DCIT,CIRCLE-5(2), KOLKATA, KOLKATA vs. THE ORISSA MINERALS DEVELOPMENT CO. LTD, KOLKATA

Per Bench:

ITA No. 1860/Kol/2016 – Asst Year 2009-10 – Revenue Appeal

3 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 2. That in the facts and circumstances, the Ld. CIT(A)-2, Kolkata has erred in giving direction to the AO to verify the facts regarding Long Term Capital Gain of Rs. 1,30,00,000/-

2.1. The ld DR argued that the ld CITA does not have power to direct the ld AO to verify a certain fact while disposing of an appeal. He could at best seek a remand report from the ld AO or verify himself and dispose off the appeal of the assessee. The power of set aside to ld AO had been withdrawn from the statute by the Finance Act, 2001 with effect from 1.6.2001. No arguments were advanced in this regard by the ld AR before us.

2.2. We have heard the rival submissions. We find that the ld CITA while disposing off the appeal had directed the ld AO to verify the issues under dispute before us. This amounts to setting aside of an assessment by the ld CITA. As rightly argued by the ld DR, the power of setting aside of an appeal to the file of the ld AO by the ld CITA had been withdrawn from the statute with effect from 1.6.2001 , by omitting the words ‘or may set aside’. Hence we agree with the contentions of the ld DR and accordingly allow the grounds raised by the revenue before us.

2.3. The appeal of the revenue in ITA No. 1860/Kol/2016 for Asst Year 2009-10 is allowed.

CO No. 69/Kol/2016 – Asst Year 2009-10 – Assessee CO

4 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 managed by the Government of India as a Public Sector Undertaking (PSU) and was under the direct supervision and control of the Ministry of Steel, Government of India, New Delhi. The assessee company is a wholly owned subsidiary of Eastern Investments Ltd which is also a PSU under the direct supervision and control of the Ministry of Steel, Government of India, New Delhi. The assessee company is mainly engaged in the activity of mining and marketing of Iron Ore and Manganese Ore. At all material times, it was operating 6 Iron Ore and Manganese Ore Mines , all leased out to it by the State Government of Orissa. All these mines, located at Barbil, in the District of Keonjhar, Orissa are named as under:- a) Dalki Manganese Mines (area 266.77 hectares) b) Kolha Roida Iron and Manganese Mines (area 254.952 hects) c) Thakurani Iron and Manganese Mines (area 1546.55 hects) d) Belkundi Iron and Manganese Mines (area 1276.79 hects) e) Bagiaburu Iron Mines (area 21.52 hects) f) Bhadrasai Iron and Manganese Mines (area 998.70 hects)

3.1. The mining lease in respect of Belkundi Iron and Manganese Mines, which was held by the assessee company for a long time had expired on 16.8.2006 and that its application for renewal of that lease has not been granted by the State Government of Orissa. This fact was also mentioned in page 13 of the Annual Audited Financial Statements of the assessee company. Accordingly, mining operations were wholly suspended and stopped by the assessee company in Belkundi Iron and Manganese Mines with effect from 16.8.2006. The assessee company for the Asst Year 2009-10 had filed its return of income on 24.9.2009 declaring total income of Rs 287,33,57,160/- . 4. The first issue to be decided in this cross objection of the assessee is as to whether the ld CITA was justified in not giving an independent finding with regard to allowability of prior period expenses of Rs 8,59,822/- , in the facts and circumstances of the case.

5 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 4.1. The brief facts of this issue are that the assessee had debited a sum of Rs 8,59,822/- towards prior period expenses in its profit and loss account and claimed the same as deduction. The details of the same are as under:- Particulars Debit Credit Remarks Amount Amount

Short provision of consultancy Charges for internal auditors 15,950 Liability settled During the year

Short booking of bonus paid for Related to staff Last year 1,44,694 payment as per Agreement with Union

Short booking of Ex-gratia paid Staff welfare exps For last year 2,61,917 paid on Compassionate Ground

Short booking of arrear salary of Related to staff Employees for FY 2006-07 74,562 payment as per Agreement with Union

Short booking of leave encashment Contra For last year 1,08,900

Paid to Radiant Advertising and Marketing (India) Pvt Ltd towards Advertisement charges for Newspapers 3,62,699

Leave encashment entry is reversed Contra As it is transferred to fund a/c 1,08,900

Total 9,68,722 1,08,900

Net Debit 8,59,822

6 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 The ld AO observed that the assessee follows mercantile system of accounting and accordingly prior period expenses cannot be allowed as deduction in the year under appeal and accordingly disallowed the same in the assessment.

