ITAT BANGALORE BENCH ‘C’
Mysore Minerals Ltd.
versus
Assistant Commissioner of Income-tax, Circle 12(1), Bangalore
IT Appeal Nos. 679, 680 & 733 (Bang.) of 2010
and 350 & 351 (Bang.) of 2011
[ASSESSMENT YEARS 2004-05 TO 2006-07]
NOVEMBER 2, 2012
ORDER
Jason P. Boaz, Accountant Member
These are appeals by the assessee for Assessment Year 2004-05 and cross appeals of both the assessee and revenue for Assessment Years 2005-06 and 2006-07. Since common issues are involved, these appeals are being disposed off by way of common order for the sake of convenience.
ITA No. 679/Bang/2010 (Assessment Year 2004-05)
2. The facts of the case, in brief, are as under :
2.1 The assessee company (hereinafter referred to as ‘the assessee’) is a Govt. of Karnataka undertaking engaged in the business of mining of iron ore, other minerals and granite. The assessee had taken certain lands on lease from the State Govt for the purpose of mining of iron ore, etc. In the meanwhile, the Hon’ble Apex Court by orders date 30.10.2002 and 1.8.2003 in IA No.566 in Writ Petition (Civil) No.202 of 1995 in the case of T.N. Godavarman Tirumalpad v. Union of India held that in the matter of Compensatory Afforestation Fund, the user agencies are liable for payment of net present value for diversion of forest land for non-forest purposes under Forest (Conservation) Act, 1980. Pursuant to the said order the Ministry of Forest and Environment, Govt. of India, formed guidelines in accordance with which the assessee had to make payment of Rs. 5,02,59,000 to the said fund so as to be eligible to continue its mining activities. The payment of Rs. 5,02,59,000 was made by the assessee towards the net present value towards Compensatory Afforestation Planning & Managing Agency (CAMPA) during the period relevant to Assessment Year 2004-05. The assessee in its books of account wrote off the entire amount as revenue expenses and filed its return of income for Assessment Year 2004-05 on 1.11.2004 accordingly by declaring income of Rs. 2,87,22,404. The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. The assessee subsequently filed revised return of income on 13.1.2006 and 9.3.2006 declaring income of Rs. 49,221 and loss of Rs. 4,01,57,986 respectively. The Assessing Officer completed the assessment by an order under section 143(3) of the Income Tax Act, 1961 (herein after referred to as ‘the Act’) on 28.12.2006 assessing the income at NIL after setting off brought forward unabsorbed business losses of Rs. 49,220 for Assessment Year 2000-01. In this order, the Assessing Officer held that the expenditure of Rs. 5,02,59,000 towards net present value for CAMPA was capital expenditure as it was a one time payment, non-recurring and gave an enduring benefit to the assessee. In this view of the matter, the Assessing Officer held that the assessee was eligible to amortize the payment so made over a period of five years and allowed 20% of Rs. 5,02,59,000 by way of amortization for the impugned Assessment Year 2004-05.
2.2 Aggrieved by the order of assessment date 28.12.2006, the assessee went in appeal before the CIT(Appeals). The learned CIT(Appeals) while hearing the appeal came to the conclusion that the said expenditure of Rs. 5,02,59,000 was capital in nature. Further, the learned CIT(Appeals) was of the opinion that the entire amount required to be disallowed and no part of it was to be amortised either. The learned CIT(Appeals) issued a notice of enhancement of income assessed by withdrawal of the 20% of amortization allowed by the Assessing Officer and afforded the assessee an opportunity of being heard and to put forth its objections. After duly considering the objections put forth by the assessee, the learned CIT(Appeals) held that the expenditure was capital in nature and that there being no provision in the Act for amortization of the same, enhanced the assessed income for Assessment Year 2004-05 by disallowing the amortized amount of Rs. 1,00,51,800.
3. Aggrieved by the order of the learned CIT(Appeals) dt.25.3.2010 for Assessment Year 2004-05, the assessee is now before us. In the grounds of appeal raised, it has been contended that –
“1. The order of the authorities below in so far as it is against the appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant’s case.
2. The authorities below are not justified in law in treating an expenditure of Rs. 5,02,59,000 as capital expenditure and further failed to appreciate the fact that the expenditure incurred is in the nature of Revenue expenditure under the facts and circumstances of the case.
