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2015 (3) TMI 928 - ITAT HYDERABAD

2015 (3) TMI 928 - ITAT HYDERABAD - TMI - Mine closure obligation - whether it is not an ascertained liability and if at all any expenditure is to be allowed, it should be spread over evenly for all the years since the date of commencement of mining operations till the date of closure of mining activities? - Held 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 w .....

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- Decided in favour of revenue for statistical purposes.

Depreciation on intangible assets - CIT(A) allowed the claim holding that the leasehold land is an intangible asset and depreciation on such asset is allowable when intangible assets are such assets which cannot be touched or can be seen - Held that:- Issue is squarely covered by the decisions of the coordinate benches of ITAT, Hyderabad in assessee’s own case for AYs 2008-09 and 2010-11, allowing the assessee’s claim of deprec .....

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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. - Decided against revenue.

Expenses incurred towards corporate social responsibility disallowed - Assessee incurred an amount of ₹ 37,33,00,000 towards flood relief, payments made to various collectorates etc. and claimed that t .....

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is contribution would definitely go a long way in conducting the assessee’s mining business in a profitable manner. When the assessee is having a mining unit in a remote corner of the country, the cooperation of the villagers is very much required for conducting the business. More particularly, the cooperation of the people who are affected by the mining operation of the assessee is required. Merely because the hospital and medical college are situated 16 kms away from the unit, that will not de .....

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enditure for the purpose of the business. - Decided against revenue. - ITA No. 1593/Hyd/2014 - Dated:- 20-3-2015 - Shri P.M. Jagtap And Smt. Asha Vijayaraghavan JJ. For the Appellant : Shri D. Sudhakar Rao For the Respondent : Shri Lakshminivas Sharma ORDER Per Asha Vijayaraghavan, J.M.: This appeal by the revenue is directed against the order of ld. CIT(A)-V, Hyderabad dated 01/08/2014 for AY 2011-12. 2. Briefly the facts of the case are that assessee is a public sector undertaking engaged in m .....

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orporate social responsibility ₹ 37,33,00,000 v) Additional depreciation ₹ 25,80,00,000 vi) 40(a)(ia) for non deduction of tax ₹ 42,88,15,332 vii) Expenditure relating to earlier years ₹ 4,21,87,375 viii) Disallowance of interest u/s 115P ₹ 7,62,78,605 3. On appeal by the assessee before the CIT(A), the CIT(A) allowed the grounds raised by the assessee in respect of the aforesaid issues. Aggrieved by the order of CIT(A), the revenue is in appeal before us. 4. Ground .....

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closure obligation. This was a provision made towards expected future liability to closure of mines which are exploited by the company. Assessee explained that this is a statutory liability for which a separate fund had been created by the company with LIC. AO did not agree with the contentions of the assessee and disallowed the mine closure obligation on the ground that the fund created is for meeting a liability which is contingent upon certain future events like disasters and floods and is t .....

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mp; Minerals Development and Regulation Ac 1957 (MMDR 1957) at the time of closure of the mines. He submitted that the provision has been estimated on the basis of technical assessment and charged to P&L account as and when the mining takes place. He submitted that the issue is decided in favour of assessee by the coordinate benches of ITAT, Hyderabad in assessee s own cases for AYs 2006-07, 2008-09, 2009-10 and 2010-11. He pointed out that the AO has allowed mine closure obligation for AYs. .....

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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 submissio .....

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w as well as the decisions cited. In AY 2006-07, the coordinate bench in assessee s own case (supra), held as follows: 11. We have heard both the parties, perused the record and gone through the orders of the authorities below. It is observed that the basis of calculation for the relevant AY 2006-07 for ₹ 71.18 crores was submitted during the original assessment and accepted by the AO. The detailed calculation of ₹ 21.31 crores charged to P&L A/c (on the basis of ₹ 71.18 cr .....

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as CIT Vs. Max India Ltd. reported in 295 ITR 282 has held that when there are two views possible and the AO has taken one view, the order of the AO cannot be considered as erroneous and hence the CIT cannot exercise revisional power u/s 263. As pointed out above, the provisions for an accrued existing liability, even though, the actual expenditure may take place at a later date, is an allowable deduction and the CIT erred in treating it as an unascertained liability. Therefore, we set aside th .....

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ar with the provisions of section 251 of the Act. Being so, we cannot borrow support from the order of the Tribunal passed in ITA No. 991/Hyd/2011 for AY 2006-07, on which reliance placed by the assessee s counsel. In the present case, there is a categorical finding given by the CIT(A) that there are certain mines not yet commenced. On that mine closure obligation works out to ₹ 4,98,058/- cannot be allowed. Further, mines at Kumaraswamy and Lalpur where there is no production, being so, n .....