4.2. The ld CITA held that the assessee had submitted part details of prior period expenses to the tune of Rs 4,22,561/- and directed the ld AO to verify the same and take action accordingly. With regard to balance sum of Rs 4,37,261/-, he confirmed the disallowance for non-production of details. Aggrieved, the assessee is in appeal before us on the following ground:- C.O. No. 69/Kol/2016 for assessment year 2009-10 1. That the Commissioner of Income Tax(Appeals) was wrong in not deleting the disallowance of deduction for Rs. 8,59,822/- being expenses incurred and debited under the head prior period expenses.

4.3. We have heard the rival submissions. We find that the assessee had filed details of prior period expenses before the ld AO and ld CITA that are enclosed in pages 1 to 29 of the paper book filed before us. But we find that the ld AO had no occasion to verify the same and no factual finding has been recorded by the ld CITA also that the assessee had not claimed any deduction for the said prior period expenses in the earlier years. We hold that the allowability of prior period expenses had to be made based on the finding that no deduction was claimed in the earlier years after recording the finding that the said expenditure had indeed been crystallized during the year. However, the method of accounting followed by the assessee also needs to be taken into consideration for the same. These findings are conspicuously absent in the orders of the lower authorities and accordingly we deem it fit and appropriate ,in the interest of justice and fair play, to remand the issue of prior period expenses to the file of the ld AO, for denovo adjudication and decide the same in accordance with law. The assessee is also at liberty to adduce fresh evidences in this regard before the ld AO. Accordingly, the

7 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 Ground No. 1 raised by the assessee in its cross objection is allowed for statistical purposes.

5.1. The brief facts of this issue are that the assessee during the year under appeal had redeemed the following bonds :-

11.50% ICICI SLR Bonds - Rs 1,00,00,000 12.00% Gujarat Electricity Board Bonds - Rs 30,00,000 ------------------------ Rs 1,30,00,000

The assessee had given the following computation in the memo of income :- 11.50% ICICI SLR Bonds Full value of consideration (14.10.2008) 1,00,00,000 Less: Cost of Acquisition ( 14.10.2004) 1,16,66,000 ---------------- Long Term Capital Loss ` ( 16,66,000) ----------------

12.00% Gujarat Electricity Board Bonds Full value of consideration (17.10.2008) 30,00,000 Less: Cost of Acquisition ( 28.03.2005) 33,51,000 ---------------- Long Term Capital Loss ` ( 3,51,000) ----------------

Total Long Term Capital Loss ( 20,17,000)

This Long Term Capital Loss of Rs 20,17,000/- was sought to be carried forward to subsequent years by the assessee in the return of income. 7

8 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 5.2. The ld AO without recording any finding in his assessment order, proceeded to add the long term capital loss of Rs 20,17,000/- on one hand under the head ‘income from business’ and on the other hand, also added the entire redemption value of bonds of Rs 1,30,00,000/-. The ld AO directly resorted to this action in the computation of total income without any discussion in the assessment order. The ld CITA without adjudicating this issue on his own simply directed the ld AO to verify the same and take action accordingly. Aggrieved, the assessee is in appeal before us on the following ground:- C.O. No. 69/Kol/2016 for assessment year 2009-10 2. That the Commissioner of Income Tax(Appeals) was wrong in not accepting the fact that Loss under the head ‘Long Term Capital Gain’ of Rs. 20,17,000/- having already been considered in the assessment, the Assessing Officer’s action in making a separate addition of the gross consideration of Rs. 1,30,00,000/- had been wrong and thus he erred in not deleting the said addition of Rs. 1,30,00,000/-

