K.Surya Kumari Venu, Rajahmundry V. THE ACIT, Rajahmundry

ITA 621/VIZ/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1103 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 08-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M N MURTHY NAIKDR
• Assessee Lawyers: V SESHA GIRI VARA PRASAD
• Keywords: Capital expenditure
• Section: 142(1)

Judgement Text

ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.621/VIZAG/2014 ( / ASSESSMENT YEAR:2010-11) SMT. K. SURYAKUMARI VENU RAJAHMUNDRY VS. ACIT, CIRCLE - 1, RAJAHMUNDRY [PAN: ALKPK0613Q ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI V. SESHA GIRI VARA PRASAD, AR / RESPONDENT BY : SHRI M.N. MURTHY NAIK,DR / DATE OF HEARING : 01.06.2016 / DATE OF PRONOUNCEMENT : 10.06.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A), VISAKHAPATNAM DATED 26.9.2014 AND IT PERTAI NS TO THE ASSESSMENT YEAR 2010-11. ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MINING SELLING BAUXITE A ND LATERITE IN THE NAME AND STYLE OF BELGAUM MINERALS HAS FILED HIS RE TURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 12.10.2010 DECLARING TOTAL INCOME OF RS.2,11,16,410/-. THE RETURN OF INCOME WAS PROCESS ED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS TH E ACT). SUBSEQUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTI NY AND ACCORDINGLY, NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUE D. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF ACCOUNTS, BILLS VOUCHERS AND OTHER DOCUMENTS. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.49,14,000/- TOWARDS LAND RECLAMATION AND AFFORESTATION EXPENDIT URE. THE A.O. CALLED UPON THE ASSESSEE TO EXPLAIN THE NATURE OF SAID EXP ENDITURE. IN RESPONSE TO NOTICE, THE ASSESSEE VIDE LETTER DATED 31.12.2012 SUBMITTED THAT THE EXPENDITURE CLAIMED UNDER THE HEAD LAND RE CLAMATION AND AFFORESTATION IS INCURRED TOWARDS LAND FILLING AND OTHER CHARGES FOR LEVELING THE PITS FORMED AFTER MINING AND PUT THE L AND FOR AGRICULTURAL USE. THE ASSESSEE FURTHER SUBMITTED THAT HE IS INTO THE BUSINESS OF MINING HAS TAKEN 206 ACRES OF LAND ON LEASE SITUATE D IN BELGUNDI VILLAGE OF BELGAUM DISTRICT OF KARNATAKA STATE FROM VARIOUS FARMERS FOR A PERIOD ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 3 OF 20 YEARS. AS PER THE AGREEMENT ENTERED INTO WITH THE FARMERS, THE LAND USED FOR MINING SHOULD BE REFILLED AND HANDED OVER BACK TO THE FARMERS FOR THE PURPOSE OF AGRICULTURAL OPERATIONS. THEREFORE, HE HAD MADE ADEQUATE PROVISIONS IN THE BOOKS OF ACCOUNTS T O MEET THE EXPENDITURE TOWARDS LAND FILLING AND OTHER CHARGES ON REASONABLE ESTIMATE BASED ON THE TOTAL QUANTITY OF MINERAL EXT RACTED FROM THE LAND. THE ASSESSEE FURTHER SUBMITTED THAT HE HAD INCURRED THE EXPENDITURE FOR THE PURPOSE OF REFILLING THE LAND, HOWEVER COULD NO T INCUR TOTAL EXPENDITURE BECAUSE OF WEATHER CONDITIONS AND HENCE A PART OF EXPENDITURE HAS BEEN INCURRED DURING THE YEAR UNDER CONSIDERATION AND REMAINING HAS BEEN PROVIDED IN THE BOOKS OF ACCOUNT S TO BE INCURRED DURING THE SUBSEQUENT FINANCIAL YEARS. 