R.S. SYAL, ACCOUNTANT MEMBER (AS A THIRD MEMBER)
SANJAY ARORA AND T.R. MEENA, ACCOUNTANT MEMBER 
R.P. TOLANI AND R.K. GUPTA, JUDICIAL MEMBER

ORDER

Per Bench - These are two cross appeals by assessee and department against the order of Ld. CIT (A) relating to assessment year 1998-99.

2. In assessee's appeals three grounds of appeal have been taken. First ground is against confirming the disallowance of Rs. 1,65,50,474/- on account of prior period expenses.

3. Brief facts in this regard are discussed in the order of Ld. CIT (A) in para 2 at pages 3 & 4 of his order as under :—

"2. The first ground of appeal is regarding the disallowance of Rs. 1,65,50,474/- being prior period expenses. The assessee is doing the business of production of zinc, lead, and other allied products. It has been stated by the AO that the facts relating to prior period adjustments are the same as in earlier years. The details of prior period adjustments appear in Schedule 19 of the printed Annual accounts. As per this schedule, the assessee has debited an amount of Rs. 176.34 lacs. The assessee adjusts the debit and credit entries and only the net amount is taken to P L Account. The AO did not accept this method of accounting. It has been stated by the AO that the assessee has taken steps in separately addling back certain items of prior period expenses on selective basis, like adding back the depreciation to the extent of Rs. 10.84 lacs. It was claimed by the assessee that the above expenses had crystallized during the year under consideration and therefore, the same allowable. It has been observed by the AO that it is only because of non-receipt of expenses details from various units of the assessee or other reasons, the items mentioned in Schedule 19 remains to be adjusted even though they patently pertain to earlier years. While computing the income of a particular assessment year , this type of adjustments on estimate basis is not permissible, since income of a particular year is not influenced by items pertaining to other years unless the liability is fastened upon the assessee. In view of the above, it has been held by the AO that the above claim is not allowable. It has been observed by the AO that the assessee has itself added back an amount of Rs. 10.84 lacs on account of depreciation. Therefore, the AO excluded this amount and made an addition of Rs. 1,65,50,474/- on account of disallowance of prior period expenses.

2.1 During the course of appellate proceedings, it has been submitted by the appellant that it has debited Rs. 176.34 lacs to the Profit & Loss Account as prior period adjustments (Refer Schedule 19 of the Annual Accounts). Out of this, an amount of Rs. 10.84 lacs has been disallowed by the assessee itself while filing the return of income. The AO disallowed the balance amount of Rs. 165.50 lacs. It has been stated that the position in respect of prior period adjustments is the same in earlier years. It has been submitted that in the exceptional circumstances only the appellant accounts for the expenditure pertaining to a particular year in the subsequent years. These circumstances may be the following:-

(i)		Delayed receipt of the bills from the payees.
(ii)		Typical internal check system in operation in the company where verification takes time and therefore, crystallization of liability takes longer time.

It has been stated that in the case of Instrumentation Ltd., the Hon'ble ITAT Jaipur Bench has held that in the case of multi unit companies where units and functions are geographically spread all ever the country, earlier year expenses are inevitable and they should be allowed. The assessee has also relied on the following decisions:-

(a)		CIT v. Nathmal Tolaram [1973] 88 ITR 234 (Gauhati)
(b)		Saurashtra Cement & Chemical Industries Ltd. v. CIT [1994] 122 CTR 329 (Guj.)

It has been stated that similar disallowance has been deleted by the ld. CIT(A) in the assessment year 1996-97, in view of the above it has been requested to delete the disallowance of Rs. 1,65,50,474/-."

4. After considering the submissions and perusing the material on record, Ld. CIT (A) confirmed the action of the Assessing Officer by observing his observations in para 2.2 at pages 4 & 5 as under :—

'2.2 I have considered the objection of the AO and the contentions of the appellant. The appellant has claimed prior period expenses of Rs. 176.34 lacs as per Schedule 19 of the Annual Accounts. Out of the above, the appellant has added back an amount of Rs. 10.84 lacs in respect of depreciation. In respect of this issue, the Hon'ble ITAT Jodhpur Bench, Jodhpur vide its decision dated 30-09-2002 in the case of appellant for the assessment year 1992-93 (ITA 693 (JP)/1998-99) has held as under:-

"From the above legal position as enunciated by Hon'ble Courts and also the principle of accountancy, when the assessee is following mercantile system of accounting deduction for liability can be allowed only when the year in which it arose or only in the year to which it pertained or during the year when it was crystallized or quantified or determined. The principle of following a particular system which is not as per the provision of accountancy and not as per the provisions of law cannot be allowed to persist. It was also held in the case of CIT v. British India Ltd. (1991) 188 ITR 44 (SC) that even if the assessee had adopted a regular system of accounting it was the duty of the AO to consider that the correct profits and gain could be deduced from the accounts so maintained. It was pointed out by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg Co. Ltd. v. CIT (1971) 82 ITR 363 that the liability which had accrued is allowable in the year of its accrual. This may be disputed in appeal. Therefore, the order of the ld. CIT(A) is reversed on this point and as such no deduction of Rs. 1,54,34,502/- is to be allowed."

Respectfully following the above decision of Hon'ble ITAT Jodhpur Bench it is held that appellant is not entitled to deduction of prior period expenses of Rs. 1,65,50,474/-. Accordingly, the addition made of Rs. 1,65,50,474/- on account of above disallowance is confirmed.'

5. The Ld. A/R has filed written submissions which are placed on record. Written submissions were explained further during the appellate proceedings. It was further submitted that Ld. CIT (A) has considered the order of Tribunal for A.Y. 1992-93 but has ignored the decision of the Tribunal for assessment years 1993-94 to 95-96 on the same issue, copy of the order is placed on record. It was further submitted that though the Tribunal while deciding the appeal for A.Y. 1997-98 has again decided the issue against assessee, however, the Tribunal has ignored the decision of earlier Bench of the Tribunal for assessment years 1993- 94 to 95-96. It was further submitted that from inception of the company such expenses are claimed. The nature of expenses are such which require approval of the higher authorities at various levels and whenever the approval comes, the expenses are booked at that point of time. In the present case approval came during the year under consideration and, therefore, they have claimed in the year under consideration though these expenses relate to prior period. No deduction has been claimed in the earlier year as those expenses claimed now were not approved at the relevant point of time. The assessee company was Government of India Undertaking at that point of time. Therefore, there was no intention of the assessee to evade tax. Further reliance was placed on the written submissions placed on record.

6. On the other hand, the Ld. D/R placed reliance on the order of Assessing Officer. Further reliance was placed on the order of the Tribunal for assessment year 1997-98, copy of which is placed along with chart filed by Ld. D/R.

7. We have heard the rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find that proper facts of the case have not been appreciated by the lower authorities, There is no dispute that during the year under consideration the assessee company was held by the Government of India and so was subjected to C & AG audit over and above the normal statutory audit under the Companies Act. The company has also been subjected to a separate tax audit under section 44AB of the Act. The company had submitted its return on 30 11 998 declaring income of Rs. 201,58,70,180/- The assessment was completed on 1.3.2001 on an income of Rs. 249,00,98,883/- by the Additional Commissioner of Income-tax. Various disallowances were made by the Assessing Officer including the disallowance of Rs. 1,65,50,475/- on account of prior period expenses. We noted that one of the contentions of the Assessing Officer was that the concerned liability had crystallized during the year had not been found to be factually correct. This, according to the Assessing Officer, supported by the fact that the assessee had debited depreciation and included in the column of debit which was notional out going and it did not represent any bionary transaction. Thus depreciation was required to be adopted in the accounts in concerned accounting period itself. However, the Assessing Officer has ignored the fact that the assessee had itself added back an amount of Rs. 10.84 lacs on account of depreciation leaving the balance amount of Rs. 1.65 crore or odd on account of prior period expenses. The Ld. CIT (A) has not taken into consideration the factual aspects and has ignored the order of the Tribunal for subsequent years i.e. 1993-94 to 95-96. We have also taken into consideration the order of the Tribunal for A.Y. 1997-98 by which the claim of the assessee had been rejected. However, we find that for A.Y. 1993-94 the Tribunal has allowed the identical claim of the assessee while deciding the appeal in ITA No. 227/JP/1994 dated 10.4.2002, copy of which is placed in the paper book. It is further seen that the Jodhpur Bench for assessment year 1995-96 vide order dated 23.1.2008 in ITA No. 640/JU/1998 has allowed similar claim by passing a speaking order. The relevant finding of the Tribunal are as under :—

"Considering the volume of transaction of the company as such and considering the fact that the taxation rate being the same from one year to another year, it does not make any difference whether the expenses are allowed in the year or in the earlier years. Though clearly the assessee could not be given the allowance for deduction in the year and may also have lost the benefit of claim in the earlier years as earlier years may not be pending, but it is not the case of the assessee that expenses were knowingly not charged to the accounts. The case of the assessee is that as there was a time limit for finalization of the accounts, the accounts department at the Head Office could not wait for any further for receipt or the information from the branches though it could be argued that provision could have been made but as already observed earlier, it is a case of company where the rate of taxation being the same, we hold that the expenses be allowed in the year."

However, as stated above, these decisions were not taken into consideration by the Tribunal while deciding the issue due to over sight. It is further seen that various cases have been considered by the Tribunal. However, as per written submissions they were not confronted to the assessee before applying the text of those cases. The Ld. Counsel of the assessee has tried to distinguish the various cases considered by the Tribunal while rejecting the ground for assessment year 1997-98. However, now we cannot comment/ should not comment on the finding given by the Tribunal for assessment year 1997-98. However, the fact remains that the Jodhpur Bench has allowed the identical issue for assessment years 1993-94 to 95-96. We are also of the view that since these expenses were crystallized during the year under consideration for the reason that they were not approved by the appropriate authorities in the relevant year when these expenses were incurred. However, as stated above, these expenses were approved in this year, therefore, they were claimed during the year under consideration. Accordingly, we are of the considered view that these expenses are allowable as allowed in the past also. However, as stated by Ld. A/R, no details were filed before the AO during the assessment proceedings, therefore, we restore the issue to the file of the Assessing Officer to consider those details which will be filed by assessee and then allow if he feels that they are allowable. It is also a matter of fact that in A.Y. 1994-95 the matter was sent back to the file of Assessing Officer by the Tribunal and after considering the details, the Assessing Officer has himself allowed the claim of the assessee. Accordingly, we restore this issue to the file of the Assessing Officer.

8. Second ground in appeal of the assessee is against confirming disallowance of Rs. 77,000/- in respect of amount written off on account of other adjustments.

9. This issue has been discussed by the Ld. CIT (A) at pages 10 to 12 of his order. In fact, an amount of Rs. 8,82,69,155/- was disallowed by the Assessing Officer and Ld. CIT (A) following the order of the Tribunal for assessment year 1996-97 decided on 24.4.2002 allowed the claim of the assessee except a sum of Rs. 77,000/- for which no details or basis of write off has been furnished.

10. After considering the order of Ld. CIT (A) and submissions of the assessee, we find no infirmity in the finding of Ld. CIT (A) in disallowing the claim of Rs. 77,000/- on account of write off as no details were furnished even before Ld. CIT (A) neither any details were available here before the Tribunal. Accordingly we confirm the order of Ld. CIT (A) in this respect.

11. Remaining ground in appeal of assessee is against confirming the disallowance of Rs. 304.82 lacs out of extra-ordinary items relating to amount written off as a result of closure of Degana Tungsten Mine. Bifurcation of this amount are as under:-

Tungsten Ore	Rs. 154.06 lacs
Capital work in progress	Rs. 59.36 lacs
Mine Development Expenses	Rs. 91.39 lacs

This issue has been discussed by Ld. CIT (A) at pages 20 to 24 of his order.

12. The brief facts in this regard have been discussed by Ld. CIT (A) in para 8 and 8.1 at pages 20 to 22 are as under:—

'8. The seventh ground of appeal is regarding the disallowance out of extraordinary items. The assessee has claimed deduction of Rs. 455.68 lacs on account of extraordinary expenses (net). It has been stated by the AO that in note no.10 in Schedule 20 of the details in this regard are mentioned as under-
"Extraordinary items consist of adjustment towards write off of tungsten ore Rs. 154.06 lacks, provision for fixed assets/ terminal depreciation of Rs. 150.87 lakh, capital work in progress Rs. 59.36 lakh and mine development expenses Rs. 91.39 lakh consequent to approval of closure of Degnna unit by Ministry of Labour, Govt, of India vide letter No. L-43024/4/97-IR(Misc.) dated 6th August, 1997."

It was submitted by the assessee that Degana Mines was closed during the year on account of non-profitability. The AO has noted the observation given in the Directors report as under-

"Your Company had taken over Degana Tungsten Mine from the Rajasthan State Tungsten Development Corporation, a Govt. of Rajasthan Enterprise in 1991, the poor metal content, accompanied by a crash in the internal price and the inadequate tariff, rendered in operation of this mine, your Board approved, to closure of the mine. The employees who had not opted for voluntary retirement scheme of the company have been suitably deployed in other operating units of the company.

All the usable equipment has since been shifted to other units and the necessary statutory formalities have already been initiated. The mine will be handed over to the Govt, of Rajasthan in due course of time as per the applicable provisions."

It has been observed by the AO that Degana Unit which was hither to run by the assessee as one of the units for production of Tungsten in contrast to its normal business activity of production of lead/zinc and other concentrates. Thus the assessee's unit at Deganna was its distinct business which stands closed down during the year by write off of its all assets, both fixed assets and stock in trade. It has been stated by the AO, this cannot be allowed as a set off from the normal profit of the assessee from its remaining business of mining, manufacturing/ production of metal and their concentrates, as it has no nexus with the other activities of the assessee. It has been observed by the AO that this .does not constitute expenses as such but it is only notional write off of assets in the books of the assessee just to tamper with the profit of the business to its advantage. It has been stated by the AO that had this business of the unit been in operations and looses were incurred the same could have been conveniently given set off as per the principles of accountancy as has been done in the past many years. However, the situation here is different. Here the assessee has attempted to deduct the very cost of its produce namely tungsten ore , mine development expenses and fixed assets hitherto used for mine operation etc. which cannot be allowed. In this connection, the AO has placed reliance on the following judgements.

(i)		J.R. Mehta v. CIT [1980] 126 ITR 476 (Bombay)
(ii)		CIT v. Gemini Cashew Sales Corp (1967) 65 ITR 643 (SC)
(iii)		Venkatesa Colour Works v. CIT [1977] 108 ITR 309 (Mad.)

It has been stated by the AO that the assessee has added back an amount of Rs. 1,50,86,250/- against the total loss of Rs. 4,55,68,000/- in respect of provision for depreciation on fixed assets/ terminal depreciation. In view of the position of law as explained in the above judgements, the AO disallowed the balance claim of Rs. 3,04,81,750/-.

8.1 During the course of appellate proceeding, it has been submitted by the appellant that it has closed down its unit at Deganna during the year after approval from Ministry of Labour Govt, of India. The facts of the closure have been discussed above. It has been stated that all the usable equipments have since been shifted to other units and necessary statutory formalities have already been initiated. The mines at that unit were to be handed over to the Govt, of Rajasthan as per applicable provisions. It has been stated that the following balances in the books of Degana unit were written off as a result of this closure and shown as extraordinary items.

	(i) Tungsten Ore	Rs. 154.06 lacs
	(ii) Provision for fixed assets/terminal depreciation	Rs. 150.87 lacs
	(iii) Capital work in progress	Rs. 59.36 lacs
	(iv) Mine Development Expenses	Rs. 91.39 lacs
		Rs. 455.68 lacs

Out of above, the assessee has claimed a deduction of Rs. 304.81 lacs from item no. (i), (iii) & (iv) The assessee has not claimed deduction for item no. (ii), provision for fixed assets/ terminal depreciation. It has been stated that the assessee company is carrying on the business of mining beneficiation, search, prospect, get, win, sell dispose deal, smelt etc. in minerals and metals and alloys of all kinds. The company is carrying on the business though its mining and manufacturing units at various places, central sales office at Delhi and registered office at Udaipur. The Board of Directors is in overall control of entire business activity carried out by the company. There is a common fund from which necessary capital and working funds are supplied to the various units. It has been stated that even if different books of account are maintained and the transactions inter-se between the different units were recorded in those books of account, that circumstances would be insignificant once it was found that ultimately there was a common profit and loss account and balance sheet. It has therefore, been stated that there is complete interconnection, interlacing, interdependence and dovetailing of the activities carried on at all units of the assessee and all the activities constituted one and the same business. Therefore, the Degana unit constituted the part of the same business. In this connection, the appellant has relied on the decision of Hon'ble Gujarat High Court in the case of Bansidhar (P) Ltd. v. CIT[1981] 127 ITR 65. In view of the above, it has been stated that expenditure / losses due to write off are allowable in computing the income of the assessee company.

It has been stated that Tungsten ore of Rs. 154.06 lacs is part of stock in the books of account of the company, which would not realize any value for the company. Therefore, such loss is allowable in computing the total income. Similarly, Mine Development Expenditure of Rs. 91.39 lacs incurred by the assessee company has also become unproductive expenditure and has been written off by the company. This expenditure was incurred in preceding years and has not been claimed by the assessee in those years. The other amount of Rs. 59.36 lacs includes an amount of Rs. 48.71 lacs towards Departmental labour cost, material cost and overheads incurred in construction of road to Hill Top and Rs. 10.65 lacs has incurred towards consultancy charges for preparing Environment Management Plan for Degana Unit. Entire expenditure has been incurred after taking over of the unit in 1991. It has been stated that closure of the unit is bona fide business decision in the interest of the company. In view of the above facts, it has been requested to allow the deduction of Rs. 304.81 lacs.'

13. After considering the submissions and perusing the material on record, the Ld. CIT (A) has rejected the claim of the assessee by giving his finding in para 8.2 at pages 22 to 24 as under :—

'8.2 I have considered the observations of the AO and the contentions of the appellant. During the year, the assessee closed down its unit at Degana after approval from Ministry of Labour, Govt. of India. In this connection, the relevant note in Directors report dated 01/09/98 is relevant. This note is again reproduced below:-

"Your Company had taken over Degana Tungsten Mine from the Rajasthan State Tungsten Development Corporation, a Govt. of Rajasthan Enterprise in 1991. The poor metal content, accompanied by a crash in the international price and the inadequate tariff, rendered the operation of this mine uneconomical. In the absence of supportive measure to sustain the operation of this mine, your Board approved, to closure of the mine. The employees who had not opted for voluntary retirement scheme of the company have been suitably deployed in other operating units of the company.

All the usable equipment has since been shifted to other units and the necessary statutory formalities have already been initiated. The mine will be handed over to the Govt. of Rajasthan in due course of time as per the applicable provisions."

It has been stated by the appellant that the following balances in. the books of Degana unit have been written off as a result of this closure and shown as extraordinary items:-

	(i) Tungsten Ore	Rs. 154.06 lacs
	(ii) Provision for fixed assets/terminal depreciation	Rs. 150.87 lacs
	(iii) Capital work in progress	Rs. 59.36 lacs
	(iv) Mine Development Expenses	Rs. 91.39 lacs
		Rs. 455.68 lacs

Out of above, the assessee has claimed a deduction of Rs. 304.81 lacs for item nos. (i), (iii) & (iv). The appellant has not claimed the deduction for item No. (ii) relating to provision for fixed assets/ terminal depreciation amounting to Rs. 150.87 lacs which has been added back in the computation of total income. In the case of CIT v. Germini Cashew Sales Corp. [1967] 65 1TR 643, the Hon'ble Supreme Court while deciding the issue of deduction of retrenchment compensation payable on transfer of business has held as under:-

"Profits of a business involve comparison between the State of the business at two specific dates. Normally the liability which occurs after the last date, unless its source is in a pre-existing definite of obligation, cannot be regarded as a part of the outgoing of the business debitable in the profit and loss account. A deduction which is proper and necessary for ascertaining the balance of profits and gains of the business is undoubtedly properly allowable, but where a liability to make a payment arises not in the course of business, not for the purpose of carrying on the business, but springs from the transfer of the business it is not a properly debitable item in its profit and loss account as a re-venue outgoing."

In the case of Venkatesa Colour Works v. CIT [1977] 108 ITR 309, the Hon'ble Madras High Court by following the above decision of the Hon'ble Supreme Court has held that a deduction which is proper and necessary for ascertaining the balance of profits and gains of the business is undoubtedly properly allowable, but where a liability to make a payment arises not in the course of the business, not for the purpose of carrying on the business but springs from the closure of the business it is not a properly debitable item in the profit and loss account as a revenue outgoing.

