NMDC Limited (Formerly National Mineral Development Corporation Ltd), Hyderabad V. Jt. Commissioner of Income Tax, Range-16, Hyderabad

ITA 714/HYD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74710 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 37(1); 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 714/HYD/2012 ASSESSMENT YEAR: 2008-09 NMDC LTD., HYDERABAD. PAN AAACN7325A VS. JOINT COMMISSIONER OF INCOME- TAX, RANGE 16, HYDERABAD APPELLANT RESPONDENT ITA NO. 885/HYD/2012 ASSESSMENT YEAR: 2008-09 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), HYDERABAD VS. NMDC LTD., HYDERABAD. PAN AAACN7325A APPELLANT RESPONDENT ASSESSEE BY: SRI LAXMI NIWAS SHARMA REVENUE BY: SRI D. SUDHAKA R RAO DATE OF HEARING: 23/01/2014 DATE OF PRONOUNCEMENT: 28/02/2014 O R D E R PER CHANDRA POOJARI, AM: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 08/03/2012 FOR THE AS SESSMENT YEAR 2008-2009. ITA NO. 714/HYD/2012 APPEAL BY ASSESSEE 2. GROUND NOS. 1 & 9 ARE GENERAL IN NATURE. 3. GROUND NO. 2 IS AS FOLLOWS: THE LEARNED CIT(A) HAS ERRED IN DISALLOWING THE MIN E CLOSURE OBLIGATION OF RS. 79,03,417/- TO THE EXTENT RELATIN G TO THE PROJECT UNDER CONSTRUCTION OR NOT HAVING ANY PRODUC TION I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 2 DURING THE YEAR. THE EXPENSE IS ACCRUED BASED ON TH E QUANTITY EXTRACTED DURING THE YEAR. 4. THE FACTS ARE THAT THE APPELLANT IS A PUBLIC SEC TOR UNDERTAKING ENGAGED IN MINERAL EXPLORATION. IN THE PROFIT AND L OSS ACCOUNT, THE APPELLANT DEBITED RS.19,62,86,171/- TOWARDS MINE CL OSURE OBLIGATION. THIS WAS A PROVISION MADE TOWARDS EXPEC TED FUTURE LIABILITY TO CLOSURE OF MINES WHICH ARE EXPLOITED B Y THE ORGANIZATION. THE APPELLANT EXPLAINED THAT THIS IS A STATUTORY LI ABILITY FOR WHICH A SEPARATE FUND HAD BEEN CREATED BY THE COMPANY WITH LIE. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION S OF THE APPELLANT AND BY GIVING THE FOLLOWING REASONS, DISA LLOWED THE MINE CLOSURE OBLIGATION WHICH HAS BEEN DEBITED TO P & L ACCOUNT: '2.4. THE ABOVE CONTENTIONS OF THE ASSESSEE ARE CON SIDERED. ANY LIABILITY WHICH IS NOT ACCURATELY ESTIMATED COU LD BE A CONTINGENT LIABILITY AND IS NOT AN ASCERTAINED LIAB ILITY. A LIABILITY WHICH IS DEPENDENT ON FULFILLMENT OF A \' CONDITION WHICH MAY RESULT IN REDUCTION OR IN EXTINCTION OF T HE LIABILITY IS A CONTINGENT LIABILITY. IT IS ONLY THE ACTUAL LIABI LITY WHICH IS EXISTING IN THE RELEVANT ASST. YEAR WHICH IS ALLOWA BLE TO BE CONSIDERED AS AN EXPENDITURE. IF THE LIABILITY IS C ONTINGENT, THEN IT WOULD AMOUNT TO ALLOWING THE APPREHENDED LO SSES/ EXPENDITURE IN FUTURE FROM THE PROFITS WHICH IS NOT ACCEPTED ON ANY PRINCIPLE OF LAW OR ACCOUNTANCY. THE QUESTION O F ESTIMATION IN A CONTINGENT LIABILITY DOES NOT ARISE IN ORDER TO ALLOW THE DEDUCTION U/S 37 OF THE I.T. ACT. IN THE CASE OF INDIAN MOLASSES CO. PVT. LIMITED VS CIT [37 ITR 66 (SC)], IT WAS HELD THAT THE EXPENDITURE WHICH IS DEDUCTIBLE F OR INCOME TAX PURPOSES, IS ONE WHICH IS TOWARDS A LIABILITY A CTUALLY EXISTING AT THE TIME, BUT THE PUTTING ASIDE OF MONE Y WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT IS NOT AN EXPENDITURE. THE EXPENDITURE IS ALLOWABLE ONLY AT T HE TIME WHEN THE EXPENDITURE IS ACTUALLY INCURRED OR ASCERT AINED. 2.5. MERE SETTING APART FUNDS WITHOUT DIVESTING PRO PRIETARY RIGHTS OVER THE FUNDS DOES NOT MAKE IT AN EXPENDITU RE. IT HAS BEEN HELD, WHERE SUCH RESERVES ARE PLACED COMPLETEL Y BEYOND THE CONTROL OF THE ASSESSEE FROM THEIR CREAT ION RIGHT UPTO THE POINT OF THEIR UTILIZATION, THEN THE SUMS SET APART AS RESERVE WOULD BE DEDUCTIBLE AS OUTGOINGS - COCHIN S TATE POWER AND LIGHT CORPORATION LTD VS CIT (1974) 93 IT R 582 (KER); AMALGAMATED ELECTRICITY CO. LTD VS CIT (1974 ) 97 ITR 334 (BOM); DARBHANGALAHERIASARI ELECTRIC SUPPLY COR PORATION LTD VS CIT (21974) 117 ITR 516 (PAT). CF VELLORE EL ECTRIC I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 3 CORPORATION LTD VS CIT (1977) 109 ITR 454 (MAD) AFF IRMED IN (1997) 227 ITR 557 (SC) AND APPROVED IN ASSOCIATED POWER CO LTD VS CLT (1996) 218 ITR 195 (SC). THE INFERENC E WOULD DEPEND UPON THE NATURE OF RESERVES. 2.6. THE ASSESSEE ITSELF HAS STATED THAT THE ULTIMA TE COST TO BE INCURRED IS UNCERTAIN AND IT IS NECESSARY TO EST IMATE AND TO PROVIDE FOR THE SAME DURING PERIODS WHEN THE RELATE D ENVIRONMENTAL DISTURBANCES OCCUR. THUS, THE EXPENDI TURE IS CONTINGENT IN NATURE AND BY NO STRETCH OF IMAGINATI ON CAN BE TERMED AS ASCERTAINED. ANY LIABILITY WHICH IS CONTI NGENT IN NATURE CANNOT BE ALLOWED U/S. 37(1) OF THE I.T. ACT . 2.7. IT HAS BEEN EXPLAINED THAT THE MINES ARE REQUI RED TO BE CLOSED/ABANDONED AS PER THE PROVISIONS OF MINES AND MINERALS (DEVELOPMENT AND REGULATION) ACT, 1957 AND THE RULES MADE UNDER MINERAL CONSERVATION AND DEVELOPME NT RULES 1988. THE PROVISIONS OF INCOME-TAX ACT ARE AP PLICABLE IN DECIDING WHETHER AN EXPENDITURE IS ALLOWABLE OR NOT. THE PROVISIONS OF OTHER ACTS DO NOT HAVE AN OVERRIDING EFFECT. IN THE CASE OF T.N. POWER FINANCE AND INFRASTRUCTURE CORPORATION VS. JCLT (2006) 280 ITR 491 (MAD.) IT W AS HELD THAT THE RESERVE BANK OF INDIA GUIDELINES CANNOT OV ERRIDE THE MANDATORY PROVISIONS OF THE INCOME-TAX, ACT. 2.8. IT IS EXPLAINED THAT THE FINAL MFNE CLOSURE AS PER MMDR ACT ENTAILS COMMITMENT OF LARGE SUMS AT THE TIME OF MINE CLOSURE AND UNLESS THE SUITABLE RESERVE IS BUILT-UP IN A PHASED MANNER TO MEET THE COMMITMENT IT MAY ADVERSE LY AFFECT THE BOTTOM LINE OF THE COMPANY. HOWEVER, THE CONTINGENT FUND WHICH THE ASSESSEE HAS CREATED SHOU LD BE FROM THE ACCUMULATED RESERVES OF THE COMPANY AND NO T FROM THE CURRENT REVENUE. THE FUND CREATED IS FOR MEETIN G A LIABILITY WHICH IS CONTINGENT UPON CERTAIN FUTURE EVENTS LIKE DISASTERS AND FLOODS AND IS THEREFORE NOT AN ALLOWABLE REVENU E EXPENSE. 5. ON APPEAL, BEFORE THE CIT(A), THE ASSESSEE STATE D AS FOLLOWS: ANY MINING ACTIVITY RESULTS IN ENVIRONMENTAL DEGRAD ATION AND ECOLOGICAL IMBALANCE ON THE MINING AND SURROUNDING AREA AND CONSCIOUS SUPPORT, IS REQUIRED TO RECTIFY THE SAME. CLOSURE DOWN AND RESTORATION COSTS ARE A NORMAL CONSEQUENCE OF MINING AND THE MAJORITY OF CLOSE DOWN AND RESTORATI ON EXPENDITURE IS INCURRED AT THE END OF THE LIFE OF T HE MINE. ALTHOUGH THE ULTIMATE COST TO BE INCURRED IS UNCERT AIN IT IS NECESSARY TO ESTIMATE AND TO PROVIDE FOR THE SAME D URING PERIODS WHEN THE RELATED ENVIRONMENTAL DISTURBANCE OCCURS. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 4 2. THE LIABILITY TOWARDS MINE CLOSURE IS ACCRUED AS SOON AS THE MINING OPERATIONS COMMENCE AND IN COMPLIANCE WI TH THE 'MATCHING CONCEPT': SUCH LIABILITY MAY BE CHARGED O VER THE PERIODS WHEN THE RELATED ENVIRONMENTAL DISTURBANCE OCCURS I. E. THE PERIOD OF OPERATION OF THE MINE. INTERNATION AL MINING COMPANIES OF REPUTE HA VE DEFINED POLICY FOR RECOGN ITION OF OBLIGATIONS TOWARDS MINE CLOSURE. IN OUR COUNTRY AL SO THE SUBJECT IS GETTING FOCUSED AND THE ENVIRONMENTAL PR OTECTION, REHABILITATION AND RECLAMATION MEASURES REQUIRED UN DER STATUTES HAVE BECOME MORE STRINGENT. 3. IN INDIA, MINES ARE REQUIRED TO BE CLOSED/ABANDO NED AS PER THE PROVISIONS CONTAINED IN THE MINES & MINERALS (DEVELOPMENT AND REGULATION) ACT, 1957 (MMDR 1957) ACT, 1957 (MMDR 1957) AND THE RULES MADE UNDER I.E. MIN ERAL CONSERVATION AND DEVELOPMENT RULES, 1988 (MCDR 1988 ). ADMINISTERED BY MIS INDIAN BUREAU OF MINES. 3.1. RULE 23A OF MCDR 1988 PROVIDED FOR TWO TYPES O F MINE CLOSURE PLANS VIZ., PROGRESSIVE MINE CLOSURE PLAN ( PMCP) AND FINAL CLOSURE PLAN (FCP) AND THE DETAILS ARE AS UNDER: 3.1.1. THE PROGRESSIVE MINE CLOSURE PLANS ENVISAGE THE PROTECTIVE, REHABILITATION AND RECLAMATION WORKS TO BE CARRIED DURING THE OPERATION OF THE MINE., MCDR 1988 HAS BE EN AMENDED VIDE NOTIFICATION NO GSR 330() DATED 10.04 .2003 AND ACCORDING TO THE NOTIFICATION ALL EXISTING MINE S SHOULD BE SUBMITTED WITHIN A PERIOD OF 180 DAYS OF NOTIFICATI ON OF PROGRESSIVE MINE CLOSURE PLAN. THE LESSEE SHOULD SU BMIT FINANCIAL ASSURANCE ALONG WITH THE PROGRESSIVE MINE CLOSURE PLAN. THE PROGRESSIVE MINE CLOSURE PLAN SHOULD BE R EVIEWED AND SUBMITTED EVERY FIVE YEARS. FINAL MINE CLOSURE PLAN SHOULD BE SUBMITTED FOR APPROVAL ONE YEAR PRIOR TO THE PROPOSED CLOSURE OF THE MINE. 3.1.2. THE LEASE HOLDER SHALL NOT ABANDON A MINE OR A PART THEREOF UNLESS A FINAL MINE CLOSURE PLAN DULY APPRO VED BY THE REGIONAL CONTROLLER OF MINES OR THE OFFICER AUTHORI ZED BY THE STATE GOVERNMENT IN THIS BEHALF AS THE CASE MAY BE IS IMPLEMENTED. FOR THIS PURPOSE, THE LESSEE SHALL BE REQUIRED TO OBTAIN A CERTIFICATE FROM THE REGIONAL CONTROLLE R OF MINES OR THE OFFICER AUTHORIZED BY THE STATE GOVERNMENT ON T HIS BEHALF TO THE EFFECT THAT PROTECTIVE, RECLAMATION AND REHA BILITATION WORK IN ACCORDANCE WITH THE FINAL MINE CLOSURE PLAN OR WITH SUCH MODIFICATIONS AS APPROVED BY THE COMPETENT AUT HORITY, HAVE BEEN CARRIED OUT BEFORE ABANDONMENT OF MINE. 4. NMDC BEING A MINING COMPANY, TO COMPLY WITH THE STATUTES AND EVOLVE A COMPREHENSIVE PLANS OF MINE CLOSURE, P ROPOSED I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 5 TO DEFINE A POLICY ON 'MINE CLOSURE OBLIGATION' AND TO RECOGNIZE FOR THE LIABILITY AS PER THE TECHNICAL AS SESSMENT. 