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Income Tax Appellate Tribunal, BENCH ‘B’ KOLKATA
Before: Hon’ble Shri J.Sudhakar Reddy, AM & Shri S.S.Viswanethra Ravi, JM ]
ITA No.327 & 361/Kol/2011-M/s. Bengal Emta Coal Mines Limited – A.Y.2002-03 & 2006-07 1
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH ‘B’ KOLKATA [Before Hon’ble Shri J.Sudhakar Reddy, AM & Shri S.S.Viswanethra Ravi, JM ] ITA No.327 &361/Kol/2011 Assessment Years : 2002-03 & 2006-07
M/s. Bengal Emta Coal Mines Ltd. -versus- D.C.I.T., Central Circle-XVI, Kolkata Kolkata (PAN: AABCB 2949 R) (Appellant) (Respondent)
For the Appellant: Shri Satish Khosla, Advocate & Shri Manish Khosla Advocate For the Respondent: Shri David Z.Chowngth, Addl. CIT(DR)
Date of Hearing : 20.09.2017. Date of Pronouncement : 11.2017.
ORDER PER J.SUDHAKAR REDDY, AM:
Both theses appeals are filed by the assessee directed against the separate orders of the Commissioner of Income Tax-Central-II, Kolkata relating to Assessment Years 2002-03 & 2006-07. 2. The facts of the case are as follows :-
The assessee is a joint venture company with West Bengal Power Development Corporation Ltd. & Durgapur Projects Ltd. and the only object of the company is mining of coal for supply to Thermal power stations at Bandel, Bakreshewar, Kolaghat, DPL Durgapur and Santaldih and entire production is supplied to them: The Ministry of Forest and Environment, Govt. of India, while according approval for environment management plan for open cast mining had laid down specific conditions for development of the society and surrounding villages. Every year some development work is done in the surrounding villages of the mine for maintaining environment. The expenditure incurred on the development work is claimed as incidental to and necessary for carrying out the mining operation smoothly. The property and assets created by the development works do not remain the assets of the assessee. While preparing the Profit and Loss A/c and Balance sheet the above
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development expenses were debited in the account as capital expenditure and rebate u/s.35E was claimed in place of charging the total expenditure to revenue A/c as the same, does not form part of the assessee's assets. During the course of assessment the learned Assessing Officer has disallowed the rebate on the aforesaid development expenses.
As the issues arising in both the assessment years are common they are heard together and disposed off by way of this common order. We first take up the appeal for A.Y.2002-03.
The grounds of appeal are as follows :-
“1(i)That the Ld. CIT(A) grossly erred on facts and in law in the determination of deduction u/s. 35E of the LT. Act, 1961 (hereinafter referred to as the Act).
(ii)That the Ld, CIT(A) failed to appreciate the fact that once the deduction, i.e., 1/10 th of the total expenditure is determined in the first year of the production/commencement of business, such figure cannot be disturbed in the subsequent years. Notwithstanding the fact that the appellant on its own filed the return reducing its claim.
(iii)That the Ld. CIT(A) grossly erred on fact and in law in the determination of the figure u/s. 35E of the Act, when the same was already determined in the first year of production/commencement of business i.e. assessment year 1998-99 and which has become final.
(iv)That the Ld. CIT(A) failed to appreciate that he had no authority in law in appellate proceedings to disturb the determination finally arrived at in the assessment year 1998-99.
2(i)That without prejudice to the above grounds, the Ld. CIT(A) grossly erred on facts and in law in not accepting the claim of deduction of Rs. 54,62,981/- u/s. 35E of the Act, as claimed in the return filed in response to notice u/s. 148 of the Act.
(ii)That the Ld. CIT(A) grossly erred on facts and in law in enhancing the income of the appellant by reducing the claim u/s. 35E of the Act, below the figure determined by the Assessing officer.
3(i)That the Ld. CIT(A) grossly erred on facts and in law in not accepting the claim of the appellant in respect of development expenditure amounting to Rs. 26,62,332/-, allowable as business expenditure u/s. 28/37 of the Act.
