2024 (2) TMI 923 - AT - Income Tax

Nature of expenditure - Mine Development Expenditure - Addition u/s 35E or 37(1) - Assessee contended that Section 35E is applicable only when the assessee is owner of mines and / or in the business of prospecting of minerals and it is neither owns the mines nor is in business of prospecting of minerals, hence, Section 35E of the Act is not Applicable - CIT(A) observed that the expenditure incurred by Assessee on removal of overburden is held to be a Revenue expenditure and not capital expenditure HELD THAT - Deduction u/s 37(1) could not be declined on the ground that the expenditure in question was eligible for deduction u/s 35E. The deduction u/s 35E is normally available in respect of the expenditure which is not eligible for deduction u/s 37 (1) and just because the deduction u/s 35E may be available in respect of an expenditure, even if that be so, cannot be reason enough to decline the deduction u/s 37 Of course, it is besides the fact that once the commercial production had commenced in the respective mines, there was no occasion to invoke the provisions of Section 35E in respect of any expenditure incurred in the years after the year of commercial production. Assessee company cannot be called as a Mining Company as stipulated u/s 35E of the Act. As such, the impugned expenditure incurred by assessee cannot fall u/s 35E of the Act and it should be allowed u/s 37 of the Act. As per the accounting policy of the company vide Note no 1.17 of notes to accounts the Assessee Company amortizes the Mining development expenditure in proportion of quantity of lignite mined vis-a-vis the total minable reserves. However, such amortization is not permissible under the Income Tax Act, 1961. It is now well settled that revenue expenditure is allowable in entirety in the year in which it is incurred though it is written off in the books over a period of year - treatment of any particular expenditure/income in the accounts has no bearing on the allowance or otherwise under the Act. Accordingly, the Assessee Company has claimed the said expenditure in the current year in which such expenditure is incurred u/s 37 of the Act. The accounts and accounting policies disclosed by assessee is under Company Act and for the purpose of computation of income of the assessee, which should be governed by Income Tax Act not under Company Act. AO is not justified in holding that since the assessee has disclosed the accounting policies and its income to be recognized as per accounting policies disclosed in the financial statements is not justified. In other words, the accounting of the assessee is governed by Section 145 of the Act. If there is deviation from the method of accounting as per section 145 of the Act, the ld. AO should tinker the same. On the other hand, the ld. AO cannot rest upon the computing the income of the assessee under Company Act. In view of this, we uphold the order of ld. CIT(A) on this issue and dismiss the revenue s appeal.

Summary

Issues Involved:
1. Revenue Appeal: Whether the CIT(A) was justified in deleting the addition of Rs. 287.72 Crores claimed towards "Mine Development Expenditure" under Section 37(1) of the Income Tax Act, 1961.
2. Assessee's Cross Objection: Whether the assessment order passed under Section 143(3) was barred by the statutory time limit.

Summary:

Revenue Appeal:

Facts:
- The assessee, a public company engaged in mining operations, filed a return declaring a loss for AY 2011-12.
- The AO disallowed the claim of Rs. 287.72 Crores towards "Mine Development Expenditure" (MDE) under Section 37, treating it as capital expenditure covered under Section 35E.
- The CIT(A) allowed the claim, treating the expenditure as revenue in nature.

Arguments and Findings:
- AO's Position: The AO argued that MDE should be amortized over ten years under Section 35E, as it relates to mine development, not revenue expenditure.
- Assessee's Position: The assessee contended that Section 35E applies only to mine owners and those in the business of prospecting, which they are not. They claimed the expenditure under Section 37 as it was incurred wholly and exclusively for business purposes.
- CIT(A) Findings: The CIT(A) found that the expenditure was necessary for business operations and did not create a new capital asset, thus qualifying as revenue expenditure under Section 37. The CIT(A) relied on precedents like CIT vs Amalgamated Jambad Syndicate (P) Ltd and CIT vs Katras Jharia Coal Co Ltd, which treated similar expenses as revenue.

Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision, noting that the overburden removal is a continuous process in mining operations and does not create a capital asset. The Tribunal emphasized that Section 35E is an enabling provision for capital expenditure and should not restrict deductions available under Section 37. The Tribunal dismissed the revenue's appeal.

Assessee's Cross Objection:

Facts:
- The assessee challenged the timeliness of the assessment order, arguing it was uploaded to the system after the statutory deadline.

Arguments and Findings:
- Assessee's Position: The assessment order should be considered passed on the date it was uploaded to the system, which was after the statutory deadline.
- Revenue's Position: The order was passed within the statutory period, and the date of uploading is irrelevant for determining timeliness.

Tribunal's Decision:
- The Tribunal referred to the Supreme Court's ruling that the relevant date for considering the period of limitation is when the order is made, not when it is received or uploaded. Consequently, the Tribunal dismissed the assessee's cross objection as infructuous since the revenue's appeal was dismissed.

Conclusion:
- The Tribunal dismissed the revenue's appeal and the assessee's cross objection, upholding the CIT(A)'s decision to allow the deduction of MDE under Section 37.