5. THE COMPANY IS OPERATING MINES WITH VARYING 'ORE RESERVES' HAVING DIFFERENT BALANCE LIFE PERIOD AND THE DETAILS OF BALANCE MINERABLE ORE RESERVES AND THEIR BALANCE LIFE AS AT PT APRIL, 2004 ARE GIVEN AT ANNEXURE-L. 6. THE EXPENDITURE ON MINE CLOSURE IS ESTIMATED BAS ED ON PARAMETERS IDENTIFIED AS PER IBM CIRCULAR NO. 14120 03. BAILADILA DEPOSIT-LIB IS CONSIDERED AS A TYPICAL MI NE AND COSTS ASSIGNED FOR EACH PARAMETER AND FINAL MINE CL OSURE OF COST OF DEPOSIT-11B ESTIMATED ON THE BASIS OF EXIST ING RATES. BASED ON THESE PARAMETERS, COST OF FINAL MINE CLOSU RE PER TO/ME OF RESERVES IS ARRIVED. THE DETAILED WORKING OF COST PER TONNE OF MINERABLE RESERVES IS GIVEN AT ANNEXURE-2. BASED ON THIS THE TOTAL MINE CLOSURE LIABILITY FOR THE MINER ABLE ORE RESERVES AS AT 3PT MARCH, 2004 AND THE PROPORTIONAT E CHANGE FOR THE CURRENT FINANCIAL YEAR 2004-05 IS WORKED OU T AND PLACED AT ANNEXURE-3. 7. THE FINAL MINE CLOSURE AS PER MMDR ACT ENTAILS COMMITMENT OF LARGE SUMS AT THE TIME OF MINE CLOSUR E AND UNLESS A SUITABLE RESERVE IS BUILT UP IN A PHASED M ANNER TO MEET THE COMMITMENT, IT MAY ADVERSELY AFFECT THE BO TTOM LINE OF THE COMPANY AT THAT TIME. CHARGING THE EXPENDITU RE OF MINE CLOSURE OVER THE PERIODS WHEN THE RELATED ENVIRONME NTAL DISTURBANCES OCCURS I.E' DURING THE PERIOD OF OPERA TION OF THE MINE WILL BE IN COMPLIANCE WITH THE MATCHING CONCEP T OF ACCOUNTING AND ACCORDINGLY THE ESTIMATED LIABILITY IS PROPOSED TO CHARGE TO REVENUE OVER THE BALANCE LIFE OF MINES . IT IS BUT METE THAT COST OF SALES ARE MATCHED WITH REVENUE BY RECOGNIZING SUCH OBLIGATION ON ACCOUNT OF MINE CLOS URE. THE ESTIMATED CURRENT LIABILITY OF MINE CLOSURE OF THE OPERATING MINES TO THE COMPANY WAS WORKED OUT TO RS .19.63 CRORES AND CHARGED TO THE PROFIT & LOSS ACCOUNT. 5.1 IT WAS FURTHER STATED THAT THE INDIAN BUREAU OF MINES ADMINISTERS THE MINES AND MINERAL (DEVELOPMENT & RE GULATION) ACT KNOWN AS MMDR, 1957. COUPLED WITH THIS, THE MINERAL CONSERVATION & DEVELOPMENT RULES, 1988 (MCDR, 1988) PROVIDE FOR CLOSURE OF MINES SO AS TO PROTECT AND REHABILITATE THEM ONCE T HE MINING IS OVER. IT WAS FURTHER STATED THAT THE ESTIMATE FOR M INE CLOSURE IS BASED ON SPECIFIC PARAMETERS GIVEN BY THE INDIAN BU REAU OF MINES. THE RATES AND AMOUNTS ARE QUANTIFIED AND NOTIFIED. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 6 5.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE, THE CIT(A) OBSERVED THAT IN THE CASE OF UDAIPUR MINERAL DEVELO PMENT SYNDICATE (P) LIMITED [2003] 261 ITR 706 (RAJ), AN IDENTICAL ISSUE WAS CONSIDERED BY THE HON'BLE HIGH COURT OF RAJASTH AN. THE ASSESSEE HAD TAKEN MINES ON LEASE FROM THE STATE GO VERNMENT FOR EXCAVATING SOAPSTONE CRUDE. UNDER THE TERMS OF AGRE EMENT, THE ASSESSEE WAS REQUIRED TO RESTORE SURFACE LAND SO US ED BY IT TO ITS ORIGINAL CONDITION. THE ASSESSEE WAS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING. IT WAS HELD THAT THE VERY MOMENT ASSESS EE DUG PITS, LIABILITY DID ARISE AND IT WAS ENTITLED FOR DEDUCTI ON OF EXPENSE WHICH IT WAS SUPPOSED TO INCUR FOR FILING THOSE PITS. 5.3 THE CIT(A) FURTHER OBSERVED THAT IN ORDER FOR AN EXPENSE TO BE ALLOWABLE SECTION 37 OF THE ACT IT MUST SATISFY THE FOLLOWING CONDITIONS: 1. IT SHOULD BE A SPECIFIC AND ASCERTAINED LIABILIT Y I.E. THE EXPENSE SHOULD HAVE ACCRUED. 2. THE EXPENDITURE SHOULD NOT BE COVERED UNDER SECT ION 30 TO 36 OF THE ACT. 3. IT SHOULD NOT BE CAPITAL IN NATURE. 4. IT SHOULD BE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 5.4 FURTHER, THE CIT(A) OBSERVED THAT THE EXPENDITU RE IN NATURE IS NOT A CONTINGENT LIABILITY. REFERRING TO THE RULE 2 3A, 23B & 23C OF THE MCDR, THE CIT(A) OBSERVED THAT ONCE AN ASSESSEE TAKES ON LEASE A MINE, ITS CLOSURE IS INEVITABLE BECAUSE A M INE CANNOT BE EXPLOITED INFINITELY AND INDEFINITELY. SECONDLY, ON CE THE MINE HAS BEEN EXPLOITED, IT HAS TO BE CLOSED AND REHABILITAT ED. FURTHER, EVEN THE AMOUNTS TO BE SPENT ON REHABILITATION ARE MORE OR LESS DETERMINED AS PER THE SCHEDULED OF THE INDIAN BUREA U OF MINES. THEREFORE, HE DISAGREED WITH THE VIEW OF THE ASSESS ING OFFICER THAT I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 7 IT IS A CONTINGENT LIABILITY. IN CASE OF BHARAT EAR TH MOVERS LIMITED VS. COMMISSIONER OF INCOME TAX [2000] 112 TAXMAN 61 , THE HON'BLE SUPREME COURT HELD THAT IF A BUSINESS LIABI LITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AN D DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRIN G OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REAS ONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBL E. IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRASENTI THOUGH IT WILL BE DISCHARG ED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. 5.5 IN VIEW OF THE ABOVE OBSERVATIONS AND REFERRING TO THE CASE OF METAL BOX CO. OF INDIA LTD. V. THEIR WORKMEN [1969] 73 ITR 53 (SC) AND THE CASE OF CALCUTTA CO. LTD. VS. CIT [19 59] 37 ITR 1, THE CIT(A) HELD AS FOLLOWS: 4.2.6 FROM THE ABOVE FACTS AND CASE LAWS, IT IS CL EAR THAT IN THE CASE OF THE APPELLANT, THE MINE CLOSURE LIABILI TY IS AN ASCERTAINED LIABILITY, IT GETS ASCERTAINED THE DAY THE MINE IS OPENED. THIS EXPENSE EVEN THOUGH NOT INCURRED, ACCR UES WHEN THE MINING IS DONE. AS PER THE MATCHING PRINCI PLE AS WELL AS THE MERCANTILE SYSTEM OF ACCOUNTING THE LIA BILITY IS ALLOWABLE IN PRINCIPLE U/S 37 OF THE ACT. 4.2.7 HOWEVER, WHAT IS TO BE SEEN IS THE YEAR OF AL LOWABILITY I.E. IT IS NOT UP TO THE ASSESSEE TO CLAIM THE LIAB ILITY AS EXPENSE IN ANY FINANCIAL YEAR. RATHER THE MATCHING PRINCIPLE HAS TO BE APPLIED CORRECTLY TO DETERMINE THE YEAR I N WHICH SUCH A LIABILITY CAN BE ALLOWED. ON THIS ISSUE, THE JUDGEMENT OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF UDAIPUR MINERAL DEVELOPMENT SYNDICATE (P) LIMITED DISCUSSED SUPRA IS DIRECTLY APPLICABLE. THE HON'BLE HIGH COURT HAS HELD THAT THE MOMENT THE ASSESSEE DIGS THE PITS FOR MINING HE IS LEGALLY BOUND TO FILL THOSE PITS AND THE LIABILITY ACCRUES ON THE VERY DATE WHEN THE PITS ARE DUE. IN THE CASE OF CALCUTTA COMPANY LTD [1959] 37 ITR I, THE ASSESSEE HAD PURCHASED LAN D AND SOLD THEM IN PLOTS FIT FOR BUILDING PURPOSES UNDERT AKING TO DEVELOP THEM. WHEN THE PLOTS WERE SOLD, THE ASSESSE E UNDERTOOK TO CARRY OUT THE DEVELOPMENT WITHIN A STA TED PERIOD. IN ITS ACCOUNTS, IT DEBITED AN ESTIMATED SU M AS I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 8 EXPENDITURE FOR THE DEVELOPMENT THAT IT HAD UNDERTA KEN TO CARRY OUT. THIS EXPENDITURE WAS DISALLOWED. IT WAS HELD BY THE HON'BLE SUPREME COURT THAT THE UNDERTAKING TO CARRY OUT DEVELOPMENT ON THE LAND IMPORTED A LIABILITY WHICH ACCRUED ON THE DATES OF THE DEEDS OF SALE, THOUGH IT WAS TO BE DISCHARGED AT A FUTURE DATE. IT WAS AN ACCRUED LIABILITY AND E STIMATED EXPENDITURE WHICH WOULD BE INCURRED ON DISCHARGING THE SAME COULD BE DEDUCTED FROM THE PROFITS AND GAINS OF THE BUSINESS. THE DIFFICULTY IN THE ESTIMATION THEREOF DID NOT CO NVERT THE ACCRUED LIABILITY INTO A CONDITIONAL ONE. PROFITS O R GAINS HAD TO BE UNDERSTOOD IN A COMMERCIAL SENSE. 4.3 FROM THE ABOVE FACTS AND CIRCUMSTANCES AND TAKI NG ACCOUNT THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUE, I HOLD THAT MINE CLOSURE OBLIGATION IS IN PRINCIPLE A N ALLOWABLE. HOWEVER, IT IS NOT OPEN TO THE APPELLANT TO CLAIM A NY LIABILITY IN ANY YEAR. THE MATCHING PRINCIPLE HAS TO BE FOLLO WED. THIS IS ILLUSTRATED WITH AN EXAMPLE. IF A MINE 'X' IS EXCAV ATED FOR TWO YEARS AMOUNTING TO 4000 CUBIC FEET IN YEAR 1 AND 50 00 CUBIC FEET IN YEAR 2, THEN IN YEAR 1 MINE CLOSURE OBLIGAT ION CORRESPONDING TO THE FILLING 4000 CUBIC FEET WILL A CCRUE. IN THE SECOND YEAR AND THE ACCRUAL WILL CORRESPOND TO FILL ING OF 500 CUBIC FEET. THESE WILL BE THE ALLOWABLE ACCRUED EXP ENSES. IN THE CURRENT CASE, THE APPELLANT HAS CLAIMED THE OBL IGATION AS BELOW: 4.4 A READING OF THE ABOVE CHART SHOWS THAT FOR S.N O.2, DEPOSIT NO. 11B THE PRODUCTION YET TO BE COMMISSION ED. THEREFORE, THIS OBLIGATION OF RS. 4,98,058/- IS NOT ALLOWABLE. SIMILARLY, FOR S.NO.6, KUMARASWAMY AND S.NO.8, LALA PUR, THERE IS NO PRODUCTION. THEREFORE, OBLIGATION IS NO T ALLOWABLE. FOR THE OTHER MINES, THE APPELLANT HAS NOT GIVEN AN Y YEAR- WISE BREAKUP. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ASCERTAIN THE AMOUNT OF YEAR-WISE MINING WHICH H AS BEEN DONE FROM THE REMAINING MINES AND ALLOW A MINE CLOS URE OBLIGATION TO THE EXTENT OF MINING DONE CORRESPONDI NG TO THE CURRENT YEAR. IN CASE THE APPELLANT CANNOT PROVIDE SUCH DATA, THEN PRO-RATA HAS TO BE APPLIED. FOR EXAMPLE, S.NO. 4, DEPOSIT NO.IO & IIA, THE MINE STARTED IN FEBRUARY 2002. THE TOTAL OBLIGATION CLAIMED IS RS. 2,38,12,707/-. IF THE AP PELLANT GIVES DATA ON MINING FROM THE DATE OF START OF MINING TH EN THE OBLIGATION ALLOWABLE WILL CORRESPOND TO THE CURRENT YEAR MINING AS COMPARED TO THE TOTAL MINING. I.E. CURRENT YEAR MINING X RS.2, 38,12,707 TOTAL MINING FROM FEB02 TO MAR08 IF NO DATA IS PROVIDED THEN THE AMOUNT ALLOWABLE WO ULD BE RS. 2,38, 12,707/- (I.E. FY 2002-03 TO FY 2007 -08). TH IS ISSUE IS ACCORDINGLY PARTLY ALLOWED. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 9 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 7. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS CA NVASSED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 991/HYD/2011 VIDE ITS ORDER DATED 18/05/201 2. THE AR POINTED OUT THAT IN AY 2007-08 THE AO ALLOWED MINE CLOSURE OBLIGATION CONSISTENTLY THE EXPENSES WERE ALLOWABLE SINCE MMDR ACT WAS AMENDED W.E.F. 10/04/2003. THE AR HAS ALSO RELIED UPON THE FOLLOWING CASE LAWS IN SUPPORT OF ASSESSEES C ASE: 1. JITENDRANATH PATNAIK IN ITA NO. 09/CTK/2012. 2. ENVIRO TECHNOLOGY LTD. VS. DCIT, ITA NO. 1921/AH M/2009 AND 2836/AHM/2010. 3. UDAIPUR MINERAL DEVELOPMENT SYNDICATE (P) LTD. [ 2003] 261 ITR 706(RAJ.) 4. PATNAIK MINERALS PVT. LTD. VS. CIT, ITA NO. 008/ CTK/2012. 5. METAL BOX CO. OF INDIA VS. THEIR WORKEN, [1969] 73 ITR 53 (SC) 6. BHARAT EARTH MOVERS VS. CIT [2000] 112 TAXMAN 61 (SC) 7. CALCUTTA CO. LTD. VS. CIT [1959] 37 ITR 1 8. THE LEARNED DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE CIT(A). 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS CITED. IN AY 2006-07 , THE COORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA), HELD AS FOLLO WS: 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. I T IS OBSERVED THAT THE BASIS OF CALCULATION FOR THE RELE VANT AY 2006-07 FOR RS. 71.18 CRORES WAS SUBMITTED DURING T HE ORIGINAL ASSESSMENT AND ACCEPTED BY THE AO. THE DET AILED CALCULATION OF RS. 21.31 CRORES CHARGED TO P&L A/C (ON THE BASIS OF RS. 71.18 CRORES) WAS ALSO ENCLOSED AND PR ODUCED BEFORE THE CIT. HENCE, THE CIT IS WRONG IN HIS OBSE RVATION THAT THE ESTIMATE OF RS. 21.31 CRORE IS EXCESSIVELY ON A HIGHER SIDE AND ABSOLUTELY NO REALISTIC OR RATIONAL BASIS FOR SUCH CALCULATION. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 10 12. THE CIT IS NOT CORRECT IN INVOKING THE PROVISIO NS OF SECTION 263 AS WE FIND THAT THE ISSUE IS DEBATABLE AND WHEN TWO VIEWS ARE POSSIBLE THE AO HAS TAKEN ONE VIEW. T HE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS . CIT REPORTED IN 243 ITR 83 AS WELL AS CIT VS. MAX INDIA LTD. REPORTED IN 295 ITR 282 HAS HELD THAT WHEN THERE AR E TWO VIEWS POSSIBLE AND THE AO HAS TAKEN ONE VIEW, THE O RDER OF THE AO CANNOT BE CONSIDERED AS ERRONEOUS AND HENCE THE CIT CANNOT EXERCISE REVISIONAL POWER U/S 263. AS POINTE D OUT ABOVE, THE PROVISIONS FOR AN ACCRUED EXISTING LIABI LITY, EVEN THOUGH, THE ACTUAL EXPENDITURE MAY TAKE PLACE AT A LATER DATE, IS AN ALLOWABLE DEDUCTION AND THE CIT ERRED IN TREA TING IT AS AN UNASCERTAINED LIABILITY. THEREFORE, WE SET ASIDE THE ORDER OF THE CIT PASSED U/S 263 AND THE ORDER OF THE AO I S RESTORED. 9.1 THE ABOVE DECISION RELIED UPON BY THE AR OF THE ASSESSEE, THOUGH, IT WAS DELIVERED IN ASSESSEES OWN CASE FOR AY 2006-07 CANNOT BE APPLIED TO THE FACTS OF THE CASE AS THAT ORDER WAS DELIVERED BY THE TRIBUNAL IN CONNECTION WITH THE OR DER PASSED U/S 263. THE ORDER PASSED U/S 263 READ WITH SECTION 143 (3) AND THE ORDER PASSED U/S 143(3) READ WITH SECTION 251 ARE S TANDING ON DIFFERENT FOOTING. THE SCOPE OF SECTION 263 IS NOT PAR WITH THE PROVISIONS OF SECTION 251 OF THE ACT. BEING SO, WE CANNOT BORROW SUPPORT FROM THE ORDER OF THE TRIBUNAL PASSED IN IT A NO. 991/HYD/2011 FOR AY 2006-07, ON WHICH RELIANCE PLAC ED BY THE ASSESSEES COUNSEL. IN THE PRESENT CASE, THERE IS A CATEGORICAL FINDING GIVEN BY THE CIT(A) THAT THERE ARE CERTAIN MINES NOT YET COMMENCED. ON THAT MINE CLOSURE OBLIGATION WORKS OU T TO RS. 4,98,058/- CANNOT BE ALLOWED. FURTHER, MINES AT KUM ARASWAMY AND LALPUR WHERE THERE IS NO PRODUCTION, BEING SO, NO O BLIGATION IS ALLOWABLE. FURTHER, ASSESSEE HAS NOT GIVEN YEAR-WIS E BREAK-UP. BEING SO, THE CIT(A) DIRECTED THE AO TO ASCERTAIN T HE ACCOUNT OF YEAR-WISE MINING, WHICH HAS BEEN DONE FROM THE REMA INING MINES AND ALLOW MINE CLOSURE OBLIGATION TO THE EXTENT MIN ING DONE CORRESPONDING TO THE CURRENT YEAR. HE FURTHER GAVE A DIRECTION TO THE AO IF THE ASSESSEE FAILS TO PROVIDE SUCH DATA, THEN , PRORATA HAS TO BE APPLIED. THUS, THE CIT(A) HAS GIVEN A CATEGORICA L FINDING IN PARAS 4.3 & 4.4 OF HIS ORDER. THEREFORE, WE DO NOT FIND ANY INFIRMITY I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 11 ON THAT PART OF THE ORDER AND ACCORDINGLY, WE CONFI RM THE SAME. THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 10. GROUND NO. 3 IS AS FOLLOWS: THE LEARNED CIT(A) IS NOT JUSTIFIED IN DISALLOWING THE TRANSITIONAL LIABILITY AS PER AS-15 OF RS. 27.11 C RORES PROVIDED TOWARDS ASCERTAINED LIABILITY DONE BY AN O UTSIDE ACTUARY UNDER THE MANDATORY ACCOUNTING STANDARD 15 (REVISED) ON EMPLOYEE BENEFITS ISSUED BY THE ICAI. 11. THE ASSESSING OFFICER NOTICED THAT THE APPELLAN T HAD DEBITED AN AMOUNT OF RS. 27,11,00,000/- TOWARDS TRANSITIONA L LIABILITY. THE APPELLANT STATED THAT IT HAD MADE ITS CALCULATIONS OF EMPLOYEE BENEFITS LIKE GRATUITY, LTC, ETC. ON ACTUARIAL BASI S AS AGAINST THE EARLIER METHOD OF ACCOUNTING ON CASH BASIS. THE ASS ESSING OFFICER AGREED THAT THE EXPENDITURE ON ACTUARIAL BASIS IS A LLOWABLE. HOWEVER, IT WAS STATED THAT CREATION OF LIABILITY F OR THE COMPANY IN RESPECT OF EMPLOYEES FOR PAST SERVICE IS NOT ALLOWA BLE AS IT DOES NOT PERTAIN TO THE CURRENT YEAR. THE FOLLOWING REASONS WERE GIVEN FOR THE ADDITION: 4.2. IT IS CLEAR FROM THE EXPLANATION FURNISHED ABO VE, THAT THE LIABILITY ON ACCOUNT OF GRATUITY & LTC ETC HAVE ALL BEEN VALUED ON ACTUARIAL BASIS IN ORDER TO COMPLY WITH THE ACCO UNTING STANDARDS-15. THIS LIABILITY EVEN IF ALLOWABLE SHOU LD RELATE TO THE CURRENT YEAR. IT IS TO BE APPRECIATED IN THE PR ESENT INSTANCE THAT THE ASSESSEE HAS CREATED A LIABILITY IN RESPECT OF GRATUITY ETC ON THE BASIS OF THE NUMBER OF YEARS OF SERVICE OF EACH EMPLOYEE TAKING THEIR BASIC, DA ETC. EMPLOYERS CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND CREA TED EXCLUSIVELY FOR THE BENEFIT OF THE EMPLOYEES UNDER AN IRREVOCABLE TRUST CAN BE ALLOWED AS DEDUCTION, PROV IDED THE AMOUNT OF DEDUCTION ON ACCOUNT OF ORDINARY ANNUAL CONTRIBUTION SHOULD NOT EXCEED 8.33% OF THE EMPLOYE E'S SALARY FOR THAT YEAR. 4.3. IT IS MENTIONED BY THE ASSESSEE ITSELF THAT AN Y CHANGE IN THE ACCOUNTING POLICY WHICH HAS A MATERIAL EFFECT I N THE PREVIOUS YEAR SUBSEQUENT TO THE PREVIOUS YEARS SHAL L BE DISCLOSED. THEREFORE, THE CREATION OF A LIABILITY F OR THE COMPANY IN RESPECT OF THE EMPLOYEES FOR THEIR PAST SERVICE IS NOTHING BUT AN EXPENDITURE RELATABLE TO THE PAST YE ARS AND NOT RELATED TO THE CURRENT YEAR. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 12 11.1 IN VIEW OF THE ABOVE REASONS, THE AO HELD THAT SINCE THE TRANSITIONAL LIABILITY DOES NOT RELATE TO THE CURRE NT PREVIOUS YEAR, IT IS NOT AN ALLOWABLE EXPENDITURE UNDER THE PROVISIONS O F INCOME TAX ACT FOR THE A.Y. 2008-09 AND SINCE THIS EXPENDITURE DOES NOT RELATE TO THE CURRENT PREVIOUS YEAR, THE PROVISION SHOULD HAVE BEEN CREATED FROM THE ACCUMULATED RESERVES OF THE COMPAN Y AND NOT FROM THE CURRENT YEAR'S PROFITS. HENCE, THE SAME IS TO BE ADDED BACK. 12. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE STATE D THAT THERE IS NO DOUBT ABOUT THE FACT THAT DATE OF BIRTH AND P AST SERVICE HAD BEEN TAKEN INTO ACCOUNT WHILE CALCULATING THE GRATU ITY LIABILITY. BUT IT WAS INCORRECT TO SAY THAT THE LIABILITY RELATED TO THE EARLIER YEARS BECAUSE THE LIABILITY RELATED TO CURRENT YEAR. THE ASSESSEE STATED FURTHER AS FOLLOWS: 'ACCOUNTING STANDARD-I5 - EMPLOYEE BENEFITS - HAS B EEN REVISED W.E.F. 07-12-06. AS PER THE REVISED STANDAR D, EMPLOYEES' BENEFITS LIKE GRATUITY, LTC, ETC. ARE RE QUIRED TO BE VALUED ON ACTUARIAL BASIS AS COMPARED TO THE EAR LIER PRACTICE OF ACCOUNTING EXPENDITURE ON CASH BASIS - AS AND WHEN INCURRED (EXCEPT GRATUITY). AS REQUIRED BY THE REVISED AS-I5, TRANSITIONAL LIABILITY OF RS.27.11 CRORES AR ISING ON THE FIRST APPLICATION OF THE AS-I5 HAS BEEN CHARGED TO P&L ACCOUNT. IT MAY BE POINTED OUT HERE THAT ACTUARIAL VALUATION TAKES INTO ACCOUNT BASIC PAY, DA, DATE OF BIRTH, DA TE OF ENTRY INTO SERVICE, LENGTH OF SERVICE AND DATE OF RETIREM ENT OF ALL EMPLOYEES AND DISCOUNTS THE CALCULATION AT AN APPRO PRIATE RATE TO ARRIVE AT THE LIABILITY AS ON THE BALANCE S HEET DATE. THIS REPRESENTS AMOUNT DUE TO EMPLOYEES AS ON THAT DATE AND IS THEREFORE VERY MUCH AN EXPENDITURE AND IS NOT CO NTINGENT IN NATURE. THUS THIS IS AN ALLOWABLE EXPENDITURE ONLY. PROVISION FOR ACTUARIAL VALUED LIABILITIES IS AN AL LOWABLE EXPENDITURE. IF AN AMOUNT IS SET APART FOR DISCHARG E OF A LIABILITY ON ACTUARIAL VALUATION THAT IS TO BE ALLO WED AS DEDUCTION - (IT V. ELECTRIC LAMP MFRS. (INDIA) (P.) LTD. [1987] 165 ITR 115 ((AL.).' 12.1 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE, THE CIT(A) OBSERVED THAT THERE IS NO DOUBT THAT THE GRATUITY I S ACTUALLY I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 13 CALCULATED BY USING ONE OF PARAMETERS AS LENGTH OF SERVICE, ETC. AND IT IS A LIABILITY WHICH IS INCIDENTAL TO THE BUSINE SS OF THE APPELLANT. HOWEVER, HE AGREED WITH THE ASSESSING OFFICER THAT THE ENTIRE LIABILITY DOES NOT PERTAIN TO THE CURRENT YEAR AND, THEREFORE, THE EARLIER YEAR LIABILITY HAS TO BE CHARGED FROM THE R ESERVES. ACCORDINGLY, THE CIT(A) DIRECTED THE ASSESSING OFF ICER TO LOOK AT THE CALCULATION AND ALLOW THE GRATUITY TO THE EXTEN T IT PERTAIN TO THE CURRENT YEAR AFTER TAKING INTO ACCOUNT THE CHANGES MADE IN AS - 15. 13. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 14. BEFORE US, THE AR OF THE ASSESSEE CONTENDED THA T THE CIT(A) IS NOT CORRECT TO HOLD THE VIEW THAT ENTIRE LIABILI TY DOES NOT PERTAIN TO CURRENT YEAR AND IT WAS STATED THAT ACCOUNTING STAN DARD AS-15 MADE IT MANDATORY TO ACCOUNT IT ON ACCRUAL BASIS WI TH EFFECT FROM ACCOUNTING PERIOD COMMENCING FROM 01/04/2007 I.E. F Y 2007-08/AY 2008-09. HE REFERRED TO THE ACTUARIAL REPORT UNDER AS-15, WHICH IS ENCLOSED AT PAGE 105 OF THE PAPER BOOK. HE HAS PLAC ED RELIANCE ON THE FOLLOWING CASE LAWS: 1. BOKARO POWER SUPPLY CO. (P) LTD. VS. ACIT, ITA N O. 4921/DEL/2010, AY 2007-08, ITA NO. 149/DEL/2012, AY 2008- 09. 2. CIT VS. INSILCO LTD., (DELHI-HC) 179 TAXMAN 55-2 009. 15. ON THE OTHER HAND, THE DR RELIED ON THE ORDER O F THE CIT(A). 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS CITED. THE HONBLE D ELHI HIGH COURT IN THE CASE OF CIT VS. INSILCO LTD., 179 TAXMAN 55, ON WHICH RELIANCE PLACED BY THE ASSESSEE, HELD AS FOLLOWS: THE ASSESSEE COMPANY HAD EVOLVED A SCHEME WHEREBY, EMPLOYEES WHO RENDERED LONG PERIOD OF SERVICE TO TH E ASSESSEE, WERE MADE ENTITLED TO MONETARY AWARDS AT VARIOUS STAGES OF THEIR EMPLOYMENT EQUIVALENT TO A DEFINED PERIOD OF TIME. ON THE BASIS OF ACTUARIAL CALCULATION THE ASS ESSEE MADE PROVISION FOR LONG SERVICE AWARD PAYABLE TO ITS E MPLOYEES I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 14 UNDER THE SCHEME AND CLAIMED DEDUCTION OF THE SAME. THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUN D THAT THE GRANT OF AWARD WAS AT THE DISCRETION OF THE MANAGEM ENT AND THEREFORE, IT COULD NOT BE SAID TO BE A PROVISION T OWARDS ASCERTAINED LIABILITY. THE TRIBUNAL ALLOWED THE ASS ESSEES CLAIM. ON APPEAL BY REVENUE, THE DELHI HIGH COURT UPHELD T HE DECISION OF THE TRIBUNAL AND HELD AS UNDER : 'I) THERE WAS NO MERIT IN THE SUBMISSION OF THE REV ENUE THAT THE LIABILITY OF THE ASSESSEE UNDER THE LONG S ERVICE AWARD SCHEME WAS CONTINGENT AS THE PAYMENT UNDER THE SAID SCHEME WAS DEPENDENT ON THE DISCRETION OF THE MANAGEMENT. IT IS WELL-SETTLED THAT IF THE LIABILIT Y ARISES WITHIN THE ACCOUNTING PERIOD, THE DEDUCTION SHOULD BE ALLOWED THOUGH IT MAY BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. THEREFORE, THE PROVISION FOR A LIABILI TY IS AMENABLE TO A DEDUCTION, IF THERE IS AN ELEMENT OF CERTAINTY THAT IT SHALL BE INCURRED AND IT IS POSSI BLE TO ESTIMATE LIABILITY WITH REASONABLE CERTAINTY EVEN T HOUGH ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE, SUCH A LIABILITY IS NOT OF A CONTINGENT NATURE. II) IN THE INSTANT CASE, SINCE THE PROVISION FOR L ONG SERVICE AWARD WAS ESTIMATED BASED ON ACTUARIAL CALCULATIONS, THE DEDUCTION CLAIMED BY THE ASSESSEE HAD TO BE ALLOWED.' 16.1 WE ARE IN COMPLETE AGREEMENT WITH THE ABOVE JU DGMENT OF THE HONBLE DELHI HIGH COURT. HOWEVER, WE MAKE IT CLEAR THAT THE LIABILITY RELATING TO THE AY UNDER CONSIDERATION IS TO BE QUANTIFIED AND THE SAME IS TO BE ALLOWED IN TERMS OF THE JUDGM ENT CITED SUPRA. FUTURE LIABILITY, IF ANY, CANNOT BE CHARGED TO THE PRESENT AY. ACCORDINGLY, THE AO IS DIRECTED TO PASS CONSEQUENTI AL ORDER. 17. GROUND NO. 4 IS AS FOLLOWS: THE LEARNED CIT(A) IS NOT JUSTIFIED IN DISALLOWING THE DEPRECIATION ON INTANGIBLE ASSETS OF RS. 6.48 CRO RES PROVIDED TOWARDS DEPRECIATION ON LEASEHOLD LAND. INTANGIBLE ASSETS ARE MAINLY LEASE HOLD LAND ACQUIRED FROM VARIOUS STATE GOVERNMENTS WHICH CAN BE USED FOR A LIMITED PERIOD. 18. THE ASSESSEE HAD CLAIMED A SUM OF RS. 6,48,42,0 67/- DURING THE YEAR TOWARDS DEPRECIATION OF INTANGIBLE ASSETS. THE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF THE ASSETS ACQUI RED AND THE ALLOWABILITY OF SUCH DEPRECIATION. IT WAS REPLIED I N THE LETTER DATED I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 15 16.12.2010 THAT THE INTANGIBLE ASSETS ARE MAINLY LE ASE HOLD LAND ACQUIRED FROM VARIOUS STATE GOVERNMENTS WHICH CAN B E USED OVER A CERTAIN PERIOD. THE AO NOTED THAT FROM THE ABOVE E XPLANATION, IT IS CLEAR THAT THE LANDS ARE NOT OWNED BY THE ASSESSEE COMPANY BUT ARE OBTAINED ON LEASE FROM' STATE GOVERNMENT FOR A CERTAIN PERIOD. THE PERIOD FOR WHICH THE LAND IS TO BE HELD HAS NOT BEEN EXPLAINED. FURTHER, THE AO NOTED THAT THE PURPOSE FOR WHICH TH E LAND ACQUIRED IS ALSO NOT EXPLAINED. THE AO OBSERVED THAT EVEN IF IT IS CONSIDERED THAT THE LAND IS TAKEN ON LEASE FOR THE PURPOSES OF EXPLOITATION OF MINING, IT CANNOT BE TREATED AS PLANT & MACHINERY F OR WHICH DEPRECIATION IS AVAILABLE UNDER THE INCOME TAX PROV ISIONS. THE PROVISIONS OF SEC.32(1) ARE NOT APPLICABLE TO ASSET S WHICH ARE IN THE FORM OF LAND SINCE THE ASSTS FOR WHICH DEPRECIA TION IS ADMISSIBLE UNDER THE INCOME TAX ACT IS SPECIFIED UNDER RULE-5 OF THE INCOME TAX RULES. LAND DOES NOT FORM PART OF APPENDIX-L RE AD WITH RULE-5 OF INCOME TAX RULES. FURTHER THE INTANGIBLE ASSETS ARE DEFINED AS 'KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSE S, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THE AO, THEREFORE, HELD THAT SINCE LAND DOES NOT FORM AN IN TANGIBLE ASSET, THE DEPRECIATION CLAIMED BY THE ASSESSEE FOR SUCH A N ASSET IS NOT ADMISSIBLE AND, HENCE, THE SAME IS ADDED BACK BY TH E AO. 19. ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE EXPLA INED THAT INTANGIBLE ASSETS PERTAIN TO LEASEHOLD LANDS WHICH ARE TAKEN FROM VARIOUS STATEMENT GOVERNMENTS AND, THEREFORE, THE L EASEHOLD LAND IS TO BE TAKEN AS INTANGIBLE ASSET ON WHICH DEPRECI ATION IS ALLOWABLE. THE CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE OBSERVED THAT AN INTANGIBLE ASSET IS ONE W HICH CANNOT BE TOUCHED, FELT OR SEEN. THIS IS FUNDAMENTAL DIFFEREN CE BETWEEN WHAT IS TANGIBLE AND WHAT IS INTANGIBLE. LAND, WHETHER L EASEHOLD OR FREEHOLD AND TAKEN FOR WHICHEVER PURPOSE, IS BY NO STRETCH OF IMAGINATION INTANGIBLE. IT HAS ALL THE PROPERTIES O F TANGIBILITY. FURTHER, LAND IS NOT A DEPRECIABLE ASSET AS PER THE INCOME TAX ACT. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 16 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A), THER EFORE, CONFIRMED THE ADDITION MADE BY THE AO ON THIS ACCOUNT. 20. BEFORE US, THE LEARNED AR OF THE ASSESSEE SUBMI TTED THAT THE ACCOUNTING POLICY/METHOD IS CONSISTENTLY FOLLOWED B Y NUMBER OF YEARS AND, THEREFORE, THE SAME MAY BE ALLOWED AS DE DUCTION. HE RELIED ON THE FOLLOWING CASE LAWS: 1. EAST INDIA MINERALS LTD. VS. JCIT, ITA NO. 224/ CTK/2012. 2. MYSORE MINERALS LTD. VS. ACIT, ITAT, BANGALORE 1 00% ALLOWED AS REVENUE EXPENDITURE. 3. JITENDRA PATHIAK VS. DCIT, ITA NO. 185/CTK/2010 21. THE LEARNED DR HAS RELIED ON THE ORDER OF THE C IT(A). 22. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. SIMILAR CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF ITAT, CUTTACK IN CASE EAST INDIA MINERALS LTD. VS. JCIT IN ITA NO. 224/CTK/2012, VIDE ITS ORDER DATED 25/06/20 12, ON WHICH RELIANCE PLACED BY THE ASSESSEE, WHEREIN IT HAS BEE N HELD AS FOLLOWS: 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERI NG THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE SIMPLE REASON THAT THE DENIAL OF CLAIM OF DEPRECIAT ION HAS BEEN MADE ON MISINTERPRETATION OF LAW AND THE APPLI CABILITY THEREOF. EXPLANATION TO SECTION 32(1)(II) LEANS IN FAVOUR OF THE ASSESSEE TO THE EXTENT THAT IT IS THE ACTUAL ACTION OF PUT TO USE WHICH ENTITLES THE ASSESSEE TO CLAIM DEPRECIATI ON. A STRAIGHT LINE METHOD OF CLAIMING THE WRITING OFF OF LEASE HOLD RIGHTS FOR THE PERIOD OF LEASE CANNOT BE DENIED TO THE ASSESSEE FOR THE SIMPLE REASON IT BEING INTANGIB LE ASSET HAS BEEN WRITTEN OFF WHICH PERTAINS TO LAND BEING A IN TANGIBLE ASSET. IT IS NOBODYS CASE THAT THE LAND EITHER BEL ONGED TO THE LESSEE OR TO THE GOVERNMENT. THIS SIMPLY INDICATES THAT A DEPLETION OF THE LAND AGAINST THE PAYMENT OF PRE MIUM IT WAS LEASED HAS TO BE CLAIMED AFTER CAPITALIZATION T HEREOF BY THE ASSESSEE WHICH IS FOR THE PURPOSE OF ITS MA IN BUSINESS. ALL EXPENSES ARE INCURRED FOR THE PURPOSE OF BUSI NESS AND ARE INCIDENTAL TO THE HOLDING OF RIGHTS WERE CLAIME D U/S.32(1)(II) BEING THE LICENSE TO CARRY OUT THE MI NING THEREFORE COULD NOT BE DENIED INSOFAR AS THE GOVERN MENT AND I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 17 THE LESSEE ARE IN CONTROL OF THE ASSET. THE DEFINIT ION OF DEPRECIATION THEREFORE HAS BEEN MISCONSTRUED FOR TH E PURPOSE OF ALLOWING DEDUCTION BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) IN HOLDING A VIEW ON THE PROMULGATIO N OF SECTION 32(1)(II) WITH EFFECT FROM THE YEAR 1998-99 WHICH HAS BEEN FURTHER AMENDED W.E.F. ASSESSMENT YEAR 2003-0 4. IN THIS VIEW OF THE MATER, WE ARE INCLINED TO HOLD THA T THE ASSESSEE IS ENTITLED TO DEPRECIATION AS CHARGED TO THE P & L ACCOUNT IN ACCORDANCE WITH ITS BUSINESS EXIGENCIES. WE DIRECT ACCORDINGLY. ON THE CLAIM OF DEDUCTION/S.80 G, THE A.O., IS DIRECTED TO VERIFY THE RECEIPTS AND ALLOW THE DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF INCOME-TAX ACT ,1961. 22.1 SINCE THE ISSUE UNDER CONSIDERATION IS MATERIA LLY IDENTICAL TO THAT OF THE CASE DECIDE BY THE TRIBUNAL IN THE CASE OF EAST INDIA MINERALS LTD., RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE IN THIS REGARD. 