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TMI Blog2017 (10) TMI 1585X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of manganese and iron ore and exporting the same in the name & style of M/s. Sandur Manganese & Iron Ores Ltd. During the course of assessment proceedings, the AO has noted that assessee has claimed a sum of Rs. 107,05,56,400 as net present value (NPV) payable to forest department as a revenue expenditure, but the AO treated the same as capital expenditure and added to the total income of the assessee. While making the disallowance, the AO has observed that the sum paid by the assessee represents the Net Present Value and compensatory afforestation expenses paid to forest department. NPV is paid for transfer to Compensatory Afforestation Management and Planning Agency (CAMPA). The payment is made by each user towards regeneration of forest for diversion of forest to nonforest use. It was further observed that one time lump sum payment of Rs. 107.05 crores has to be made to the Conservator of Forests, Bangalore on the basis of decision of the Hon'ble Supreme Court. This expenditure is non-recurring in nature and the benefit of this expenditure will be enjoyed by the assessee over several years i.e., during the entire period of lease of the mine. It was also observed by the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdictional High Court in the case of Ramgad Minerals & Mining Pvt. Ltd. (supra). Copy of the judgment of the Hon'ble High Court is placed on record, wherein the Hon'ble High Court has approved the order of the Tribunal allowing the claim of the assessee. Our attention was also invited that against this judgment of Hon'ble jurisdictional High Court, the revenue has preferred SLP before the Hon'ble Apex Court and the SLP was also dismissed. Copy of SLP No.33057/2012 is also placed on record. Since the CIT(Appeals) has adjudicated the issue following the judgment of the Hon'ble jurisdictional High Court, which was later on approved by the Hon'ble Apex Court, we find no infirmity in the order of CIT(Appeals). We, however, extract the relevant portion of the order of CIT(Appeals) hereunder:- "I have gone through the facts of the case, contents of the assessment order, written submission of the assessee and case laws referred and relied by the AO and Assessee. The Hon'ble ITAT., B, Bench Bangalore in the case of M/s. Ramgad Minerals & Mining Private Ltd., Baladota Enclave, Hospet Vs. The ACIT, Circle- 1, Bellary, it was observed that, "we find force in the submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice, the additions and disallowances are excessive, arbitrary and unreasonable and ought to be deleted in full. 7) The learned CIT(Appeals) erred in confirming the charging of interest under Sections 234B and 234D of the Act. 8) For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed." 10. Ground No.1 is general in nature. With regard to ground Nos. 2 & 3 which relate to disallowance of Rs. 5,65,47,944, the facts borne out from the record are that it was noticed during the course of assessment proceedings that the assessee has claimed the compensatory afforestation expenses as revenue expenditure. The AO observed that payment was made by each of the user of the forest land for mining towards regeneration of forest for diversion of forest to non-forest use, thus it was inextricably linked to the mining rights of the assessee. Without payment of NPV and compensatory afforestation expenses, the renewal of mining lease would not be possible. The AO Accordingly treated this expenditure as capital expenditure and disallowed the claim of the assessee. 11. The assessee preferred an appeal before the CIT(Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment to compensate the use of forest land for mining towards regeneration of forest for diversion of forest to non-forest use. Since this payment is inextricably linked to the mining rights of the assessee, this payment is of capital nature and the lower authorities have rightly treated the same accordingly. We accordingly find no infirmity in the order of CIT(Appeals). 16. Apropos ground Nos. 4 & 5 relating to disallowance of lease rental payments, the facts borne out from the record in this regard are that the forest land was allotted for mining purpose by the forest department under lease to the assessee which were required to be renewed periodically. As per the lease agreement entered, the lease holder is required to pay the lease rent every year @ Rs. 50,000/hectare and Rs. 187.50/hectare as supervision charges to the forest department. The lease rental is payable annually. For actual usage of land, royalty is paid based on tonnage of ore mined and sold. Thus the lease rental becomes a fixed expenditure (the amount varying depending on the rates applied on the land allotted to the lease holder). The assessee claimed it to be revenue expenditure and claimed an expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmity in the order of CIT(Appeals) who has rightly disallowed the prior period expenses. ITA 559/Bang/2013 20. In this appeal, the assessee has assailed the order of CIT(Appeals) inter alia on the following grounds:- "1. On the facts and circumstances of the case, the learned CIT (Appeals) erred in passing the order in the manner he did. 2. The learned CIT (Appeals) ought to have appreciated that the Appellant having paid FBT on the provision of medical expenses, the Appellant was entitled to the deduction of Rs. 30,01,400/ - in full. 3. The learned CIT (Appeals) ought to have allowed the deduction of Rs. 30,40,011 / - being the provision for leave travel allowance as the same was an ascertained liability and thus liable to be allowed under mercantile system of accounting as held by the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. vs. CIT, 245 ITR 428 (SC). 4. The learned CIT (Appeals) ought to have allowed the foreign travel expenses to the tune of Rs. 38,05,986/ - as the expenditure was in the course of business and for the purpose of business and also for the expansion of the business and accordingly liable to be allowed in full as revenue expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opening balance of provision brought forward at Rs. 22,33,722 and out of the provision made during the year at Rs. 45,31,058, the assessee has made a provision for future claim to the extent of Rs. 30,01,400. 22. The AO further observed that liability to pay reimbursement of medical expenses arises in future on incurring of medical expenses by employees and putting forth their claim for reimbursement of the said expenses and such claim has to be in accordance with the scheme devised by the assessee company. Thus the liability to pay the reimbursement of medical expenses is a contingent liability and not liability in praesenti. The AO further held that it is settled principle of law that contingent liability cannot be allowed as an expenditure u/s. 37 of the Act and placed reliance upon the judgment of the Hon'ble Supreme Court in the case of Indian Molasses Co. (P) Ltd. v. CIT, 37 ITR 66 (SC) and the judgment of the Hon'ble Bombay High Court in the case of CIT v. Kesar Sugar Works Ltd., 239 ITR 398. The AO accordingly disallowed the provision of Rs. 30,01,400 made towards medical liability for future claim and added to the total income of the assessee. 23. Aggrieved, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated its arguments as raised before the CIT(Appeals), whereas the ld. DR has contended that it is for the assessee to establish that expenditure was incurred for the business exigencies and not for setting up of a new project in the business. 29. Having carefully examined the orders of lower authorities in the light of rival submissions, we find that undisputedly the assessee has undertaken the foreign travel in connection with the purchase of mines at Thailand. The assessee claimed expenditure incurred thereon as revenue expenditure on the ground of expansion of old business, but no details in support of its claim were furnished. It is also not disputed that the assessee has purchased mines at Thailand, therefore expenditure incurred in acquiring capital asset has to be capital expenditure. The CIT(Appeals) has adjudicated the issue in detail in his order and we find no infirmity therein. Accordingly, we confirm his order. 30. Apropos ground No.5 & 6, it is noticed that stamp duty for registration and processing fee of the mining lease was claimed to be revenue expenditure by the assessee, but the AO treated the same to be capital expenditure having relied upon the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid annually, but there is no reason to defer it. 37. Aggrieved, the assessee has preferred an appeal before the Tribunal reiterating its contentions, whereas the ld. DR has contended that annual lease rent is fixed at the time of granting the licence for mining. Therefore, it is a recurring liability and has to be debited every year, unless and until the assessee raised a dispute with respect to the liability. No evidence has been placed on record to demonstrate that this liability was ever disputed by the assessee. Therefore, it is to be debited to the profit & loss account annually every year. We find no evidence on record that the liability was disputed in the earlier years and it is crystallized only in the impugned assessment year. Mere notice of demand does not demonstrate that liability was disputed in the earlier years and it is crystallized in the impugned assessment year. Therefore, we find no merit in the contentions of the assessee. Accordingly, we confirm the order of the CIT(Appeals), who has rightly disallowed the prior period expenses. 38. In the result, the appeals of the revenue and assessee are dismissed. Pronounced in the open court on this 11th day of Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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