Tungabhadra Minerals Pvt. Ltd. Vs JCIT (ITAT Panaji Bench)
Rule 8D Cannot Average Two Zeros Into A Disallowance—Afforestation Is Revenue, Old Creditors Are Not Dead & Temporary Sheds Get 100% Depreciation
Mining company contests four additions
The assessee was engaged in mining, processing, trading & export of minerals and ores, with mining leases in Karnataka.
For AY 2011-12, it declared income of ₹62.34 crore. The AO completed scrutiny assessment after making, among others, disallowances u/s 14A, disallowance of afforestation expenditure, addition u/s 41(1) & denial of 100% depreciation on temporary mine sheds.
Similar disputes concerning sections 14A & 41(1) arose for AY 2012-13.
The CIT(A) confirmed the additions, leading to the appeals before the ITAT.
Rule 8D cannot replace the first & last day
For AY 2011-12, the AO made a disallowance of ₹14,93,750 u/s 14A r/w Rule 8D. For AY 2012-13, the corresponding disallowance was ₹19,22,548.
The assessee argued that no valid dissatisfaction had been recorded regarding its claim. It also pointed out that there was no investment appearing either on the first or last day of the previous year. Investments in mutual funds were made & redeemed during the year itself.
Under the then applicable Rule 8D(2)(iii), administrative expenditure had to be computed at 0.5% of the average value of investments appearing in the balance sheet on the first & last day of the previous year.
Since both opening & closing investment balances were nil, the prescribed average was also nil.
The AO nevertheless selected investments existing during the first two & last two days on which investments were held & computed the disallowance. The Tribunal held that this amounted to inventing a computation method which Rule 8D did not prescribe.
The amended Rule 8D notified on 02.06.2016 could not be applied retrospectively. Relying upon CIT v. Essar Teleholdings Ltd. [2018] 401 ITR 445 (SC) & Bosch Chassis Systems (India) Pvt. Ltd. v. ACIT, the ITAT deleted the section 14A disallowances for both years.
Planting trees does not plant a capital asset
For AY 2011-12, the assessee claimed ₹37,34,276 towards afforestation activities, including supply & plantation of saplings, tree enumeration & embankment work in the valley.
The AO treated the expenditure as capital, reasoning that it produced an enduring benefit & assisted the assessee in carrying on mining operations.
The ITAT noted that identical expenditure had been allowed by the CIT(A) for AY 2008-09 & the Revenue had not challenged that decision. No similar disallowance was made in AY 2012-13.
More importantly, the jurisdictional High Court in DCIT v. Timblo Pvt. Ltd., Tax Appeal No. 66/2012, had held that such expenditure was incurred out of commercial expediency & was not capital in nature.
The Tribunal also relied upon Sharp Business System v. CIT [2026] 484 ITR 509 (SC) for the proposition that every expenditure yielding an enduring benefit does not automatically become capital. Capital treatment ordinarily requires creation of a new asset or an addition to the profit-earning apparatus.
Afforestation expenditure created neither. The entire amount was therefore allowed as revenue expenditure.
Old creditors do not expire merely because confirmations are missing
The AO added outstanding liabilities of ₹2,07,41,424 for AY 2011-12 u/s 41(1) because confirmations from the creditors were not furnished.
The CIT(A) was influenced by the fact that the assessee subsequently wrote back portions of those liabilities & offered them to tax. According to him, the later write-back indicated that the liabilities had already ceased during the year under appeal.
The ITAT disagreed. Following J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34, it observed that remission or cessation requires a legally recognisable event, such as:
- The creditor becoming unable to enforce the liability coupled with the debtor’s unequivocal refusal to honour it;
- A contract extinguishing the liability; or
- Actual discharge of the debt through payment.
None of these events occurred during AY 2011-12. The liabilities continued to appear in the balance sheet & no material showed that they had ceased during the relevant year.
A later write-back belongs to the later year
The assessee had written back ₹1.17 crore in April 2013 & another ₹25.27 lakh in 2018. Those amounts were offered to tax in the respective subsequent years.