23. GROUND NO. 5 IS AS FOLLOWS: THE CIT(A) IS NOT JUSTIFIED FOR DISALLOWANCE OF THE EXPENDITURE AMOUNTING TO RS. 1.37 CRORE INCURRED/PA ID TOWARDS PAYMENT OF STAMP DUTY & REGISTRATION CHARGE S TO THE GOVT. AUTHORITY ON THE LEASEHOLD LAND ACQUIRED WHOL LY AND EXCLUSIVELY FOR BUSINESS PURPOSE AND CLAIMED U/S 37 (1) OF THE IT ACT. 24. THE ASSESSEE HAD CLAIMED THE EXPENDITURE OF RS. 1,36,93,552/- TOWARDS STAMP DUTY AND REGISTRATION C HARGES ON LEASEHOLD LAND TO STATE GOVERNMENT IN RESPECT OF PR OJECTS/UNITS BLD-14 AND BLD-5. THE AO DISALLOWED THE SAID EXPEND ITURE ON THE GROUND THAT THE SAME ARE OBTAINED IN THE PROCESS OF ACQUISITION OF LAND WHICH ITSELF HAS BEEN TREATED AS AN INTANGIBLE ASSET BY THE ASSESSEE AND THE EXPENSES RELATED TO SUCH ACQUISITI ON HAS ALSO TO BE TREATED AS CAPITAL IN NATURE AND THEREFORE IS NO T AN ALLOWABLE EXPENDITURE. 25. BEFORE THE CIT(A), THE ASSESSEE ARGUED THAT SUC H CHARGES ARE ALLOWABLE AS THE EXPENDITURE IS TOWARDS BUSINES S PURPOSES. THE I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 18 CIT(A) CONFIRMED THE ACTION OF THE AO OBSERVING THA T IT IS A SETTLED LAW THAT THESE CHARGES ARE CAPITAL IN NATURE. 26. BEFORE US, THE LEARNED AR OF THE ASSESSEE SUBMI TTED THAT THIS EXPENDITURE IS INCURRED EVERY YEAR AND THE SAME IS ALLOWED AS REVENUE EXPENDITURE CONSISTENTLY. HE RELIED ON THE FOLLOWING CASE LAWS: 1. JITENDRA PATHIAK VS. DCIT, ITA NO. 185/CTK/2010 . 2. CIT VS. CINCEITA (P) LTD. [1982] 137 ITR 652 (B OM.) 3. CIT VS. BANK OF INDIA [1987] 168 ITR 731 (BOM.) 4. SHREE KRISHNA TILES & POLTERIES (P) LTD. VS. CIT [1988] 173 ITR 311 (MAD.) 5. PLANTATION CORPORATION, 205 ITR 364 (KERALA) 27. LEARNED DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF THE REVENUE AUTHORITIES. 28. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE DECISIONS CITED. THIS IS SUE IS SQUARELY COVERED BY THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. CINCEITA (P) LTD. (SUPRA), WHEREIN THE HONBLE COUR T HELD AS FOLLOWS: ALTHOUGH THE PERIOD OF THE LEASE WAS FOR 20 YEARS AND THERE WAS OPTION FOR RENEWAL THE EXPENDITURE WAS THE ONLY EXPENDITURE REQUIRED FOR DRAWING UP OF EFFECTIVE DE ED OF LEASE NAMELY, THE EXPENDITURE IN RESPECT OF STAMP DUTY, R EGISTRATION CHARGES AND PROFESSIONAL FEES PAID TO THE SOLICITOR S, WHO PREPARED AND GOT REGISTERED THE DEED OF LEASE. FURT HER THERE WAS NO ELEMENT OF PREMIUM IN THE AMOUNT CLAIMED AS EXPENDITURE AND THE EXPENDITURE WOULD HAVE BEEN THE SAME EVEN IF THE LEASE HAD BEEN OF A SHORTER DURATION PR OVIDED THE PERIOD OF LEASE WAS MORE THAN ONE YEAR. HENCE, THE PERIOD OF THE LEASE COULD NOT BE REGARDED AS DECISIVE OF THE CIRCUMSTANCES AS TO WHETHER THE ASSET OR ADVANTAGE SECURED IS OF AN ENDURING NATURE. HENCE THE EXPENDITURE ON REGISTRATION FEE, SOLICITORS FEE AND STAMP DUTY INC URRED FOR REGISTERING LEASE DEED WAS A REVENUE EXPENDITURE AL LOWABLE UNDER S. 37(1). I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 19 28.1 THE HONBLE COURT CONCLUDED THAT EXPENDITURE O N REGISTRATION FEE, SOLICITOR'S FEE AND STAMP DUTY INCURRED IN CON NECTION WITH REGISTRATION OF LEASE DEED IS REVENUE EXPENDITURE I RRESPECTIVE OF PERIOD OF LEASE. 28.2 THE COORDINATE BENCH OF ITAT, CUTTACK IN CASE OF SHRI JITENDRA NATH PATNAIK VS. DCIT IN ITA NO. 185/CTK/2 010 FOR AY 2007-08 VIDE ITS ORDER DATED 17/06/2011, ON SIMILAR ISSUE, HELD AS FOLLOWS: 7. ON CAREFUL ANALYSIS OF THE IMPUGNED ORDERS OF TH E AUTHORITIES BELOW AND THE ORDER PASSED BY THE CIT(A ), BHUBANESWAR DT. 21/07/2010 IN THE CASE OF ORISSA MI NING CORPORATION LTD., COPY OF WHICH IS MADE AVAILABLE B Y THE ASSESSEE BEFORE US, WE ARE OF THE CONSIDERED VIEW T HAT THE ASSESSEE IS NOT ACQUIRING ANY ASSET NOR ENDURING BE NEFIT BUT IS HAVING ONLY A RIGHT TO WORK OF MINING IN THE LAN D GIVEN TO HIM FOR A SPECIFIC PERIOD ON LEASE. THEREFORE, THIS AMOUNT IS PRACTICALLY A REVENUE EXPENDITURE INCURRED BY THE A SSESSEE WHILE DOING HIS TRADE OF MINING OPERATION. HENCE, W E ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF THE ASSESSEE TO ALLOW THE SAME AS REVENUE EXPENDITURE IS VERY MUCH WITHIN THE PROVISIONS OF THE INCOME-TAX ACT, 1961 APPLICABLE T HERETO. HENCE, HAVING FIND MERITS IN THE APPEAL OF THE ASSE SSEE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. 28.3 FURTHER, THE SAME VIEW HAS BEEN FOLLOWED BY TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. P ANYAM CEMENTS AND MINERALS INDUSTRIES LTD. , 228 ITR 212 (AP) WHE REIN IT HAS BEEN HELD THAT STAMP DUTY PAID FOR RENEWAL OF MINING LEA SE IS A REVENUE EXPENDITURE. HOWEVER, WE MAKE IT CLEAR THAT IF THE EXPENDITURE INCURRED BY THE ASSESSEE FOR FIRST TIME WITH RESPEC T TO THE ASSETS CLAIMED AS CAPITAL ASSET, IN EARLIER PARAS OF THIS ORDER ON WHICH WE HAVE GRANTED DEPRECIATION, THEN, THIS EXPENDITURE T O BE CONSIDERED AS CAPITAL EXPENDITURE. THUS, THIS GROUND IS PARTLY ALLOWED. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 20 29. GROUND NO. 6 IS AS FOLLOWS: THE LEARNED CIT(A) IS NOT JUSTIFIED BY DISALLOWING THE EXPENSES ON CORPORATE SOCIAL RESPONSIBILITY OF RS . 12.19 CRORES INCURRED FOR AND BENEFIT OF THE COMPANY UNDE R SOCIAL OBLIGATION FOR THE VERY EXISTENCE OF THE BUSINESS. 30. THE AO NOTED THAT THE ASSESSEE HAD SUBMITTED T HE DETAILS OF EXPENSES ON CORPORATE SOCIAL RESPONSIBILITY VIDE IT S LETTER DATED 18.10.2010. IT IS STATED THAT IN THE PRESENT SCENAR IO, EXPENSES ON CORPORATE SOCIAL RESPONSIBILITY(CSR) ARE A STATUTOR Y OBLIGATION TO CONDUCT A PROFITABLE BUSINESS IN THE LONG RUN. THE ASSESSEE COMPANY HAS INCURRED A SUM OF RS.21,74,75,417/- IN THE NAME OF CORPORATE SOCIAL RESPONSIBILITY. IT IS OBSERVED THA T THE FOLLOWING ARE SOME OF THE MAJOR EXPENSES INCURRED BY THE COMP ANY: (AMOUNTS IN RS.) I) PAYMENT MADE TOWARDS FLOOD RELIEF WORKS WITH STEELS AUTHORITY OF INDIA. 4,00,00,000 II) PAID TO ISM, DHANBAD FOR ENDOWMENT FUND 65,00,000 III) PAID TO COLLECTOR, JAGADALPUR UNDER NIRMAL GRAM PANCHAYAT PROGRAM 2,00,000 IV) PAID TO COLLECTOR, JAGADALPUR UNDER NIRMAL GRAM PANCHAYAT PROGRAM 1,75,00,000 V) PAID TO COLLECTOR, JAGADALPUR FOR CONSTRUCTION OF MUSICAL FOUNTAIN 5,00,000 VI) PAID TO CELEBRATION OF HAMPI UTSAV 10,00,000 VII) PURCHASE OF VEHICLES FOR FLOOD RELIEF WORKS 15,95,000 VIII) PAYMENTS LESS THAN RS. 5 LACS FOR WHICH NO DETAILS ARE AVAILABLE 3,48,04,548 12,18,99,548 30.1 THE AO NOTED THAT FROM THE NATURE OF THE ABOVE EXPENDITURE INCURRED, IT CAN BE OBSERVED THAT THEY ARE NOT RELA TED TO BUSINESS OF THE ASSESSEE AND THEY ARE IN THE NATURE OF DONATION S WHICH IS NOT AN ALLOWABLE EXPENDITURE UNDER THE PROVISIONS OF TH E IT ACT. HENCE, HE DISALLOWED THE ABOVE AMOUNT OF RS. 12,18,99,548/ -. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 21 31. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) OBSERVED THAT FIRSTLY, THE ISS UE AT HAND IS NOT WHETHER CORPORATE RESPONSIBILITY SHOULD BE THERE OR NOT. RATHER, EVERY EXPENSE HAS TO BE SEEN THROUGH THE PRISM OF T HE INCOME TAX ACT. AN EXPENSE CAN BE ALLOWED ONLY IF IT IS INCURR ED WHOLLY AND FULLY FOR BUSINESS PURPOSE UNDER THE MERCANTILE SYSTEM OF ACCOUNTING AND PERTAINS TO THE CURRENT YEAR. IN CASE OF DONATI ONS OR CORPORATE SOCIAL RESPONSIBILITY, THE INCOME TAX ACT PROVIDES FOR THE METHODOLOGY AND THE SECTIONS UNDER WHICH DONATIONS ARE MADE DEDUCTIBLE. SPECIFIC FUNDS AND ORGANIZATIONS TO WHO M THE DONATIONS MADE ARE DEDUCTIBLE ARE ;DULY NOTIFIED. 31.1 THE CIT(A) FURTHER OBSERVED THAT BY APPLYING T HE ABOVE SIMPLE AND CLEAR PRINCIPLES, IT IS SEEN THAT THE PA YMENTS IN QUESTION HAD NOT BEEN MADE TO ANY ORGANIZATION WHICH IS GRAN TED THE STATUS UNDER SECTION BOG OF THE ACT. THEREFORE, NONE OF TH E PAYMENTS CAN BE CONSIDERED AS ALLOWABLE DONATIONS UNDER THAT SEC TION. NOW, THE PAYMENTS WILL HAVE TO BE EXAMINED WITH REGARD TO TH EIR ALLOWABILITY UNDER SECTION 37 OF THE ACT. 31.2 WITH REGARD TO THE FIRST PAYMENT OF RS. 4 CROR ES TO STEEL AUTHORITY OF INDIA, THE CIT(A) OBSERVED THAT THE S AME HAD BEEN MADE TO THAT COMPANY FOR NO APPARENT BUSINESS PURPO SE AND THE FACT THAT THERE WAS A REVIEW MEETING IN THE MINISTR Y OF STEEL AND THEY DECIDED ON THE PAYMENT DOES NOT IN ANY WAY MAK E THE PURPOSE OF THE PAYMENT EITHER BUSINESS OR AN ALLOWABLE DEDU CTION UNDER THE INCOME TAX ACT. IF THE APPELLANT COMPANY WANTED TO CONTRIBUTE TO SOME FLOOD OR CALAMITY RELIEF AND CLAIM DEDUCTION U NDER THE INCOME TAX ACT, IT COULD HAVE VERY WELL DONE SO BY MAKING THE PAYMENT TO PRIME MINISTER'S RELIEF FUND OR ANY OTHER NOTIFIED FUND. THEREFORE, THE AFOREMENTIONED PAYMENT OF RS. 4 CRORES IS NEIT HER AN ALLOWABLE DONATION NOR AN ALLOWABLE DEDUCTION UNDER SECTION 37 OF THE ACT. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 22 31.3 AS REGARDS THE SECOND PAYMENT OF RS. 0.65 CROR ES PAID TO THE INDIAN SCHOOL MINES, THE CIT(A) NOTED THAT THE THE APPELLANT HAS STATED THAT THIS PAYMENT WAS ESSENTIAL BECAUSE THE APPELLANT GETS TO RECRUIT ENGINEERS FROM INDIAN SCHOOL OF MINES. I N THIS REGARD, NO DETAILS WHATSOEVER HAVE BEEN PROVIDED BY THE APPELL ANT. IT IS NOT CLEAR AS TO HOW THIS PAYMENT WILL ATTRACT THE TOP E NGINEERS TO NMDC. 31.4 AS REGARDS THE PAYMENTS MADE TO COLLECTOR, JAG DALPUR, PURCHASE OF VEHICLES, FOR CELEBRATION OF HAMPIUTSAV , ETC. THE CIT(A) OBSERVED THAT THEY ALSO FALL IN THE SAME CATEGORY A ND THEY ARE NOT CHANNELED AS ALLOWABLE DONATIONS UNDER THE INCOME T AX ACT, WHILE, AT THE SAME TIME NOT BEING WHOLLY AND EXCLUSIVELY F OR BUSINESS PURPOSE. 