No AI summary yet for this case.
Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK
Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE
1 Mah anadi Coalf ield Ltyd.,
IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK
BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER
ITA No.421/CTK/2013: Assessment Year : 2010-2011 ITA No.301/CTK/2014: Assessment Year : 2011-2012 ITA No.278/CTK/2015: Assessment Year : 2012-2013 ITA No.447/CTK/2015: Assessment Year : 2013-2014 ITA No.264/CTK/2017: Assessment Year : 2014-2015
Mahanadi Coalfields Ltd., Vs. DCIT, Circle -2(1), Jagriti Vihar, Burla, Sambalpur. Sambalpur
PAN/GIR No.AABCM 5188 P (Appellant) .. ( Respondent)
ITA No.397/CTK/2013: Assessment Year : 2010-2011 ITA No.330/CTK/2014: Assessment Year : 2011-2012 ITA No.292/CTK/2015: Assessment Year : 2012-2013 ITA No.428/CTK/2015: Assessment Year : 2013-2014 ITA No.268/CTK/2017: Assessment Year : 2014-2015
DCIT, Circle -2(1), Vs. Mahanadi Coalfields Ltd., Sambalpur. Jagriti Vihar, Burla, Sambalpur
PAN/GIR No.AABCM 5188 P (Appellant) .. ( Respondent)
Assessee by : Shri S.S.Poddar/N.Kedia, AR Revenue by : Shri Piyush Kolhe, CIT DR
Date of Hearing : 07 /03/ 2018 Date of Pronouncement : /03/ 2018
O R D E R Per Pavan Kumar Gadale, JM These are appeals filed by the assessee and revenue against
separate orders of the CIT(A)-Cuttack, for the assessment years 2010-
2 Mah anadi Coalf ield Ltyd.,
2011 to 2014-2015, respectively. Since facts and some of the issues
involved are common, they were heard together and are being disposed
of by this common order for the sake of convenience.
The brief facts of the case are that the assessee is a Government of
India enterprise engaged in the business of extraction and sale of coal
from its coalfields located at Talcher & IB Valley and others in the State of
Odisha. The Assessing Officer completed the assessments u/s.143(3) of
the Act for the assessment years under consideration, making
additions/disallowance. On appeal, the CIT(A) partly allowed the appeals
of the assessee. Hence, both the assessee and the revenue are in appeal
before us.
Now take up the assessee’s appeal.
The first common issue agitated by the assessee is that the CIT(A)
has erred in confirming the action of the Assessing Officer in making
addition on account of valuation of closing stock of Rs.9108.67 for the
assessment year 2010-11, Rs.7060.22 lakhs for the assessment year
2011-12, Rs.8340.60 lakhs for the assessment year 2012-13 and
Rs.4714.00 lakhs for the assessment year 2013-14.
We discuss the facts for the assessment year 2010-2011 and the
decision will apply mutatis-mutandis to other assessment years.
The brief facts of the case are that the Assessing Officer on perusal
of annual report found that the assessee has declared in its printed
3 Mah anadi Coalf ield Ltyd.,
accounts in notes on account that the stock of coal valued by the
assessee as on 31.3.2010 lying at different collieries was Rs.34659.68
lakhs, which is calculated on the basis of lower of cost or net reaslisable
value mines wise, and if it is valued company as a whole, it will be
Rs.43768.35 lakhs, hence there is an understatement in valuation of
closing stock to the extent of Rs.9108.67 lakhs.
The coal mining sector had been under nationalisation since the
early 1970s and the coal being an essential commodity and wasting asset
was declared a controlled commodity and its price according to grades
was determined and announced by the Central Government under the
colliery control order, 1945. Since the price of coal was fixed b y the
Central Government (Administered price), there was no possibility of any
variation of such price unless announced by the Central Government.
Accordingly, since its inception, the assessee had been valuing its stock in
trade of coal under the net realisable value (method” based on the price
of coal notified by the Central Government from time to time till financial
year 1995-96. Meanwhile, with the liberalisation of Indian economy, the
Central Government through its notification deregulated the pricing of
various grade of coal to be followed by all its subsidiaries in the year
1995. Thereafter, the Board of Directors of Coal India Limited (CIL), the
Holding company in its 165th meeting decided to adopt the cost or market
price whichever is lower method for valuing stock of coal and conveyed its
decision to all its subsidiaries vide letter dated 9.6.1997 before finalisation
of the accounts for the financial year 1996-97. The reasons for such
4 Mah anadi Coalf ield Ltyd.,
change was also put up as a Board note of CIL reasoning for the change.
In compliance to the said directions of CIL, MCL Finance Department
issued a circular dated 26.7.1997 to all its Area Manager for valuation of
closing stock. It was further explained that MCL had underground as well
as open cast mines and the quality/grade of coal, the cost of production
and the sale price differs very widely, hence, a circular was issued by CIL
vide letter dated 15.5.2000 for implementation order on uniformity in
accounting by all the subsidiaries on the basis of the view formed by a
committee for the purpose that “since coal is a process of extraction from
a single mine and coal stock of each unit is to be valued”. Hence, all the
subsidiaries are valuing its stock at cost or market price, whichever is
lower mines wise since financial year 1996-97. From the valuation of
closing stock forming part of the circular issued by MCL Finance
Department vide letter dated 27.6.1997, it is observed that the market
price of different grade of coal differs from Rs.262.20 per Ton to
Rs.766.60 per Ton whereas the cost price or NRB whichever is lower
varied between Rs.94.73 per Ton to Rs.2439.51 per Ton. Further, it is
observed that for the financial year 2011-12 in the case of Nandira
Colliery, the cost of production of coal was Rs.2759. per ton whereas the
net reaslisable value was Rs.1140 per Ton and in the case of Talcher
Colliery, it was Rs.4480.68 per ton and Rs.2800 per ton respectively and,
accordingly, the stock was valued at cost or NRB whichever is lower. This
method of valuation is consistently followed by all the subsidiaries of CIL.
Accordingly, following the direction of CIL and as the grade, quality, cost
5 Mah anadi Coalf ield Ltyd.,
differed, MCL valuing its stock mine-wise as an independent cost centres
and profit-making centre consistently since 1996-97.
The Assessing Officer relied on the provisions of section 145A of the
Act and found that the assessee cannot adopt the method of independent
valuation of closing stock. The Assessing Officer further emphasised that
the correct method of valuation of closing stock of raw coal has to be cost
of production or market price whichever is lower for the aggregate of coal
stock as on closing date of the accounting year and not by making unit
wise valuation of raw coal stock at different locations of the Company
and, therefore, made addition of Rs.9108.67 lakhs.
Before the CIT(A), the assessee substantiated his claim made
before the Assessing Officer. Whereas the CIT(A) dealt on the issue in
detail at pages 5-8 of the order and the submissions of the assessee in
respect of valuation as per the accounting policy adopted by the Coal
India Limited. The CIT(A) also listed out the basis of valuation but finally
concluded that the assessee is a person defined and taxable under the
provisions of Income tax Act. The CIT(A) also upheld the findings of the
Assessing Officer and confirmed that the valuation of coal is to be done
for the company rather than valuing it unit-wise.