4.3. We have heard the rival submissions. We find that the assessee had filed details of computation of long term capital loss of Rs 20,17,000/- in the memo of income and the same was also furnished before the ld AO in the course of assessment proceedings. It is an undisputed fact that there is absolutely no discussion made by the ld AO in his assessment order with regard to this issue. We agree with the ld AR that the ld AO having added the long term capital loss of Rs 20,17,000/- under the head ‘income from business’ had also proceeded to separately add the redemption value of bonds of Rs 1,30,00,000/- without understanding the facts. The veracity of the computation of long term capital loss of Rs 20,17,000/- was not verified by the ld AO. No finding is also given by the ld AO with regard to carry forward of long term capital loss of Rs 20,17,000/- to subsequent years in the assessment order. Hence we deem it fit and appropriate, in the interest of justice and fairplay, to remand this issue to the file of the ld AO , for denovo adjudication and decide the same afresh in accordance with law.

9 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 Accordingly, the Ground No. 2 raised by the assessee in its cross objection is allowed for statistical purposes.

ITA No. 1929/Kol/2016 – Assessee Appeal – Asst Year 2012-13 ITA No. 1901/Kol/2016 – Revenue Appeal – Asst Year 2012-13

6.1. The assessee also stated that in respect of dispute with M/s Jai Balaji Industries Ltd, an award dated 22.2.2010 had been passed by an Arbitrator in favour of M/s Jai Balaji Industries Ltd, which was subsequently corrected on 19.5.2010 in the matter of BF Iron 10 -30 mm as per MOU. Against such an award, the assessee had preferred an appeal in Misc. Case No. 159 of 2010 (date of filing – 17.8.2010), Money Exe.Case No. 61 of 2010 dated Dec 2010. This was disposed off on 27.2.2012 against the assessee. The assessee had preferred further appeal against this order before the Hon’ble Calcutta High Court. The liability that had fastened on the assessee with regard this dispute is Rs 5,03,79,834.11 (A).

6.2. The assessee also stated that in respect of dispute with M/s Jai Balaji Industries Ltd, an award dated 15.2.2010 had been passed by an Arbitrator in favour of M/s Jai Balaji Industries Ltd, which was subsequently corrected on 11.5.2010 in the matter of BF Iron 9

10 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 5 -18 mm as per MOU. Against such an award, the assessee had preferred an appeal in Misc. Case No. 173 of 2010 (date of filing – 21.9.2010), Money Exe. Case No. 61 of 2010 dated Dec 2010. This was disposed off on 29.2.2012 against the assessee. The assessee had preferred further appeal against this order before the Hon’ble Calcutta High Court. The liability that had fastened on the assessee with regard this dispute is Rs 3,55,03,760.83 (B) .

6.3. The assessee had collected Earnest Money Deposit (EMD) of Rs 11,12,000/- from M/s N.R.Sponge Pvt Ltd which was forfeited by the assessee against auction dated 25.6.2008. This was subjected to writ proceedings in W.P. No. 4740 (W) of 2011 dated 11.3.2011. This was disposed off on 28.11.2011 by the Hon’ble Calcutta High Court directing the assessee to pay the EMD of Rs 11,12,000/- (C ) to M/s N.R.Sponge Pvt Ltd. The assessee stated before the ld AO that it is in the process of preferring further appeal against the High Court order, subject to the approval of its Board.

6.4. The total of liability that had fastened on the assessee pursuant to aforesaid three disputes i.e (A) plus (B) plus (C ) was Rs 8,69,95,595/-. Accordingly, the assessee pursuant to the approval given by its Board, made a provision of Rs 8,70,00,000/- towards liabilities that would get fastened on it pursuant to the final outcome of the disputes by the concerned appellate forum as detailed above. The assessee pleaded that these liabilities had fastened on the assessee during the year pursuant to judicial orders passed during the year under appeal and accordingly allowable as deduction in the year under appeal. It was also pleaded that with regard to refund of EMD to M/s N.R.Sponge Pvt Ltd, the assessee had paid the same to the party on 27.6.2012. It was further pleaded that since the provision for judicial expenses arising out of court orders / arbitration awards against the assessee had been made on ascertained basis, the same would be allowable as deduction during the year under appeal.

