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TMI Blog2018 (4) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... together and disposed off by a common order for the sake of convenience. ITA No. 1860/Kol/2016 - Asst Year 2009-10 - Revenue Appeal 2. The only issue to be decided in this appeal is as to whether the ld CITA was justified in giving direction to the ld AO to verify the claim of expenses regarding 'prior period expenses' and verify the claim regarding 'Long Term Capital Gain' , in the facts and circumstances of the case. The grounds raised by the revenue for the Asst Year 2009- 10 are as under:- ITA No. 1860/Kol/2016 of Asst Year 2009-10 1. That in the facts and circumstances, the Ld. CIT(A)-2, Kolkata has erred in giving direction to the AO to verify the claim of expenses regarding 'Prior Period Expenses' of Rs. 4,22,561/- out of total expenses claimed of Rs. 8,57,822/-. 2. That in the facts and circumstances, the Ld. CIT(A)-2, Kolkata has erred in giving direction to the AO to verify the facts regarding Long Term Capital Gain of Rs. 1,30,00,000/- 2.1. The ld DR argued that the ld CITA does not have power to direct the ld AO to verify a certain fact while disposing of an appeal. He could at best seek a remand report from the ld AO or verify himself and dispose off the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining lease in respect of Belkundi Iron and Manganese Mines, which was held by the assessee company for a long time had expired on 16.8.2006 and that its application for renewal of that lease has not been granted by the State Government of Orissa. This fact was also mentioned in page 13 of the Annual Audited Financial Statements of the assessee company. Accordingly, mining operations were wholly suspended and stopped by the assessee company in Belkundi Iron and Manganese Mines with effect from 16.8.2006. The assessee company for the Asst Year 2009-10 had filed its return of income on 24.9.2009 declaring total income of Rs. 287,33,57,160/- . 4. The first issue to be decided in this cross objection of the assessee is as to whether the ld CITA was justified in not giving an independent finding with regard to allowability of prior period expenses of Rs. 8,59,822/- , in the facts and circumstances of the case. 4.1. The brief facts of this issue are that the assessee had debited a sum of Rs. 8,59,822/- towards prior period expenses in its profit and loss account and claimed the same as deduction. The details of the same are as under:- Particulars Debit Amount Credit Amount Remarks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the method of accounting followed by the assessee also needs to be taken into consideration for the same. These findings are conspicuously absent in the orders of the lower authorities and accordingly we deem it fit and appropriate ,in the interest of justice and fair play, to remand the issue of prior period expenses to the file of the ld AO, for denovo adjudication and decide the same in accordance with law. The assessee is also at liberty to adduce fresh evidences in this regard before the ld AO. Accordingly, the Ground No. 1 raised by the assessee in its cross objection is allowed for statistical purposes. 5. The next issue to be decided in this cross objection of the assessee is as to whether the ld CITA was justified in not giving an independent finding with regard to long term capital gain in the sum of Rs. 1,30,00,000/- , in the facts and circumstances of the case. 5.1. The brief facts of this issue are that the assessee during the year under appeal had redeemed the following bonds :- 11.50% ICICI SLR Bonds - Rs. 1,00,00,000 12.00% Gujarat Electricity Board Bonds - Rs. 30,00,000 Rs. 1,30,00,000 The assessee had given the following computation in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o given by the ld AO with regard to carry forward of long term capital loss of Rs. 20,17,000/- to subsequent years in the assessment order. Hence we deem it fit and appropriate, in the interest of justice and fairplay, to remand this issue to the file of the ld AO , for denovo adjudication and decide the same afresh in accordance with law. Accordingly, the Ground No. 2 raised by the assessee in its cross objection is allowed for statistical purposes. 5. The cross objection of the assessee in CO No. 69/Kol/2016 for Asst Year 2009-10 is allowed for statistical purposes. ITA No. 1929/Kol/2016 - Assessee Appeal - Asst Year 2012-13 ITA No. 1901/Kol/2016 - Revenue Appeal - Asst Year 2012-13 6. Disallowance of Judicial Expenses - Rs. 8,70,00,000/- Ground No.1 of Assessee Appeal for Asst Year 2012-13 The brief facts of this issue are that the ld AO asked the assessee to furnish details of loss of Rs. 8,70,00,000/- in relation to judicial expensees and the assessee furnished the relevant details including the approval accorded by the Board to the concerned legal cases / arbitration proceedings. 6.1. The assessee also stated that in respect of dispute with M/s Jai Balaji Industries L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year pursuant to judicial orders passed during the year under appeal and accordingly allowable as deduction in the year under appeal. It was also pleaded that with regard to refund of EMD to M/s N.R.Sponge Pvt Ltd, the assessee had paid the same to the party on 27.6.2012. It was further pleaded that since the provision for judicial expenses arising out of court orders / arbitration awards against the assessee had been made on ascertained basis, the same would be allowable as deduction during the year under appeal. 6.5. The ld AO however did not heed to the contentions of the assessee and disallowed the same AO in the assessment on the ground that the provision for expenses has been made for which plausible explanation has not been given by the assessee. 6.6. The assessee reiterated the submissions before the ld CITA with the aforesaid documents. The ld CITA called for a remand report from the ld AO. The ld AO in the remand proceedings stated that barring Rs. 11,12,000/- , all the balance demands are contingent since the matter is being contested by the assessee. Even in the case of demand of payment of Rs. 11,12,000/- paid pursuant to the order of the Hon'ble Calcutta H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re pending. Hence whether the liability at all would arise or not on the assessee would depend on the final outcome of the appeals pending. Hence the liability is contingent upon happening of a future event. Hence it could be safely concluded that the assessee had made provision for contingent liability which is not allowable as deduction. Hence we hold that the same had been rightly disallowed by the ld AO with regard to M/s Jai Balaji Industries Ltd. 6.8.1. With regard to refund of EMD to M/s N.R.Sponge Pvt Ltd is concerned, we find that the ld CITA had categorically held that the assessee had not offered to tax the sum of Rs. 11,12,000/- by forfeiture of EMD by crediting the same to profit and loss account. This finding has not been controverted by the assessee before us. Hence we hold that there is no need for making a separate provision for a pre-existing liability in the books of assessee, eventhough the same has been stated to be paid by the assessee on 27.6.2012 , ie. during the financial year 2012-13 relevant to Asst Year 2013-14. Accordingly, no relief is granted to the assessee in this regard. 