DCIT, CIRCLE-2, Nagpur V. M/S MINERAL EXPLORATION CORPORATION LTD, Nagpur

ITA 242/NAG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3134 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 29-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

1 ITA NO. 242/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 242/NAG/2013 ASSESSMENT YEAR : 2009 - 10. DY. COMMISSIONER OF INCOME - TAX, M/S MINERAL EXPLORATION CIRCLE - 2, NAGPUR. VS. CORPORATION LTD., NAGPUR. PAN AABC M9165C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NARENDRA KANE. RESPONDENT : DR. JAYANT M. RANADE . . DATE OF HEARING : 11 - 01 - 2016 DATE OF PRONOUNCEMENT : 5 TH FEB. , 2016. O R D E R PER MUKUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 25 - 03 - 2013 AND THE GROUNDS RAISED ARE REPRODUCED BELOW : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN HOLDING THE EXPENDITURE ON ACCOUNT OF PROVISION DUE TO WAGE REVISION AS ALLOWABLE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN EQUATING MINING AND DRILLING ACCESSORIES WITH SAND STOWING PIPES AND ALLOWING 100% DEPRECIATION AS AGAINST 15% ALLOWED BY THE AO. 2. APROPOS TO GROUND NO. 1, FACTS IN BRIEF AS EMERGED FRO M THE CORRESPONDING ASSESSMENT ORDER PASSED U/S 143(3) DATED 29 - 12 - 2011 WERE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF EXPLORATION OF MINERALS AND MINING. IT WAS OBSERVED BY THE AO THAT DURING THE YEAR THE COMPANY HAD A PROVISION OF 2 ITA NO. 242/NAG/2013 RS.15.03 CRORES PAY REVISION OF EXECUTIVES AND NON - EXECUTIVE EMPLOYEES. AS PER THE AO, SINCE IT WAS ONLY A PROVISION AND THERE WAS NO ACCRUAL OF LIABILITY, HENCE NOT AN ALLOWABLE EXPENDITURE. ACCORDINGLY THE SAID PROVISION WAS DISALLOWED. 3. WHEN THE MATTER WAS CARRIE D BEFORE THE FIRST APPELLATE AUTHORITY , LEARNED CIT(APPEALS) HAS FOLLOWED THE DECISION OF HONBLE SUPREME COURT PRONOUNCED IN THE CASE OF ROTORK CONTROL (I) PVT. LTD. VS. CIT 180 TAXMAN 322 AND HELD THAT THE PROVISION WAS MADE ON THE BASIS OF THE PAST EXP ERIENCE AS WELL AS THE RECOMMENDATION OF THE PAY COMMISSION, HENCE WAGE REVISION IS AN ALLOWABLE EXPENDITURE. 4. HEARD BOTH THE SIDES. IT IS WORTH TO REPRODUCE THE EXPLANATION OFFERED BY THE ASSESSEE BEFORE THE AO AS UNDER : 'THE PERSONNEL EXPENSES INCLUD ES PROVISION OF RS. 15.30 CRORES TOWARDS PAY REVISION OF EXECUTIVES WE F 01 . 01 . 2007 AND OF NON EXECUTIVES WE F 01 . 04.2007. AS REGARDS ALLOWABILITY OF THIS EXPENDITURE WE SUBMIT HEREWITH THE FOLLOWING : IN TERMS OF DEPARTMENT OF PUBLIC ENTERPRISES LETTER NO . 2(70)/08 - DPE (WC) DATED 2EF H NOVEMBER 2008, GOVERNMENT OF INDIA HAD APPROVED RECOMMENDATION OF ~ D PAY REVISION COMMITTEE FOR REVISION OF PAY OF BOARD LEVEL AND BELOW BOARD LEVEL EXECUT I VES AND NON UNIONIZED SUPERVISORS IN CENTRAL PUBLIC SECTOR ENTER PRISES WITH EFFECT FROM 1 S T JANUARY 2007 . MINISTRY OF MINES VIDE ITS LETTER DA T ED 19 TH DECEMBER 2008 DIRECTED THE COMPANY TO FOLLOW THE RECOMMENDATIONS OF ~D PAY REVISION COMMITTEE. THE GUIDELINES FOR PAY REVISION , REVISED PAY SCALES AND GU I DELINES FIXING OF SALARIES OF EXECUTIVES IN REVISED PAY SCALES ETC . WERE GIVEN IN DEPARTMENT OF PUBLIC ENTERPRISES LETTER NO . 