KALINGA MINING CORPORATION PRIVATE LIMITED,CUTTACK vs. PCIT-1 BHUBANESWAR, BHUBANESWAR

It was submitted by the ld. AR that the assessee is a private limited company, which is doing the business of mining of ores. It was submitted that the return of income had been filed during the relevant assessment year disclosing an income of Rs.30.81 crores and the assessment came to be completed u/s.143(3) of the Act on 23.12.2019, wherein the AO had assessed the income of the assessee at Rs.36.08 crores. It was the submission that the ld. Pr.CIT has proposed to revise the assessment order passed u/s.143(3) of the Act on the following grounds :-

It was submitted by the ld. AR in respect of the issue of Net Present Value (NPV), the issue had been considered by the coordinate bench of this Tribunal in assessee’s own case for the assessment years 2007-2008 & 2008-2009 in dated 11.05.2012, wherein in para 6, the coordinate bench of this Tribunal has held the same to be revenue in nature. The findings of the coordinate bench of this Tribunal are as follows :- “6. We have heard the rival contentions of the parties and perused the material available on record. Considering the facts and circumstances of the case, we are inclined to hold that the issues dealt with by the learned CIT in his order for both the AYs are covered by the decision of the ITAT, Cuttack Bench in the case of M/s Orissa Mining Corporation, a Government of India Undertaking when the payment made for compensatory expenses have been held to be revenue expenditure giving no room for assuming jurisdiction to thrust an opinion that the assessee deriving long term benefit has to be capital in nature leaving loose end to the effect that the assessee does not hold the land on which such deforestation took place. We are also inclined to hold that the direction to the Assessing Officer by the learned CIT rather dilutes the opinion of the CIT in itself when he asked the Assessing Officer to verify the expenses and to confirm with Rules and Regulations Department/Environment Department whether such expenditure gave a long term benefit to either. The learned AR of the assessee has been able to place that the claim has been made by the Government authorities only. Therefore, revenue expenditure could not be termed as capital when the long term benefit is derived by the Government who owns the land. The learned CIT therefore confused his opinion when a view had been taken by the Assessing Officer that the demand from the DFO is o the basis of the very lease rights given to the assessee for excavating which running expenditure has been rendered for claim against income on the basis of raising cost charged by the assessee to the contractors. The learned CIT-DR’s proposition that the long term benefit has been derived by the assessee is of no avail insofar as the Government does not acknowledge that the assessee had created any asset in its favour. We are inclined to follow the decision of the ITAT, Cuttack Bench in the case of M/s Orissa Mining Corporation (supra) wherein the Hon’ble Apex Court finding was also included in considering the issue being payment to Government of India, Ministry of Environments & Forest was entitling the assessee to continue its mining during the time of lease therefore was an expenditure on the direction of the Government and not because the assessee derived a long term benefit in doing so. There is no rule of thumb for determining whether the particular expenditure is capital or revenue when the assessee in order to continue enjoying the lease right has to abide by the Government Rules and Regulations as claimed by the DFO. The reason for such compensation is arising out the fact that the assessee has to carry out the deforestation on the lease hold land for making suitable for mining. In the process, the assessee incurs development cost for carrying out the long term mining and therefore, is furthering the cost of having incurred the revenue expenditure being the lease hold rights. We are also concerned on the issue on the premise that over burden charges paid for by the coal miners have been held to be revenue in nature when the coal excavated below the surface is the leasing right which cannot be isolated when overburden charges have to be necessarily incurred first. Unless the surface is scratched the coal could not excavated. Similarly a compensation paid for deforestation for carrying out the mining activities cannot be by any stretch of imagination be called as capital expenditure. The part of expenditure claimed against felling of trees is part and parcel of the expenditure and in no way be held as disallowable being paid for illegal activities. The Government has claimed it as per the part of the clause of the lease deed therefore cannot be termed as penalty.”

It was submitted that consequently the issue has been held in favour of the assessee and the method of accounting followed by the assessee is consistent, therefore, the revision on this issue, is liable to be cancelled.

In reply, ld. CIT-DR drew our attention to para 6.1.2 of the order of the ld. Pr.CIT to submit that the ld. Pr.CIT has only directed the AO to examine as to whether the revenue has filed any appeal against the decision of the coordinate bench of this Tribunal in assessee’s own case and if any appeal has been filed to follow such decision of appeal. It was the submission that the AO has not examined this issue in this line and, therefore, the revision was permissible.

We have considered the rival submissions. Admittedly, neither the revenue nor the assessee is able to place any evidence before us to show that the decision of the coordinate bench of this Tribunal for the assessment year 2007-2008 & 2008-2009 has been appealed against. The order of the coordinate bench of this Tribunal for A.Ys. 2007-2008 & 2008-2009, referred to supra, is in respect of the revisionary order passed u/s.263 of the Act. There is a categorical finding of the coordinate bench of this Tribunal that the said expenditure is liable to be treated as revenue expenditure. Even otherwise, this issue was the subject matter of the decision rendered by the Hon’ble Supreme Court in Writ Petition (Civil) No.202 of 1995, wherein the Hon’ble Supreme Court has categorically held that the demand of NPV is for protection of the environment and not in relation to any proprietary rights. This being so, clearly the expenditure in respect of the NPV, can be treated only as revenue expenditure.

In respect of second issue being the difference in the valuation of the iron ore as per the Form H1 and as shown in the return filed by the assessee. It was submitted by the ld. AR that for the earlier assessment year, being the assessment year 2014-2015, this issue was the subject matter of revision u/s.263 of the Act and the same was upheld by the coordinate bench of this Tribunal in dated 28.01.2022. It was the submission that in the consequential order the AO vide order dated 27.12.2019 had accepted the claim of the assessee and no addition had been made. It was the submission that the issue was to reconcile the difference between the sales turnover disclosed in its profit and loss account and the Form H1. It was the submission that this method has been consistently followed by the assessee and no deviation has been done by the assessee nor pointed out by the AO. It was the submission that as the reconciliation has been done and clarified for the assessment year 2014-2015 and similar method is being followed consistently, the revision now proposed of this issue is only for verification, which is not permissible in a revisionary proceeding.

In reply, ld. CIT-DR submitted that the consequential order for the assessment year 2014-2015 passed by the AO on 27.12.2019 was again a non-speaking order and the same could not be considered. It was the submission that the coordinate bench of this Tribunal in assessee’s own case for the assessment year 2014-2015 had upheld the revision u/s.263 Act on this issue and following the principle of judicial discipline the Tribunal is bound to uphold the revisionary proceedings on this issue for the relevant assessment year also. It was the submission that each assessment is an independent assessment year and consequently findings for the earlier assessment year could not bar the revisionary proceedings in the relevant assessment year.

We have considered the rival submissions. A perusal of the order of the ld. Pr.CIT at para 6.2.1 clearly shows that the assessee has categorically replied to the issue of the differential between sales turnover disclosed in its profit and loss account and the Form H1. The assessee has categorically mentioned that the Form H1 is the Ex-Mines Price of the Fines. The sales turnover is the actual sale price. This specific statement of the assessee has not been controverted either by the ld. Pr.CIT in the revisionary proceedings or by the AO in the consequential order passed for the assessment year 2014-2015. Here what evident is that it is in respect of the valuation of the fines that is being proposed to be revised. There is no difference in the quantity or quality of the iron ore fines. It is an admitted fact that the figures more so the valuation as per the Form H1 is as at the mine head being the Ex-Mine Prices of the Fines/Ore. The turnover as disclosed in the return can in no way be compared with the Form H1 price. If admittedly there was a difference in the quantification of the stock then there was case of revision but that is not so in the impugned assessment year. This being so, as the method of accounting followed by the assessee is identical for the earlier assessment years, in view of the principle of consistency, we are of the view that the revisionary proceedings on this issue is unsustainable and consequently the same is hereby quashed.

In respect of the next issue being the inclusion of the value of the closing stock in the computation of the assessee, it is noticed that at the outset, the assessee has not been showing the value of the closing stock in any of the earlier years. Now in the current year including the valuation of closing stock would also required the inclusion of the value of the opening stock in the computation and only difference could have been brought to tax. This would in effect make adjustment to the immediately succeeding assessment year insofar as the closing stock would become the opening stock of the immediately succeeding year. It was submitted by the ld. AR that the ld. Pr.CIT has not directed the valuation of the opening stock nor the necessary adjustment to be done thereto. It was the submission that this is nothing but shifting the profits from the subsequent year to the current year only. It was the submission that this would only result in the shifting of the profit and the tax rate being the same the consequential adjustment would take place in the subsequent year, the variation if at all, would be the interest leviable u/s.234B & 234C of the Act. It was the submission that the method of accounting followed by the assessee is consistent and such method should not be tampered with unless there is a violation of accounting principles.

In reply, the ld.CIT-DR submitted that he had no objection if the Tribunal directed the opening stock to be valued and necessary adjustment to be made. It was submitted that the Tribunal did have the powers to give such directions in modification to the order passed u/s.263 of the Act. It was further submitted that the coordinate bench of this Tribunal in the case of Orissa Mining Corporation Ltd. passed in order dated 27.05.2011 has held that in regard to the issue of enhancing the value of closing stock corresponding stock of the succeeding year was also liable to be adjusted.

We have considered the rival submissions. Admittedly, the adjustment to the closing stock for the relevant assessment year would require the identical adjustment in respect of the opening stock in the relevant assessment year also. Ld. Pr.CIT has not given such direction. The Tribunal is not competent to include an issue which has not been considered by the ld. Pr.CIT in the revisionary proceedings. The ld. Pr.CIT has only directed for closing stock to be adjusted. This admittedly is not admissible in any case. The adjustment of the closing stock would only result in the shifting of the profits of the subsequent years to the current year and the rate of tax is the same. There is also no direction nor any method by which the accounts of the subsequent year can now be adjusted when the time limit of the same has also expired. This is not a case where the income has escaped assessment. This being so, the direction of the ld. Pr.CIT in respect of the revision of this issue is found to be unsustainable and, therefore, the same is quashed.

Coming to the issue of the opening and closing stock of the same figure of Rs.5,69,13,648/-, it was submitted by the ld. AR that the issue