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2018 (3) TMI 1197 - AT - Income TaxAddition on account of valuation of closing stock - applicability of Accounting Standard - undervaluation of closing stock - Coal India Limited, which is a Government of India enterprise holding 100% shares of the assessee company and similar shareholding in other subsidiarie - Held that:- We found that the holding company, Coal India Limited is also following same method of valuation for his inventories as discussed in their Annual report and similar method of accretion/deccretion of stock is dealt in the profit and loss account, which is also not disputed and available in the public domain. Ld A.R. also emphasised that similar additions were made by the assessee upto assessment year 2013-14 and for subsequent assessment years, there is no addition in the assessment as the book value mine-wise was more than valuation as a group. We considering the overall circumstances and uniform accounting policy issued by Coal India Limited and the submission of ld A.R. alongwith documentary evidence and the undisputed fact that the assessee company is a 100% subsidiary of Coal India Limited and similar accounting policy is adopted by the other subsidiaries, are of the opinion that the method of valuation has to be test checked by the Assessing Officer so that this uniform Accounting Policy applicable to the assessee as a subsidiary company. The policy of valuation of mines independently and has been accepted by the parent company i.e. Coal India Limited and independently reflects in financial statements. The change in valuation policy is for realisation of values and the assessee being Government Enterprises, the accounts are audited by the Statutory Auditors and Comptroller and Auditor General of India. We are of the substantive view that the lower authorities have to verify the uniform Accounting Policy adopted by other subsidiaries, which are in the similar line of business as per Coal India Ltd letter dated 31.3.2010 (supra). Accordingly, we remit this disputed issue to the file of the Assessing Officer for reconsideration. Change in valuation of closing stock and overburden removal adjustment debit/credit - Held that:- Valuation of closing stock has been changed due to Uniform Accounting Policy of Coal India Limited. We found that a reference made by the Assessing Officer on the audited accounts that Reduction in value of stock is due to overall adjustment is as per the Uniform Accounting Policy adopted by the Coal India Limited. Ld A.R. demonstrated before us with a copy of letter of Uniform Accounting Committee recommendation and supported with paper book. Accordingly, we consider it appropriate to restrict our view on the method of valuation of closing stock mine-wise and the valuation of closing stock of coal are interconnected and since we have discussed on the applicability of the provisions, facts and reasons for valuation of stock centre on the first disputed issue. Hence, this issue for the assessment years 2010-11 to 2014-15 is restored to the file of the Assessing officer for fresh adjudication. Interest paid to foreign institution through CIL - Held that:- As perused the audit report at page 10.0 (a) at page 99-100 where these facts were explained that the assessee company has not identified the customers to whom the refund is to be made and, therefore, the finalisation of liability to refund the same is yet to be done. We are of the opinion that this vital fact needs to be verified and examined as explained by ld A.R. that from assessment year 2012-13 this interest claim was allowed. Accordingly, in the interest of justice, we remit this issue to the file of the Assessing Officer who shall verify the different payments of interest made to World bank as covered by the letter of Govt. of India vide letter dated 26.3.1998 and direct the Assessing Officer to verify the payment of interest in the hands of the recipients are offered to tax. Lease hold rights are not eligible for depreciation u/s.32(1)(ii) of the Act considering it as intangible rights and, accordingly, dismiss the ground of appeal of the assessee. Disallowance of Prospecting & Boring expenses separately claimed fin computation of income- disallowance ofsum charged to P&L appearing in schedule-12 - Decided against assessee Write off/written back - Held that:- No error in the order of the CIT(A) as he has simply directed the Assessing Officer to calculate the write off/write back on the basis of guidelines given in the impugned order. Hence, this ground of appeal of the assessee is dismissed. Development expenditure allowability - Held that:- CIT(A) has directed the Assessing Officer to follow the direction of the Tribunal referred to supra regarding segregation of expenses under the head “development expenditure”. Hence, we see no error in the order of the CIT(A), which is hereby confirmed and ground of appeal of the assessee is dismissed. Short credit of TDS - Held that:- The assessee should not have any grievance as to the allowance of short deduction of TDS since the CIT(A) has directed to allow credit of TDS on verification. Hence, this ground of appeal of the assessee is dismissed for the assessment year 2010-11 and 2011-12. Addition on account of difference between interest income as per accounts and as per 26AS - Held that:- we find that the amount of Gross interest reflected in Form 26AS as on 13.01.2015 is ₹ 1181.54 crores u/s. 194A and ₹ 0.65 crore u/s. 193, totaling to ₹ 1182.19 crores which is much lower than the amount of interest income shown by the assessee. From the above, it is clearly established that there is difference in the 26AS and income shown by the assessee. Moreover, the assessee is correctly accounting its income and expenditure on accrual basis irrespective of amount reflected in 26AS. In view of above, we remit the matter to the file of the Assessing officer to verify the amount shown by the assessee and reflected in 26AS statement. If the contention of the assessee is found to be correct, the Assessing Officer is directed to allow the claim of the assessee Addition made due to change in accounting method for repair job- Held that:- We find force in the submission of ld A.R. that due to change in accounting method, the profit has been reduced and the expenditure is only for repair jobs but same could not be substantiated and, accordingly, we restore the issue to the file of the Assessing Officer and the Assessing Officer shall examine the case and pass the order on merits. This ground of appeal of the assessee for assessment year 2011-12 is allowed for statistical purposes. Not allowing the correct depreciation after considering the sale of assets as per block assets concept and depreciation thereon - Held that:- The assessee company has shown the gain on sale of assets as profit for accounting purpose. As per section 32 of the Act the gain on sale of assets is not taxable if the remaining assets are more than that and, the depreciation should be allowed thereon. Therefore, we remit this issue to the file of the Assessing Officer allow the correct depreciation by reducing the value of block of assets by sale value. Allowability of "other expenditure" - Held that:- The expenditure is appearing under note 25 of “welfare expenses”. Ld A.R. submitted that the assessee has sufficient materials to justify the expenditure. Accordingly, we consider it appropriate to remit this issue to the file of the Assessing Officer for verification and allow this ground of appeal of the assessee for statistical purposes. Addition made towards VRS - Held that:- CIT(A) correctly deleted the addition observing that the claim of the assessee is in conformity with section 35DAA which relates to amortization of expenditure incurred under VRS. Community development expenses allowed Addition towards compensation of land - Held that:- Since the amount has been paid for the purpose of business operation, the CIT(A) has rightly deleted the addition. Addition towards environment/ecology/improvement expenses - Held that:- . We find that the expenditure incurred are in respect of tree plantation, other environmental expenses, environmental monitoring cost of air, water and noise and dust mitigating equipment, etc, which is necessitated in the areas where coal mines are situated as per the guidelines of Corporate Social Responsibility. Hence, we find no error in the order of the CIT(A) as the expenditures are audited by the auditors and reflected in the balance sheet of the assessee Addition towards social facilities expenses - Held that:- CIT(A) has deleted the addition made by the Assessing Officer that in order sheet, it has been mentioned that the required details have been furnished by the assessee before the Assessing officer. Hence, it cannot be said that the details as called for have not been furnished. We also find that the in subsequent years identical claim of the assessee has been allowed by the revenue. Hence, we do not find any reason to interfere with the order of the CIT(A) Loss on sale of discarded assets - Held that:- CIT(A) on perusal of Annual reports & account of the assessee for the financial year 2009-2010, observed that the assessee has shown profit on sale of assets of ₹ 1589.25 lakhs under the head “other income” as per Schedule-4 to P&L account and claimed as loss on sale/discarded assets of ₹ 33.11 lakhs. Therefore, the CIT(A) deleted the addition. Before us, Ld D.R. could not point out any specific mistake in the order of the CIT(A) Addition towards prospecting and boring expenses deleted Allowability of CMPDIL expenses to be allowed Addition towards cost of exploration and development expenditure - Held that:- CIT(A) refers to section 35E(1) of the Act and relying on the judicial decisions observed that in the case of winning of minerals, exploration is an essential pre-activity. Expenses incurred towards exploratory and prospecting activities are normally of capital expenditure but amortization thereof over a period of ten years has specially been provided for and same will be allowed in equal instalments over a period of 10 years against the profit arising from the commercial exploitation of any mine. Hence, the CIT(A) directed to work out the amortisation of qualifying expenditure as per section 35E(1) of the Act. This finding of fact was not controverted by ld D.R. during the course of hearing Overburden removal expenditure to be allowed Disallowance of the claim of additional depreciation on the ground that the assessee is not engaged in the business of manufacturing or production of any article or thing - Held that:- Since the coal is coming under the purview of mining ore and is treated as production, following the decision of the Hon’ble Supreme Court in the case of Sesa Goa (2004 (11) TMI 14 - SUPREME Court ), we hold that the CIT(A) is fully justified in deleting the addition for the assessment years 2010-11 and 2011-12. Addition towards employee’s remuneration - Held that:- the liability towards performance related pay and superannuation benefits has accrued and crystallised during the year