2(70)/08 - DPE (WC) DATED 26 T H NOVEMBER 2008 . (COPY OF BOTH THE LETTERS IS ENCLOSED HEREWITH) . FURTHER THE MINISTRY OF MINES HAD EARLIER ADVISED THE COMPANY (VIDE ITS LETTER NO . 2(3) /2004 CDR DATED 7TH DECEMBER 2006 COPY ENCLOSED) TO UNDERTAKE NEGOTIATIONS WITH TRADE UNIONS FOR WAGE REVISION OF NON - EXECUTIVES DUE WE F 01 . 04.2007. AS PER COMPANY ' S POLICY REVISION OF PAY SCALES FOR ALL THE EMPLOYEES (BOTH EXECUTIVES AND NON EXECUTIVES) IS DONE ON SAME PRINCIPLES SO AS TO GIVE SAME LEVEL OF BENEFITS TO ALL THE EMPLOYEES AND THERE IS NO UN - JUSTICE TO ANY CLASS OF EMPLOYEES . AS SUCH AFTER THE RECE IPT OF LETTER DT . 19.12 . 2008 AS MENTIONED EBOVE FROM MOM COMPANY STARTED NEGOTIATIONS WITH WORKERS UNIONS FOR PAY REVISION . IN VIEW OF THE ABOVE , IT IS IMPLIED THAT PAY REVISION FOR EXECUTIVES AND NON EXECUTIVES HAS ACCRUED DURING THE F Y 2008 - 09 AND WAS PAYABLE WE F 01 . 01 . 2007 TO EXECUTIVES AND WE F 01.04 . 2007 TO NON EXECUTIVES . AS SUCH COMPANY MADE THE PROVISION FOR WAGE REVISION FOR THE PERIOD FROM 01.01.2007/01 . 04 . 2007 TO 31 . 03.2008 AMOUNTING TO RS . 15.30 CRORES . SALARY & WAGES ARE ALLOWABLE AS D EDUCTION ON ACCRUAL BASIS AND HENCE THE PROVISION FOR PAY REVISION OF RS . 15 . 30 CRORES IS ALLOWABLE AS EXPENDITURE . ' 3 ITA NO. 242/NAG/2013 IN THE LIGHT OF THE ABOVE EXPLANATION, WE HAVE PERUSED THE DECISION OF WESTERN COAL FIE LD S LTD. 124 TTJ 659 (NAGPUR TRIBUNAL) WHEREIN THE ISSUE WAS IN RESPECT OF THE PROVISIONS MADE FOR INCREMENTAL WAGES UNDER NATIONAL COAL WAGE AGREEMENTS. IN THE SAID DECISION THE RESPECTED COORDINATE BENCH HAS ALSO DISCUSSED A PAST EXPERIENCE OF THAT ASSESSE E AND FOUND THAT A SIMILAR PROVISION WAS MADE IN ACCORDANCE WITH THE DIRECTIONS OF THE COAL INDIA LTD. I N THAT CASE , T HE OBSERVATION WAS MADE THAT IT WAS A CASE OF ACCRUED LIABILITY WHICH REMAINED TO BE DISCHARGED AT A FUTURE DATE. THE LIABILITY WAS NOT D EPENDANT UPON A HAPPENING OF ANY EVENT. THE LIABILITY WAS NOT IN THE NATURE OF CONTINGENT LIABILITY. IT HAD ACTUALLY BEEN PAID SUBSEQUENTLY. ONE MORE OBSERVATION WAS MADE THAT THE COMPANY HAD FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING WHICH WAS REQUIRED TO BE FOLLOWED MANDATORILY, HENCE TAKING INTO CONSIDERATION THE PROVISIONS OF AS - 4 THE PROVISION SO MADE WAS RIGHTLY RECOGNISED DURING THE YEAR UNDER CONSIDERATION AND ALLOWABLE AS AN EXPENDITURE. ONE MORE DECISION OF TATA COMMUNICATIONS LTD. 151 TTJ 273 (MUM ) HAS ALSO BEEN CITED BEFORE US WHEREIN AS WELL THE ISSUE WAS ABOUT THE LIABILITY OF PROVISION OF SALARY. A VIEW WAS EXPRESSED THAT AS SERVICES WERE RENDERED IN PRAESENTI , THEREFORE THE LIABILITY OF THE EMPLOYER TO COMPENSATE THE EMPLOYEES FOR SERVICES RE NDERED HAS ALSO ACCRUED IN PRAESENTI . HENCE RESPECTFULLY FOLLOWING THE ABOVE DECISIONS AND TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HEREBY UPHOLD THE VIEW TAKEN BY LEARNED CIT(APPEALS). THIS GROUND OF THE REVENUE IS, THEREFORE, DISMI SSED. 5. APROPOS TO GROUND NO.2, THERE WAS A DISALLOWANCE OF DEPRECIATION OF RS.1,73,90,786/ - BY THE AO. THE ASSESSEE HAD CLAIMED 100% DEPRECIATION. HOWEVER, THE AO HAS ALLOWED ONLY 15% DEPRECIATION. 