Facts of the Case

These were cross-appeals filed by M/s Central Coalfields Limited, a subsidiary of Coal India Limited, and by the Revenue, arising out of separate orders passed by the CIT(A), Ranchi/NFAC, Delhi, for Assessment Years 2006-07 to 2020-21.

The assessee is engaged in coal mining operations and had incurred various expenditures relating to forest land lease rent, land and crop compensation, stripping activity, mine development, mine closure, employee welfare, NCWA wage provisions, CSR expenditure, R&D expenses, CMPDIL charges, IICM charges, prior period expenses, and disallowance under Section 14A. The Revenue treated several of these expenses as capital or otherwise not allowable, leading to extensive litigation across multiple years.

Issues Involved

Whether lease rent paid for forest land used for mining is capital or revenue in nature and the correct method of allowance, whether land and crop compensation and stripping activity expenses are allowable as revenue expenditure, whether provisions made under National Coal Wage Agreements constitute ascertained liabilities, whether disallowance under Section 14A is justified in respect of securitisation investments, whether prior period expenses are allowable on payment basis, and whether various mining-related and welfare expenditures qualify as allowable business expenditure.

Petitioner’s (Assessee’s) Arguments

The assessee submitted that forest land taken on lease does not result in acquisition of ownership or any enduring capital asset, as the land remains government property and must be restored after mining, and therefore lease rent should be allowed by way of amortisation over the lease period.

It was contended that land and crop compensation and stripping expenses are incidental to mining operations, do not create any asset, and are revenue in nature, relying upon judicial precedents including the decision of the Hon’ble Calcutta High Court in Birla Corporation Limited.

The assessee further argued that provisions made under NCWA were based on binding directions of the holding company and represented known and definite liabilities, that disallowance under Section 14A was not applicable where investments related to securitisation of debts already offered to tax, and that prior period expenses were allowable when payments were actually made during the relevant year.

Respondent’s (Revenue’s) Arguments

The Revenue contended that lease rent, land and crop compensation and stripping expenses facilitated access to coal reserves and therefore should be treated as capital in nature or amortised in a restrictive manner. It was argued that certain expenses lacked proper substantiation, that CSR expenditure was not wholly and exclusively for business purposes, and that disallowance under Section 14A was justified wherever exempt income or investments existed.

The Revenue also supported disallowance of repair expenses, CSR expenses and levy of interest under Sections 234A and 234B.

Court Order / Findings

The ITAT Ranchi Bench examined the issues year-wise and issue-wise across all appeals. The Tribunal held that forest land taken on lease does not result in acquisition of any capital asset or enduring benefit, as ownership remains with the Government and the assessee is obligated to restore the land after mining. Accordingly, lease rent paid for forest land was held allowable by amortisation over the life of the lease, with directions to the Assessing Officer to recompute relief wherever necessary.

On land and crop compensation and stripping activity expenses, the Tribunal held that such expenditure is incurred to facilitate mining operations, does not result in acquisition of any asset, and is revenue in nature, following the decision of the Hon’ble Calcutta High Court in Birla Corporation Limited, and distinguishing the contrary view relied upon by the Revenue.

The Tribunal allowed provisions made under NCWA, holding them to be ascertained liabilities based on binding directions of Coal India Limited and settled judicial principles. Disallowance under Section 14A was deleted where investments related to securitisation of debts already offered to tax. Prior period expenses were allowed where payments were actually made during the relevant year.

Certain disallowances, including CSR expenses and repair expenses lacking proper details, were upheld. Levy of interest under Sections 234A and 234B was decided against the assessee following jurisdictional High Court precedent. Revenue appeals on issues already settled in favour of the assessee in earlier years were dismissed on the principle of consistency.

Important Clarification

The Tribunal clarified that in mining operations, expenditure incurred to enable extraction of minerals, without resulting in acquisition of ownership or enduring capital asset, is generally revenue in nature. It was further clarified that allowable expenditure cannot be denied merely on technical grounds such as non-claim in the original return when the claim is otherwise legally admissible at the appellate stage.

Final Outcome

The ITAT Ranchi Bench partly allowed the appeals of the assessee and dismissed most of the appeals of the Revenue, with several issues decided in favour of the assessee either fully or for statistical purposes, and limited issues decided against the assessee.

The consolidated batch of cross-appeals for Assessment Years 2006-07 to 2020-21 was disposed of by order dated 05 January 2026.

Link to download the order : https://www.mytaxexpert.co.in/uploads/1768993738_CCLRANCHIVS.DCITCIR1RANCHI.pdf


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