In the case of the appellant, the entire mine development expenditure has been incurred in the preceding years. Further mine development expenditure and capita! work in progress are in the nature of capital expenditure, which therefore, cannot be allowed a deduction as business expenditure. In respect of tungsten ore of Rs. 154.06 lacs it has been stated by the appellant that the same formed a part of stock in the books of the company. It has only been presumed that it would not realize any value for the company. In view of the above facts and position of law the above amounts are not allowable as a deduction as a Revenue expenditure. As mentioned above in the Directors report dated 1/9/98, it has been mentioned that the mine will be handed over to Govt. of Rajasthan in due course of time as per the applicable provisions. Therefore, the concerned unit was not handed over to the Govt. of Rajasthan in the F.Y. 1997-98 relevant to A.Y. 1998-99. Therefore, although the mine has been closed by the appellant company, it has not yet been transferred to Govt. of Rajasthan. Therefore, the above claim in any case is premature. In view of the above facts, the AO was justified in disallowing the deduction claimed of Rs. 3,04,81,750/-. Accordingly, the addition made of Rs. 3,04,81,750/- on account of above disallowance is confirmed.'

14. The Ld. Counsel of the assessee who appeared before the Tribunal, placed reliance on the written submissions placed on record.

15. On the other hand, the Ld. D/R has placed reliance on the orders of the Assessing Officer and Ld. CIT (A). This appeal was heard on 9.2.2012. Thereafter Ld. Counsel of the assessee requested to re-fix the case by letter dated 17.4.2012 as they want to file further written submissions. The case was re-fixed on 8.5.2012 on which date the Ld. Counsel of the assessee filed an additional written submissions on this point which were taken into consideration. Advance copy of the same was given to Ld. D/R who has again relied on the orders of the Assessing Officer and Ld. CIT (A) and has also filed a chart of additions made, with a brief written submission dated 9.2.2012.

16. We have heard rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find that assessee deserves to succeed on this ground in part and partly for statistical purposes. These expenses were incurred by assessee on Degana Tungsten Mine. In fact, the Degana Tungsten Mine was taken over by the assessee company on 4.6.1991 from Rajasthan State Tungsten Development Corporation, a Rajasthan Government Undertaking for development of strategic minerals for Defence with a support price of Rs. 1.85 lac per MX. Since its taken over, the Defence Metallurgical Research Laboratory had not shown any interest to take metals from the assessee company as the metal was easily available at much lower price in the international market due to subsequent liberalization of economic policy of the Government. The total amount of loss incurred on Degana Project was over Rs. 12 crore since June, 1991 when this unit was taken over. Details of loss in various years have been given in the 2nd written submissions at page 2 filed on 2.5.2012 by the assessee. These expenses relate to various heads i.e. Voluntary Retirement Schemes because of the reason that since this unit was suffering losses therefore company thought it proper to retire some of the persons by introducing a retirement scheme. Out of 147 persons, 51 persons remained on the role and remaining were retired as per scheme. The company had made a request to the Secretary, Government of India, Ministry of Labour under section 25(o) of Industrial Disputes Act, 1947 for according permission to close the mines. Notice of the same was given. Application dated 27.4.91 was also submitted to RSEB for curtailment of power. The Administrative Ministry was apprised regarding the issue of Degana Tungsten Mine in the meeting held on 20.5.1997 and was informed that there was no possibility of economic viability of Degana Mine and recommended for closure. Various resolutions were passed. Office notes were made and whatever the expenses were incurred on this unit, they were claimed as revenue expenditure in the Profit & Loss account. However, the AO made disallowances by observing that Degana Unit was a distinct business entity which stands closed down during the year by writing off of all its assets, both fixed assets and stock in trade, which cannot be allowed as a set off from normal profit of the assessee from its remaining business of mining, manufacturing/production of metal and their concentrates, as it has no nexus with the other activities of the assessee and this does not constitute expenses as such but it is only notional write off of assets in the books of the assessee just to tamper with the profit of the business to its advantage. While holding so, reliance has been placed by the AO on the decisions Hon'ble Supreme Court and various High Courts in CIT v. Gemini Cashew Sales Corpn. [1967] 65 ITR 643 (SC), J.R. Mehta v. CIT [1980] 126 ITR 476/4 Taxman 522 (Bom.) and Venkatesa Colour Works v. CIT[1977] 108 ITR 309 (Madras). As stated above, the Id. CIT (A) has also confirmed the action of the AO.

17. After considering these facts and submissions of the assessee, we noticed that the action of the AO treating this unit as distinct from other business activity, in our considered view is not correct. The assessee had various mining units i.e. Zawer Mines (Rajasthan), Rampura Dariba Mines (Rajasthan), Agnigundala Lead Project (Andhra Pradesh) and Sargipalli Mines (Orissa) etc. etc. Similarly, assessee owned Degana Tungsten Mine also situated at Rajsthan. All these units producing Zinc and lead, raw phosphate and converting into concentrate. Degana Tungsten Mine producing Tungsten ore and converting into concentrates. Besides this unit, the assessee company has also smelting units situated in Andhra Pradesh, Rajasthan and Bihar. All the units are under same Management, control of units are there, decision making authority is one i.e. constituted by various persons of company as well as Government of India. They pass resolution and then activity of business are carried out, funds are used from a common pool. Therefore it cannot be said that Degana Unit cannot be said that the same is a separate and distinct from other units. It has to be taken as a part of compact business of the assessee company. Audits of all the units are completed and a composite Profit & Loss account is prepared.

17.1 In the case of CIT v. Prithvi Insurance Co. Ltd. [1967] 63 ITR 632 (SC), the Hon'ble Supreme Court has held that the respondent company was entitled to set off of the claim by it as the life insurance business and the general insurance business of the company constituted as one composite business. The inter-connection, inter-lacing, inter-dependence and unity work was functioned by the existence of common management, common business organization, common administration, common fund.

17.2 In the present case also all these ingredients are present as assessee company also has a composite business.

17.3 Similar view has been expressed by the Hon'ble Supreme Court in case of Produce Exchange Corporation Ltd. v. CIT [1970] 77 ITR 739. In this case the decision of Hon'ble High Court was reversed and the order of Tribunal was confirmed, who held that the share business and other business carried on by the appellant company constituted the same business within the meaning of section 24(2) as it stood before its amendment in 1955.

17.4 Similar view has been expressed in case of Standard Refinery & Distillery Ltd. v. CIT (Central) [1971] 79 ITR 589 (SC). There are various other decisions also which support the case of the assessee which are B.R. Ltd. v. V.P. Gupta, CIT [1978] 113 ITR 647 (SC), CIT v. Udaipur Distillery Co. Ltd. [2004] 137 Taxman 351 (Raj.), Bansidhar (P.) Ltd. v. CIT [1981] 127 ITR 65/5 Taxman 158 (Guj.), CIT v. J & S (P.) Ltd. [1992] 193 ITR 572/[1991] 54 Taxman 513 (Delhi), CIT v. MGF India Ltd. [2005] 272 ITR 191 (Delhi) and various more mentioned in the written submission. After going through these decisions, we are of the view that the assessee is entitled for various expenses chimed in the Profit & Loss account on account of Degana Unit as Degana Unit is a part of composite unit. Since Assessing Officer has disallowed the claim of the assessee treating the same as a separate and distinct unit and we have held that this is not a separate and distinct and therefore these expenses are allowable. However, we feel that nature of these expenses are to be considered by the AO as the same has not been taken into consideration. Therefore, to consider the allowability of these expenses, we restore the issue to the file of the AO for allowing the same. There are two other type of expenses also. We feel that those expenses should also be taken into consideration by the AO afresh as no detailed reasoning have been given by the AO while rejecting the claim of the assessee on the ground that this is a separate and distinct unit. We order accordingly.

17.5 This ground of the assessee is allowed in part and partly for statistical purposes.
18. Now we will take the appeal of the department.
19. There are seven grounds in the appeal of the department. First ground is against deleting the disallowance of Rs. 6,88,62,383/- being mines development expenses.
20. The brief facts discussed by ld. CIT (A) in para 3 and 3.1 at pages 5 to 7 are as under:—

"3....During the year the assessee has claimed mine development expenditure on mines under production at Rs.568.07 lacs as per Schedule 14 to the Annual Accounts. The assessee also claimed a deduction of Rs. 1,25,38,383/- as mine development expenses incurred during the year. During the course of assessment proceedings it was submitted by the assessee that the above expenditure is a revenue expenditure allowable as a deduction u/s 37(1) of the I.T. Act, 1961 regardless of the manner of entries passed in the books of account. It has been stated by the A.O. that this issue has been discussed in the assessment order for the A.Y. 1997-98 where the assessee had claimed a deduction of Rs. 1,31,02,750/-. It has been observed by the A.O. that the assessee had claimed mine development expenses for the first time in assessment year 1996-97 and then in assessment year 1997-98 by revising its return of those years. It has been stated by the A.O. that the mine development expenses are to be dealt with in accordance with Section 35E of the I.T. Act, 1961. As per these provisions these expenses are to be spread over for a period of 10 years from the date of commercial production which period has expired long back. It has been stated by the A.O. that as per sub-section (8) of section 35E there is a clear bar in allowing the deduction on account of Mine Development Expenses which otherwise have already been allowed in the past. It has been stated by the A.O. that in view of the above provisions deduction cannot be allowed u/s 37 of the I.T. Act, 1961. It has been pointed out by the A.O. that since the nature of expenditure is described in Section 35E of the Act the above expenditure cannot be allowed u/s 37(1) of the I.T. Act, 1961. In view of the above the A.O. did not allow the deduction of Rs. 6,93,35,383/-.

3.1 During the course of appellate proceedings it has been submitted by the appellant that it had incurred the following expenditure on Mine Development:

(i)		An expenditure of Rs.568.07 lacs on development of mines under production which has been debited to profit and loss account in Schedule 14 relating to "Manufacturing & Other expenses".
(ii)		An expenditure of Rs.125.28 lacs on extension of existing mines as presented in Schedule 4.1 of the annual accounts. This is being amortised in the profit and loss account as per accounting policy III(d)(ii) of the company.

It has been stated that the A.O. has disallowed both these amounts by giving the finding that the expenditure on development of mines is allowable u/s 35E of the Act. It has also been stated that as the expenditure is allowable u/s 35E, the same is not allowable for deduction u/s 37(1) of the I.T. Act, 1961. It has been stated by the appellant that no claim has been made u/s 35E in respect of these expenditure on development of mines incurred during the year. Further Section 35E of the I.T. Act, 1961 allows claim of expenditure on mine development incurred before the commencement of commercial production by an assessee. This section does not apply in the present case as the company had started its commercial activities long back. It has been submitted that Mine Development Expenses of Rs.568.07 lacs have been incurred for continuation of excavation of minerals from the mines which are already in production. Since the expenditure is recurring expenditure incurred for continuation of mines under production and has direct nexus with the cost of excavation of minerals, the same is a revenue expenditure and allowable u/s 37(1) of the I.T. Act, 1961. In this connection the assessee has relied on the decision of Hon'ble Bombay High Court in the case of CIT v. J.A. Trivedi Brothers [1979] 117 ITR 983 wherein it has been held that expenditure for earth digging is an integral part of profit earning process when it is incurred while the business is going on. Since, such expenditure is not for initial outlay or for the purpose of extension of business. The same is revenue is nature. It has been pointed out by the appellant that the above expenditure is being allowed to the assessee year to year. This issue was raised by the Commissioner of Income Tax, Udaipur in revision proceedings u/s 263 for the A.Y. 1997-98. These proceedings have since been dropped vide order dated 18.3.2002. In view of the above it has been requested to allow the deduction of Rs.568.07 lacs in respect of Mine Development Expenses on mines under production. In respect of mine development expenditure of Rs. 125.28 lacs. The assessee had made submissions which are similar to that made for the A.Yrs 1996-97 and 1997-98. These have been discussed in my appellate order No.280/IT/UDR/99-2000 dated 25.11.2003 in the case of the appellant for the A.Y. 1996-97. Therefore the same is not reproduced here."

21. After considering the submissions and the order of AO, the ld. C1T (A) gave the following finding recorded in para 3.2 at pages 7 to 10:—

"3.2 I have considered the observations of the A.O. and the contentions of the appellant. During the year under consideration the assessee has incurred the following expenditure on Mine Development.

(i)		Rs.568.07 lacs on development of mines under production as mentioned in Schedule 14 relating to "Manufacturing & Other expenses". This has been debited to P & L account.
(ii)		Rs.125.28 lacs on extension of existing mines as presented in Schedule 4.1 of the annual accounts. This expenditure has been claimed in the computation of total income.

The A.O. has disallowed both those amounts by holding that the above expenditure is allowable u/s 35E of the IT. Act, 1961 and therefore the same cannot be allowed as a deduction u/s 37(1) of the I.T. Act, 1961. It has been pointed out by the appellant that the Mine Development Expenses of Rs.568.07 lacs have been incurred for continuation of excavation of minerals from the mines which are already in production. This expenditure is a recurring expenditure incurred for continuation of mines under production. In the case of CIT v. J.A. Trivedi Brothers [1979] 117 ITR 983 the Hon'ble Bombay High Court has held that the expenditure incurred for earth digging is an integral part of profit earning process when it is incurred while the business is going on. Since, such expenditure is not for initial outlay or for the purpose of extension of business, the same is allowable as revenue expenditure.

Since the above expenditure of Rs.568.07 lacs has been incurred in respect of the mines which are already under production, therefore the same is a revenue expenditure. Respectfully following the decision of Hon'ble Bombay High Court it is held that the above expenditure of Rs.568.07 lacs is a revenue expenditure, in view of the above facts the A.O. was not justified in disallowing the above expenditure of Rs.568.07 lacs.

Therefore ihe addition made of Rs.568.07 lacs on account of above disallowance is deleted.
The break up of Mine Development expenses are as under:

	Sl. No.	Name of Expenditure	Amount in Lakh (Rs.)	Remarks
	1.	Salary & Wages	55.25	Includes salary & wages of regular employees of the company employed for continuous mine development work/ extraction work.
	2.	Stores & Spares	19.02	Includes consumption of consumable stores & spares in the activity of mine development & extraction.
	3.	Depreciation	4.73	Being depreciation of the fixed assets used for the purpose of mine development & extraction work.
	4	Contractors Payments	0.70	Being payment to independent contractors for exploratory development work with the help of equipment and labour. These contractors are being paid mostly on the basis of the quantity of work done according to the rate of the concerned nature of work. Sample documents are enclosed for understanding the nature.
	5.	Others	45.49	Includes the following:-Mine development work. (i) Power/electricity cost in relation to the mine development work. (ii) Repair & Maintenance expenditure on asserts used for mine development work. (iii) Medical reimbursement of workmen employed for mine development work. (iv) Sample testing expenses. (v) Wages paid to temporary daily rated workers, arrears thereof and watch & ward expenses. (vi) Administrative, social overheads, compensation, tea, coffee, working meal expenses. (vii) Other small miscellaneous expenses of petty amount.
	Total		125.29

In Schedule 4.1 of the Annual Accounts, the expenditure on mine exploration and development has been reflected as under:
(Rs. In Lakh)

			As at 31.03.1998		As at 31.03.1997
	Opening Balance		3029.63		3091.21
	Additions:
	Salaries & Wages	55.25		50.51
	Stores & Spares	19.02		31.00
	Depreciation	4.73		3.59
	Mine development through Contractor	0.70		27.97
	Other expenses	45.59	125.29	21.55	134.62
	Deductions/Transfers
	Write off/adjustment	91.39
	Amortisation	214.24	305.63		196.20
			2849.29		3029.63

The above amount of Rs.125,29 Lacs includes depreciation of Rs.4.73 lacs which has also been taken into account u/s 32 of the I.T. Act, 1961. Therefore the same cannot be allowed as a part of mine development expenditure. Therefore the depreciation claim of Rs.4.73 has included in the mine development expenditure is disallowed. As per details submitted by the appellant the mine development expenditure has been incurred for mine exploration and development including approaching from surface to the underground for mine operation. It has been stated by the appellant that this is a continuous process to sustain the mining production regularly. The expenditure has been incurred after set up of business and during the course of business. In my appellate order for the assessment years 1996-97 and 1997-98. I have held the above expenditure is allowable u/s 37(1) of the I.T. Act, 1961. In these orders it has been held that the provisions of sub-section (8) of section 35E is not relevant here. This provision prohibits claim of deduction of the same amount at two places. The appellant has not claimed this expenditure u/s 35R. The appellant has claimed the deduction of Rs. 1,25,28,383/- which is mine development expenditure incurred during the year. As mentioned above this amount includes depreciation of Rs.4.73 lacs. As discussed above the depreciation of Rs.4.73 lacs included in the above expenditure is not to be allowed as a part of mine development expenditure. Therefore the expenditure of Rs.1,20,55,383/- is allowable as a deduction u/s 37(1) of the I.T.Act, 1961. The AO is directed to allow the deduction of mine development expenditure of Rs. 1,20,55,383/-."
22. The ld. D/R firstly placed reliance on the order of AO. It was further submitted that similar issue was involved for assessment year 1997-98. Tribunal has set aside this issue to the file of AO with direction to determine the deduction afresh in the manner as has been directed in assessee's own case in Tribunal's order dated 30.3.2009 for A.Y. 1996-97.

23. On the other hand, the ld. A/R of the assessee stated that ld. CIT (A) has allowed the issue in favour of the assessee following the order of Tribunal for assessment year 1996-97 and, therefore, order of ld. CIT (A) does not suffer from any infirmity. It was further submitted that for assessment year 1997-98 the AO has allowed the claim of the assessee for 1996-97 as per direction given by the Tribunal and this fact has been admitted by the department as in column no. 4 of the chart filed by ld. D/R it has been stated 'allowed as per the direction given by the ITAT'. Therefore, the order of ld. CIT (A) does not suffer from any infirmity.

24. After considering the orders of the AO and ld. CIT (A) and submissions of both the parties, we find no infirmity in the finding of ld. CIT (A) as ld. CIT (A) has allowed the issue in favour of the assessee following his own appellate order for assessment years 1996-97 and 97-98. The order of ld. CIT (A) for assessment year 1996-97 have been affirmed by the Tribunal as admitted by the department in col. No. 4 of the chart filed. Therefore, on the reasoning given by ld. CIT (A), we confirm his order as issue is squarely covered by the order of Tribunal for A.Y. 1996-97. For A.Y. 1997-98 also the Tribunal restored the issue to the file of AO to decide afresh in light of direction given by Tribunal for assessment year 1996-97. Though we are confirming the order of ld. CIT (A), however, if there is any change in figure in view of the decision of Tribunal for A.Y. 1996-97, the AO may rectify the amount of deduction as per direction of the Tribunal given for assessment year 1996-97. We order accordingly.

25. Second issue is against deleting the addition of Rs. 8,81,92,155/- out of Rs. 8,82,69,155/- made by AO in respect of amount written off on account of loss of stock, of raw material, finished goods, stores and spares etc.

26. This issue has been discussed by ld. CIT (A) at page 10 of his order starting from para 4. The brief facts has been discussed in para 4 and 4.1 at pages 10 and 11 are as under :—

"4. The third ground of appeal is regarding the disallowance of Rs. 8,82,69,155/- being the amount written off on account of loss of stock of raw material, finished goods, stores and spares and other adjustments. In Schedule 18 of the Annual Accounts the assessee has given the break up of write off and other provisions of Rs.976.50 lacs as under .
(Rs. In Lakhs)

		1997-98	1996-97
	Raw materials losses	552.63	417.31
	Finished goods losses	28.82	5.18
	Stores & spares	294.97	276.69
	Provisions for doubtful debts, advances & other	73.27	77.13
	Debit balances	0.10	0.20
	Leasehold land	0.42	0.42
	Loss on sale of fixed assets	10.74	0.20
	Enabling assets written off	9.79	0.79
	Deferred revenue expenditure	4.99	9.62
	Others	0.77	0.03
		976.50	787.57

It has been stated by the AO that the position of these items is same as in last year. The assessee has added back an amount of Rs.9,78,734/- on account of enabling assets, Rs.73,27,489/- on account of doubtful debts and Rs. 10,74,609/- on account of loss on sale of fixed assets. It has been observed by the AO that the balance of the items which pertain to write off of various assets of the assessee were also required to be disallowed as there was no legal basis for writing off the vital inventory of the assessee in respect of raw material, finished goods, stores and spares etc. It has been stated by the AO that although the Ld. CIT(A) has allowed the assessee's claim of write off in respect of raw material, finished goods, stores and spares and debit balance in the preceding years by Hon'ble Uttarakhand High Court in the case of the above decision has not been accepted by the department and an appeal has been filed before the ITAT. The AO therefore, disallowed the balance amount of Rs. 8,82,69,155/- and added the same to the total income.
4.1 During the course of appellate proceedings it has been submitted by the appellant that it has claimed the deduction of the following amounts as per schedule 18 of the Annual Accounts.

