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TMI Blog2015 (3) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim holding that the leasehold land is an intangible asset and depreciation on such asset is allowable when intangible assets are such assets which cannot be touched or can be seen - Held that:- Issue is squarely covered by the decisions of the coordinate benches of ITAT, Hyderabad in assessee’s own case for AYs 2008-09 and 2010-11, allowing the assessee’s claim of depreciation - All expenses are incurred for the purpose of business and are incidental to the holding of rights were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset. The definition of depreciation therefore has been misconstrued for the purpose of allowing deduction by the Assessing Officer and the learned CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended w.e.f. Assessment Year 2003- 04. In this view of the mater, we are inclined to hold that the assessee is entitled to depreciation as charged to the P & L account in accordance with its business exigencies. - Decided against revenue. Expenses incurred towards corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct was completed determining the total income of assessee at ₹ 9855,25,99,590 by making the following additions: i) Mine Closure obligation ₹ 10,55,00,000 ii) Depreciation on intangible assets ₹ 18,00,47,281 iii) Demurrages on shipment charges ₹ 5,54,00,000 iv) Expenses on account of corporate social responsibility ₹ 37,33,00,000 v) Additional depreciation ₹ 25,80,00,000 vi) 40(a)(ia) for non deduction of tax ₹ 42,88,15,332 vii) Expenditure relating to earlier years ₹ 4,21,87,375 viii) Disallowance of interest u/s 115P ₹ 7,62,78,605 3. On appeal by the assessee before the CIT(A), the CIT(A) allowed the grounds raised by the assessee in respect of the aforesaid issues. Aggrieved by the order of CIT(A), the revenue is in appeal before us. 4. Ground Nos. 1 6 are general in nature. Ground No.2 is as follows: The CIT(A) erred in granting relief to the assessee in respect of Mine Closure Obligation in view of the fact that it is not an ascertained liability and if at all any expenditure is to be allowed, it should be spread over evenly for all the years since the date of commencement of mining opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate fund has been created with LIC. The A.O. did not agree and disallowed the obligation on the reason that it is a contingent upon certain future events. Therefore, it was not allowable as revenue expenditure. Considering the detailed submissions and also the orders of his predecessor in the earlier year i.e., A.Y. 2008- 09, the Ld. CIT(A) allowed the expenditure. 47. At the outset, it was submitted that this issue was crystalised in favour of the assessee against the Revenue by ITAT in earlier years and in the later year in A.Y. 2008-09 in ITA.No.714 885/Hyd/2012 dated 28.02.2014 decision is as under : 9. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below as well as the decisions cited. In AY 2006-07, the coordinate bench in assessee s own case (supra), held as follows: 11. We have heard both the parties, perused the record and gone through the orders of the authorities below. It is observed that the basis of calculation for the relevant AY 2006-07 for ₹ 71.18 crores was submitted during the original assessment and accepted by the AO. The detailed calculation of ₹ 21.31 crores char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee fails to provide such data, then, prorata has to be applied. Thus, the CIT(A) has given a categorical finding in paras 4.3 4.4 of his order. Therefore, we do not find any infirmity on that part of the order and accordingly, we confirm the same. This ground raised by the assessee is dismissed . 48. Respectfully following the above decision, we hold that mine closure obligation is not a contingent liability but ascertain liability. However, it has to be verified that whether assessee has made the claim on the mines which are in working condition which are being operated or not. If the assessee has made the claim on mines which have not started operations, the same cannot be allowed. As rightly held by the CIT(A) in A.Y. 2008- 09, ascertainability of liability is to be ascertained year-wise. Therefore, to that extent, following the Coordinate Bench decision, we direct the assessee to furnish the relevant data to the A.O. towards the mines closure obligation and A.O. is directed to verify and allow the amount accordingly. Subject to the above observations, the ground No.2 is considered as allowed for statistical purposes. 9. As the issue under consideration is materially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly he disallowed the depreciation claim of assessee. 12. On appeal, the CIT(A) following the decision of the coordinate benches of Hyderabad in assessee s own case for AYs 2008-09 and 201011, allowed the assessee s claim of depreciation. Aggrieved by the order of CIT(A), revenue is in appeal before us. 13. The ld. DR relied on the order of the AO. Ld. AR of assessee contended that leasehold rights fall under Part B of depreciation schedule in intangible assets of Rule - 5 of the IT Rules as any other business or commercial rights of similar nature. The accounting policy/method is consistently followed by number of years and was allowed as deduction. He submitted that the issue is covered by the decisions of coordinate benches of ITAT, Hyderabad for AY 2008-09, 2009-10 and 2010-11 in assessee s own case. 14. We have considered the submissions of the parties and perused the material on record. On perusal of record, we find that the issue is squarely covered by the decisions of the coordinate benches of ITAT, Hyderabad in assessee s own case. In AY 2010-11 in ITA No. 1795/Hyd/2012, the coordinate bench while dealing similar issue, held as follows: 36. Ground No.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the period of lease cannot be denied to the assessee for the simple reason it being intangible asset has been written off which pertains to land being a intangible asset. It is nobody s case that the land either belonged to the lessee or to the Government. This simply indicates that a depletion of the land against the payment of premium it was leased has to be claimed after capitalization thereof by the assessee which is for the purpose of its main business. All expenses are incurred for the purpose of business and are incidental to the holding of rights were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset. The definition of depreciation therefore has been misconstrued for the purpose of allowing deduction by the Assessing Officer and the learned CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended w.e.f. Assessment Year 2003- 04. In this view of the mater, we are inclined to hold that the assessee is entitled to depreciation as charged to the P L account in accordance with its busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T in assessee s own case for AY 2010-11 and 2008-09 directed the AO to allow the said expenditure subject to the observations of the ITAT in the said years. Aggrieved by the order of CIT(A), the revenue is in appeal before us. 18. We have heard the submissions of the parties and perused the material on record. We find that similar issue came up for consideration before the coordinate bench in assessee s own case for AYs. 2005-06 to 2010-11. In AY 2010-11 in ITA No. 1795/Hyd/2013 vide order dated 09th May, 2014, the coordinate bench held as follows: 40. Ground No.5 pertain to claim of ₹ 71,20,08,354/- on corporate social responsibility stated to have been incurred wholly and exclusively for the purpose of business. Assessee has incurred the above amount only to operate mines in remote places. It was submitted that the expenditure was necessary for the smooth conduct of the business such as installing traffic signals at circle near the vicinity of the Office, flood relief etc., and following the Union Government s CSR policy, NMDC has to create budget mandatorily at ₹ 104 crores (2% of PBT) whereas, company has spent only ₹ 71.20 crores. The A.O. however, hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration of the people who are affected by the mining operation of the assessee is required. Merely because the hospital and medical college are situated 16 kms away from the unit, that will not deter the medical institution in giving treatment to the affected people. Moreover, admission was given to the children of the assessee s employees in the medical college. Therefore, indirectly the contribution made by the assessee takes care of the education of the employees children. This would certainly be a welfare measure on the part of the assessee for carrying out the business in an effective and efficient manner. Therefore, in our opinion, the contribution of ₹ 5,00,00,000 has to be treated as revenue expenditure for the purpose of the business. Therefore, we do not find any justification in disallowing the sum. Accordingly, we set aside the orders of the lower authorities and delete the entire addition. 36. Since the issue under consideration is identical to that of AY 2005-06, we delete the additions made under the heads from (i) to vii). 36.1 However, we make it clear that the expenditure incurred at ₹ 3,48,04,548/- shown as miscellaneous expenses cannot be al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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