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TMI Blog2018 (4) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... d to this issue - AO having added the long term capital loss of ₹ 20,17,000/- under the head ‘income from business’ had also proceeded to separately add the redemption value of bonds of ₹ 1,30,00,000/- without understanding the facts. The veracity of the computation of long term capital loss of ₹ 20,17,000/- was not verified by the ld AO. No finding is also given by the ld AO with regard to carry forward of long term capital loss of ₹ 20,17,000/- to subsequent years in the assessment order. Hence we deem it fit and appropriate, in the interest of justice and fairplay, to remand this issue to the file of the ld AO , for denovo adjudication Disallowing judicial expenses - Held that:- Whether the liability at all would arise or not on the assessee would depend on the final outcome of the appeals pending. Hence the liability is contingent upon happening of a future event. Hence it could be safely concluded that the assessee had made provision for contingent liability which is not allowable as deduction. Hence we hold that the same had been rightly disallowed by the ld AO with regard to M/s Jai Balaji Industries Ltd. With regard to refund of EMD to M/s N.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the sake of convenience. ITA No. 1860/Kol/2016 Asst Year 2009-10 Revenue Appeal 2. The only issue to be decided in this appeal is as to whether the ld CITA was justified in giving direction to the ld AO to verify the claim of expenses regarding prior period expenses and verify the claim regarding Long Term Capital Gain , in the facts and circumstances of the case. The grounds raised by the revenue for the Asst Year 2009- 10 are as under:- ITA No. 1860/Kol/2016 of Asst Year 2009-10 1. That in the facts and circumstances, the Ld. CIT(A)-2, Kolkata has erred in giving direction to the AO to verify the claim of expenses regarding Prior Period Expenses of ₹ 4,22,561/- out of total expenses claimed of ₹ 8,57,822/-. 2. That in the facts and circumstances, the Ld. CIT(A)-2, Kolkata has erred in giving direction to the AO to verify the facts regarding Long Term Capital Gain of ₹ 1,30,00,000/- 2.1. The ld DR argued that the ld CITA does not have power to direct the ld AO to verify a certain fact while disposing of an appeal. He could at best seek a remand report from the ld AO or verify himself and dispose off the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.70 hects) 3.1. The mining lease in respect of Belkundi Iron and Manganese Mines, which was held by the assessee company for a long time had expired on 16.8.2006 and that its application for renewal of that lease has not been granted by the State Government of Orissa. This fact was also mentioned in page 13 of the Annual Audited Financial Statements of the assessee company. Accordingly, mining operations were wholly suspended and stopped by the assessee company in Belkundi Iron and Manganese Mines with effect from 16.8.2006. The assessee company for the Asst Year 2009-10 had filed its return of income on 24.9.2009 declaring total income of ₹ 287,33,57,160/- . 4. The first issue to be decided in this cross objection of the assessee is as to whether the ld CITA was justified in not giving an independent finding with regard to allowability of prior period expenses of ₹ 8,59,822/- , in the facts and circumstances of the case. 4.1. The brief facts of this issue are that the assessee had debited a sum of ₹ 8,59,822/- towards prior period expenses in its profit and loss account and claimed the same as deduction. The details of the same are as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the rival submissions. We find that the assessee had filed details of prior period expenses before the ld AO and ld CITA that are enclosed in pages 1 to 29 of the paper book filed before us. But we find that the ld AO had no occasion to verify the same and no factual finding has been recorded by the ld CITA also that the assessee had not claimed any deduction for the said prior period expenses in the earlier years. We hold that the allowability of prior period expenses had to be made based on the finding that no deduction was claimed in the earlier years after recording the finding that the said expenditure had indeed been crystallized during the year. However, the method of accounting followed by the assessee also needs to be taken into consideration for the same. These findings are conspicuously absent in the orders of the lower authorities and accordingly we deem it fit and appropriate ,in the interest of justice and fair play, to remand the issue of prior period expenses to the file of the ld AO, for denovo adjudication and decide the same in accordance with law. The assessee is also at liberty to adduce fresh evidences in this regard before the ld AO. Accordingly, the Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax(Appeals) was wrong in not accepting the fact that Loss under the head Long Term Capital Gain of ₹ 20,17,000/- having already been considered in the assessment, the Assessing Officer s action in making a separate addition of the gross consideration of ₹ 1,30,00,000/- had been wrong and thus he erred in not deleting the said addition of ₹ 1,30,00,000/- 4.3. We have heard the rival submissions. We find that the assessee had filed details of computation of long term capital loss of ₹ 20,17,000/- in the memo of income and the same was also furnished before the ld AO in the course of assessment proceedings. It is an undisputed fact that there is absolutely no discussion made by the ld AO in his assessment order with regard to this issue. We agree with the ld AR that the ld AO having added the long term capital loss of ₹ 20,17,000/- under the head income from business had also proceeded to separately add the redemption value of bonds of ₹ 1,30,00,000/- without understanding the facts. The veracity of the computation of long term capital loss of ₹ 20,17,000/- was not verified by the ld AO. No finding is also given by the ld AO with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st this order before the Hon ble Calcutta High Court. The liability that had fastened on the assessee with regard this dispute is ₹ 3,55,03,760.83 (B) . 6.3. The assessee had collected Earnest Money Deposit (EMD) of ₹ 11,12,000/- from M/s N.R.Sponge Pvt Ltd which was forfeited by the assessee against auction dated 25.6.2008. This was subjected to writ proceedings in W.P. No. 4740 (W) of 2011 dated 11.3.2011. This was disposed off on 28.11.2011 by the Hon ble Calcutta High Court directing the assessee to pay the EMD of ₹ 11,12,000/- (C ) to M/s N.R.Sponge Pvt Ltd. The assessee stated before the ld AO that it is in the process of preferring further appeal against the High Court order, subject to the approval of its Board. 6.4. The total of liability that had fastened on the assessee pursuant to aforesaid three disputes i.e (A) plus (B) plus (C ) was ₹ 8,69,95,595/-. Accordingly, the assessee pursuant to the approval given by its Board, made a provision of ₹ 8,70,00,000/- towards liabilities that would get fastened on it pursuant to the final outcome of the disputes by the concerned appellate forum as detailed above. The assessee pleaded that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure and accordingly upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us on the following ground:- I.T.A. No. 1901/Kol/2016 for assessment year 2012-13 1. That the Commissioner of Income tax (Appeals) was wrong in confirming the Assessing Officer s action in disallowing judicial expenses aggregating to ₹ 8,70,00,000/-. 6.8. We have heard the rival submissions. The aforesaid facts clearly state that the assessee had been fastened with liabilities of ₹ 5,03,79,834.11 and ₹ 3,55,03,760.83 as amounts payable to M/s Jai Balaji Industries Ltd pursuant to an award passed by an Arbitrator. But we find from the aforesaid facts that an appeal has been preferred by the assessee against such awards. It is not in dispute that the assessee had not made any payment to M/s Jai Balaji Industries Ltd with regard to the subject mentioned dispute. Since the liability emanates out of business activities of the assessee, the assessee had to claim deduction only in the year in which such liability has been discharged and not in the year under appeal. Moreover, the assessee had contested the awards passed by the Arbitrator before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,59,626 2,55,271 - Motorcar 1,46,344 0 1,46,344 - Others 1,13,60,984 3,09,291 1,16,70,275 Intangible Assets 15,33,77,025 65,68,000 15,99,45,025 Total Depn as per IT 17,34,64,185 70,36,917 18,05,01,102 7.1. The ld AO observed that the tax auditor in its report in Form 3CA read with Form 3CD dated 6.8.2012 had categorically mentioned that the assessee has claimed afforestation charges to Government amortized ₹ 15,99,45,025/-. The ld AO show caused the assessee vide notice u/s 142(1) dated 9.12.2014 and asked the details and evidence of claim u/s 35CCB of the Act. The assessee vide its letter dated 19.1.2015 replied as under:- to the best of our knowledge no such deduction claimed u/s 35CCB 7.2. The ld AO observed in his order as under:- The argument of the assessee is very strange. On one hand the Tax Auditor appointed by the assessee company categorically sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the same figure of Alleged claim of deduction u/s 35CCB) - ₹ 18,05,01,102 8. Before the ld CITA, the assessee submitted that for carrying out its mining business, it was required by the State Government of Orissa to pay to the Government towards Afforesation for Planting of Trees over the Mining Areas. It had been a condition imposed by the Government on the assessee to pay to the Government towards Afforestation for being eligible to be allowed to continue its mining business. On paying the demands raised by the Government of Orisaa towards Afforestion, the assessee obtained the Right to continue its mining business and accordingly such right was considered by the assessee as an Intangible Asset measured in terms of the payments made to the Government for Afforestation. The assessee claimed depreciation @ 25% on the value of this Intangible Asset (Opening WDV as increased by current year s payments to the Government of Orissa) and such claim of Depreciation for the year was ₹ 15,99,45,025/- which was duly disclosed in the return of income. 8.1. The assessee submitted that it had never claimed any deduction u/s 35CCB of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n toto in the sum of ₹ 18,05,01,102/-. The assessee however submitted that during the year , it had transacted certain sales of one of its products i.e Sponge Iron though no new extraction of any ore could be done due to certain difficulties faced by the assessee as regards the lease of the mines. The assessee further submitted that in anticipation of being allowed to commence extraction of ores at any time during the year, the assessee had kept all its fixed assets, especially the Plant and Machineries ready for use. The ld AO failed to appreciate that the depreciation was to be allowed on the concept of Block of Assets and there had also occurred additions to the Plant and Machineries during the year with an intent for utilizing them for the mining business of the assessee. Hence the assessee submitted that all the fixed assets including the plant and machineries had been owned by the assessee and were being used from the earlier years and therefore the assessee should have been allowed depreciation for the whole year irrespective of the fact that no new extraction of ore had been carried out during the year. The assessee also placed reliance on the provisions of Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Again, since the Tax effect is much higher than prescribed limit as fixed by CBDT, therefore, the 2nd appeal is suggested. I.T.A. No. 1929/Kol/2016 for assessment year 2012-13 2. That the Commissioner of Income Tax(appeals) was wrong in confirming the Assessing Officer s action in disallowing depreciation of ₹ 15,99,45,025/- in relation to Intangible Assets in the form of the appellant s right to continue its Mining business in view of its payments made to the Government for Afforestation purposes. 9. We have heard the rival submissions. At the outset, we hold that the assessee had not claimed any deduction u/s 35CCB of the Act in the sum of ₹ 15,99,45,025/- in the return of income or during the assessment proceedings. This is quite evident from the entire computation of income filed in the paper book before us. The ld AO without appreciating this basic fact grossly erred in placing reliance on the Tax Audit Report. In fact even the Tax Auditor had clarified the entire facts of the matter before the ld CITA vide his certificate dated 12.3.2015. This was subjected to remand proceedings and the ld AO had not mentioned his remark on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was ₹ 61,35,08,099/- on which depreciation was claimed in the sum of ₹ 15,33,77,025/- during the year under appeal. This sum of depreciation of ₹ 15,33,77,025/- would be squarely allowable irrespective of the fact that whether the assets were put to use or not during the year. From the plain reading of provisions of section 32 of the Act, we are able to understand that the legislature had mandated the concept of assets being put to use only in respect of the assets acquired during the year and not thereafter. This is because of the concept of block of assets where the assets lose its identity once it enters the block, thereby preventing the usage of the assets year on year. Hence out of the total depreciation on intangible assets of ₹ 15,99,45,025/-, no disallowance could be made on the depreciation on opening WDV in the sum of ₹ 15,33,77,025/-. With the same logic and understanding, the total depreciation on opening WDV on both tangible and intangible assets amounting to ₹ 17,34,64,185/- deserves to be allowed as an allowance u/s 32 of the Act. We find from the schedule of income tax depreciation, the assessee had made additions to the tune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 32(1) of the Act For the purposes of this sub-section, the expression assets shall mean ( b) intangible assets, being know-how, patents , copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature . It is not in dispute that the payments were made by the assessee to Divisional Forest Officer, Keonjhar, Government of Orissa , in accordance with a specific scheme which gave commercial right for mining to the assessee similar to other intangible assets. The details of payments are as under:- 9.3. We hold that the payments made to Government of Orissa for afforestation charges for obtaining the mining lease, would squarely fall under the category of licences or even any other business or commercial rights of similar nature as per the definition of intangible assets u/s 32 of the Act, thereby eligible for claim of depreciation u/s 32 of the Act. It is not in dispute that pursuant to this payment, and pursuant to other plant and machineries kept ready for use, the assessee would start its mining operations, the moment the mining lease has been granted by the Government of Orissa. Hence the ratio laid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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