	Item	Amount (Rs. In lacs)
	Raw materials losses	552.63
	Finished goods losses	28.82
	Stores & spares	294.97
	Debit balances	0.10
	Leasehold land	0.42
	Deferred revenue expenditure	4.99
	Others	0.77
		882.70

It has been stated that in A.Y. 1996-97 the Ld. CIT(A) has allowed the claim of the assessee. Further the Hon'ble ITAT in its order for the A.Y. 1996-97 has allowed the relief to the assessee. In view of this it has been requested to delete the disallowance."

27. After considering the submissions, the ld. CIT (A) has given his finding in para 4.2 as under :—

"4.2 I have considered the observations of the AO and the contentions of the appellant. In the A.Y. 1996-97, the ld. CIT(A) has allowed the above claim except in respect of amounts relating to loss on sale of fixed assets, deferred revenue expenditure and write off lease hold land. The Hon'ble ITAT Jodhpur Bench vide its order dated 24.04.2002 for the assessment year 1996-97 has allowed the deduction for deference revenue expenses and writing off of lease money. Respectfully following the order of Hon'ble ITAT and the order of the ld. CIT (A), the AO is directed to allow deduction in respect of above items except for the item 'others' of Rs. 77,000/- for which no details or basis of write off has been furnished. Accordingly , the disallowance works out to only Rs. 77,000/-. Therefore, the addition made on account of above disallowance is reduced from Rs. 8,82,69,155/- to Rs. 77,000/-."

28. The ld. D/R placed reliance on the order of AO. It was further submitted that Tribunal has allowed the issue in favour of the department for A.Y. 1997-98 decided in ITA No. 249/JU/2004 dated 24.7.2009.

29. On the other hand, the ld. A/R of the assessee stated that in fact a mistake has been crept in the order of Tribunal by saying that similar claim was rejected by the Tribunal for A.Y. 1996-97 while deciding the appeal no. 449/JU/1999 dated 18.5.2008. The Tribunal has also mentioned in para 15 of its order for A.Y. 1997-98 that no details were furnished by the assessee to explain its case. However, in the present case all the details have been filed and they were examined by ld. CIT (A) also. Therefore, the order of ld. CIT (A) is liable to be confirmed.
30. After considering the submissions and perusing the material on record, we are of the view that this matter should go back to the file of AO to pass a fresh order after considering the order of Tribunal for A.Y. 1996-97 and for A.Y. 1997-98 and all other details filed by the assessee to claim the deduction. In the order of ld. CIT (A) also nothing has been mentioned except that, similar issue has been decided by the Tribunal for A.Y. 1996-97. Each year is independent year and each year's details are to be examined independently as res judicata does not apply in Income-tax proceedings. This is a ground in respect of written off loss of stock of raw material, finished goods, stores and spares etc. These items vary from year to year and, therefore, they need scrutiny. Accordingly we set aside the order of ld. CIT (A) and restore the matter to the file of AO for passing a fresh order in the light of our above observations and after affording reasonable opportunity of being heard to the assessee. We order accordingly.

31. Ground No. 3 is against deleting disallowance of welfare expenses under section 40A (9) of Rs. 3.5 crore.
32. The brief facts discussed by ld. CIT (A) in para 5 and 5.1 at pages 12 and 13 of his order are as under :—

"5. The fourth ground of appeal is regarding the disallowance of Rs. 3,50,00,000/- u/s 40A(9) of the IT. Act, 1961. It has been stated by the AO that in tax audit report the auditor has not pointed out any expenses which are disallowed u/s 40A(9) of the I.T. Act, 1961 as was pointed out in the report for the A.Y. 1996-97. During the course of assessment proceedings, it was contended by the assessee that contribution to various funds, clubs, canteen, company cooperative society etc. do come within the ambit of welfare expenses and therefore, these are allowable as such. In view of the past history of the case where this amount have been disallowed, the AO did not accept the contention of the assessee. It has been observed by the AO that the contribution to welfare funds, schools, clubs, community centre, cooperative society, canteen and other welfare activities come under the provisions of Section 40A for which no details were furnished by the assessee. It has been stated by the AO that the extent of such expenses ranges from Rs. 280 lakhs in assessment year 1996-97 to Rs. 337 lakhs in assessment year l997-98 (wrongly mentioned as Rs. 2.80 lakhs and Rs. 3.37 lakhs). The expenses are also increasing year after year. In the absence of relevant data, the AO estimated these expenses at Rs. 350 lakhs (wrongly mentioned as Rs. 3.50 lakhs). Following the assessment orders of earlier years, the AO disallowed an amount of Rs. 350 lakhs u/s 40A(9) of the I.T. Act, 1961 and added the same to the total income.

5.1 During the course of appellate proceedings, it has been submitted by the appellant that tax Auditor has not pointed out any expenses which are disallowable u/s40A(9). It has been stated that the AO has estimated the amount of Rs. 350 lakhs without providing adequate opportunity to the assessee to provide the details. The assessee is governed by the regulation of Industrial Dispute Act, Factories Act, Mining Act and Rules and other such legislation stipulating the provision of various facilities to the workers and other employees. Therefore, the assessee has to provide these facilities to its employees not only to get its statutory obligation for the same but also to maintain cordial relations with its employees. These payments are neither made to set up or form to any fund, trust etc. nor the assessee company has any control over the utilization of these funds directly or indirectly. It has been stated that the funds were exclusively paid to various bodies as per the agreement with the employees union in its business expediency to make and maintain relations with its employees. Therefore, these payments are excluded from the purview of Section 40A (9) of the I.T. Act . It has been stated that in assessee's case the Hon'ble ITAT Jodhpur Bench has allowed this ground in assessment year 1990-91. The assessee has also relied upon the decision of Madras and Hyderabad Bench of ITAT in 26 ITD 413 and 45 ITD 233 respectively. It has also been submitted that the ld. CIT (A) has also allowed assessee's claim in assessment years 1994-95 and 1996-97. In view of the above, it has been requested to delete the disallowance."

33. After considering the submissions, the ld. CIT (A) has given his finding in para 5.2 as under :—

'5.2 I have considered the observations of the AO and the contentions of the appellant. The Hon'ble ITAT Jaipur Bench vide its order in ITA No. 1128/ JP/94 dated 24-02-1998 in the case of appellant for the assessment year 1990-91 has held as under:-

"We have examined the facts of this ground of appeal and have perused the material relied upon. Undisputedly, the expenditure in question was made as per the agreement with the staff union and therefore, directly connected with the smooth running of the business of the assessee. It is also quite clear from the facts that the assessee has no direct or indirect control over the utilization of these funds as bulk of the fund viz. welfare fund Rs. 29,24,048/- and grant to central schools Rs. 3,84,435/- were directly related to the welfare activities of the staff and also getting admission to the children of the staff members in central school. It is also beach of the agreement worked out under the Industrial Disputes Act, the assessee could have been punished as per Section 29 of the Act. It is also worth noting here that the decision of the Madras and Hyderabad Bench relied upon by the assessee are fully applicable to the facts of this case. Under the circumstances, we have no hesitation in holding that the expenditure in question is clearly allowable. This addition therefore, stands deleted."

Respectfully following the above order of Hon'ble ITAT Jaipur Bench, the AO is directed to delete the disallowance of Rs. 3,50,00,000/-. Accordingly the addition made on account of above disallowance is deleted.'

34. The ld. D/R placed reliance on the order of AO. However, it was stated that this issue was set aside by the Tribunal for assessment year 1997-98. However, the AO has allowed after verification and as per direction given by Tribunal.

35. On the other hand, ld. A/R placed reliance on the order of ld. CIT (A).

36. After considering the submissions and perusing the material on record, we find that ld. CIT (A) was justified in allowing the claim of the assessee by following the order of Tribunal for assessment year 1990-91 and other decisions. We further noted that Tribunal while disposing similar issue for A.Y. 1997-98 has directed the AO to pass a fresh order after taking into consideration the decision of the Tribunal for assessment year 1996-97 whereby the Tribunal has directed to pass a fresh order. As per chart filed by department, it has been stated that AO has allowed the claim of the assessee after verification. Therefore, for this reason, we confirm the order of ld. CIT (A) for the year under consideration. We order accordingly.

37. Ground no. 4 relates to deleting addition of Rs. 60 lacs made as interest income on advances made to M/s. Bharat Gold Mines Ltd.
38. The brief facts has been discussed in para 6 and 6.1 in the order of ld. CIT (A) at pages 13 and 14 as under:—

"6. The fifth ground of appeal is regarding the addition of Rs. 60 lakhs being interest income on advance given to M/s. Bharat Gold Mines Ltd. It has been stated by the AO that the facts are as in last year. The agreement with M/s. Bharat Gold Mines Ltd. continues to be in force as far as levying of interest @ 12% is concerned. The assessee has not included this income on the ground that BGML's financial positon was weak and the principle amount is in doldrums. It has been stated by the AO that the addition of interest made last year was deleted by the ld. CIT(A). However, the Department has filed an appeal against that decision. In view of the above, the AO added the accrued interest of Rs. 60 lakhs to the total income.

6.1 During the course of the appellate proceedings, it has been submitted by the appellant that the ld. CIT(A) has decided the above matter in favour of the assessee in assessment year 1996-97. It has therefore, been requested to delete the addition made."

39. After considering the submissions, the ld. CIT (A) following his order for assessment year 1996-97 allowed the claim of the assessee recording his finding in para 6.2 as under :—

"6.2 I have considered the observations of the AO and the contentions of the appellant. The ld. CIT (A) vide his order No. 519/IT/98-99 dated 30-06-1999 for the assessment year 1996-97 has deleted the addition on this point. It has been observed by the ld. CIT (A) that "in the present case the realization of interest is not based on realistic manner because recovery of principal amount itself is doubtful". It has therefore, been held by the ld. CIT (A) that the income did not accrue to the appellant. The ld. CIT (A) therefore, deleted the addition. Respectfully following the above decision of the ld. CIT (A) for the assessment year 1996-97, the addition made of Rs. 60,00,000/- on account of accrued interest on advance given to M/s. BGML is deleted."

40. The ld. D/R paced reliance on the order of AO. It was further stated that similar issue came before the Tribunal for A.Y. 1997-98 and the Tribunal has confirmed the addition by reversing the order of ld. CIT (A).

41. On the other hand, the ld. A/R of the assessee stated that though interest has accrued on notional basis but the same has not been received. However, it was further stated that whatever the amount has been received on cash basis, that has already been offered for taxation. It was further submitted that up to assessment year 1998-99 the interest income has been assessed from year after year in the hands of the assessee totalling to Rs, 3,48,33,575/-. A chart showing this income was also filed.

42. After considering the submissions and perusing the material on record, we are of the view that this issue should go back to the file of AO to examine the facts once again. No doubt, Tribunal has held that on mercantile basis the income has to be assessed and it has been further stated that even assessee could not lead any evidence that the amount in fact hade become bad. In the year under consideration, the ld. CIT (A) has not given any finding on merit as he followed his own order for assessment year 1996-97 which has not been approved by the Tribunal. We further noted that assessee had stated that a total amount of interest of Rs. 3.48 crore has been assessed up to assessment year 1998-99. This fact was also not brought to the notice of the Tribunal either for assessment year 1996-97 or 1997-98. Therefore, in view of these facts and circumstances and to meet the ends of justice we restore this issue to the file of AO for passing a fresh order in the light of our above observations.

43. Ground No. 5 relates to deleting the disallowance of Rs. 1,14,16,681/- being feasibility report expenses.
44. The brief facts has been discussed by ld. CIT (A) in para 7 and 7.1 of his order at pages 14 to 16 are as under:—

"7. The sixth ground of appeal is regarding non-allowance of deduction of Rs. 1,14,16,681/- being feasibility report expenses. The assessee has claimed a deduction of Rs. 1,14,16,681/- on account of feasibility report expenses in the computation of income. It has been stated by the AO that the nature of these expenses are as under:-

	S.N.	Brief Particulars	Amount (Rs.)
	1.	Payment of Mecon in respect of Feasibility study for Zinc Smelter, Debari	5,80,000.00
	2.	Formulation report paid to Mecon for feasibility study	5,50,000.00
	3.	Tender charges in respect of fesibility study	1,73,860.00
	4.	Charges for feasibility study for Roster Plant - paid to Lurgi India	1,54,000.00
	5.	RSMM Ltd. consultancy fees for feasibility study	1,15,057.00
	6.	Compressive documents cost paid to power product association India for feasibility study	6,500.00
	7.	GEO Technical for soil investigation	1,38,730.00
	8.	Paid to RR, Labs, Bubneshwar for feasibility study	1,00,000.00
	9.	Paid to HCT, Hyderabad for feasibility study	1,00,000.00
	10.	Reimbursement of Foreign travelling expenses in respect of various feasibility studies	8,89,381.00
	11.	Reimbursement of inland travelling in respect of various feasibility studies	1,82,135.00
	12.	Xerox charges in respect of various feasibility studies	3,225.00
	13.	Local conveyance, telephone and misc. expenses in respect of various feasibility exp.	11,688.00
	14.	Paid to Lurgi India for Roaster Plant for feasibility study	74,11,505.00
	15.	Trailing disposal - Rajpura Darbia Zawar Mines/ Rampur Agucha Paid to National Environmental Engg. Nagpur	10,00,000.00
			1,14,16,681.00

It has been stated by the AO that the assessee did not furnish the relevant details relating to feasibility report expenses. From whatever details furnished as mentioned above, these are not different than the expenses of the nature incurred during last year. For example, payment to MECON for Zinc Smelter Dabari of Rs. 5,80,000/- and Rs. 5,50,000/- totalling to Rs. 11,30,000/-and the amount of Rs. 74,11,505/- paid to LURGI INDIA for Roaster Plant for feasibility study. It has been observed by the AO that the above expenditure which has been incurred are heavy capital expenditure. It has been stated by the AO that the ld. CIT (A) has allowed the assessee's claim for technical feasibility report expenses where the major expenses were for mining consultancy. However, this decision has not been accepted by the Department. An appeal has been filed before the Hon'ble ITAT. It has been stated by the AO that by incurring expenses the assessee is going to increase its income earning capacity in terms of its output and quality. In view of the above, the AO treated these expenditure as capital expenditure. Accordingly, the AO did not allow the deduction of Rs. 1,14,16,681/-.

7.1 During the course of appellate proceedings, the appellant has submitted a statement showing the details of each and every item of feasibility expenditure and the nature of these items. It has been stated that the assessee company is engaged in the business of mining as well as smelting operations. So far as India is concerned, the business of the company is unique in itself looking to the size of its operations, the technicalities of its mining and smelting process and also the multi unit operations of different kind/ standards dealing with different quality of products. Its mining output also differs from unit to unit. In respect of these expenses, it has been submitted as under:-

"Having regard to the complex technical environment in which a company is functioning it has to , off and on, carry out feasibility studies, tests for various technical information, process, products, locations, methods of work, different options about techniques and such other things. At times, the company itself ascertain technical feasibility and sometimes such ascertainment is got done through outside agencies / experts. The broad objectives of the two manner of carrying out feasibility study are same. The feasibility study or the ascertainment of the technical feasibility is essential before any process, information project, product etc. is finally proceeded with in commercial manner. If such things are commercial taken up without having ascertained its technical feasibility, this may result in substantial loss in the business of the company. Therefore, the expenditure is a necessary ingredient in the profit making activity of the business of the company to carry out its business in more efficient and prudent manner."

In view of the above, it has been stated that the above expenditure is allowable u/s 37(1) of the I.T. Act, 1961. The appellant has also relied on the following decisions.

(i)		Empire Jute Co. Ltd. v. CIT [1990] 124 ITR 1 (SC)
(ii)		CIT v. Kerala State Industrial Development Corpn. Ltd. (No. 1) [1990] 182 ITR 62 (Kerala)
(iii)		CIT v. Indian Carbon Ltd. [1996] 221 ITR 264 (Gau.)
(iv)		Asiatic Oxygen Ltd. v. CIT [1991] 190 ITR 328 (Cal.)
(v)		CIT v. Praga Tools Ltd. [1986] 157 ITR 282 (AP.)
(vi)		Kesoram Industries & Cotton Mills Ltd. v. CIT [1991] 191 1TR 518 (Cal.)
(vii)		CIT v. Sesha Sayee Bros (P.) Ltd. [1981] 127 ITR 218 (Mad.)
(viii)		Hindustan Aluminium Corpn. Ltd. v. CIT [1986] 159 ITR 673 (Cal.)
(ix)		CIT v. Graphite India Ltd. [1996] 221 ITR 420 (Cal.)
(x)		CIT v. Karnataka State Industrial & Investment Development Corpn. [1987] 163 ITR 657 (Kar.)
(xi)		Dy. CIT v. Rajasthan Processors India Ltd. 20 TW 571
(xii)		CIT v. Coromandal Fertilizers [2001] 247 ITR 417 (AP)

In view of the above, it has been requested to allow the deduction of Rs. 1,14,16,681/-."

45. Thereafter, ld. CIT (A) allowed the claim of the assessee by recording his finding in para 7.2 at pages 17 to 19 by giving following finding :—

'7.2 I have considered the observations of the AO and the contentions of appellant. The details of feasibility report expenses were sent to the AO videthis office letter dated 3-07-02 for submitting his report in accordance with Rule 46-A of I.T. Rules. In this regard, the Jt. CIT , Range 1, Udaipur videhis letter dated 7-8-2003 has stated as under:-

"the AO has also given the details of entire expenditure in the assessment order itself and thus the broad details now furnished before your good self has no significance as they are the same. Yet I have examined the details furnished and it is found that the expenditure so claimed is not allowable u/s 37(1) of the I.T. Act, being no of Revenue nature. The assessee has incurred the expenditure for obtaining the feasibility report for the set up of 100 MW Naptha Based Combined Cycle Power Project in Udaipur District which itself is a new project and expenditure on the same would necessarily be a capital expenditure as the project itself suggest. The expenditure incurred in obtaining the feasibility report would also be capital expenditure.

In this regard, it is not out of place to mention here that according to the method of accounting regularly employed by the assessee is also that expenditure on feasibility studies, technical know-how / documentation and other development expenditure is added to the capital cost of the project if implemented. Such expenses are charged off in the year in which the project, is in case is decided to be abandoned. This also clearly shows that the claim of the assessee as Revenue expenditure is incorrect and if at all such expenses are to be allowed it is to be allowed in the year in which the project is decided to be abandoned.
In view of above, the addition made on this account deserves to be sustained.."

