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Smt. K. Suryakumari Venu Versus ACIT, Circle-1, Rajahmundry

2016 (7) TMI 734 - ITAT VISAKHAPATNAM

Expenditure incurred under the head land reclamation and afforestation - leased land - Held that:- The assessee by following the mercantile system of accounting has made a provisions for the expenditure to be incurred on land reclamation and afforestation on reasonable estimate basis. It is also an admitted fact that the assessee has incurred the said expenditure on every year in a systematic manner. As per the terms of lease agreement and also terms of conditions of the Government of India envi .....

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s when the assessee is following a mercantile system of accounting. Therefore, we are of the view that the A.O. was not correct in holding that the expenditure claimed by the assessee under the head land reclamation and afforestation is not an allowable deduction. - Considering the facts and circumstances of the case and also respectively following the decision of High Court of Rajasthan, in the case of Udaipur Mineral Development Syndicate (P) Ltd vs. DCIT (2002 (8) TMI 26 - RAJASTHAN High .....

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red the above expenditure towards the rehabilitation and reclamation programme. Therefore, we direct the A.O. to delete the additions made towards land reclamation and afforestation expenditure. - Decided in favour of assessee - I.T.A.No.621/Vizag/2014 - Dated:- 10-6-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant by : Shri V. Sesha Giri Vara Prasad, AR For The Respondent : Shri M.N. Murthy Naik,DR ORDER PER G. MANJUNATHA, Accountant Member: .....

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of the Income Tax Act, 1961 (hereinafter called as the Act ). Subsequently, the case has been selected for scrutiny and accordingly, notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished books of accounts, bills vouchers and other documents. During the course of assessment proceedings, the A.O. noticed that the assessee has claimed an amount of ₹ 49,14,000/- towards land reclamati .....

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ase situated in Belgundi Village of Belgaum district of Karnataka state from various farmers for a period of 20 years. As per the agreement entered into with the farmers, the land used for mining should be refilled and handed over back to the farmers for the purpose of agricultural operations. Therefore, he had made adequate provisions in the books of accounts to meet the expenditure towards land filling and other charges on reasonable estimate based on the total quantity of mineral extracted fr .....

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the assessee under the head land reclamation and afforestation has no proximity/nexus with the business operations of the assessee. Afforestation is the process of establishing a forest on land that is not a forest, or has not been a forest for a long time by planting trees or their seeds. Reclamation is a process of reclaiming or regaining. The assessee has coined the name in such a way that it suits to the permissible modes of expenditure, but actually it is admitted that such expenditure is i .....

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luding prospecting and boring expenses on a mine land cannot be allowed to be amortized because such expenses are of capital nature. With these observations disallowed the expenditure claimed by the assessee under the head land reclamation and afforestation and added back to the total income of the assessee. 4. Aggrieved by the assessment order the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the A.O. The assessee further .....

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Environment and Forest, Government of India, the assessee needs to undertake a reclamation programme of the 30.53 Hectares of mined out area and the land used for mining should be refilled. As per the permission granted by the Government of India, the assessee should top soil with adequate measures at earmarked site and also it should be used for reclamation and rehabilitation of the mined out areas. The assessee further submitted that since he is following mercantile system of accounting, he h .....

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e is in the nature of capital expenditure, though the assessee categorically proved that the expenditure is incurred towards earning of the income and hence it should be allowed as revenue expenditure. 5. The CIT(A) after considering the explanations furnished by the assessee, held that from the perusal of the environment clearance letter it is evident that the assessee is required to incur certain expenditure towards land reclamation and afforestation and held that the said expenditure cannot b .....

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afforestation expenses were incurred during the subject year in relation thereto. With these observations confirmed the additions made by the A.O. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 6. The Ld. A.R. for the assessee submitted that the Ld. CIT(A) erred in confirming the disallowance of ₹ 49,14,000/-, though assessee proved that the said expenditure is incurred in relation to earning of income. The A.R. further submitted that as per the lease agreement entere .....

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antile system of accounting has made necessary provisions in the books of accounts towards expenditure to be incurred for land reclamation and afforestation charges. The A.O. without appreciating the facts simply disallowed the expenditure. The A.R. further submitted that the assessee has incurred a sum of ₹ 17,00,243/- out of the total provision of ₹ 49,14,000/- during the period under consideration, and the remaining amount could not be incurred because of weather conditions. Howev .....

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. He also proved that the said expenditure has been incurred as and when the mining activity is completed. Therefore, the A.O. was not correct in disallowing the said expenditure. 7. On the other hand, the Ld. D.R. strongly supported the order passed by the Ld. CIT(A). 8. We have heard both the parties and perused the materials available on record. The A.O. disallowed the land reclamation and afforestation expenditure of ₹ 49,14,000/- for the reason that the assessee has made a mere provis .....

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A) has accepted that the expenditure incurred by the assessee is not a capital expenditure, however, held that the assessee has made a mere provision in the books of accounts, therefore, a provision in the books of accounts is not an allowable deduction while computing the income under the head profits & gains of business or profession. 9. It is the contention of the assessee that it has made a provision in the books of accounts towards expenditure to be incurred in relation to earning of in .....

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tions. The assessee also refers to the environment clearance letter issued by the Ministry of Forest and Ecology, Government of India, where it stipulates the assessee to reclaim and rehabilitate the land used for mining purposes. As per the terms of environment clearance letter and lease agreement with the farmers, the assessee needs to incur certain expenditure towards land afforestation and reclamation therefore, made a provision in the respective years based on reasonable estimate on the bas .....

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vision in the books of accounts is allowable deduction while computing the income under the head profits & gains of business or profession? It is an admitted fact that when you follow the mercantile system of accounting, assessee needs to made a provision in the books of accounts towards all related expenditure whether or not paid during the same financial year. The only requirement is that the assessee needs to make a provision with a reasonable estimate. A provision is required to be recog .....

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greement with the farmers. The environment clearance letter issued by the Government of India also put a condition on the assessee that assessee should undertake a rehabilitation and reclamation programme and compliance report should be submitted to the Ministry of Environment and Forest on yearly basis. The assessee by following the mercantile system of accounting has made a provisions for the expenditure to be incurred on land reclamation and afforestation on reasonable estimate basis. It is a .....

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ng the leased land to the farmers in its original shape. The moment assessee digs pits, a liability arises and he is entitled to deduction for the expenses which he is supposed to incur for filling those pits when the assessee is following a mercantile system of accounting. Therefore, we are of the view that the A.O. was not correct in holding that the expenditure claimed by the assessee under the head land reclamation and afforestation is not an allowable deduction. 12. Coming to the case laws .....

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