31.5 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) CONFIRMED THE ADDITION OF RS. 12,18,99,548/- MADE BY THE AO ON TH ESE COUNTS. 32. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 33. BEFORE US, THE LEARNED AR OF THE ASSESSEE SUBMI TTED THAT ALL EXPENSES ARE IN THE PERFERI & DISTRICT OF ASSESSEE S PLANT OR OPERATIONAL ALLOWED IN ALL EARLIER YEARS CONSISTENT LY. HE FURTHER SUBMITTED THAT GOVT. MADE IT MANDATORY TO SPEND 2% WHICH WORKS OUT TO ABOUT RS. 100 CRORES AND, THEREFORE, THE ASS ESSEE COMPANY HAD SPENT ONLY 0.24% OF PROFIT. HE RELIED ON THE FO LLOWING DECISIONS OF TRIBUNAL IN ASSESSEES OWN CASE TO SUBMIT THAT T HE ISSUE IS SQUARELY COVERED BY THESE DECISIONS: 1. 2005-06 ITA NO. 1791/HYD/2008, DATED30/09/2009. 2. 2006-07 ITA NO. 1085/HYD/2010, DATED 05/08/2011 . 3. 2007-08 ITA NO. 130/HYD/2011, DTD. 13/04/2011. 33.1 HE ALSO RELIED ON THE FOLLOWING CASES: 1. ORISSA POWER GENERATION CO. LTD., ITA NO. 271/CT K/2010. ITAT, CUTTACK BENCH. 2. RIO TINO INDIA (P) LTD., ITA NO. 363/DEL/2012, D T. 22/06/12. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 23 3. CIT VS. MADRAS REFINERIES LTD., [2004] 266 ITR 1 70 (MAD.) 4. MAHINDRA & MAHINDRA LTD. VS. CIT [2003] 261 ITR 501 (BOM.) 5. CIT VS. RUPSA RICE MILLS [1976] 104 ITR 249 (ORI SSA) 33.2 HE ALSO RELIED ON THE NMDC CSR POLICY AND STAT EMENT OF EXPENDITURE MADE FOR PAST 7 YEARS. 34. ON THE OTHER HAND, THE LEARNED DR HAS RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 35. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE RECORD. WE FIND THAT THE ISSUE IN DISPUTE IS SQUARE LY COVERED BY THE DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2005- 06 IN ITA NO. 1791/HYD/2008 DATED 30/09/2009 WHEREI N IT HAS BEEN HELD AS FOLLOWS: 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON REC ORD. NO DOUBT THE ASSESSEE INCURRED AN EXPENDITURE OF RS . 5,00,00,000/- AS CONTRIBUTION FOR ESTABLISHING A ME DICAL COLLEGE. THE FACT THAT THE ASSESSEE IS HAVING A MIN ING UNIT AND A STEEL PLANT IN CHATTISGAARH IS NOT DISPU TE. THE OBJECTION OF THE DEPARTMENT APPEARS TO BE THAT THE MEDICAL COLLEGE WAS LOCATED AT A DISTANCE OF 16 KMS . AND THE ASSESSEE, INSTEAD OF PROVIDING RELIEF TO THE AF FECTED PEOPLE, DIRECTLY INCURRED THE EXPENDITURE FOR ESTAB LISHING THE MEDICAL COLLEGE. THE FACT REMAINS THAT ONE OF T HE CONDITIONS FOR CONTRIBUTING THE MONEY WAS TO GIVE F REE MEDICAL TREATMENT TO THE ADIVASIS WHO WERE AFFECTED BY THE ASSESSEES PROJECT IN THE LOCALITY. MOREOVER, T HE EMPLOYEES OF THE ASSESSEE AND THEIR DEPENDENTS WERE TO BE TREATED FREE OF COST. FIVE SEAS WERE RESERVED IN THE MEDICAL COLLEGE FOR THE CHILDREN OF THE EMPLOYEES O F THE ASSESSEE. IN FACT ADMISSION WAS ALSO GIVEN TO THE CHILDREN OF THE EMPLOYEES OF THE ASSESSEE AS PER TH E CONDITION STIPULATED WHILE CONTRIBUTING THE MONEY. THE ASSESSEE ALSO HAD A REPRESENTATION IN THE BOARD. IN VIEW OF THE ABOVE, IN OUR OPINION, THE CONTRIBUTION OF R S. 5 CRORES IS ONLY A WELFARE MEASURE FOR THE UPLIFTMENT OF THE ADIVASIS IN THE LOCALITY WHERE THE MINING UNIT WAS SITUATED AND ALSO FOR THE WELFARE OF THE EMPLOYEES OF THE ASSESSEE. THIS CONTRIBUTION WOULD DEFINITELY GO A L ONG WAY IN CONDUCTING THE ASSESSEES MINING BUSINESS IN A I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 24 PROFITABLE MANNER. WHEN THE ASSESSEE IS HAVING A MI NING UNIT IN A REMOTE CORNER OF THE COUNTRY, THE COOPERA TION OF THE VILLAGERS IS VERY MUCH REQUIRED FOR CONDUCTING THE BUSINESS. MORE PARTICULARLY, THE COOPERATION OF THE PEOPLE WHO ARE AFFECTED BY THE MINING OPERATION OF THE ASS ESSEE IS REQUIRED. MERELY BECAUSE THE HOSPITAL AND MEDICA L COLLEGE ARE SITUATED 16 KMS AWAY FROM THE UNIT, THA T WILL NOT DETER THE MEDICAL INSTITUTION IN GIVING TREATME NT TO THE AFFECTED PEOPLE. MOREOVER, ADMISSION WAS GIVEN TO T HE CHILDREN OF THE ASSESSEES EMPLOYEES IN THE MEDICAL COLLEGE. THEREFORE, INDIRECTLY THE CONTRIBUTION MAD E BY THE ASSESSEE TAKES CARE OF THE EDUCATION OF THE EMPLOYEES CHILDREN. THIS WOULD CERTAINLY BE A WELF ARE MEASURE ON THE PART OF THE ASSESSEE FOR CARRYING OU T THE BUSINESS IN AN EFFECTIVE AND EFFICIENT MANNER. THER EFORE, IN OUR OPINION, THE CONTRIBUTION OF RS. 5,00,00,000 HAS TO BE TREATED AS REVENUE EXPENDITURE FOR THE PURPOSE O F THE BUSINESS. THEREFORE, WE DO NOT FIND ANY JUSTIFICATI ON IN DISALLOWING THE SUM. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ENTIRE ADDI TION. 36. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THAT OF AY 2005-06, WE DELETE THE ADDITIONS MADE UNDER THE HEADS FROM (I) TO VII). 36.1 HOWEVER, WE MAKE IT CLEAR THAT THE EXPENDITURE INCURRED AT RS. 3,48,04,548/- SHOWN AS MISCELLANEOUS EXPENSE S CANNOT BE ALLOWED AS THE ASSESSEE HAS NOT FURNISHED THE DE TAILS OF EXPENDITURE, THEREFORE, IN THE ABSENCE OF REQUISITE INFORMATION THE SAID EXPENDITURE CANNOT BE ALLOWED. ACCORDINGLY , THIS GROUND IS PARTLY ALLOWED. 37. GROUND NO. 7 RELATES TO DISALLOWANCE OF CLAIM O F PREOPERATIVE EXPENSES OF RS. 5,43,27,455/-. 38. BRIEFLY THE FACTS ARE THAT THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION ON ACCOUNT OF 'PRE-OPERATIVE EXPENSES' OF I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 25 RS.5,43,27,455/- IN THE COMPUTATION OF INCOME. ORIG INALLY, THIS AMOUNT OF EXPENDITURE WAS REDUCED FROM THE GROSS EX PENDITURE OF RS.1471.03 CRORES AND THE BALANCE WAS CLAIMED AS EX PENDITURE. THUS, IN THE BOOKS OF ACCOUNT, THE ASSESSEE ITSELF ADDED BACK THE PRE-OPERATIVE EXPENDITURE AS NOT ELIGIBLE FOR DEDUC TION FROM PROFITS OF THE YEAR TREATING THEM AS CAPITAL EXPENDITURE UN DER SCHEDULE 21 OF THE P &I L ACCOUNT. THE ASSESSEE WAS ASKED TO EX PLAIN THE REASONS. 38.1 IT WAS EXPLAINED THAT THE 'PRE-OPERATIVE REVEN UE EXPENSES ARE NOTHING BUT CONSUMPTION OF STORES & SPARES, PAYMENT S & BENEFITS TO EMPLOYEES, REPAIR & MAINTENANCE, OTHER EXPENSES AND CONSULTANCY CHARGES. AR RELIED ON THE FOLLOWING DECISIONS:- (A) CIT VS. USHA IRON & FERRO METAL CORP. LTD. (B) CIT VSRELAXOFOOTWEARS LTD.' 38.2. THE AO OBSERVED THAT BOTH THE CASES ARE NOT A PPLICABLE SINCE THE ASSESSEE HAS NOT EXPLAINED THE CONTEXT IN WHICH THE EXPENDITURE HAS BEEN INCURRED. THE FACTS DETERMINE THE NATURE OF EXPENDITURE WHETHER IT IS CAPITAL IN REVENUE. FROM THE REPLY FURNISHED IN ITS LETTER DT. 16-12-2010, IT CAN BE O BSERVED THAT THE EXPENSES ARE ALL REVENUE IN NATURE BEING TOWARDS CO NSUMPTION TOWARDS STORES & SPARES, PAYMENTS TO EMPLOYEES, REP AIRS & MAINTENANCE, CONSULTANCY CHARGES, ETC., WHICH CANNO T BE TREATED AS CAPITAL EXPENSES. IF THE EXPENSES ARE INCURRED IN S ETTING UP A NEW BUSINESS, IT WOULD BE AN EXPENDITURE INCURRED ON CA PITAL ACCOUNT, BUT WHERE IT DOES NOT AMOUNT TO THE STARTING OF A N EW BUSINESS, THE EXPENSES IN CONNECTION THEREWITH WOULD BE REVENUE E XPENSES. IN THE ABSENCE OF INFORMATION AS TO THE CONTEXT IN WHI CH THE EXPENDITURE HAS BEEN INCURRED, IT CANNOT BE CONSIDE RED AS ALLOWABLE SINCE THE COMPANY ITSELF HAS CHOSEN TO TR EAT IT AS CAPITAL EXPENDITURE IN, IT BOOKS. HENCE, THE AO DISALLOWED THE CLAIM OF PREOPERATIVE EXPENSES OF RS. 5,43,27,455/-. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 26 39. DURING APPEAL PROCEEDINGS, THE APPELLANT DID N OT PROVIDE ANY DETAILS OF PREOPERATIVE EXPENSES, BUT, IT WAS REPLI ED AS UNDER: 'PRE-OPERATIVE REVENUE EXPENSES ARE NOTHING BUT CONSUMPTION OF STORES & SPARES. PAYMENTS & BENEFITS TO EMPLOYEES. REPAIR & MAINTENANCE. OTHER EXPENSES AND CONSULTANCY CHARGES. THE REVENUE EXPENSES ARE CLAIM ED BASED ON THE FOLLOWING DECIDED CASES:- (A) CIT VS. RELAXOFOOTWEARS LTD. [ (2007) 200 TAXAT ION 433 (DEL.)] :WHEREIN IT WAS DECIDED BY THE DELHI HIGH C OURT THAT PREOPERATIVE EXPENSES CAN BE CLAIMED AS REVENUE EXPENDITURE IN ONE GO, WHEN THERE IS COMMON FUNDS A ND UNITY OF CONTROL. (B) DCLT VS. ACC RIO TINTO EXPLORATION LTD. ITA NOS . 4908/DEL/2005 THE COMPANY'S CONTENTION IS ALSO SUPPORTED BY THE R ECENT DECISION OF THE ITAT IN DCIT VS. ACC RIO TINTO EXPL ORATION LTD. ITA NOS. 4908/DEL/2005 AY: 2001-02 DECIDED ON 26.09.08. (C) CLT VS. USHA IRON AND FERRO METAL CORPORATION L TD. [(2007) 201 TAXATION 434(DEL.)] WHEREIN IT IS DECID ED THAT EXPENDITURE INCURRED TOWARDS EXPANSION OF EXISTING BUSINESS. ALTHOUGH TREATMENT GIVEN IN THE BOOKS AS CAPITAL EX PENDITURE. IS ALLOWABLE AS REVENUE EXPENDITURE. UNDER PARA NO. 10.30 OF PAGE NO. 13 OF THE ASSESSME NT ORDER. THE A.O. DISALLOWED THE EXPENSES AND ADDED BACK IN THE TAXABLE INCOME ON THE BASIS THAT 'IN THE ABSENCE OF INFORMATION AS TO THE CONTEXT IN WHICH THE EXPENDIT URE HAS BEEN INCURRED, IT CANNOT BE CONSIDERED AS ALLOWABLE EXPENDITURE SINCE THE COMPANY ITSELF HAS CHOSEN TO TREAT IT AS CAPITAL EXPENDITURE IN ITS BOOKS'. WRITE-UP ON PRE-OPERATIVE EXPENSES HAS BEEN SUBMITT ED ON 16.12.2010. THE A.O. HAS NOT SOUGHT ANY FURTHER INF ORMATION. EVEN THOUGH IT WAS BOOKED IN CAPITAL EXPENDITURE, T HE COMPANY HAS CLAIMED THIS BASED ON ABOVE DECIDED CAS ES IN FAVOUR OF THE ASSESSEE. THE A.O. HAS NOT CONSIDERED THE FACT THAT THE ASSES SEE IS A PREMIER MINING COMPANY AND ITS FUTURE SURVIVAL LIES ON EXPLORATION AND INVESTIGATION OF VARIOUS DEPOSITS O F IRON ORE AND OTHER MINERALS. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 27 THE EXPENDITURE INCURRED UNDER THIS HEAD IS PURELY REVENUE IN NATURE, WHICH WOULD OTHERWISE HAVE BEEN CHARGED TO REVENUE. AND HAS BEEN WRITTEN OFF' AS PER THE ACCOUNTING POL ICY ADOPTED BY THE COMPANY DURING THE YEAR TO BE IN LIN E WITH ACCOUNTING STANDARD APPLICABLE FOR THE COMPANY TO C OMPLY WITH AS PER COMPANIES ACT. 1956. IN ALL RESPECTS, THE EXPENDITURE INCURRED DURING PR E-OPERATION PERIOD COMPLIES WITH CONDITIONS AS LAID DOWN UNDER SECTION 37 OF THE INCOME TAX ACT. AND QUALIFIES FOR REVENUE EX PENDITURE. CIT(A) IS REQUESTED TO DELETE THE ADDITION MADE BY A.A. BASED ON THE ABOVE SUBMISSIONS & DECIDED CASES.' 40. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) CONFIRMED THE ADDITION BY HOLDING AS UNDER: 12.2 I HAVE CONSIDERED CAREFULLY THE FACTS AND EV IDENCE. IT IS VERY CLEAR THAT THE EXPENSES IN QUESTION ARE PREOPE RATIVE IN NATURE. THESE EXPENSES ARE DEFINITELY CAPITAL AND H AVE BEEN RIGHT CATEGORIZED SO BY THE APPELLANT AND ALSO CERT IFIED AS CAPITAL EXPENDITURE BY THE AUDITORS. IT IS ONLY AT THE TIME OF COMPUTATION OF INCOME THE APPELLANT CLAIMED THIS E XPENDITURE AS REVENUE WITHOUT PROVIDING ANY DETAILS OR REASONS . I HAVE ALSO TAKEN A LOOK AT THE CASE LAW REFERRED TO BY TH E APPELLANT AND I FIND THAT THERE IS ABSOLUTELY NO REASON BY WH ICH THE CLAIM OF THE APPELLANT CAN BE ALLOWED. THE FACTS IN THE CASE LAW ARE VERY DIFFERENT THAN THE FACTS OF APPELLANT' S CASE. ACCORDINGLY, I UPHOLD THE ACTION OF THE ASSESSING O FFICER TO TREAT THE SAME AS CAPITAL EXPENDITURE. 41. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 42. BEFORE US, THE LEARNED AR SUBMITTED THAT EXPENS ES ARE IN THE NATURE OF CONSUMING STORES/SPARE, PAYMENT TO EMPLOY EE, REPAIRS AND MAINTENANCE. HE CONTENDED THAT SINCE THE EXPENS ES WERE CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION, THE S AME ARE ALLOWABLE. HE RELIED ON THE FOLLOWING CASE: 1. ACIT VS. PARABOLIC DRUGS LTD., ITA NO. 2111/DEL /2010, ` DATED 17/06/2011, 141 TTJ (DEL.) 662/62 DTR 3. 43. THE LEARNED DR RELIED ON THE ORDERS OF THE REVE NUE AUTHORITIES. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 28 44. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WHILE CONFIRMING THE ADDITION, THE CIT( A) GAVE A CATEGORICAL FINDING THAT THESE EXPENSES ARE DEFINITELY CAPITAL AND HAVE BEEN RIGHTLY CATEGORIZED SO BY THE APPELLANT A ND ALSO CERTIFIED AS CAPITAL EXPENDITURE BY THE AUDITORS. IT IS ONLY AT THE TIME OF COMPUTATION OF INCOME THE ASSESSEE CLAIMED THIS EXP ENDITURE AS REVENUE WITHOUT PROVIDING ANY DETAILS OR REASONS. EVEN BEFORE US ALSO, THE ASSESSEE HAS NOT PLACED ANY EVIDENCE TO E STABLISH THE EXPENDITURE INCURRED AS REVENUE EXPENDITURE. THEREF ORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN CO NFIRMING THE ADDITION OF RS. 5,43,27,455/- ON ACCOUNT OF PREOPER ATIVE EXPENSES AND THE ORDER OF THE CIT(A) IS HEREBY CONFIRMED. TH IS GROUND IS DISMISSED. 45. THE NEXT ISSUE RELATES TO THE ADDITION OF RS.4, 04,77,426/- ON ACCOUNT OF DISALLOWANCE OF PF CONTRIBUTIONS ON WAGE REVISION.: 46. THE ASSESSEE HAD MADE THE FOLLOWING AD-HOC PROV ISIONS: ADHOC PROVISIONS PF- WORKMEN 2,35,30,446 -DO- - PF-JO 16,99,401 -DO- - PF-OFFICERS 1,22,15,497 -DO- - PF-WORKMEN 26,35,527 -DO- - PF-JO 2,66,208 -DO- - PF OFFICERS 4,30,347 TOTAL 4,04,77,426 ========= 46.1 THE ASSESSEE WAS ASKED TO FURNISH REASONS FOR THE ABOVE ADHOC PROVISIONS AND EXPLAIN WHY THEY SHOULD NOT BE DISALLOWED SINCE THEY ARE NOT ACTUALLY INCURRED. IT WAS EXPLAI NED THAT THE AD- HOC PROVISION OF PF IN THE ACCOUNTS WAS BASED ON TH E PROVISION OF WAGE REVISION WHICH WAS DUE FROM 01101-2007. HOWEVE R, NO FURTHER INFORMATION REGARDING THE EFFECTIVE DATE OF REVISIO N AND THE CALCULATIONS BEHIND THE WORKING OF THE AD-HOC DEDUC TION HAVE NOT BEEN FURNISHED, IN THE ABSENCE OF WHICH THEY CANNOT BE TREATED AS ALLOWABLE EXPENDITURE UNDER THE PROVISIONS OF 1.T. ACT, 1961, BY THE AO. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 29 47. DURING APPEAL PROCEEDINGS, THE APPELLANT STATE D AS FOLLOWS: 'UNDER PARA 11.2 OF PAGE NO, 14 OF THE ASSESSMENT O RDER, THE A.O. HAS NOT ALLOWED THE EXPENSES BASED ON THE CONT ENTION THAT 'NO FURTHER INFORMATION REGARDING THE EFFECTIV E DATE OF REVISION AND THE CALCULATIONS BEHIND THE WORKING OF THE AD HOC DEDUCTION HAVE NOT BEEN FURNISHED'. BASED ON OUR REPLY, THE A.O, HAS MENTIONED THAT 'TH E ADHOC PROVISION OF PF IN THE ACCOUNTS WAS BASED ON THE PR OVISION OF WAGE REVISION WHICH WAS DUE FROM 01.01.2007' . THE CONTENTION OF A.O. IN THE ABOVE TWO PARAS IS CO NTRADICTING EACH OTHER. WE HAVE NOT SUBMITTED ANY ADDITIONAL INFORMATION AS NO FURTHER INFORMATION HAS BEEN ASKED FOR. WITHOUT ASK ING ANY FURTHER INFORMATION OR GIVING OPPORTUNITY TO THE AS SESSEE, THE A.O. HAS ADDED BACK THE AMOUNT. WHEN THE WAGE REVISION WAS ALLOWED BY THE A.O, THE PF CONTRIBUTION ON REVISION CANNOT BE DISALLOWED ON TH E CONTENTION OF THE FOLLOWING: NO FURTHER INFORMATION REGARDING THE EFFECTIVE DATE OF REVISION AND THE CALCULATIONS BEHIND THE WORKING OF THE ADHO C DEDUCTION HAVE NOT BEEN FURNISHED. CIT(A) IS REQUESTED TO DELETE THE ADDITION MADE BY A.O. BASED ON THE ABOVE SUBMISSIONS.' 48. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: FROM THE ABOVE FACTS, I FIND ABSOLUTELY NO RATIONAL E FOR THE ADHOC PROVISION MADE BY THE APPELLANT AND FOR SAME TO BE ALLOWED AS DEDUCTION UNDER THE INCOME TAX ACT. THE ASSESSING OFFICER IS RIGHT IN SAYING THAT NO DETAIL S REGARDING THE CALCULATIONS AND NO RELEVANT INFORMATION WAS PR OVIDED BY THE APPELLANT. DURING APPEAL PROCEEDINGS, INSTEAD O F PROVIDING INFORMATION AND EVIDENCE REGARDING ITS CL AIM, THE APPELLANT MERELY STATED THAT THE ASSESSING OFFICER DID NOT ASK FOR MORE INFORMATION. I TOO FIND THAT IN THE ABSENC E OF ANY DETAILS OF CALCULATIONS AND THE BASIS, THE ADHOC PR OVISION CANNOT BE ALLOWED AS DEDUCTION. ADDITION ON THIS AC COUNT IS ORDERED TO BE CONFIRMED. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 30 49. ACCORDING TO THE AR OF THE ASSESSEE THE WAGE RE VISION PROVISION IS ALLOWED BY THE AO AS DEDUCTION, THEREF ORE, THE PF CALCULATION GOES WITH WAGE. HENCE, IT IS TO BE ALLO WED AS IT IS ASCERTAINED LIABILITY WITH WAGE. HE RELIED ON THE F OLLOWING DECISIONS: 1. CIT VS. INSIL CO. LTD., [2009] 179 TAXMAN 55 (DE LHI) 2. CIT VS. BHARAT HEAVY ELECTRICALS LTD., ITA NOS. 278, 807, 1578 & 312/2010, DELHI HIGH COURT. 50. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIE S AND PERUSED THE RECORD. IN CASE OF PAYMENT OF CONTRIBUTION TO P F IS MADE BEFORE THE DUE DATE PRESCRIBED IN PF ACT AND THE SCHEME TH EREOF, DEDUCTION CAN BE CLAIMED AND THE RIGHT OF DEDUCTION WOULD BE LOST U/S 43B READ WITH EXPLANATION IF THE SAME IS PAID A FTER THE DUE DATE, I.E., AFTER THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT, AS PER THE AMENDED PROVISIONS OF SECTION 43B. IN TH E PRESENT CASE, ONLY PROVISION HAS BEEN MADE WHICH IS NOT ALLOWABLE IN TERMS OF SECTION 43B. ACCORDINGLY, THIS GROUND IS REJECTED. 51. IN THE ASSESSEE APPEAL IN ITA NO. 714/H/12 IS P ARTLY ALLOWED. ITA NO. 885/H/12 REVENUE APPEAL 52. GROUND NO. 1 IS GENERAL IN NATURE. 53. GROUND NO. 2 IS AS FOLLOWS: THE CIT(A) ERRED IN GRANTING RELIEF TO THE ASSESSEE IN RESPECT OF MINE CLOSURE OBLIGATION IN VIEW OF THE FACT IT I S NOT AN ASCERTAINED LIABILITY AND IF AT ALL ANY EXPENDITURE IS TO BE ALLOWED, IT SHOULD BE SPREAD OVER EVENLY FOR ALL TH E YEARS SINCE THE DATE OF COMMENCEMENT OF MINING OPERATIONS TILL THE DATE OF CLOSURE OF MINING ACTIVITIES. 54. THIS GROUND HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE VIDE PARAS 3 TO 9.1 IN ASSESSEES APPEAL, THEREFORE, THI S GROUND OF REVENUE IS DISMISSED. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 31 55. GROUND NOS. 3 & 4 ARE AS FOLLOWS: 3. THE CIT(A) ERRED IN GRANTING RELIEF TO THE ASSES SEE IN RESPECT OF CLOSING STOCK VALUATION OF LUMPS & FINE IRON ORE, THOUGH IT IS CLEARLY MENTIONED IN THE NOTES FORMING PART TO THE ACCOUNTS THAT THE FINE ORE LYING IN DUMP AT THE END OF CURRENT YEARS PRODUCTION IS RECOGNIZED AS PRODUCTI ON AND STOCK AND THAT THE VALUE OF INVENTORIES FINISHED GOODS- IRON ORE HAS INCREASED BY RS. 16.38 CRORES WITH THE CORR ESPONDING INCREASE IN NET PROFIT. 4. THE CIT(A) ERRED IN GRANTING RELIEF TO THE ASSES SEE THEREBY DIRECTING TO ADOPT THE VALUE OF DIAMONDS AS OPENING STOCK AND CLOSING STOCK AT RS. 1 LAKH EACH THEREBY THE NE T EFFECT WOULD BE ZERO. THE CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE DIAMONDS SINCE RECOVERED DURING THE PREVIO US YEAR UNDER CONSIDERATION ARE TO BE TAKEN AS STOCK RECEIV ED AND SINCE THE SAME ARE IN THE POSSESSION OF THE ASSESSE E, AS AT THE END OF THE YEAR THE SAME ARE REQUIRED TO BE REF LECTED AS CLOSING STOCK WHICH THE AO HAS RIGHTLY CONSIDERED. 56. BRIEFLY THE FACTS RELATING TO THIS GROUND ARE T HAT THE AO FOUND FROM THE NOTES FORMING PART OF THE ACCOUNTS, IT WAS WRITTEN AS UNDER: FINE ORE LYING IN DUMP AT THE YEAR END OUT OF CURR ENT YEAR'S PRODUCTION IS RECOGNIZED AS 'PRODUCTION AND STOCK', AS AGAINST THE EARLIER PRACTICE OF NOT CONSIDERING THE SAME. A S A RESULT, VALUE OF 'INVENTORIES - FINISHED GOODS - IRON ORE' HAS INCREASED BY RS.16.38 CRS WITH CORRESPONDING INCREA SE IN NET PROFIT.' 