Keeping in view of the facts stated by the appellant, I am satisfied that these evidences are required to be considered in deciding this ground of appeal, therefore, these additional evidences are admitted. During the course of appellate proceedings, the appellant has submitted the details of feasibility report expenses exceeding Rs. 5.00 lacs as under:-

	S.N.	Party's Name	Amount Paid	Payment nature	Nature/Scope of work carried out
	1.	M/s. MECON	11,30,000	Fees	Payment in respect of feasibility study report for increasing the capacity of Zinc Smelter Debari
	2.	M/s. Lurgi India	74,11,505	Fees & expenses	Roaster plant study augmentation by oxygen enrichment
	3.	M/s. National Environmental Engineering Research Institute, Nagpur	10,00,000	Fees	Preparation of feasibility report on evaluation of tailing disposal of sledges at Debari smelter, Rampura and Dariba Mines
	4.	M/s. Cross Wings (I) Ltd. & M/s. United India	5,15,689	Cost of Tickets & Insurance	Reimbursement of travelling & other expenses to various consultants

It has been submitted by the appellant that the feasibility study or the ascertainment of the technical feasibility is essential before any process, information project, product etc. is finally proceeded with in commercial manner. If such things are commercially taken up without having ascertain its technical feasibility this may result in substantial loss in the business of the company. It has been stated by the appellant that the first item of Rs. 11,30,000/- relates to M/s. MECON which is same as in assessment year 1997-98. This has been held to be expenditure allowable u/s 37(1) by the ld. CIT(A) in assessment year 1997-98. It has been pointed out by the appellant that item no. 2 of Rs. 74,11,505/- pertaining to M/s. Lurgi India relates to existing Roaster Plant and the feasibility study was being carried out for augmentation of plant efficiency by Oxygen enrichment. Therefore, it is not a new unit or extension of business. It has been submitted that other items as mentioned above and items where expenses are less than Rs. 5.00 lacs have not been incurred prior to commencement of business as the assessee is an existing company. These have also not been incurred for extension of existing unit or for setting up a new unit,. It has been stated by the appellant that these therefore, do not fall within the scope of Section 35D and are allowable u/s 37(1) of the IT. Act, 1961. In my appellate order no. 268/IT/UDR/1999-2000 dated 17-02-04 in the case of the appellant for the assessment year 1997-98 by following the decision of the Hon'ble ITAT, Jodhpur Bench in ITA No. 639/ JP/98 dated 30-09-02 in the case of the appellant for the year 1992-93 I have held that the feasibility report expenditure incurred during that year is allowable as a deduction u/s 37(1) of the IT. Act, 1961. It has been stated by the appellant that the amount of Rs. 11,30,000/- paid to MECON is for the same study which was carried out in assessment year 1997-98. Therefore, following the above appellate order, this expenditure is allowed. In the case of CIT v. Coromandel Fertilizers [1999] 105 Taxman 490, the Hon'ble Andhra Pradesh High Court has held that if the advantage obtained by incurring expenditure consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably, the expenditure is revenue. In this case, the feasibility report submitted has not resulted in establishing a new unit. Utilisation of surplus fund is wholly connected with its business and it is wholly and exclusively incurred for the purpose carrying on its existing business. In the case of CIT v. India Carbon Ltd. [1996] 221 ITR 264, the Hon'ble Gujarat High Court has held as under:-

An endeavour was made by the assessee to improve the financial conditions by making an alternative measures for some other production which was economically viable. The assessee was to make improvement by converting the existing plant to a cement plant with a little modification. Most of the machinery and superstructure was not to be disturbed. The expenditure incurred in obtaining the feasibility report was Revenue expenditure.

In the case of appellant, none of the expenditures are :-

(i)		Incurred prior to commencement of business of the assessee as the assessee is an existing company in business of mining operations for last several years.
(ii)		For extension of existing unit
(iii)		For setting up of a new unit

Therefore, these do not fall within the scope of Section 35D of the I.T. Act. Respectfully following the above decisions, it is held that the feasibility report expenses is allowable as a deduction u/s 37(1) of the I.T. Act, 1961. Therefore, the AO was not justified in not allowing the deduction of Rs. 1,14,16,(581/-. The AO is directed to allow the deduction of feasibility report expenses of Rs. 1,14,16,681/-.'

46. The ld. D/R stated that Tribunal has set aside the issue to the file of the ld CIT (A). The ld. CIT (A) has allowed the claim of the assessee. However, department has filed appeal against the order of ld. CIT (A) on 13.5.2010.

47. On the other hand, the ld. A/R stated that appeal of the department against the order of ld. CIT (A) who allowed the appeal after direction of the Tribunal is pending. Therefore, there is no infirmity in the order of ld. CIT (A). Accordingly the same is liable to be confirmed.

48. After considering the submissions and perusing the material on record, we find that ld. CIT (A) was justified in allowing the claim following the decision of Tribunal for A.Y. 1997-98 decided by Jodhpur Bench on 13.9.2002. For A.Y. 1997-98, the issue was sent back to the file of ld. CIT (A) and again the ld. CIT (A) has allowed the claim of the assessee. Therefore, for this reason also the order of ld. CIT (A) does not suffer from any infirmity. Accordingly we confirm the order of ld. CIT (A) for the year under consideration.

49. Ground no. 6 is against deleting the addition of Rs. 25.99.76.000/- made on account of under valuation of stock of Zinc concentrate.
49.1 The brief facts of the case are that during the year, the assessee company changed the method of valuation of Zinc and lead concentrate and work in progress. In this regard, the auditor in the tax audit report has commented as under:—

"(ii)

In the following cases the company has made change in method of valuation of stock as compared to the method employed in the immediately preceding previous year:-

(A)		In case of valuation of closing stock of concentrates other than bulk and bought out concentrates from weighted average cost of weighted average cost or net realizable value whichever is lower has resulted in decrease in inventory as well as profits of the company by Rs. 1050.05 lakh.
(B)		In case of accounting policy 1 (c) and 1 (I) regarding valuation of work-in-process from weighted average cost to weighted average cost or net realizable value whichever is lower has resulted in decrease in inventory as well as profits of the company by Rs. 1549.71 lakh.

(iii)

Due to change in method of valuation of closing stock as indicated in (ii) above profit of the company in decreased by Rs.2599.76 lakh.

This has also been explained in note No.9 of Schedule 20 of the Balance Sheet. It has been observed by the A.O. that in so far as the stock of work in process is concerned the term "Net Realisable Value" is of no significance at all for the simply reason that it is not a saleable commodity but it is a product of the assessee company which is yet to be processed to yield a saleable commodity in the form of metal concentrate. It has been stated by the A.O. that because of change in the method of valuation of closing stock of metal concentrate as well as work in process the assessee has artificially under valued its closing stock and thereby reduced profit of the company to the extent of Rs.2599.76 lacs. It has been stated that the change in method of valuation which is regularly and consistently followed has not been logically explained. In view of the above the A.O. rejected the change in the method of valuation and made an addition of Rs.2599.76 lacs.

9.1 During the course of appellate proceedings it has been submitted by the appellant that it was valuing the closing stock of its concentrates and work in progress on weighted average cost up to the year ended on 31.3.1997. However for the preparation and presentation of accounts for the year under consideration, the closing stock of concentrate (except bulk and bought out concentrates) as 31.3.1998 has been valued at cost or net realizable value whichever is lower. The said change has resulted in decrease in inventory and profit by Rs.2599.76 lacs as disclosed in note no. 9(i) and 9 (ii) in the Notes of Accounts to the Financial Statements of the company. It has been stated that the company started valuing the concentrate on weighted average cost or net realizable value for the reason that company is regularly selling concentrate in the market. In such case if is not correct to value the same as Raw material. As far as Work in progress is concerned, the net realizable value of the final product i.e. lead ingot etc. is lower to its cost to the company. In such cases, where it is known that the value which is appearing in the books is not going to realize, it is not prudent to value the work in progress at cost. It has been stated that in accordance with the principles followed in the revised mandatory Accounting Standard on "Valuation of Inventories" it has valued the WIP at net realishable value which is much lower to the cost. It has been submitted that the revised mandatory Accounting Standard on "Valuation of Inventories" suggest the method of valuation of closing stock i.e. cost or net realizable value whichever is lower in respect of finished goods raw, material and work in progress. It has been submitted by the assessee company that it has switched over from the policy of "valuing at cost" to policy of "valuing at cost or net realizable value, whichever is lower". In other words, the assessee has switched over to a more appropriate and judicially recognized accounting policy. Even The Institute of Chartered Accountants of India (ICAI) recommends this policy as is evident from the following:-

(i)		Opinion of Expert Advisory committee of ICAI on query No.5 published in volume XVIII of compendium of opinions published by ICAI, on the subject valuation of work in process.
(ii)		Opinion of Expert Advisory Committee of ICAI on Query No.29 published in volume XXI of compendium of opinions published by ICAI on the subject net realizable value of inventory of raw materials and intermediate products.
(iii)		Accounting Standard No.2 issued by ICAI.

The accounting standards, guidance etc. issued by the ICAI deserves to be followed unless they are contradictory to some specific provisions. It has been stated that the assessee has consistently followed the changed method adopted by it in the succeeding years which shows the bona fide of the change made by the assessee in the method of valuation of closing stock. It has been pointed out that the assessee did not make this change with a view to artificially reduce the profits. In this connection the assessee has relied on the following decisions:

(i)		CIT v. Corporation Bank Ltd. [1988] 174 ITR 616 (Kar.)
(ii)		CIT v. Dalmia Cement (Baran.) Ltd. [1995] 215 ITR 441 (Delhi)

It is stated that in these cases it has been held that irrespective of the basis adopted for valuation in the earlier years, the assessee has the option to change the method of valuation of the closing stock at cost or market price which ever is lower at any time provided the change was bona fide and followed regularly thereafter. In view of the above it has been requested to delete the addition of Rs.2599.76 lacs."

49.2 After considering the submissions and perusing the material on record, the ld. CIT (A) allowed the issue in favour of the assessee. Following findings have been given by the ld. CIT (A) vide para 9.2 at pages 27 to 29 of his order.

'9.2 I have considered the observations of the A.O. and the contentions of the appellant. During the year the appellant has changed the method of valuation of closing stock of Zinc/Lend concentrate and work in progress. In view of the above change in the method of valuation of closing stock and WIP the profit of the company has been reduced by Rs.2599.76 lacs. In this connection in the Tax Audit Report, the Auditor has commented as under:

"(ii)

In the following cases the company has made change in method of valuation of stock as compared to the method employed in the immediately preceding previous year:-

(A)		In case of valuation of closing stock of concentrates other than bulk and bought out concentrates from weighted average cost to weighted average cost or net realizable value whichever is lower has resulted in decrease in inventory as well as profits of the company by Rs. 1050.05 lakh.
(B)		In case of accounting policy 1 (e) and 1 (I) regarding valuation of work-in-process from weighted average cost to weighted average cost or net realizable value whichever is lower has resulted in decrease in inventory as well as profits of the company by Rs. 1549.71 lakh.

A similar note is there is Note No.9 of the Notes on Accounts appearing in Schedule 20 of the Annual Accounts. It has been observed by the A.O. that in so far as the stock of work in progress is concerned the term "Net Realisable Value" is of no significance at all for the simple reason that it is not a saleable commodity but it is a product of the assessee company which is yet to be processed to yield a saleable commodity in the form of metal concentrate. It has been further stated by the A.O. that the company has artificially under valued its closing stock by changing the method of valuation of closing stock. In view of the above the A.O. did not accept the change in valuation and made the addition of Rs.25,99,76,000-. In the remand report the Jt. CIT Range 1, Udaipur has stated that in the A.Y. 1996-97 also the assessee was found to have changed the method of accounting in respect of valuation of Zinc concentrate and tungsten concentrate. The A.O. had made the addition in that year as the changed method of accounting was not found to be bona fide. It has been stated that the addition so made was confirmed by the Ld. CIT (A) vide his order dated 30.6.99. It has been stated that facts of the case are same and therefore the addition is required to be sustained. As per Accounting Standard AS-2 relating to valuation of inventories issued by the Institute of Chartered Accountants of India the inventories should be valued at lower of cost or net realizable value. Therefore the term "net realizable value" cannot be considered as of no significance as observed by the A.O. It has been pointed out by the appellant that it has stated valuing its concentrate on weighted average cost or net realizable value for the reason that company is regularly selling concentrate in the market. Therefore it is not correct to value the same as raw material. It has been pointed out that as far as Work in Progress is concerned, the net realizable value of the final product i.e. lead ingot etc. is lower to its cost to the company. Since in such cases it is known as to what value it is going to realize it is not prudent to value the work in progress at cost. It has been pointed out by the appellant that it has determined the net realizable value of work in process as per the manner recommended by ICAI and the same is not in dispute either in Auditors Report or in the assessment order. It has been pointed out by the appellant that it is consistently following the changed method adopted by it in succeeding years. It has been stated by the appellant that the A.O. has made a reference to the order of the Ld. CIT(A) for the A.Y. 1996-97. In this regard it has been pointed out by the appellant that the order of Ld. CIT (A) has been reversed on this issue by the Hon'ble ITAT vide its order dated 24.4.02 in ITA No.446(JP)/99 and the addition made on account of undervaluation of stock on the allegation of change in method of valuation has been deleted. Therefore the addition cannot be sustained on this basis. In the case of CIT v. Dalmia Cement (Bharat) Ltd. [1995] 215 ITR 441 the Hon'ble Delhi High Court has held that irrespective of the basis adopted for valuation of stocks in the earlier years, the assessee has the option to change the method of valuation of the closing stock at cost or market price, which ever is lower, provided the change is bona fide and followed regularly thereafter. Keeping in view the above facts and the facts stated by the appellant it is clear that the change in the method of valuation of closing stock is a bona fide change. As mentioned above it has been stated by the appellant that in succeeding years it has consistently followed the changed method adopted by it. Respectfully following the above decision of the Hon'ble Delhi High Court it is held that the A.O. was not justified in making the addition of Rs.2599.76 lacs on account of under valuation of closing stock of the lend concentrate and work in process. Accordingly the addition made of Rs.2599.76 lacs is deleted."'

49.3 The ld. DR had placed reliance on the order of the AO. It was further submitted that similar issue has been decided by the Tribunal while deciding the appeal for the assessment year 1997-98 in ITA No.249/JU/2004 dated 24-07-2009. It was further submitted that appeal of the Department for the assessment year 1996-97 has been allowed by the Hon'ble Supreme Court in the case of CIT v. Hindustan Zinc Ltd. [2007] 291 ITR 391/161 Taxman 162.
49.4 On the other hand, the counsel of the assessee stated that facts for the assessment years 1996-97 and 1997-98 are different from the year under consideration as the assessee has changed the method of valuation for the first time in assessment year 1998-99. The change in method is bona fide. After changing the method, the assessee is following the changed method consistently year after year. It was further stated that even if Hon'ble Supreme Court observed in its order that value of the stock has to be determined on the basis of generally accepted as an established rule of commercial practice and accountancy that the closing stock had to be valued at cost or market whichever was lower. The assessee adopted this method. The method adopted in the assessment years 1996-97 and 1997-98 by estimating its net realizable value at the London Metallic Exchange price and not at the domestic price which was not approved by Hon'ble Supreme Court. Therefore, the facts for the assessment years 1996-97 and 1997-98 are different from the facts for the year under consideration.

49.5 After taking into consideration the orders of the AO, ld. CIT(A) and the order of the Tribunal for the assessment year 1997-98 and the decision of Hon'ble Supreme Court for the assessment year 1996-97 (supra), we found that this matter needs re-verification at the end of the AO. In the submissions of the ld. AR, it was mentioned that they have changed the method of accountancy for valuation of the closing stock from the year under consideration only and this method has been consistently followed in future year after year whereas in the earlier year the assessee had followed the method of net realizable value at the London Metallic Exchange price and not at the domestic price and the method was not approved by the Hon'ble Supreme Court. If the same method is adopted during the year under consideration then as per the decision of Hon'ble Supreme Court, the issue has to be decided against the assessee. The ld. DR on the other hand has stated that the facts are similar in the year under consideration as well as for the assessment years 1996-97 and 1997-98. The factual aspect has to be examined at the end of the AO on this issue whether the same method is adopted as was adopted for the assessment years 1996-97 and 1997-98 or a different method is adopted. The change of method is not bar either on the fads or in the eye of law as held by various Courts. The decision of Hon'ble Delhi High Court in the case of CIT v. Dalmia Cement (Bharat) Ltd. [1995] 215 1TR 441/82 Taxman 255 had been followed by the ld. CIT(A) on this aspect. In view of the decision of Hon'ble Delhi High Court (supra), if there is a bona fide intention of the assessee then the method can be changed. Keeping in mind all these facts and circumstances of the case, we set aside the order of the ld. CIT(A) on this issue and restore the matter back to the file of the AO for examining the same afresh after affording reasonable opportunity of being hear to the assessee. We order accordingly.

50. Ground No. 7 is against directing to adopt the gross turnover for 80HHC purposes after deducting the sales-tax payable.

51. The brief facts have been discussed by Ld. CIT (A) in para 11 and 11.1 at page- 30 of his order are as under :—

"11. The tenth ground of appeal is regarding the inclusion of sales tax collected as a part of turnover for the purpose of calculation of deduction u/s 80HHC of the I.T. Act, 1961. It has been stated by the AO that in view of the decision of Hon'ble Supreme Court in the case of Chawringhee Sales Bureau, the sales tax has to be included in the total turnover for the purpose of calculation of deduction u/s 80HHC. The-AO therefore, worked out the deduction u/s 80HHC by including the sales tax collected as a part of the turnover at Rs. 24,95,42,676/- as per annexure A attached to the above assessment order.

11.1 During the course of appellate proceedings, it has bee submitted by the appellant that it had not included Sales Tax of Rs. 28,19,65,000/- as a part of total turnover. In this connection, the appellant had made a reference to ITAT Jaipur Bench decision in the case of Wolkem India Ltd. v. DCIT, 21 TW 771. It has been stated that in this case the Hon'ble ITAT Jaipur Bench has held that sales tax cannot be included in the total turnover for the purpose of calculation of deduction u/s 80HHC. It has been stated by the appellant that the facts of the appellant's case are different from the facts ofChowringhee Sales Bureau (P) Ltd. v. CIT [1973] 87 ITR 542 (SC). In that case, the assessee had shown the sales tax collected as liability and did not include the same in the income. Hon'ble Apex Court held that the same should be included as a part of trading receipt and in case it is paid to Government, a deduction can be claimed for the same. Thus the facts and issue involved in that case were entirely different than the facts of the case of the assessee. It has been stated by the appellant that in view of the above decision of Hon'ble ITAT Jaipur Bench in the case of Wolkem India Ltd., the expression 'total turnover ' will not include sales tax since the expression export turnover did not include the same. In view of the above, it has been stated that the AO was not justified in including the sales tax to the amount of total turnover for calculating the deduction u/s 80HHC."

52. After considering the submissions, the Ld. CIT (A) allowed the issue in favour of the assessee by recording his finding in para 11.2 at pages 30 & 31 as under :—

'11.2 I have considered the observation of the AO and the contentions of the appellant. This issue has now been decided by the Hon'ble High Court of Rajasthan in the case of CIT v. Wolkem India Ltd. (2003) 132 Taxman 7. In this case, the Hon'ble Rajasthan High Court has held as under:-

"it is now well settled that the incidence of sales tax is really on the consumer and it is in substance a tax imposed on the goods on the occasion of sale. The statutory liability, however for payment of sales tax is raised on the dealer on his total turnover, whether or not he realizes the tax from the purchasers. Thus, the price charged by the dealer would be inclusive of sales tax, for it is in his interest to pass on the burden of tax to the purchaser. Thus, the sales-tax or Excise Duty collected by the assessee is not income or receipt. It is collected on fiduciary capacity refundable to the customer or payable to the State and as such, does not form part of the turnover .Rule 44 of the Rajasthan Sales Tax Rules permits collection of sales tax and to show such collection in the invoice to be credited to the sales tax account. Thus, where sales tax is collected separately, it does not constitute part of the turnover . Thus the Tribunal was justified in accepting the assessee's contention that sales tax, Excise Duty and octroi on local sales should not form part of the total turnover for the purpose of computation of deduction u/s 80HHC ."

Respectfully following the above decision of the Hon'ble Rajasthan High Court the AO is directed to recomputed the deduction allowable u/s 80HHC by excluding sales tax from the total turnover.'

53. The Ld. D/R has placed reliance on the order of the Assessing Officer.
54. On the other hand, Ld. Counsel of the assessee placed reliance on the order of Ld. CIT (A).

55. After considering the orders of the Assessing Officer, Ld. CIT (A) and order of Tribunal for assessment year 1997-98, we find that issue has been decided in favour of the assessee. We further noted that issue has been decided by Hon'ble Rajasthan High Court for assessment year 1993-94 in case of assessee. Therefore, there is no infirmity in the order of Ld. CIT (A). Accordingly we confirm his order.

