9911796707
TMI Blog2008 (4) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... d by no stretch of imagination it can be said that the expenditure has been incurred for prospecting the mineral. We are unable to agree with the contention of the ld DR that s. 37 of the Act is not attracted to this extent because the same is covered between ss. 30 and 36 of the Act specifically u/s 35E of the Act. As stated s. 35E(2) applies to the expenditure which has been incurred for the purpose of prospecting of the mineral and not for the purpose of commercial production of the mineral. We are of the considered view that in this case, s. 37 would be clearly attracted since the expenditure is not of capital nature and is exclusively incurred for the purpose of business and not of personal nature. Removal of overburden, for excavating the, mineral i.e., lignite does not bring any benefit of enduring nature or any asset into existence. Once the upper crust of earth known as overburden is removed that would, go waste and lignite is excavated. No enduring benefit can be said to have arisen to the assessee by removal of such overburden. In any case, we further find that such expenditure was held to be allowable even during, the AY 1980-81 while giving direction u/s 144B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erburden was mine development expenditure and accordingly he held the assessment order to be erroneous insofar as it is prejudicial to the interest of the Revenue. Ultimately he directed the AO to modify the assessment order in accordance with the provisions of s. 35 (sic-35E) of the Act. 5. Before us, the learned counsel for the assessee submitted that the assessee company had commenced its business in 1957 and is mainly in the business of excavating lignite. He painted out that before starting excavating of lignite, the assessee company had examined and established the lignite mines in the present area. He referred to the order of the CIT and pointed out that according to the CIT, the expenditure related to removal of overburden was covered under the provisions of s. 35E(2) of the Act. He then explained the meaning of removal of overburden. Lignite deposits are generally formed under the layers of earth which have to be removed before lignite can be excavated. Since the assessee has adopted open cast mine which means no digging has to be done by way of development what is required to be done was only removal of upper crust of the earth and then lignite is excavated. He then ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further argued that the AO has enquired about the nature of this expenditure and in this connection invited our attention to p. 3 of the paper book II where vide item No. 14, the following queries were raised: (i) details of expenditure incurred for each mine; (ii) please show how the expenditure claimed should not be held as capital expenditure. He then invited our attention to the reply of the assessee company, a copy of which is placed at pp. 6 and 7 of the paper book wherein the assessee has clearly submitted the details and pointed out that expenditure was revenue in nature. This means that the AO had made proper enquiries and he was satisfied with the reply of the assessee and keeping the history in view, he has allowed the expenditure. He contended that even assuming without any admission that two views were possible on this issue, the revisionary order was without any jurisdiction in view of the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) wherein it was held that if two views are possible legally and if the AO has adopted a particular view then such order cannot be called erron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year. 10. We have considered the rival submissions carefully in the light of the material on record. The relevant provisions of s. 35E read as under: "35E. (1) Where an assessee, being an Indian Company or a person (other than a company) who is resident in India, is engaged in any operations relating to prospecting for or extraction or production of any mineral and incurs, after the 31st day of March, 1970, any expenditure specified in sub-s. (2), the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each one of the relevant previous years a deduction of an amount equal to one-tenth of the amount of such expenditure. (2) The expenditure referred to in sub-s. (1) is that incurred by the assessee after the date specified in that sub-section at any time during the year of commercial production and any one or more of the four years immediately preceding that year, wholly and exclusively on any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back and even mining operations were started in 1957. Therefore, it cannot be said that expenditure was incurred for the purpose of identifying or prospecting the mines. In fact, the expenditure has been incurred on continuous basis in removal of overburden, which means the upper crust of the earth so as to extract the mineral which can ultimately be excavated after removal of such overburden only. Thus, the expenditure cannot be said to be covered by s. 35E(2) of the Act. 11. We further find that the Hon'ble Members of the Tribunal while adjudicating an identical issue during the asst. yrs. 1958-59 to 1960-61 has visited the mines and recorded the following observations vide para 15 of the order of the Tribunal in ITA Nos. 5743 to 5745 of 1964-65, dt. 20th April, 1966 in the case of the same assessee: "15. In order to have a first hand knowledge of the nature of the excavation operations, we made a local inspection of the mines in the presence of representatives of the assessee as well as the Department including their respective counsel. The lignite deposits occur at a depth of about 180 ft. from the surface of the land. These lignite deposits are covered by a layer of clay, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was observed vide para 20 of the above order as under: "20. Applying these general principles to the facts of the present case, we have no hesitation in coming to the conclusion that the expenditure in question is not a capital expenditure but a revenue expenditure. The expenditure is incurred in removing the overburden and also in pumping out water from the mine. As already stated, the removal of overburden and the pumping out of water is a part of the work of mining the lignite pumping and it is not in the nature of preliminary or preparatory work. The removal of the overburden is not similar to the sinking of a permanent shaft in the coal mine and the pumping out of water from underneath the lignite belt in order to avoid the mine being overflooded, is not similar to the pumping out of water from a discussed mine with a view to make the mine fit for operation. The expenditure incurred in the removal of overburden or in pumping out the water cannot be equated with the purchase price of the land or of the mining rights. The expenditure incurred did not bring into existence any asset of enduring benefit but it was an expenditure incurred for the purpose of acquiring a raw mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