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(ii)That the Ld. CIT(A) grossly erred on facts and in law in restricting the claim of the appellant to 1/10th of the total expenditure of Rs. 26,62,332/- without any basis.
(iii)That the Ld. CIT(A) grossly erred on facts and in law in not appreciating the contention of the appellant that the development expenditure was incurred necessarily and exclusively for the purposes of business and that the same qualified for claim as revenue expenditure u/s. 28/37 of the Act. That on facts and in law, there is "no ground or basis for restricting the claim at 1/10th of Rs. 26,62,332/-
That the Ld. CIT(A) grossly erred on fact and in law in passing the impugned order and in ignoring the various contentions and submissions and evidences filed by the appellant in support of its claim under sections. 35E and 28/37 of the Act. The CIT(A) has relied on irrelevant consideration and therefore, the order requires to be set aside and the claim of the appellant or the claim allowable under the Act has to be allowed.
That the Ld. CIT(A) grossly erred on fact and in law in not allowing due claims and benefits of carry forward of losses claimed and determined in the earlier years.
6 That the appellant craves leave to add, to alter, to amendments and or withdraw any of the above grounds of appeal before or at the time of hearing of the appeal.”
The assessee filed an application for admission of an additional ground which reads as follows :- “Assumption of jurisdiction to issue notice u/s 148, without laying necessary foundation for the same is illegal, bad in law and as such all consequential proceedings are nullity. “
After hearing the rival contentions we are of the considered opinion that this additional ground of appeal challenging the reopening of the assessments, being a legal ground and a jurisdictional matter, the same has to be admitted as it does not require any enquiry into fresh facts. In other words, all the facts necessary for adjudication on this legal issue are on record. The assessee has rightly relied on the decision of the Hon’ble Supreme Court in the case of NTPC Ltd. 229 ITR 383 (SC) and the judgment of the Hon’ble Supreme Court in the case of Hukumchand Mills 63
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ITR 232 for the proposition that in such circumstances, the ground has to be admitted . In the result this additional ground is admitted.
We have heard the rival contentions on this legal issue as to whether the re- opening of assessment is valid in law. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below as well as case law cited, we hold as follows :-
The reasons recorded for reopening are as follows :-
“The original assessment for Assessment Year 2002-03 was completed under section 143(3) on 22.03.2005. The assessee had claimed deduction of Rs.87,35,400 under section 35E of the Act which was allowed in the original assessment . Subsequently, the assessment was modified u/s. 154/143(3) vide order dated 20-12-2006, wherein the deduction u/s. 35E was restricted to Rs.62,16,050. The deduction under section 35E of the Act is allowable 'in respect of expenses incurred on prospecting of any mineral or on the development of Mines or other natural deposit of such nature. The deduction is admissible to an assessee engaged in operation of prospecting for or extraction of mineral at the rate of one-tenth of the expenditure incurred during the year of commercial production as well as in four preceding years. In the return of income the assessee had furnished details of expenses admissible under section 35E of the Act as per which the opening balance of eligible expenditure as on 01.04.2001 was Rs.8,45,32,227 and further expenditure of Rs.26,62,332 on account of development expenses and Rs.1,59,445 on account of Leasehold Land was shown. Thus, the total expenditure eligible for deduction was Rs.8,73,54,004 and the assessee has claimed one-tenth of the same, i.e., Rs.87,35,400 as deduction. It is also found that the total expenses under the head development expenses, on which deduction was claimed, was to the extent of Rs.3,85,32,882. It is further found that the development expenses incurred during the year were on account of construction of village water line, construction of Shib Mandir & Hari Mandir, construction of Data Baba Mazar, expenses towards electrification of villages and repairing of villagers' houses and beautification .of Mission More, etc. Thus, the entire development expenditure of Rs.26,62,332 on which deduction under section 35E was claimed was not in the nature of expense incurred for development of Mines and accordingly the' deduction under section 35E of the Act was not admissible to the assessee. The expenses incurred .in the past on account of development expenses are also not found to be connected with development of Mines. Hence, the assessee company was not eligible for deduction under section 35E of the Act on account of total expenses to the extent o! Rs.38,53,288. Therefore, the eligible deduction u/s. 35E for this year is only Rs.(87,35,400-38,53,288) i.e., Rs.48,82,112, however, an amount of Rs.62,16,050 was allowed vide order ujs.154/ 143(3) dated 20-12-2006.
