TMI Blog2014 (7) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... nerals Ltd. vs. ACIT [2013 (9) TMI 676 - ITAT BANGALORE] – there was no reason to confirm the addition of the amount, as the assessee company had furnished all the details required by the A.O. and assessee has accounted for all the amounts it received - There is no iota of information that assessee or any agent received any amount over and above the amounts accounted in the books of accounts - I.T. Act does not permit making additions on hypothetical income particularly, as suppression of sales when there is no evidence at all - Additions cannot be made on presumptions and hypothesis – Decided in favour of Assessee. Additional depreciation on machinery – Held that:- CIT(A) wrongly confirmed the addition made by the AO holding that exploration and sale of iron ore does not involve activity of production of any article or thing, ignoring the fact that assessee do extract the iron ore and sell the iron ore after various processes – Relying upon Commissioner of Income-Tax Versus Sesa Goa Ltd. [2004 (11) TMI 14 - SUPREME Court] - extraction and processing of iron ore amounts to production - activity of winning or extracting the coal from the mines can be aptly described as productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication in disallowing the amount – Decided in favour of Assessee. Disallowance of mine closure obligation – Expenses accrued bases on the quantity extracted - Whether the CIT(A) has erred in disallowing the mine closure obligation to the extent relating to the project under construction or not having any production during the year – Held that:- Mine closure obligation is not a contingent liability but ascertain liability - it has to be verified that whether assessee has made the claim on the mines which are in working condition which are being operated or not - Following the decision in NMDC Ltd. Hyderabad Versus Joint Commissioner of Income-tax [2014 (3) TMI 682 - ITAT HYDERABAD] - If the assessee has made the claim on mines which have not started operations, the same cannot be allowed - ascertainability of liability is to be ascertained year-wise - the assessee is directed to furnish the relevant data to the AO towards the mines closure obligation and A.O. is directed to verify and allow the amount accordingly – Decided in favour of Revenue. - 1792 To 1795/Hyd/2013 - - - Dated:- 9-5-2014 - B Ramakotaiah And Saktijit Dey, JJ. For the Appellant : Mr Laxminiwas Sharma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the reopening for A.Y. 2007-08, the Ld. CIT(A) confirmed most of the additions while giving some relief on some of the issues. Accordingly, both Revenue and Assessee are aggrieved on the Orders of the Ld. CIT(A). These are decided year-wise and appeal-wise as under: ITA.No.1794/Hyd/2013 A.Y. 2007-08 : 6. This is assessee s appeal in which assessee has raised various grounds. Ground Nos. 1 and 6 are general in nature and therefore, need not be adjudicated. 7. Ground No.2 pertain to the issue of reopening. It was contended that it was bad in law as it was only a change of opinion. It was contended that A.O. has considered all the issues at the time of assessment and there is no tangible material that has been brought on record to suggest escapement of income. 8. As briefly stated, A.O. basing on the Newspaper report published and the report of the Hon ble Lokayukta of Karnataka observed that the assessee has been resorting to suppression of the value of sale towards export of iron ore during the periods 2006-07 to 2009-10. Accordingly, he reopened the assessment for the A.Y. 2007-08 by issue of notice under section 148. During appeal proceedings before the Ld CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the due procedure laid down by Supreme Court in the case cited supra. In this context, it is seen that the Assessing Officer, after recording his reasons for reopening, issued Notice u/s 148 on 16-12-2011 and thereafter on the request of the appellant, vide its letter dated 16-12-2011, communicated the reasons for reopening on 29-12-2011. Simultaneously; he issued a Notice u/s 143(2) dated 29-12-2011 was issued taking up the case for scrutiny. Though the appellant is aware of the proceedings before it for assessment year 2009-10 and the reasons for reopening of the assessment year 2007-08, did not even raised any objection to the proposed reopening and chose to be silent. The appellant did not even respond with any objections before the reasonable time of 15 days. Only after commencement of the proceedings, the appellant raised its objections on 23-1-2012 i.e.. nearly a month after communication of the reasons for reopening. The sum and substance of the Hon'ble Supreme Court decision that due procedure to be followed before assessment proceedings, is that objections, if any, to be filed by the appellant within a reasonable time and to be addressed by the Assessing Officer bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this issue are rejected. We do not intend to examine the various case law relied upon by the assessee which are given in particular set of facts. Since the assessment order itself contains the steps taken consequent to the information obtained in the form of newspaper reports as part of the order itself, we are of the opinion that in the given set of facts, we cannot hold that AO has no reason to believe at the time of reopening the proceedings. Accordingly, this ground is rejected. 