Before us, ld A.R. reiterated the submissions made before the lower
authorities. Ld A.R. also filed written submissions referring to section
145A and judicial decisions. Ld A.R. submitted that the assessee
company was incorporated on 30 April, 1992 as a 1OO% subsidiary of
6 Mah anadi Coalf ield Ltyd.,
Coal India Limited (ClL) by taking over the Sambalpur Division of South
Eastern Coal Fields Limited. The Coal mining sector had been under
nationalisation since the early 70s and the coal being an essential
commodity and a wasting asset, was declared a controlled commodity and
its price (according to grades) was determined and announced by the
Central Govt under the Colliery Control Order, 1945. Since the price of
coal was fixed by the Central Govt (Administered price) there was no
possibility of any variation of such price unless announced by the Central
Govt. Accordingly Since its inception the assessee had been valuing its
stock in trade of coal under the 'Net Realisable Value' method based on
the price of coal notified by the Central Govt of India from time to time till
financial year 1995-96. Meanwhile with the liberalisation of the Indian
economy, the Central Govt. through its notification published in the
Gazzete of India, Extraordinary, dated 22nd March, 1995 deregulated the
pricing of various grades of coal to be followed by all of its subsidiaries.
Thereafter, the Board of directors of Coal India Limited decided to adopt
the 'cost or market price whichever is lower' method for valuing stock of
coal and conveyed its decision to all its subsidiaries through letter dated
09.06.1997 before finalisation of the accounts for the said financial year
1996-97. Subsequently, there are directions of MCL Finance Dept by
circular letter No. 732 dated 27.06.1997 for valuation of closing stock of
coal to all its area manager. The assessee company has underground as
well as opencast mines and the quality and grade of coal, the cost of
production and the sale price differs very widely. Hence, all the
7 Mah anadi Coalf ield Ltyd.,
subsidiaries are valuing its stock at cost or market price whichever is
lower mines wise. From the valuation of closing stock for the FY 2006-07,
it can be seen that the cost at Hingula OCP is only Rs. 80.37 per ton
whereas the NRV of Orient mine no. 4 is Rs. 200/- per ton which means
that the cost of production at orient mine no. 4 is more than the NRV. The
accounting policy of the assessee during the FY 1996-97 in respect of
valuation of coal referred at para 7 .4 of Audited accounts and the effect
of change at para 4.2 (ii) is a furnished. Further, circular was issued by
the Holding company i.e. Coal India Limited to all its subsidiaries for
implementation of uniform accounting vide letter dated 15.05.2000 as
decided by a committee constituted for the specific purpose of valuation
and "coal stock of each unit is to be valued'. This method of valuation of
coal, mines wise, is followed consistently. Further, ld A.R. also explained
that the assessee is having various units of production, cost centre, sales
and accounting and the units are commonly known as areas. The coal is
produced at different mines and such mines are operating under the
administrative control of a particular area, therefore, accounts are being
maintained for each area in respect of production and sales. The
valuation of closing stock in respect of each area is derived separately and
net realisable value is also ascertained area wise. Ld A.R. submitted
that the valuation of closing stock is done at cost or NRV whichever is
lower and followed consistently. Hence, the method of valuation adopted
by the assessee is the most scientific method and gives a more accurate
picture of valuation of closing stock as compared to the method adopted
8 Mah anadi Coalf ield Ltyd.,
by the Assessing Officer. Ld A.R. submitted that the method of valuation
of closing stock is followed by all the subsidiaries of Coal of India Limited
in accordance with uniform Accounting policy of Coal India Limited. The
assessee being a public sector undertaking and accounts are audited by
statutory auditor and the Comptroller and Auditor General of India and
the method of valuation of closing stock is being accepted by the auditors
as well as the revenue in all the earlier years and filed written
submissions, supporting evidence to substantiate that the assessee is
following a uniform accounting policy by Coal India Limited and prayed for
deletion. Moreover, the Assessing Officer has not made any addition
during the assessment year 2014-15 and assessment year 2015-16 as
the book value was more than the global value taken playing hot and cold
simultaneously.
Contra, ld D.R.relied on the orders of lower authorities.
We have heard the rival submissions, perused the orders of lower
authorities and materials available on record. The disputed issue with
respect to valuation of closing stock as envisaged by ld A.R. that the
assessee is following uniform accounting policy adopted by Coal India
Limited and its subsidiaries. We have perused the provisions of
applicability of Accounting Standard and as per Accounting Standard -2,
Valuation of inventories, the prime objective is that a primary issue in
accounting for inventories is the determination of the value at which
inventories are carried in the financial statements until the related
9 Mah anadi Coalf ield Ltyd.,
revenues are recognised. The Accounting Standard -2 has been revised
in 2016, whereas the assessment year involved in the present case is
2010-2011. Though in the revised AS-2, it was mentioned that
“producers’ inventories of livestock, agricultural and forest products, and
mineral oils, ores and gases to the extent that they are measured at net
realisable value in accordance with well-established practices in those
industries” but the assessee company holds the mines and made the
valuation independently for each mine and also established the cost
centres for revenue purposes. The cost centres provide the profit or loss
incurred by each mine in its operation. The AS-2 mentions that in the
case of ore, the valuation is measured at net realisable value in
accordance with the well-established practices in those centres. There is
no dispute with respect to the cost of value of closing stock but on the
overall aspect where the valuation has to be made by the company by
itself or accretion of valuation of stock at mines independently. Ld A.R.
demonstrated the facts before us by referring to the annual report and
notes on account. On perusal of Schedule-P to the notes on account for
the said financial year, the auditors have expressed the method of
valuation of closing stock at para 6.2.2. as “stock of coal is valued
separately for each mine at cost or net realisable value, whichever is
lower” as per uniform Accounting Policy of CIL and further, it was
mentioned that if the valuation of coal is done for the company, rather
than valuing it unit-wise, valuation made by the assessee is Rs.43768.35
lakhs against Rs.34659.68 lakhs. The auditors also at para 11.15 of the
10 Mah anadi Coalf ield Ltyd.,
notes on account Schedule-P disclosed that if valuation of coal is done
for the group as a whole, rather than valuing it mines-wise, the value of
coal stock would have been Rs.43768.35 lakhs. On perusal of share
capital, it reveals that the total share capital of the assessee is held by
the holding company -Coal India Limited.
Ld A.R. also explained that the Accounting policy of Coal India
Limited is adopted by all the subsidiaries and the assessee is 100%
subsidiary. As such the Accounting policy is adopted and accepted by the
statutory auditors and the Comptroller and Auditor General of India and
Income tax Department. We found that as per the AS-2 , the method of
valuation and inventories are mandatory and the valuation has to be in
accordance with the guidelines of ICAI. On perusal of the annual report
at page 98, we found that the assessee has valued the stock separately
for each mine at cost or net realisable value and the aggregate value as
on 31.3.2010 in respect of cost has been worked out to Rs.34659.68 lakh.
The auditors also explained that the valuation of coal is made by the
assessee company mine-wise and valuation of closing stock of coal if
taken group as a whole would have been Rs.43768..35 lakhs.
The main dispute arises with respect to the difference between
Rs.43768,35 lakhs – Rs.346659.68 lakhs = Rs.9108.07 lakhs, which the
Assessing Officer considered being undervaluation of closing stock. Ld
A.R.’s contention is that all the subsidiaries of Coal India Limited have
been following this uniform accounting policy and there is no dispute.
11 Mah anadi Coalf ield Ltyd.,
Only in assessee’s case, ld A.R. expressed that the revenue having
accepted in the earlier years made addition in respect of difference. We,
on perusal of the assessment order found that the Assessing Officer has
relied on the printed balance sheet and having supported with the
provisions of section 145A of the Act and has not accepted the value of
closing stock whereas the provisions of Section 145A prescribes the
method of accounting policy regularly employed by the assessee. In the
present case, the assessee is a 100% subsidiary of Coal India Limited and
as per the directions of the Holding company, uniform accounting policy
has been adopted regularly and this regular method of accounting comply
with the provisions of valuation of stock and accounting principles. These
facts are not disputed. The method of valuation of closing stock shall be
in consonance with the accounting standard of ICAI and the provisions of
section 145A of the Act. In the present case, the Coal India Limited,
which is a Government of India enterprise holding 100% shares of the
assessee company and similar shareholding in other subsidiaries, which
the ld A.R. explained that they are adopting this method. The audit
report of the assessee referred at page 94 prescribes the method of
valuation and inventories of stock and spare parts ad also the justification
of loss of stock + and -5%.
We found that the holding company, Coal India Limited is also
following same method of valuation for his inventories as discussed in
their Annual report and similar method of accretion/deccretion of stock
is dealt in the profit and loss account, which is also not disputed and
12 Mah anadi Coalf ield Ltyd.,
available in the public domain. Ld A.R. also emphasised that similar
additions were made by the assessee upto assessment year 2013-14 and
for subsequent assessment years, there is no addition in the assessment
as the book value mine-wise was more than valuation as a group. It is
further observed that the quality/grade of coal, cost of production and
sale price has wide difference between mines to mines, hence, it is not
practical nor justified to value stock for all mines as a group. Further,
valuation of closing stock does not give any profit for book purpose nor
for income tax purposes as the same valuation is considered as valuation
of opening stock in subsequent year. Moreover, as there is a wide
difference between the quality/grade of coal, cost of production mines-
wise, sale price mines-wise; hence taking the global view for valuation of
closing stock can never be justified rather the valuation of coal mines-
wise gives the real cost of production for the purpose of valuation of stock
in place of valuation for MCL as a whole. We considering the overall
circumstances and uniform accounting policy issued by Coal India Limited
and the submission of ld A.R. alongwith documentary evidence and the
undisputed fact that the assessee company is a 100% subsidiary of Coal
India Limited and similar accounting policy is adopted by the other
subsidiaries, are of the opinion that the method of valuation has to be
test checked by the Assessing Officer so that this uniform Accounting
Policy applicable to the assessee as a subsidiary company. The policy of
valuation of mines independently and has been accepted by the parent
company i.e. Coal India Limited and independently reflects in financial
13 Mah anadi Coalf ield Ltyd.,
statements. The change in valuation policy is for realisation of values
and the assessee being Government Enterprises, the accounts are audited
by the Statutory Auditors and Comptroller and Auditor General of India.
We are of the substantive view that the lower authorities have to verify
the uniform Accounting Policy adopted by other subsidiaries, which are in
the similar line of business as per Coal India Ltd letter dated 31.3.2010
(supra). Accordingly, we remit this disputed issue to the file of the
Assessing Officer who shall verify and call for the information in respect of
other subsidiaries who are following this method of accounting and if so,
same be considered on merits and the assessee shall co-operate in
submitting the information and this ground of appeal is allowed for
statistical purposes. Consequently, this ground taken by the assessee for
other assessment years i.e. 2011-12 to 2013-14 are allowed for statistical
purposes.
The second common issue relates to confirmation of addition of
Rs.31475.28 lakhs for the assessment year 2010-2011, Rs.25778.15
lakhs for the assessment year 2011-12, Rs.32242.12 lakhs for the
assessment year 2012-13, Rs.24010.50 lakhs for the assessment year
2013-14 and Rs.15912.00 lakhs for the assessment year 2014-15 due to
change in valuation of closing stock and overburden removal adjustment
debit/credit.
The Assessing Officer found from the audit report that due to the
change in method of valuation of closing stock as per uniform policy of
14 Mah anadi Coalf ield Ltyd.,
Coal India Limited, the holding company, the profit for the year has been
decreased by Rs.314.75 lakhs. In the assessment proceedings, the
assessee has filed explanations in respect of effect of change in valuation
of closing stock of coal. This explanation has been referred at page 58 of
the assessment order and the assessee has relied on the judicial decisions
that the method of valuation necessitated in the current financial year and
the method of valuation of closing stock, whereas the Assessing Officer
has dealt on the provisions of section 145(2) of the Act and observed that
the change in the method of valuation is not by the statute and in the
earlier years also, the assessee has adopted the same by changing the
valuation of closing stock.
The CIT(A) having dealt on the submissions of the assessee and
judicial decisions confirmed the addition made by the Assessing Officer.
Before us, ld A.R. emphasised that the change in method of
valuation is based on the final recommendation of Uniform Accounting
Committee, 2009-10 of Coal India Limited vide letter
No.CIL/CGM(F)/31025/969 dated 31.3.2010 issued to all subsidiaries.
Therefore, the method of calculation of cost per ton followed in the earlier
years has been changed and an improved method of valuation has been
followed during the year under consideration. Ld A.R. referred to the
objectives of stock valuation of inventories and method of valuation of
inventories and judicial decisions to substantiate that the action of the
15 Mah anadi Coalf ield Ltyd.,
Assessing officer in making the addition in respect of decrease in profit
cannot be accepted.
Ld D.R. relied on the orders of lower authorities.
We have heard the rival submissions, perused the orders of lower
authorities and materials available on record. This dispute is
interconnected with the method of valuation of closing stock. Valuation
of closing stock has been changed due to Uniform Accounting Policy of
Coal India Limited. We found that a reference made by the Assessing
Officer on the audited accounts that Reduction in value of stock is due to
overall adjustment is as per the Uniform Accounting Policy adopted by the
Coal India Limited. Ld A.R. demonstrated before us with a copy of letter
of Uniform Accounting Committee recommendation and supported with
paper book. Accordingly, we consider it appropriate to restrict our view on
the method of valuation of closing stock mine-wise and the valuation of
closing stock of coal are interconnected and since we have discussed on
the applicability of the provisions, facts and reasons for valuation of stock
centre on the first disputed issue. Therefore, we remit this disputed issue
to the file of the Assessing Officer for appropriate adjudication afresh and
the ground of appeal of the assessee is allowed for statistical purposes.