3. THE A.O. AFTER CONSIDERING THE EXPLANATIONS FURN ISHED BY THE ASSESSEE HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD LAND RECLAMATION AND AFFORESTATION HAS NO PROX IMITY/NEXUS WITH THE BUSINESS OPERATIONS OF THE ASSESSEE. AFFORESTATION IS THE PROCESS OF ESTABLISHING A FOREST ON LAND THAT IS NOT A FOREST, OR HAS NOT BEEN A FOREST FOR A LONG TIME BY PLANTING TREES OR THEIR SEEDS. R ECLAMATION IS A PROCESS OF RECLAIMING OR REGAINING. THE ASSESSEE HAS COINE D THE NAME IN SUCH A WAY THAT IT SUITS TO THE PERMISSIBLE MODES OF EXPEN DITURE, BUT ACTUALLY IT ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 4 IS ADMITTED THAT SUCH EXPENDITURE IS INCURRED FOR S ETTING RIGHT THE PITS AND THE EXCAVATED AREA FOR AGRICULTURAL OPERATIONS BY LAND FILLING. THE ASSESSEE HAS FAILED TO FURNISH COGENT EVIDENCES FOR INCURRING THE EXPENDITURE AND ALSO FAILED TO PROVE THE GENUINENES S OF SUCH EXPENDITURE. THE A.O. FURTHER HELD THAT EXPENSES IN CURRED BY THE ASSESSEE FOR DEVELOPING SUCH LAND CANNOT BE TREATED AS REVENUE EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS. THE A.O. FURTHER OBSERVED THAT NUMBER OF COURTS HAVE HELD THAT THE D EVELOPMENT EXPENSES INCLUDING PROSPECTING AND BORING EXPENSES ON A MINE LAND CANNOT BE ALLOWED TO BE AMORTIZED BECAUSE SUCH EXPE NSES ARE OF CAPITAL NATURE. WITH THESE OBSERVATIONS DISALLOWED THE EXPE NDITURE CLAIMED BY THE ASSESSEE UNDER THE HEAD LAND RECLAMATION AND AF FORESTATION AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE AS SESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURT HER SUBMITTED THAT AS PER THE LEASE AGREEMENT ENTERED WITH THE FARMERS , CLAUSE 5 OF THE LEASE AGREEMENT STATES THAT THE ASSESSEE NEEDS TO L EVEL THE LAND AND HAND OVER BACK TO THE LESSOR FOR AGRICULTURAL PURPO SE AFTER EXTRACTING THE MINERALS. CLAUSE 6 OF THE AGREEMENT PROVIDES FOR US E OF THE LAND IN 10 TO ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 5 15 ACRES OF LAND PER YEAR AND THE REMAINING LAND WI LL BE WITH THE LESSOR FOR GRASSING PURPOSE. THE ASSESSEE FURTHER SUBMITTE D THAT AS PER THE ENVIRONMENTAL CLEARANCE LETTER ISSUED BY THE MINIST RY OF ENVIRONMENT AND FOREST, GOVERNMENT OF INDIA, THE ASSESSEE NEEDS TO UNDERTAKE A RECLAMATION PROGRAMME OF THE 30.53 HECTARES OF MINE D OUT AREA AND THE LAND USED FOR MINING SHOULD BE REFILLED. AS PER THE PERMISSION GRANTED BY THE GOVERNMENT OF INDIA, THE ASSESSEE SH OULD TOP SOIL WITH ADEQUATE MEASURES AT EARMARKED SITE AND ALSO IT SHO ULD BE USED FOR RECLAMATION AND REHABILITATION OF THE MINED OUT ARE AS. THE ASSESSEE FURTHER SUBMITTED THAT SINCE HE IS FOLLOWING MERCAN TILE SYSTEM OF ACCOUNTING, HE HAS TO NECESSARILY TO PROVIDE ALL TH E EXPENDITURE RELATABLE TO EARNING OF INCOME IN THE SAME FINANCIAL YEAR. T HE SAID EXPENDITURE OF LAND RECLAMATION AND AFFORESTATION IS ACCRUED TO TH E ASSESSEE AS SOON AS THE LAND IS USED FOR MINING. THEREFORE HE HAD MADE A PROVISION IN THE BOOKS OF ACCOUNTS ON THE BASIS ON QUANTITY OF MINER ALS EXTRACTED IN THE LAND TOWARDS LAND REFILLING CHARGES. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. WAS NOT CORRECT IN HOLDING THAT THE EXPEND ITURE INCURRED BY THE ASSESSEE IS IN THE NATURE OF CAPITAL EXPENDITURE, T HOUGH THE ASSESSEE CATEGORICALLY PROVED THAT THE EXPENDITURE IS INCURR ED TOWARDS EARNING OF THE INCOME AND HENCE IT SHOULD BE ALLOWED AS REVENU E EXPENDITURE. ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 6 5. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS FU RNISHED BY THE ASSESSEE, HELD THAT FROM THE PERUSAL OF THE ENVIRON MENT CLEARANCE LETTER IT IS EVIDENT THAT THE ASSESSEE IS REQUIRED TO INCU R CERTAIN EXPENDITURE TOWARDS LAND RECLAMATION AND AFFORESTATION AND HELD THAT THE SAID EXPENDITURE CANNOT BE CHARACTERIZED AS CAPITAL EXPE NDITURE. THE CIT(A) FURTHER HELD THAT HOWEVER FROM THE LEDGER EXTRACT F ILED BY THE ASSESSEE IT IS SEEN THAT THE ASSESSEE HAS ONLY MADE A PROVISION OF RS.49,14,000/- DURING THE YEAR AND THE ACTUAL AMOUNT UTILIZED WAS ONLY RS.17,00,243/-. THOUGH THE ASSESSEE HAS INCURRED RS.17,00,243/- FOR THE RELEVANT PERIOD, FAILED TO PROVE THE EXPENDITURE WITH NECESS ARY EVIDENCES. THE CIT(A) FURTHER HELD THAT THERE IS NO EVIDENCE TO SH OW THAT ANY LAND RECLAMATION OR AFFORESTATION EXPENSES WERE INCURRED DURING THE SUBJECT YEAR IN RELATION THERETO. WITH THESE OBSERVATIONS CO NFIRMED THE ADDITIONS MADE BY THE A.O. AGGRIEVED BY THE CIT(A) ORDER, TH E ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.49,14,000/-, T HOUGH ASSESSEE PROVED THAT THE SAID EXPENDITURE IS INCURRED IN REL ATION TO EARNING OF INCOME. THE A.R. FURTHER SUBMITTED THAT AS PER THE LEASE AGREEMENT ENTERED WITH THE FARMERS, THE ASSESSEE NEEDS TO REF ILL THE LAND AND MAKE ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 7 IT SUITABLE FOR AGRICULTURAL PURPOSES AFTER THE MIN ING ACTIVITY IS COMPLETED. THE A.R. FURTHER SUBMITTED THAT THE ENV IRONMENT CLEARANCE LETTER ISSUED BY THE MINISTRY OF FOREST AND ECOLOGY , GOVERNMENT OF INDIA SPECIFICALLY IMPOSED A CONDITION ON THE ASSESSEE TH AT THE ASSESSEE HAS TO UNDERTAKE A RECLAMATION AND REHABILITATION PROGR AMME AND REFILL THE LAND AND MAKE IT SUITABLE FOR AGRICULTURAL OPERATIO NS. THE ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING HAS MADE NECESSARY PROVISIONS IN THE BOOKS OF ACCOUNTS TOWARDS EXPENDI TURE TO BE INCURRED FOR LAND RECLAMATION AND AFFORESTATION CHARGES. THE A.O. WITHOUT APPRECIATING THE FACTS SIMPLY DISALLOWED THE EXPEND ITURE. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS INCURRED A SUM OF RS.17,00,243/- OUT OF THE TOTAL PROVISION OF RS.49, 14,000/- DURING THE PERIOD UNDER CONSIDERATION, AND THE REMAINING AMOUN T COULD NOT BE INCURRED BECAUSE OF WEATHER CONDITIONS. HOWEVER, T HE SAME HAS BEEN INCURRED IN THE SUBSEQUENT PERIOD AND THE RELEVANT INFORMATION HAS BEEN FURNISHED TO THE A.O. THE A.R. FURTHER SUBMITTED T HAT IN MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENDITURE IS RECOGNIZED AS AND WHEN THE LIABILITY IS