12. Ground No.3 pertains to the issue of addition of ₹ 506,10,92,507/- as suppression of sale based on the report of Lokayukta. The facts relating to the addition are that Assessing Officer relying on the investigation report of Dr.U.V.Singh, Chief Conservator of Forests, who has been assigned as Investigating Officer by Hon'ble Lokayukta of Karnataka, where in it was reported that assessee was underinvoicing sales, called for information and after analyzing the various details, held that the export sale prices disclosed by the assessee in its books of account are not reliable and accordingly worked out the unaccounted income of the assessee. In course of the proceedings, the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence between the sale rate of NMDC and the sale rate of other exporters during the financial year 2006-07 to financial year 2009-10. Thus, he opined that NMDC was declaring export sales at a very low rate when the market rates/ the rates at which the other exporters exported iron ore during the same period are very high. Moreover, he also came to a conclusion that the persons who have signed the agreements on behalf of NMDC could not give any satisfactory explanation in their statement on the discrepancies. On that basis Assessing Officer came to a conclusion that the assessee has been resorting to suppression of the value of sales towards export of iron ore during the period relevant to the assessment year. 12.2. During appeal proceedings before CIT(A), assessee submitted that the export of Iron Ore to Japanese Steel Mills (JSM) and Korean Steel Mills is governed by long term export contracts and the prices are settled every year on the basis of international benchmark prices arrived at between JSM, Brazilian and Australian Iron Ore suppliers. It was further submitted that subsequent to approval from the Union Cabinet, a high powered delegation comprising of Officials from Mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e list of exporters and their preferred consignee In the list of exporters, who have under-invoiced exports, there is no name of NMDC Also, Dr. UV Singh only states that In some exports, the NMDC sale rates are very low as compared to sale rates of other exporters and prevailing market rates . * Further, Dr. U. V.Singh stated that PSU's iron ore export realization is far less than the potential earnings . * Also, he observed that NMDC has exported iron ore at a rate much below the prevailing rates due to this public sector undertaking has incurred a huge loss * Under the ITA Act, 1961, in order that income should accrue it should not merely fall due or become legally recoverable, but should also be factual and practically realizable. The theory of only real income is to be taxed is settled law and it has been held by various courts that notwithstanding than an assessee may be following the mercantile system of accounting, the assessee could only be taxed on real income and not on any hypothetical/illusory income. The assesse relied on the following case-laws: 1. CIT Gujarat Vs A. Raman Co AIR 1968 SC 49 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was further contended that being public sector undertaking there is no scope for any concealment of income and the so-called sale proceeds as arrived at by the A.O. was never received by the assessee or by MMTC or by any other person. So, hypothetical income cannot be brought to tax. 16. Learned D.R. however, relied on the orders of the A.O. and Ld. CIT(A) and relied on the facts. 17. We have considered the issue and examined facts on record. At the outset, we noticed that the A.O. has taken exports by NMDC during the year at ₹ 726,39,88,999/- whereas in table at page 38 while making the addition, the sale value of export declared by NMDC was taken at ₹ 469,55,65,037/-. As there is huge variation between the sale value declared by NMDC itself and amount taken by AO, the addition made by the A.O. at ₹ 506.10 crores itself is to be reconciled. Assessee was asked to submit the reconciliation of the various amounts considered by the A.O. vis- -vis actual exports undertaken by the assessee-company. Assessee placed on record the following re-conciliation : Data as per AO order. Port Total Sales Value of exports as per Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee at ₹ 726,39,89,000/- A.O. wrongly took the value at ₹ 469,55,65,037/-. This itself has lead to lot of discrepancy. Not only that in Annexure-A of the table, there is no serial No.2 as the table contains Sl.No.1 and Sl.No.3, that means some information pertain to Sl.No.2 was missing and as pointed out the sales declared in column No.3 was not actually sale values of assessee-company but that of MMTC. Moreover, another mistake committed was the quantity of export at Sl.No.1 taken at ₹ 13,98,150/- instead of ₹ 13981.50. Therefore, instead of ₹ 3.64 crores, the multiplication has to come i.e., ₹ 364 crores, as suppression of sales value by NMDC. If these factual errors are corrected, we are of the opinion that addition would not have come to the amount as was determined by the A.O. 19. Be that as it may, the issue in this appeal is whether A.O. is correct in making the addition on the so called suppression of sales. We are not convinced with the action of the A.O. First of all, the comparison between spot price of China in which assessee hardly indulges in any transaction with that of long term contracts with companies in Japan and Kor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Chartered Accountants. The system of accounting followed by the assessee is the Mercantile System as per the provision of section 145 of the Act and we find that no fault has been found therein nor has it been rejected. Nowhere in the order of assessment or the material on record do we find anything to establish that there were any realization on account of sales beyond what is recorded in the books of accounts. As per the I.T. Act, 1961 profits from business are to be computed under section 28 of the Act as per the accounting policies mandated by section 145 of the Act which in the assessee's case is the Mercantile System. The scope of total income is also defined under section 5 of the Act. The I.T. Act, 1961 is very clear that what is to be taxed is the real income of an assessee and not notional or hypothetical income and it does not permit an Assessing Officer to compute income without any evidence. There is no finding by the Assessing Officer that the assessee has sold its C-ore at a price less than that agreed to in the contract entered into with M/s. Kalyani Steels Ltd or that it has realized from M/s. Kalyani Steels Ltd additional amounts on such sales which it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that assessee company is not involved in any activity of production of any article or thing, ignoring the fact that assessee has always producing/extracting iron ore, diamonds, wind power etc., and the company is not falling under the negative list of assets. Assessee was allowed additional depreciation in all the assessment years up to and including assessment years 2006-07, 2008-09 and 2009-10. Earlier also, assessee was allowed benefit under section 80HHC when the provisions are on statute, on the reason that assessee is in the business of manufacture and production of article or thing. In our opinion Ld. CIT(A) wrongly confirmed the addition made by the A.O. holding that exploration and sale of iron ore does not involve activity of production of any article or thing, ignoring the fact that assessee do extract the iron ore and sell the iron ore after various processes. The Hon ble Supreme Court in the case of Sesa Goa Ltd. 271 ITR 331 held that extraction and processing of iron ore amounts to production. Likewise, the Hon ble jurisdictional High Court in the case of Singareni Colleries Ltd. 221 ITR 48 held that activity of winning or extracting the coal from the mines can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the fixed margin of commission but MMTC is purchasing the ore from assessee and inturn, is supplying to foreign companies and therefore, question of deducting tax at source does not arise. 27. Before the Ld. CIT(A), it was submitted that this issue was covered by the decision of the Hon ble ITAT, Visakhapatnam Bench in assessee s own case in ITA.No.145, 146 147/Vizag/2006 for A.Ys. 2003-04, 2005-06 dated 20.07.2009. It has been further followed by the Hyderabad Bench of the Tribunal in assessee s own case in ITA.No.292 293/Hyd/2013 for A.Y. 2008-09 2009-10 dated 31.05.2013. The relevant observations of the Order of the Visakhapatnam Tribunal dated 20.07.2009 are as under : 4.4 It is very pertinent to note that the Learned -CIT(A) has noted the fact that the assessee has routed the transaction of export through MMTC only because the assessee was not allowed to effect the export on account of Government regulations. It is the most striking feature in the impugned transactions which was not at all considered by the tax authorities. It is well settled law that in any agency agreement, an agent can act on behalf of the principal only in respect of those transactions w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounts as inadmissible in Column- 17(f). Assessee submitted that annual return was submitted by the company after considering the profit before tax. Items mentioned under Column 17(f) are below the line items which were not charged against the profit returned. As per disclosure requirement, provisions like Income Tax, FBT, Wealth Tax and differed tax are shown in Form 3CD. Since the above amounts are not charged to P L account which was taken for the purpose of computation, question of disallowance does not arise. The A.O. did not agree and made the addition of the above amount. Ld. CIT(A) on verification found that assessee s contentions are correct but directed the A.O. to examine and allow the claim. Revenue has come in appeal on this issue before the Tribunal. 31. We find that there is no merit in the Revenue contentions as the amounts which are not charged to P L account cannot be disallowed and only an amount claimed can be disallowed. In case, assessee has not charged this amount from the profit before tax and offers the income on the basis of profit before tax alone, then question of disallowance does not arise. Since this issue was also directed to be examined by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. However, A.O. while computing the suppression of sales arrived at the sale value declared by the assessee at ₹ 730.15 crores. The sale value as per the international market was arrived at ₹ 985.18 crores and suppression of sales value at ₹ 255.03 crores. There is no reconciliation, as seen from the above amounts from the annual report assessee vis- -vis socalled amounts determined in the Lokayukta report. We are not in a position to reconcile the amounts nor the assessee submitted any reconciliation like in A.Y. 2007-08. However, the fact is that the additions are not based on the amounts, which require reconciliation. Be that as it may, we have already examined the issue legally also and arrived at a conclusion that hypothetical income cannot be brought to tax. For the reasons mentioned therein in A.Y. 2007-08 from para 17 to 21 this issue is decided in favour of the assessee. Accordingly, ground No.2 of the assessee is allowed. A.O. is directed to delete the amount. 