11 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 6.5. The ld AO however did not heed to the contentions of the assessee and disallowed the same AO in the assessment on the ground that the provision for expenses has been made for which plausible explanation has not been given by the assessee.

6.6. The assessee reiterated the submissions before the ld CITA with the aforesaid documents. The ld CITA called for a remand report from the ld AO. The ld AO in the remand proceedings stated that barring Rs 11,12,000/- , all the balance demands are contingent since the matter is being contested by the assessee. Even in the case of demand of payment of Rs 11,12,000/- paid pursuant to the order of the Hon’ble Calcutta High Court, the Board of the Company has in its Note dated 17.5.2012 contemplating appealing against the verdict. Accordingly, he stated that even Rs 11,12,000/- should not be allowed as deduction.

6.7. The ld CITA held that the amounts payable by the assessee to M/s Jai Balaji Industries Ltd are only provision made for contingent liabilities as the demand that arose pursuant to arbitration award had been appealed by the assessee before higher judicial forums and the same are pending. Hence he held that the provision made for such contingent expenses had been rightly disallowed by the ld AO. With regard to the order passed by the Hon’ble Calcutta High Court in favour of M/s N.R.Sponge Pvt Ltd for seeking refund of EMD of Rs 11,12,000/-, he held that the assessee ahd not offered to income on forfeiture of EMD in the return of income and accordingly the direction of the Hon’ble Court to refund the EMD to the aforesaid party is only a discharge of a pre- existing liability in the books of the assessee for which no separate provision is required to be made in the books. He held that the said provision cannot be claimed as revenue expenditure and accordingly upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us on the following ground:-

12 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 I.T.A. No. 1901/Kol/2016 for assessment year 2012-13 1. That the Commissioner of Income tax (Appeals) was wrong in confirming the Assessing Officer’s action in disallowing judicial expenses aggregating to Rs. 8,70,00,000/-.

6.8. We have heard the rival submissions. The aforesaid facts clearly state that the assessee had been fastened with liabilities of Rs 5,03,79,834.11 and Rs 3,55,03,760.83 as amounts payable to M/s Jai Balaji Industries Ltd pursuant to an award passed by an Arbitrator. But we find from the aforesaid facts that an appeal has been preferred by the assessee against such awards. It is not in dispute that the assessee had not made any payment to M/s Jai Balaji Industries Ltd with regard to the subject mentioned dispute. Since the liability emanates out of business activities of the assessee, the assessee had to claim deduction only in the year in which such liability has been discharged and not in the year under appeal. Moreover, the assessee had contested the awards passed by the Arbitrator before higher judicial forums and we are given to understand from the parties that the same are pending. Hence whether the liability at all would arise or not on the assessee would depend on the final outcome of the appeals pending. Hence the liability is contingent upon happening of a future event. Hence it could be safely concluded that the assessee had made provision for contingent liability which is not allowable as deduction. Hence we hold that the same had been rightly disallowed by the ld AO with regard to M/s Jai Balaji Industries Ltd.

6.8.1. With regard to refund of EMD to M/s N.R.Sponge Pvt Ltd is concerned, we find that the ld CITA had categorically held that the assessee had not offered to tax the sum of Rs 11,12,000/- by forfeiture of EMD by crediting the same to profit and loss account. This finding has not been controverted by the assessee before us. Hence we hold that there is no need for making a separate provision for a pre-existing liability in the books of assessee, eventhough the same has been stated to be paid by the assessee on

13 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 27.6.2012 , ie. during the financial year 2012-13 relevant to Asst Year 2013-14. Accordingly, no relief is granted to the assessee in this regard.

