SALITHO ORES PVT. LTD,PANAJI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, PANAJI

The only issue for consideration is disallowance of Royalty expenditure at Rs.1,59,22,685/- and the interest paid on delayed payment of Royalty at Rs.78,73,785/-.

Brief facts of the case are that the assessee is a Private Limited Company and engaged in the business of Mining, Processing and Sale of Iron ore. Assessee declared loss of (-) Rs.1,68,26,007/- in the return of income for A.Y. 2010-11 e-filed on 15.10.2010. Case selected for scrutiny through CASS and assessment framed u/s.144 of the Act on 19.03.2013 assessing the income at Rs.5,13,38,353/-.

Aggrieved assessee preferred appeal before ld.CIT(A) but could not succeed as ld.CIT(A) held that non payment of Royalty on sale of rejection/waste dump was a decision taken by the assessee and there is no ambiguity of the applicability of the statutory provisions and therefore one cannot say that the liability to pay Royalty crystallised during the year and therefore the stand adopted by the assessee is against the principle of matching concept and not in accordance with Mercantile system of account and accordingly disallowed the Royalty payment as well as interest on delayed payment.

Aggrieved assessee is now in appeal before this Tribunal against the .

Ld. Counsel for the assessee vehemently argued referring to the written submissions filed before ld.CIT(A) as well as before this Tribunal forming part of the paper book running into 240 pages. He submitted that the assessee is into business of Mining, Processing and Sale of Iron ore and in the course of mining excavated lumps and fines and Royalty was paid on lumps and fines. As regards rejection of waste dumps which were sold, the assessee was under Bonafide belief that Royalty was not payable on rejections and therefore no provisions of Royalty on rejection was made in the earlier years. He submitted that during the year under consideration, the Mining Department called upon the assessee to pay Royalty on rejections and therefore the liability crystallised during the year. As regards the interest expenditure is concerned, it is neither a capital expenditure nor of personal in nature and is actually incurred wholly and exclusively incurred for the business and therefore allowable u/s.37(1) of the Act.

On the other hand, ld. DR supported the order of ld.CIT(A).

We have heard the rival submissions and perused the record placed before us. The only issue for our consideration is disallowance of Royalty expenditure paid towards the rejection/waste dumps sold by the assessee in the preceeding two financial years along with interest for late payment of Royalty. We observe that assessee is into Mining business and is regularly paying the Royalty on the mining excavated lumps and fines. During the year under consideration, the Director of Mines, Geology called upon the assessee to pay Royalty on rejection sold in the earlier years. Assessee is under the bonafide belief that for selling the rejections/waste dumps, Royalty is not payable. No demand was raised in the past on account of Royalty payable on such rejections/waste dumps. It is not in dispute that during the year under consideration itself, the demand has been raised for paying the Royalty on rejection in lumps for the preceeding two financial years as well as this year. Ld. Assessing Officer has allowed the claim for the Royalty paid for the rejections/waste dumps sold during the year but has denied the alleged Royalty payment for preceeding two financial years on the ground that they are prior period in nature.

We observe that Hon’ble High Court of Gujarat in the case of CIT Vs. Indian Petrochemicals Corporation Limited (2016) 74 taxmann.com 163 has held that the expenses quantified and paid during the year would be allowed as business expenditure in relevant assessment year even though the assessee follows Mercantile system of account. We find that facts are identical in the instant case also and that the liability to pay the alleged Royalty amount for F.Y. 2007-08 and F.Y. 2008-09 initiated by the Director of Mines, Geology crystallised during the year and the same being a business expenditure deserves to be allowed. Therefore, finding of ld.CIT(A) is reversed and the payment of Royalty for rejection of waste dumps for F.Ys. 2007-08 and 2008-09 at Rs.1,59,22,685/- is hereby allowed.

As regards the delayed interest of Royalty payment of Rs.78,73,785/- is concerned, ld. Assessing Officer has disallowed treating it as penal in nature and invoked the provisions of section 37(1) of the Act. We however find that expenditure incurred towards Royalty is a genuine business expenditure and the interest has been levied for the delay in payment and such delay is on account of demand being raised during the year under consideration. Hon’ble Company Ltd. (1993) 71 Taxman 56 (SC) has held that “if a payment is made by the assessee during the relevant accounting year without any breach or infraction of any law or any public policy sought to be achieved by it and infact in obedience to provisions of such law as a measure of business expediency, there could be no valid reason not to allow such payment as deductible expenditure u/s.37 of the Act”. In light of the above judgment, we find that in the instant case also, the interest paid is not for any breach or infraction of law but is only for the delayed payment of Royalty. The payment of interest for delayed payment of Royalty is akin to the business carried out by the assessee and such payment has been made by the assessee to ensure that the business is not stopped and therefore the interest expenditure incurred on delayed payment of Royalty being compensatory in nature is wholly and exclusively for the purpose of business and therefore is allowable u/s.37(1) of the Act. Thus, finding of ld.CIT(A) is set aside and the interest on delayed payment of Royalty at Rs.78,73,785/- is allowed as business expenditure. Grounds of appeal raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.

The Pr. CIT concerned. विभ गीय प्रतितनधि, आयकर अपीलीय अधिकरण, Panaji 4. ‘DB’ Bench / DR, ITAT, Panaji ‘DB’ Bench ग र्ड फ़ इल / Guard File. 5. आिेश नुस र / BY ORDER,