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The assessee by claiming deduction under section 35E of the Act on the expenses which were not connected with development on Mines has Claimed excessive relief under the Act. There was a failure on the part of the assessee in disclosing fully & truly all material facts in respect of this claim and necessary for the assessment. Though the assessee had produced evidences and filed details before the Assessing Officer, from which material evidence could with due diligence have been part discovered by the Assessing Officer, such production of evidence does not amount to disclosure within the meaning of section 147 of the Act, as stipulated in Explanation -1 of. the Section. The assessment as originally made has resulted in excessive relief to the assessee so far as claim under section 35E of the Act is concerned. (emphasis
In view of the above facts, I have reason to believe that income to the extent of Rs. (62,16,050-48,82,112), i.e., Rs.13,33,938 has escaped assessment due to excessive allowances of deduction under section 35E of the Act.”
The reopening is beyond the period of four years from the end of the assessment year and the original assessment was completed u/s 143(3) of the Income Tax Act, 1961 (Act.) Hence the proviso to section 147 is applicable.
This proviso reads as follows :- “Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:”
A plain reading of the reasons recorded for re-opening takes us to a conclusion that the assessee has produced all evidences and filed all the details before the AO during the course of assessment proceedings and the AO had on considering the same granted deduction u/s 35E of the Act and thereafter rectified its claim u/s 154 of the Act vide order 20.12.2006. There is no new material which has come to the possession of the AO based on which the reopening has been made. In fact all the material facts
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required for grant of deduction u/s 35E are on record and the AO had examined the same.
Merely mentioning that there is a failure on the part of the assessee in disclosing fully and truly all material facts in respect of this claim of the claim of deduction u/s 35E of the Act, as were necessary for assessment, in the reasons recorded, cannot per say fulfil the requirement of law when there is full disclosure of all the facts,. The requirement of the proviso to section 147 of the Act are not fulfilled in this case.
The Hon’ble Bombay High Court in the case of M/s. Hindustan Lever Limited vs ACIT and Ors 268 ITR 332(Bom) held as follows : “The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to what fact or material was not disclosed by the assessee fully and truly necessary for the assessment of that assessment year so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. “
In the case of Atma Ram Properties Private Limited vs DCIT 343 ITR 141 (Del) has held as follows :-
“Held, (i) that for the assessment year 1999-2000, the Assessing Officer had gone into the question of loans and advances from sister concerns. Figures and details were furnished. Full and true details were furnished but there was a lapse on the part of the Assessing Officer in not applying and invoking section 2(22)(e) of the Act. This lapse or error on the part of the Assessing Officer could not be attributed and regarded as a failure on the part of the assessee to make full and true disclosure of the material facts in the -original assessment proceedings. The reassessment for the assessment year 1999-2000 was not valid.
Applying the propositions of law laid down in the case laws cited above to the facts of the case, we hold that the proviso to section 147 is attracted. As there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the reassessment is bad in law.
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Even otherwise, no fresh material has come into the possession of the AO as is clear from the reasons recorded. The reopening is based on the very same material which was considered by the AO in the original assessment proceedings. Hence the re-opening of assessment is based on change of opinion. On this ground also the re- opening is bad in law. In the result the assessment order is quashed as bad in law and the appeal of the assessee is allowed. A.Y.2006-07 15. Grounds of appeal in this assessee’s appeal read as follows :-
“1(i)That the Ld. CIT(A) grossly erred on facts and in law in the determination of deduction u/s. 35E of the LT. Act, 1961 (hereinafter referred to as the Act).
(ii)That the Ld, CIT(A) failed to appreciate the fact that once the deduction, i.e., 1/10 th of the total expenditure is determined in the first year of the production/commencement of business, such figure cannot be disturbed in the subsequent years. Notwithstanding the fact that the appellant on its own filed the return reducing its claim.
