Bangalore ITAT Allows Mine Development Expenditure as Revenue Expense; Deletes Double Addition

Southwest Mining Ltd. Vs DCIT (ITAT Bangalore)

Bangalore ITAT Allows Mine Development Expenditure as Revenue Expense; Deletes Double Addition

The Bangalore ITAT held that mine development and overburden removal expenses incurred by a mining contractor are allowable as revenue expenditure under Section 37(1) and are not governed by Section 35E. The Tribunal noted that Southwest Mining Ltd. was merely a mining contractor engaged by Barmer Lignite Mining Company Ltd. and neither owned the mines nor the lignite extracted. Following its own decision in the assessee’s earlier year, the Tribunal observed that overburden removal is an integral and recurring part of the mining process and does not result in acquisition of any capital asset or enduring benefit. Therefore, the expenditure could not be forced into the amortisation provisions of Section 35E merely because it related to mining activities. The Revenue’s appeal challenging the allowance of mine development expenditure was accordingly dismissed.

In the assessee’s appeal, the Tribunal found that the CIT(A) had allowed only the net mine development expenditure of ₹5.33 crore while simultaneously confirming taxation of ₹11.09 crore received from lignite excavation during the development period. This resulted in a double addition of the same amount. Accepting the position of both parties, the Tribunal directed the Assessing Officer to delete the duplicate addition of ₹11.09 crore. Further, regarding an additional claim under Section 40(a)(ia), the Tribunal held that expenditure disallowed in an earlier year for non-deduction of TDS becomes allowable in the year in which tax is deducted and deposited. It therefore restored the matter to the Assessing Officer for verification and directed allowance of the deduction if the conditions were satisfied.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These are cross-appeals filed by both parties for assessment year 2012-13 against the order of the National Faceless Appeal Centre, Delhi, dated 25 June 2025. In that order, the assessee’s appeal against the assessment order passed under section 143(3) of the Income Tax Act, 1961, dated 27 February 2015 by the Deputy Commissioner of Income Tax, Circle 6(1)(2), Bengaluru, was partly allowed. Aggrieved by the order, both parties are in appeal.

2. At the commencement of hearing both the parties submitted that these appeals are not related to mining issue which is covered as illegal mining by the Hon. Supreme court, but is issue of mine in Rajasthan where the only issue is about deduction of mining expenses. therefore these appeals were heard separately.

3. In ITA No. 1896/Bang/2025, the Assessing Officer has challenged the deletion of the addition of ₹51.33 crores claimed as mine development expenditure under section 37(1), which was not routed through the profit and loss account. The Revenue contends that the CIT(A) erred in treating the expenditure as revenue in nature, particularly when the assessee had reflected the mine development expenditure as an asset in its balance sheet and disclosed in the notes to accounts that such expenditure would be amortised upon commencement of commercial production. According to the Revenue, this treatment indicates the assessee’s own understanding that the expenditure was capital in nature and was covered by section 35 E of the Act.

4. The assessee has also filed ITA No. 1830/Bang/2025. The issues raised in that appeal are as follows:

a. The CIT(A) erred in confirming the Assessing Officer’s action of treating ₹11,09,96,181, being the amount realised during the mine development period, as business income without properly considering the facts and circumstances of the case.

b. Without prejudice to the above, the CIT(A) ought to have allowed relief in respect of the gross mine development expenses of ₹16,43,69,007, instead of restricting the relief to the net mine development expenses of ₹53,33,73,544.

c. On the facts and circumstances of the case and in law, the CIT(A) erred in not admitting and adjudicating the additional ground raised by the assessee during the appellate proceedings seeking allowance of mine development expenditure of ₹53,33,93,410 for assessment year 2011-12, which was not claimed in that year due to non-deduction of tax at source. The assessee contends that, once tax was deducted at source, the expenditure became allowable under section 40(a)(ia) of the Income Tax Act, 1961.

5. The assessee is a closely held public company engaged in mining, mining and raising contract operations, transportation, crushing, screening, and allied activities. It is a regular income-tax assessee. For assessment year 2012-13, the assessee e-filed its return of income on 27 September 2012, declaring nil income after setting off brought-forward business losses of Rs. 22,93,52,672 and paying tax under MAT on book profit of Rs. 24,64,02,844. The return was processed under section 143(1). Thereafter, the case was selected for scrutiny under CASS, and notices under section 143(2) were issued on 6 August 2013 and on subsequent dates.

6. The assessment was completed under section 143(3) of the Income Tax Act by determining total income at Rs. 36,10,26,754.

7. The issue in the Assessing Officer’s appeal concerns the assessee’s claim for mine development expenditure. The assessee received a Letter of Intent dated 30 December 2008 from Barmer Lignite Mining Company Limited, a Government of Rajasthan undertaking, appointing it as mine operator, and the arrangement was formalized by agreement dated 28 December 2010. Under the agreement, the assessee acted only as a lignite excavation contractor and neither owned the mines nor the extracted mineral. The contract, effective from 1 April 2010 for 30 years, fixed the excavation price at Rs. 1,055 per metric ton, subject to approval of the Lignite transfer price by the Rajasthan Electricity Regulatory Commission. During the year, the assessee incurred Rs. 16,43,69,725 on overburden removal. After adjusting revenue of Rs. 11,09,96,181 from lignite extracted up to completion of the initial mine cut, it capitalized the net amount of Rs. 5,33,73,544 in its books for amortisation over the contract period. In return of income, however, it claimed the same amount as revenue expenditure under section 37, contending that, as a contractor with no ownership or prospecting rights, the expenditure was incurred wholly for business and did not create any enduring capital benefit, particularly since it would be lost on termination of the contract.

8. During assessment, the Assessing Officer noted that Rajasthan State Mines and Minerals Ltd. and Rajasthan West Power Ltd. had formed Barmer Lignite Mining Company Ltd. to develop and operate lignite mines for supply to RWPL’s power plant. BLMCL later engaged the assessee to mine lignite from the Jalipa and Kapurdi mines in Barmer, Rajasthan, for 30 years from 1 April 2010. The assessee was to mine and deliver lignite as per the agreement, with the price linked to approval by the Rajasthan Electricity Regulatory Commission. For A.Y. 2012-13, the assessee claimed mine development expenditure of Rs. 16,43,69,725 under section 37, but the statement of income showed a net claim of Rs. 5,33,73,544 after reducing realizable income of Rs. 11,09,96,181 from lignite mined during the development period. The assessee clarified that presenting the figures on a gross basis did not alter the total income. Referring to the assessment for A.Y. 2011-12, the Assessing Officer held that the claim was not allowable under section 37 and was governed by section 35E. On the assessee’s work, the total available claim under section 35E was Rs. 30,95,56,673; however, section 35E (4) restricts the deduction to the lower of the prescribed instalment or the mining income, and the mining income was Rs. 8,74,46,054, the Assessing Officer restricted the deduction to that amount. By passing the assessment order, the Assessing Officer determined the assessee’s total income at Rs. 36,10,26,754.

9. The assessee preferred an appeal before the CIT(A), who noted that Rajasthan State Mines and Minerals Ltd. and Rajasthan West Power Ltd. had formed Barmer Lignite Mining Company Ltd. to develop and operate lignite mines for supply to RWPL’s power plant. BLMCL thereafter entered into an agreement with the assessee for mining lignite from the Jalipa and Kapurdi mines in Barmer, Rajasthan, for 30 years from 1 April 2010. Under the agreement, the assessee was to mine and deliver lignite of the specified quantity and calorific value, and its receipts were linked to the rate approved by the Rajasthan Electricity Regulatory Commission. For A.Y. 2012-13, the assessee claimed mine development expenditure of Rs. 16,43,69,725 under section 37. The statement of income, however, reflected a net claim of Rs. 5,33,73,544 after reducing realisable income of Rs. 11,09,96,181 from commercial mining during the development period. The assessee clarified that presenting the figures on a gross basis did not change the returned income. The Assessing Officer, following the assessment for A.Y. 2011-12, held that the claim was governed by section 35E and restricted the deduction to mining income of Rs. 8,74,46,054, being lower than the assessee’s section 35E claim of Rs. 30,95,46,673. The CIT(A) noted that a similar disallowance for A.Y. 2011-12 had been deleted and that the coordinate Bench of the Tribunal, in ITA No. 457/Bang/2023 and CO No. 4/Bang/2023 dated 8 February 2024, had decided the issue in favour of the assessee by allowing the expenditure under section 37 instead of section 35E. Respectfully following that decision, the CIT(A) allowed the net mine development expenditure of Rs. 5,33,73,544 under section 37 and allowed ground no. 1 of the assessee’s appeal.

10. The learned Departmental Representative, Shri Shivanand Kalakeri, relied on the assessment order and supported the disallowance. He submitted that the claim was rightly rejected because the expenditure was not routed through the profit and loss account and the assessee’s accounting treatment itself indicated that section 35E applied. He therefore contended that the CIT(A) erred in allowing the claim under section 37.

11. The learned authorised representative, Shri Rakesh Joshi, Chartered Accountant, supported the order of the CIT(A). He submitted that the CIT(A) had correctly followed the coordinate Bench decision in the assessee’s own case, which was reproduced and applied in the impugned order. He accordingly argued that the CIT(A)’s order called for no interference.

12. We have considered the rival submissions and examined the CIT(A)’s order. A similar disallowance of mine development expenditure under section 37 for assessment year 2011-12 was deleted by the CIT(A), and the Revenue’s appeal was dismissed by the coordinate Bench in ITA No. 457/Bang/2023. The issue was therefore decided in favour of the assessee, and the CIT(A) followed that decision for the year under appeal.

13. Having considered the Revenue’s arguments, we find that the ld. CIT (A) held that issue is squarely covered by the coordinate Bench decision in the assessee’s own case for assessment year 2011-12, where the claim for mine development expenditure under section 37 was allowed. The Coordinate Bench held as under :-

“8.4 Now we proceed to examine the provisions of section 37 of the Act. The following conditions have to be fulfilled to claim the expenditure u/s 37 of the Act:

1. The expenditure should not be of the nature described in S 30 to 36.

2. It should have been incurred in the accounting year.

3. It should be in respect of a business which was carried on by the assessee and should be incurred after the business is set up.

4. It should not be in the nature of personal expenses of the assessee.

5. It should have been laid out or expended wholly and exclusively for the purpose of such business.

6. It should not be in the nature of capital expenditure.

8.5 The contention of the ld. A.R. is that the assessee is a regular mining contractor and not an owner of any mines situated in Kapurdi or Jalipa Lignite Mines, so as to call it as a mining company not engaged in any operations relating to prospecting for, or extraction or production of, any minerals. As such, section 35E of the Act is not applicable to the assessee’s case.

8.6 Thus, the main question before us whether the expenditure incurred with regard to removal of overburden of mines is an expenditure u/s 35E of the Act or revenue expenditure u/s 37 of the Act. What is very crucial, however, is to appreciate the fact that overburden removal process is not a onetime process in one Lignite/Minerals/Ores site because even in between the Lignite/Minerals/Ores seams below the surface levels, there could be unrelated layers of soil or rocks which are required to be removed before one can reach the second or third coal seam, and because the same seam may be at different levels below the surface as it need not be parallel to the surface level all along.

8.7 In the present case, originally, M/s Rajasthan State Mines and Minerals Ltd and M/s Rajasthan West Power Ltd (RWPL), after entering into a Joint Venture Agreement in 2006 to develop and operate mines for supply of lignite to RWPL power plant, have incorporated M/s. Barmer Lignite Mining Company Limited (BLMCL) to carry out the said activities and perform the obligations as per the Joint Venture Agreement. Later, BLMCL, in turn entered into an agreement (hereinafter referred to as ‘the agreement’) with the assessee company, during the year under consideration, for carrying out mining operations for mining of lignite from Jalipa and Kapurdi Lignite Mines in Rajasthan for a period of thirty years with effect from 1-4-2010. Notably, before entering in to the agreement, unsatisfied with the report of the Geological Survey of India (GSI) given to BLMCL regarding reserves of lignite at the specified sites, the assessee engaged a private German agency M/s. Vattenfall Europe Mining AG, for the purpose of vetting the report of the GSI. After receipt of such a report to its satisfaction from the said agency which was paid a fee of Rs.2,61,67,491/-signed the agreement with BLMCL. As per the agreement the assessee is entitled to carry out mining operations and deliver, at the delivery point as per schedule, certain quantity of lignite of certain calorific value as given in the agreement. The rate of the lignite supplied will be determined by the Rajasthan Electricity Regulatory Commission (RERC) and thus, the amount receivable by the assessee will be determined on the quantity as well as quality of the lignite supplied to BLMCL. Like any other agreement, this agreement also had clauses of termination and remedies for resultant exigencies. In pursuance of the agreement, the assessee went ahead with excavation work at the given sites (i.e., Jalipa and Kapurdi in Rajasthan), entering into agreements with two concerns, viz., M/s. PC Patel & Company and M/s HD Enterprises for carrying out excavation work.

8.8 Thus, the assessee claimed the expenditure incurred in the process of excavation of a contract with BLMCL to the tune of Rs.2,87,72,03,599/- as a revenue expenditure u/s 37 of the Act. The same was disallowed by Id. AO as discussed in earlier para.

8.9 Now let us appreciate the fact that overburden removal process is not one time process in any mining site. Because Minerals or Ores always located below the surface level. There could be unrelated layers or soils or rocks, which are required to be removed before one can reach the mines and it need not be parallel to the surface level all along. According to assessee, it is not engaged in mining activities but as an excavation contractor of the mines to do the activities as stipulated in the agreement with BLMCL and assessee is not engaged in extraction and production of minerals or development of a mine for itself, as such, provision of 35(E) of the Act is not applicable. However, the Id. AO proceeds on this assumption that removal of overburden is an activity which take place prior to and only prior to extraction of lignite/minerals and ores and for this reason it is a capital expenditure to be written off over a period of 10 years u/s 35E of the Act

8.10 However, this fundamental factual assumption seems to be incorrect because, as the preceding discussions show, there are layers of material such as rocks and soil, between the two or more lignite/minerals/ores seams at the same place, which are required to be removed before lignite/minerals/ores can be extracted from the next lignite/minerals/ores seam level, and also because even to reach other segments of the same lignite/minerals/ores seam, which need not always be parallel to the surface, overburden is required to be removed. Overburden removal process does not, therefore, come to a halt upon reaching the lignite/minerals/ores level. Of course, there is a difference in the character of overburden removal expenses till the regular, lignite/minerals/ores extraction process starts vis-a-vis the overburden removal expenses after the regular lignite/minerals/ores extraction starts, and this approach is implicit in the accounting policy which treats the overburden removal expenses, till the point of time a mine is a development mine and the regular lignite/minerals/ores extraction on commercial basis has not yet started, as a capital expenditure.

8.11 In other words, entire expenses incurred on the overburden removal by excavation contractor, no matter what be the stage of lignite/minerals/ores extraction levels in that mine, are cannot be treated as capital expenditure. That would essentially lead to a situation that even when overburden removal is a part of the process of extracting the lignite/minerals/ores from the lower seams, such expenditure will still be treated as revenue expenditure. In the case of Kirkend Coal Co (77 ITR 530), Hon’ble Supreme Court had an occasion to adjudicate on the question as to whether or not the expenses incurred on stowing operations are capital expenses or revenue expenses and their observation is as under: “There is a factual finding that this expenditure has been treated as revenue expenditure as “stowing is an operation carried out in the process of extraction of coal and unless it is carried out extraction of coal is not possible irrespective of the fact whether depillaring has been done or not in this year”, and, on that basis, concluded that it has been rightly treated as revenue expenditure. It is, therefore, clear that when overburden removal is carried out in the process of extraction of coal and the extraction of coal is not possible without doing so, such overburden expenses is required to be treated as revenue expenses. Reverting to the facts of this case in this light, we find that once a mine has been treated as a revenue mine, the coal mining is clearly in progress because at least one of the three criterions has been met, ie. reaching the coal seam over two years ago, production having reached 25% of the rated capacity or the coal extraction revenue exceeding the expenses incurred, including the overburden removal expenses. In such circumstances, clearly that coal extraction is taking place and yet further overburden is required to be removed for continuing with lignite/minerals/ores extraction. Such overburden removal can only be in the process of extraction of coal and further coal protection is not possible unless that overburden is removed. Given the nature of expenses, in the light of the foregoing discussions, such an inference is clearly incorrect and unsustainable in law.”

8.12 In the present case in hand, the Id. CIT(A) has stated that Section 35E of the Act was introduced to deal with amortisation of expenditure on prospecting and developing of certain minerals and the very purpose of this section was to address the treatment to be given for expenses relatable to development of a mine. In the instant, the A.O. has invoked the provisions of this section considering the prevailing facts of the case. While the Assessing Officer observed that the overburden removal expenses to be considered in connection with Section 35E of the Act. However, the Id. CIT(A) proceeded on the basis that Section 35E governs treatment of any expenses which are relatable to development of a mine and the present assessee is not engaged in Development of mine as it is not owned by it and the assessee is only an excavation contractor only engaged in extraction of lignite ores from the mines owned by third party.

8.13 A plain reading of this section 35E of the Act reveals that this section applies to an assessee who is engaged in any operations relating to prospecting for, or extraction or production of, any mineral” but it applies only with respect to the expenditure specified in Section 35E (2). While the assessee fulfils the criterion so far as activity of the assessee is concerned, the question is whether overburden removal expenses on revenue mines can meet the criterion set out in Section 35E (2). Let us examine that aspect of the matter.

8.14 Section 35E (2), so far as relevant for our adjudication, provides that (a) the expenses should be incurred, after 31st March 1970, during the year of commercial production and any one or more of the four years immediately preceding that year; and (b) the expenses should be incurred wholly and exclusively on (i) any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Seventh Schedule; or (ii) on the development of a mine or other natural deposit of any such mineral or group of associated minerals. There are certain exclusion clauses but those exclusions are not relevant for the present purposes.

8.15 As regards the limitation placed in Section 35E (8), in our humble understanding, this limitation does not come into play unless the assessee, on his own, claims the deduction under section 35E and the deduction is granted to the assessee. It cannot, therefore, be open to the Assessing Officer to first thrust the deduction under section 35 E even though he does not seek the same, and then deny deduction in respect of qualifying expenditure under any other section, such as section 37(1), on the ground that the assessee has been granted a deduction under section 35 E and the limitation under section 35E (8) has thus come into play. In any event, section 35E (8) is clearly intended to avoid a double deduction rather than restrict an otherwise admissible deduction. It is only elementary that expenditure incurred by an assessee before commencement of his business is normally not deductible, and that, in the case of units engaged in production or extraction of any minerals etc., the business cannot ordinarily be deemed to have commenced unless the commercial production starts. It is in this backdrop that the scheme of Section 35 E needs to be understood. In our humble understanding, the provisions of Section 35 E are enabling provisions to allow deduction in respect of capital expenditure which is not otherwise deductible and these provisions cannot be put to use to restrict the deductibility of expenses which are anyway deductible. While explaining the scope of Section 35E (8),the CBDT circular no. 76 dated 19th March 1971, in paragraph 55, draws parity with Section 35D. Section 35D, as a plain reading of the section would show, comes into play in respect of eligible expenditure incurred by the assessee “(i) before the commencement of his business, or (ii) after the commencement of his business in connection with the extension of his undertaking or in connection with his setting up a new unit” which, as is the settled legal position, inadmissible for deduction as revenue expenses. This also indicates that Section 35 E belongs to the same genus as Section 35 D which allows deduction, though spread over a ten-year period, in respect of expenses which are not otherwise admissible for deduction.

8.16 The same principle, in our considered view, is equally applicable in the context of Section 35E as well. Therefore, as long as an expenditure is admissible for deduction under section 37, there cannot be any occasion to invoke Section 35E so as to force amortization of such an expenditure over ten years rather than allow it in the year of incurring the expenditure. What was meant to be a concession and what was intended to confer a benefit to the assessee, if such an approach is adopted, will end up becoming a disincentive and burden to the assessee. Section 35 E, as can be seen in the stand taken by the Central Board of Direct Taxes vide Circular no. 76 dated 19th March 1971, was meant to be a “benefit” and not a “restriction on the deductions available to the assessee”. While introducing this Section, the Central Board Direct Taxes had this to say:

“48. New s. 35E, also inserted by s. 8 of the Amending Act, provides for the amortisation of expenditure incurred wholly and exclusively on any operations relating to prospecting for the specified minerals or groups of associated minerals or on the development of a mine or other natural deposit of any such mineral or group of associated minerals. The minerals and the groups of associated minerals for the purposes of this provision have been specified in a new Seventh Schedule inserted by s. 58 of the Amending Act.

49. As in the case of preliminary expenses, amortisation in respect of expenditure on prospecting for, and development of, the specified minerals, will also be allowed only in the case of Indian companies and resident assessees other than companies. The benefit of amortisation (emphasis by underlining supplied by us) will not be available to a foreign company even if such company declares its dividends in India, and regardless of the pattern of its share- holding. It will also not be available to non-resident taxpayers generally.

50. The expenditure to be amortised under s. 35E will be the expenditure incurred under the specified heads after 31st March, 1970. during a 5-year period ending with the “year of commercial production”, i.e., the previous year in which, as a result of any operation relating to prospecting commercial production of any one or more of the specified minerals or associated minerals commences. The term “operation relating to prospecting” comprises operation undertaken for the purpose of exploring, locating or proving deposits of any mineral and in particular includes any such operation which turns out to be infructuous or abortive. Where the expenditure on prospecting for, or development of, the specified minerals is wholly or partly met directly or indirectly by any other person or authority, the amortisation will be admissible only in respect of the balance, if any, of such expenditure. Further, where any property or rights are brought into existence as a result of the expenditure and the assessee realises any sale, salvage, compensation or insurance moneys in respect of such property or rights, the amount so realised will be set-off against the expenditure and only the balance, if any, will be eligible for amortisation.

51. The following categories of expenditure are specifically excluded from the expenditure eligible for amortisation under s. 35E: (1) Expenditure on the acquisition of the site of the source of any of the specified minerals or groups of associated minerals or of any rights in or over such site. (2) Expenditure on the acquisition of the deposits of any of the specified minerals or groups of associated minerals or of any rights in or over such deposits. (3) Expenditure of a capital nature in respect of any building. machinery, plant or furniture for which allowance by way of depreciation is admissible under s. 32.

52. The amortisation of the qualifying expenditure will be allowed in equal instalments over a 10-year period against the profits arising from the commercial exploitation of any mine or other natural deposit of any of the specified minerals or associated minerals in respect of which the expenditure was incurred, not only where such commercial exploitation resulted from the operations of prospecting or development in question but also where commercial production had been established as a result of operations undertaken earlier. However, the amortisation will not be allowable against any other income of the assessee. Accordingly, it has been specifically provided that where the installment of amortizable expenditure relating to a given year cannot be wholly absorbed by the profit against which the amortisation is to be allowed, the unabsorbed amount shall be carried over to the subsequent year and added to that year’s instalments and so on for succeeding previous years. Such carry over will be allowed only up to and including the 10th previous year as reckoned from the year of commercial production. If there is any unabsorbed amount at the end of the 10th year, it will lapse.

53. As in the case of amortisation of preliminary expenses under s. 35D, the amortisation of expenditure on prospecting for, and development of. specified minerals is also subject to the requirements that, where the assessee is a person other than a company or a co-operative society, his accounts for the year or years in which the expenditure is incurred have been audited by a chartered accountant or other person and also subject to the requirement that the assessee furnishes along with his return of income for the first year in which the amortisation is claimed, the report of such audit in a form to be prescribed for the purpose, duly signed and verified by the chartered accountant or other person setting forth such particulars as may be prescribed.

54. The amortisation under s. 35E is also available only to the assessee who incurs the expenditure. However, in the case of an Indian company the benefit of amortisation (emphasis by underlining supplied by us) is preserved where the undertaking of the company is transferred to another Indian company under a scheme of amalgamation within the 10-year period of amortisation. In such an event, the amortisation of the outstanding instalments in respect of the previous year in which the amalgamation takes place and the remaining previous years of the 10- year period will be allowed to the amalgamated company and not to the amalgamating company.

55. As under s. 35D, it has been specifically provided in s. 35E (8) that where deduction under s. 35E is claimed and allowed for any assessment year in respect of any expenditure qualifying for amortisation, the expenditure in respect of which the deduction is so allowed shall not qualify for deduction under any other provision of the Act for the same or any other assessment year.

8.17 For the reasons set out above, in our considered view. deduction under section 37(1) could not be declined on the ground that the expenditure in question was eligible for deduction under section 35E. The deduction under section 35E is normally available in respect of the expenditure which is not eligible for deduction under section 37 (1) and just because the deduction under section 35E may be available in respect of an expenditure, even if that be so. cannot be reason enough to decline the deduction under section 37 (1). Of course, it is besides the fact that once the commercial production had commenced in the respective mines, there was no occasion to invoke the provisions of Section 35E in respect of any expenditure incurred in the years after the year of commercial production.

8.18 On the contrary to this, the ld. D.R. submitted that assessee in its annual accounts disclosing its accounting policies stated that mine development expenses as a deferred revenue expenditure and this will be written off as per the accounting policies disclosed once the company starts accounting revenue on this account of commencement of regular excavation of lignite.

8.19 In the present case, we have gone through the letter of intent and also various agreements entered by the assessee with Barmer Lignite Mining Company Ltd. The Assessee Company had received a letter of intent on 30/12/2008 for the appointment as Mine operator, for Kapurdi and Jalipa Mines, from Banner Lignite Mining Company Limited (hereinafter referred to. One of the terms of letter of intent is that the contract rates are subject to approval of the lignite transfer price by the Rajasthan Electricity Regulatory Commission (hereinafter referred to as RERC). To formalize the above said arrangement, the Assessee Company entered into agreement on 28/12/2010 with Barmer Lignite Mining Company Limited. The contract is for 30 years from the effective date 01/04/2010 subject however to the cancellation of the Contract by Barmer Lignite Mining Company Limited under certain circumstances. As per the terms of agreement, the Assessee Company has to fulfil various obligations ensuring the supply of lignite to the Banner Lignite Mining Company Limited. Further, as per the Clause No 3.4 of the said agreement it is very clear that the mines shall always be the exclusive and absolute property of the mine owner i.e Banner Lignite Mining Company Limited. Under the same clause, it is also clear that the lignite mined from the above said mines shall belong to owner namely Barmer Lignite Mining Company Limited. As per clause 5.2 of the said agreement, the contract price for each metric ton of lignite mined and dispatched having gross calorific value of 2693 kcal/kg is Rs.1.055/metric ton subject to revision depending upon the lignite transfer price fixed by the Rajasthan Electricity Regulatory Commission (RERC). During the previous year ending on 31.3.2011 Assessee Company excavated 1,39,740 tons of lignite equivalent to excavation-charges of Rs. 11.09 crores However, the Assessee Company was not able to raise any invoice on BLMCL as RERC had not approved the transfer price of the lignite till the year end. The ad-hoc approval of the lignite transfer price from RERC was received only in October 2011. Only thereafter, the Assessee Company could begin its invoicing. Ultimately, the excavation charges was on an ad-hoc basis fixed at Rs 832.81/metric ton. During the relevant previous year, the Assessee Company had incurred an expenditure relating to removing/clearing the overburden amounting to Rs.294,58,47,713/-. Out of the said expenditure, a sum of Rs 6,86,44,114/ was disallowed in the computation of income u/s 40A(ii) and 43B for non-deduction of TDS and non-payment of statuary dues during the year and a net sum of Rs 287,72,03,599/-was claimed as deduction being revenue expenditure incurred wholly and exclusively for the purpose of its business as mining contractor u/s 37 of the Act. As per the accounting policy of the company vide Note no 1.17 of notes to accounts the Assessee Company amortizes the Mining development expenditure in proportion of quantity of lignite mined vis-a-vis the total minable reserves. However, such amortization is not permissible under the Income Tax Act, 1961. It is now well settled that revenue expenditure is allowable in entirety in the year in which it is incurred though it is written off in the books over a period of years. Further, it is also well settled law that the treatment of any particular expenditure/income in the accounts has no bearing on the allowance or otherwise under the Act. Accordingly, the Assessee Company has claimed the said expenditure in the current year in which such expenditure is incurred u/s 37 of the Act.

8.20 Being so, in our opinion, assessee company cannot be called as a Mining Company as stipulated u/s 35E of the Act. As such, the impugned expenditure incurred by assessee cannot fall u/s 35E of the Act and it should be allowed u/s 37 of the Act. The accounts and accounting policies disclosed by assessee is under Company Act and for the purpose of computation of income of the assessee, which should be governed by Income Tax Act not under Company Act. As such, the Id. AO is not justified in holding that since the assessee has disclosed the accounting policies and its income to be recognized as per accounting policies disclosed in the financial statements is not justified. In other words, the accounting of the assessee is governed by Section 145 of the Act. If there is deviation from the method of accounting as per section 145 of the Act, the ld. AO should tinker the same. On the other hand, the ld. AO cannot rest upon the computing the income of the assessee under Company Act. In view of this, we uphold the order of Id. CIT(A) on this issue and dismiss the revenue’s appeal.

9. In the result, appeal of the revenue in ITA No. 457/Bang/2023 is dismissed.”

14. The coordinate Bench held that the assessee, being only a mining contractor and not the owner of the Kapurdi or Jalipa mines or Lignite, was entitled to deduction under section 37 for mine development and overburden removal expenditure incurred in its business. It held that overburden removal, when integral to extraction, is revenue in nature and is not governed by section 35E merely because it relates to mining activity. The Bench further held that section 35E only enables amortisation of otherwise non-deductible capital expenditure and cannot restrict a deduction otherwise allowable under section 37. It also rejected reliance on the assessee’s book treatment, observing that accounting entries do not determine deductibility under the Income Tax Act. Accordingly, it upheld CIT(A)’s order and dismissed the Revenue’s appeal.

15. Respectfully following the binding decision of the coordinate Bench in the assessee’s own case, we find no error in the order of the CIT(A). As the learned Departmental Representative has not brought any contrary decision or distinguishing fact on record, the Assessing Officer’s appeal cannot be sustained. Accordingly, both grounds raised by the Assessing Officer are dismissed.

16. In the result, the appeal filed by the Assessing Officer is dismissed.

17. In the assessee’s appeal, the following two grounds have been raised:

a. The CIT(A) erred in confirming the Assessing Officer’s action of treating ₹11,09,96,181, being the amount realised during the mine development period, as business income without properly considering the facts and circumstances of the case.

b. Without prejudice to the above, the CIT(A) ought to have allowed relief in respect of the gross mine development expenses of ₹16,43,69,007, instead of restricting the relief to the net mine development expenses of ₹53,33,73,544.

18. The learned authorized representative submitted that the receipt of ₹11.09 crore had been confirmed by the learned CIT(A). However, while allowing the expenditure, the CIT(A) allowed only ₹5.33 crore, being the net amount, instead of the gross mine development expenditure of ₹16 crore. Referring to paragraph 25 of the appellate order, he submitted that the addition of ₹11.09 crore was confirmed while deduction was restricted to ₹5.33 crore. According to him, allowing only the net expenditure and again treating the receipt of ₹11.09 crore as taxable resulted in a double addition. He therefore submitted that the addition deserved to be deleted.

19. The learned CIT-DR also accepted that, since only the net amount was allowed and the corresponding receipt was again brought to tax, there was a double addition to the extent of ₹11.09 crore.