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. 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 n .....

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As the issue under consideration is materially identical to that of AY 2010-11, respectfully following the decision of the coordinate bench in that year, we remit the issue to the file of the AO with a direction to verify and allow the assessee s claim following the decision of coordinate bench in AY 2010-11. This ground of revenue is allowed for statistical purposes. 10. Ground Nos. 3 & 4 are as follows: 3. The CIT(A) erred in law and in facts in holding that the leasehold land is an intang .....

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00,47,281 during the year towards depreciation of intangible assets. When AO asked assessee to explain the nature of the assets acquired and the allowability of such depreciation, it was replied in the letter dated 17/01/04 that the intangible assets are mainly lease hold land acquired from various State Governments which can be used over a certain period. The AO observed that the lands are not owned by assessee company but are obtained on lease from statement govt. for certain period and the pe .....

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reciation is admissible under the IT Act is specified under Rule 5 of IT Rules. Further, it was observed that the intangible assets are defined as know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature. In view of the above observations, AO held that since land does not form an intangible asset, the depreciation claimed by assessee for such asset is not admissible. Accordingly he disallowed the depreciation claim of assessee. .....

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. The accounting policy/method is consistently followed by number of years and was allowed as deduction. He submitted that the issue is covered by the decisions of coordinate benches of ITAT, Hyderabad for AY 2008-09, 2009-10 and 2010-11 in assessee s own case. 14. We have considered the submissions of the parties and perused the material on record. On perusal of record, we find that the issue is squarely covered by the decisions of the coordinate benches of ITAT, Hyderabad in assessee s own cas .....

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s State Governments which can be used for certain period. A.O. noted that from the above explanation that the lands are not owned by the assessee company but are obtained on lease from State Government and the period of lease also was not explained. A.O. was of the opinion that land was taken on lease for the purpose of exploitation of mining and it cannot be treated as plant and machinery for which depreciation was allowable under the Income Tax provisions. He was of the opinion that the lease .....

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llowed by holding as under : 22. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. Similar came up for consideration before the coordinate bench of ITAT, Cuttack in case East India Minerals Ltd. Vs. JCIT in ITA No. 224/CTK/2012, vide its order dated 25/06/2012, on which reliance placed by the assessee, wherein it has been held as follows: 7. We have heard the rival contentions of the parties and perused the materia .....

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of lease hold rights for the period of lease cannot be denied to the assessee for the simple reason it being intangible asset has been written off which pertains to land being a 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 expense .....

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ich 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 the provisions of Income-tax Act,1961. 22.1 Since the issue under consideration is materially identical to that of th .....

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owing the depreciation claim of assessee. This ground of revenue is dismissed. 16. Ground No. 5 reads as follows: The CIT(A) erred in allowing the claim of expenses incurred towards corporate social responsibility, without appreciating that sub-section (1) of section 37 has been amended by the Finance Act, 2014 by way of insertion of Explanation (2) as per which the expenditure incurred by the assessee on the activities relating to corporate social responsibility referred to in section 135 of th .....

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to why the expenditure incurred towards Corporate Social Responsibility should not be disallowed since such expenditure is not related to the business of the assessee. Assessee replied vide letter dated 17/01/2014. After considering the contents in that letter, the AO held that the expenditure incurred by assessee are not related to the business of assessee as they are in the nature of donations which is not allowable expenditure under the provisions of the IT Act. He, therefore, disallowed the .....

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sessee s own case for AYs. 2005-06 to 2010-11. In AY 2010-11 in ITA No. 1795/Hyd/2013 vide order dated 09th May, 2014, the coordinate bench held as follows: 40. Ground No.5 pertain to claim of ₹ 71,20,08,354/- on corporate social responsibility stated to have been incurred wholly and exclusively for the purpose of business. Assessee has incurred the above amount only to operate mines in remote places. It was submitted that the expenditure was necessary for the smooth conduct of the busines .....

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s submitted that similar issue was allowed by the ITAT in earlier years and the latest being ITA.No.714 & 885/Hyd/2012 dated 28.02.2014 wherein this issue was examined and allowed vide para 35 as under : 35. We have considered rival submissions and perused the record. We find that the issue in dispute is squarely covered by the decision of coordinate bench in assessee s own case for AY 2005-06 in ITA No. 1791/Hyd/2008 dated 30/09/2009 wherein it has been held as follows: 14. We have consider .....

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y 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 empl .....

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When the assessee is having a mining unit in a remote corner of the country, the cooperation of the villagers is very much required for conducting the business. More particularly, the cooperation of the people who are affected by the mining operation of the assessee is required. Merely because the hospital and medical college are situated 16 kms away from the unit, that will not deter the medical institution in giving treatment to the affected people. Moreover, admission was given to the childr .....

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