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TMI Blog2025 (4) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed asset but since the expenditure has been incurred through M/s. RSMML, the issue was set aside to verify whether such expenditure has been claimed by M/s. RSMML or not and assessee in set aside proceedings brought on record the fact that RSMML has not claimed such expenditure, again holding that the expenditure is capital expenditure not eligible for amortization is against the direction/finding of Hon'ble ITAT and hence the order passed by lower authorities confirming the addition be quashed. 1.2 The Ld. CIT (A), NFAC has erred on facts and in law in not allowing the alternate claim of assessee that surface rights being acquisition of intangible asset is otherwise eligible for depreciation. 2 The Ld. CIT(A), NFAC has erred on facts and in law in upholding the order of AO in not allowing the claim of depreciation of Rs. 42,49,575/- in respect of intangible asset in nature of business right acquired on account of issue of equity shares free of cost to M/s. RSMML by incorrectly holding that mining lease transfer deed does not involve payment of any consideration ignoring that the transfer of equity shares to M/s. RSMML without consideration is a consideration in itself for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed. 1.2 The Ld. CIT (A), NFAC has erred on facts and in law in not allowing the alternate claim of assessee that surface rights being acquisition of intangible asset is otherwise eligible for depreciation. 2. The appellant craves to alter, amend and modify any ground of appeal. 3. Necessary cost to be awarded to the assessee. 2. Assessee company was incorporated on 19.01.2007 as a Joint Venture Company (JV) under the Companies Act, 1956 with M/s. Rajasthan State Mines and Minerals Ltd. (RSMML) (a Government of Rajasthan Undertaking) and M/s. Raj West Power Limited (RWPL) as shareholders (in the ratio of 51:49 voting power) to carry out lignite mining activities at Kapurdi and Jalipa at Barmer District for captive use of lignite based thermal power plant of M/s. RWPL. It is thus a subsidiary of M/s. RSMML and therefore, a Government Company. The assessee commenced its lignite mining activities from October, 2011 at Kapurdi Mines. 3. The Government of Rajasthan (GOR) decided to allow power projects in the private sector and invited international competitive solicitations for setting up a lignite mining cum thermal power project at village Jalipa and Kapurdi, District Barmer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JV company with no financial liability on it. Further, the authorized share capital of the JV Company shall be Rs. 120 crores and the initial paid up capital shall be Rs. 20 crores. The remaining promoter contribution would be brought in by way of unsecured subordinate loans or other instruments as per the approval of the lenders to the project. 7. In compliance with the JV agreement, the assessee company was formed as JV Company wherein 51% holding is of M/s. RSMML and 49% is of M/s. RWPL. M/s. RSMML in compliance of its responsibilities under JV agreement and obligations of GOR under IA, executed many actions in respect of Kapurdi Mining Project such as applying and obtaining for mining lease and its subsequent transfer of user right to JV company for a period of 30 years, acquisition of land under the Land Acquisition Act, environmental clearance from Ministry of Environment & Forest (MOEF), getting NOC from GOR for carrying out mining activity by JV company, etc. M/s. RSMML was also taking necessary steps during A.Y. 2012-13 to secure another lignite mining lease at Village Jalipa, Barmer which is also transferred to assessee with associated rights following the same process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rights referred in this provision are that which are granted by the Government authorities only whereas the right acquired in normal course of business are not eligible for depreciation under this provision. Accordingly AO disallowed the claim of amortization. 11. The Ld. CIT (A) discussed this issue at Para 5, Page 7-16 of its order wherein after verbatim reproducing the set aside assessment order for A.Y. 2012-13 at Pg 7-12, it held at Para 5.1 that in view of the observation of AO, the claim of assessee is not found to be justifiable and thus upheld the order of AO. 12. In view of the facts it is unchallenged facts that to carry on mining operation the assessee company which is a joint venture between M/s. Rajasthan State Mines and Mineral Ltd., RSMML, (Govt. of Rajasthan under taking) and M/s. Raj West Power Ltd. (RWPL) Paid charges to the owners of land so that minerals i.e. lignite can be extracted for a period of 30 years. It is also observed that the owner ship of land will not be transferred to the assessee or the joint venture partner, i.e. M/s. Raj West Power Ltd. (RWPL). In view of this, the rights of extraction of lignite by the assessee are in the nature of mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 group of associated minerals : Provided that there shall be excluded from such expenditure any portion thereof which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure. (3) Any expenditure- (i) on the acquisition of the site of the source of any mineral or group of associated minerals referred to in sub-section (2) or of any rights in or over such site; (ii) on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or (iii) of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 32, Shall not be deemed to be expenditure incurred by the assessee for any of the purposes specified in sub-section (2). (4) The deduction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under this section is claimed, the report of such audit by that date] in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (7) Where the undertaking of an Indian company which is entitled to the deduction under sub- section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation- (i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place. (7A) Where the undertaking of an Indian company which is entitled to the deduction under sub- section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of demerger,- (i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous year in which the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resents deferred interest or not. That may depend upon the totality of circumstances relating to the issue of debentures, including its terms. The liability, to pay the discounted amount over and above the amount received for the debentures, is a liability which has been incurred by the company for the purposes of its business in order to generate funds for its business activities. The amounts so obtained by issue of debentures are used by the company for the purposes of its business. This would, therefore, be expenditure. In the light of the ratio laid down by the Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) liabilities incurred for the purpose of obtaining the loan would be revenue expenditure. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3 lakhs in that accounting year. This conclusion was not justified looking to the nature of the liability. It was true that the liability had been incurred in the accounting year. But the liability was a continuing liability which stretched over a period of 12 years. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the expenditure on road had been incurred for facilitation of routine operations and smooth functioning of transport system. These roads had been constructed on the Government land. No new asset had been acquired by the assessee. It was held in the case of Hindustan Machine Tools Ltd. v. CIT [1989] 175 ITR 220 /[1988] 40 Taxman 43 (Kar.) that the construction of the road which was not the property of the assessee was undoubtedly connected with and advantageous to the business activity of the assessee. Though it conferred upon the assessee an enduring advantage for the benefit of its business, it did not secure to the assessee any tangible, or intangible asset and further the enduring advantage gained by the assessee was chiefly to facilitate the assessee's business operations with greater efficiency and profitability without touching fixed capital of the assessee and there was no addition to or expansion of the profit- making apparatus. Keeping in view, the discussion above the Bench declined to interfere with the order of the Commissioner (Appeals) on this ground also." 17. Moreover, the similar issue has been discussed and allowed by the same bench for A.Y.s 2016-2017 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts of M/s. RSMML in its annual report for F.Y. 12-13 (PB 64) where it disclosed that it has not treated the amount received from the assessee for acquiring the mining right for the assessee as its asset or liability in the financial statements but since the title of land at Kapurdi is mutated to M/s. RSMML Ltd., the same is shown at a nominal value of Rs. 1 in its balance sheet. This fact is also confirmed by M/s. RSMML vide letter dt.10.07.2018 (PB 65-68). The AO at para 3.3 of its order for A.Y. 2012-13 has accepted that no benefit has accrued to M/s. RSMML in respect of the said land. Thus, when this fact is on record and not disputed by the AO read with the direction of the coordinate bench, the claim of amortization of surface rights are allowable. Hence by not following the direction of coordinate bench, addition confirmed by both the lower authorities is illegal & bad in law and therefore, the same be directed to be allowed. In these terms Ground Nos. 1 (with its sub-grounds) vide ITA No. 457/JP/2023, Ground Nos. 1, 2 and 3 vide ITA No. 458/JP/2023 and Ground Nos. 1 (with its sub-grounds) vide ITA No. 458/JP/2023 are allowed. 19. Ground No. 2 vide ITA No. 457/JP/2023 pert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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