3. The learned CIT (Appeals) is not justified in law by making an enhancement to the income assessed by the learned Assessing Officer. Further, without prejudice, the learned CIT (Appeals) is not justified in law in directing the learned Assessing Officer not to allow amortization of expenditure without looking into the facts and circumstances of the case.
4. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
5. In the view of the above and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity.”
4. The grounds of appeal raised at S.Nos.1, 4 and 5 are general in nature and therefore no adjudication is called for thereon.
5.1 The only issue of dispute in this appeal at S.Nos.2 and 3 that needs to be decided in whether the payment of Rs. 5,02,59,000 on account of net present value towards CAMPA is in the nature of revenue expenditure or capital expenditure and if it is a capital expenditure whether amortization as granted by the Assessing Officer is to be allowed or not.
5.2 The learned counsel for the assessee, at the outset, supported the submissions in the grounds of appeal and in support thereof placed reliance on the decision of a co-ordinate bench of the ITAT, Bangalore in the case of Ramgad Minerals & Mining (P.) Ltd. v. Asstt. CIT in ITA No.1012(BNG)/2008 dt.9.4.2009, a copy of which was placed on record. He submitted that in that case, the very same issue of payment made for net present value to CAMPA was considered and the Bench had held that payment to of net present value to CAMPA was a revenue expenditure and not a capital expenditure which gave the assessee a benefit of enduring nature and had directed the authorities below to allow the same in the year in which it was incurred. Therefore, the learned counsel for the assessee submitted that this issue be allowed in favour of the assessee.
5.3 Per contra, the learned Departmental Representative supported the orders of the authorities below on this issue that the payments of net present value to CAMPA were capital expenditure and also on the enhancement of assessed income pursuant to the withdrawal of amortization of 1/5th of the expenditure of net present value to CAMPA.
5.4 We have heard both parties and carefully perused the material on record and the judicial decisions cited and placed reliance upon. We have perused the decision of the co- ordinate bench of this Tribunal in the case of Ramgad Minerals & Mining (P.) Ltd. (supra) and find that in the cited case too a similar/identical issue was considered on the payments made towards contribution for compensatory afforestation as per the direction of the Hon’ble Apex Court when the mines are exploited on forest land. The Hon’ble Tribunal in para 5 of its order held that the amount expended on this count was incurred as a revenue expenditure and was directed to be allowed in the year in which it was incurred. The operative part of the order in para 5 at pages 7 and 8 is extracted and reproduced here under :
“We find force in the submission of the learned counsel that payments to the government are to be paid once the mining lease is obtained and such payments are governed by various Acts along with the Apex Court making a ruling for State Governments to participate in the granting of mining lease by recovering compensation when their forests are uprooted. Therefore for this purpose, the funds are used for a natural regeneration which the assessee participates indirectly. Therefore at no point of time could it be said that the assessee had incurred a capital expenditure giving the assessee a benefit of enduring nature for the purpose of earning segmented income to render the same to income tax. In other words, the authorities below have not pointed out the income generated against the purported deferred Revenue expenditure so proposed by them in their impugned orders. The amount was incurred as a Revenue expenditure and is directed to be allowed in the year it has been incurred.”
Respectfully following the decision of the co-ordinate bench of the Bangalore Tribunal, in the case of Ramgad Minerals & Mining (P.) Ltd. (supra), we hold that the entire expenditure of Rs. 5,02,59,000 incurred by the assessee of net present value to CAMPA in the relevant period are to be allowed as revenue expenditure for Assessment Year 2004-05.
6. In the result the assessee’s appeal is allowed.
ITA Nos. 350 & 351/Bang/2011 (Assessment Year 2005- 06)
7. The above are cross appeals for Assessment Year 2005-06 by both the assessee and revenue against the order of the CIT(Appeals)-V, Bangalore date 28.1.2011.
8. The facts of the case, in brief, are as under :
8.1 The assessee, a Govt. of Karnataka undertaking engaged in the business of mining of iron ore, other minerals and granite filed its return of income for Assessment Year 2005-06 on 29.3.2006 declaring total income of Rs. 46,99,74,790. The return was processed under section 143(1) of the Act and the case was taken up for scrutiny. The assessment was completed by the Assessing Officer by an order under section 143(3) of the Act on 28.12.2007 determining the income of the assessee at Rs. 67,18,29,004 by making the following additions/disallowances :
