NMDC LIMITED, Hyderabad V. JCIT Range-16, Hyderabad

ITA 991/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61897 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: LAKSHMI NIWAS SHARMA
• Keywords: Revision of order; Depreciation
• Section: 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBE R. ITA NO. 991/HYD/2011 (ASSESSMENT YEAR: 2006 -07) M/S. N.M.D.C., LTD., HYDERABAD (PAN - AAACN 7325 A ) V/S JT. COMMISSIONER OF INCOME-TAX, , RANGE 16, HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI LAKSHMINIWAS SHARMA RESPONDENT BY : SHRI V.SRINIVAS DATE OF HEARING 29/03/ 20 12 DATE OF PRONOUNCEMENT 18/05/2012 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER U /S 263 OF CIT-IV, HYDERABAD DATED 29.03.2011. 2. THE CIT IN HIS ORDER UNDER SECTION 263 HAD DEALT WITH TWO ISSUES, AS FOLLOWS:- 3. ADDITION OF DEPRECIATION TO THE EXTENT OF RS.59, 45,326/- ON THE GROUND THAT IN THE COMPUTATION STATEMENT THE ASSESSEE HAD ADDED BACK A SUM OF RS.113,09,54,674/- TOWARDS DEPRECATION AS PER BOOKS OF ACCOUNTS. HOWEVER, THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT W AS ONLY RS.113,69,00,000/-. HENCE, THE CIT WAS OF THE OPINION THAT RS.59,45,326 /- BEING THE DIFFERENCE ITA NO. 991/HYD/2011 M/S NMDC LTD. 2 BETWEEN DEPRECIATION DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE AMOUNT ADDED BACK IN THE MEMO OF INCOME SHOULD BE ADDED. 4. THE ASSESSEE HAD SUBMITTED THAT WHILE GROSS DEPR ECIATION AS PER PROFIT AND LOSS ACCOUNT IS RS.1136902816/-, THEY HAD TRANS FERRED PART OF THE DEPRECIATION TO THE CAPITAL ACCOUNT AS UNDER:- MISCELLANEOUS / PROMOTIONAL EXPENSES RS.41,84 ,326/- UNDER INCIDENTAL EXPENSES DURING CONSTRUCTION - RS.37,05,672/- TO THIS THEY HAVE HAD PRIOR PERIOD EXPENSES OF - RS.19,41,856/. 5. ACCORDING TO THE ASSESSEE NET DEPRECIATION CHA RGED TO THE ACCOUNT IS ONLY RS.1130954674/-. ACCORDING TO THE ASSESSEE TH E CIT HAD MISUNDERSTOOD THE AMOUNT ADDED BACK THE AMOUNT WRONGLY. 6. THE LEARNED DR POINTED OUT THAT IN THE COURSE OF HEARING BEFORE THE CIT THE AR HAD ADVANCED FRESH CONTENTION THAT THE DIFFE RENCE OF RS. 59,45,326/- REPRESENTS IMPAIRMENT OF CERTAIN ASSETS IN ACCORDAN CE WITH THE ACCOUNTING STANDARD - 28, WHICH THE COMPANY HAS FOLLOWED. THE LEARNED DR SUBMITTED THAT THE ASSESSEE COULD NOT PRODUCE EVIDENCE TOWARD S IMPAIRMENT OF ASSETS AND HAS FAILED TO SUBSTANTIATE THE DISCREPANCY OF RS. 5 9,45,326/- AND THE ASSESSEE HAS TAKEN ADVANTAGE OF EXCESS DEPRECIATION CLAIM BY ADDING BACK A FIGURE WHICH IS LESS THAN THE FIGURE ACTUALLY DEBITED TO T HE P&L ACCOUNT BY A MARGIN OF RS. 59,45,326/-. 7. IN OUR OPINION THIS MATTER CAN EASILY BE VERIFIE D BY THE ASSESSING OFFICER AND THE EXPLANATION OF THE ASSESSEE IN THIS REGARD CAN BE CHECKED FROM THE RECORDS BY THE ASSESSING OFFICER. IN THESE CIRCUMS TANCES, WE AGREE WITH THE ORDER OF THE CIT INSOFAR AS THIS ISSUE IS CONCERNED REFERRING TO THE MATTER TO THE AO FOR ARITHMETICAL VERIFICATION AND RECONCILIATION BETWEEN DEPRECIATION WHICH IN EFFECT IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE AMOUNT WHICH IS ITA NO. 991/HYD/2011 M/S NMDC LTD. 3 ADDED BACK IN THE MEMO OF INCOME, WHO WILL DECIDE T HE ISSUE AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 8. THE NEXT ISSUE IS REGARDING PROVISION MADE BY TH E ASSESSEE TOWARDS MINE CLOSURE OBLIGATION OF RS.21.31 CRORES. THE CIT WAS OF THE OPINION THAT SUCH A PROVISION IS ONLY A CONTINGENT LIABILITY AND HAD SE T ASIDE THE ISSUE FOR RECONSIDERATION BY THE AO. ACCORDING TO THE ASSESSE E ANY PERSON WHO EXPLOITS A MINE IS UNDER THE OBLIGATION UNDER RULE 23B OF MINE RAL CONSERVATION AND DEVELOPMENT RULES (MCDR) AMENDED IN APRIL, 2003, T O SUBMIT PROGRESSIVE MINE CLOSURE PLAN AT THE TIME OF OBTAINING LEASE OR AT T HE TIME OF LEASE RENEWAL OR IN THE CASE OF CONTINUANCE LEASE EVERY 5 YEARS AND ALS O PROVIDING BANK GUARANTEE WHICH CAN BE INVOKED IF ACTIVITIES STATED IN MINE C LOSURE PLAN ARE NOT CARRIED OUT AS PER RULE 23(5) OF THE MCDR. THE LEASEHOLDER CANNOT ABANDON A MINE OR PART THEREOF UNLESS THE FINAL MINE CLOSURE PLAN IS IMPLEMENTED TO THE SATISFACTION OF THE INDIAN BUREAU OF MINES (IBM). A S SUCH THE LIABILITY TO CLOSE MINES ACCRUES YEAR AFTER YEAR WHEN THE MINES ARE AC TUALLY EXPLORED BY EXCAVATING OF ORE. THEREFORE IT IS AN ACCRUED LIABI LITY WHICH IS TO BE ESTIMATED AND PROVIDED IN THE BOOKS OF ACCOUNTS. 9. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE FOLLOWING CASES:- I) THE SUPREME COURT IN THE CASE OF BHARATH EARTH MOVERS LIMITED VS CIT REPORTED IN 245 ITR 428, HAS HELD THAT PROVISIONS MADE FOR LEAVE ENCASHMENT WHICH HAS ACCRUED EVERY YEAR, EVENTHOUGH THE ULTIMA TE LIABILITY CAN BE DETERMINED ONLY AT A LATER POINT OF TIME, IS AN ALL OWABLE DEDUCTION. II) SIMILARLY THE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD V CIT REPORTED IN 314 ITR 62 HAS HELD THAT PROVISIO N MADE TOWARDS WARRANTY, EVEN IF MADE ON AN ESTIMATED BASIS, SHOULD BE ALLO WED AS A DEDUCTION IN THE YEAR IN WHICH SALE WAS MADE. IT WAS SUBMITTED THAT APPLYING THE RATIO OF THE ABOVE TWO APEX COURT DECISIONS, IT IS CLEAR THAT TH E PROVISIONS FOR CLOSURE OF ITA NO. 991/HYD/2011 M/S NMDC LTD. 4 MINES WHICH IS OBLIGATORY ON THE LESSEES OF THE MIN ES SHOULD BE ALLOWED AS A DEDUCTION AGAINST THE PROFIT MADE BY THESE COMPANIE S FROM MINING OF ORES. III) THE ASSESSEE HAS ALSO FILED THE ORDER OF THE CIT(A) IN CIT(A)-I, 796/2006-07 DATED IN THE CASE OF MAGANESE ORE (I) LTD, NAGPUR FOR THE ASSESSMENT YEAR 2006-07, WHEREIN SIMILAR PROVISIONS FOR MINE CLOSURE HAS BEEN ALLOWED BY THE CIT(A) AND HE HAD FOLLOWED THE DECIS ION OF THE CIT(A) OF THE SAME ASSESSEE FOR AN EARLIER YEAR. 10. THE LEARNED DR SUBMITTED THAT THE PROVISION REL ATING TO MINE CLOSURE OBLIGATION CANNOT BE AN ADMISSIBLE DEDUCTION UNDER IT ACT, AS THIS EXPENDITURE NEITHER INCURRED FOR EARNING OF CURRENT YEARS INCO ME U/S 37 OF THE ACT, NOR CAN IT BE CHARACTERIZED AS ASCERTAINED LIABILITY AND IT IS ONLY A CONTINGENT LIABILITY. 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS OBSERVE D THAT THE BASIS OF CALCULATION FOR THE RELEVANT AY 2006-07 FOR RS. 71.18 CRORES WA S SUBMITTED DURING THE 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 PRODUCED BEFORE THE CIT. HENCE, THE CI T IS WRONG IN HIS OBSERVATION THAT THE ESTIMATE OF RS. 21.31 CRORE IS EXCESSIVELY ON A HIGHER SIDE AND ABSOLUTELY NO REALISTIC OR RATIONAL BASIS FOR S UCH CALCULATION. 12. THE CIT IS NOT CORRECT IN INVOKING THE PROVISIO NS OF SEC.263 AS WE FIND THAT THE ISSUE IS DEBATABLE AND WHEN TWO VIEWS ARE POSSIBLE THE ASSESSING OFFICER HAS TAKEN ONE VIEW. THE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO LTD V CIT REPORTED IN 243 ITR 83 AS WELL AS CIT VS MAX INDIA LTD REPORTED IN 295 ITR 282 HAS HELD THAT WHEN THERE ARE TWO VIEWS POSSIBLE AND THE AO HAS TAKEN ONE VIEW, THE ORDER OF THE AO CANNOT BE CONSI DERED AS ERRONEOUS AND HENCE THE CIT CAN NOT EXERCISE REVISIONAL POWER UND ER SEC 263. AS POINTED OUT ABOVE, THE PROVISIONS FOR AN ACCRUED EXISTING LIABI LITY, EVEN THOUGH, THE ACTUAL ITA NO. 991/HYD/2011 M/S NMDC LTD. 5 EXPENDITURE MAY TAKE PLACE AT A LATER DATE, IS AN A LLOWABLE DEDUCTION AND THE CIT ERRED IN TREATING IT AS AN UNASCERTAINED LIABIL ITY. THEREFORE, WE SET ASIDE THE ORDER OF THE CIT PASSED U/S 263 AND THE ORDER O F THE AO IS RESTORED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 18/05/2012. SD/- SD/- (CHANDRA POOJARI) (AS HA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/- 18 TH MAY, 2012 COPY FORWARDED TO: 1. CH AIRMAN - CUM - MANAGING DIRECTOR, N .M.D.C. LIMITED, KHANJJ BHAVAN,10-3-311/A, CASTLE HILLS, MASAB TANK, HYDERABAD 500 173. 2. DY. COMMISSIONER OF INCOME - TAX CIRCLE 16(1), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V HYDERABAD 4. COMMISSIONER OF INCOME - TAX, IV, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE , ITAT, HYDERABAD B.V.S.