JOINT COMMISSIONER OF INCOME TAX (OSD)-3(4),MUMBAI, MUMBAI vs. AMBUJA CEMENTS LIMITED, MUMBAI

During the penalty proceedings, the Assessee was asked to show cause as to why penalty under Section 271(1)(c) of the Act should not be levied for furnishing inaccurate particulars of income vide notice, dated 07/06/2017, issued under Section 274 of the Act. In 2 Assessment Year 2011-2012 response it was submitted by the Assessee that the Assessee had made complete and true disclosure of all the facts and therefore, it cannot be said that the Assessee had furnished inaccurate particulars income. It was contended that the penalty should not be merely on account of rejection of claim of deduction. However, the Assessing Officer was not convinced and rejected the aforesaid submissions made by the Respondent. The Assessing Officer concluded that the Assessee had made patently untenable claim in respect of Provisions for Mine Reclamation Expenses which could not have been allowed as a deduction under the mercantile system of accounting followed by the Assessee. Despite having full knowledge of the fact that no two interpretations were possible in respect of the claim of deduction for provision for Mine Reclamation Expenses, the Assessee had made a claim which was untenable in law. Thus, the Assessee had furnished inaccurate particulars of income. Accordingly, the Assessing Officer proceeded to levy penalty of INR.1,42,64,13,301/- under Section 271(1)(c) of the Act.

Being aggrieved by the levy of penalty, the Assessee preferred appeal before the CIT(A). Vide, order dated 30/11/2023, the CIT(A) deleted the penalty levied under Section 271(1)(c) of the Act holding that Assessing Officer was not justified in levying penalty on account of defect in the notice issued for initiating penalty proceedings. Further, the CIT(A) concluded that even on merits penalty could not have been levied under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income as the Assessee had made disclosure of the relevant facts.

Being aggrieved by the above order passed by the CIT(A), the Revenue has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.

We have heard both the sides and have perused the material on record.

On perusal of the above explanation offered by the Assessee, it can be seen that the provision for Mine Reclamation Expenses was made in terms of Rule 34 of Mineral Conservation and Development Rules, 1988, framed under Section 18 of Mines And Minerals Regulation and Development Act 1957, which oblige the holder of license to undertake site restoration, reclamation, and rehabilitation of land affected by prospecting or mining operations. It was the contention of the Assessee that the mining activity formed part of the business of the Assessee-company, and therefore, the reclamation expenses were incurred wholly and exclusively for the purpose of business of the Assessee on account of commercial expediency.

During the proceeding before the Tribunal, it was contended on behalf of the Revenue that the Assessing Officer had in Paragraph 11.7 of the Penalty Order clearly returned a finding that the Assessee had failed to provide a reasonable explanation for making claim of deduction in respect of provision Mine Reclamation Expenses. Per contra, it was a contended on behalf of the Assessee that the CIT(A) had appreciated the explanation offered by the Assessee during the original assessment proceedings which stood substantiated by the statutory provisions contained in Rule 34 of 5 Assessment Year 2011-2012 Mineral Conservation and Development Rules, 1988, framed under Section 18 of Mines And Minerals Regulation and Development Act 1957.

We find that during the assessment proceedings, the Assessee had placed on record working details of Mine Reclamation Expenses claimed as deduction for the relevant previous year and had relied upon Schedule ‘P’ of Notes forming Part of Accounts for the relevant previous year wherein the following disclosure was made by the Assessee: SCHEDULE ‘P’ – NOTES FORMING PART OF THE ACCOUNTS (contd.) 2010-11 Ambuja Rabriyawas Maratha Bhatapara Rauri Darlaghat Rs Nagar Rs Rs Rs Rs Rs Rs 11 Movement of provisions during the period as Mine Reclamation Expenditure Closing Provision 12,06,35,705 5,56,97,840 1,38,23,384 1,96,74,506 1,73,10,410 4,85,000 1,36,43,584 as 31-03-2011 Exhibit A Exhibit B Exhibit C Exhibit D Exhibit E - Less: Opening 10,26,34,030 6,10,20,378 62,52,033 1,02,97,614 1,14,62,336 1,36,01,669 Provision as on 01-04-2010 1,80,01,674 (53,22,538) 75,71,351 93,76,892 58,48,074 4,85,980 41,915 Add: Utilisation (2,18,17,676) (2,18,17,676) during the period Exhibit F Provision made 3,98,19,350 1,64,95,138 75,71,351 93,76,892 58,48,074 4,85,980 41,915 during the year 2010-11 Mine reclamation expenses is incurred on an ongoing basis and until the closure of the Mine. The actual expenses may vary based on the nature of reclamation and estimate of reclamation expenses. Significant Accounting Policy – Refer clause 1.(B)(i) of Schedule “P” Notes to Accounts – Mines Reclamation Expenses The Company provides for the expenses to reclaim the quarries used for mining. The total estimate of reclamation expenses is apportioned over the estimate of mineral reserves and a provision is made based on the minerals extracted during the year.

Further, we find that the working of reclamation expenses liability details for existing mines for different sites were also furnished by the Assessee during the assessment proceedings along with the details of actual Mines Reclamation Expenditure incurred during the relevant previous year aggregating to INR.2.18 Crores.

On perusal of the abovesaid documents/details (placed before us as part of the paper-book), we find that the complete disclosure of all primary facts was made by the Assessee during the assessment proceedings. Further, the Assessee had also provided explanation that the deduction for provisions for Mine Reclamation Expenses was claimed on the understanding that the Assessee was under statutory obligation to incur the aforesaid expenses for restoration/reclamation of mining sites as per the provisions of Mineral Conservation and Development Rules, 1988, framed under Section 18 of Mines And Minerals Regulation and Development Act 1957. Rule of 34 of the aforesaid rules reads as under: “34. Reclamation and rehabilitation of lands: Every holder of prospecting licence or mining lease shall undertake the phased restoration, reclamation and rehabilitation of lands affected by prospecting or mining operations and shall complete this work before the conclusion of such operations and the abandonment of prospect or mine.”