(iii)That the Ld. CIT(A) grossly erred on fact and in law in the determination of the figure u/s. 35E of the Act, when the same was already determined in the first year of production/commencement of business i.e. assessment year 1998-99 and which has become final.
(iv)That the Ld. CIT(A) failed to appreciate that he had no authority in law in appellate proceedings to disturb the determination finally arrived at in the assessment year 1998-99.
2(i)That without prejudice to the above grounds, the Ld. CIT(A) grossly erred on facts and in law in not accepting the claim of deduction of Rs. 54,62,981/- u/s. 35E of the Act, as claimed in the return filed u/s.153A of the Act.
(ii)That the Ld. CIT(A) grossly erred on facts and in law in enhancing the income of the appellant by reducing the claim u/s. 35E of the Act, below the figure determined by the Assessing officer.
3(i)That the Ld. CIT(A) grossly erred on facts and in law in not accepting the claim of the appellant in respect of development expenditure amounting to Rs. 1,22,91,627/-, allowable as business expenditure u/s. 28/37 of the Act.
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(ii)That the Ld. CIT(A) grossly erred on facts and in law in restricting the claim of the appellant to Rs.22,91,627 out of the total development expenditure of Rs. Rs.1,22,91,627/-.
(iii)That the Ld. CIT(A) grossly erred on facts and in law in not appreciating the contention of the appellant that the development expenditure was incurred necessarily and exclusively for the purposes of business and that the same qualified for claim as revenue expenditure u/s. 28/37 of the Act.
That the Ld. CIT(A) grossly erred on fact and in law in passing the impugned order and in ignoring the various contentions and submissions and evidences filed by the appellant in support of its claim under sections. 35E and 28/37 of the Act. The CIT(A) has relied on irrelevant consideration and therefore, the order requires to be set aside and the claim of the appellant or the claim allowable under the Act has to be allowed.
That the appellant craves leave to add, to alter, to amendments and or withdraw any of the above grounds of appeal before or at the time of hearing of the appeal.”
Ground No.1 and 2 is on deduction u/s 35E of the Act. The ld. CIT(A) has at para-4, page-2 of his order stated that he based his decision in his own order for A.Y.2002-03.
We have squashed the reassessment order for A.Y.2002-03. Consequently the finding of the ld. CIT(A) on this issue for A.Y.2002-03 does not survive. Hence we set aside this issue to the file of the AO, for fresh adjudication in accordance with law.
Ground No.3 is on the issue of allowability of the claim of the assessee for development expenditure. The details of the expenditure are given at para 6.2. of the order of the ld. CIT(A). The assessee has filed an application for the admission of additional evidence on this issue. On a careful consideration of this application we are of the considered view that the assessee was prevented by sufficient cause from furnishing these evidences before the First Appellate Authority or AO. Hence we allow this application of the assessee and admit this additional evidence. The additional evidence is in the form of order of exemption passed by D.G.I.T.
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(Exemption), Kolkata. The claim of the assessee for deduction u/s 80G of the Act, for a sum of Rs.1 crore paid to West Bengal Family Welfare Samity was disallowed, on the ground that there is no certificate of exemption from Directorate of Exemption, Kolkata.
As this alternative claim of the assessee has to be considered by the AO in the light of this new order of Director of Income Tax (Exemption), Kolkata dated 08.05.2006 we set aside this ground to the file of the AO for fresh adjudication in accordance with law.
In the result the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 17th November, 2017.
Sd/- Sd/- [S.S.Viswanethra Ravi] [ J.Sudhakar Reddy ] Judicial Member Accountant Member Dated : 17/ 11/2017. [RG PS] Copy of the order forwarded to: 1.M/s. Bengal Emta Coal Mines Limited, 2/6, Sarat Bose Road, Kolkata-20. 2D.C.I.T., Central Circle-XVI, Kolkata. 3. C.I.T.(A)- Central-II, Kolkata 4. C.I.T-Central-II, Kolkata 5. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,
Senior Private Secretary Head of Office/D.D.O, ITAT Kolkata Benches