TMI Blog2018 (7) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... itten-of - ROC fees paid to increase its authorised capital - AO disallowed the same as capital expenditure, following the principles on the issue - as contended before the Ld.CIT(A) that this amount was paid for increasing the authorised share capital and this amount is eligible for deduction u/s. 35D - Held that:- Hon'ble Supreme Court in the case of CIT Vs. General Insurance Corporation [2006 (9) TMI 116 - SUPREME COURT] the amount is allowable as revenue expenditure, as there is no fresh infusion of share capital due to conversion of already existing preference shares. However, this aspect has not been examined by the AO or CIT(A). Since the facts are to be examined afresh, we are of the opinion that the claim of amount is to be examined afresh - It is also to be noted that the contention that no fresh capital was brought in was not raised before the authorities and as seen from the submissions before the Ld.CIT(A), assessee itself has restricted the claim to 1/5th of the amount u/s. 35D. Since the claim was made before us, we deem it proper to restore the issue for examination of facts and for allowing the amount as per the provisions of law. Allowability of Corporate Socia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders to back fill the excavated void after exhaust of mineral to the extent the waste material is available. It was further submitted that one need to develop the mineral bearing land by removing top soil which was stocked outside the lease area temporarily, till the mine is matured for backfilling. Normally, it will take long time for maturing the area may be 5 to 10 years and later it is a continuous process. It was submitted that the provision is being made from the beginning for site restoration as it will have a huge impact on the financial position of the companies if not provided. Further, Government has made it mandatory under the Mineral Conservation and Development Rules to restore the mine area for which provision is made depending on the estimated cost. It was further submitted that it was an ascertained liability the determination of which can be done even at a later point of time, but the same cannot be disallowed as it was not a contingent liability and has been provided as per Rules 23A, 23B and 23C of MCDR, 1988. It was submitted that the liability has accrued when the mining has been done and an allowable expenditure u/s. 37(1). AO, however, did not agree and dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests, Government of India while issuing the environmental clearance has stipulated a condition that the Top Soil, if any, shall be stacked with proper slope at earmarked site(s) only with adequate measures and should be used for reclamation and rehabilitation of mined out areas. f. The Appellant being a Company has to maintain the books of accounts on accrual basis of accounting and has to follow the various Accounting Standards as prescribed. 5. In the above background, it was submitted that company has debited to P L A/c various accounts towards Mining Restoration Expenses in the impugned years and this is the provision made towards expected future liability on the closure of mines which is being exploited by assessee-company at present. Since this is a statutory liability for which a separate fund is to be created, the liability towards mine closure accrues as soon as the mining operations commence and it is to be charged over the period of operation of mine. It was further submitted that as per the provisions of MMDR Act, 1957, coupled with MCDR 1988, it is mandatory for assessee- company to provide for closure of mind so as to protect and rehabilitate once the mining is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee during the year under consideration, cannot be allowed as deduction on a rough estimate basis. iii) The case laws relied upon by the assessee were considered and found to be not applicable for the facts of the assessee's case. The above mentioned case laws have not dealt with the question of mines restoration fund. For instance, the question dealt in the case of Bharat Earth Movers Ltd (2005) 245 ITR 428 SC is about the provisions for leave encashment. Similarly, the question involved in the case of Rotrok Controls India Pvt. Ltd v. CIT (2009) 314 ITR 62 is about the provision for warranty claims. Though the 3rd case law (Udaipur Mineral Development Syndicate (P) Ltd. v. Dy. CIT Anr. 261 ITR 706) as relied upon by the assessee dealt with the question of ''year of allowability-liability stipulated in lease agreement to restore land in original form and the decision is in favour of the assessee, it is pertinent to place reliance on the decision of Honhle Supreme Court in the case of New India Mining Corporation (P) Ltd. v. CIT 243 ITR 640 (SC) which is in favour of the Revenue. In this case, the Hon'ble Supreme Court dealt with the very question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference to the provision of Mines Restoration Expenses with the following prayer: 1. 2. 3. 4. The assessee had sought to explain the concept behind the expenditure that was disallowed before the Ld.CIT(A) but did not succeed in the appeal and has, consequently, preferred these appeals before the Hon'ble ITAT, Hyderabad Benches. 5. In order to substantiate the Grounds of Appeal taken before the Hon'ble ITAT, Hyderabad Benches, the assessee would like to file additional evidence that go to the root of the matters on which disallowance has been made/upheld. 6. The additional evidence was not focused on at the time of proceedings before both the Ld.AO as well as Ld.CIT(A)-2 and before the lower authorities focus was instead made on explaining the accounting basis of the claims for expenditure. 7. The additional evidence sought to be furnished includes statutory returns furnished by the assessee under the provisions of the Mineral Conservation and Development Rules, 1988 (as amended) and details regarding to the expenditure that has been classified as CSR Expenditure and 8. In view of the specific circumstances of the case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination as assessee has filed additional evidence in the form of orders of Government and project report and estimations submitted to the Indian Bureau of Mines. 