under consideration, which is evident from the Office Memorandum dated 2/7.5.2009 issued by Coal India Limited, the holding company of the assessee. Based on the said Office Memorandum and also relying on judicial decisions, the CIT(A) correctly deleted the addition. Contribution to rehabilitation fund to be allowed. Prior period expenses allowability - Held that:- The term ‘prior period items’ means material charges or credits which arise in the previous year as a result of errors or omissions in the preparation of financial statements of one or more previous years and also further clarification that the charge or credit arising on the outcome of a contigency, which at the time of occurrence could not be estimated accurately shall not constitute the correction of an error but a change in the estimate and such an item shall not be treated as a prior period item. Training expenses to be allowed. Expenditure on renovation of railway siding - Held that:- We find that ld D.R. could not point out any specific error in the order of the CIT(A) or place any positive material on record that the amount spent on repair of railway tracks are not allowable expenditure. Disallowance u/s.14A - Held that:- AO has not given any reason for calculating the disallowance. The assessee submitted that there were no borrowings except very old for specific purposes. The CIT(A) in the order has also stated that the Assessing Officer has not verified whether the differential amount of the asset has come from any borrowing by the assessee or it is simply the investment from the reserve & surplus. We are of the substantive view and deem it proper to restore the issue back to the file of the Assessing Officer to verify whether the assessee has borrowed money or surplus from reserve & surplus amount and redecide the issue afresh Disallowance towards reclamation of land and Mines closure expenditure - Held that:- The assessee company has made a fresh provision for expenditure towards mines closure plan and has reversed the earlier provision booked under the head reclamation of land. Hence, in view of the guidelines, the assessee has deposited in the Escrow Account the provision. We find no good reason could be given by ld D.R. pointing out the requirement to interfere with the order of the CIT(A), which is in the spirt of guidelines issued by Ministry of Coal, Government of India. We, therefore, do not find any merit in this ground of appeal of the Revenue. Addition towards CSR expenses - Held that:- Corporate Social Responsibility (CSR) is a concept which suggests that it is the responsibility of the corporations operating within society to contribute towards economic, social and environmental development that creates positive impact on society at large. Although there is no fixed definition, however the concept revolves around that fact the corporations need to focus beyond earning just profits. It was also submitted before us ld A.R. of the assessee in the subsequent assessment years, no such addition has been made by the Revenue. Disallowance towards grants to School and Institution to be allowed. Disallowance towards Central Excise duty - assessee could not produce any evidence of actual payment of Central Excise duty for the month of march, 2011 - Held that:- As the assessee submitted the details of excise duty of ₹ 7776.03 lakhs upto June, 2011. The CIT(A) observed that the assessee has paid the amount more than the provision created for this purpose. Therefore, he deleted the addition made by the Assessing Officer. The above findings of the CIT(A) was not controverted by ld D.R. and, therefore, we are inclined to uphold the order of the CIT(A). Disallowance towards repair expenses of plant and machinery - no documentary evidence - Held that:- CIT(A) deleted the addition treating the claim of expenditure as revenue expenditure following the decision in the case of Sarvana Spg. Mills Pvt Ltd.(2007 (8) TMI 16 - SUPREME COURT OF INDIA ) and Vishal Paper Industries, (2013 (1) TMI 653 - PUNJAB AND HARYANA HIGH COURT ). No contrary decision was placed on record by the revenue. Addition towards perk tax - Held that:- We find that the amount towards Perk Tax is not claimed as an expenditure, rather it is reflected in balance sheet under the broad head “loans & advance”. Since there was no claim by the assessee, there is no reason to disallow the same by the Assessing officer. The CIT(A) has rightly deleted the addition Addition being difference in valuation of closing stock as on 31.3.2012 and opening stock as on 1.4.2013 being not satisfied with the explanation given by the assessee - Held that:- The assessee's explanation is that the concerned development mines in question was converted to revenue mines and, therefore, the cost of coal was transferred to opening stock as on 1.4.2013. The stock of coal represents the normal raising cost of the coal which was not charged to the P&L account during the FY 2012-13 and after conversion of mines from Development to Revenue, the same was charged to P&L account in the FY 2013-14 by bringing the opening stock under P&L account as the sale proceeds of the same stock was credited to the P&L account in the place of Development expenses. The assessee pleads that this is an established accounting policy being followed by the assessee which will be evident from Note-33 of Significant Accounting Policies' wherein at clause 3.4 the accounting policy relating to Development mines is given. The contention of the assessee appears to be correct
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