6.9. Accordingly, the Ground No. 1 raised by the assessee for Asst Year 2012-13 is dismissed.

Ground Nos. 1 & 2 of Revenue Appeal for Asst Year 2012-13 Ground No. 2 of Assessee Appeal for Asst Year 2012-13

The brief facts of this issue are that the assessee claimed income tax depreciation in the return of income to the tune of Rs 18,05,01,102/- on the following assets :-

Details of Assets Depn on Depn on Total OB WDV Additions IT Depn

Building-Residential 21,88,269 0 21,88,269 Building- Others 48,07,356 0 48,07,356

Furniture & Fittings 14,88,562 0 14,88,562

Plant & Machinery - Computer 95,646 1,59,626 2,55,271 - Motorcar 1,46,344 0 1,46,344 - Others 1,13,60,984 3,09,291 1,16,70,275

Intangible Assets 15,33,77,025 65,68,000 15,99,45,025 ---------------- --------------- ------------------ Total Depn as per IT 17,34,64,185 70,36,917 18,05,01,102 ---------------- --------------- ------------------

14 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 7.1. The ld AO observed that the tax auditor in its report in Form 3CA read with Form 3CD dated 6.8.2012 had categorically mentioned that the assessee has claimed afforestation charges to Government amortized Rs 15,99,45,025/-. The ld AO show caused the assessee vide notice u/s 142(1) dated 9.12.2014 and asked the details and evidence of claim u/s 35CCB of the Act. The assessee vide its letter dated 19.1.2015 replied as under:- “to the best of our knowledge no such deduction claimed u/s 35CCB”

7.2. The ld AO observed in his order as under:- “The argument of the assessee is very strange. On one hand the Tax Auditor appointed by the assessee company categorically states that the assessee company has claimed deduction of the above amount u/s 35CCB, on the other hand, the assessee company refutes the claim. In the income tax return filed in ITR-6, there is no specific provision of mentioning claim u/s 35CCB. It can be therefore be inferred that the assessee has clubbed the expense under some head which cannot be analysed in the absence of any information. As no details, explanation or evidence has been placed by the assessee in contravention to the wisdom of its tax auditor, the claim u/s 35CCB Rs. 15,99,45,025/- though not specifically mentioned is added back to the total income.

7.3. The ld AO further observed that during the year under appeal, the company has changed its accounting policy of method of charging of depreciation on fixed assets from WDV method to SLM as provided in Schedule XIV of the Companies Act, 1956 , giving effect from last 20 years. As per Part B of Notes forming part of accounts, the statutory auditor, has stated that as a result of the exercise, there has been a surplus on account of depreciation of RS 1.37 crores which has been credited in the profit and loss account. Accordingly, the assessee submitted that no depreciation as per Companies Act has been debited in the profit and loss account during the year under appeal. The ld AO however observed in his order as under:- “ It is for this precise reasoning, no depreciation has been claimed in the books of accounts by the assessee. However depreciation of Rs 18,05,01,102/- has been claimed as per the Tax Audit Report. As per Note No. 18 of the accounts, being revenue operation, no sale of Iron and Manganese has been found to have been made by the assessee company. In fact, there has been in fact hardly any 14

15 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 operation in the mines warranting use of the fixed assets by the company. Accordingly, in the interest of revenue claim of depreciation as per ITR-6, Rs 18,05,01,102/- is being rejected and added back to the total income.”

7.4. By the aforesaid observations, the ld AO disallowed the following:-

a) Deduction u/s 35CCB which was not claimed by assessee in the return of income - Rs 15,99,45,025

b) Depreciation as per IT Act which includes Depreciation on Intangible Assets to the tune of Rs 15,99,45,025 (i.e this is the same figure of Alleged claim of deduction u/s 35CCB) - Rs 18,05,01,102

8.1. The assessee submitted that it had never claimed any deduction u/s 35CCB of the Act. It clarified that the whole confusion started pursuant to mentioning of the said section in the Tax Audit Report by the Tax Auditor that the subject mentioned payment