ACCRUED IRRESPECTIVE OF THE FACT THAT WHETHER IT IS ACTUALLY PAID OR NOT. THE ASSESSEE BEING FOLLOWED MERCANTILE SYS TEM OF ACCOUNTING HAS REASONABLY ESTIMATED THE EXPENDITURE TO BE INCU RRED FOR THE ABOVE PURPOSE AND MADE A PROVISION IN THE BOOKS OF ACCOUN TS. HE ALSO PROVED ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 8 THAT THE SAID EXPENDITURE HAS BEEN INCURRED AS AND WHEN THE MINING ACTIVITY IS COMPLETED. THEREFORE, THE A.O. WAS NOT CORRECT IN DISALLOWING THE SAID EXPENDITURE. 7. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER PASSED BY THE LD. CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. THE A.O. DISALLOWED THE LAND RECLAMATION AND AFFORESTATION EXPENDITURE OF RS.49,14,000/- FOR THE REASON THAT THE ASSESSEE HAS MADE A MERE PROVISION IN THE BOOKS OF ACCOUNTS WITHOUT INCURRING THE EXPENDITURE UNDER THE RELEVANT PERIOD . THE A.O. FURTHER WAS OF THE OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE HAS NO PROXIMITY/NEXUS WITH THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE. THE ASSESSEE ALSO FAILED TO PROVE THE GENUINENESS O F THE EXPENDITURE INCURRED FOR THE ABOVE PURPOSE, THEREFORE, OPINED T HAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE NATURE OF CAPITA L EXPENDITURE AND CANNOT BE ALLOWED AS DEDUCTION. THE CIT(A) HAS ACC EPTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT A CAPIT AL EXPENDITURE, HOWEVER, HELD THAT THE ASSESSEE HAS MADE A MERE PRO VISION IN THE BOOKS OF ACCOUNTS, THEREFORE, A PROVISION IN THE BOOKS OF ACCOUNTS IS NOT AN ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 9 ALLOWABLE DEDUCTION WHILE COMPUTING THE INCOME UNDE R THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. 9. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS MADE A PROVISION IN THE BOOKS OF ACCOUNTS TOWARDS EXPENDITURE TO BE INC URRED IN RELATION TO EARNING OF INCOME FOR THE RELEVANT FINANCIAL YEAR. THE ASSESSEE FURTHER CONTENDED THAT HE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND AS PER THE MERCANTILE SYSTEM OF ACCOUNTING, ALL RELATE D EXPENDITURE ACCRUED IN A FINANCIAL YEAR SHOULD BE PROVIDED IN THE BOOKS OF ACCOUNTS WHETHER OR NOT SAID EXPENDITURE IS PAID DURING THE RELEVANT FINANCIAL YEAR. THE ASSESSEE FURTHER CONTENDED THAT AS PER THE LEASE AG REEMENT, THE ASSESSEE NEEDS TO REFILL THE LAND AND HAND OVER BAC K TO THE FARMERS FOR AGRICULTURAL OPERATIONS. THE ASSESSEE ALSO REFERS TO THE ENVIRONMENT CLEARANCE LETTER ISSUED BY THE MINISTRY OF FOREST A ND ECOLOGY, GOVERNMENT OF INDIA, WHERE IT STIPULATES THE ASSESS EE TO RECLAIM AND REHABILITATE THE LAND USED FOR MINING PURPOSES. AS PER THE TERMS OF ENVIRONMENT CLEARANCE LETTER AND LEASE AGREEMENT WI TH THE FARMERS, THE ASSESSEE NEEDS TO INCUR CERTAIN EXPENDITURE TOWARDS LAND AFFORESTATION AND RECLAMATION THEREFORE, MADE A PROVISION IN THE RESPECTIVE YEARS BASED ON REASONABLE ESTIMATE ON THE BASIS OF QUANTI TY OF MINERALS EXTRACTED FROM THE LAND. THE ASSESSEE HAS CONTINUO USLY INCURRING THE ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 