Hence, this issue for the assessment years 2010-11 to 2014-15 is
restored to the file of the Assessing officer for fresh adjudication.
16 Mah anadi Coalf ield Ltyd.,
Ground No.3(3) for the assessment year 2010-11 and Ground
No.3(5) for the assessment year 2011-12 relates to interest paid to
foreign institution through CIL.
The Assessing officer found that the assessee has disclosed
Rs.382.21 lakhs in its balance sheet as unsecured loan from the holding
company, Coal India Limited as under:
i) Loans from IBRD & JBIC : Rs.258,71 lakhs ii) On deferred payment : Rs. 13.64 lakhs iii) Other interest : Rs. 109.86 lakhs Total : Rs.282.21 lakhs.
The Assessing officer noted that a copy of letter dated 26.3.1998
from the Ministry of Finance, Department of Economic Affairs, Govt of
India was filed by the assessee. On perusal of the same, the Assessing
officer observed that the World Bank has sanctioned loan to CIL and not
to MCL. As such the interest liability on dues of the holding company
cannot partake the character of any interest paid or payable by the
assessee company to World bank and the assessee has not provided the
details of deduction of TDS. Therefore, the Assessing Officer has made
addition whereas the CIT(A) relied on the amendment to section 40(a)(ia)
by the Finance At 2012 w.e.f. 2013-14 and is of the opinion that the
present assessment year does not get the benefit of the provisions and
confirmed the addition.
17 Mah anadi Coalf ield Ltyd.,
We have heard the rival submissions, perused the orders of lower
authorities and materials available on record. Before us, ld A.R. explained
the reasons of interest liability and also the transaction from World bank
to the CIL and the assessee reflecting the loan payable to the holding
company and emphasised that the TDS was not required to deduct the
interest on loan in terms of letter dated 26.3.1998 and referred at paper
book at pages 13 to 14. Hence, no TDS is required to be made for
payments to World Bank and also the provisions of section 40(a)(ia) of
the Act are not applicable. Ld A.R. explained that the total interest
liability of Rs.382.21 lakhs consists of interest payable to CIL of loans
from IBRD and JBIC of Rs.258.71 lakhs and deferred payment to M/s.
Liebherr France S.S. France of Rs.13.64 lakhs and other interest on cess
collected from customers of Rs.109.86 lakhs. The Assessing Officer has
disallowed this claim whereas the interest payment to World bank, no
TDS has to be deducted and similarly interest income on deferred
payment to M/s. Liebherr France S.A France, as disclosed in the balance
sheet, interest is not taxable as per Double Taxation Avoidance
Agreement (DTAA) between France and India. In respect of other
interest on cess collected from customers of Rs.109.86 lakhs, as per
directive of Hon’ble Supreme Court judgment dated 31.7.2001, the
money is refundable to the customer alongwith interest and the assessee
could not identify the customers/parties to whom the refund is to be
made and, therefore, no TDS was made and this fact was also reflected
in the audited balance sheet as per the submission of the ld A.R.
18 Mah anadi Coalf ield Ltyd.,
We find force in the submission of ld A.R. that in respect of claim of
World bank and M/s. Liebherr France S.A. France that no TDS on
interest liability arose due to agreement with World Bank and Double
Taxation Avoidance Agreement with France. In respect of other interest
on cess collected from customers of Rs.109.86 lakhs, as per the Supreme
Court judgment dated 31.7.2001 the money is refundable to the
customers alongwith interest. But the assessee has expressed that the
company has not identified the customers to whom the refund is to be
made and this fact was disclosed in schedule -P of the audit report at
page 99. We perused the audit report at page 10.0 (a) at page 99-100
where these facts were explained that the assessee company has not
identified the customers to whom the refund is to be made and, therefore,
the finalisation of liability to refund the same is yet to be done. We are of
the opinion that this vital fact needs to be verified and examined as
explained by ld A.R. that from assessment year 2012-13 this interest
claim was allowed. Accordingly, in the interest of justice, we remit this
issue to the file of the Assessing Officer who shall verify the different
payments of interest made to World bank as covered by the letter of
Govt. of India vide letter dated 26.3.1998 and direct the Assessing Officer
to verify the payment of interest in the hands of the recipients are offered
to tax and decide on merits and allow this ground of appeal for statistical
purposes. Ground No.3(3) for assessment year 2010-11 and Ground
No.3(5) for assessment year 2011-12 is allowed for statistical purposes.
19 Mah anadi Coalf ield Ltyd.,
The issue common to Ground No.3.4 for the assessment year 2010-
11 and Ground No.3(2) for assessment year 2011-12 relates to addition
made towards charges paid for lease hold land. Ground No.3(2) for the
assessment year 2012-13, Ground No.3(1) for assessment year 2013-14
and Ground No.3(1) for assessment year 2014-15 relates to depreciation
on lease hold land. These grounds are inter-connected.
The Assessing Officer found that the assessee company has claimed
Rs.2514.44 lakhs u/s.37(1) of the Act towards charge against leasehold
land for lease period exhausted. Further, the assessee also claimed
alternate clam of depreciation u/s.32(1)(ii) i.e. depreciation on intangible
assets. The Assessing Officer did not accept the alternate claim of the
assessee and made the addition.
On appeal, the CIT(A) following the decision dated 12.9.2011 of the
Tribunal in assessee’s own case in ITA No.226,227/CTK/2009, 456,457 &
458/CTK/2010 and No.50,51,52 & 53/CTK/2011 and also referring
various judicial decisions on this issue, has confirmed the addition.
Bothe parties conceded that the above issues are covered by the
decision of this Tribunal in assessee’s own case for the assessment year
2008-09 in ITA No.73/CTK/2012 order dated 3.1.2018. The findings
portions are as under:
“45. Ld D.R. objected to the admission of additional grounds on the ground that the grounds have to be dismissed as the lease hold rights are not eligible for depreciation u/s.32(1)(ii) of the Act considering it as intangible asset. He referred to the decision of Hon’ble High Court of Bombay in the case of CIT vs. Techno Shares
20 Mah anadi Coalf ield Ltyd.,
Stocks Ltd., 225 CTR 337 (Bom), wherein, it has been held that the depreciation under section 32 is restricted to the tangible/intangible assets which are specifically enumerated therein and depreciation is not allowable on all tangible/intangible assets. He also referred to the decision of ITAT Mumbai Benches in the case of Dabur India ltd. vs ACIT, 159 TTJ 563 (Mumbai), wherein also, it was held that the tenancy rights cannot be construed as intangible assets falling within meaning Explanation to section 32(1) and, therefore, there is no question of allowing depreciation on said rights.
We find that the assessee has raised these additional grounds as per the direction of Hon’ble High Court of Orissa, Cuttack in W.P (C) No.24 of 2013 and Misc. Case No.5716 of 2013 order dated 20.3.2013. In view of above, we admit these additional grounds for our consideration.
On merits also, we find force in the submission of ld D.R. that the depreciation is not allowable u/s.32(1)(iii) of the Act in respect of intangible assets, which is supported by judicial pronouncements cited above. In view of above, we dismiss these grounds filed by the assessee.”
In view of above, we hold that the lease hold rights are not eligible
for depreciation u/s.32(1)(ii) of the Act considering it as intangible rights
and, accordingly, dismiss the ground of appeal of the assessee.
Ground No.3(5) relates to confirmation of disallowance of
Prospecting & Boring expenses of Rs. 1138.73 separately claimed fin
computation of income, and Ground No.3.8 relates to confirmation of
disallowance of Rs.278.39 lakhs charged to P&L appearing in schedule-12.
At the time of hearing, both the parties agreed that the issue is
covered against the assessee by the decision of the Tribunal in assessee’s
own case for the assessment years 2004-05 to 2007-08, respectively.
21 Mah anadi Coalf ield Ltyd.,
After hearing both the parties, we find that this issue has been dealt
with by this Bench of the Tribunal in assessee’s own case for the
assessment years 2004-05 to 2007-08 in ITA No.227/CTK/2009 and
others order dated 12.9.2011 as under:
“We find that the learned CIT(A) has considered the issue and held that the expenditure booked under the head prospecting and boring and appearing in the fixed asset schedule and work- in-progress should also be considered on the same basis as directed while adjudicating development expenses. We have already adjudicated the issue on “Development expenses” and upheld the order of the CIT(A) for the reasons as discussed in paragraphs 21 and 22 of this order. Therefore, we uphold the impugned order of the ld CIT(A) on the issue of disallowance of prospecting & boring expenses (P&B) and dismiss the ground raised by the assessee in this regard.” 35. Since there is no change of facts in the year under consideration,
following the precedent, we confirm the order of the CIT(A) and dismiss
Ground No.3.5 and Ground No.3.8 of appeal of the assessee.
Ground No.3.6 relates to payment of VRS and Ground No.3.7
relates to claim of expenditure on assets not belonging to company were
not pressed by ld A.R. of the assessee and, therefore, same are dismissed
as not pressed.
Ground No.3.9 of appeal relates to write off/written back of
Rs.17.38 lakhs.
The brief facts of the case are that the Assessing Officer found that
the assessee has claimed Rs.17.38 lakhs towards write off/write back of
different items in Schedule -16(B) of the P&L account. Since the assessee
22 Mah anadi Coalf ield Ltyd.,
failed to substantiate the basis of write off, the Assessing Officer added
the same to the total income of the assessee.
Before the CIT(A), it was submitted by the assessee that the
expenditure in question is a legitimate expenditure as the first item
relates to survey of four machines which are no more usable and the
second item pertains to cost of stolen assets. All these expenditures were
duly approved by the Board of Directors for write off.
After considering the submissions of the assessee, the CIT(A)
directed the Assessing Officer to calculate the write off/write back
considering the facts that when the discarded asset is sold and when the
asset is destroyed as per the provisions of the Act.
Having heard both the sides, we do not find any error in the order
of the CIT(A) as he has simply directed the Assessing Officer to calculate
the write off/write back on the basis of guidelines given in the impugned
order. Hence, this ground of appeal of the assessee is dismissed.
Ground No.3.10 relates to development expenditure of 2238.70
lakhs.
The Assessing Officer observed that the assessee has failed to
produce the details in conformity with the direction of the ITAT on similar
issues for earlier years such as bifurcation of capital expenditure and
revenue expenditure/amount spent on developing mines and
commercially operating mines included under the head “development
23 Mah anadi Coalf ield Ltyd.,
expenditure”. Therefore, the Assessing Officer did not accept the
contention of the assessee as 100% revenue expenditure and hence,
rejected the claim of the assessee.
On appeal, referring to the decisions of the Tribunal in assessee’s
own case for the assessment years 1999-2000 to 2002-03 and also for
the assessment year 2004-05 to 2007-08, the CIT(A) has directed the
Assessing Officer to follow the direction of the Tribunal regarding
segregation of expenses under the head “development expenditure”.
Before us, ld A.R. submitted that as per accounting policy
consistently followed by the assessee, the development expenditure is
considered under the head “fixed assets/capital work in progress. During
the year under consideration, the assessee has claimed entire amount
incurred towards development expenditure as revenue expenditure. It
was submitted by ld A.R. that similar claim of the assessee has been
allowed by the revenue for the assessment years 2012-13 onwards.
In the present year under consideration, the CIT(A) has directed the
Assessing Officer to follow the direction of the Tribunal referred to supra
regarding segregation of expenses under the head “development
expenditure”. Hence, we see no error in the order of the CIT(A), which is
hereby confirmed and ground of appeal of the assessee is dismissed.
The common Ground No.4 of appeal for the assessment year 2010-
11 and 2011-12, the grievance of the assessee is that the CIT(A) erred in
allowing short credit of TDS by Rs.926.53 lakhs and Rs.49.01 lakhs.
24 Mah anadi Coalf ield Ltyd.,
The Assessing Officer has not allowed the full credit of TDS as
claimed by the assessee u/s.143(3) of the Act. The Assessing Officer has
allowed credit of Rs.8311.51 lakhs as against total claim of Rs.9238.04
lakhs.
The CIT(A) has directed the Assessing Officer to allow credit of total
TDS as claimed on the basis of TDS certificates after verifying the same
with NSDL following the decision of the Tribunal in assessee’s case for the
assessment year 2008-09 in ITA No.136/CTK/2012. Hence, the assessee
should not have any grievance as to the allowance of short deduction of
TDS since the CIT(A) has directed to allow credit of TDS on verification.
Hence, this ground of appeal of the assessee is dismissed for the
assessment year 2010-11 and 2011-12.
Ground No.3(1) relates to reduction in value of stores due to
obsolescence and shortage of stores for the assessment year 2011-12.
The brief facts of the case are that the Assessing Officer found that
the assessee has provided an amount of Rs.21.72 lakhs towards
obsolescence of stores, which, as per the assessee, was arrived at after
technical appraisal of stores articles which mainly pertains to spares store
of those machineries and HEMM which has already been scrapped. The
Assessing Officer disallowed on the ground that the assessee could not
furnish the details as well as evidence thereof, which was confirmed in
appeal by the CIT(A)
25 Mah anadi Coalf ield Ltyd.,
Both the parties agreed that identical issue has been decided by the
Cuttack Bench of the Tribunal in assessee’s own case for the assessment
years 2003-04 to 2007-08 in ITA Nos.226 & 277/CTK/2009 and ITA
Nos.456, 457 & 458/CTK/2010. The decision is also followed in the
assessment year 2008-09 in ITA No.73/CTK/2012 order dated 3.1.2018
The relevant portion is reproduced as under:
“We have heard both the parties and perused the material available on record. We find that the authorities below have disallowed the claim of the assessee mainly on the ground that no details thereof could be furnished by the assessee. The ld A.R of the assessee vehemently contended that the details thereof wee produced before the ld CIT(A) including the area-wise details of amount charged against non-moving stores and spares. He also submitted a copy of such details which is found placed at page 165 of the paper book. If that is so, in our considered view, without examining such details furnished before him the CIT(A) is not justified in upholding the disallowance as made by the AO. Therefore, for the ends of justice, we set aside the impugned order of the ld CIT(A) and restore this issue to the file of the AO for consideration afresh in the light of details furnished by the assessee when claim as mandatory percentage to actual identification has to be considered to be established by the assessee and pass necessary consequential order in accordance with law giving due and proper opportunity of being heard to the assessee.”
Facts being identical for the assessment year under consideration,
following the decision of the Tribunal as above, we set aside the order of
the CIT(A) and restore the file to the Assessing Officer for consideration
afresh in the light of details furnished by the assessee after affording
reasonable opportunity of hearing to the assessee. Hence, this ground is
allowed for statistical purposes.
26 Mah anadi Coalf ield Ltyd.,
In Ground No.3(1) for the assessment year 2012-13, the grievance
of the assessee is that the CIT(A) erred in confirming the addition of
Rs.21.47 crores made by the Assessing Officer on account of difference
between interest income as per accounts and as per 26AS.
The Assessing Officer found that the assessee had shown
Rs.1196.28 crores as receipts from interest income whereas as per 26AS
statement, the receipts come to Rs.1217.75 crores. The assessee
explained that the information submitted by banks relating to interest was
not fully correct as they sometimes furnish data as per maturity of FDRs
whereas the assessee was accounting for the income on accrual basis.
The Assessing Officer did not accept the explanation of the assessee and
for want of evidence, added the difference amount of Rs.21.47 crores to
the total income of the assessee.
On appeal, the CIT(A), the assessee submitted that it had shown
income of Rs.1197.52 crores whereas the Assessing Officer has
mistakenly taken it as Rs.1196.28 crores. However, the CIT(A) observed
that the interest income reflected in 26AS cannot be ignored.
Accordingly, he directed the Assessing officer to add the difference of
Rs.20.23 crores as against Rs.2147 crores.
Before us, it was explained by ld A.R. that the assessee is a PSU
and following mercantile system of accounting and accordingly all the
income and expenditure are being accounted for on accrual basis. The
27 Mah anadi Coalf ield Ltyd.,
assessee is an organized and large entity. The PSU maintains proper
books of account and suitable evidence for all income accrued and
expenses incurred. Suitable evidence depends on various factors like
nature of income/payment, nature of claimant, nature of payer/payee,
place of receipt/payment, amount of receipts/payment etc. In such an
organization there is suitable internal check and control. Business is
carried in a professional manner. Moreover, the accounts of the assessee
are subjected to audit by the Statutory auditor, CAG and other Govt,
agencies and none of them has raised any point in this respect. Ld A.R.
submitted that the assessee has shown an interest income of 1197.52
crores and not Rs. 1196.28 crores as mentioned by the Ld. AO. The
amount of Gross interest reflected in Form 26AS as on 13.01.2015 is Rs.
1181.54 crores u/s. 194A and Rs. 0.65 crore u/s. 193, totaling to Rs.
1182.19 crores which is much lower than the amount of interest income
shown by the assessee. This clearly establish that Form No. 26AS is not at
all a reliable document for arriving at the income of the assessee.
Moreover, the assessee is correctly accounting its income and expenditure
on accrual basis irrespective of amount reflected in 26AS. Ld A.R.
referred to Copy of Form 26AS for FY 2011-12 along with its summary
contained at Page no. 2-28 of P/B. ld A.R. also referred to a set of
voucher contained at Page no. 83-91 of P/B, which contains the voucher
relating to creation of FDR, booking of interest, booking of TDS and
maturity of FDR on the basis of statement/bank advice given by bank .
This will clearly explain the method of accounting followed by the
28 Mah anadi Coalf ield Ltyd.,
assessee in respect of FDRs and interest thereon. It is pertinent to
mention here that in the immediately preceding and succeeding financial
years also i.e. FY 2010-11 and 2012-13 the amount of income shown by
the assessee is always higher than the amount appearing in Form 26AS.
To support this, ld A.R. referred to Copy of Form 26AS along with its
summary contained at Page no. 29-82 of P/B for the FY 2010-11 & 2012-
13 respectively. Hence, ld A.R. prayed for deletion of the addition.
Ld D.R. supported the orders of lower authorities.
After hearing the submissions of both the sides, we find that the
amount of Gross interest reflected in Form 26AS as on 13.01.2015 is Rs.
1181.54 crores u/s. 194A and Rs. 0.65 crore u/s. 193, totaling to Rs.
1182.19 crores which is much lower than the amount of interest income
shown by the assessee. From the above, it is clearly established that
there is difference in the 26AS and income shown by the assessee.
Moreover, the assessee is correctly accounting its income and expenditure
on accrual basis irrespective of amount reflected in 26AS. In view of
above, we remit the matter to the file of the Assessing officer to verify the
amount shown by the assessee and reflected in 26AS statement. If the
contention of the assessee is found to be correct, the Assessing Officer is
directed to allow the claim of the assessee. This ground of assessee for
assessment year 2012-13 is allowed for statistical purposes.
Ground No.3(6) of appeal for the assessment year 2011-12 relates
to addition of Rs.552.46 lakhs towards site expenditure.
29 Mah anadi Coalf ield Ltyd.,
The Assessing Officer found that the assessee has claimed
Rs.552.46 lakhs towards site maintenance through journal entry made on
31.3.2011. Since the assessee could not explain the basis of making such
provision on the last date of accounting period and furnish party wise
actual payment, the Assessing Officer disallowed the same.
On appeal, the CIT(A) upheld the action of the Assessing Officer on
the ground that the assessee has not been able to correlate the
documents and the basis of journal entry made.
Before us, ld A.R. explained that the assessee has details and same
can be produced and prayed for an opportunity to explain with evidence.
We, after considering the rival submissions, find that the assessee has
claimed Rs.552.46 lakhs towards site maintenance expenses through a
journal entry. The basis of the entry made by the assessee has not been
explained but as the ld A.R. explained and prayed for an opportunity to
substantiate its claim, we consider it appropriate to remit the issue to the
file of the Assessing officer to pass the issue afresh. Ground No.3(6) of
the assessee for assessment year 2011-12 is allowed for statistical
purposes.
Ground No.3(7) of appeal for the assessment year 2011-12 relates
to addition of Rs.305.32 lakhs made due to change in accounting method
for repair job.
30 Mah anadi Coalf ield Ltyd.,
The Assessing Officer found that due to change in the accounting
method of maintenance of expenditure on repair job regularly followed at
the Central Workshop book profit of the assessee has been reduced by
Rs.305.32 lakhs. Since the assessee could not substantiate the deviation
in respect of repair job, the Assessing Officer added the same to the total
income of the assessee.
On appeal, the CIT(A) observed that there is no clarity regarding
change in accounting method and not clear whether repairs expenses
were charged to P&L account and hence, upheld the addition.
We have heard the rival submissions, perused the orders of the
lower authorities and materials available on record. In the instant case,
the assessee had changed the accounting method towards expenditure on
repair job. The ld A.R.’s contention that the expenses incurred on repairs
jobs at the Central Workshop under finished good and work-in-progress
and due to such change, the profit for the year has been reduced by
Rs.305.32 lakhs and such expenditure incurred is revenue expenditure.
We find force in the submission of ld A.R. that due to change in
accounting method, the profit has been reduced and the expenditure is
only for repair jobs but same could not be substantiated and, accordingly,
we restore the issue to the file of the Assessing Officer and the Assessing
Officer shall examine the case and pass the order on merits. This ground
31 Mah anadi Coalf ield Ltyd.,
of appeal of the assessee for assessment year 2011-12 is allowed for
statistical purposes.
Common Ground No.3.4 of appeal for the assessment year 2013-14
and Ground No.3(5) of appeal for assessment year 2014-15 is as is
under:
“CSR expenses”
Ld A.R. did not press this ground for both the assessment years and
therefore, same is dismissed as not pressed.
Ground No.6 of appeal for the assessment year 2011-12 regarding
incorrect interest allowance u/s.244 is not pressed by ld A.R. and hence,
same is dismissed as not pressed.
Ground No.5 of appeal for the assessment year 2011-12 is that the
CIT(A) erred in not allowing the correct depreciation after considering the
sale of assets as per block assets concept and depreciation thereon.
We heard the rival submissions and perused the record of the case.
The assessee company has shown the gain on sale of assets as profit for
accounting purpose. As per section 32 of the Act the gain on sale of
assets is not taxable if the remaining assets are more than that and, the
depreciation should be allowed thereon. Therefore, we remit this issue to
the file of the Assessing Officer allow the correct depreciation by reducing
the value of block of assets by sale value. This ground of appeal of the
assessee for A.Y. 2011-12 is allowed for statistical purposes.
32 Mah anadi Coalf ield Ltyd.,
Ground No3(5) of appeal is against addition u/s.14A for
assessment year 2014-15 is not pressed due to smallness of amount and
hence, same is dismissed as not pressed.
Ground No.3(4) of appeal for assessment year 2014-15 is directed
against confirmation of addition of Rs.5.01 crores made on other
expenses .
The Assessing Officer found that the assessee has claimed Rs.6.19
crores as “other expense”. In response to Assessing Officer/s requisition,
the assessee submitted the details of Rs.6.19 crores. On perusal of the
same, the Assessing officer found that Rs.4.41 crores was incurred
towards “other welfare expenses” and Rs.0.60 crores was incurred
towards “miscellaneous -other resettlement”. Since the assessee failed to
justify the expenses, the Assessing Officer added the same to the total
income of the assessee.
The CIT(A) upheld the addition in the absence of required details
and explanations.
Before us, ld A.R submitted that the expenditure in question
pertains to employee welfare expenditure appearing as “other expenses”
under Note 25 of “welfare expenses” annexed to profit and loss account.
During the assessment proceedings, the assessee furnished the details of
expenditure but same were not considered. Ld A.R. submitted that
similar addition made in the assessment year 2007-08 has been deleted
by the CIT(A).
33 Mah anadi Coalf ield Ltyd.,
We heard the rival submissions, we find that the expenditure is
appearing under note 25 of “welfare expenses”. Ld A.R. submitted that
the assessee has sufficient materials to justify the expenditure.
Accordingly, we consider it appropriate to remit this issue to the file of the
Assessing Officer for verification and allow this ground of appeal of the
assessee for statistical purposes.
Others grounds raised by the assessee in all the assessment years
are general in nature, hence require no separate adjudication.
In the result, appeals of the assessee partly allowed for statistical
purposes.
Now we take up the appeals of the revenue for assessment years 2010-11 to 2014-15 in ITA Nos.397/CTK/2013,No.330/CTK/2014, ITA No.292/CTK/2015, ITA No.428/CTK/2015 & ITA No.268/CTK/2017.
Ground No.2(a) for the assessment year 2010-2011 and Ground
No.6 of appeal for the assessment year 2011-2012 is that the CIT(A)
erred in deleting the addition made towards VRS.
After hearing both the sides, we find that the Assessing Officer has
disallowed Rs.55.54 lakhs in the assessment year 2010-2011 and
Rs.106.18 lakhs in the assessment year 2011-2012 on the ground that
the did not explain the basis of such computation of provisions towards
VRS. But the CIT(A) deleted the addition observing that the claim of the
34 Mah anadi Coalf ield Ltyd.,
assessee is in conformity with section 35DAA which relates to
amortization of expenditure incurred under VRS. Ld D.R. could not
controvert the above findings of the CIT(A). Hence, we see no reason to
interfere with the order of the CIT(A) for both the assessment years and
hence, same is dismissed.
The next issue raised by the revenue is against deletion of
Rs.1431.90 lakhs and Rs.3759.58 lakhs towards community development
expenses for the assessment years 2010-11 and 2011-12, respectively.
We have heard the rival submissions, perused the orders of lower
authorities and materials available on record. The Assessing Officer did
not allow the claim of the assessee on the ground that the assessee failed
to produce any documentary evidence to prove that in villages
surrounding mining sites at Talcher/Ib valley and other places and even
at headquarters at Burla, the various community development
expenditure relating to creation of assets have been made in compliance
to any direction issued by Govt. of India/District Administration or any
other Competent authority. The ld CIT(A) following the decision of this
Bench of the Tribunal in assessee’s own case for the assessment years
2005-06 to 2007-08 in ITA Nos.50,51,52 & 53/CTK/2011 has deleted the
addition. Ld D.R. could not show any error in the order of the CIT(A).
Hence, this ground of appeal for the assessment year 2010-11 and 2011-
12 is dismissed.
35 Mah anadi Coalf ield Ltyd.,
The next issue is against deletion of Rs.86.34 lakhs towards
compensation of land for the assessment year 2010-2011.
Having heard the rival submissions, we find that the assessee has
debited compensation for land of rs.86.34 lakhs under the head “social
facilities expenses". The Assessing Officer disallowed the amount paid
towards compensation paid to land owners stating that the amount paid
relatable to acquisition of their land. The CIT(A) deleted the addition
observing that the amount was incurred in compliance to Orissa
Resettlement & Rehabilitation Policy, 2006’ and the same has been paid
for one-time payment in lieu of employment and training for self-
employment. This amount is reflected in the balance sheet of the
assessee for the year ending 31.3.2011. Since the amount has been paid
for the purpose of business operation, the CIT(A) has rightly deleted the
addition. We also observe that in the subsequent years, similar claim of
the assessee has been allowed by the revenue. Hence, we find no error in
his order, which is hereby confirmed and this ground of appeal of the
revenue is dismissed.
The next issue is against deletion of Rs.352.48 lakhs and Rs.829.61
lakhs towards environment/ecology/improvement expenses for the
assessment year 2010-11 and 2011-12.