56.1 THE ASSESSING OFFICER ASKED THE APPELLANT AS T O WHY THE VALUE OF LUMPS AND FINE IRON ORE SHOULD NOT BE RECOGNIZED AS THE INCOME. OF THE YEAR ON ACCOUNT OF VALUATION OF CLOSING STOC K. BY GIVING THE FOLLOWING REASONS, THE ASSESSING OFFICER MADE THE A DDITION IN QUESTION: '3.4. THE ABOVE CONTENTIONS OF THE ASSESSEE ARE CON SIDERED. THE ASSESSEE HAS STATED THAT THE COST OF PRODUCTION OF THE DUMPED FINE ORE WAS ABSORBED BY THE SALEABLE PRODUC T, NAMELY, LUMPS. THUS, THE EXPENDITURE RELATING TO TH E PRODUCTION OF FINES HAS BEEN ACCOUNTED FOR IN THE R EGULAR ACCOUNTS OF THE ASSESSEE. THE FINE ORES HAVE BEEN RECOGNIZED AS PART OF STOCKS THOUGH ITS VALUE HAS B EEN ADOPTED AS ZERO. THIS METHOD OF ACCOUNTING IS NOT P ROPER SINCE THE ASSESSEE HAS ALREADY AVAILED OF THE EXPEN DITURE IN PRODUCTION OF SUCH FINE ORES IN THE EARLIER YEARS. THUS, THE VALUE TO BE ADOPTED FOR THE FINE ORES CANNOT BE ZER O. THE I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 32 VALUE OF IRON ORE IS SHOWN AT RS.93.13 CRS FOR A QU ANTITY OF 3918700 WMTS WHICH WORKS OUT TO RS.237.65 PER WMT. THE VALUE OF 8.78 LAKH WMTS OF FINE ORE AS ON 31.03.200 7 WORKS OUT TO RS.20,86,61,392/-. THIS IS TREATED AS INCOME RELATABLE TO THE FINE ORES WHICH WERE RECOGNIZED AS SALEABLE PRODUCTS IN THE CURRENT FINANCIAL YEAR. THE SAME IS ADDED TO INCOME.' 57. DURING APPEAL PROCEEDINGS, THE APPELLANT EXPLA INED THAT LUMP AND FINE IRON ORE ARE PRODUCED SIMULTANEOUSLY IN THE SAME PROCESS. IT WAS EXPLAINED THAT IN THE EARLIER YEARS , THE FINE IRON ARE WAS NOT MARKETABLE AND HENCE THE ENTIRE COST OF PRO DUCTION WAS IMPUTED TO LUMP. DURING THE CURRENT YEAR, FINE IRON ARE BECAME MARKETABLE AND HENCE DEVELOPED A VALUE IN THE MARKE T. THE FINE IRON ARE HAS THEREFORE BEEN VALUED AT ITS COST I.E. ZERO. THE FOLLOWING ARE THE WRITTEN SUBMISSIONS OF THE APPELL ANT: LUMP AND FINE ORE ARE PRODUCED SIMULTANEOUSLY DUR ING THE SAME PROCESS. IN EARLIER YEARS AS THERE WAS NO MARK ET FOR FINE ARE, HENCE THE PRODUCED QUANTITY WAS DUMPED IN DIFFERENT STOCK YARDS. THE COST OF PRODUCTION OF THIS DUMPED FINE ORE QUANTITY WAS BEING ABSORBED BY THE SALEABLE PRODUCT - LUMP. HENCE FINE ARE STOCK CARRIED ZERO VALUE. WITH IMPRO VEMENT IN STEEL MAKING TECHNOLOGY, FINE ARE BECAME A SALEABLE PRODUCT. HENCE THE COMPANY STARTED RETRIEVING THE FINE ARE F ROM THE DUMP AND SELLING IT TO VARIOUS CUSTOMERS. THE QUANT ITY SO SOLD WAS INCLUDED IN SALES TURNOVER AND ACCOUNTED FOR. S OMETIMES DUE TO BREAK DOWN OF THE EQUIPMENT, CONVEYOR BELT A ND SATURATION OF FINE ARE STOCK PILE AT THE LOADING PL ANT, FINE ORE IS DUMPED AT THESE STOCK YARDS, RETRIEVED AND SOLD AS PER REQUIREMENT. DURING 2007-08 ACCOUNTING POLICY WAS REVISED TO REC OGNIZE THE TOTAL FINE ORE PRODUCED IN THAT YEAR - WHETHER SENT TO REGULAR LOADING PLANT OR SENT TO DUMP YARDS. THUS Q UANTITY REMAINING IN STOCK OUT OF CURRENT YEAR (2007-08) PR ODUCTION WHETHER AT LOADING PLANT OR DUMP SITE WAS RECOGNIZE D AS STOCK AND VALUED. THE SAME HAS BEEN INDICATED IN SC H.24. THUS DURING 2007-08 THE QUANTITY LYING IN DUMP PERT AINING TO THE PERIOD UPTO 31-03-07 WAS SURVEYED AND PHYSICALL Y MEASURED. THIS QUANTITY HAS BEEN INDICATED IN SCH.2 3 AS 8.78 LT. AS THE COST OF PRODUCTION OF THIS QUANTITY WAS ALREADY ABSORBED BY THE SALEABLE PRODUCT OF EARLIER YEARS, THIS STOCK HAS ZERO VALUE. I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 33 IN VIEW OF THE CHANGED ACCOUNTING POLICY, FINE ARE LYING IN DUMP GENERATED DURING THE FINANCIAL YEAR 2007-08 WA S VALUED AND INDICATED AT RS.16.38 CRORES (INSTEAD OF ZERO V ALUE); IN OTHER WORDS COST OF PRODUCTION OF FINE ORE FROM 200 7-08 ONWARDS WAS NOT ABSORBED BY OTHER SALEABLE ARE. THU S LUMP AND FINE ARE STOCKS WERE VALUED SEPARATELY. THE VAL UE OF 8.78 LT OF FINE ORE LYING IN DUMP PERTAINING TO EARLIER YEARS IS RS.ZERO AS THE COST OF PRODUCTION HAS BEEN ABSORBED BY THE LUMP ORE AND SALEABLE FINE ARE. THIS POINT HAS BEEN ADEQUATELY INDICATED IN NOTE NO.2.2 OF SCH.24 AT PA GE-1L3 OF ANNUAL REPORT 2007-08. AS PER AS-2, STOCK IS TO BE VALUED AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER. AC CORDINGLY, THE STOCK OF 8.78 LT HAS BEEN VALUED AT COST, WHICH IS ZERO. UNDER PARA 3.4 OF PAGE NO. 7 OF THE ASSESSMENT ORDE R THE LEARNED A.O. STATED THAT 'THIS METHOD OF ACCOUNTING IS NOT PROPER SINCE THE ASSESSEE HAS ALREADY AVAILED OF TH E EXPENDITURE IN PRODUCTION OF SUCH FINE ORES IN THE EARLIER YEARS. THUS, THE VALUE TO BE ADOPTED FOR THE FINE A RE CANNOT BE ZERO'. THE CONTENTION OF THE A.O. IS NOT CORRECT. HE CANNO T MAKE ANY COMMENT ON THE CERTIFIED ACCOUNTS MADE BY CAG. WHEN THE COST OF FINE ORE(NOT MARKETABLE) LYING IN DUMPS UPT O 31.03.2007 WAS ABSORBED BY THE SALEABLE PRODUCT AND TAX HAS BEEN PAID BASED ON SALES AND/OR VALUE OF CLOSIN G STOCK OF THE SALEABLE PRODUCT, CONSIDERING THE PRODUCT AGAIN IN SOME VALUE IS DOUBLE TAXATION. THE FOLLOWING CASES ARE ALSO PRESENTED FOR KIND INF ORMATION OF THE H'ONBLECLT(A). A) ASSESSEE HAS THE CHOICE ON METHOD, BUT SUCH METH OD SHOULD BE SHOWN AS REGULARLY FOLLOWED - THE CHOICE OF THE METHOD OF ACCOUNTING LIES WITH THE ASSESSEE; BUT TH E ASSESSEE MUST SHOW THAT HE HAS FOLLOWED THE METHOD REGULARLY FOR HIS OWN PURPOSES - C/T V. MCMILLAN & CO.[19581 33 ITR 182 B) A TAXPAYER IS FREE TO EMPLOY, FOR THE PURPOSE OF HIS TRADE, HIS OWN METHOD OF KEEPING ACCOUNTS, AND FOR THAT PU RPOSE TO VALUE HIS STOCK-IN-TRADE EITHER AT COST OR MARKET P RICE. A METHOD OF ACCOUNTING ADOPTED BY THE TRADER CONSISTE NTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENTAL A UTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNT OR OF VALUATION. THE METHOD OF ACCO UNTING REGULARLY EMPLOYED MAY BE DISCARDED ONLY IF, IN THE OPINION OF THE TAXING AUTHORITIES INCOME OF THE TRADE CANNOT B E PROPERLY I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 34 DEDUCED THERE FROM - INVESTMENT LTD. V. C/T[1970] 7 7 ITR 533 (SC).' 58. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) DIRECTED THE AO TO DELETE THE ADDITION MADE ON THIS COUNT BY OBSERVING AS UNDER: I HAVE SEEN CAREFULLY THE ARGUMENTS, THE FACTS AND THE CASE LAWS. WITH RESPECT TO CLOSING STOCK, THERE IS NO AM BIGUITY ABOUT THE FACT THAT THE APPELLANT IS TO RECOGNIZE T HE SAME ON COST OR THE MARKET VALUE, WHICHEVER IS LESS. IT IS A FACT WHICH IS NOT DISPUTED BY THE ASSESSING OFFICER THAT BOTH IRON LUMP AND FINE IRON ARE ARE PRODUCED IN THE SAME PROCESS. THEREFORE, THE COST OF PRODUCTION OF BOTH HAS BEEN CALCULATED THROUGH A COMMON PROCESS. THE APPELLANT HAS BEEN ALLOCATING THE ENTIRE COST OF PRODUCTION TO IRON LU MPS WHICH HAVE BEEN VALUED AT THAT COST. NOW, IF SOME COST IS TO BE ATTRIBUTABLE TO FINE IRON ARE THEN THAT CORRESPONDI NG COST WILL HAVE TO BE REDUCED FROM THE COST OF LUMPS. AS AN EX AMPLE, IF THE TOTAL COST OF FINE IRON ARE AND LUMPS IS HYPOTH ETICALLY TAKEN AS 100, THE APPELLANT HAD ALLOCATED THE COST AS ZERO FOR FINE IRON ARE AND 100 FOR LUMPS. IF THE ASSESSING O FFICER WANTS TO REVALUE THE CLOSING STOCK I.E. REALLOCATE THE CO ST, HE WILL HAVE TO INCREASE THE COST AFFINE IRON ARE FROM ZERO TO LET US SAY 30 WHILE REDUCING THE COST OF LUMPS FROM 100 TO 70, THEREBY MAINTAINING THE OVERALL COST AT 100. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT REDUCED THE VAL UATION OF LUMP BUT HAS INCREASED THE VALUATION OF FINE IRON A RE FROM ZERO TO ~20 CRORES. THIS IS INCORRECT AS IT INCREAS ES THE OVERALL VALUATION. THE FACT THAT THE MARKET PRICE O F FINE IRON ARE HAS INCREASED DOES NOT HAVE ANYTHING TO DO WITH THE CLOSING STOCK VALUATION. THEREFORE, ANY REALLOCATIO N OF CLOSING STOCK COST BETWEEN FINE IRON ARE AND LUMP WILL NECE SSARILY HAVE TO BE TAX NEUTRAL. THERE IS THEREFORE, NO CIRC UMSTANCES WHICH COMPELS THE ASSESSING OFFICER TOREVALUE TO CL OSING STOCK OF FINE ORE. IN ANY CASE, AS THE FINE IRON OR E IS SOLD, THE REVENUE SO GENERATED WILL BE ACCOUNTED FOR IN THE R ECEIPTS. GIVEN THE ABOVE FACTS AND CIRCUMSTANCES, THE ADDIT ION MADE ON THIS ACCOUNT IS ORDERED TO BE DELETED. 59. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE DO NOT FIND ANY INFIRMITY IN THE FIN DINGS OF THE CIT(A) WITH RESPECT TO CLOSING STOCK VALUATION OF LUMPS AN D FINE IRON ORE AND, THEREFORE, THE ORDER OF THE CIT(A) IS HEREBY C ONFIRMED IN I.T.A. NO. 714 & 885/H/12 M/S NMDC LTD. 35 DELETING THE ADDITION MADE BY THE AO ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 60. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 885/H/12 IS DISMISSED. 61. TO SUM UP, APPEAL OF ASSESSEE IN ITA NO. 714/H/ 12 IS PARTLY ALLOWED AND APPEAL OF REVENUE IN ITA NO. 885/H/12 I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON 28/02/2014. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 28/02/2014. KV COPY FORWARDED TO: 1. ACIT, CIRCLE 16(1), ROOM NO. 612, 6 TH FLOOR, , AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 004. 2. M/S NATIONAL MINERAL DEVELOPMENT CORPORATION LTD ., KHANJI BHAVAN, MASAB TANK, HYDERABAD 001. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD. 5. THE DR, ITAT, HYDERABAD