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TMI Blog2012 (3) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... den to reach the layer of iron ore. The Assessing Officer analyzed the various stages of the mining activities by observing that in mining, the ore deposit is embedded in soil beneath the heavy overburden. The overburden consists of hard stone on the top and subsequently overburden in the form of soft stone, earth and morum. The ore can be exploited and it requires entire cutting or overburden from the top of the ore body and there after winning the ores. After overburden is blasted on the top it is lifted and removed to a marked dump. In the process of raising of iron ore further segregation of the ore is done and the ore in the lump form is broken to size before being shifted from the faces to the crusher or screen. For production, drilling and blasting is extensively used. For overburden cutting, blasting is required and thereafter for mineral ore raising, blasting is also required. Deep holes are made in the strata and thereafter the same are blasted in the mines. The ore after broken into pieces is shifted from the faces to a lower bench and thereafter removed to various dumps. The un-even portion of the query is leveled to make systematic benches. Once the ore is found in a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re continuously for last 51 years In view of the above, he contended that when the mining lease is continuing and the operation is going on for last 51 years, the question of prospecting as contained in section 35 (E) of Income Tax Act does not arise. He further submitted that as per the mining Regulation, any person can apply for mining lease by simply making a request to the government. After considering his application, government issues prospecting licence in general for two (2) years to explore the availability of lron/Manganese Ore, in that particular area and the estimated quantity of mineral contained in that area. If the prospecting is successfully done, then the applicant prepares mining plans with the help of the approved consultants and submits the same to the government, along with the application to grant mining lease. After completion of so many formalities, the mining lease is granted for a specific period. After obtaining the mining licence, forest clearance, the applicant can only start its business of mining. Nobody can start commercial production without obtaining prospecting licence and carry out the prospecting activities. The assessee is doing commercial prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. In the instant case on hand, considering the expenditure incurred on activities as noticed earlier it can hardly be said that there were any pre-development activities in relation to prospecting any minerals apart from mining of iron ore. The expenditure in question on account removal of overburden is a continuous operation which is carried on simultaneously with the production of Iron Ore and as such, we are of the considered view that the provision of Section 35E is not applicable to the instant case. We find support from the decision of ITAT, Chennai Bench in the case of Neyveli Lignite Corporation Ltd., v. ACIT (2009) 120 TTJ (Chennai) 1096, relied on by the assessee. We also find support from the decision In the case of CIT v. Amalgamated Jambad Suyndicate Pvt. Ltd., (1979) 117 ITR 698 (CAL), wherein, Hon'ble Calcutta High Court, by applying the decision in the case of Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC), held that the removal of overburden and the winning of coal were both continuous processes and were being carried on simultaneously from year to year. The removal of overburden cannot be compared to the opening of a new pit. Once a pit is opened the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has secured loans of ₹147,01,09,667 as on 31.3.2008 and ₹105,29,54,231 as on 31.3.2007. Bank interest of ₹ 149,944,286 was incurred and charged to profit for the previous year 2007-08. Investment in shares as on 31.3.2008 and 31,3.2007 were ₹16,19,37,453 and ₹75,29,30 respectively and investment in mutual funds as on 31.3.2008 and 31.3.2007 were ₹205,51,25,879 and ₹57,64,54,848 respectively. The AO asked the assessee to explain as to why the provisions of section 14A shall not be invoked as loan funds from various Bank accounts were utilized in investment in shares and units and income of dividend generated there from is claimed as exempt. The assessee submitted that the assessee company obtained term loans and utilized it for specific and particular purposes. The funds taken from loans have not been invested and the dividend has not been earned from such investment. The investments have been made out of surplus i.e. internal accrual of the company and re-investment of the dividends and other income arising out of those investments. In this context, the assessee flied before the AO statement showing the details of interest paid for the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment in the units are taken into consideration. The AO made a computation of addition of ₹2,49,31,579 u/s.14A of the I.T.Act,1961. Aggrieved, the assessee filed appeal before the Commissioner of Income-tax (Appeals). 