16 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 of aforesation charges would also be eligible for claim of deduction u/s 35CCB of the Act to the assessee. It was specifically clarified that though this was mentioned in the Tax Audit Report, but however, the same was not claimed by the assessee as a deduction in the return of income or during assessment proceedings. The assessee had claimed only depreciation as per income tax act in the sum of Rs 18,05,01,102/- in the return of income. Moreover, it was also pointed out that the provisions of section 35CCB could be made applicable only in respect of payments made on or before 31.3.2012 to Associations and Institutions for carrying out programmes of Conservation of Natural Resources and Afforestation Expenses incurred as per the Government’s directives. Hence in any case, the deduction u/s 35CCB of the Act could not have been claimed by the assessee in the year under appeal. The assessee had opening WDV in this regard of Rs 61,35,08,099/- and had made payments during the year under appeal towards Afforestation Charges of Rs 2,62,72,000/-. The assessee had claimed depreciation on opening WDV amounting to Rs 15,33,77,025/- and on additions during the year amounting to Rs 65,68,000/- , both totaling to Rs 15,99,45,025/- . It was also clarified before the ld AO that the provisions of section 35CCB of the Act cannot be made applicable to the assessee for the year under appeal and since the mistake was committed in the Tax Audit Report by the Tax Auditor, a certificate dated 12.3.2015 was issued by the Tax Auditor clearly stating the nature and purpose of payment made by the assessee as amounts paid towards Afforestation. It was further stated that the entire fixed assets including intangible assets of the assessee had been put to use by the assessee in the earlier years and depreciation was claimed u/s 32 of the Act and allowed by the revenue accordingly. The ld AO observed that since there had not occurred any sale of Iron and Manganese Ore during the year, it was considered by him that there had not been any business operations in the mines warranting the use of fixed assets by the assessee. On the basis of this observation, he proceeded to disallow the depreciation in toto in the sum of Rs 18,05,01,102/-. The assessee however submitted that during the year , it had transacted certain sales of one of its products i.e Sponge Iron though no 16

17 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 new extraction of any ore could be done due to certain difficulties faced by the assessee as regards the lease of the mines. The assessee further submitted that in anticipation of being allowed to commence extraction of ores at any time during the year, the assessee had kept all its fixed assets, especially the Plant and Machineries ready for use. The ld AO failed to appreciate that the depreciation was to be allowed on the concept of ‘Block of Assets’ and there had also occurred additions to the Plant and Machineries during the year with an intent for utilizing them for the mining business of the assessee. Hence the assessee submitted that all the fixed assets including the plant and machineries had been owned by the assessee and were being used from the earlier years and therefore the assessee should have been allowed depreciation for the whole year irrespective of the fact that no new extraction of ore had been carried out during the year. The assessee also placed reliance on the provisions of Explanation 5 to section 32(1) of the Act which makes it mandatory for the ld AO to grant depreciation.

8.2. The ld CITA partially accepted the contentions of the assessee and deleted the disallowance of Rs 15,99,45,025/- made u/s 35CCB of the Act. With regard to disallowance of depreciation, he allowed depreciation on tangible assets to the tune of Rs 2,05,56,077/- by placing reliance on the Hon’ble Jurisdictional High Court reported in 198 Taxman 470 (Cal) confirmed the disallowance of depreciation on intangible assets to the tune of Rs 15,99,45,025/-.

8.3. Aggrieved, both the assessee as well as the revenue are in appeals before us on the following grounds:- I.T.A. No. 1901/Kol/2016 for assessment year 2012-13

18 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 u/s 35CCB which is contractor to the version of their own Auditor. In the course of the appeal, the assessee had submitted from their auditor which states that the said sum is in fact depreciation on the intangible asset. But since, when no mineral was prospected in the said F.Y. 2011-12, then it was not justified to treat such huge money of Rs. 2,62,72,000/- to Govt. of Orissa towards a forestation as intangible asset. Therefore, in this ground, the Ld. CIT(A)-6 has erred in giving relief in deduction claimed u/s 35CCB of Rs. 15,99,45,025/-. 2. In this assessment year, the company has changed its accounting policy of method of charging of depreciation on fixed assets from WDV method to SLM as provided in schedule XIV of the Companies Act, 2956 giving effect from last 20 years and as a result, there has been a surplus on account of depreciation of Rs. 1.37 crore which has been credited in the profit and loss account. However, depreciation of Rs. 18,05,01,102/- has been claimed as per Tax Audit Report. Since, there were no operation in the mines during that financial year warranting use of the fixed assets by the company. Therefore, Ld. CIT(A)-6 has erred in allowing total depreciation as per ITR-6 of Rs. 2,05,56,077/- on fixed assets as claimed by the assessee. Again, since the Tax effect is much higher than prescribed limit as fixed by CBDT, therefore, the 2nd appeal is suggested.