10 EXPENDITURE TOWARDS RECLAMATION AND AFFORESTATION E XPENDITURE, HOWEVER, DURING THE FINANCIAL YEAR, HE COULD NOT AB LE TO SPEND ENTIRE AMOUNT BECAUSE OF WEATHER CONDITIONS, BUT THE SAME HAS BEEN INCURRED DURING THE SUBSEQUENT FINANCIAL YEAR. 10. THE ONLY QUESTION ARISES FOR OUR CONSIDERATION IS WHETHER EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD LAND RECLAMATION AND AFFORESTATION BY MAKING A PROVISION IN THE BOOK S OF ACCOUNTS IS ALLOWABLE DEDUCTION WHILE COMPUTING THE INCOME UNDE R THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION? IT IS AN ADMITT ED FACT THAT WHEN YOU FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING, ASSESSE E NEEDS TO MADE A PROVISION IN THE BOOKS OF ACCOUNTS TOWARDS ALL RELA TED EXPENDITURE WHETHER OR NOT PAID DURING THE SAME FINANCIAL YEAR. THE ONLY REQUIREMENT IS THAT THE ASSESSEE NEEDS TO MAKE A PR OVISION WITH A REASONABLE ESTIMATE. A PROVISION IS REQUIRED TO BE RECOGNIZED IN THE BOOKS OF ACCOUNTS WHEN ASSESSEE HAS A PRESENT OBLIG ATION AS A RESULT OF PAST EVENT, IT HAS PROBABILITY THAT AN OUTFLOW, OF RESOURCES EMBODYING ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THE OB LIGATION AND ALSO A RELATABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. 11. IN THE PRESENT CASE ON HAND, ON PERUSAL OF THE FACTS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE NEEDS TO INCUR CE RTAIN EXPENDITURE ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 11 TOWARDS LAND RECLAMATION AND AFFORESTATION AS PER T HE TERMS OF LEASE AGREEMENT WITH THE FARMERS. THE ENVIRONMENT CLEARAN CE LETTER ISSUED BY THE GOVERNMENT OF INDIA ALSO PUT A CONDITION ON THE ASSESSEE THAT ASSESSEE SHOULD UNDERTAKE A REHABILITATION AND RECL AMATION PROGRAMME AND COMPLIANCE REPORT SHOULD BE SUBMITTED TO THE MI NISTRY OF ENVIRONMENT AND FOREST ON YEARLY BASIS. THE ASSESSE E BY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING HAS MADE A PROVISIO NS FOR THE EXPENDITURE TO BE INCURRED ON LAND RECLAMATION AND AFFORESTATION ON REASONABLE ESTIMATE BASIS. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS INCURRED THE SAID EXPENDITURE ON EVERY YEAR IN A SYSTEMATIC MANNER. AS PER THE TERMS OF LEASE AGREEMENT AND ALSO TERMS OF CONDITIONS OF THE GOVERNMENT OF INDIA ENVIRONMENT CLEARANCE LETTER, T HE ASSESSEE REQUIRE TO RESTORE SURFACE LAND USED BY IT FOR EXCAVATING T HE MINERALS BY REFILLING THE LAND AND MAKE IT SUITABLE FOR AGRICULTURAL OPER ATIONS. AS SOON AS THE ASSESSEE HAS DUG THE PITS, HE IS DUTY BOUND UNDER T HE CONTRACT TO FILL THOSE PITS BEFORE RESTORING THE LEASED LAND TO THE FARMERS IN ITS ORIGINAL SHAPE. THE MOMENT ASSESSEE DIGS PITS, A LIABILITY ARISES AND HE IS ENTITLED TO DEDUCTION FOR THE EXPENSES WHICH HE IS SUPPOSED TO INCUR FOR FILLING THOSE PITS WHEN THE ASSESSEE IS FOLLOWING A MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS NOT CORRECT ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 12 IN HOLDING THAT THE EXPENDITURE CLAIMED BY THE ASSE SSEE UNDER THE HEAD LAND RECLAMATION AND AFFORESTATION IS NOT AN ALLOWA BLE DEDUCTION. 