Following Salgaocar Mining Industries Pvt. Ltd. v. JCIT, the Tribunal held that a write-back in a later year cannot be transported backwards to establish cessation in an earlier year.
Further, failure to produce confirmations does not by itself prove cessation, as recognised in CIT v. Alvares & Thomas [394 ITR 647 (Kar.)].
For AY 2012-13, the addition u/s 41(1) was ₹40,25,686. Substantial amounts had either been subsequently paid or written back & offered to tax. Applying the same principle, the Tribunal deleted the addition for that year as well.
Iron-sheet shed is not a permanent building
The assessee claimed 100% depreciation on temporary mine sheds, resulting in a disputed amount of ₹19,73,358 for AY 2011-12.
The structures consisted of iron sheets rather than RCC roof slabs & were erected as temporary site facilities, including offices, stores, workshops & canteens. A Government-approved valuer certified their temporary character at the Mangalore & Padur project sites.
The sheds were subsequently demolished after completion of the projects. Considering their construction, purpose & limited life, the ITAT held that they were purely temporary structures eligible for 100% depreciation.
Decision
- For AY 2011-12, the ITAT:
- Deleted the ₹14.94 lakh disallowance u/s 14A;
- Allowed ₹37.34 lakh afforestation expenditure as revenue expenditure;
- Deleted the ₹2.07 crore addition u/s 41(1); &
- Allowed 100% depreciation of ₹19.73 lakh on temporary mine sheds.
Certain grounds concerning closing-stock valuation were dismissed as not pressed. The appeal was accordingly partly allowed.
For AY 2012-13, the Tribunal deleted the ₹19.23 lakh section 14A disallowance & ₹40.26 lakh addition u/s 41(1). That appeal was allowed.
Cases Discussed
- CIT v. Essar Teleholdings Ltd. [2018] 401 ITR 445 (SC)
- Bosch Chassis Systems (India) Pvt. Ltd. v. ACIT, ITA No. 1387/PUN/2025, dated 20.04.2026
- DCIT v. Timblo Private Limited, Tax Appeal No. 66/2012, dated 05.11.2012
- Sharp Business System v. CIT [2026] 484 ITR 509 (SC)
- J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34
- Salgaocar Mining Industries Pvt. Ltd. v. JCIT, ITA No. 118/PAN/2016, dated 05.10.2023
- CIT v. Alvares & Thomas, 394 ITR 647 (Kar.)
- CIT v. Tamilnadu Warehousing Corporation, 292 ITR 310 (Mad.)
- Aircel Cellular Ltd. v. CIT, 45 taxmann.com 55 (Guj.)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PANAJI BENCH
The captioned appeals at the instance of assessee pertaining to A.Yrs. 2011-12 and 2012-13 are directed against the separate orders framed by ld.CIT(A), Panaji-2 arising out of respective Assessment Orders passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. Identical grounds have been taken by the assessee in these appeals we therefore proceed to dispose of these appeals by this consolidated order for the sake of convenience.
3. We will first take up ITA No.141/PAN/2025 for A.Y. 2011-12.
4. Facts of the case in brief are that the assessee is a Private Limited company engaged in the business of Mining, Processing, Trading and Export of minerals and ores and mining leases in the State of Karnataka. Income of Rs.62,34,36,520/- declared in the return of income for A.Y. 2011-12 furnished on 29.09.2011 which has been processed u/s.143(1) of the Act on 20.01.2012 assessing the total income at Rs.62,44,75,130/-. Case selected for scrutiny as per the CDBT Guidelines followed by validly serving statutory notices u/s.143(2) and 142(1) of the Act. Assessee furnished reply to the questionnaire issued along with notice u/s.142(1) of the Act. Ld. Assessing Officer concluded the assessment proceedings making various disallowances including disallowance u/s.14A, addition u/s.41(1) of the Act, disallowance of 100% depreciation on Mine Shed etc. and assessed the income at Rs.65,27,95,960/-. Aggrieved with the additions assessee preferred appeal before ld.CIT(A) but failed to succeed. Now the assessee is in appeal before this Tribunal by raising the following grounds:
“1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining the disallowance of Rs. 14,93,750 made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Income-tax Rules.
2. In doing so, the learned CIT(A) inter alia failed to appreciate that the Assessing Officer could not have resorted to the computation under Rule 8D as he had not recorded a valid dissatisfaction with the claim of the Appellant having regard to its accounts.
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining the disallowance of Rs. 37,34,276 made by the Assessing Officer on account of afforestation charges.
4. In doing so, the learned CIT(A) erred in holding that the Appellant had made payment towards the Net Present Value (NPV), when no such payment was made by the Appellant during the relevant previous year.
5. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining the addition of Rs. 2,07,41,424 made by the Assessing Officer under section 41(1) of the Act.
6. In doing so, the learned CIT(A) inter alia erred in observing that the Appellant had not furnished evidence to show that such creditors were written back and offered to tax in the subsequent year.
7. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining the disallowance of depreciation of Rs. 19,73,358.
8. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining the addition of Rs. 3,78,022 made by the Assessing Officer on account of valuation of closing stock.
9. Without prejudice to the above, the learned CIT(A), having sustained the aforesaid addition, erred in not directing the Assessing Officer to make a corresponding adjustment to the value of the opening stock of the subsequent previous year.
10. The order passed by the learned CIT(A) is in gross violation of principles of natural justice inasmuch as it has been held that the Appellant has not filed several details, when such details were never sought from the Appellant to begin with.
11. On the facts and in the circumstances of the case, the learned CIT (A) failed to consider that the returned income of the Appellant is Rs.
12. Each of the above grounds are mutually exclusive, independent and without prejudice to each other. The Appellant craves leave to add, alter, modify or amend any of the ground(s) / sub-ground(s) of the appeal
5. At the outset, ld. Counsel for the assessee requested for not pressing the Grounds of appeal Nos. 8, 9 and 11 and therefore the same are dismissed as ‘not pressed’.
6. So far as remaining grounds of appeal are concerned, ld. Counsel for the assessee vehemently argued referring to the detailed written submissions as well as placing reliance on plethora of decisions appearing in the case law paper book running into 256 pages as well as paper book running into 376 pages and the same will be dealt along with the issues in the subsequent paras.
7. On the other hand, ld. DR vehemently argued supporting the order of ld.CIT(A).
8. We have heard the rival submissions and perused the record placed before us and carefully gone through the decisions referred and relied on by both the sides. The issue for consideration raised in Ground Nos. 1 and 2 relates to disallowance u/s.14A of the Act at Rs.14,93,750/-.
9. Ld. Counsel for the assessee has made multifold arguments challenging the said disallowance firstly that ld. Assessing Officer failed to record proper satisfaction as mandated u/s.14A of the Act; secondly that ld. Assessing Officer erred in calculating the disallowance at 0.5% of the average value of investments without considering that there was no investment on the first and last day of the financial year; and thirdly that the investments made in the mutual funds for which the assesseeh as to pay the charges to the Fund Manager and there being no other expenditure incurred by the assessee. We observe that Rule 8D prior to the amendment effective from 02.06.2016 contains three limbs of which first limb relates to expenditure directly related to earning of exempt income; second limb relates to interest disallowance is not applicable as no disallowance has been made; and third limb provides that an amount equal to 0.5% of the average value of investments, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. As per the wordings of the third limb of Rule 8D, it indicates that the investments appearing the balance sheet on the opening of the first day and the closing of the last day of the financial year needs to be averaged and then 0.5% is to be applied for calculating the disallowance. Admittedly, there is no opening and closing balance of investments as also verified by the ld. Assessing Officer. Ld. Assessing Officer has moved a step ahead and took the purchase of investments for the first two days and the last two days to calculate the disallowance under Rule 8D(2)(iii) which in our considered view is not the correct way of computing the disallowance under Rule 8D(2)(iii) because there is no opening and closing balance of investments and the method applied by the ld. Assessing Officer is not in accordance with the prescribed Rule 8D and therefore on this ground itself the impugned disallowance deserves to be deleted. Even otherwise, the amended Rule 8D applied by ld. Assessing Officer were notified on 02.06.2016 and Hon’ble Apex Court in the case of CIT Vs. Essar Teleholdings Ltd. (2018) 401 ITR 445 has held that amendment to Rule 8D is prospective which has been subsequently followed by this Tribunal in the case of Bosch Chassis Systems (I) Pvt. Ltd. Vs. ACIT in ITA No.1387/PUN/2025 dated 20.04.2026. Finding of ld.CIT(A) is reversed. Grounds of appeal No.1 and 2 raised by the assessee are allowed. Dealing with the other grounds challenging the disallowance u/s.14A of the Act are merely academic in nature which needs no adjudication.
