Non-prospecting related expenditure incurred prior to commencement of mining is deductible u/s. 37 of the Income-tax Act

De Beers India Prospecting Pvt. Ltd. Vs. Income Tax Officer (ITAT Mumbai)- it was held that prospecting and examining are important activities to undertake mining. Accordingly, it can be concluded that the taxpayer had commenced its business from the time it started the prospecting activity and therefore, non-prospecting related expenditure is deductible under Section 37 of the Income-tax Act, 1961 (the Act) even though it was incurred prior to commencement of mining.

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

De Beers India Prospecting Pvt.Ltd Vs. Income Tax Officer
ITA No. 40/Mum/2006 and ITA Nos. 6193 & 86/Mum/2007 – (Assessment Years: 2001- 02 to 2003- 04)

De Beers India Surveys Pvt.Ltd. Vs. Income Tax Officer
ITA Nos. 6560 & 6561/Mum/2007 (Assessment Years 2001- 02 & 2003- 04)

De Beers India Minerals Pvt.Ltd. Vs. Income Tax Officer

ITA No. 6562/Mum/2007 – (Assessment Year 2003-04)

Date of Pronouncement: 16/12/11

ORDER

Per B. Ramakotaiah, A.M.

All these appeals are filed by assessees in respective Assessment Years from 2001-02 to 2003-04. These companies are the subsidiary companies of De Beers Mauritius Ltd which commenced its operations after getting approval from the Foreign Investment Promotion Board (FIPB) with reference to prospecting and mining of diamonds and other minerals (except coal and iron ore). Now all these companies have merged and known as De Beers India Private Limited. The lead order was passed in Assessment Year 2002-03 in ITA No.40/M/2006, the findings of which are the basis for reopening the other assessments in various assessee’s cases. The main issue is with reference to allowance of expenditure claimed by the assessee, disallowed by the Assessing Officer on the reason that the assessee has not commenced the business in the year under consideration. Since the lead order was in Assessment Year 2002-03, the facts and grounds are discussed elaborately in that appeal.