice was issued on28.11.2006beforedisallowingtheseexpenditures u/s 35E. Thereafter, the explanationfurnished was reproduced in the body ofassessment order but it has not been consideredsatisfactory on the ground that expendituredebited under the head admn. Expenses,financial expenses and depreciation has directnexus with day to day exploring of the newmines and the only work relating to the old minewas the legal work and selling of the existingstock lying. Since, the expenditure which isincurred entirely on new area which is notcovered by the decision of Supreme Court forclosing of mines with licenses No. 5/89 and77/84. the mining report also confirms the statusof these mines. Clearly the removal of overburden before actually reaching the actualdeposits cannot be termed as the on goingprocess and therefore, development expenses asmentioned in the show cause could not havebeen allowed as revenue expenditure. Besidesthat entire depreciation of building built at mines,75% of wireless maintenance expenses and 20%of telephone and vehicle running expenses werealso considered as capital expenses and in thisprocess total amount of Rs. 1,00,86,166/- wascapitalized. Further, as per provisions of S. 35E ofI.T. Act 1/10th of the same or income of theassessee whichever is less from the year ofproduction to 10 consecutive previous year is tobe allowed as per S. 35E of I.T. Act.” 6.He contended that the Tribunal while considering the sameissue has observed in detail and it has also taken intoconsideration complete meaning of Lime, Dolomite andMagnesite and observed in para 9 and 10 reads as under:- “9. We have heard rival submissions andconsidered them carefully. After consideringthe submissions and material on record, wefind that ld. CIT (A) was justified in allowingthe claim of assessee. Detailed submissionswere filed before ld. CIT (A) which has beentabulated in the order of ld. CIT (A) at pages3 to 9 of his order. In these writtensubmissions, the assessee has discussed theprovisions of section 35E and the reasoningthat how they are not applicable on the factsof the present case and has also given thereasoning that how the expenditure claimedby assessee is revenue in nature andthereafterafterdiscussingallthesubmissions, the ld. CIT (A) has held that theexpenditure claimed by assessee is revenue innature. The finding of the ld. CIT (A) hasbeen recorded at pages 10 & 11 which are asunder :- “I have considered facts of the case andarguments taken by Shri Agarwal quitecarefully. It is a fact that the appellantcompany was engaged in the mining activityof marble since last many year and they werehaving mines in Andhi area of Jaipur. Once abig chunk of the land is available for miningpurpose then considering commercialexpediency and technical suitability it is forthe person authorized for mining to continuethe mining process in the existing pit infurther depth or to go for mining in otheravailable area by removing the over burden.The Supreme Court in its decision has stayedthe mining activity in Andhi Area upto acertain area which was identifiable. It is alsoundisputed fact that the appellant sinceearlier year was doing open cast mining andin the opening cast mining the expansion ofarea of mining is inevitable process. Now onthe available land whether during the year theappellant has incurred the expenditure just onadjoining land to the existing pit or incurredthe expenditure on the available land keepingin view the restrictions imposed by Hon’bleSupreme Court does not change the materialposition regarding having the mining activitywhich was already being undertaken sinceyears and incurring the expenditure onremoval of overburden on the available pieceof land but beyond restricted area does notmake such activity as development of themine as envisaged in S. 35E of I.T. Act. I alsoagree with Shri Agarwal that S. 35E only covers the expenditure incurred wholly andexclusively on any operations relating toprospecting for any mineral or group ofassociated minerals specified in Part A or PartB of Seventh Schedule of I.T. Act, 1961.Specifically marble blocks are not coveredunder the seventh schedule. I also agree withhim that dolomite and marble is not the samemineral which is clear from dictionarymeaning and evolving process of dolomitevis-à-vis marble. With this discussion in myconsidered view these expenditures cannot beconsidered as capital expenses and certainlynot the expenditures which are covered u/s35E of I.T. Act. AO is therefore, directed toallow the said expenditure of Rs.1,00,86,166/- which has been capitalized byhim since these are the expenditures ofallowable nature looking to the mining activityof the appellant company.” 10. Brief submissions filed here before theTribunal by the ld. Counsel of the assesseeare also reproduced here as under :- “Whilealleging so Ld. AO has made a serious error ofignoring the fact that assessee was doing“open cast mining” without going muchdeeper and for extension or development ofmine it is not necessary that the same wouldbe done in depth only, the expansion of areaof mining is an ongoing process without whichthe open mining is not possible. The commercial production of the assesseewas carried on under normal course ofbusiness for past more than 15 years andsince opening of another mining pit is anongoing process undertaken at the existingmining area and no new exploration ofmineral for the first time had since takenplace, the provisions of section 35E of theIncome Tax Act, 1961 are not applicable.Further the expenditure of similar naturewere incurred in earlier years also which wereallowed after due scrutiny of the assessee’srecords in all earlier years where theassessments were always completed u/s143(3) of the Act. Without prejudice to the above, it issubmitted that section 35E only covers theexpenditure incurred wholly and exclusivelyon any operations relating to prospecting forany mineral or group of associated mineralsspecified in part A or part B of the seventhschedule of Income Tax Act, 1961. Marble Without prejudice to the above, it issubmitted that section 35E only covers theexpenditure incurred wholly and exclusivelyon any operations relating to prospecting forany mineral or group of associated mineralsspecified in part A or part B of the seventhschedule of Income Tax Act, 1961. Marble blocks are not covered under the seventhschedule but the Ld. AO has made thedisallowance by claiming that marble iscovered under the Part B of seventh schedulesince its claimed formation is named asdolomite which is appearing at S. No. 9 ofPart “B” of Schedule-7 which reads as“Limestone, Dolomite and Magnesite”. Dolomite Marble and Limestone are not thesame minerals, as has been defined in theirdictionary meaning which are as under: As per Webster’s dictionary Dolomite - double carbonate of calcium andmagnesium. Marble – Naturally occurring calciumcarbonate which has been crystallized fromlimestone under heat and pressure, forming ahard rock capable of taking a high polish andoften veined or mottled by the presence ofother crystallized minerals. Limestone: Asedimentary rock composed largely ofminerals calcite and aragonite, which aredifferent crystal forms of calcium carbonate.As per Oxford dictionary Dolomite: a mineral or sedimentary rockconsisting chiefly of a carbonate of calciumand magnesium. Marble: A hard form oflimestone, typically variegated or mottled,which may be polished and is used insculpture and building. Limestone: A type of white rock, containingcalcium, used as building material and inmaking cement. Dolomite: Dolomite rock is one of the fewsedimentary rocks that undergoes asignificant mineralogical change after it isdeposited. They are originally deposited ascalcite/aragonite rich limestones, but during aprocess call diagenesis the calcite and/oraragonite is altered to dolomite. The processis not metamorphism, but something justshort of that. Magnesium rich ground watersthat have a significant amount of salinity areprobably crucial and warm, tropical nearocean environments are probably the bestsource of dolomite formation. In dolomite, the magnesiums occupy onelayer by themselves followed by a carbonatelayer which is followed by an exclusivelycalcite layer and so forth Marble A metamorphic rock formed by alteration oflimestone or dolomite, often irregularlycolored by impurities, and used especially inarchitecture and sculpture Geologists categorize rocks into three basicgroups, of which sedimentary andmetamorphic are two. Igneous is the third.Sedimentary rocks are laid down in layers ofsediments such as mud, silt and sand thataccumulate and harden over time. Igneousrocks are formed from the solidification oflava or magma. Metamorphic rocks are a bitof a combination. They are sedimentary rocksor igneous rocks that have been deformedand changed by high pressure andtemperature deep in Earth, or by contactwith, or close proximity to a magmaticintrusion. Differentiation 1. On the basis of character, formation andcomposition: The main difference between dolomite andmarble is that dolomite is a sedimentary rockwhereas marble is a metamorphic rock. Sedimentary rock is a type of rock that isformed by sedimentation of material at theEarth's surface and within bodies of water.Sedimentation is the collective name forprocesses that cause mineral and/or organicparticles (detritus) to settle and accumulateor minerals to precipitate from a solution.Particles that form a sedimentary rock byaccumulating are called sediment. Beforebeing deposited, sediment was formed byweathering and erosion in a source area, andthen transported to the place of deposition bywater, wind, mass movement or glaciers. Metamorphic rock is the result of thetransformation of an existing rock type, theprotolith, in a process called metamorphism,which means "change in form". The protolith Sedimentary rock is a type of rock that isformed by sedimentation of material at theEarth's surface and within bodies of water.Sedimentation is the collective name forprocesses that cause mineral and/or organicparticles (detritus) to settle and accumulateor minerals to precipitate from a solution.Particles that form a sedimentary rock byaccumulating are called sediment. Beforebeing deposited, sediment was formed byweathering and erosion in a source area, andthen transported to the place of deposition bywater, wind, mass movement or glaciers. Metamorphic rock is the result of thetransformation of an existing rock type, theprotolith, in a process called metamorphism,which means "change in form". The protolith is subjected to heat and pressure(temperatures greater than 150 to 200 °Cand pressures of 1500 bars) causing profoundphysical and/or chemical change. Theprotolith may be sedimentary rock, igneousrock or another older metamorphic rock.Metamorphic rocks make up a large part ofthe Earth's crust and are classified by textureand by chemical and mineral assemblage(metamorphic facies). They may be formedsimply by being deep beneath the Earth'ssurface, subjected to high temperatures andthe great pressure of the rock layers above it. They can form from tectonic processes suchas continental collisions, which causehorizontal pressure, friction and distortion.They are also formed when rock is heated upby the intrusion of hot molten rock calledmagma from the Earth's interior. The study ofmetamorphic rocks (now exposed at theEarth's surface following erosion and uplift)provides us with very valuable informationabout the temperatures and pressures thatoccur at great depths within the Earth's crust.Marble is different from Dolomite despite thefact that sometimes it is made up bymetamorphosis of dolomite but it is totallydifferent from dolomite because process ofmetamorphosing changes the form, structureor substance of the dolomite. Marble is also different from Limestone. Themain difference between limestone andmarble is that limestone is a sedimentaryrock, typically composed of calcium carbonatefossils, and marble is a metamorphic rock.Limestone forms when shells, sand, and mudare deposited at the bottom of oceans andlakes and over time solidify into rock. Marbleforms when sedimentary limestone is heatedand squeezed by natural rock-formingprocesses so that the grains recrystallize.Limestone is usually made of precipitatedcalcite, shell fragments, and mud. If you lookvery closely, you may see tiny fossils in it.Marble is limestone that has metamorphosedthrough heat and pressure, therefore, theparticles in the limestone have recrystallizedinto interlocking calcite crystals. Impurities inthe marble will appear as dark streaks in thewhitish calcite crystal matrix. 2. On the basis of usage: The usage ofmarble, limestone and dolomite is entirelydifferent and they cannot be used as asubstitute of each other and thus cannot beput at par in terms of their usage as such.Some examples of their individual usage areas under: Marble is used for stone home furnishings,floors, counters, clocks, hot plates, tables,pillars, structural resurfacing, even bathroomapplications besides having used for sculptureetc. Dolomite is typically used in fertilizer, as afurnace refractory, and in construction andceramic materials. Limestone is used in pathpavers, landscaping rock, road gravel, 2. On the basis of usage: The usage ofmarble, limestone and dolomite is entirelydifferent and they cannot be used as asubstitute of each other and thus cannot beput at par in terms of their usage as such.Some examples of their individual usage areas under: Marble is used for stone home furnishings,floors, counters, clocks, hot plates, tables,pillars, structural resurfacing, even bathroomapplications besides having used for sculptureetc. Dolomite is typically used in fertilizer, as afurnace refractory, and in construction andceramic materials. Limestone is used in pathpavers, landscaping rock, road gravel, concrete aggregate and soil conditioner. Inaddition, limestone is used as an additive topaint and other products, and a source ofcalcium carbonate. If limestone is powdered itcan be used to neutralise the acidity in lakescaused by acid rain and to neutralise acidicsoils. It is also used in cement and in makingglass. 3. Value: In terms of the value, themarble, limestone and dolomite cannot be putat par and has different values which arebased on the quality, size and shape. Thus itcannot be hold that the marble is theformation of Dolomite and therefore, coveredin the items specified in S.No. of Part-B ofSchedule 7 of the Income tax Act, 1961 andaccordingly the provisions of section 35E ofthe Act are not applicable on the developmentof the marble mines. Further Ld. AO at page 6in para 1 has also observed that marble iscovered under the Seventh Schedule of theAct because its claimed formation is named asdolomite. The observations of Ld. AO are notappropriate because it is not the intention ofthe statute to cover those minerals which isgenerated / caused due to formation /transformation / process of another mineral(which is covered under seventh schedule). Ifthe intention of the statute had been to coverthese formatted or transformed minerals alsothan there was bound to be a clear mentionof this fact. But the schedule 7 provides theexhaustive list of minerals which are intendedto include under the Seventh schedule wheremarble do not find place. Attention is alsoinvited to the fact that mining departmentalso made a distinction between Dolomite andMarble for levy of royalty and has prescribeddifferent rates in respect of both minerals.The royalty rate per tonne as existed in theyear under appeal for Marble was ` 125/- asagainst the rate per tonner for 12 Dolomite at` 45/-. The appellant during the year underappeal had paid royalty at the rate prescribedfor marble, therefore, in absence of otherparameter, the classification done by MiningDepartment is the best guide to ascertain themineral excavated from the mines owned bythe appellant.” 7.Taking into consideration, the observations made by boththe authorities concurrently holding in favour of the assessee, we are of the opinion that it is expenditure of the earlierbusiness therefore, the assessee is entitled for benefit underSection 35E of the Income Tax Act. 8. Therefore, the issue is required to be answered in favourof the assessee against the department. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/51