I.T.A. No. 1929/Kol/2016 for assessment year 2012-13 2. That the Commissioner of Income Tax(appeals) was wrong in confirming the Assessing Officer’s action in disallowing depreciation of Rs. 15,99,45,025/- in relation to Intangible Assets in the form of the appellant’s right to continue its Mining business in view of its payments made to the Government for Afforestation purposes.

19 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 facts have been conveniently ignored by the ld AO with a view to make an addition in one way or other. This is quite evident from his version in the assessment order while disallowing the claim of depreciation under income tax act in the sum of Rs 18,05,01,102/- as reproduced supra. Accordingly, we do not find any infirmity in the order of the ld CITA granting relief in the sum of Rs 15,99,45,025/- . Accordingly, the Ground No. 1 raised by the revenue deserves to be dismissed and is accordingly dismissed.

9.1. We find that the assessee had claimed income tax depreciation in the total sum of Rs 18,05,01,102/-, which comprises of depreciation on tangible assets at Rs 2,05,56,077/- and depreciation on intangible assets to the tune of Rs 15,99,45,025/-. We find that even though there was no sale of iron ore and manganese ore during the year under appeal, there has been sale of sponge iron by the assessee and the assessee had kept all its plant and machineries together with other fixed assets ready for use in the mining business. It is not in dispute that the mining business could not be commenced by the assessee during the year under appeal as the Government of Orissa had not extended the mining lease or not granted the mining lease in some of the mines. We find that the assessee had taken earnest efforts in getting the mining lease from the Government of Orissa by discharging the obligations from its side in the form of payment of Afforestation Charges for planting of trees in the mining areas, which is a condition precedent for obtaining the mining lease. Hence the payment of Afforestation Charges takes the character of payment made in the commercial sense and in the ordinary course of business of the assessee. We hold that pursuant to this payment, the assessee had obtained a commercial right for obtaining the mining lease. Now the short question is whether the payment made for obtaining a commercial right would fall under the definition of ‘Intangible Assets’ under section 32 of the Act thereby making the assessee eligible for depreciation thereon. It is not in dispute that the assessee had been making payments of Afforestation Charges from the earlier year and had 19

20 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 capitalized the same as ‘intangible assets’ in the fixed assets schedule and the opening WDV of the said intangible assets was Rs 61,35,08,099/- on which depreciation was claimed in the sum of Rs 15,33,77,025/- during the year under appeal. This sum of depreciation of Rs 15,33,77,025/- would be squarely allowable irrespective of the fact that whether the assets were put to use or not during the year. From the plain reading of provisions of section 32 of the Act, we are able to understand that the legislature had mandated the concept of ‘assets being put to use’ only in respect of the assets acquired during the year and not thereafter. This is because of the concept of ‘block of assets’ where the assets lose its identity once it enters the block, thereby preventing the usage of the assets year on year. Hence out of the total depreciation on intangible assets of Rs 15,99,45,025/-, no disallowance could be made on the depreciation on opening WDV in the sum of Rs 15,33,77,025/-. With the same logic and understanding, the total depreciation on opening WDV on both tangible and intangible assets amounting to Rs 17,34,64,185/- deserves to be allowed as an allowance u/s 32 of the Act. We find from the schedule of income tax depreciation, the assessee had made additions to the tune of Rs 2,62,72,000/- towards intangible assets, being the payments of afforestation charges to Government of Orissa during the year under appeal. The depreciation claimed u/s 32 on the said additions amount to Rs 65,68,000/-. Similarly the assessee had made other additions to computer and plant and machineries during the year and had claimed depreciation thereon u/s 32 of the Act at Rs 4,68,917/- ( 1,59,291 + 3,09,291), which are allowable as an allowance u/s 32 of the Act as admittedly the assessee had derived business income during the year as could be evident from the profit and loss account of the assessee. Hence there cannot be any grievance for the revenue in ld CITA allowing the total depreciation on tangible assets to the tune of Rs 2,05,56,077/- in his order. We also find that the ld CITA had placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Norplex Oak India reported in (2011) 198 Taxman 470 (Cal), wherein it was held that as the assessee was ready for doing its business and could not run the factory due to adverse law and order situation, and the 20