12. COMING TO THE CASE LAWS RELIED UPON BY THE ASSE SSEE. THE ASSESSEE RELIED UPON DECISION OF HIGH COURT OF RAJA STHAN, IN THE CASE OF UDAIPUR MINERAL DEVELOPMENT SYNDICATE PVT. LTD. VS. DCIT AND OTHERS (2003) 261 ITR 706. THE HONBLE HIGH COURT OF RAJAS THAN, WHILE DECIDING THE ISSUE HAS HELD THAT AS FOR AS POSSIBLE THE LESSEE SHALL RESTORE SURFACE LAND USED BY IT FOR EXCAVATING MINE RALS, THEREFORE, THE MOMENT ASSESSEE DUG PITS, LIABILITY DID ARISE AND H E BECOME ENTITLED TO DEDUCTION OF EXPENSES WHICH HE HAS SUPPOSED TO INCU R FOR FILLING THOSE PITS, AS ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, HE CAN CLAIM EXPENSES INCURRED AS SOON AS HE DUG THE PITS. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: CONSIDERING THE CLAUSE IN THE AGREEMENT, I.E., AS FAR AS POSSIBLE THE LESSEE SHALL RESTORE THE SURFACE LAND SO USED TO IT S ORIGINAL CONDITION, THE MOMENT ASSESSEE DIGS PITS, HE IS BOUND UNDER THE AG REEMENT TO FILL THOSE PITS AND LIABILITY DOES ACCRUE ON THE DATE WH EN THE PITS ARE DUG. THEREFORE, THE TRIBUNAL HAS COMMITTED ERROR IN DISA LLOWING THE CLAIM OF THE ASSESSEE IN THE YEAR IN HAND, I.E., 1991-92. CO URT AGREED WITH THE VIEW TAKEN BY COMMISSIONER (APPEALS) THAT THE MOMEN T ASSESSEE DIGS THE PITS, LIABILITY DOES ARISE AND HE IS ENTITLED T O DEDUCTION OF THE EXPENSES WHICH HE IS SUPPOSED TO INCUR FOR FILLING THOSE PITS, AS ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. I T CAN CLAIM THE EXPENSES INCURRED AS SOON AS IT DIGS THE PITS. 13. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO RESPECTIVELY FOLLOWING THE DECISION OF HIGH COURT O F RAJASTHAN, IN THE ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 13 CASE OF UDAIPUR MINERAL DEVELOPMENT SYNDICATE (P) L TD VS. DCIT (2003) 261 ITR 706, WE ARE OF THE VIEW THAT THE ASSESSEE I S ELIGIBLE FOR DEDUCTION TOWARDS LAND RECLAMATION AND AFFORESTATIO N EXPENSES ON ACCRUAL BASIS, WHETHER OR NOT, SAID EXPENDITURE IS PAID DURING THE RELEVANT FINANCIAL YEAR. THE ASSESSEE HAS MADE A PR OVISION IN THE BOOKS OF ACCOUNTS BASED ON THE TERMS OF LEASE AGREEMENT A ND ALSO CONDITIONS STIPULATED BY THE MINISTRY OF FOREST & ECOLOGY, GOV ERNMENT OF INDIA ON REASONABLE ESTIMATE BASIS. IT IS ALSO AN ADMITTED F ACT THAT THE ASSESSEE HAS CONTINUOUSLY INCURRED THE ABOVE EXPENDITURE TOW ARDS THE REHABILITATION AND RECLAMATION PROGRAMME. THEREFOR E, WE DIRECT THE A.O. TO DELETE THE ADDITIONS MADE TOWARDS LAND RECL AMATION AND AFFORESTATION EXPENDITURE. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 10 TH JUN16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 10.06.2016 VG/SPS ITA NO.621/VIZAG/2014 SMT. K. SURYAKUMARI VENU, RAJAHMUNDRY 14 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SMT. K. SURYAKUMARI VENU, C-1, B HAGYODAYA APARTMENT, VIDYA NAGAR, RAJAHMUNDRY-533 105. 2. / THE RESPONDENT THE ACIT, CIRCLE-1, RAJAHMUNDRY 3. + / THE CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM