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2017 (10) TMI 1085 - AT - Income TaxInterest earned on unutilized amount lying with RSMML - Held that - We have given our thoughtful consideration to this submission of the Ld. Counsel for the assessee has per Section 57 of the Act. As per section 57 of the Act income chargeable under the head Income from the other sources shall be computed after making the deductions of expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. Therefore, the assessee is required to demonstrate for the purpose of claiming deduction of expenditure that such expenditure was wholly and exclusively incurred or expended for earning such income. The assessee is required to prove nexus between the expenditure and the income so earned. Under these facts, we deem it proper and in the interest of justice to restore this issue to the file of the Assessing officer for verification of the claim of the assessee that it had incurred expenditure for earning income which has been taxed by the AO under the head income from the other sources. Ground no. 2 of the assessee s appeal is allowed for statistical purpose. Addition on account of disallowance of CSR expenses - whether for provisioning of certain expenses under the contract is allowable expenditure? - Held that - A provision for expenditure is allowable if the assessee proves that such expenditure is required to be laid down on the basis of past experience and deduced scientifically. There is no dispute with regard to the fact that no expenditure is made during the year under appeal. The assessee has also not stated past history or the past experience. Therefore, there is no basis available for arriving at the figure of expenditure so claimed under these facts; we are unable to accept the contentions of the Ld. Counsel for the assessee. Hence, the finding of the Ld. CIT(A) is hereby affirmed on this issue. This Ground of the assessee s appeal is dismissed. Disallowed amortization of expenses - Held that - There is no dispute with regard to the fact that the assessee neither acquired title over the mines nor the rights into any fixed assets by making expenditure. The assessee has acquired absolute rights for mining lignite this is essentially for 30 years without any impediment. The moot question is whether such expenditure is for acquiring any capital asset or merely some business rights. It is not the case of acquiring fixed assets for enduring benefit but the assessee would have enduring business rights in respect of mining the lignite. Admittedly, the expenditure has been incurred through RSMML it is not clear whether the RSMML has also claimed such expenditure in the absence of same, we deem it proper to restore this issue to the file of the Assessing Officer for decision afresh. The AO would verify whether the RSMML has made any claim on the same expenditure which the assessee has claimed and ascertain the outcome of such claim whether such expenditure has been allowed. Then, the AO would decide in accordance with the law and the case laws as cited by the assessee. Thus, this ground of the assessee s appeal is allowed for statistical purpose. Depreciation claim in respect of intangible asset in the nature of business rights - Held that - As per the assessee what it has acquired is an intangible asset and therefore is entitled for depreciation. In our considered view, the assessee is required to demonstrate that it has acquired knowhow, patents, copyrights, trademarks, license, franchisee or any other business or commercial rights of similar nature being intangible assets. In the case in hand, it is contended that assessee has allotted shares of ₹ 10.20 crores to RSMML without any financial obligation on it in lieu of it having obtained the mining lease, for the mines, transferred such mining lease, surface rights and other rights in relation thereto for the development, operation and management of mines in favour of the assessee and to contribute its local knowledge, technical knowledge and other expartise in relation to the mines as referred in clause 2 to 3 of the JV Agreement dated 27/12/2006. The assessee has not demonstrated as what knowledge was transferred to the assessee, in the absence of the same it cannot be inferred with certainty that what the assessee has acquired would fall under the clause 32(1)(ii) and how such knowledge is used for the purpose of business of the assessee. Therefore, in the interest of justice we set aside the order of the authorities below and restore this issue to the file of the AO to decide this issue afresh. After giving opportunity to the assessee the AO would verify the nature of the rights and knowhow acquired by the assessee. In case the AO finds that by virtue of the agreement the assessee has acquired knowhow or any other business of commercial rights or similar nature, he would allowed the depreciation as claimed by the assessee. This ground of assessee s appeal is allowed for statistical purposes. Disallowance of land tax - disallowance by the assessee due to non-payment u/s 43B - Held that - Since, the land tax is allowable u/s 43B of the Act. Therefore, we do not see any reason to interfere into the finding of the Ld. CIT(A) same is hereby affirmed. This ground of Revenue s appeal is dismissed. Allowing deduction in respect of mine closure expenses - Held that - The mines closure liability is a ascertained liability notwithstanding principle as well as the mercantile system of accounting, the liability is applicable in principle under section 37 of the Act.
Issues Involved:
1. Taxation of interest receipt credited to Capital Work in Process (CWIP). 2. Deduction of interest expenses against interest income. 3. Disallowance of Corporate Social Responsibility (CSR) expenses. 4. Amortization of surface rights. 5. Depreciation on surface rights as intangible assets. 6. Deduction under section 35E of the Income Tax Act. 7. Depreciation on intangible assets in the nature of business rights. 8. Addition of land tax paid. 9. Deduction of mine closure expenses. Issue-wise Detailed Analysis: 1. Taxation of Interest Receipt Credited to CWIP: The assessee argued that interest receipts should not be taxed as income from other sources but should be reduced from the cost of the project, citing the Supreme Court decision in CIT Vs. Bokaro Steels Ltd. The Tribunal, however, upheld the AO's addition based on the Supreme Court ruling in Tuticorin Alkali Chemicals & Fertilizers Ltd., confirming the interest income as taxable under "income from other sources." 2. Deduction of Interest Expenses Against Interest Income: The assessee claimed that interest expenses incurred should be allowed as a deduction under Section 57 of the Act. The Tribunal remanded this issue back to the AO for verification of the direct nexus between the interest expenses and the interest income earned. 3. Disallowance of CSR Expenses: The assessee contended that CSR expenses were mandatory as per the Ministry of Environment & Forests and should be allowed as business expenses. The Tribunal upheld the AO's disallowance, stating that the provision for CSR expenses was not based on past experience and was not scientifically deduced. 4. Amortization of Surface Rights: The assessee claimed amortization of surface rights expenses over the lease period of 30 years. The Tribunal remanded the issue back to the AO for verification, directing the AO to ascertain whether RSMML had claimed similar expenses and to decide accordingly based on the law and case precedents. 5. Depreciation on Surface Rights as Intangible Assets: The Tribunal found that the nature of the rights acquired by the assessee needed further verification. The issue was remanded to the AO to verify whether the rights acquired could be classified as know-how or other business or commercial rights of similar nature, and if so, to allow depreciation accordingly. 6. Deduction Under Section 35E: The Tribunal did not address this issue in detail as it was not pressed by the assessee during the hearing. 7. Depreciation on Intangible Assets in the Nature of Business Rights: The assessee argued that the rights acquired from RSMML were intangible assets eligible for depreciation. The Tribunal remanded the issue back to the AO to verify the nature of the rights and to allow depreciation if the rights were found to be intangible assets as defined under Section 32(1)(ii). 8. Addition of Land Tax Paid: The Tribunal upheld the CIT(A)'s decision to allow the deduction of land tax paid, stating that the liability was crystallized and paid under the direction of the High Court, making it allowable under Section 43B of the Act. 9. Deduction of Mine Closure Expenses: The Tribunal upheld the CIT(A)'s decision to allow the deduction of mine closure expenses, following the jurisdictional ITAT's decision in the case of Rajasthan State Mines & Minerals Ltd., which held that mine closure expenses are ascertainable liabilities and allowable under Section 37(1) of the Act. Conclusion: The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The issues of amortization of surface rights, deduction of interest expenses, and depreciation on intangible assets were remanded to the AO for further verification and decision in accordance with the law. The Tribunal upheld the CIT(A)'s decisions on the addition of land tax paid and deduction of mine closure expenses.
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