5.1 WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELL ATE AUTHORITY, LEARNED CIT(APPEALS) HAS EXAMINED THE FACTS AND HAVE FOUND THAT THE COMPANY IS 4 ITA NO. 242/NAG/2013 ENGAGED IN EXPLORATORY ACTIVITY RELATING TO MINING AND DRILLING. HE HAS FOUND THAT THE ASSESSEE HAD CLAIMED 100% DEPRECIATION ON MINING ACCESSORIES WHICH WERE IN THE NATURE OF CONSUMABLE ITEMS. SUCH TYPE OF MACHINERY WERE FITTED IN THE DRILLS FOR DRILLING BORE HOLES. THE CLAIM OF 100% DEPRECIATION WAS ALLOWED BY CIT(APPEALS). 6. IN THE LIGHT OF THE ABOVE FACTUAL MATRIX, OUR ATTENTION WAS DRAWN ON A DECISION OF ITA T, NAGPUR BENCH PRONOUNCED IN ASSESSEES OWN CASE TITLED AS MINERAL EXPLORATION CORPORATION LTD. BEARING ITA NO. 94/NAG/2014 TO 98/NAG/2014, ORDER DATED 18 TH NOV., 2015 WHEREIN IN RESPECT OF THE SAME ITEMS AS MENTIONED IN THE SAID ORDER, A VIEW WAS EXPRESS ED AS UNDER : UPON CAREFUL CONSIDERATION WE FIND THAT THERE IS CONSIDERABLE COGENCY IN THE ASSESSEES SUBMISSION THAT THE IMPUGNED ITEMS DESERVE 100% WRITE OFF. THE NATURE OF THESE ACCESSORIES HAS BEEN DULY DETAILED AS ABOVE. THEIR LIFE IS LESS THAN ONE YEAR. THEY ARE USED BENEATH THE EARTH. THE FACTUAL ASPECT OF THE NATURE AND THEIR USES HAS NOT AT ALL BEEN DISPUTED BY THE REVENUE. THE CIT(APPEALS) HAS ALSO HELD THAT AS PER RANDOM VERIFICATION HE HAS FOUND THAT THESE ACCESSORIES COST AROUND RS.8000/ - . NOW THE UNDISPUTED FACT OF THE ISSUE IS THAT THE ITEMS INVOLVED ARE ACCESSORIES USED IN DRILLING AND MINING. THEIR LIFE IS LESS THAN ONE YEAR. THE COST AROUND RS.8000/ - . THEY ARE USED BENEATH THE EARTH AT THE TIME OF DRILLING FOR LOWERING INTO BORE HO LES ALMOST UPTO THE DEPTH OF 800 TO 1200 METERS. WITH THESE UNDISPUTED FACTS IT IS CLEAR THAT THESE DRILLING RODS AND PIPE CASINGS DO CONSTITUTE ACCESSORIES. THEY ARE AT BEST CONSUMABLE STORES AND THEY ARE ELIGIBLE FOR 100% WRITE OFF. HENCE WE SET ASIDE T HE ORDERS OF AUTHORITIES BELOW AND HOLD THAT THE ASSESSEE IS ENTITLED TO WRITE OFF OF THESE ITEMS. SINCE A VIEW HAS ALREADY BEEN EXPRESSED BY US IN THE PAST IN ASSESSEES OWN CASE, THEREFORE, THE SAME IS HEREBY FOLLOWED BY CONFIRMING THE VIEW TAKEN BY LEARNED CIT(APPEALS). WE FIND NO FORCE IN THIS GROUND OF THE REVENUE. HENCE DISMISSED. 5 ITA NO. 242/NAG/2013 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRODUCED IN THE OPEN COURT ON THIS 5 TH DAY OF FEB. , 2016. SD/ - SD/ - (SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 5 TH FEB. , 2016. COPY FORWARDED TO : 1. M/S MINERAL EXPLORATION CORPORATION LTD., DR. BABASAHEB AMBEDKAR BHAVAN, HIGH LAND DRIVE ROAD, SEMINARY HILLS, NAGPUR - 440006. 2. .C.I.T., NAGPUR. 3. COMMISSIONER OF INCOME - TAX - ,NAGPUR. 4. CIT(APPEALS) - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE.