IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR E-BENCH, NAGPUR (THROUGH VIDEO CONFERENCE AT MUMBAI) . . , . / , . . BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER /AND SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 123/NAG/2012 / ASSESSMENT YEAR 2007-08 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2, ROOM NO. 418, 3 RD FLOOR, AAYAKAR BHAVAN, TELANKHEDI ROAD, NAGPUR 440 001. VS. M/S. MANGANESE ORE (I) LTD., 1 A, MOIL BHAVAN, KATOL ROAD, NAGPUR 440 013 PAN: AAACM 8952 A . / ITA NO. 132/NAG/2012 / ASSESSMENT YEAR 2007-08 M/S. MANGANESE ORE (I) LTD., (NOW KNOWN AS MOIL LIMITED) 1 A, MOIL BHAVAN, KATOL ROAD, NAGPUR-440 013. PAN: AAACM 8952 A VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-2, AAYAKAR BHAVAN, CIVIL LINES, NAGPUR. ( / APPELLANT ) ( / RESPONDENT ) REVENUE BY : SHRI H. WANARE ASSESSEE BY : SHRI K.P. DEWANI ! ' #$% / DATE OF HEARING : 30-01-2013 &' ' #$% / DATE OF PRONOUNCEMENT : 08-02-2013 () / O R D E R PER RAJENDRA, AM THE FOLLOWING ARE THE GROUNDS OF APPEAL FILED BY T HE ASSESSING OFFICER (AO) AS WELL AS THE ASSESSEE AGAINST ORDERS DT. 12-01-20 12 OF CIT(A)-I, NAGPUR. GROUNDS OF APPEAL FILED BY THE AO (ITA/123/NAG/2012-AY.2007 -08) READS AS UNDER: 1)ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L EARNED CIT(A) FAILED TO APPRECIATE THE FINDINGS OF THE A.O. THAT THE PROVISION TOWARDS ACC RUED EXPENDITURE ON ACCOUNT OF CLOSURE OF MINES IS ONLY IMAGINARY AND HENCE AN UNASCERTAIN ED LIABILITY AND THE SAME HAS NOT ITA NO. 123/N/2012 ; ITA NO. 132/N/2012 M/S. MANGANESE ORE (I) LT D., 2 BEEN CRYSTALISED DURING THE YEAR UNDER CONSIDERATIO N. 2)ANY OTHER GROUND THAT MAY BE RAISED AT THE TIME OF HEARING. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL (IT A/132/NAG/2012-AY.2007-08) : 1)ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE HO NBLE COMMISSIONER OF INCOME TAX (APPEALS)-I WAS UNJUSTIFIED AND ARBITRARILY IN NOT ALLOWING THE PROVISION OF RS .38,79 128/- MADE ON ACCOUNT OF PAY REVISION OF EXECUTIVE S. 2)THAT THE HONBLE COMMISSIONER OF INCOME TAX (APPE ALS)-I WAS TOTALLY WRONG ON FACTS AS WELL AS IN LAW IN ARRIVING AT THE CONCLUSION THA T THE LIABILITY IS CONTINGENT AND CANNOT BE SAID TO BE A LIABILITY IN-PRESENTI. 3)THAT THE HONBLE COMMISSIONER OF INCOME TAX (APPE AL )-I HAS ERRED IN NOT DECIDING THE ISSUE IN RESPECT OF CARRY FORWARD OF LOSS OF WI ND MILL DIVISION AS PER SECTION 80IA(4) (IV) READ WITH SECTION 80IA (5) OF THE INCOME TAX ACT 1961. 4)THE ASSESSEE CRAVES TO ADD, TO ALTER AMEND, MODIF Y, SUBSTITUTE, DELETE AND / OR RESCIND ANY OF THE GROUND / GROUNDS OF THE APPEAL ON OR BEF ORE THE FINAL HEARING OF THE APPEAL. ITA NO. 123/NAG/2012-AY.2007-08 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MINING AND SALE OF MANGANESE ORE, FILED ITS RETURN OF INCOME ON 29-0-2007 DECLARING TOTAL INCOME AT RS. 1,81,81,22,582/-. ASSESSMENT WAS FINALISED BY THE ASSESSING OFFICER (AO) ON 29-12-2009 U/S. 143(3) OF THE INCOME TAX ACT,1961 ( ACT)DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 1, 84,25,48,706/-. 