36. Ground No.3 pertains to depreciation on intangible assets. Assessee claimed an amount of ₹ 16,77,48,219/- towards depreciation on intangible assets. In the course of scrutiny proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intangible asset. It is nobody s case that the land either belonged to the lessee or to the Government. This simply indicates that a depletion of the land against the payment of premium it was leased has to be claimed after capitalization thereof by the assessee which is for the purpose of its main business. All expenses are incurred for the purpose of business and are incidental to the holding of rights were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset. The definition of depreciation therefore has been misconstrued for the purpose of allowing deduction by the Assessing Officer and the learned CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended w.e.f. Assessment Year 2003-04. In this view of the mater, we are inclined to hold that 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.80G, the A.O., is directed to verify the receipts and allow the deduction in accordance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the authorities below and the order passed by the CIT(A), Bhubaneswar dt. 21/07/2010 in the case of Orissa Mining Corporation Ltd., copy of which is made available by the assessee before us, we are of the considered view that the assessee is not acquiring any asset nor enduring benefit but is having only a right to work of mining in the land given to him for a specific period on lease. Therefore, this amount is practically a revenue expenditure incurred by the assessee while doing his trade of mining operation. Hence, we 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 thereto. Hence, having find merits in the appeal of the assessee, 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 the Hon ble Jurisdictional High Court in the case of CIT Vs. Panyam Cements and Minerals Industries Ltd., 228 ITR 212 (AP) wherein it has been held that stamp duty paid for renewal of mining lease is a revenue expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steel plant in Chattisgaarh is not dispute. 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 affected people, directly incurred the expenditure for establishing the medical college. The fact remains that one of the conditions for contributing the money was to give free medical treatment to the Adivasis who were affected by the assessee s project in the locality. Moreover, the 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 of the assessee. In fact admission was also given to the children of the employees of the assessee as per the 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 ₹ 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 long way in conducting the assessee s mining bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not require adjudication. 46. Ground No.2 pertains to the issue of mine closure obligation of ₹ 12.13 crores. The facts are that assessee is a public sector undertaking and debited the above amount towards mine closure obligation. This was a provision made towards expected future liability to close mines which are exploited by the organization. Assessee explained that that this is a statutory liability for which a separate fund has been created with LIC. The A.O. did not agree and disallowed the obligation on the reason that it is a contingent upon certain future events. Therefore, it was not allowable as revenue expenditure. Considering the detailed submissions and also the orders of his predecessor in the earlier year i.e., A.Y. 2008- 09, the Ld. CIT(A) allowed the expenditure. 47. At the outset, it was submitted that this issue was crystalised in favour of the assessee against the Revenue by ITAT in earlier years and in the later year in A.Y. 2008-09 in ITA.No.714 885/Hyd/2012 dated 28.02.2014 decision is as under : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 058/- cannot be allowed. Further, mines at Kumaraswamy and Lalpur where there is no production, being so, no obligation is allowable. Further, assessee has not given year-wise breakup. Being so, the CIT(A) directed the AO to ascertain the account of year-wise mining, which has been done from the remaining mines and allow mine closure obligation to the extent mining 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 categorical finding in paras 4.3 4.4 of his order. Therefore, we do not find any infirmity on that part of the order and accordingly, we confirm the same. This ground raised by the assessee is dismissed . 48. Respectfully following the above decision, we hold that mine closure obligation is not a contingent liability but ascertain liability. However, it has to be verified that whether assessee has made the claim on the mines which are in working condition which are being operated or not. If the assessee has made the claim on mines which have not started operations, the same cannot be allowed. As rightly held by the CIT(A) in A.Y. 2008- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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