Payment made for Acquiring Mining Rights is Capital Expenditure, No Deduction: ITAT [Read Order]

Bengaluru bench of Income Tax Appellate Tribunal (ITAT) in its recently order, proclaimed that the payment made for acquiring mining rights should be considered as capital expenditure and cannot be considered as revenue expenditure, and hence, tax deduction is not allowable under the Income Tax Act.

Assessee in the present case is an individual engaged in the business of extraction of Iron ore and trading in Iron ore has duly filed his return of income for the relevant assessment year declared the taxable income of Rs.3,17,38,490.

During the assessment proceedings the Assessing Officer (AO) has made an addition of Rs.5,84,01,227 on account of material found during the course of survey operations. One of the additions relates to an amount of Rs.23,62,578/- debited to P&L Account.

Assessee contended that the said amount represents proportionate lease amount paid for acquiring mining rights and submitted that the expenditure is revenue in nature and also claimed deduction.

However, the AO stated that it was a one-time lump sum payment made to the conservator and the expenditure is not recurring in nature, hence the same cannot be considered as revenue expenditure. And the benefit of enduring nature by carrying the lease activity over several years not only during the  lease period but also the extension of further lease that would be extended by the forest department to the assessee.

After considering the rival submissions of both the parties, the tribunal bench comprising of Judicial Member Vijay Pal Rao and Accountant Member Inturi Rama Rao observed that the sole issue in the present case is that whether consideration paid for acquiring mining rights is capital or revenue expenditure. It is undisputed fact that the assessee made lump sum payment for the purpose of acquiring mining rights from the Government of Karnataka. This payment was made for acquiring right to excavate the minerals and not for acquiring minerals.

The division bench further observed that while perusing the materials on record it is clear that the consideration paid for acquiring mining rights are not recurring in nature hence the same cannot be considered as revenue expenditure and it should be considered as capital expenditure, accordingly no such deduction is allowable.