3. SOLITARY EFFECTIVE GROUND OF APPEAL RAISED BY THE AO IS ABOUT PROVISION MADE BY THE ASSESSEE FOR ACCRUED EXPENDITURE ON ACCOUNT OF CLOSURE OF MINES. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT THE ASSESSEE HAD DEBITED PROVISION FOR MINE CLOSURE EXPENDITURE AMOUNTING TO RS. 61,51,248/-.AO DIRECTED THE ASSESSEE TO EXPLAIN THE NATURE OF EXPENDITURE AND ALSO ITS ADMISSIBILIT Y. HE FOUND THAT THE SIMILAR CLAIM OF EXPENDITURE HAD BEEN MADE EARLIER YEARS AND WHICH H AD BEEN DISALLOWED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO HEL D THAT THE ASSESSEE HAD CREATED THE LIABILITY FOR THE FUTURE PLANNING, THAT SAME WAS UN ASCERTAINED, NOT ACCRUED AND INCURRED, THAT MERELY THE PROVISION OF THE SAME WAS MADE FOR THE FUTURE EXPENDITURE, THAT QUANTUM OF WORK UNDECIDED, THAT ACTUAL ACTIVIT Y FOR RECLAMATION WORK I.E., CLOSURES OF MINE HAD NOT STARTED DURING THE RELEVAN T YEAR, THAT SIMPLE PROVISION FOR UNASCERTAINED LIABILITY FOR FUTURE EXPENDITURE COUL D NOT BE ALLOWED, THAT IN SPITE OF REPEATED DISPUTES ASSESSEE WAS FOLLOWING SAME METHO D OF ACCOUNTING, THAT EXPENDITURE COULD NOT BE CONSIDERED ACCRUED/DETERMI NED AND INCURRED FOR THE BUSINESS PURPOSE DURING THE YEAR UNDER CONSIDERATION. FINAL LY, HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE TREATING THE SAME AS CONTINGENT LIA BILITY. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). FOLLOWING THE ORDERS OF 2005-06, 2006-07 OF CIT(A)- I, NAGPUR, HE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. BEFORE US, DR RELIED UP ON THE ORDER OF THE AO. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ISSUE OF EXPENDI TURE ON CLOSURE OF MINES HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL. WE FIND THAT ITAT, ITA NO. 123/N/2012 ; ITA NO. 132/N/2012 M/S. MANGANESE ORE (I) LT D., 3 NAGPUR BENCH VIDE ITS ORDER DT.10-10-2012 (ITANO.01 /NAG/2010 AY.2006-07),IN ASSESSEES OWN CASE, HAS DECIDED THE ISSUE UNDER CO NSIDERATION IN FAVOUR OF THE ASSESSEE. DECISION OF THE TRIBUNAL READS AS UNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. IN OUR OPINION, THE PROVISION MA DE BY THE ASSESSEE REPRESENT THE LIABILITY ACCRUED IN VIEW OF RULE 23A, 23B & 23C OF THE MINERAL REVISION AND DEVELOPMENT RULES, A COPY OF WHICH WAS FILED BEFORE US. UNDER THESE RULES, MINING COMPANY IS REQUIRED TO SUBMIT PROGRESSIVE MINE CLOS URE PLAN AND FINAL MINE CLOSURE PLAN TO THE IBM FOR ITS APPROVAL. AN APPROVAL FROM THE REGIONAL CONTROLLER OF MINES IS TO BE OBTAINED IN THIS REGARD AND ONLY THERE AFT ER THE LIABILITY SHALL BE TREATED AS HAVING ARISEN TO THE ASSESSEE, MERELY THAT THE QUAN TUM OF THE LIABILITY IS NOT CERTAIN THAT WILL NOT POSTPONE