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TMI Blog2016 (3) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... h it had to submit tenders and incur expenditure in that regard. The assessee was not a successful bidder. The expenditure in question was disallowed by the revenue by treating them as capital expenditure. The Hon'ble Bombay High Court upheld the order of Tribunal holding that the expenditure was revenue expenditure. In our view the facts of the aforesaid case are identical to the case of the assessee. - Decided in favour of assessee Addition of bad debts written off' although it does not qualify the provisions of Sections 36(2) read with Section 36(1)(vii) - Held that:- We are of the view that the amount in question was admittedly connected with the business of the assessee and the sum in question was spent by the assessee for the purpose of business. The assessee could neither get refund of the aforesaid sums nor the services for which the aforesaid payments were made. We are therefore of the view that the CIT(A) rightly treated these expenditure as one incurred for the purpose of business of the assessee and allowable as deduction u/s 37(1) of the Act. We do not find any ground to interfere in the order of CIT(A).- Decided in favour of assessee Addition on or period' expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. As per .the Supreme Court Order in Writ Petition (Civil) No. 202 of 1995, NPV was to be deposited by the user agency with the State Forest Department and the State Forest Department was to maintain a Fund in accordance with the Guidelines issued under the Forest (Conservation) Act, 1980. According to the Assessee, the payment of NPV was an essential payment required to be made by the Assessee for continuing its existing mining operation in Keonjhor Division of Orissa. The non-payment of NPV would have resulted in adverse consequences including the stoppage of day to day mining operations and thus for the purpose of carrying on its mining business the Assessee was compulsorily required to incur the expenditure towards payment of NPV. 4. The NPV represented a levy towards compensation for diversion of the forest land into mining activities and the land in respect of which the payment was made, was owned by the Forest Department. By making the payment of NVP, no tangible asset came into existence. The Assessee also submitted that the payment of NPV was not a voluntary payment and it was a payment on the basis of the direction given by the Divisional Forest Officer, Keonjhor wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the aforesaid decision was as follows :- ITA No.122/Kol/09 1) That under the facts and circumstances of the case, ld. CIT(A) had erred in law as well on facts by not considering that Net Present Value is a compensation, paid by the assessee to the Forest Deptt., for utilization of forest land for non-forest purpose. Hon'ble Supreme Court has categorized such payments as fees to be paid by the mine owners to the Forest Deptt., quantified on the basis of the period for which the mine owners taking out different ores, from the Mother Earth. Therefore the NV is directly linked to the earlier previous years which is not allowable as the business expenditure of the current financial year u/s.37(1). ITA No.1521/Kol/2009 1. That on the facts and circumstances of the case, ld. CIT(A) has erred in law as well as on facts in concluding(vide his order, page-14) that the assessee did not get any fresh right to mining by making payment of ₹ 1,45,00,000/-. 2. That on the facts and circumstances of the case, ld. CIT(A) has erred in law as well as on facts in not considering the order of the Ministry of Environment Forests (F.C. Division), dated 10.12.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Agency be required to make payment of Net Present Value (NPV) of such diverted land so as to utilize the amounts so received for getting back in long run the benefits which are lost by such diversion. Hon'ble Apex Court vide its guidelines for determination of NPV directed the Ministry of Environment and Forests to formulate a scheme providing that whenever any permission is granted for change of use of forest land for non-forest purposes, and one of the conditions of the permission should be that there should be compensatory afforestation, then the responsibility of the same should be that of user agency. Hon'ble Apex Court observed that the money so received towards NPV should be used for natural assisted re-generation, forest management, protection, infrastructure development, wildlife protection and management, supply of wood and other forest produce saving devices and other allied activities. In the context, Hon'ble Apex Court observed that NPV will not fall under Article 110 or 199 or 195 of the Constitution. It was observed that such payments were levied for rendering service which the state considers beneficial in public interest. It is a fee which falls in en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here expenditure, even if incurred for obtaining an advantage of any enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. Hon'ble Apex Court observed that if the advantage consisted of merely in facilitating the concerned assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, expenditure would be on revenue account, even though the advantage may be endured for an indefinite future. 14. We observe that in the case before us, assessee has got right to carry on mining operations in 1982 and 1985, i.e. long time ago before the assessee was asked to pay NPV as per direction of Hon'ble High Court and consequently assessee was compelled to make the payment to facilitate to continue its mining business. Therefore, the above decision of Hon'ble Apex Court in the case of Bikaner Gypsums Limited (supra) squarely applies to the case of assessee and it could not be capital in nature. 14.1 A similar issue also came before Hon'ble Karnataka Bench of ITAT in the case of Nation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs.- Rungta Mines Pvt. Ltd. [205 ITR 335] held that where a trader, in his capacity as a trader, by compulsion of statutory obligation, has to incur an expenditure as a compelling requisite for carrying on his trade, the expenditure resulting in a capital asset in the hands of a third party, is to be taken as revenue expenditure because no asset arises to the trader by reason of such expenditure. It was further held that where law imposes on the assessee, an obligation to incur expenses for being permitted to pursue its trading activity, the expenditure would be an outgoing from the profits of the trade. 15. In view of the above decision and the facts of the case before us, we hold that ld. CIT(Appeals) has rightly held that the above expenditure of ₹ 3,95,56,500/- paid by the assessee as NPV to enable the assessee to carry on its mining business is revenue in nature, which is allowable as business expenditure under section 37(1) of the Act. Therefore, we uphold the order of ld. CIT(Appeals) by rejecting Ground No.1 of the appeal taken by the Department. Hence, Ground No.1 is rejected. Similarly, this issue is also covered by the Co-ordinate Bench decision in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tender was in the process of carrying on its day to day business operations. The Assessee submitted before the Assessing Officer that submitting tenders and bids in the field of mining and corresponding over burden removal, was a highly sophisticated technical task for which the Assessee had to incur substantial expenditure before submitting the bid. It was also submitted by the Assessee that incurring of the expenses towards payments to Consultants who acted as advisers and assisted in the preparation of tender documents, their travelling expenses and other related expenses, was wholly of revenue nature. By incurring those expenses the Assessee had neither acquired any capital asset nor had acquired any benefit of enduring nature. The Assessee however was not successful in obtaining the bid. The Assessee submitted that though it had not been successful in obtaining the bid, the relevant expenditure was allowable as revenue expenditure. 10.1. The Assessing Officer however was of the view that expenditure for any new project could not be treated as revenue expenditure and that should be capitalised as preliminary expenses. According to the Assessing Officer the expenses had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enders in three parts from technically, financially sound interested parties from India and abroad with relevant experience in mining and extraction of coal for assisting 'Eastern Coalfields Limited in expansion of the coal production of Rajmahal OCP from 10.5 MTY level to 17 MTY capacity level and corresponding overburden removal. It is a plea of the assessee that since the assessee was engaged primarily in the business of mining and sale of iron ore had explored the possibility of bidding for the aforesaid tender. In this regard the assessee appointed consultants undertook travelling and incurred other related expenses and the details of these expenses are given at page 26 of the assessee's paper book. The same had been filed by the assessee before AO. The AO had not disputed the genuineness and incurring of the expenditure, nor the purpose for which the same were incurred. He proceeded on the assumption that this expenditure was in connection with supporting a new project which was ultimately abandoned. He primarily placed reliance on the decision of the Hon'ble Calcutta High Court in the case of Kanoria Chemicals Industries Ltd. Vs CIT (1995) 78 Taxman 455 (Cal) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as deduction a sum of ₹ 9,09,900/- under the head bad debts written off. The AO found that the following amounts cannot be allowed as deduction on account of bad debts written off : (i) Advances against expenses Rs.5,898/- (ii) Security Deposit Rs.10,000/- (iii) Outstanding Advances Rs.6,430/- (iv) Loans against computer and vehicle Rs.38,748/- Total Rs.60,976/- As these expenditures have never been treated as income in the credit side of Profit and Loss Account, therefore, ₹ 60,976/- was not allowed as bad debts written off as per section 36(2) read with section 36(1)(vii) of the Income Tax Act, 1961 (Act). 16. On appeal by the assessee, the CIT(A) found that these were payments made by the assessee in the course of its business and related to the business of the assessee in the earlier years and services for which these payments were made can neither be procured by the assessee nor the assessee could get refund for the aforesaid sum. These were written off and ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is maintaining its books of accounts on mercantile basis and there is no provision under I.T.Act 1961 to allow 'prior period' expenses. 21. The assessee incurred Software expenses aggregating to ₹ 11,30,951. On being asked by the Assessing Officer the Assessee submitted the details in respect of the Software expenses. The Assessing Officer found from the details of the aforesaid expenditure furnished by the Assessee that two sums of ₹ 3,474 towards Assets utilisation charges and ₹ 2,00,000 towards Consultancy charges for development, customisation and implementation of ERP, were in relation to earlier year and so those two sums aggregating to ₹ 2,03,474 was to be disallowed as prior period expenses. 22. Before CIT(A), the Asssessee pointed out that the Assessing Officer failed to appreciate that advance payment of ₹ 2,00,000/- was made in earlier year towards implementation of ERP and the assessee rightly claimed the total expenditure of ₹ 10,96,214/- on completion of implementation of ERP in the assessment year 2006-07. 23. The CIT(A) deleted the addition made by AO observing as follows:- I have gone through the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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