56. In the result, appeal of the assessee as well as appeal of the department are allowed in part and partly for statistical purposes.
Sanjay Arora, Accountant Member - I have perused the proposed order by my ld. brother, JM in the captioned appeals, and also discussed the same with him. However, with respect, 1 am unable to persuade myself to be in agreement therewith on some of the issues arising before the Tribunal for adjudication and, accordingly, propose my separate order in respect thereof as under, which, qua two grounds of the Revenue's appeal, i.e., Gds. Nos. 2 & 4, being guided by a different considerations than that prevailed with my ld. brother, is an assent order:-

I. Prior period expenses (Rs. 1,65,50,474/-)

1.1 The matter was argued before us at length. The assessee's case, as made before the authorities below as well as before us, and as would also be apparent from the proposed order by the ld. brother, is that the impugned liability has in fact crystallized during the relevant year, i.e., the financial year 1997-98. However, both the authorities below have per their respective orders given a categorical finding of it being not so, with the liabilities under reference, i.e., for which deduction is being claimed, being not disputed or shown to be so, for the said principle - on which I observe no quarrel, to apply. The only manner, therefore, by which the assessee could succeed before us was to show of the said findings, being one of fact, as not correct, i.e., on facts. The ld. AR on being called upon to do so by the Bench during hearing, took us to the copy of the statement showing explanation for prior period expenses (PB pages 44 52), adverting to an entry for R.s. 73,60,839/- under the head 'Stores Consumed' at page 48, stating that the same would establish the assessee's case. The accompanying narration explains that a reconciliation of the amount outstanding to the debit of 'Amount recoverable Modvat Account', i.e., with the underlying records, was insisted upon by the statutory auditor. A year-wise scrutiny of the accounts for financial years 1991-92 to 1997-98. was caused with reference to the ledger balances of RG 23A and RG 23C, and as the difference's so revealed pertained to earlier years, the corresponding amount/s was debited to the account 'prior period expenses' in accounts. Does this help or assist the assessee's case? To my mind, it does just the opposite. The amount is reflected as a recoverable, i.e., as an 'asset' in accounts. The Auditor, in verification (which is usually done on a test check basis, so that it may not necessarily, and does not on account of practicability, cover all the ledger accounts every year), finding no definite basis for the same except a vague explanation from the assessee-company that the amount is as per the excise records, causes a reconciliation spanning the past few years. To find that no such value is in fact receivable or recoverable; the corresponding stores having been in fact consumed in the assessee's operations over the preceding years, i.e., as per assessee's own and relevant (excise) records. The amount is accordingly written off in accounts as a prior period expense. What more or clearer indictment of the assessee 's case could there be? There is, firstly, no binary transaction, i.e., with any third party, for there to be even a remote prospect of a dispute or scope for crystallization of the liability, which argument constitutes or forms the fulcrum of the assessee's case. In fact, it is not a case of a liability at all, but only of statement of an item of a current asset at its realizable amount in the final accounts. In fact, the assessee has itself disallowed depreciation, debited at Rs. 10.84 lacs to prior period expenses, and claimed only the balance of Rs. 165.80 lacs toward the said account head per its return of income, only on the same basis, i.e., it not representing a binary transaction. There is, further, even no internal procedure or check in operation; the assessee stating of there being an elaborate and comprehensive mechanism in place for according approval which leads to a delay in booking the expenditure and, thus, inability to claim the same for the year in which it is incurred or the liability in its respect accrues. The foregoing, rather, indicates a clear lack or absence of proper accounting procedure, what with the assessee's records being internally inconsistent, and which indicates inefficiency, which is also borne out by the fact that this issue arises in the assessee's case year after year, as apparent from the orders by the tribunal in the assessee's case for AYs 1996-97 & 1997-98. No other entry in the said statement (PB pg. 44-52) was pointed out by the ld. AR to controvert the clear finding by the authorities below of the assessee's claim as not representing disputed liabilities settled during the relevant year.

1.2 Moving away to the other limb of the assessee's case, it is wondered if the argument of a procedural delay in obtaining approvals from various levels in its hierarchy could at all be considered as a valid ground for allowing expenditure for a year to which it admittedly does not relate. This would require addressing the issue in principle. However, it would need to be clarified that the assessee has, apart from merely stating so, nowhere exhibited or shown as a fact that the relevant expenditure could not be actually booked due to internal procedures or processes. A browse of the relevant statement (PB pages 44-52) reveals most of the expense items to be for minor amounts, so that it not a case of the same being prevented from being booked and claimed timely impending approvals from higher levels in the organizational hierarchy. The other major category (item-wise) is of expenditure of the nature discussed earlier, i.e., representing unilateral (if riot also overdue) adjustments in accounts, with the expenditure described as 'stores consumed' itself aggregating to Rs. 88.80 lacs. In fact, the argument, besides being unproved, is also mis-conceived. What value the internal controls once the expenditure stands already incurred! A financial control, to be effective, seeks to cause a proper examination, stipulating the hierarchy in the organization (suitably defined) at which it would be finally sanctioned, so that higher (again, defined) amounts are comprehensively reviewed, both in terms of being cost efficient (by ensuring competitive bargains) as also by way of cost-benefit analysis. However, once the expenditure is already incurred and the corresponding goods or services delivered, only the course as suggested by the terms of the agreement/contract would prevail, so that the stated control/post facto examination is of little value, except for providing guidance for future. In any case, whatever be its value to the organization, which I consider peripheral at best, seeking approval under the circumstances is only an internal procedure that has no bearing on either the incurring of the expenditure or its claim as a deduction in the computation of income under the Act. In fact, even accountancy does not recognize the same: mandating, rather, booking of all known losses and liabilities, even as the 'provision' in its respect in accounts has to be informed and based on best available information.

It is, thus, only where the sanction is (to be) accorded prior to entering the contract that it assumes significance as an effective check, in which case, however, there is no scope for any delay in booking the relevant expenditure. Execution (of contract) problems could, in any case, arise, but then that is a different matter altogether and, rather, also stand to be largely reduced, if not eliminated, by stringent pre-contract negotiation and review of all aspects of the work. The same, in any case, would fall under the category of 'disputed liability', where the principle of 'crystallization of liability' shall operate.

1.3 In sum, the assessee's argument is to no consequence as the internal procedures are, for all intents and purposes irrelevant, once the liability is incurred and/or assumed, and which only is material from the stand point of its claim for deduction. As afore-noted, both accountancy as well as the law, per the Accounting Standard (AS I) notified by the Central Government u/s. 145 of the Act, advocate provision for all known losses and liabilities. As explained by the hon'ble apex court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC), it would not be a relevant or material consideration where the assessee, for some reason, fails to account for the same in its books of account, and prefers the claim in its respect per the return of income. The only rider in that case, and only understandably, would be for the assessee to exhibit that the same is not claimed again, i.e. on its booking in accounts, as any admitted liability would be required to. Where, then, is the scope for admission of the plea of the relevant liabilities as having not been claimed as these stood not booked impending completion of some procedure internal to the assessee in their respect.? The same only merits an outright dismissal. It is in fact also inconsistent with the assessee's plea of the liability as having not crystallized earlier, and being so only during the relevant year, i.e., the financial year 1997-98. That, in fact, represents the only window available to the assessee. But then, the same is a matter of fact, and as stated hereinbefore, not established by the assessee, and which would be required to be so for each liability separately, being independent of others. In fact, here again, it is only the disputed component or the disputed part of the liability that can be said to have 'arisen' or 'accrued' in the year of its settlement, and not the entire of it. Reference in this regard be made to the decision in the case of CIT v. Kishore Chand Shivcharan Lal [2004] 266 ITR 37/138 Taxman 256 (All.).

1.4 Continuing further, it is interesting to note that while AS-I notified u/s. 145 of the Act, so that it forms part of the income-tax law, prescribes provision for all known losses and liabilities. As such, the disputed component also stands to be provided for and claimed in the first instance itself. The case law in the matter, however, advocate claim of the disputed liability in the year of its settlement/resolution [refer: CIT v. Swadeshi Cotton & Flour Mills (P.) Ltd.[1964] 53 ITR 134 (SC). This is as the same involves compromise and give and take, ostensibly only in the interest of business. And where under the process of law, i.e., through a tribunal or court, it is only upon its award/decision that the respective rights of the parties can be said to have been determined and/or ascertained. The source case law on the subject, which the decision in the case of Swadeshi Cotton & Flour Mills' case (supra) can be considered to be, it would be noted, is much prior to the prescription of Accounting Standards (AS I and AS II) by law. Clearly, accountancy and law may not always march step in step, in which case the latter would prevail. However, where the two are in unison, could there be a scope for a different view As such, an actual controversy could arise, as where (say) an assessee claims the un-admitted claim on it, while the Revenue contends for its allowance only in the year, and to the extent, of its resolution, being only a contingent liability prior thereto. It is here that one would be required to take a call as to which of the two alternatives accords with the law, and perhaps presents some scope for noting and drawing on the ratio of the decision in the case of CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 (Bom.), that there is no water tight compartmentalization, so as to preclude claiming an expenditure where it is on a reasonable, definite basis external to the assessee, with the bona fides of the claim being not under question, though the matter in each case shall depend on the facts of the case; accrual or otherwise being essentially a matter of fact. In a case as the present one, there is in fact no controversy, and the lis under reference is largely a contrived one. The assessee has, firstly, not shown before any authority, including the tribunal, that the impugned claims consist (wholly or even partly) of claims that are disputed and stood crystallized as a liability only during the current year. In fact, in such a case, the same, i.e., to the extent of the disputed or unadmitted component, would rather qualify to be considered as an expense for the period or the year of crystallization and not the period to which it may relate. This is as there is no liability in praesenti for the said period. Reference in this context be made to the decisions in the case of Mysore Spg. & Mfg. Co. Ltd. v. CIT [1966] 61 ITR 593 (Bom.) as also J. K. Woollen Mfr. (P.) Ltd. v. CIT [1967] 65 ITR 237 (All.). In absence thereof, the assessee's case is without merit; the law in the matter being abundantly clear, i.e., each year is an independent unit of assessment, so that income and expenditure of a particular year would stand to be assessed and claimed, as the case may be, for that year. The matter/issue, as afore-noted, has arisen in the assessee's case from year to year, (also refer para 1.5)

1.5 Reference to the decisions by the tribunal has been up to now scrupulously avoided in view of the inconsistency in the decisions by the tribunal, so that it became incumbent to firstly examine the issue de hors the same, i.e., on first principles. In fact, even here I find that the tribunal has for the immediately two preceding years, i.e., assessment years 1996-97 and 1997-98, rejected the assessee's claim, drawing on the same, i.e., the first principles, citing the decisions in the case of Swadeshi Cotton & Flour Mills (P.) Ltd. (supra); S.M. Ziaddin v. CIT [1993] 203 ITR 136/71 Taxman 580 (Mad.); Mysore Spg. & Mfg. Co. Ltd. (supra) [affirmed by hon'ble apex court in CIT v. Mysore Spg. & Mfg. Co. Ltd. [1970] 78 ITR 4 (SC), and which have nowhere been rebutted by the assessee. The tribunal notes that the decision in the case of Nagri Mills Co. Ltd. (supra) has been held as no longer representing good law in the case of J.K. Woollen Manufacturers Ltd. (supra); Escorts (Agents) (P.) Ltd v. CIT [1971] 80 ITR 61 (Delhi) in view of the judgment by the apex court in Swadeshi Cotton & Flour Mills (P.) Ltd. (supra), and which is again not met or controverted by the assessee. The said finding has been on verification found to be correct. The tribunal for the earlier years had followed the decision in the case of Nagri Mills Co. Ltd. (supra) without noticing the subsequent decisions holding it to have been over-ruled and not representing good law. The reliance by the assessee thereon, therefore, cannot stand. In fact, the tribunal for the later years (assessment years 1996-97 and 1997-98) can only be considered as having noticed and considered its earlier orders in the assessee's own case, and which as per the statement filed by the ld. DR has been followed by the tribunal (in the assessee's own case) for the subsequent years as well, i.e., AYs 1999-00 to 2002-03. Further, though the assessee has per its written submissions stated that these decisions were relied, upon by the tribunal (i.e., for the assessment years 1996-97 and 1997-98) without confronting the same thereto, it has before us not met the same in any manner, and which, as afore-stated, represent the well-settled and trite law in the matter, as would also be clear from the afore-said decisions, which stand culled out from the orders by the tribunal for AYs 1996-97 & 1997-98. The reliance by the assessee before us on the decision in the case of CIT v. Vishnu Industrial Gases (P.) Ltd. [ITR No. 229 of 1988 dated 6-5-2008], copy on record) would be of no moment. It has already been clarified that the matter is finally essentially one of fact and not of law per se, application of which in any case requires determination of facts. The very question framed before the hon'ble court clarifies, firstly, that the amount under question was disputed and, secondly, involved only the disputed (enhanced) component (and not for the entire amount), both of which are missing in the present case. Thirdly, the question bears reference to 'the facts and circumstances of the case', so that the propriety of the decision by the tribunal that was under challenge had to be and was decided by the hon'ble court in the context thereof and, as such, cannot be said to lay down any law, even if it answered the same in the affirmative. Fourthly, and perhaps only for these reasons, the hon'ble court declined to answer the question referred to it, so that the very purport of the decision qua the present case is not understood and the reliance becomes misplaced. Finally, the decisions, inter alia, in the case of J. K Woollen Manufacturers (P.) Ltd. (supra) and Escorts (Agents) (P.) Ltd. (supra), holding the decision in the case of Nagri Mills Co. Ltd. (supra) as no longer representing good law were not cited before the hon'ble court.

1.6 The impugned claim is, thus, sustainable neither on facts nor in law nor on precedence. In fact, it may be emphasized that the matter of accrual or otherwise (of an income or liability) being the matter of fact, the mere finding of fact that it has not accrued or arisen during the relevant year is itself sufficient to meet the assessee's challenge. This is as the law can be applied only on or qua a defined set of facts. The elaborate discussion, which for most part dwells on facts, became necessary only in view of the inconsistency in the tribunal's view in the assessee's own case as well as of it leading to a difference of opinion in the tribunal itself (for the current year).

1.7 In the result, Ground # 1 of the assessee's appeal is dismissed.
II. Extraordinary Items (Rs. 3,04,81,750/-)

2.1 This is the subject matter of the assessee's Ground # 3 before us. The break-up of the expenditure, claimed per the 'Profit and Loss Account', is as under and, further, pertains to the write off of various assets in accounts on the closure of Degana Tungsten Mines:-

	Tungsten Ore	Rs. 154.06 lacs
	Capital work in progress	Rs. 59.37 lacs
	Mine Development Expenditure	Rs. 91.39 lacs
		Rs. 304.82 lacs

The primary and basic facts are not in dispute. The company had taken over Degana Tungsten Mines from Rajasthan State Tungsten Development Corporation (RSTDC),a Government of Rajasthan enterprise, in 1991, However, poor metal content, accompanied by crash in international prices and inadequate tariff, rendered the operation of the Mine uneconomical, so that the Board of Directors accorded approval for its closure. The usable equipment was shifted to the other operating Units and, likewise, the employees who did not opt for VRS were suitably deployed in other operating Units of the company. The Mine, on completion of the statutory formalities, since initiated, is to be handed over to the Govt, of Rajasthan. The Assessing Officer (AO) was of the view that Degana Tungsten Mines, which was for production of tungsten, as against the assessee's normal business activity of mining and production of lead and zinc, i.e., in other Units, represents a distinct business, which had no nexus with the assessee's other business, so that the losses arising on write off of assets on closure of the said Unit does not represent an operating business loss, and could not be allowed to be set off against the profit of other business. The ld. CIT(A), in appeal, was of the view that the losses under reference had arisen not in the course of or for the purpose of carrying on the business but springs from the closure of the business. The same was thus not properly debitable to the profit and loss account as an operational or a revenue expenditure. He found the reliance by the AO on the decisions in the case of Gemini Cashew Sales Corpn. (supra) and Venkatesa Colour Works (supra) as apposite, quoting from the former in his order. Further, the write off of 'mine development expenses' and 'capital work-in-progress', i.e., two of the three items comprising the impugned claim, were decidedly capital expenditure, so that the same in any case could not be allowed as regular business expenditure. As regards the claim qua tungsten ore, the third item, he observed - on the basis of the Board's report dated 1-09-1998, that the Mine had yet to be transferred to the Government of Rajasthan, i.e., as at the year-end. How could then any expenditure in its respect arise for being claimed ?. The claim was, thus, premature and also inchoate as it could not be presumed that no value in its respect is realizable, i.e., from the transferee. The disallowance was confirmed on this basis. Aggrieved, the assessee is in appeal.

2.2. Without doubt, prospecting for and mining of tungsten ore cannot be said to be a distinct business for a company in the business of mining of ores and production of metals and alloys, even as opined by us during the hearing itself. That the company may be doing so principally in Zinc metal, in which its expertise may lie, is another matter. In fact, even if it were to be a separate business, the losses of one business are required and entitled to be set off against the income of another in the computation of the assessee's total income under the Act. How does, one may ask, it therefore matter if the Tungsten Unit constitutes a separate business or not?The issue, thus, is not whether or not the same constitutes a separate or distinct business, and which, therefore, is of no consequence. But whether the write off constitutes a revenue expenditure of the said Unit or of the assessee's business. This is for the reason that the same arises only in consequence to the closure of the said Unit or a part of the assessee's business. Reliance by the AO on the case law, discussed by the first appellate authority in his order, is toward this end only. Further, in his view, mine development expenses and capital work-in-progress were only capital expenditure and write off of tungsten ore only a notional expense; the assessee's dominion over the said ore being neither disputed nor disrupted, so that it continues to be its property, as the relevant Unit is yet to be transferred to the Govt. of Rajasthan, and only upon which would the expenditure arise in its respect as also stand to be quantified. That is, the write off is inconsistent with the underlying facts.

The foregoing, to my mind, defines or enumerates the Revenue's case in rejecting the assessee's case. The same is, in fact, apparent from the order of the ld. CIT(A), which is under challenge before us, and in which order that by the AO merges. The assessee's case, on the other hand, is that the impugned claim is incidental to its business; the closure of the Unit being only a business decision, taken in the overall interest of its business. As regards the decisions cited by the assessee, referred to at paras 17.1 to 17 4of the order by my ld. brother, JM, the same are in the context of the 'same business' vis-a-vis 'different businesses' and, therefore, largely irrelevant in view of the issue arising for adjudication as delineated.

2.3 Next, coming to the merits of the issue, and which would be the exigibility in law of the assessee's claim qua the said expenditure under the provisions of the Act, be it sec. 37(1) or even s. 28, the parameters of both of which are a matter of trite law. The nature of the expenditure, i.e., in terms of its ingredients or constituents, is not in doubt, being only as stated by the assessee, who has nowhere contended of lack of opportunity before either authority in presenting its case. Before examining the question as to whether the said expenditure stands incurred for the purpose of the assessee's business or is incidental thereto, which forms the assessee-appellant's case, it would therefore need to be seen if it is of revenue nature. This is as, if not so, it would not be deductible even if it is held as having been incurred for the purpose/s of the business. This is as capital expenditure or capital loss, though incurred for or sustained in, as the case may be, business, would not yet stand to be allowed either u/s. 37(1) or u/s. 28 of the Act. As regards 'purpose', though the assessee has not supported its case with facts and figures, as where the Degana Mines are shown to be operating at a loss, with little prospect of a turn around, no doubt has been expressed by the Revenue with respect to the closure decision, taken ostensibly only in business interest. Each of the three expenses comprising the claim under reference would therefore be required to be examined from that standpoint.

A. Capital work-in-progress (CWTP, Rs. 59.37 lacs): This, as the name suggests, is just 1hat, i.e., work, capital in nature, incomplete or under progress as at the year-end, so that it has yet not fructified into a complete asset, not to speak of a functional one. The ld. AR, on being questioned in its respect during hearing, submitted that he would furnish the break-up details. None surfaced. As the matter was posted for hearing again, and only at the assessee's instance, he on being reminded of his earlier statement, conceded to it being only a capital expenditure, and one that had as yet not resulted or materialized in to a' capital asset. His concession apart, the same is admittedly only so per the assessee's audited accounts, and there is nothing on record contrary thereto. The relevant expenditure, it may be appreciated, stands already incurred, and the instant claim arises only on account of its write off in accounts, being no longer representing any value to the assessee 's enterprise, and which is equally applicable to the other two items comprising the impugned claim also. The same is clearly not of revenue nature and, thus, not deductible as a business expense or even as a business loss.

B. Mine Development Expenses (Rs. 91,39 lacs): On being questioned, the ld. AR would submit that the same, though capital in nature, qualifies for a claim for terminal depreciation u/s. 32(1)(iii) of the Act. Now, this is certainly a new argument, which does not find place in the assessee's case before either of the authorities below or even before us, i.e., per the assessee's written submissions. So, however, if a prima facie case is made out, the matter would certainly stand to be remanded back for an examination on that count; the claim being legal, with the relevant facts being on record. However, I am afraid it is not so. Section 32(1)(iii) is applicable in respect of the assets specified therein and on which depreciation has been claimed and allowed. The mine development expense ('MDE' for short) does not satisfy the functional test of a 'building' or 'plant or machinery' or 'furniture', nor any depreciation stands claimed or allowed in its respect for any year. In fact, s. 32(1)(iii), as a reading of the said provision suggests, and which (reading) is harmonious with the other applicable provisions, is applicable only in respect of assets of an Undertaking engaged in generation and/or distribution of power, eligible for depreciation u/s. 32(1)(i); while that of other Undertakings only form part of the block of assets, entitled to depreciation u/s. 32(1)(ii). In fact, the assessee does not dispute the non-allowance of its claim for terminal depreciation (at Rs. 150.86 lacs), also forming part of its total claim for extraordinary items, which is under reference.