It has been claimed that the Assessee was of the bonafide belief that the Assessee was entitled to claim deduction for provision created for Mine Reclamation Expenses in view of the provisions contain in the Rule 34 (reproduced hereinabove). According to the Assessee the said rule fastened the liability on the holder of prospecting license or mining lease to undertake phased restoration, reclamation and rehabilitation of land affected by prospecting or mining 7 Assessment Year 2011-2012 operations. During the original assessment proceedings, the Assessee had relied upon the judgment of the Hon’ble Karnataka High Court in the case of CIT versus Gogte Minerals: [1996] 85 Taxmann 163 (Karnataka) [19/09/1995], wherein the deduction for mine reclamation expenses incurred in terms of Rule 34 of the Mineral Conservation and Development Rules, 1988 was allowed as deduction under Section 37(1) of the Act. During the course of the hearing, it was pointed out by the Learn Department Representative that in the present case the Assessee had not only claim deduction for actual expenses incurred but had also claimed deduction in respect of provision created for mine reclamation expenses and therefore, the claim made by the Assessee was untenable in law. As discussed hereinabove, we find that the claim made by the Assessee was premised upon the understanding that Section Rule 34 of the Mineral Conservation and Development Rules, 1988 fastens the liability upon the Assessee to incur the mine restoration expenses and therefore, the liability to incur the same was an ascertained liability to be discharged at a future date. We find that the Assessee had also placed before the Assessing Officer the computation of the aforesaid liability. We note that the Assessing Officer had made the disallowance in respect of Mine Reclamation Expenses vide Assessment Order, dated 07/06/2017, passed under Section 143(3) read with Section 263 of the Act by holding as under:

On perusal of above, we find that the Assessing Officer had failed to appreciate that the amount of INR.3.98 Crores included Mine Reclamation Expenses of INR.2.18 Crores actually incurred during the relevant previous year. Further, there was no discussion on the explanation furnished by the Assessee. Similarly, while levying penalty vide order dated 31/03/2022 passed under Section 271(1)(c) of the Act the Assessing Officer has concluded that the Assessee had failed to offer any explanation. We find that the aforesaid finding returned by the Assessing Officer is factually incorrect. In our view, the Assessee had disclosed all the primary facts. Further, even if it is assumed that the Assessee had furnished inaccurate particulars of income, we are of the view that the Assessee had discharged the burden cast under Section 273B of the Act to prove that the Assessee had reasonable cause for the same. The Assessee was of the bonafide belief that the liability to incur expenses in terms of Rule 34 of the Mineral Conservation and Development Rules, 1988 was an ascertained liability and provision created to meet the same was allowable as deduction under Section 37(1) of the Act. We find that explanation furnished by the Assessee is also supported by documents filed during the original assessment proceedings. Accordingly, we do not find any infirmity in the order passed by the CIT(A) holding that no penalty could have been levied in the facts and circumstances of the present case for furnishing inaccurate particulars of income.

Before parting we would like to observe that during the proceeding before the Tribunal, it was vehemently contended on behalf of the Revenue that the CIT(A) has incorrectly returned the finding that the notice issued in the Section 274 of the Act was defective as the 9 Assessment Year 2011-2012 same did not specify the specific charge for which penalty was sought to be levied under Section 271(1)(c) of the Act. We find that in the Assessment Order dated 07/06/2017 passed under Section 143(3) read with Section 263 of the Act, the penalty proceedings were sought to be initiated by the Assessing Officer in respect of provision for Mine Reclamation Expenses of INR.3.98 Crores on account of furnishing inaccurate particulars of income. Even in the notice, dated 07/06/2017, issued under Section 274 of the Act it was clearly stated that penalty proceedings were initiated for furnishing inaccurate particulars of income. However, while passing Penalty Order, the Assessing Officer had concluded that the present case was a fit case for levy of penalty under Section 271(1)(c) of the Act for concealment of income. Reliance in this regard was also placed on Explanation 1 to Section 271(1)(c) of the Act which creates a deeming fiction by which the amount added/disallowed in the computation of total income is deemed to represent income in respect of which particulars have been concealed. In this regard, we note that in paragraph 13 of the Penalty order the Assessing Officer has concluded as under:

We are alive to the fact that in Paragraph 11.6 and Paragraph 12 of the Penalty Order, the Assessing Officer also stated that the Assessee has filed ‘inaccurate particulars of income’ while, at the same time, making reference to Explanation 1 to Section 271(1)(c) of the Act. However, in our view, on a co-joint reading of Paragraph 11.13 and 13 of the Penalty Order it becomes clear that the Assessing Officer has finally levied penalty under Section 271(1)(c) of the Act (read with Explanation 1 thereto) for concealment of the particulars of income whereas the charge as per the Assessment Order passed under Section 143(3) read with Section 263 of the Act and Notice issued under Section 274 of the Act was that the Assessee has furnished inaccurate particulars of income. Therefore, on this count also penalty levied by the Assessing Officer under Section 271(1)(c) of the Act was not sustainable.

Accordingly, in view of the above we decline to interfere with the order passed by the CIT(A) deleting the penalty of INR.1,42,64,13,301/- levied under Section 271(1)(c) of the Act. Thus Ground No.1 and 2 raised by the Revenue are dismissed.

In result, the present appeal preferred by the Revenue is dismissed.