THE ACCRUAL OF THE LIABILITY . THE BASIS OF CALCULATION OF PROVISIONS MADE BY THE ASSESSEE HAS NOT BEEN DISPUT ED BY THE REVENUE. UNDER THESE FACTS, IN OUR OPINION, NO INTERFERENCE IS CALLED FO R IN THE ORDER OF THE CIT(A) AND CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THIS IS NOT A FIT CASE, WHICH WARRANT OUR INTERFERENCE. WE ACCORDING LY DISMISS THE GROUND TAKEN BY THE REVENUE AND CONFIRM THE ORDER OF THE CIT(A). RESPECTFULLY FOLLOWING THE ORDER FOR THE AY 2006-07 , WE DECIDE THE ISSUE AGAINST THE AO. APPEAL FILED BY THE AO STANDS DISMISSED. ITA NO. 132/NAG/2012-AY.2007-08 5. IN THE APPEAL FILED BY THE ASSESSEE-COMPANY THERE A RE THREE GROUNDS OF APPEAL, BUT DURING THE COURSE OF HEARING AR SUBMITTED THAT APPELLANT DID NOT WANT TO PRESS GROUND NO.3.THEREFORE,SAME IS TREATED AS DISMISSED. GROUNDS NO.1AND 2 ARE ABOUT DISALLOWANCE OF PROVISION AMOUNTING TO RS.38.79 LAK HS ON ACCOUNT OF PAY REVISION OF EXECUTIVES. DURING THE ASSESSMENT PROCEEDINGS A O FOUND THAT ASSESSEE HAD ONLY MADE A PROVISION FOR PAY REVISION, BUT HAD NOT ACTU ALLY MADE DISBURSEMENT. HE HELD THAT LIABILITY HAD NOT CRYSTALISED DURING THE YEAR UNDER CONSIDERATION, THAT SAME PERTAINED TO EARLIER YEARS, THAT THERE WAS NO AGREE MENT ABOUT THE SAID PROVISION. FINALLY, HE HELD THAT NO LIABILITY HAS ACCRUED, INC URRED OR ARISEN. 6. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT FAA HELD THAT ESTIMATE WAS MADE ONLY AFTER THE ACCOUNTING YEAR WAS OVER, THAT LIABILITY WAS NOT LI ABILITY INPRESENTI - IT WAS A CONTINGENT LIABILITY. CONFIRMING THE ORDER OF THE AO, FAA DISMISSED THE APPEAL FILED BY THE ASSESSEE. 7. BEFORE US, AR SUBMITTED THAT NECESSITY TO MAKE PROV ISION AROSE BECAUSE OF THE RECOMMENDATION OF SIXTH PAY COMMISSION, THAT PROVIS ION WAS MADE FOR THE SERVICES RENDERED DURING THE YEAR, THAT LIABILITY WAS NOT CO NTINGENT-IT WAS DEFINITE LIABILITY, THAT ONLY QUANTIFICATION TOOK PLACE LATER ON. HE RELIED UPON THE MATTER OF UNITED MOTORS INDIA LTD., (181 ITR 347) DELIVERED BY HONBLE HIGH COURT OF BOMBAY HE FURTHER SUBMITTED THAT SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT NAGPUR WHEN THE APPELLANT HAD IMPLEMENTED RECOMMEND ATION OF FIFTH PAY COMMISSION IN SIMILAR CIRCUMSTANCES VIDE ITS ORDER DTD.26.08.2005.DR SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. ITA NO. 123/N/2012 ; ITA NO. 132/N/2012 M/S. MANGANESE ORE (I) LT D., 4 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT SIMILAR ISSUE HAS ARISEN ON EARLIER OCCAS ION ALSO. IN THE APPEAL DECIDED BY THE TRIBUNAL FOR THE AY 1997-98 (ITA NO. 74/NAG/2000 DT . 26-08-2005). FOLLOWING GROUNDS OF APPEAL, WERE RAISED THE COMMISSIONER OF INCOME TAX (APPEALS) WAS WRONG IN DECIDING THAT THE ASSESSING OFFICER WAS CORRECT IN DISALLOWING THE CL AIM OF RS. 54,61,734/- ON ACCOUNT OF PROVISION FOR SALARY AND WAGES. THE COMMISSIONER OF INCOME TAX (APPEALS) WAS WRONG IN UPHOLDING THE ADDITION OF RS. 54,61,734/-BEING PROVISION FOR SALARY AND WAGES ON THE GROUND THAT THE LIABILITY IS NOT CRYSTALISED IN FINANCIAL YEAR 1996-97. BEFORE DECIDING THE APPEAL, TRIBUNAL NARRATED THE F ACTS AS UNDER: IN GROUND NOS.2 AND 3 THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.54,61,734/-. THE ASSESSEE HAS MADE PROVISION FOR SALARIES AND WA GES AS PER THE RECOMMENDATIONS OF THE 5 TH PAY COMMISSION. THE ASSESSEE HAS MADE PROVISION FO R THE SALARIES AND WAGES PAYABLE TO THE VARIOUS EMPLOYEES AS PER THE R ECOMMENDATIONS OF THE 5 TH PAY COMMISSION WHICH WAS SUBMITTED TO THE GOVERNMENT ON 30/1/1997. THE RECOMMENDATIONS OF THE 5 TH PAY COMMISSION WAS ACCEPTED BY THE CENTRAL GOVERNMENT ON 30/9/1997. THE PAYMENT OF THE SALARIE S AND WAGES, AS PROVIDED FOR BY THE ASSESSEE COMPANY, WERE MADE IN THE MONTH OF FEB RUARY 1998. THE A.O. ON ABOVE FACTS HELD THAT AS THE EXACT LIABILITY ON ACCOUNT O F 5 TH PAY COMMISSION RECOMMENDATIONS COULD NOT HAVE BEEN ASCERTAINED DUR ING THE FINANCIAL YEAR 1997-98 AND AS THERE WAS NO HAPPENING OF ANY EVENT IN THE P REVIOUS YEAR UNDER CONSIDERATION THE CLAIM OF THE ASSESSEE IN RESPECT OF PROVISION O F SALARIES AND WAGES COULD NOT BE ALLOWED AS DEDUCTION IN ASST. YEAR 1997-98. THE CI T(A) WHILE CONFIRMING THE ADDITION FOR THE REASONS AS GIVEN BY THE A.O. CONCL UDED THAT THE LIABILITY OF SALARIES AND WAGES HAS ARISEN ONLY DURING THE FINANCIAL YEAR 1997-98 I.E. IN ASSESSMENT YEAR 1998-99 AND NOT IN ASST. YEAR 1997-98. IT WAS THE REFORE HELD THAT THE A.O. WAS CORRECT IN DISALLOWING THE CLAIM OF THE APPELLANT R EGARDING LIABILITY ON ACCOUNT OF REVISION OF WAGES AS PER THE RECOMMENDATIONS OF 5 TH PAY COMMISSION. THE APPEAL OF ASSESSEE WAS DISMISSED. AFTER DELIBERATING UPON THE ARGUMENTS OF BOTH THE S IDES TRIBUNAL DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. IN PARAGRAPHS 11-13 OF THE SAID ORDER TRIBUNAL HELD AS UNDER: ..WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RECORD AND FIND SUBSTANTIAL FORCE IN THE ARGUMENT OF THE COUNSEL FOR THE ASSESS EE. IN THE FACTS OF THE PRESENT CASE THE ASSESSEE HAS MADE PROVISION FOR INCREMENT IN SA LARIES AND WAGES ON THE RECOMMENDS OF 5 TH PAY COMMISSION TO CENTRAL GOVERNMENT ON 30/1/1997. THE ASSESSEE HAS MADE THE PROVISION AS A PRUDENT BUSINE SSMAN IN RESPECT OF KNOWN LIABILITY. THE PROVISION FOR SALARIES AND WAGES MAD E IS IN RELATION TO SERVICES RENDERED BY THE EMPLOYEES DURING THE YEAR ENDING 31 /3/1997. THE INCREMENTAL WAGES THUS STAND ACCRUED DURING THE YEAR ITSELF. IN VIEW OF ABOVE THE PROVISION FOR SALARIES AND WAGES IS AN ACCRUED LIABILITY FOR THE ASSESSMEN T YEAR 1997-98. THE SALARIES AND WAGES HAVE ALSO BEEN PAID BY THE ASSESSEE IN FEBRUA RY, 1998 WHICH SUBSTANTIATE THE BONAFIDE OF THE PROVISION MADE BY THE ASSESSEE. T HE GENUINENESS OF THE EXPENDITURE IS BEYOND