2018 (4) TMI 2012 - HC - Income Tax

Admissibility of Mines Closures Plan as permissible expenditure - HELD THAT - As decided in Rajasthan State Mines Minerals Ltd. 2017 (10) TMI 1458 - RAJASTHAN HIGH COURT as the assessee itself mentioned in his reply that the expenditure has not been debited in the books of accounts for the assessment year under consideration therefore no question of its allowability arises. Even otherwise legally also the claim of the assessee is not valid in view of the decision in the case of Goetze (India) Ltd. 2006 (3) TMI 75 - SUPREME COURT that claim of deduction not made in the return cannot be entertained by AO otherwise than by filing revised return. As not reflected in the books of accounts without taking closure of a mining is a statutory liability and the same is for the subsequent year reflected therefore in view of the decision rendered by the tribunal we are of the opinion that the tribunal has not committed any error. No substantial question of law arises.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this appeal are:

Whether the expenditure of Rs. 4,70,80,000/- claimed as Mines Closure Plan charges is admissible and allowable as a deductible expense in the year under consideration for income tax assessment purposes;
Whether other disallowances made by the Assessing Officer (AO) including land tax paid under court direction, interest on deposits, corporate social responsibility expenditure, legal and professional expenses, upfront fees, legal expenses paid to Industrial Development Financial Corporation Limited, difference in claim of depreciation, depreciation on intangible assets, and adjustments under section 145A of the Income Tax Act, 1961, were justified;
Whether the claim of deduction for mines closure expenses not debited in the books of accounts for the relevant assessment year can be allowed by the AO without filing a revised return;
Whether the tribunal erred in partly allowing the assessee's appeal for statistical purposes and dismissing the department's appeal;
Whether any substantial question of law arises from the facts and circumstances of the case regarding the admissibility of the Mines Closure Plan expenditure.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Admissibility of Mines Closure Plan Expenditure as Deductible Expense

Relevant legal framework and precedents: The Income Tax Act, 1961 governs the deductibility of expenses for computing taxable income. Section 143(3) empowers the AO to scrutinize and frame assessment. The Supreme Court decision in Goetze (India) Ltd. vs. CIT (284 ITR 323) is pivotal, establishing that claims for deduction not made in the original return cannot be entertained by the AO unless a revised return is filed.

Court's interpretation and reasoning: The Court noted that the assessee claimed a provision of Rs. 2,49,04,000/- towards mines closure expenses for the financial year 2009-10 as prior period expenses in the books of accounts prepared for FY 2011-12, and sought allowance during the assessment year 2012-13. However, the AO observed that this expenditure was not debited in the books of accounts for the year under consideration, thus no question of allowability arises for that year.

The Court emphasized that the mines closure expenses represent a statutory liability to be incurred in subsequent years and are not reflected in the books for the year under assessment. The Court relied on the tribunal's earlier decision and the Supreme Court precedent in Goetze to hold that since the deduction was not claimed in the return for the relevant assessment year, the AO cannot allow it without a revised return.

Key evidence and findings: The assessee's own admission that the expenditure was not debited in the books of accounts for the year under consideration was critical. The AO's detailed scrutiny and the prior judicial pronouncements formed the basis for disallowance.

Application of law to facts: Applying the principle from Goetze, the Court held that the claim for mines closure expenditure was not admissible in the year under consideration because it was not claimed in the original return and was not reflected in the books of accounts for that year.

Treatment of competing arguments: The assessee argued compliance with Ministry of Coal guidelines and sought allowance on the basis of provision made in later years' accounts. The Court rejected this, emphasizing the statutory framework and the need for claims to be made in the relevant assessment year and reflected in the accounts.

Conclusion: The Court concluded that the Mines Closure Plan expenditure is not an allowable deduction in the year under consideration and upheld the AO's disallowance on this ground.

Issue: Disallowance of Other Expenditures (Land Tax, Interest on Deposits, CSR Expenditure, Legal Expenses, Upfront Fees, Depreciation Differences, and Section 145A Adjustments)

Relevant legal framework and precedents: Provisions of the Income Tax Act, 1961, including sections relating to allowable business expenses, depreciation, and income computation under section 145A, govern these disallowances.

Court's interpretation and reasoning: The Court noted that the AO disallowed land tax paid on the ground that it was deposited under court direction and was sub-judice, interest on deposits, CSR expenditure, legal and professional expenses, upfront fees, and other adjustments. The tribunal had partly allowed the assessee's appeal for statistical purposes but dismissed the department's appeal on these other disallowances.

Key evidence and findings: The AO's detailed assessment order and the tribunal's findings were considered. The Court relied on the tribunal's reasoning that some disallowances were justified while others were not, leading to the partial allowance.

Application of law to facts: The Court found no error in the tribunal's approach and decision to partly allow the appeal for statistical purposes and dismiss the department's appeal on other grounds.

Treatment of competing arguments: The appellant challenged the tribunal's findings, but the Court held that the tribunal had correctly applied the law and facts.

Conclusion: The Court upheld the tribunal's decision on these disallowances, finding no substantial question of law.

Issue: Whether any Substantial Question of Law Arises

The Court considered whether the appellant had raised any substantial question of law warranting interference. Given the reliance on settled Supreme Court precedent and the tribunal's correct application of law and facts, the Court held that no substantial question of law arises.

3. SIGNIFICANT HOLDINGS

The Court held verbatim that:

"...as the assessee itself mentioned in his reply that the expenditure has not been debited in the books of accounts for the assessment year under consideration therefore no question of its allowability arises. Even otherwise, legally also the claim of the assessee is not valid in view of the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT 284 ITR 323, that claim of deduction not made in the return cannot be entertained by AO otherwise than by filing revised return."

Core principles established include:

Deduction claims must be made in the return for the relevant assessment year and reflected in the books of accounts to be allowable;
Claims not made in the original return cannot be entertained by the AO without a revised return, as per Supreme Court precedent;
Provisions for statutory liabilities, such as mines closure expenses, are only deductible in the year to which they pertain and when reflected in the accounts;
The tribunal's findings on disallowances of other expenses are entitled to deference unless there is an error of law or jurisdiction.

Final determinations on each issue were that

← Previous Next →