Here it would be pertinent to state that a revenue expense would, even otherwise, i.e., irrespective and independent of the closure, stand to be deducted; the assessee having not discontinued its business. However, the claim/s under reference arises only on account of the write off, i.e., it could not have been claimed but for the write off, so that it is not revenue expenditure per se. The write off implies a loss of value, i.e., something which is perceived as of value, realizable in the course of business, i.e., an asset, by definition. The write off of an asset signifies loss of value to that extent The question, therefore boils down to, and what is relevant, is whether the asset written off is a revenue or a capital asset; the latter being defined under section 2(14) of the Act, so that any asset other than a capital asset, would be by definition a revenue asset. With regard to a capital asset, the claim on its write off would be akin to a claim for terminal depreciation,while qua a revenue asset the question would have to be further examined as to whether the same (write off) is incidental or integral to the business or not, besides from the standpoint of any specific provision/s of the Act, if any, impinging thereon. Reference in this context may also be profitably made to the decision by the apex court in the case of Hasimara Industries Ltd. v. CIT [1998] 230 ITR 927/98 Taxman 303. Mine exploration and development expenditure, as well as CWIP, are only capital expenditure/assets, and the loss on their write off, a capital loss.

C. Tungsten Ore: Finally, coming to the last (third) item of the assessee's claim qua extraordinary items, i.e., for Tungsten Ore at Rs. 154.06 lacs. The Revenue's case is that it is not understandable as to how the same amounts to an expense inasmuch as Degana Mines are yet to be transferred to the Government of Rajasthan, so that they continue to be the assessee's property. Further, how could it be presumed that the transfer price shall be nil. The argument is impressive, and neither has the assessee rebutted the same in any manner, much less, effectively, even as the onus to prove its claim/s is only on it (the assessee). At the same time, however, it cannot be lost sight of that the same amounts to challenging the assessee's business decision for the write off itself and, further, selectively, inasmuch as the Revenue does not question the assessee's decision far a similar write off of the other two (three) assets comprising the impugned claim. Could the Revenue sit in the shoes of a businessman, deciding the propriety of his decisions, unless of course it has sound basis for the same. The assessee's accounts are audited, and which are supposed to and, thus, ought to be taken as representing a true and fair state of its affairs. The same bear, inter alia, the write off of the said cost, which represents the cost of production of the tungsten ore, i.e., as per the accounts. Could it be so, if the assessee actually expected to realize some value in its respect? Which businessman would do so, i.e., inflict self injury by not accepting what is offered to him; rather, not try to bargain for the best realization. In fact, this aspect would be valid for the other items of capital expenditure (or those held to be so) written off, and which also represent business assets of no insubstantial value, as well. The formal transfer may not have taken place, which is stated as impending the completion of the statutory formalities, and which is understandable. The question is not of the assessee's legal right on the relevant assets, but their value to it as a going concern in view of its decision to exit the said Undertaking (Degana Mines). There is nothing to show that the legal transfer of the Mines is to be at a value. In fact, where so, the assessee would not have transferred its men & material to the extent these could be re-deployed, to its other Units, as the realizable value from the Govt., where so, would only be on the basis of it being a going concern, if not a profitable venture, and in any case, stand to increase substantially on that count. In fact, the closure sanction or the terms of engagement would contain a provision/s to this effect, which should have been called for by the Revenue from the assessee where it doubts the basis of the claim/s made. We are not, it may be clarified, averse to a remission, but there should be some basis for doubting the assessee's claims or at least a prima facie case against it made out.

However, another and more important question remains, and that is as to the nature of the expenditure. The assessee claims it to be a loss in the value of stock-in-trade arising on account of a business decision and, thus, only a business loss inasmuch as it continues to be in business, and it is not the case of discontinuance of business. The question, in my humble view, however, is if it could nevertheless be considered as a loss in value of stock-in-trade.It is nowhere claimed, and it is not the assessee's case that the loss is on account of its deterioration or a decline in its market price and, thus, the net realizable value of the ore, which, rather, is not sold as such but only on further processing. The (tungsten) ore was no doubt the assessee's stock-in-trade, but only up to the point in time it was held for the purpose/s of its trade, i.e., for being either processed further or for sale. The fundamental accounting assumption of a going concern and the principle of conservatism would then operate, making it liable to be valued at cost or net realizable value, whichever is less. However, the moment assessee decides to abandon the relevant Mine (Degana Mines), it (the ore) cannot be said to be held as stock-in-trade, i.e., for sale or further processing for realization, though it continues to be the assessee's property. This, in fact, marks the difference, and which to my mind is vital, between this claim and that for Rs. 882.69 lacs on write off of stock, which forms the subject matter of the Revenue's ground # 2 before us; the latter claim being undisputedly qua stock-in-trade. The loss under reference, on the other hand, represents the further loss (i.e., from the amount at which it would stand to be valued in the regular course of business) in value on account of or in consequence to the decision to quit the enterprise, i.e., for the reason that it no longer represents an asset of the trade or a trading asset. It is this loss in value, so that the same is rendered as of no value to the assessee, which the write off of its book value represents or signifies.

The loss under reference, it may be appreciated, arises not on account of any intrinsic loss in the value of the ore (goods) or due to its market value suddenly disappearing, as where (say) they are to be discarded as being unfit for sale or processing or for safety reasons. There are examples when businesses even recall sold goods from the market in response to quality or safety concerns, either removing the defect/s or replacing them, and which may entail discarding the goods recalled as these do not meet the environmental or quality standards/specifications. But for the reason that, having decided not to operate the relevant Mines, it no longer holds any value for the assessee. Thus, though continuing to be the assessee's property, it cannot be regarded as its stock-in-trade, but as any other capital asset belonging to it.

The relevant part of section 2(14) of the Act, defining capital asset, reads as under:
"2. Definitions. - In this Act, unless the context otherwise requires,-
(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include-

(i)

any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession"

The said goods are, thus, only a capital asset in terms of section 2(14) of the Act, and the loss arising on their relinquishment, a loss of capital, as it would be for any other capital asset, whether representing an erstwhile 'fixed' or 'current' asset of the business. A 'current asset' is so classified as it is liable to be turned into account within a period of up to a year. It is, however, as much a part of the capital structure or the profit making apparatus of the assessee's enterprise as is a fixed asset, leading to an impairment of the firm's capital on its relinquishment. As such, any loss arising on its relinquishment, which is only one of the defined modes of 'transfer' u/s. 2(47) of the Act, is a loss suffered on capital account, assessable u/s. 45 of the Act, and not a business loss assessable u/s. 28 of the Act. The same, in fact, represents an exit cost in contradistinction to the set up costs, suffered on establishment of a Unit, both of which are on capital account. Rather, the classification, i.e., 'fixed' or 'current', is no longer valid or applicable where it ceases to be held for the purpose of business, so that the consideration as to whether it arises on account of abandonment of an erstwhile fixed or current asset is immaterial. There is, thus, no difference in the character of the loss sustained or arising on the write off of the tungsten ore vis-a-vis qua the other two items discussed hereinbefore, i.e., capital work-in-progress and ME & D expenses,which, though loosely termed as capital expenditure (by the Revenue authorities), only represents the loss in value of capital asset/expenditure, a part of the capital structure, or a capital loss by definition.

True, a trade debt, on its write off as irrecoverable in accounts, would yield a deduction from business income. However, that would be so not for the reason that it does not form part of the capital structure, which it may well do as a part of the working capital, but for the reason that the relevant amount stood already assessed as income. As such, where the debtor fails or is incapacitated (which may be for the reason of his capital being impaired), leading to its write off in the creditor's books, it is only a recognition of the fact that the legal right, i.e., the right in law to recover the debt amount, on the basis of which the relevant amount had been considered to have accrued as income, was either incorrectly so assumed (so that the income had in fact not accrued) or has since suffered or undergone a change, so that the same (legal right) is considered as of little value to the organization, implying a business loss. A deduction, either way, ensues. From another stand point, the changed circumstances of the debtor necessitate the debt being revalued, with its realizable value warranting a write off in whole or in part and, thus, a claim as a business deduction in its respect to the creditor to that extent. In other words, the said write off (of a trade debt) is only on account of its - a current asset - revaluation, and is independent of the decision, if any, to close the business (or a unit) of which it is (or was) a part, and which (decision) would not impact the legal rights between the parties inter se already accrued. The current assets of a business, it may be appreciated, are only valued at net realizable value, reasonably estimated, unless, of course, it exceeds cost, as these are primarily liquid and realizable over the current term, so that the loss of value is by definition a business loss. In fact, the same premises obtains and guides the deeming of a trade liability as a profit of the business u/s. 41(1) on its remission; the same being again independent of whether the business continues to exist in the relevant year or not.

Further, that the abandonment was occasioned by a business decision is of no consequence or relevance. All decisions on or qua capital account, viz, to set up, dispose of, transfer, merge, demerge, etc. a Unit, representing a business or a part thereof, it may be appreciated, are only business decisions, but that by itself would not alter the character of the receipt, if any, arising thereon as a capital receipt, which shall continue to be so, with incidental and concomitant consequences with regard to taxability or otherwise, which would only be as per and in terms of the provisions of the Act. In a particular case, the assessee may sell his undertaking, including all its assets, whether fixed or current, for a lump sum price. The entire receipt would be a consideration arising on transfer, and it would matter little even if a separate price is attributed to the erstwhile current assets of the said enterprise. The entire consideration - though arising in consequence to a business decision to dispose of the Undertaking - is assessable u/s. 45 of the Act, and which may, defending on the quantum of price, i.e., remunerative or not, result in either a capital gain or a capital loss. Of course, where some of the assets are depreciable and some consideration is ascribed thereto, section 50 or s. 50B of the Act, as the case may be. shall apply. That, however, is only a manner in which the capital gain is to be worked out as well as of its status, i.e., short-term or long-term. What, however, is being sought to be emphasized is the nature of receipt on transfer, leading to either a capital gain or loss, and which is only on capital account and not a business receipt u/s. 28 of the Act, as the assessee claims on the premise that it continues to be in business. Now, could it possibly be that while the consideration for transfer is a capital receipt, i.e., on capital account, its absence or inadequacy results in a loss in the revenue field? The answer could only be an emphatic no. Further, going by the assessee's argument, which is sans any legal basis, would it mean to imply that capital loss cannot arise while the assessee is in business? Or even that he has to necessarily exit the same for the loss to qualify as on capital account. The said fact, i.e., of the assessee continuing to be in business, as sought to be clarified by way of an example of the transfer being at a consideration as against nil value in case of relinquishment - which the present case is of, would, thus, be of little value or relevance, The loss on relinquishment of the erstwhile trade asset, even though arising in the course of business, is only a capital loss assessable u/s. 45 of the Act. In fact, it would lead to a corresponding capital receipt for the transferee, as where it deems it fit to operate the said Unit, and assuming it places the same or similar values on the different assets. This is as, as afore-said, the said assets constitute an essential part of the capital (both fixed and working) structure or profit making apparatus of the said Undertaking.

Without doubt the loss in the instant case is not on account of any deterioration in the quality or decline in the market price (reckoned at net realizable value), which though no doubt would be a business loss u/s. 28 of the Act, but on account of relinquishment or discarding the goods, which immediately prior thereto were a part of the assessee's stock-in-trade, together with other capital assets of its erstwhile enterprise, on its closure. In a given cases it may be at a profit/gain, which though would again be a value realized on transfer on capital account, and not a business receipt u/s. 28. No case has been made out by the assessee before any authority, including before us, of the formal transfer of the Mines to the Government being at a value, which would rather run counter to its avowed stand of the said assets being of no value to it and, therefore, written off in books; the permission for closure having been obtained from the competent authority, i.e., the Ministry of Mines, Govt. of India, during the relevant year. In fact, if it is to be at a value, which of course would be in contradiction to the writing off of the entire value, would only go to reduce the loss, since accrued, to that extent. This is also borne out by another claim (albeit, under the head 'Prior Period Expenses') for Rs. 1,40,769/- in respect of 'Raw Material Consumed', which bears the narration "Value of Tungsten concentrate taken over by RSTDC finalized", appearing at page 49 of the assessee's paper-book. The same, though under a different head, makes it unequivocally clear that no value in respect of the amount written off and debited to the Profit & Loss Account is forthcoming and, rather, the process in relation to taking over, including inventorization and valuation, has been on for some time. As such, there is no basis for not accepting the assessee's contention that the loss stands already accrued, if not earlier, during the relevant year, and at the book value/s of the relevant assets, in determining which the realizable value has also been reckoned. This, as afore-stated, would apply equally to other items of the impugned loss on extraordinary items, i.e., write off of capital work-in-progress (Rs. 59.37 lacs) and ME & D expenses (Rs. 91.39 lacs). Accordingly, the entire loss by way of write off of the assets on its books, i.e., Rs. 304.82 lacs, is in the nature of capital loss assessable u/s. 45 of the Act, and not a business loss u/s. 28, having arisen on account of relinquishment on the closure of the Mine during the relevant year. The relevant ground of the assessee is decided accordingly.

2.4 It may appear, or may well be contended, and by either party, that in deciding this ground, particularly qua the write off of tungsten ore, I have travelled outside the scope of the issue at hand. The charge would be, to my mind, not valid, both on facts and in law. On facts, the issue stands delineated only on the basis of the respective cases of both the parties (refer para 2.2 supra). Qua law, the powers of the appellate tribunal are of the widest amplitude, case law on which is legion, and for which reference, inter alia, is made to the decisions in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 1TR 710 (SC)and ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815 (SC)

2.5 In result, the assessee's Ground No. 3 is dismissed, i.e., in the afore-said terms.
III. Mine Development Expenses (Rs. 6,88,62,383/-)

3.1 This disallowance concerns Ground #1 of the Revenue's appeal. This expenditure, also claimed per write off at Rs. 91.39 lacs under the head 'Mine Exploration & Development Expenses', the subject matter of the assessee's Ground # 3, discussed supra, forms the subject matter of the Revenue's appeal (vide Ground # 1) as well; the AO having disallowed it at Rs. 6,88,62,383/-, which has since been allowed by the ld. CIT(A), so that the Revenue is in appeal before the tribunal. The said sum itself comprises of two separate claims, i.e., for Rs. 568.07 lacs and Rs.125.28 lacs. The two add up to Rs. 693.35 lacs, the sum disallowed by the AO. The appeal by the Revenue at Rs. 688.62 lacs is for the reason that disallowance to the extent of Rs. 4.73 lacs, being depreciation forming part of the assessee's claim for Rs. 125.29 lacs (supra), stands confirmed by the ld. CIT(A) and against which the assessee is not in appeal. It would, therefore, be both relevant and necessary to, before proceeding further, understand the manner in which the said expense has been accounted for and claimed by the assessee.

3.2 The claim for Rs. 568.07 lacs is by way of debit to the profit and loss account as development expenditure on mines under the grouping 'Manufacturing and Other Expenses' (Schedule 14 to the annual accounts). Rs. 125.28 lacs is stated to be in respect of extension of existing mines (units), as incurred during the year. The said expenditure is accounted for under the account head 'Mine Exploration and Development Expenses' ("ME & D expenses') and amortized in accounts. Schedule 4.1 to its final accounts reads as under :-

(Amt. in Rs. lakhs]

		As at 31.03.1998		As at 31.03.1997
Opening Balance		3029.63		3091.21
Additions:
Salaries & Wages	55.25		50.51
Stores & Spares	19.02		31.00
Depreciation	4.73		3.59
Mine development thro' Contractor	0.70		27.97
Other expenses	45.59	125.29	21.55	134.62
Deductions/Transfers
Write off/adjustment	91.39
Amortization	214.24	305.63		196.20
		2849.29		3029.63

Further facts, which may be relevant and, in any case, need to be stated, are that though the assessee is in business for several years, the claim qua Mine Development Expenses ('MDE' for short / Sch. 14) was preferred by it for the first time only for the assessment years 1996-97 and 1997-98, and that too per revised returns (for those years). Secondly, the said claim is apart from the mine exploration and development (ME & D) expenditure, amortized in accounts (Schedule 4.1 to the annual accounts). The Revenue has, as it appears, disallowed the MDE for the first time for the current year; section 263 proceedings initiated in respect of this expenditure for the assessment year 1997-98 having been dropped subsequently. While the basis for the disallowance by the AO is that these are development expenses, capital in nature, and for which the law has provided a separate allowance per section 35E of the Act, the ld. CIT(A) allowed the same on the basis that the same is for existing mining units. As regards ME&D expenses, the assessee, as it appears, is not claiming the amount debited in accounts (at Rs. 214.24 lacs for the current year), i.e., to the operating statement, but that incurred during the relevant year, being at Rs. 125.29 lacs for the current year. This also explains its claim directly per the computation of income. In addition, for the current year, another sum of Rs. 91.39 lacs represents write off in respect of Degana Mines on closure of the said unit. The assessee's claim for the current year, thus, has three components.

3.3 In respect of the assessee's claim for ME&D expenses, the tribunal for the immediately preceding year (i.e., A.Y. 1997-98, in ITA No. 249/JU/2004 dated 24/7/2009), following its order for the A.Y. 1996-97 (in ITA No.46/JU/2004 dated 30-03-2009) for Rs. 131.03 lacs (i.e., at net of depreciation component of Rs. 3.59 lacs), remanded the matter back to the file of the AO to consider the assessee's claim in its respect u/s. 35E, i.e., on the parameters of the said section, with particular reference to the year of commencement of production (refer para 32). The ld. CIT(A) has allowed the assessee's claim in its respect at Rs. 568.07 lacs as also for Rs. 120.56 lacs (i.e., for Rs. 125.29 lacs less depreciation of Rs. 4.73 lacs), holding the same to be a valid claim u/s. 37(1) of the Act, while, as afore-stated, disallowed the third amount of Rs. 91.39 lacs as capital expenditure. Qua the second component (Rs. 125.29 lacs), which is in line with his order for the assessment years 1996-97 and 1997-98, it has since been disturbed by the tribunal, holding it not to be exigible u/s. 37(1) of the Act, but only u/s. 35E of the Act for examination of the satisfaction of which section, it restored the matter back to the file of the AO. With regard to MDE (Rs. 568.07 lacs), as afore-noted, the same falls for consideration by the tribunal for the first time for the current year.

Findings

4.1 The facts, including precedents, having been explicitly laid out, I may proceed to adjudicate each of the assessee's three claims. First, the claim for Rs. 125.29 lacs, which in fact stands reduced, as also for the preceding years, in respect of depreciation component thereof - allowed separately, to Rs. 120.56 lacs (Rs. 125.29 lacs minus Rs. 4.73 lacs). The same is clearly covered by the decision by the tribunal in the assessee's case for the preceding as well as for the succeeding years. As would be apparent from Schedule 4.1 to the assessee's annual accounts (supra), Rs. 125.29 lacs and Rs. 91.39 lacs form different parts or components of the same account. The ld. CIT(A), while holding Rs. 91.39 lacs as capital, upheld the claim for Rs. 125.29 lacs as revenue, disallowing the former and allowing the latter u/s. 37(1) of the Act. The order of the ld. CIT(A) is, therefore, clearly contradictory and cannot be accepted as such. The only corollary of allowing the latter claim as revenue is that the former is also of revenue nature, though could be and, rather, would have to be considered as a prior period expense. As such, and as would be apparent from the foregoing, the impugned order is in its respect inconsistent, both internally as well as with that by the tribunal for the immediately preceding years, i.e., AYs 1996-97 and 1997-98, and which in fact stand followed by the tribunal for other years as well. The matter is, accordingly, likewise, restored back to the file of the AO for examination of the exigibility of the said claim u/s. 35E of the Act.

However, it may need to be clarified that the expenditure exigible for deduction u/s. 35E is, firstly, limited to that for prospecting (sec. 35E(2)) and, secondly, that incurred up to a maximum of four years prior to the commencement of production, besides, of course, for that year. Clearly, therefore, once the commercial production commences, there is no question of any expenditure on prospecting and, thus, any expenditure eligible for deduction u/s. 35E, being incurred. Any expenditure on further development on or extension of the said mines would necessarily have to be examined from the stand point of being either capital or revenue expenditure. Improvements in methods are intrinsic to any business, so that what is relevant is not the factum of improvement per sebut whether it results in any enduring benefit or advantage to the business in the capital field. The AO accordingly shall consider this aspect as well. The tribunal in fact has dealt with this matter in sufficient detail per its order for A.Y. 1996-97 in the assessee's case (ITA No. 46/JU/2004 supra), making specific reference to ss. 35E(5) and 35E(8) as also the decision by the hon'ble jurisdictional high court in the case of CIT v. Pioneer Minerals [1992] 107 CTR (Raj.) 230, and which the AO shall draw upon; his decision being necessarily required to be consistent with law as well as, both with that by the tribunal and across different years. In fact, the assessee ought to, but has not, stated as to how the AO has applied himself for both the said preceding years under reference consequent to the set aside by the tribunal, and what have been the findings by the assessing authority, which, being essentially findings of fact, are relevant. Also, that being the case, I find that there is nothing in the decision in the case of CIT v. Pioneer Minerals (supra) which is or may be construed as inconsistent with what is stated either in this order or by the tribunal for the preceding two years.