DOUBT. IN THE CASE OF CIT V/S UNITED MOTORS INDIA LIMITED, THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE REPORTED AT 181 ITR 347 HAS HELD THAT THE PROVISION FOR INCREASED WAGES IS AN ALLOWABLE DEDUCTION. ITA NO. 123/N/2012 ; ITA NO. 132/N/2012 M/S. MANGANESE ORE (I) LT D., 5 THE RATIO OF THE LAW AS LAID DOWN BY THE HONBLE BO MBAY HIGH COURT SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE AND RESPEC TFULLY FOLLOWING THE SAME WE HEREBY DIRECT TO DELETE THE ADDITION MADE BY THE A.O. AT R S. 54,61,734/-. THE DECISION OF THE APEX COURT REPORTED AT 245 ITR 428 AND. VARIOUS OTH ER JUDICIAL AUTHORITIES RELIED UPON BY THE ASSESSEES COUNSEL BEFORE US ALSO SUPPO RTS THE CASE OF THE ASSESSEE. WE FIND SUBSTANTIAL FORCE IN THE VARIOUS SUBMISSION OF THE ASSESSEES COUNSEL. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES AND THE LAW LAID DOWN BY THE VARIOUS AUTHORITIES AS REFERRED TO HEREINABOVE IT I S HELD THAT THE SUM OF RS.54,61 ,734/- IS AN ALLOWABLE DEDUCTION DURING THE ASST. Y EAR 1997-98. THE ADDITION MADE BY THE A.O. AT RS.54,61,734/- IS HEREBY DIRECTED TO BE DELETED. THE APPEAL OF THE ASSESSEE IS ALLOWED. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT M ATTER IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT DELIVER ED FOR EARLIER YEARS, WHERE SAME ISSUE HAD ARISEN. THE ONLY DIFFERENCE WAS THE NUMB ER OF PAY COMMISSIONS. IN 1997- 98, ASSESSEE HAD TO MAKE PROVISIONS BECAUSE OF 5 TH PAY COMMISSION, WHEREAS IN THE YEAR-UNDER-CONSIDERATION, PROVISION WAS RESULT OF R ECOMMENDATIONS OF 6 TH PAY COMMISSION. THE UN-DISPUTED FACT IS THAT SERVICES W ERE RENDERED BY THE EMPLOYEES IN THE YEAR UNDER CONSIDERATION. BEING A GOVERNMENT O RGANISATION, IT TAKES SOME TIME TO QUANTIFY TO DECIDE THE EXACT AMOUNT TO BE PAID TO T HE EMPLOYEES. BUT, FACTUM OF LIABILITY CRYSTALISES IN THE YEAR WHEN SERVICES ARE RENDERED. IN THE ORDERS FOR THE AY 1997-98, TRIBUNAL HAS DISCUSSED THE SAME ISSUE AT L ENGTH AND HAS DECIDED THE QUESTION IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL F OR AY.1997-99, WE DECIDE THE GROUNDS 1AND 2 IN FAVOUR OF THE APPELLANT COMP ANY. APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. AS A RESULT, APPEAL FILED BY THE AO ( ITA NO.123/NAG/2012) STANDS DISMISSED AND THE APPEAL OF THE ASSESSEE (ITA NO. 132/NAG/2012) S TANDS PARTLY ALLOWED. * +, - -$ / (01 ' ! +23 ' # 45 6 *# ' ) - , ' # 45. ORDER PRONOUNCED BY E-BENCH AT MUMBAI ON THIS 8 TH DAY OF FEBRUARY, 2013 +8! 0,# ! - 89: / 8 ; $ , 2013 ' () &'<# = . SD/- SD/- ( . . / R.K. GUPTA ) ( / RAJENDRA ) (, / JUDICIAL MEMBER % (, / ACCOUNTANT MEMBER +8! MUMBAI, =( DATE: 8 TH FEBRUARY, 2013 TNMM ITA NO. 123/N/2012 ; ITA NO. 132/N/2012 M/S. MANGANESE ORE (I) LT D., 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR, ITAT, NAGPUR 6. GUARD FILE <# # //TRUE COPY// BY ORDER, ASST. REGISTRAR, ITAT