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Income Tax Appellate Tribunal, HYDERABAD BENCH “A”, HYDERABAD
Before: SHRI A. MOHAN ALANKAMONY & SHRI S.S. GODARA
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “A”, HYDERABAD (Through Virtual Hearing) BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER & 210/Hyd/2021 Assessment Year: 2015-16 & 2016-17 NMDC Limited, Vs. ACIT, Hyderabad. Circle-5(1), PAN: AAACN 7325 A Hyderabad. (Appellant) (Respondent) Assessee by: Sri Lakshmi Nivas Sharma Revenue by: Sri K. Madhusudan, CIT-DR Date of hearing: 10/01/2022 Date of pronouncement: 09/02/2022 ORDER PER A. MOHAN ALANKAMONY, AM.:
Both the captioned appeals are filed by the assessee against the order of the Ld. Principal Commissioner of Income Tax, Hyderabad-4, in DIN & Order No. ITBA/REV/F/REV5/2020-21/1031902528(1) & 1031903203(1), dated 30/03/2021 passed U/s. 263 of the Act for the AY 2015-16 and 2016-17. Since the issues involved in both the appeals are identical and belonging to the same party, both these appeals are heard together and disposed off by this consolidated order.
The assessee has raised Eight and Nine Grounds in its appeals for the AY 2015-16 and 2016-17 respectively however, the crux of the issue is that:
“The Ld. Pr. CIT has erred in setting aside the order of the Ld. AO on the ground that depreciation on the leasehold right of Govt., Land obtained from various State Governments for carrying out mining activities is not a depreciable asset and thereby directing the Ld. AO to pass appropriate order in accordance with the findings of Lr. Pr. CIT.”
The brief facts of the case are that the assessee is a Limited Company filed its revised / original return of income for both the assessment years 2015-16 and 2016-17 on 29/09/2015 & 23/11/2016 respectively. Thereafter the assessment was completed for both the assessment years 2015-16 & 2016-17 U/s. 143(3) of the Act vide Order dated 14/12/2017 & 30/12/2018 respectively wherein the Ld.AO allowed the claim of depreciation on intangible asset being leasing right granted to the assessee by various State Governments for carrying out mining operations in their respective specified Government Land. The Ld. Pr. CIT opined that, neither the leasehold rights of land such as “know-how, patents, copy rights, trademarks, licenses, franchises or any other business of commercial rights of similar nature” do not constitute intangible assets as defined in the IT Act, 1961 nor it forms part of Appendix-1 r.w.r 5 of Income Tax Rules. He therefore was of the view that the assessee is not entitled for depreciation on the leasehold rights on land obtained from various State Governments for carrying out mining operation. While holding so, the Ld. Pr. CIT relied on various decisions of higher judiciary.
The Ld. AR vehemently argued before us by stating that the assessee is entitled to claim depreciation with respect to the leasehold rights obtained on the land and therefore the Ld. AO had rightly allowed the deduction claimed. On the other hand, the Ld. DR argued in support of the order of the Ld. Pr. CIT.
We have heard the rival submissions and carefully perused the materials on record. It is pertinent to mention when an assessee incurs any expenditure in order to earn revenue the same has to be allowed as deduction. However, in the relevant case, it appears that the assessee had paid substantial amount for obtaining leasehold rights from various State Governments in order to exploit their land for carrying out mining activities for over a period of number of years. Normally, the number of years for which such leasing licenses are given is for a period exceeding 10 to 15 years or even more. In such situations, writing off the entire expenditure as depreciation over a short span of time of 4 to 5 years will not be appropriate. If such expenditures are written of over a short span of time it will violate the matching concept for arriving at correct profit of the assessee for the relevant AY. There are Accounting Standards which states appropriate methods in order to write off such expenditure in the books of accounts. The adherence to Accounting Standards and principles of accounting is recognised by the Act unless it is overridden by any provisions of the Act. The leasing right granted by the various Governments to the assessee cannot be strictly construed as intangible asset as per the provisions of the Act. Such expense incurred by the assessee may be required to be apportioned over the period of lease or over a specific period in order to compute the correct profit earned by the assessee during the relevant AY. There are also decisions of the Hon’ble Apex Court with respect to the number of years the lease rent may be apportioned when the lease period is for over number of years. All these aspects were not looked into by the Ld. AO while framing his Order and therefore the Ld. Pr. CIT has rightly invoked his powers U/s. 263 of the Act. However, in the order of the Ld. Pr. CIT, we do not find any elaborate and clear-cut finding on the issue with substantial justification. Hence, the specific direction given by the Ld. Pr. CIT is not appropriate. Therefore, in the interest of justice, considering the facts and circumstances of the case, we hereby sustain the action of the Ld. Pr. CIT for invoking his jurisdiction invoked U/s. 263 of the Act however, We hereby modify his order by directing to Ld. AO to examine the issue in detail and pass appropriate speaking order in accordance with merit and law afresh.
In the result, both the appeals of the assessee are partly allowed for statistical purposes as indicated herein above.
Pronounced in the open Court on the 09th February, 2022.