10. Ground Nos. 3 and 4 raised by the assessee is against the disallowance of Afforestation charges at Rs.37,34,376/-. Assessee claimed the expenditure incurred towards supply and plantation of saplings, tree enumeration, embankment work at the valley as a Revenue expenditure. However, ld. Assessing Officer opined that the expenditure provides enduring benefit to the assessee, is non-recurring and results in acquiring the rights to perform mining and therefore not allowable as Revenue expenditure. On going through the submissions filed by the ld. Counsel for the assessee, we notice that similar expenditure was incurred during A.Y. 2008-09 which was disallowed by the Assessing Officer. Thereafter, ld.CIT(A) allowed the claim vide its order dated 21.02.2017 which has not been challenged by the Department and this attained finality. Even in the subsequent A.Y. 2012-13 no such disallowance has been made by the Assessing Officer. Further, Hon’ble Jurisdictional High Court in the case of DCIT Vs. Timblo Private Limited in Tax Appeal No.66/2012 dated 05.11.2012 where the Hon’ble Court dealing with very same issue has held that such expenditure incurred is for commercial expediency and therefore should not be treated as expenditure of capital in nature and affirmed the finding of the Tribunal. Further, reliance placed on the judgment of Hon’ble Apex Court in the case of Sharp Business System Vs. CIT (2026) 484 ITR 509 (SC) where the Hon’ble Court has held that every expenditure which results in enduring benefit cannot ipso facto become capital in nature. It is only those expenses which result in either the creation of a new asset or an addition to the profit earning apparatus that can be classified as capital in nature. In light of the above decisions, we are of the considered view that the expenditure incurred at Rs.37,34,276/- towards Afforestation charges during the year deserves to be allowed as Revenue expenditure. Finding of ld.CIT(A) is reversed and Grounds of appeal Nos. 3 and 4 raised by the assessee are allowed.
11. Ground Nos. 5 and 6 raised by the assessee are against the addition made u/s.41(1) of the Act at Rs.2,07,41,424/-. Ld. Assessing Officer alleges that there is cessation of liability as the sundry debtors appearing in the balance sheet totalling to Rs.2,07,41,424/- are not payable. Admittedly, the assessee failed to furnish confirmation from the alleged parties which is the main basis for the impugned addition made by the Assessing Officer. Even though the assessee has submitted before the lower authorities that in the subsequent period the amounts have been written off and offered to tax however it is held by ld.CIT(A) that the fact that assessee has written back the creditors in the subsequent year meant that liability stood remitted during the relevant year. During the course of hearing, ld. Counsel for the assessee submitted that the issue stands squarely covered by the decision of this Tribunal in the assessee’s own case in the group case namely Salgaocar Mining Industries Pvt. Ltd. Vs. JCIT in ITA No.118/PAN/2016 dated 05.10.2023. It is submitted that the amount for which addition u/s.41(1) of the Act been made has been subsequently offered to tax and also there was no material on record which could suggest that the alleged liabilities were not payable as on the date of closing of the financial year. Ld. Counsel for the assessee submitted that filing of confirmation is not required for the purpose of section 41(1) of the Act and that write off of the creditors in the subsequent years cannot be taken to mean that creditors had ceased during the relevant previous year itself and there has to be some material which would show that there is liability during the previous year under consideration. It is also submitted that the order of the Tribunal in the case of Salgaocar Mining Industries Pvt. Ltd. Vs. JCIT (supra) dated 05.10.2023 has not been subsequently challenged by the Department and therefore it has attained finality.
12. Here, we would like to take note of the judgment of Hon’ble Apex Court in the case of J.K. Chemicals Ltd. Vs. CIT (1996) 62 ITR 34 where the Hon’ble Court held that for the purpose of section 41(1) of the Act, remission of liability can only take place when one of the following three events happens during the year:
(i) When the liability becomes unenforceable at law by the creditor and the debtor declares unequivocally his intention not to honour his liability when payment is demanded by the creditor;
(ii) A contract is entered into between the parties to extinguish the liability;
(iii) By actually discharging the debt, i.e., by the debtor making payment thereof to the creditor.
13. In the present case, none of the events have happened and only for lack of confirmation from the parties, ld. Assessing Officer has made the addition. It is also not in dispute that in the subsequent period assessee has already written off the amount. Submissions of the assessee indicate that out of the alleged outstanding creditors of Rs.1,17,39,799/- were written back in April 2013 and an amount of Rs.25,27,246/- have been written back in 2018. We further take note of the decision of this Tribunal in the case of Salgaocar Mining Industries Pvt. Ltd. Vs. JCIT (supra) where the issue has been dealt as follows:
“9. We heard the rival submissions and perused the material on record. The issue in the appeal relates to the addition of Rs.7,07,68,721/- u/s 41(1) of the Act. On mere perusal of the assessment order, it would be clear that the Assessing Officer made addition of the said amount invoking the provisions of section 41(1) merely on the ground that the sundry creditors are outstanding for a period of long time and the assessee could not file the confirmations from the said parties.
On appeal before the ld. CIT(A), the Id. CIT(A) swayed away by the fact that these sundry creditors were written off and offered to tax in the subsequent assessment years.
On mere perusal of the provisions of section 41(1), it would be clear that the provisions of section 41(1) shall be attracted, in cases where there has been remission or cessation of liability during the year under consideration subject to the conditions that the expenses were allowed as deduction in the earlier years. Thus, the sin qua non is the remission or cessation of liability and the other requirement is that the some benefit in the form of allowance and expenditure was taken. In the present case, it is undisputed fact that the said credits are continued to be shown in the books of accounts are liability side of the Balance Sheet and there was no material on record to suggest that there was cessation of liability during the previous year relevant to the assessment year under consideration. Therefore, it cannot be said that the liability had ceased to exist in the light of the decision of the Hon’ble Madras High Court in the case of Tamilnadu Warehousing Corporation (supra). Further, the fact that the assessee could not file the confirmation letters from the creditors cannot be a ground to conclude that there was cessation of liability in the light of the law laid down by the Hon’ble Karnataka High Court in the case of CIT vs. Alvares & Thomas, 394 ITR 647 (Kar.). In the absence of any material on record suggesting that there was remission or cessation of liability during the previous year relevant to the assessment year under consideration, the outstanding creditors cannot be added to the total income in terms of provisions of section 41(1) of the Act. Reliance in this regard can be placed on the decision of the Hon’ble Gujarat High Court in the case of Aircel Cellular Ltd. vs. CIT, 45 taxmann.com 55 (Guj.). The Id. CIT(A) had fell in serious error in confirming the addition merely going by the fact that the assessee itself had written off of these sundry creditors and offered to tax in the subsequent years without appreciating the fact that there was no material on record suggesting that the cessation of liability took place during the year under consideration. Therefore, we reverse the findings of the Id. CIT(A) and direct the Assessing Officer to delete the addition of Rs.7,07,68,721/- made u/s 41(1) of the Act.”
14. On examination of the facts of the instant case in light of the above decision of this Tribunal and also considering the fact that assessee has subsequently written back the alleged sum and offered to tax in the subsequent years and that except for non-receipt of confirmation there is no other material on record brought by the Revenue authorities proving that the liability for the alleged sum ceased to exist, therefore, we are of the considered view that the decision of the Tribunal referred supra squarely applies on the facts of the instant case and therefore the impugned addition u/s.41(1) of the Act deserves to be deleted. Finding of ld.CIT(A) is reversed and Ground Nos. 5 and 6 raised by the assessee are allowed.
15. Ground No.7 raised by the assessee is against the disallowance of depreciation claimed at 100% on Mine Shed. We observe that the assessee spent cost on construction of the Mine Shed which was made of Iron sheets and not RCC roof slabs. Mine Sheet were even demolished after some time and is purely temporary structure and not a building made of concrete. We observe that during the course of assessment proceedings assessee has furnished certificate from the Govt. approved valuer certifying that they have inspected both Mangalore and Padur project sites and the assessee erected temporary construction/temporary site facilities for the completion of the projects and temporary structures relate to site offices, store, workshop and canteen. Considering these facts since only temporary structure has been made and the same has been demolished subsequently alleged claim of depreciation @100% deserves to be allowed. Finding of ld.CIT(A) is reversed. Ground No.7 raised by the assessee is allowed.
16. Remaining grounds are either being general or consequential in nature which needs no adjudication.
17. In the result, the appeal of the assesse for A.Y. 2011-12 is partly allowed.
18. Now we take up ITA No.142/PAN/2025 for A.Y. 2012-13. Assessee has raised following grounds of appeal
“1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining the disallowance of Rs. 19,22,548 made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Income-tax Rules.
2. In doing so, the learned CIT(A) inter alia failed to appreciate that the Assessing Officer could not have resorted to the computation under Rule 8D as he had not recorded a valid dissatisfaction with the claim of the Appellant having regard to its accounts.
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in sustaining the addition of Rs. 40,25,686 made by the Assessing Officer under section 41(1) of the Act.
4. On the facts and in the circumstances of the case and in law, the learned CIT(A) ought to have held that the Assessing Officer’s assertion that he reserves the right to take remedial action on the matter of illegal mining in the State of Goa was invalid and illegal inter alia for the reason that the Appellant’s mines are located in Karnataka, and not in Goa.
5. Each of the above grounds are mutually exclusive, independent and without prejudice to each other. The Appellant craves leave to add, alter, modify or amend any of the ground(s) / sub-ground(s) of the appeal.”
19. Ground Nos. 1 and 2 raised by the assessee relates to disallowance u/s.14A of the Act. As the facts pertaining to A.Y. 2012-13 are similar to the facts of A.Y. 2011-12 and that opening and closing balance of investment is Nil and investments made during the year in Mutual Funds/other funds have been redeemed during the year itself and since the issue has already been dealt by us in the appeal for A.Y. 2011-12 deciding in favour of the assessee holding that amendment in Rule 8D on 02.06.2016 is prospective in nature, our decision taken therein shall apply mutatis mutandis to this assessment year as well and the disallowance u/s.14A of the Act is uncalled for. Ground Nos. 1 and 2 raised by the assessee are allowed.
20. Ground No. 3 raised by the assessee is against the addition made by the Assessing Officer u/s.41(1) of the Act. This issue has also been dealt by us for A.Y. 2011-12 in preceding paras and here also facts are almost identical. Major amount of alleged sum has either been written off/subsequently paid. Out of the alleged sum of Rs.40,25,686/- outstanding amount payable to K. Raghunath, SGS India Private Limited and Nandeshwar Factories at Rs.3,76,893/-, Rs.14,41,375/- and Rs.3,16,966/- have been paid and proof of the same is enclosed at paper book page 148. Similarly, outstanding sum payable to the Datta Krupa Enterprises at Rs.3,49,444/- and Tirupati Udyog Limited at Rs.5,85,888/- have been written off and offered as Income in subsequent year. Therefore, our decision rendered in the A.Y. 2011-12 shall apply mutatis mutandis and the addition u/s.41(1) of the Act for A.Y. 2012-13 stands deleted. Ground No.3 raised by the assessee is allowed.
21. Other grounds are general and consequential in nature need no adjudication.
22. In the result, the appeal of the assessee for A.Y. 2012-13 is allowed.
23. To sum up, ITA No.141/PAN/2025 is partly allowed and ITA No. 142/PAN/2025 is allowed as per terms indicated hereinabove.
Order pronounced on 07th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963.