4.2 The claim for the write off of the said ME&D expenditure at Rs. 91.39 lacs on the closure of the Degana Mines, which (claim) is specific to the current year, stands already discussed and adjudicated upon, holding it to be in the nature of a capital loss, assessable u/s. 45 of the Act (refer para 2.3(C), 2.4 of this order).

4.3 Coming to the last claim, i.e., Mine Development Expenses (MDE), claimed separately in the sum of Rs. 568.07 lacs through debit to the profit and loss account (Schedule 14 to the annual accounts). The basis of the assessee's claim, as understood, is that the same is firstly in respect of mines already in production, i.e., as against ME & D expenses per Schedule 4.1 (to the final accounts), which, thus, are qua mines that have not attained the stage of commercial production or for the extension of those existing. Nothing, apart from stating of it to have been incurred for continuing excavation of minerals from mines, so that it is recurring in nature and intrinsic to the profit earning process, is found to have been brought on record. No doubt, if so, there can be no question of the same being not a deductible expenditure; rather, forming the direct cost of excavation. However, why then it is not so stated in the accounts? In fact, the assessee had itself been classifying this expenditure as a capital expenditure in accounts and, further, not claiming it as a deduction up to A.Y. 1995-96, even as its mines are in commercial production since long. Perhaps, this was so as the said expenditure also includes expenditure on approach to the underground from the surface for the mining operations. But then, that by itself would not imply a 'development' per se but only a cost for continuing or sustaining mining operations, deductible u/s. 37(1) of the Act. Section 35E of the Act cannot again be said to be applicable, which is only toward prospecting, the scope of which is defined per section 35E(5) of the Act, and includes an expenditure which proves to be abortive. There are no clear findings by the first appellate authority in respect of this expenditure, and both the sides, i.e., the assessee and the Revenue, have a point. Without doubt, capital expenditure, where so, would not cease to be so where incurred in respect of a Unit in production. Capital expenditure, i.e., one which by definition yields an advantage or benefit of an enduring nature in the capital field, is not a function of time, so that it could be incurred either before or after the commencement of commercial production. In my view, as afore-stated, there is lack of proper factual determination, so that the matter would warrant being restored back to the file of the first appellate authority for a decision on merits. The matter is of continuing relevance and significance, so that proper opportunity to both the sides, including placing on record any material they may wish to rely upon, including case law, in advancing or rebuttal, shall be caused to be so by the ld. CIT(A) in adjudicating the matter, which he shall by issuing specific findings of the fact and in accordance with law. I direct accordingly.

5. In the result, the Revenue's Ground # 1 is allowed for statistical purposes.
IV. Write off of stock, etc. (Rs. 8,82,69,155/-)

6.1 This is the subject matter of Ground No. 2 of the Revenue's appeal. The AO found the assessee's claim, preferred per Schedule 18 to the annual accounts for the relevant year in the sum of Rs. 976.50 lacs, as untenable in view of the assessee being unable to substantiate its different claims comprised therein before him. The assessee found favour with the ld. CIT(A) on the basis of the decision by the tribunal in the assessee's case for the assessment year 1996-97 dated 24-04-2002 (refer para 4.2, pg. 11, 12 of the appellate order). He, therefore, confirming the disallowance for Rs. 77,000/-, i.e., for which. assessee could not furnish the basis of its claim, deleted the balance, so that the Revenue; is in appeal therefor. Clearly, therefore, the first appellate authority has only followed the order by the tribunal in the assessee's own case. However, at the Revenue-appellant's instance, we find that the tribunal per its order for the assessment year 1996-97 in the assessee's appeal (in ITA No. 449/JU/1999 dated 18/5/2009, copy on record) has in fact confirmed the disallowance for most part, and for which reference may be made to paras 10 to 16.1 of its order; its findings being at para 16 & 16.1, deciding the Revenue's ground # 2 before it. This again appears to be a regular issue, with the tribunal for the following year, i.e., A.Y.1997-98, again confirming the disallowance vide para 15 of its order in the Revenue's appeal (ITA No.249/JU//2004 dated 24-07-2009, copy on record), and again on the same basis, i.e., the assessee being unable to substantiate its claim, drawing upon its decision for the preceding year, i.e., A.Y. 1996-97.

6.2 No improvement in its case stood made by the assessee before us, while it is clear that the basis for the order of the first appellate authority is itself misfounded; the tribunal having in fact confirmed the disallowance for A.Y. 1996-97, as also noted by it in its order for the following assessment year, i.e., AY 1997-98. No appeal number in respect of the stated tribunal's order in the assessee's case for AY 1996-97, purportedly followed by the ld. CIT(A), has been mentioned in the impugned appellate order for us to locate the same, nor has the assessee brought the same on record or clarified this aspect (which forms the sole basis on which relief has been allowed to it by the first appellate authority) before us. Further, where is the question of the tribunal deciding this matter in May, 1999 if it had already decided the same earlier, to which, assuming so, there ought to be some reference (as also the reasons leading to it coming up for adjudication again), to which there is none in its order of May, 1999. As such, it is clear that the tribunal has under the similar circumstances confirmed the disallowance, finding the assessee unable to substantiate its claim; the onus of which is clearly on it.

6.3 No doubt, the ld. AR before us stated that all the details are in possession of the assessee, and were in fact also adduced. More importantly, the argument alludes to the principle that there could be no precedent on facts, and whether the assessee has been able to prove an expense is a matter of fact, so that it may or should not be guided by precedent. And, the expenditure, the revenue nature and business purpose of which is not in doubt, allowed. True, just because the assessee could not prove an expenditure in the past is no basis for it being unable to do so for the current year as well. However, merely making a bald assertion would not help the assessee's case or cannot form the basis or by itself a material, much less proven, for disturbing the clear findings on which assessment order rests, and which are also the same for the immediately two preceding years as found by the tribunal as the final fact finding authority. The impugned order, as afore-stated, also cannot stand and would be required to be set aside. So, however, the matter being factual, so that it may well be that the assessee has material to establish/ substantiate its claim/s for different expenses comprised in its impugned claim, and whose cause should not stand to be prejudiced in view of the tribunal's finding for the preceding years, it is only considered fit and proper in the interest of justice that the matter is restored back to the file of the AO to decide the same afresh per a speaking order and in accordance with law and after allowing opportunity of being heard to both the sides. I direct accordingly. My order on this ground is thus an assent order.

6.4 Ground No. 2 of the Revenue's appeal is allowed for statistical purposes.
V. Disallowance u/s. 40A(9) (Rs. 350 lacs)

7.1 This forms the subject matter of the Revenue's ground # 3. The AO observed payment by way of contribution to the various employee funds, clubs, cooperative societies, canteen, etc. made by the assessee, as in the past, wherein amounts at Rs 280 lacs and Rs. 337 lacs stood disallowed u/s. 40A(9) of the Act for the assessment year 1996-97 and 1997-98 respectively. In view of the consistent and admitted factum of payment, the details of which were not forthcoming from the assessee, he estimated the contribution for the current year at Rs. 350 lacs, and effected a disallowance in its respect u/s. 40A(9) of the Act. The ld. CIT(A), in appeal, however, deleted the same on the basis of the order by the tribunal for assessment year 1990-91 (in TTA No. l128/ JP/1994 dated 24-02-1998), reproducing there-from in his order (para 5.2), and which also adverts to similar decisions by the Madras and Hyderabad Benches of the tribunal. The basis of the AO' s order is the disallowance for the preceding year, i.e., assessment years 1996-97 and 1997 -98. It is, therefore, incumbent upon us to see as to how, the facts being similar, the tribunal has adjudicated the matter for those years, i.e., for assessment years 1996-97 and 1997-98. The tribunal for the assessment year 1996-97 (in ITA No.449/JDP/1999 dated 18-05-2009) at para 16 in para 24 has held as under:

"24. Having heard the parties and on careful perusal of the record and considering the peculiar facts and circumstances of this case, we find it reasonable to set aside the issue and restore the matter back to the file of the assessing authority for taking a decision afresh in accordance with law. Needless to add he shall pass a speaking order on each and every item assigning reason for taking decision in accordance with law. Reasonable and effective opportunity shall be allowed and due regard shall be given to the direction as are contained in order of High Court on identical issues in assessee's own case."

For the assessment year 1997-98 (in ITA No.249/JU/2004 dated 24-07-2009), deciding the Revenue's Ground No. 5 before, the tribunal again considered it fit and proper to restore the matter back to the file of the AO for a decision in accordance with law.

7.2 No doubt, the Auditor has not reported adversely in this respect for the current year, as was the case for the assessment year 1996-97, but even as pointed out by the hon'ble High Court in the assessee's own case for the preceding years, being assessment years 1989-90 to 1991-92 (i.e., including the year for which the order by the tribunal stands followed by the ld. CIT(A)), reported at Hindustan Zinc Ltd. v. Union of India [2005] 194 CTR (Raj.) 121, that the opinion of the Auditor cannot substitute the adjudication of the issue by the AO or CIT(A). The same stood also noted by the tribunal and forms the basis of its decision to set aside the adjudication back to the file of the AO for the immediately preceding two years, even as was done by the hon'ble High Court, albeit to the file of the tribunal. There is no question of the tribunal deciding the issue for the current year, where even the AO has been constrained for want of proper details. Accordingly, it is considered fit and proper to restore back the matter to the file of the AO for adjudication afresh in accordance with law as for the immediately two preceding years. I hold accordingly, allowing the Revenue's Ground # 3 for statistical purposes.

VI. Interest income (Rs. 60.00 lacs)

8.1 This issue arises in the context of the Revenue's Ground # 4. The AO assessed the interest on the basis of it having accrued @ I2% per annum in respect of the deposit with M/s. Bharat Gold Mines Ltd. ('BGML' for short), a PSU, i.e., as in the past; there being no change in the facts and circumstances of the case. The ld. CIT(A), in appeal, deleted the said addition on the basis of the order by the first appellate authority for the assessment year 1996-97 dated 30-06-1999. It is, therefore, incumbent on us to see as to how the tribunal decided this issue for that year, as well as for the intervening year, i.e., assessment year 1997-98. Its adjudication for assessment year 1996-97 is per paras 26 to 30 o f its order (in ITA No.449/JDP/l 999 dated 18-05-2009), with the findings at para 30, as under, which stand followed and reproduced by the tribunal in its order for the assessment year 1997-98 (in ITA No. 249/JU/2004 dated 24/7/2009):

"30. We have heard the parties and have carefully perused the material on record with reference to precedents cited at Bar. Essentially the assessee has legal right to recover the interest. When the assessee has legal right to claim, income can be said to have accrued under the mercantile system of accounting adopted by the respondent-assessee. Further more the assessee placed no material on record to show that the principal sum has become bad. We, therefore, set aside his order and allow ground in appeal."

8.2 Nothing to suggest any change in the facts and circumstances of the case has been brought on record by the assessee, even as it has not succeeded for the two immediately preceding years as well, besides stating that the total amount assessed as income on this count by the Revenue up to assessment year 1998-99, i.e., the current year, aggregates to Rs. 348 lacs. That by itself would be of no moment; the tribunal noting for the preceding year, and which forms the basis of its order, that the assessee has not been able to exhibit that even the principal sum had become doubtful of recovery, so that contractually the amount was legally due to the assessee, even as held by the hon'ble jurisdictional High Court in the case of SMS Investment Corpn. (P.) Ltd. v. CIT [1993] 203 ITR 1001/[1994] 72 Taxman 328 (Raj.), to which the tribunal has also adverted to. Clearly, the law in the matter is trite; the hon'ble jurisdictional High Court in fact itself referring to and following the decision by the hon'ble apex court in the case of Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC) in its decision in the case of SMS Investment Corporation (P.) Ltd. (supra). In fact, as noted by the tribunal in its order for the assessment year 1996-97 (supra) (vide para 29), the ld. counsel for the assessee fairly conceded that the principal sum stands adjusted by the assessee against the work done for the subsequent years. How could, in such circumstances, the principal amount be considered as doubtful for recovery?Also, if so, there is nothing untoward or amiss in the amount so realized as having been offered and assessed as income for the relevant assessment year, as being sought to be made out by him. The deposit is a transaction on capital account, so that where a part thereof is adjusted against the work got done, the same assumes the character of revenue and, thus, liable to be taxed as income. Further, when a part of the principal amount has been realized, how could interest amount be at a constant, at which it is being assessed from year to year? At the same time, it also indicates that there has been a change in the facts and circumstances, and the Revenue is clearly wrong in stating that there is no change in the facts and circumstances of the case from year to year, which, rather, should have been brought on record by the assessee.

8.3 There has been in my view that no proper examination of the facts of the case by the AO, who has tended to follow the precedence, even as the matter is primary factual; accrual or otherwise of income being a matter of fact, with the assessee also not presenting its case, including the facts obtaining for the relevant year. As such, it is only considered fit and proper that the matter is restored back to the file of the AO for adjudication afresh in accordance with law per a speaking order, and by allowing proper opportunity of being heard to the assessee. I decide accordingly, which would thus be an assent order; being motivated by a different set of considerations.

8.4 The assessee's reliance on the decision in the case of CIT v. Eicher Ltd. [2010] 320 ITR 410/[2009] 185 Taxman 243 (Delhi), (copy on record) is, and particularly in view of the finding that the facts of the instant case are not determinate, of no consequence. The decision reiterates the principle that income-tax is a tax on real income, so that where real income has not in fact accrued, no tax in law could be levied. That represents trite law, for which the hon'ble high court cites the decision in the case of Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746/91 Taxman 351 (SC) and CIT v. Goyal M.G. Gases (P.) Ltd. [2008] 303 ITR 159/[2007] 163 Taxman 541 (Delhi), quoting from the former. However, as clarified by the hon'ble court itself therein (para 6), the same stands rendered in the facts of the case, which find discussion therein. As such, in ratio, the decision must be considered as affirming that no real income in the facts of the case had accrued, dismissing the Revenue's appeal as not raising any substantial question of law. In the facts of that case, a liability of Rs. 617 lacs (including interest up to 31/3/1999 for Rs. 267 lacs, which stood offered to tax) was settled for Rs. 480 lacs vide one-time settlement dated 15/12/2003. It was under these circumstances that the hon'ble court found no basis to disturb the finding by the tribunal that no interest for the relevant year, reckoned by the Revenue at Rs. 68.25 lacs, had in fact accrued.

REFERENCE UNDER SECTION 255(4) OF THE IT. ACT, 1961

As there is a difference of opinion between us i.e. Judicial and Accountant Member, therefore, the following questions are being referred to be answered by a Third Member appointed by your Honour as per provisions of law
QUESTIONED FRAMED

1.		Whether on the facts and in the circumstances of the case, the issue in respect of disallowance of Rs. 1,65,50,475/- on account of prior period expenses is liable to be restored to the file of the A.O or liable to be confirmed.?
2.		Whether on the facts and in the circumstances of the case, the issue in respect of disallowance of Rs. 304.82 lacs out of extra-ordinary items relating to the amount written off as a result of the closure of Degana Tungsten Mine Unit is liable to restored back to the file of the A.O or liable to confirmed?
3.		Whether on the facts and in the circumstances of the case, the issue in respect of deleting the disallowance of Rs. 6,88,62,383/- being the Mine Development Expenses is liable to be deleted or to be set aside to the file of the ld. CIT(A)?
4.		Whether on the facts and in the circumstances of the case, the issue in respect of deleting the disallowance of Rs. 3.50 crores made by the A.O u/s 40A(9) of IT Act is liable to be deleted or to be set aside to the file of the A.O ?

We also request your good-self that if the above mentioned questions are not suitable then you may frame the questions as you think fit.
REFERFNCE UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961

As we were unable to agree on the questions representing truly and fully the exact points of difference in the opinions expressed by the Members per their respective orders, I state my separate set of such questions for reference to the Third Member by the Hon'ble President u/s. 255(4) of the Act, as under:

1.		(a) Whether the finding by the authorities below that the assessee's claim qua prior period expenses (for Rs. 165.50 lakhs) does not represent any disputed liability crystallized during the relevant year is correct on facts and has also not been suitably met before the Tribunal, as was also found by it for the immediately two preceding years, meriting its dismissal, or it is not so, so that the matter would require a set aside to the file of the assessing authority for verification?
		(b) In any view of the matter, is there any scope for application of the decisions in the case of Nagri Mills Co. Ltd. (supra) and Vishnu Industrial Gases (P.) Ltd. (supra) relied upon by the assessee, in the facts and circumstances of the case?

2.		(a) Does the question as to whether the assessee's Unit (Degana Mine) constitutes a distinct and separate business or not. a relevant factor in deciding its claim in respect of 'Extraordinary Items', made at Rs.304.82 lakhs?
		(b) Whether the assessee's said claim can, in any case, be decided on the basis of the material on record, or is required to be set aside back to the file of the Assessing Officer for fresh determination and adjudication'?

3.		(a) Whether, the adjudication of the assessee's claim in respect of 'Mine Development Expenses' (for Rs.688.62 lakhs), made in two separate sums of Rs.568.07 lakhs and Rs.120.55 lakhs, is, in the facts and circumstances of the case, to be made considering it as a single claim, or separately?
		(b) Whether, in any view of the matter, the said issue warrants being set aside back to the file of the A.O. for considering the factual aspects of the case as well as the decision by the Tribunal for the immediately two preceding years, particularly for A.Y. 1996-97 (vide order in ITA No.46/JU/2004 dated 30.3.2009), and a decision in light thereof, as well as the law as explained by the hon'ble courts of law, as in the case ofCIT v. Pioneer Minerals (supra), or warrants being allowed as claimed, i.e., under section 37(1) of the Act, in full?
4.		Whether the issue qua the disallowance under section 40A(9) of the Act (at Rs.350 lakhs) is to be set aside for passing a speaking order in accordance with law after considering the facts of the case, as also decided by the Tribunal for immediately two preceding years, or is to be allowed in the facts and circumstances of this year?

THIRD MEMBER ORDER

R.S. Syal, Accountant Member (As a Third Member) - The Hon'ble President has nominated me u/s 255(4) of the Income Tax Act, 1961 (hereinafter also called as 'the Act') to render opinion on the difference between the Members who initially heard the present appeals but differed in their respective opinions. Before proceeding with the matter, it is relevant to note that both the learned Members, apart from differing on the merits of the case, also could not be in unison in making reference u/s 255(4) of the Act. It is noticed that both the learned Members have differed on four points. The first point of difference is about allowability or otherwise of prior period expenses. In my considered opinion, the controversy on this issue will be properly reflected through following question.

"Whether on the facts and in the circumstances of the case and as per law, the learned CIT(A) was justified in confirming the disallowance of Rs. 1,65,50,474/- on account of prior period expenses ?"

2. Briefly stated the facts of this issue are that the assessee claimed deduction for prior period expenses amounting to Rs. 1.65 crores, which was not allowed by the Assessing Officer by relying on the view taken by him for the A.Ys. 1996-97 and 1997-98. The learned CIT(A) upheld the disallowance. When the matter came-up before the Tribunal, the learned JM. observed that the learned CIT(A) confirmed the disallowance by relying on the Tribunal order for A.Y. 1992-93. He noticed that the learned CIT(A) ignored the Tribunal orders for A.Ys. 1993-94 to 1995-96 on the same issue. He also took into consideration the Tribunal order for A.Y. 1997-98 by which the claim of the assessee was rejected. However, relying on the Tribunal order for the A.Y. 1995-96 (sicA.Y. 1994-95), he remitted the matter back to the file of the Assessing Officer for considering the details and allowing deduction, if permissible as per law. However, the learned A.M. upheld the view taken by the learned CIT(A) by relying on the Tribunal order for A.Ys. 1996-97 and 1997-98.