11. We have considered the rival contentions and perused the Paper Book and the additional evidence. As per the Conservation and Development Rules, it is statutory / mandatory that any person who is holding the license has to submit a project report and bank guarantee for mine closure operations in order to conserve the environment. Therefore, there is merit in the assessee s contentions that this liability is a statutory liability. Moreover, the decision relied upon by the AO and Ld.CIT(A) in the case of New India Mining Corporation (P) Ltd., Vs. CIT (supra) was given in the context of an agreement between two parties, wherein this sort of statutory rules were not available and on the interpretation of the lease agreement, the Hon'ble Supreme Court has decided that no actual expenditure was incurred, hence the question of law need not be answered. However, in the later case of Bharat Earth Movers Vs. CIT [245 ITR 428] (SC), the Hon'ble Apex Court held If a business liability has definitely arisen in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined policy for recognition of obligations towards mine closure. In our country also the subject is getting focused and the environmental protection, rehabilitation and reclamation measures required under Statutes have become more stringent. 3. In India, mines are required to be closed/abandoned 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. Mineral Conservation and Development Rules, 1988 (MCDR 1988). administered by M/s Indian Bureau of Mines. 3.1 Rule 23A of MCDR 1988 provided for two types of 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 been amended vide notification no GSR 330( ) dated 10.04.2003 and according to the notification all existing mines should be submitted within a period of 180 days of notification of progressive mine closure plan. The lessee should submit financial assurance along with the progressive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the period of operation of the mine will be in compliance with the matching concept 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 closure. The estimated current liability of mine closure of the operating mines to the company was worked out to ₹ 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 Regulation) 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 the mining is over. It was further stated that the estimate for mine closure is based on specific parameters given by the Indian Bureau of Mines. The rates and amounts are quantified and notified. 5.2 After considering the submissions of the assessee, the CIT(A) observed that in the case of Udaipur Mineral Development Syndicate (P.) Ltd. v. Dy. CIT [2003] 261 ITR 706/129 Taxman 728 (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations 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. v. CIT [1959] 37 ITR 1 (SC), the CIT(A) held as follows: 4.2.6 From the above facts and case laws, it is clear that in the case of the appellant, the mine closure liability is an ascertained liability, It gets ascertained the day the mine is opened. This expense even though not incurred, accrues when the mining is done. As per the matching principle as well as the mercantile system of accounting the liability is allowable in principle u/s 37 of the Act. 4.2.7 However, what is to be seen is the year of allowability i.e. it is not up to the assessee to claim the liability as expense in any financial year. Rather the matching principle has to be applied correctly to determine the year in which such a liability can be allowed. On this issue, the judgment of the Hon'ble Rajasthan High Court in the case of Udaipur Mineral Development Syndicate (P.) Ltd. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 ₹ 2,38,12,707/-. If the appellant gives data on mining from the date of start of mining then the obligation allowable will correspond to the current year mining as compared to the total mining. i.e. current year mining Rs.2,38,12,707 .. total mining from Feb'02 to Mar'08 If no data is provided then the amount allowable would be ₹ 2,38, 12,707/- (i.e. FY 2002-03 to FY 2007 -08). This issue is accordingly partly allowed. 11.3. This order of Ld.CIT(A) was upheld by the ITAT in the case of NMDC Ltd., Hyderabad Vs. JCIT Range 16, Hyderabad (supra) in the AY 2008-09 and subsequently in other years in that case. The Hon'ble Rajasthan High Court in the case of Udaipur Mineral Development Syndicate (P) Ltd., Vs. DCIT Anr. [261 ITR 706] (Raj) has held as under: Considering the clause in the agreement, ie, as far as possible the lessee shall restore the surface land so used to its original condition, the moment the assessee digs pits, he is bound under the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The main contention as well as the alternate contention were rejected by the Ld.CIT(A). 12.1. After considering the contentions of assessee and perusing the case law on the issue, we are of the opinion that this issue requires examination by the AO. It is true that the amount is paid for increasing the authorised capital which comes under the character of a capital expenditure. However, it was submitted that this amount was paid towards conversion of preference shares and not for issuance of new shares. In that sense, following the principles laid down by the Co-ordinate Bench in the case of DCIT(LTU) Vs. M/s. Hero Motors Ltd., in ITA Nos. 2919 and 2920/Del/2012, wherein the Co-ordinate Bench has followed the judgment of the Hon'ble Supreme Court in the case of CIT Vs. General Insurance Corporation [286 ITR 232] (SC), the amount is allowable as revenue expenditure, as there is no fresh infusion of share capital due to conversion of already existing preference shares. However, this aspect has not been examined by the AO or CIT(A). Since the facts are to be examined afresh, we are of the opinion that the claim of amount is to be examined afresh in the light of the judgemnet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case law on the issue, we are of the opinion that an amount of ₹ 9,90,810/- out of the amount disallowed cannot be allowed as assessee has fairly admitted that they have no vouchers or not directly related to the business. The disallowance to that extent is confirmed. 14.1. On the amount of ₹ 23,46,000/-, it is explained as under: CSR Expenditure in local/surrounding area of factory to facilitate smooth operations, goods movement and local support Rs. Scholarship/support to junior tennis play, Raymond Jude, from Cuddapah district 1,80,000 Gravel Road from Jambuapuram to Kothapalli (near area under Mining lease) 3,60,000 Construction of public toilet at Agasthalaingayapalli (behind factory) 5,40,000 Temple at ST Colony, Thippaluru (village in the surrounding of the Mine under lease) 6,00,000 Burial Ground Compound wall at Pandirlapalli (village en route 1.50 km to factory, that has to be crossed during goods movement) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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