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Issues Involved:
1. Disallowance of expenditure under "overburden Cutting and Removal of Ore" as capital in nature. 2. Disallowance of interest u/s 14A of the I.T. Act, 1961. 3. Disallowance of expenditure under "amortization of lease rent" as capital expenditure. Summary: Issue 1: Disallowance of Expenditure under "Overburden Cutting and Removal of Ore" The assessee contested the confirmation of disallowance of Rs. 17,75,71,809 as capital expenditure for "overburden Cutting and Removal of Ore." The Assessing Officer (AO) held this expenditure as capital nature within the ambit of Section 35E of the I.T. Act, 1961, relying on the decision in Muthalah Chettair (M.L.M) v. CIT. The CIT(A) upheld the AO's decision, citing various precedents that classified such expenditures as capital nature. However, the Tribunal found that the removal of overburden is a continuous operation carried on simultaneously with the production of iron ore, and thus, the provisions of Section 35E are not applicable. The Tribunal relied on the decisions in Neyveli Lignite Corporation Ltd. v. ACIT and CIT v. Amalgamated Jambad Syndicate Pvt. Ltd., concluding that the expenditure is revenue in nature and directed the deletion of the disallowance. Issue 2: Disallowance of Interest u/s 14A of the I.T. Act, 1961 The AO disallowed Rs. 2,44,31,579 u/s 14A, asserting that the assessee used borrowed funds for investments generating exempt income. The CIT(A) upheld this disallowance. The assessee argued that the investments were made from surplus funds and internal accruals, not borrowed funds, and provided cash flow statements to support this claim. The Tribunal found that the investments were indeed made from the assessee's own funds, and the borrowed funds were used for specific business purposes. Citing decisions in CIT v. Gujarat Power Corporation Ltd., Godrej Industries Ltd. v. DCIT, and others, the Tribunal held that the disallowance u/s 14A was not justified and directed its deletion. Issue 3: Disallowance of Expenditure under "Amortization of Lease Rent" The AO disallowed Rs. 6,00,000 claimed as amortization of lease rent, treating it as capital expenditure. The CIT(A) upheld this disallowance, relying on decisions in Ramkrishna & Co. v. CIT and Green v. Favourite Cinemas Ltd. The assessee argued that the lump sum lease payment should be amortized over the lease period. The Tribunal agreed with the assessee, noting that the lease rent paid in advance for the lease period is a revenue expenditure and should be spread over the lease term. The Tribunal directed the deletion of the disallowance. Conclusion The Tribunal set aside the disallowances made by the lower authorities on all three issues and directed the deletion of the respective additions. The Stay Petition filed by the assessee was rendered infructuous and rejected.
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