3. I have heard the rival submissions and perused the relevant material available on the record. The learned A.R. argued that such prior period expenses reflected the liability incurred in earlier years but getting crystallized in the instant year. He also submitted that in some cases, the expenses could not be accounted for in the earlier year because sanctions from management were obtained late falling in the period relevant to the instant year. Relying on certain decisions, he submitted that the entire expenditure should be allowed as deduction in the instant year irrespective of the year to which it pertains. Per contra,the learned D.R. opposed the contention put forward on behalf of the assessee. He stated that the expenditure was rightly disallowed by the learned CIT(A) by following the Tribunal's orders for the A.Ys. 1996-97 and 1997-98.

4. Before proceeding to deal with the matter, it is necessary to point out that section 255(4) of the Act deals with the situation when there is difference in opinion on any point or points between the Members of a bench. In such a case, the Members state point on which they differ by referring the matter to the President of the Tribunal for hearing on such point(s) by one or more of the other Members of the Tribunal. This sub-section further provides that "such point or points shall be decided according to opinion of majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it." A bare perusal of this provisions indicates that the point of difference between the Members is decided by the majority view by taking into consideration the opinion expressed by the Third Member nominated by the President and also the members who initially heard the appeal and differed in their respective conclusions. This shows that a Third Member has no option but to agree with either of the two views taken by the members, who initially heard the appeal, so as to form a majority view. In the like manner, the parties appearing from the opposite sides also cannot canvass a third view before the Third Member contrary to what was held by the two Members who initially heard the appeal. If the parties are allowed to argue a case from a third angle or the Third Member canvasses a view different from those taken by the two Members who earlier heard the appeal, no majority of opinion would ever be formed. In that view of the matter, it is crystal clear that the Third Member is supposed to agree with either of such two views. He can neither entertain nor lay down a third view.

5. Coming back to the point in question, it is seen that the learned J.M. restored the matter to the file of Assessing Officer for deciding it afresh in conformity with the Tribunal order for A.Y. 1995-96, whereas the learned A.M. decided the issue against the assessee by relying on the Tribunal orders for the A.Y.s 1996-97 and 1997-98. As such, the contention of the learned A.R. that the deduction for prior period expenses be allowed by the Third Member, cannot be accepted, which is neither the case of the ld. JM or Id. AM.

6. Adverting to the facts of the instant case, it is seen that the assessee claimed before the Assessing Officer that prior period expenses be allowed. In support of his claim, the assessee furnished details of such prior period expenses. The Assessing Officer, without going into the details of such expenses, came to hold that these were not deductible in the light of his view taken for the earlier years. The Tribunal in its order for the A.Y. 1995-96 has held that under the mercantile system of accounting, only the expenses accruing during the year are allowed as deduction irrespective of the year in which payment is made. It further observed that even if the expenses pertain to the preceding years but liability is crystallized in the current year, then the amount has to be allowed as deduction. It further held that if, however, the expenditure relates to the preceding year and simply payment is made in this year, that would not bring the case within the concept of accrual of liability expenses. That is how the matter was restored by the Tribunal to the Assessing Officer for taking a fresh decision in the light of the above directions after allowing due opportunity of being heard to the assessee. When I examine the Tribunal order for A.Ys. 1996-97 and 1997-98, it is seen that the disallowance has been made by considering the details of such expenses. The tribunal has considered the details of such expenses and then decided against the assessee. Since the Assessing Officer in the instant year did not examine the details of such expenses and simply disallowed by relying on the Tribunal orders for the A.Ys. 1996-97 and 1997-98, the view taken by the learned CIT(A) for sustaining such disallowance, cannot be accepted. In my considered opinion, the deductibility of expenses needs to be tested on the touchstone of the principle laid down by the Tribunal in its order for the A.Y. 1995-96 in respect of each item of expenditure claimed under the head 'prior period expenses'. As the Assessing Officer has failed to examine the details of expenses, in my considered opinion, the view taken by the learned J.M. needs to be upheld with a direction to the AO to consider the deductibility of expenses as per the view taken by the Tribunal for A.Y. 1995-96. I therefore, answer the question in negative by holding that the learned CIT(A) was not justified in sustaining the disallowance of prior period expenses. As such I agree with the view taken by the learned J.M. in restoring the matter to the file of the Assessing Officer instead of the ld. AM upholding the disallowance.

7. The second point on which both the learned Members have differed is about deductibility or otherwise of extraordinary items. Here again, both the ld. Members have referred their separate questions. In my considered opinion, the controversy is properly highlighted through the following question :—

"Whether on the facts and in the circumstances of the case and as per law, the learned CIT(A) was justified in confirming the disallowance of Rs. 3,04,81,750/- on account of disallowance of extra ordinary items ?."

8. The facts apropos this issue are that the assessee claimed deduction for a sum of Rs. 304.82 lacs towards extraordinary items written off as a result of the closure of Degana Tungsten Mine. The Assessing Officer held that since Degana Mines were closed during the year, which constituted a distinct business, the assessee was not entitled to write off its assets, both fixed assets and stock in trade, against its profit from remaining business of mining and manufacturing etc. Without going into the details of Rs. 304.82 lacs, the Assessing Officer disallowed such expenditure. The learned CIT(A) confirmed the disallowance. When the matter came up before the Tribunal, the learned J.M. reversed the Assessing Officer's opinion that no deduction could be allowed in respect of a closed business against the income of other businesses when all the businesses constitute a composite business. He, therefore, restored the matter to the file of the Assessing Officer for considering the details of such amounts written off and thereafter consider the allowability or otherwise of such expenses. On the other hand, the learned A.M. also concurred with the view taken by the learned J.M. that there can be no question of denying deduction of expenses of a closed business against the income of the other businesses, when both the businesses form part of a composite business. He, however, examined the details of such extraordinary items and came to the conclusion that it was in the nature of capital loss assessable u/s 45 of the Act. That is how, the ground taken by the assessee was dismissed

9. After considering the rival submissions and perusing the relevant material on record, it is observed that both the learned Members have agreed on the point that there can be no bar on allowing deduction of expenses in respect of a closed business against the income of other businesses, when it is a case of composite business. Both the learned Members have also agreed that it was a case of composite business and hence the deductibility of expenses could not be marred by such considerations. It is observed that the Assessing Officer has based the disallowance of expenditure simply on the ground that it was in respect of written off amounts of a closed business and hence not deductible. In view of the above decision of the tribunal, the foundation for the AO's view, does not stand. The AO did not examine the details of such expenses as to whether these were capital or revenue. Since the stand taken by the Assessing Officer has been rejected by both the learned Members, in my considered opinion, the proper course should be to restore the matter to the file of the Assessing Officer for considering the deductibility or otherwise of such amounts as per law. It is simple and plain that the Appellate Authorities are required to adjudicate upon the orders of the authorities having original jurisdiction which appreciate the material and then decide about the point. Adverting to the facts of the instant case, I find that since the Assessing Officer did not have any occasion to apply his mind from the perspective as discussed above, it would be more appropriate to send the matter back to the file of the Assessing Officer for considering deductibility of expenses or otherwise as per law, instead of taking up the details of such expenses and rendering decision at the Tribunal's end. I, therefore, agree with the view taken by the learned J.M. on this point and hold that the learned CIT(A) was not justified in confirming the disallowance of Rs. 3,04,81,750/- on account of disallowance of extraordinary items.
10. The next point of difference between the Hon'ble Members is on the disallowance of Rs. 6,88,62,383 made by the AO on account of Mines development expenses. Here again, both the ld. Members have referred their separate questions. In my considered opinion, the controversy is properly highlighted through the following question :—

"Whether the learned CIT(A) was justified in deleting the disallowance of Rs. 568.07 lacs and Rs. 120.55 lacs on account of mine development expenses ?"
11. The facts of this issue are that the assessee claimed deduction of Rs. 6,88,62,383/- towards mine development expenses. The Assessing Officer did not allow this deduction by relying on the view taken by him for the A.Y. 1996- 97. He held that mine development expenses were to be dealt with as per section 35E of the Act and hence the assessee's contention for allowing deduction u/s 37(1) of the Act was rejected. The learned CIT(A), after considering the certain decisions, held that the assessee's case was covered u/s 37(1) of the Act in so far as expenditure on mine under production at Rs. 568.07 lacs was concerned. As regards the remaining amount of Rs. 125.38 lacs, the learned CIT(A) held that this included a sum of Rs. 4.73 lacs towards depreciation which could not be allowed deduction. He, therefore, allowed deduction of the second component for a sum of Rs. 120.55 lacs. The learned J.M. upheld the view taken by the learned CIT(A) by relying on the decision taken by the Tribunal for the A.Y. 1996-97. However, the learned A.M. restored the question of deduction amounting to Rs. 568.07 lacs to the learned CIT(A) and the remaining deduction of Rs. 120.56 lacs to the Assessing Officer for deciding it in conformity with the decision taken by the Tribunal for the A.Y. 1996-97.

12. I have heard the rival submissions and perused the relevant material on record. It is observed that the learned J.M. has relied on the order passed by the Tribunal for the A.Y. 1996-97 in deleting the addition. However, on perusal of the Tribunal order for A.Y. 1996-97, it is seen that the Tribunal did not delete the disallowance as made by the Assessing Officer but restored the matter to the file of the Assessing Officer for taking a fresh decision in conformity with the directions given by it. As the learned A.M. has also restored the matter to the file of learned CIT(A)/Assessing Officer, I find myself in agreement with the view taken by the learned A.M. in restoring the matter to the authorities below. The obvious reason is that for the immediately preceding two years, the Tribunal has restored the matter and the ld. AM has followed such view. There can be no question of deviating from the opinion expressed by the Tribunal on this issue in earlier years. As the orders of the tribunal for earlier two years have not been modified by the Hon'ble High Court, I would prefer to go with the wisdom of the Division bench for the earlier two years. In the final analysis, I agree with the view taken by the learned A.M. and hold that the learned CIT(A) was not justified in deleting the disallowance of Rs. 568.07 lacs and Rs. 120.55 lacs on account of mine development expenses.

13. The last point of difference between the Hon'ble Members is on the addition of welfare expenses u/s 40A(9) amounting to Rs.3.5 crore. Here again, both the ld. Members have referred their separate questions. In my considered opinion, the controversy is properly highlighted through the following question :—

"Whether on the facts and in the circumstances of the case and as per law, the learned CIT(A) was justified in deleting the disallowance of Rs. 3.50 crores made by the Assessing Officer U/s 40A(9) of the Act."

14. The Assessing Officer made disallowance u/s 40A(9) of the Act amounting to Rs. 3.50 crores. The learned CIT(A) deleted this disallowance. When the matter came up before the Tribunal, the learned J.M. observed that the Tribunal has decided this issue in assessee's favour for the A.Y. 1990-91. It was further seen that the Tribunal for the A.Y. 1996-97 restored the matter to the file of the Assessing Officer and the Assessing Officer, in turn, allowed the deduction. He also observed that the Tribunal for the A.Y. 1997-98 has restored the matter for fresh decision. In the light of the above facts, the learned J.M. proposed to delete the addition. On the other hand, the learned A.M., following the orders for A.Ys. 1996-97 and 1997-98, remitted the matter to the file of the Assessing Officer for a fresh decision in conformity with the view taken by the tribunal for such years.

15. After considering the rival submissions and perusing the relevant material on record, I find that the Tribunal for the immediately two preceding assessment years has restored the matter with the necessary direction. It is also seen that such disallowance came up for consideration by the Hon'ble High Court in assessee's own case for A.Y. 1994-95. The Hon'ble High Court also remitted the matter for fresh consideration. In view of the fact, that the Hon'ble High Court for the A.Y. 1994-95 and the Tribunal for the A.Ys. 1996-97 and 1997-98 have sent the matter back, I am of the considered opinion that the learned A.M. was justified in following the precedents by remitting the matter for fresh decision to be decided in conformity with the view expressed by the Tribunal for immediately two preceding assessment years. I therefore, agree with the view taken by the learned A.M. and hold that the learned CIT(A) was not justified in deleting the disallowance of Rs. 3.50 crores made by the Assessing Officer U/s 40A(9) of the Act.

16. The Registry of the Tribunal is directed to list this matter before the Division bench for passing an order in accordance with the majority view.

ORDER

T.R. Meena, Accontant Member - The ITA No. 224/JU/2004 filed by the assessee as well as cross appeal No. 298/JU/2004 by the Revenue are against the order dated 29/02/2004 of the learned C.I.T.(A), Udaipur for the A.Y. 1998-99. The effective grounds of assessee's appeal as well as the Revenue are as under:

Grounds of ITA No. 224/JU/2004

"1.		Under facts and circumstances of the case, learned Commissioner of Income Tax, Udaipur has erred in making disallowance of alleged prior period expenses of Rs. 1,65,50,474/-
2.		Under the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals), Udaipur has erred in making disallowance of Rs. 77,000/- in respect of amount written off on account of other adjustments.
3.		Under the facts and circumstances of the case, learned Commissioner of Income Tax (Appeals), Udaipur has erred in making the following disallowance of Rs. 304.82 lacs out of extraordinary items relating to amounts written off as a result of closure of Degana Mines: -

	(i) In respect of inventory Tungsten Ore.:	Rs. 154.06 Lac
	(ii) In respect of Capital Work in Progress:	Rs. 59.37 Lac
	(iii) In respect of Mine Development Expenditure:	Rs. 91.39 Lac
		Rs. 304.82 Lac

4.

The assessee craves the right to add, amend, alter or modify any of the grounds of appeal."

Grounds of ITA No. 298/JU/2004
"A. On the facts and in the present circumstances of the case, the learned CIT (A) has erred in:-

1.		deleting the disallowance of Rs. 6,88,62,383/- being mines development expenses, ignoring the facts and other material brought on records by the A. O,
2.		deleting the addition of Rs. 8,81,92,155/- out of Rs. 8,82,69,155/- made by the A.O. in respect of amount written off on account of loss of stock of raw material, finished goods, stores and spares etc. ignoring the facts and other material brought on records by the A.O.
3.		deleting the disallowance of Rs. 3,50,00,000/- made by the A.O. u/s 40A(9) of IT Act, 1961, ignoring the facts aid other material brought on records by the A. O.
4.		deleting the addition of Rs. 60,00,000/- made as interest income on advance made to M/s Bharat Gold Mines Ltd. ignoring the facts and other material brought on records by the A.O.
5.		deleting the disallowance of Rs. 1,14,16,681/- being feasibility report expenses, ignoring the facts and other material brought on records by the A.O.
6.		deleting the addition of Rs. 25,99,76,000/- made on account of under valuation of stock of Zinc Concentrate, ignoring the facts and other material brought on record by the A.O.
7.		directing to adopt the gross turn over for 80HHC purposes after deducting the sales tax payable, ignoring the ratio of judgment laid down by the Apex Court in the case of Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615.

B. That the appellant craves to add, amend, alter, delete or modify any or all the above grounds of appeal before or at the time of hearing. "

2. The case was heard by this Bench and draft order was finalized by the learned Judicial Member on 12/07/2012 and was sent for approval of the learned Accountant Member but the learned Accountant Member dissented from the order of the learned Judicial Member and passed a separate order on 17/10/2012 and finally difference of opinion were arise between them on following grounds of appeal.

(i)		Prior period expenses from assessee's appeal.
(ii)		Disallowance of extraordinary items from assessee's appeal.
(iii)		Mine Development Expenses from Revenue's appeal.
(iv)		Welfare expenses U/s 40A(9) of the IT Act from the Revenue's appeal.

3. Both the learned Members were framed their question of differences, which is also reproduced as under:-
Questions framed by the learned J.M.

1.		Whether on the facts and in the circumstances of the case, the issue in respect of disallowance of Rs. 1,65,50,475/- on account of prior period expenses is liable to be restored to the file of the A.O. or liable to be confirmed?
2.		Whether on the facts and in the circumstances of the case, the issue in respect of disallowance of Rs. 301.82 lacs out of extraordinary items relating to the amount written off as a result of the closure of Degana Tungsten Mine Unit is liable to be restored back to the file of the A.O. or liable to be confirmed?
3.		Whether on the facts and in the circumstances of the case, the issue in respect of deleting the disallowance of Rs. 6,88,62,383/-being the Mine Development Expenses is liable to be deleted or to be set aside to the file of the learned CIT(A)?
4.		Whether on the facts and in the circumstances of the case, the issue in respect of deleting the disallowance of Rs. 3.50 crores made by the A.O. u/s 40A(9) of I. T. Act is liable to be deleted or to be set aside to the file of the A.O. ?
		We also request your good-self that if the above mentioned questions are not suitable then you may frame the questions as you think fit.

Questions framed by the learned A.M.

1.		(a) Whether the finding by the authorities below that the assessee's claim qua prior period expenses (for Rs. 165.50 lakhs) does not represent any disputed liability crystallized during the relevant year is correct on facts and has also not been suitably met before the Tribunal, as was also found by it for the immediately two preceding years, meriting its dismissal, or it is not so, so that the matter would require a set aside to the file of the assessing authority for verification?
		(b) In any view of the matter, is there any scope for application of the decisions in the case of CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 (Bom.) and CIT v. Vishnu Industrial Cases (P.) Ltd. (Delhi In ITA No. 229/1988 dated 06/05/2008), relied upon by the assessee, in the facts and circumstances of the case?
2		(a) Does the question as to whether the assessee's Unit (Degana Mine) constitutes a distinct and separate business or not, a relevant factor in deciding its claim in respect of 'Extraordinary Items', made at Rs. 304.82 lakhs?
		(b) Whether the assessee's said claim can, in any case, be decided on the basis of the material on record, or is required to be set aside back to the file of the Assessing Officer for fresh determination and adjudication?
3		(a) Whether, the adjudication of the assessee's claim in respect of 'Mine Development Expenses' (for Rs. 688.62 lakhs), made in two separate sums of Rs. 568.07 lakhs and Rs. 120.55 lakhs, is, in the facts and circumstances of the case, to be made considering it as a single claim, or separately?
		(b) Whether, in any view of the matter, the said issue warrants being set aside back to the file of the A. O. for considering the factual aspects of the case as well as the decision by the Tribunal for the immediately two preceding years, particularly for A. Y. 1996-97 (vide order in ITA No. 46/JU/2004) dated [30.3.2009), and a decision in light thereof, as well as the law as explained by the Hon'ble courts of law, as in the case of CITv. Pioneer Minerals [1992] 107 CTR (Raj.) 230, or warrants being allowed as claimed, i.e. under section 37(1) of the Act, in full?

4.

Whether the issue qua the disallowance under section 40A(9) of the Act (at Rs. 350 lakhs) is to be set aside for passing a speaking order in accordance with law after considering the facts of the case, as also decided by the Tribunal for immediately two preceding years, or is to be allowed in the facts and circumstances of this year?

4. The differences of opinion between both the learned Members were referred to the learned Third Member, who has summarized their differences of opinion as under:—

The learned Third Member on prior period expenses, agree with the view of the learned J.M. by observing as under:
"I therefore, answer the question in negative by holding that the learned CIT(A) was not justified in sustaining the disallowance of prior period expenses. As such I agree with the view taken by the learned J.M. in restoring the matter to the file of the Assessing Officer instead of the ld. AM upholding the disallowance."

Therefore, this ground of appeal is set aside to the learned Assessing Officer.

5. On disallowance of extraordinary items, the learned Third Member observed as under:—
"I, therefore, agree with the view taken by the learned J.M. on this point and hold that the learned CIT(A) was not justified in confirming the disallowance of Rs. 3,04,81,750/- on account of disallowance of extraordinary items."

The learned JM has restored back this issue to the Assessing Officer. Accordingly, we restore back the issue to the learned Assessing Officer.

6. The third difference of opinion was on mine development expenses arise from the Revenue's appeal. The learned Third Member has observed as under:—
"I agree with the view taken by the learned A.M. and hold that the learned CIT(A) was not justified in deleting the disallowance of Rs. 568.07 lacs and Rs. 120.55 lacs on account of mine development expenses."

The learned A.M. has restored back this issue to the Assessing Officer. Accordingly, this issue is set aside to the Assessing Officer for de novo.

7. The fourth difference of opinion was on welfare expenses U/s 40A(9) of the IT Act arises from the Revenue's appeal on which the learned Third Member has approved the view taken by the learned A.M. i.e. this ground of appeal has been decided by remitting the matter back for fresh decision to be decided in conformity with the view expressed by the Tribunal for immediately two preceding assessment years and held that the learned CIT(A) was not justified in deleting the disallowance of Rs. 3.5 crores made by the Assessing Officer U/s 40A(9) of the Act. This ground of appeal is set aside to the Assessing Officer.
8. In the result, the assessee's appeal and the cross appeal of the department are allowed partly and partly for statistical purposes.