12. Before the learned CIT(A) it was contended by the assessee that the assessee obtained term loans for its Wind Mills and purchase of machineries and equipments for its business purposes. The banks and financial institutions are directly disbursing the loan amount to the suppliers and vendors instead of to the assessee. The loans are only utilized for specific purposes and interest on these term loans are clearly attributed to their respective purposes. The company has made investments in shares and mutual funds out of its surplus i.e. internal accrual of the company and re-investment of dividends and other income arising out of these investments. He filed a statement showing the Reserve and Surplus of the assessee to cover the investments. He also placed reliance on the decision on the case of CIT v. Gujrat Power Corporation Ltd. ITA No.1587 of 2009 (Gujarat High Court), Godrej industries Ltd. v. DCIT, ITA No. 1090/Mum/09 (1TAT Mumbai Bench), DCITv. Maharast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receding year. The net cash from the operating activities contained in cash flow statement for the Financial Year 2007-08 relevant to the Assessment Year under consideration amounts to ₹315,37,40,046 out of which investment made during the year amounts to ₹155,98,52,874. He further drew our attention to page 101 of the Paper Book which contains Schedule "F" showing investment as on 31st Mach, 2008. The learned AR of the assessee submitted that the total investment as per the Balance Sheet and Schedule, amounts to ₹223,05,63,332 (₹155,98,52,874 + ₹67,07,10,458.00). Therefore, all the investments are made out of operating profit as per the cash flow statement for the year 2007-08 and accumulated as per cash flow from operation up to the preceding year i.e., 31.3.2007. The learned AR of the assessee by referring to various pages of the Paper Book has drawn the following chart showing the investment from operating profit for the preceding year Year of cash flow statement Operating profit Net operating profit (In ₹) Investment made (In ₹) Page No. of Paper Book 31.03.2008 353,18,79,195.00 315,37,40,046.00 155,98,52,874.00 87 31.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out of the borrowed funds. But it is contention of the assessee right from the beginning that the investments were made not out of borrowed funds but all the investments were made out of operating profit as per the cash flow statement for the Assessment Year 20076-08 and accumulated as per cash flow from operation up to 31.3.2007, which are duly demonstrated before us from which the contention of the assessee is true inasmuch as the assessee Company had sufficient balance/funds in its Reserve and Surplus as internal accruals and the same were being regularly invested in different avenues. Further, the assessee has demonstrated so as establish the fact that the loans are availed for a specific purpose and utilized for the said purpose and almost all the loans are directly disbursed to the supplier by the Bank/Financial Institutions, which could not be negated by the learned DR before us. As it appears, the Departmental authorities have held the investments from out of borrowed funds merely because the payment towards interest and investment has been made from same bank accounts. In our considered view, this cannot be a reason to conclude that the loans were utilised for making inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the considered view that the addition made u/s.14A is not justified. We may also mention that in identical facts and circumstances, the learned CIT(A) in the case of Banspani Iron Ore Ltd in ITA No.0180/2010-11 dt.21.12.2011 had considered such disallowance of expenditure by the Assessing Officer under the provisions of Section 14A uncalled for and unjustified. We, therefore, delete the same and allow the ground of the assessee raised in this regard. 16. The last issue relates to confirmation of disallowance of expenditure of ₹6,00,000 under the head "amortization of lease rent" by treating the same as consideration for the lease and is for the acquisition of the capital asset. 17. The relevant facts are that during the course of assessment proceedings the Assessing Officer found the assessee to have claimed amortization of ₹6,00,000 on account of cost of lease hold land at Dhule, Maharasthra. The Assessing Officer further observed that the assessee's lease hold right to land is a fixed asset as covered in the tax audit report in respect of which no allowance of depreciation is prescribed by the I.T.Act. Therefore, the Assessing Officer disallowed the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses for trading attributable to the trading operations of the licensee and deductible from his profit. As per the above decision, lump sum payment was allowed to be spread over the period of licence/lease, which is similar to the case of the assessee and as such, the amortization of the lump sum payment for 30 years may be allowed, since the benefit of lease is enjoyed for each year during the total lease period. 18. The learned DR, on the other hand, supported the impugned orders of the authorities below. 19. We have heard the rival contentions and perused the material available on record. As rightly pointed out by the assessee the lease rent has been paid in advance for the lease period and it cannot be said that after the lease is over the asset will belong to the assessee. The lump sum payment is being claimed as revenue expenditure by arithmetically spreading the lump sum payment over the period of lease. The learned CIT(A) has misinterpreted the facts on this issue as brought on record by the Assessing Officer . The contention of the learned Counsel is correct that a claim has to be allowed in accordance with the business transaction duly documented and acceptable to both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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