6.9. Accordingly, the Ground No. 1 raised by the assessee for Asst Year 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets from WDV method to SLM as provided in Schedule XIV of the Companies Act, 1956 , giving effect from last 20 years. As per Part B of Notes forming part of accounts, the statutory auditor, has stated that as a result of the exercise, there has been a surplus on account of depreciation of Rs. 1.37 crores which has been credited in the profit and loss account. Accordingly, the assessee submitted that no depreciation as per Companies Act has been debited in the profit and loss account during the year under appeal. The ld AO however observed in his order as under:- " It is for this precise reasoning, no depreciation has been claimed in the books of accounts by the assessee. However depreciation of Rs. 18,05,01,102/- has been claimed as per the Tax Audit Report. As per Note No. 18 of the accounts, being revenue operation, no sale of Iron and Manganese has been found to have been made by the assessee company. In fact, there has been in fact hardly any operation in the mines warranting use of the fixed assets by the company. Accordingly, in the interest of revenue claim of depreciation as per ITR-6, Rs. 18,05,01,102/- is being rejected and added back to the total income." 7.4. By t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the deduction u/s 35CCB of the Act could not have been claimed by the assessee in the year under appeal. The assessee had opening WDV in this regard of Rs. 61,35,08,099/- and had made payments during the year under appeal towards Afforestation Charges of Rs. 2,62,72,000/-. The assessee had claimed depreciation on opening WDV amounting to Rs. 15,33,77,025/- and on additions during the year amounting to Rs. 65,68,000/- , both totaling to Rs. 15,99,45,025/- . It was also clarified before the ld AO that the provisions of section 35CCB of the Act cannot be made applicable to the assessee for the year under appeal and since the mistake was committed in the Tax Audit Report by the Tax Auditor, a certificate dated 12.3.2015 was issued by the Tax Auditor clearly stating the nature and purpose of payment made by the assessee as amounts paid towards Afforestation. It was further stated that the entire fixed assets including intangible assets of the assessee had been put to use by the assessee in the earlier years and depreciation was claimed u/s 32 of the Act and allowed by the revenue accordingly. The ld AO observed that since there had not occurred any sale of Iron and Manganese Ore durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring u/s 143(3), assessee company had stated that as per their knowledge, no such deduction claimed u/s 35CCB which is contractor to the version of their own Auditor. In the course of the appeal, the assessee had submitted from their auditor which states that the said sum is in fact depreciation on the intangible asset. But since, when no mineral was prospected in the said F.Y. 2011-12, then it was not justified to treat such huge money of Rs. 2,62,72,000/- to Govt. of Orissa towards a forestation as intangible asset. Therefore, in this ground, the Ld. CIT(A)-6 has erred in giving relief in deduction claimed u/s 35CCB of Rs. 15,99,45,025/-. 2. In this assessment year, the company has changed its accounting policy of method of charging of depreciation on fixed assets from WDV method to SLM as provided in schedule XIV of the Companies Act, 2956 giving effect from last 20 years and as a result, there has been a surplus on account of depreciation of Rs. 1.37 crore which has been credited in the profit and loss account. However, depreciation of Rs. 18,05,01,102/- has been claimed as per Tax Audit Report. Since, there were no operation in the mines during that financial year warrantin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ready for use in the mining business. It is not in dispute that the mining business could not be commenced by the assessee during the year under appeal as the Government of Orissa had not extended the mining lease or not granted the mining lease in some of the mines. We find that the assessee had taken earnest efforts in getting the mining lease from the Government of Orissa by discharging the obligations from its side in the form of payment of Afforestation Charges for planting of trees in the mining areas, which is a condition precedent for obtaining the mining lease. Hence the payment of Afforestation Charges takes the character of payment made in the commercial sense and in the ordinary course of business of the assessee. We hold that pursuant to this payment, the assessee had obtained a commercial right for obtaining the mining lease. Now the short question is whether the payment made for obtaining a commercial right would fall under the definition of 'Intangible Assets' under section 32 of the Act thereby making the assessee eligible for depreciation thereon. It is not in dispute that the assessee had been making payments of Afforestation Charges from the earlier year and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder situation, and the machineries were ready for use, the assessee was eligible for grant of depreciation. The ld CITA had categorically held that it is not the case of the assessee that the assets including machineries were not ready for use. The ld CITA had also gone through the Directors' Report of the assessee from the printed annual report, wherein it was mentioned that shortfall in revenue was due to the closure of mining operations in all six mines for non-availability of forest and environment clearance. However, almost all the formalities for environment clearance with regard to the mines had been completed and as per the report, the company would endeavour to 'open rest of the five mines during the financial year 2012-13'. Accordingly, the ld CITA held that since the assessee had kept all its assets ready for use, it cannot be denied the depreciation only on the ground that during the year, it had not reported significant level of operations. The ld DR was not able to bring any contrary decision to the Hon'ble Calcutta High Court before us. Hence we do not find any infirmity in the order of the ld CITA in this regard. 9.2. We find that the expression 'intangible assets ..... X X X X Extracts X X X X X X X X Extracts X X X X
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