2025 (7) TMI 167 - AT - Income Tax

Disallowances on account of Provision for Post Closure expenses and Provision for Pit Covering expenses - CIT(A) deleted addition as they were merely provisions and the same were neither accrued nor paid during the year - HELD THAT - Provision for Pit covering expenses is allowable as deduction. Since the Ld CIT(A) has followed the decision rendered by the Tribunal in the assessee s own case. 2024 (6) TMI 1478 - ITAT MUMBAI we do not find any infirmity in the order passed by him on this issue. Appeal filed by the revenue stand dismissed.

Summary

The core legal questions considered in this appeal revolve around the allowability of certain provisions claimed as deductions by the assessee for the assessment year 2020-21. Specifically, the issues presented are:

1. Whether the disallowances made by the Assessing Officer (AO) on account of provisions for Post Closure expenses and Pit Covering expenses-being mere provisions not accrued or paid during the year-were justified under the law.

2. Whether the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in relying on orders of coordinate benches of the Tribunal in the assessee's own case for earlier years, despite the Revenue's non-acceptance of those decisions and pending appeals before higher courts.

Issue 1: Allowability of Provisions for Post Closure and Pit Covering Expenses

Relevant Legal Framework and Precedents: The dispute concerns whether provisions made for post closure care and pit covering expenses qualify as allowable deductions under the Income Tax Act, despite being provisions and not actual payments. The general principle under the mercantile system of accounting is that expenses are recognized when incurred or accrued, not necessarily when paid.

Several precedents were relied upon, including:

• The Tribunal's earlier decisions in the assessee's own case for multiple assessment years (2002-03, 2004-05, 2007-08, 2008-09, 2012-13, 2017-18, 2018-19), which consistently allowed such provisions as deductible expenses.
• Judicial decisions such as the Rajasthan High Court ruling in Udaipur Mineral Development Syndicate Pvt. Ltd., which held that liability to refill pits arises as soon as pits are dug, entitling the assessee to deduction of expenses incurred for filling pits under mercantile accounting.
• Tribunal decisions in similar contexts, including NMDC Ltd. and Enviro Technology Ltd., which upheld the allowability of such provisions.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer restricted the claim to actual expenses incurred, treating the provision for post closure expenses as a contingent liability and disallowing the unutilized portion. However, the CIT(A) allowed the claim by following the consistent view of coordinate benches that provisions for post closure and pit covering expenses are allowable deductions.

The Tribunal emphasized the consistency of this approach across multiple years and coordinate benches, highlighting the absence of any material change in facts or law to warrant deviation. The Tribunal observed that the liability to incur such expenses arises immediately upon digging the pits, making the provision a genuine liability under the mercantile system.

Key Evidence and Findings: The assessee's books showed a provision of Rs. 16,50,90,177/- for pit cover and closure expenses, with Rs. 7,47,18,936/- actually utilized during the year. The AO disallowed the difference of Rs. 9,03,78,241/-, relying on an earlier assessment order. The assessee demonstrated that the provisions were in line with accounting principles and consistent with prior accepted claims.

Application of Law to Facts: Applying the legal principles and precedents, the Tribunal found that the provisions represent accrued liabilities and are allowable deductions. The AO's treatment of the unutilized provision as contingent and therefore disallowable was rejected as inconsistent with the mercantile system and prior decisions.

Treatment of Competing Arguments: While the Revenue argued that the provisions were mere estimates and not actual liabilities, the Tribunal noted that the Revenue had not brought forth any new material to distinguish the facts from earlier years where the provisions were allowed. The Revenue's reliance on the AO's order was insufficient in the face of consistent Tribunal rulings.

Conclusion: The Tribunal upheld the CIT(A)'s deletion of disallowances relating to provisions for post closure and pit covering expenses, allowing the assessee's claim in full.

Issue 2: Reliance on Coordinate Bench Decisions Despite Pending Appeals

Relevant Legal Framework and Precedents: The principle of judicial discipline and consistency dictates that coordinate benches of the Tribunal follow each other's decisions unless overruled by a higher authority. The Revenue contended that the CIT(A) erred in relying on coordinate bench decisions given that appeals against those decisions were pending before the High Court.

Court's Interpretation and Reasoning: The Tribunal observed that the CIT(A) had rightly followed the consistent view taken by coordinate benches in the assessee's own case over multiple years. The pendency of appeals before the High Court does not automatically invalidate the binding effect of coordinate bench decisions unless and until those decisions are overruled.

The Tribunal emphasized the importance of consistency and noted that no material change in facts or law had been demonstrated by the Revenue to justify departing from the established position.

Key Evidence and Findings: The Revenue acknowledged the pendency of appeals but did not provide any substantive reason to discredit the coordinate bench rulings. The Tribunal reviewed the paper book containing multiple orders from coordinate benches consistently deciding the issue in favour of the assessee.

Application of Law to Facts: The Tribunal applied the doctrine of precedent within the Tribunal system, holding that coordinate bench decisions are binding on the same Tribunal unless set aside by a higher court. The CIT(A) correctly applied this principle in allowing the provisions.

Treatment of Competing Arguments: The Revenue's argument that the CIT(A) should not have relied on coordinate bench decisions pending appeal was rejected as lacking merit in the absence of any overruling or contrary authoritative pronouncement.

Conclusion: The Tribunal found no error in the CIT(A)'s reliance on coordinate bench decisions and upheld the order accordingly.

Significant Holdings:

"The Tribunal is consistently holding that the Provision for Pit closure expenses is allowable as deduction. Since the Ld CIT(A) has followed the decision rendered by the Tribunal in the assessee's own case, we do not find any infirmity in the order passed by him on this issue."

"In the light of the aforementioned judicial decisions, we direct the A.O to allow the provision for pit covering expenses in totality."

"The pendency of appeals before the High Court does not invalidate the binding effect of coordinate bench decisions unless and until those decisions are overruled."

"We see no reason to deviate from the consistent view taken by the Tribunal on this issue."

"Hence, assessee's claim of provision for post closure expenditure is allowed."

"Since the Ld CIT(A) has followed the decision rendered by the Tribunal in the assessee's own case, we do not find any infirmity in the order passed by him on this issue."

"In the result, both the appeals of the revenue are dismissed."