21 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 machineries were ready for use, the assessee was eligible for grant of depreciation. The ld CITA had categorically held that it is not the case of the assessee that the assets including machineries were not ready for use. The ld CITA had also gone through the Directors’ Report of the assessee from the printed annual report, wherein it was mentioned that shortfall in revenue was due to the closure of mining operations in all six mines for non-availability of forest and environment clearance. However, almost all the formalities for environment clearance with regard to the mines had been completed and as per the report, the company would endeavour to ‘open rest of the five mines during the financial year 2012-13’. Accordingly, the ld CITA held that since the assessee had kept all its assets ready for use, it cannot be denied the depreciation only on the ground that during the year, it had not reported significant level of operations. The ld DR was not able to bring any contrary decision to the Hon’ble Calcutta High Court before us. Hence we do not find any infirmity in the order of the ld CITA in this regard.

9.2. We find that the expression ‘intangible assets’ is defined in section 32 of the Act as under:- Explanation 3 to section 32(1) of the Act For the purposes of this sub-section, the expression “assets” shall mean –

(b) “intangible assets, being know-how, patents , copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature”.

It is not in dispute that the payments were made by the assessee to Divisional Forest Officer, Keonjhar, Government of Orissa , in accordance with a specific scheme which gave commercial right for mining to the assessee similar to other intangible assets. The details of payments are as under:-

22 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13

9.3. We hold that the payments made to Government of Orissa for afforestation charges for obtaining the mining lease, would squarely fall under the category of ‘licences’ or even ‘any other business or commercial rights of similar nature’ as per the definition of ‘intangible assets’ u/s 32 of the Act, thereby eligible for claim of depreciation u/s 32 of the Act. It is not in dispute that pursuant to this payment, and pursuant to other plant and machineries kept ready for use, the assessee would start its mining operations, the moment the mining lease has been granted by the Government of Orissa. Hence the ratio laid down by the Hon’ble Jurisdictional High Court supra which has been relied upon supra i.e 198 Taxman 470 (Cal), would also be applicable to the instant issue also before us as the entire assets are kept ready for use by the assessee and eligibility conditions for obtaining licence have been stated to be fulfilled. Moreover, we find that the mining business could be carried on by the assessee only when the mining lease

23 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13 is granted by the State Government. We find that the State Government had not granted the mining lease thereby preventing the assessee to carry on the mining business. In this scenario, expecting the assessee to carry on mining business without having a valid lease, would only tantamount to expecting impossible performance from the assessee. In this regard, the legal maxim ‘LEX NON COGUT AD IMPOSSIBLIA’ would come to the rescue of the assessee. The law cannot compel a person to perform an act which he could not possibly perform. This legal maxim had been given due weightage and consideration by the Hon’ble Supreme Court in the case of Krishnaswamy S. Pd. vs Union of India reported in 281 ITR 305 (SC). Accordingly , we hold that the assessee is eligible for depreciation in the sum of Rs 15,99,45,025/- .

9.4. Accordingly, the grounds raised by the revenue in this regard are dismissed and ground no. 2 raised by the assessee is allowed.

Order pronounced in the Court on .04.2018

[S.S. Viswanethra Ravi] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : .04.2018 SB, Sr. PS 23

24 ITA Nos.1860,1929&1901/Kol/2016&C.O. No.69/Kol/2016 The Orissa Minerals Development Co. Ltd. A.Yrs. 2009-10&2012-13

Copy of the order forwarded to: 1. DCIT, Circle-5(2), Kolkata, P-7, Chowringhee Square, Kolkata-700069. 2. The Orissa Minerals Development Co. Ltd., AG-104, Sourav Abasan, Sector-II, Salt Lake City, Kolkata-700091. 3..C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.