20. We have considered the rival contentions and perused the orders of the learned CIT(A). We find that the learned CIT(A), in paragraph 6.5 of his order, allowed the claim as under:

“Respectfully following the decision of Hon’ble ITAT in appellant’s own case in AY 2011-12, the net mine development expenses to the tune of Rs. 5,33,73,544/- is hereby allowed u/s 37 of the Act. Ground no. 1 of appeal is allowed.”

21. The amount of ₹5,33,73,544 allowed by the CIT(A) represents the net mine development expenditure. For the assessment year under consideration, the assessee claimed deduction under section 37 in respect of gross mine development expenditure of ₹16,43,69,725. However, the statement of income reflected only the net claim of ₹5,33,73,544 after reducing realizable income of ₹11,09,96,181 from commercial mining of lignite during the development period. The assessee also submitted a computation showing the income of ₹11,09,96,181 and the mine development expenditure of ₹16,43,69,725 on a gross basis, without any change in the total income. Since the CIT(A) allowed only the net expenditure of ₹5,33,73,544 and separately confirmed taxation of the corresponding receipt of ₹11,09,96,181, the same resulted in a double addition to that extent. This position has also been accepted by both parties and is apparent from the record. We therefore direct the Assessing Officer to reduce the double addition of ₹11,09,96,181. Accordingly, grounds nos. 1 and 2 of the assessee’s appeal are allowed.

22. Ground no. 3 of the assessee’s appeal relates to the claim raised by way of an additional ground before the CIT(A). The assessee contended that certain mine development expenditure had been disallowed in an earlier year for non-deduction of tax at source; however, since the tax was deducted and paid to the credit of the Government during the year under consideration, the expenditure became allowable as a deduction in this year.

23. During the appellate proceedings, the assessee raised the following additional grounds before the CIT(A), which were dealt with by the CIT(A) as under:

“1. The learned Assessing Officer ought to have allowed Mine development expenditure of Rs. 5,39,93,410/- of AY 2011-12 not claimed in the previous assessment year due to non-deduction of TDS now claimed as the TDS has been made.

2. The learned Assessing Officer failed to appreciate that said expenditure is allowable as per section 40(a)(ia) of the income Tax Act, 1961.

The appellant has simply submitted that by oversight while raising the grounds of appeal, the enclosed “additional grounds of appeal” were omitted to be raised in original form 35 dated 30.03.2015. As per provisions of section 250(5) of the Act, additional grounds may only be admitted if the appellant satisfies the appellate authority that there was a reasonable cause which prevented the raising of such grounds at the time of filing the appeal. In the present case, no cogent or reasonable explanation has been provided by the appellant for the delay in raising these grounds. Further, the appellant has not submitted any evidence that it has already exhausted remedies available to it as per the Income-tax Act, 1961. Also, the raised Additional Ground of Appeal is not a legal issue. The appellant has also failed to show the reason as to why this claim was not made at the time of filing of ITR. But in the interest of natural justice, an opportunity was given to the appellant vide notice dated 20.06.2025 asking for written submission and documentary evidence in support of additional grounds of appeal and the date of hearing was fixed on 24.06.2025. However, the appellant has not filed any response till date. Therefore, in the absence of any sufficient cause or justification and documentary evidence, the admission of such additional grounds would not be in consonance with the principles of natural justice and fair appellate procedure. Accordingly, the request for admission of additional grounds is declined u/s 250(5) of the I.T. Act, 1961”

24. The assessee has filed copies of the computation of total income for the year in which the disallowance was made, details of taxes deducted and paid during the year under consideration, the relevant annual accounts, and the tax audit report. These documents are based upon to show that tax was deducted at source and paid to the credit of the Government during the present year, and that the corresponding expenditure is therefore allowable this year. We find merit in the assessee’s claim that an amount disallowed in an earlier year for non-deduction of tax at source becomes eligible for deduction in the year in which tax is deducted and deposited with the Government. The amount disallowed in the earlier year is ₹5,39,93,410. On verification of the computation of total income for the earlier year, it is apparent that the assessee had disallowed the said sum for non-deduction of tax at source. In the computation for the current year, the assessee has claimed the same amount as deduction. The CIT(A) did not admit the additional ground. However, the CIT(A) was required to consider and allow the deduction in accordance with law. We therefore reverse the order of the CIT(A) on this issue and restore the matter to the file of the Assessing Officer for verification. The assessee shall demonstrate that the amount disallowed in the earlier year under section 40(a)(ia) is allowable in the present year on account of deduction and deposit of tax at source. The Assessing Officer is directed to verify the claim and, if found in order, allow deduction of ₹5,39,93,410 to the assessee.

25. Accordingly, ground no. 3 of the assessee’s appeal is allowed for statistical purposes with the above direction.

26. In the result, the assessee’s appeal is partly allowed.

Order pronounced in the open court on 23^rd June 2026.