36 Mah anadi Coalf ield Ltyd.,
The Assessing Officer has disallowed Rs.352.48 lakhs as against
claim of the assessee of Rs.467.64 lakhs towards
environment/ecology/improvement for the assessment year 2010-2011
for the reasons that the assessee did not file the details of such
expenditure. Similarly, for the same reason, the Assessing Officer
disallowed Rs.829.61 lakhs for the assessment year 2011-12. The CIT(A)
deleted the addition observing that the assessee has filed all the relevant
details before the Assessing Officer and all such payments are duly
audited by Statutory auditors and CAG. Even otherwise, it was stated
that similar claim of the assessee has been allowed in the preceding
assessment years.
We find that the expenditure incurred are in respect of tree
plantation, other environmental expenses, environmental monitoring cost
of air, water and noise and dust mitigating equipment, etc, which is
necessitated in the areas where coal mines are situated as per the
guidelines of Corporate Social Responsibility. Hence, we find no error in
the order of the CIT(A) as the expenditures are audited by the auditors
and reflected in the balance sheet of the assessee. Ae also find that
similar claim of the assessee has been allowed in the subsequent
assessment years. This ground of the revenue for the assessment years
2010-11 and 2011-12 is dismissed.
37 Mah anadi Coalf ield Ltyd.,
The next issue raised by the revenue is against deletion of
Rs.400.03 lakhs and Rs.461.91 lakhs towards social facilities expenses for
the assessment years 2010-11 and 2011-12, respectively.
The Assessing Officer has disallowed Rs.400.03 lakhs as against
claim of the assessee of Rs.451.95 lakhs on the ground that supporting
details were not furnished by the assessee in respect of expenditure
incurred towards social facilities, which was deleted in first appeal.
We have considered the rival submissions. The CIT(A) has deleted
the addition made by the Assessing Officer that in order sheet, it has
been mentioned that the required details have been furnished by the
assessee before the Assessing officer. Hence, it cannot be said that the
details as called for have not been furnished. We also find that the in
subsequent years identical claim of the assessee has been allowed by the
revenue. Hence, we do not find any reason to interfere with the order of
the CIT(A), which is hereby confirmed and ground of appeal of the
revenue is dismissed for the assessment year 2010-11 and 2011-12.
The next issue relates to loss on sale of discarded assets of
Rs.33.11 lakhs for the assessment year 2010-2011.
After hearing the rival submissions and perusing the orders of lower
authorities, we find that the Assessing Officer disallowed Rs.33.11 lakhs
claimed by the assessee on the ground that the accounting treatment for
transfer of fixed assets showing loss by the assessee cannot be
38 Mah anadi Coalf ield Ltyd.,
considered as correct so as to allow deduction in computation of profit &
gains from business. The CIT(A) on perusal of Annual reports & account
of the assessee for the financial year 2009-2010, observed that the
assessee has shown profit on sale of assets of Rs.1589.25 lakhs under the
head “other income” as per Schedule-4 to P&L account and claimed as
loss on sale/discarded assets of Rs.33.11 lakhs. Therefore, the CIT(A)
deleted the addition. Before us, Ld D.R. could not point out any specific
mistake in the order of the CIT(A), which is hereby confirmed and ground
of appeal of revenue for assessment year 2010-11 is dismissed.
The next issue involved in the appeals of the revenue is against
deletion of Rs.278.39 lakhs and Rs.4162.50 lakhs towards prospecting
and boring expenses for the assessment year 2010-11 and 2012-13,
respectively.
We find that identical issue has already been decided by the Co-
ordinate bench of the Tribunal in assessee’s own case for the assessment
years 2004-05 to 2007-08 in ITA Nos. 05,51 & 52/CTK/2011 order dated
12.9.2011, wherein, the Tribunal has upheld the action of the CIT(A) in
deleting the addition. In the year under consideration also, the CIT(A)
following the decision of the Tribunal has deleted the addition made by
the Assessing officer. Hence, we find no error in his order, which is
hereby confirmed and ground of appeal of the revenue is dismissed for
the assessment year 2010-11 and 2012-13.
39 Mah anadi Coalf ield Ltyd.,
The next issue is relating to deletion of Rs.337.89 lakhs, Rs.1255.42
lakhs, Rs.1913.00 lakhs, Rs.2656.00 lakhs and Rs.2288 lakhs for the
assessment years 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15,
respectively towards CMPDIL expenses.
The brief facts of the case are that the Assessing Officer has
disallowed the claim of the assessee towards CMPDIL expenses for want
of necessary details. Before the CIT(A), the assessee contended that the
Assessing officer has never asked for any details but disallowed the
expenditure without undertaking the subject. It was submitted that the
CMPDIL (Central Mines Planning & Design Institute) is another subsidiary
company of Coal India Limited having its head-quarter at Ranchi with
Regional Institute in different locations in India. They are providing
various services as per Memorandum of undertaking entered with MCL.
The CIT(A) segregated the services by CMPDIL in the impugned order and
deleted the addition made by the Assessing Officer stating that the
assessee has furnished the required details as called for, which is evident
from order sheet entry. Hence, the revenue is in appeal before us for all
the assessment years under consideration.
After hearing the rival submissions and perusing the orders of lower
authorities, we find that the expenditure is incurred towards services
rendered by CMPDIL as per MOU between the assessee and CMPDIL. We
also find that similar addition was made in the case of Northern Coalfields
40 Mah anadi Coalf ield Ltyd.,
Limited and the Jabalpur Bench of this Tribunal vide order dated 5.5.2015
in ITA No.18/Jab/2014 and ITA No.55/Jab/2014 for the assessment year
2010-11 has deleted the addition by observing as under:
“46. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We have noted that these expenses have been treated as capital expenses by the Assessing Officer only on the ground of the 'enduring benefit in nature' which by implication suggests that it's a preparatory work for mine development but then what such an approach overlooks is that all the mines are revenue mines and the extraction of coal, on commercial basis, has already started in these cases. Therefore, Assessing Officer's observation to the effect that "extraction of coal is a long process and the nature of work done have an enduring benefit to the assessee" could have been relevant when coal extraction process had not started but that is not the case here. We have noted that the CMPDIL (i.e. Central Mine Planning & Design Institute), a subsidiary of the Coal India Limited, is admittedly providing technical support and services to the assessee it the mining operations. It conducts mine survey in the existing mines in order to ensure that the mining is carried out in the right direction and in the optimal manner. We have also noted that it is beyond and dispute and controversy that none of the mines of the assessee is a development mine, and, as such)' the expenses of this nature cannot said to be relating to preparatory work or of capital nature for that reason. When mining itself is an ongoing activity and the mines are in the nature of revenue mines, it is illogical to proceed on the basis that the expenditure I connection with such an ongoing mining process can be treated as capital in nature as in the nature of a preparatory activity. All the eleven mines of the assessee are revenue mines, and, therefore, any expenditure incurred by the assessee on its mines can only be in respect of the revenue mines only. The observations made by the CIT(A) to the effect that there is nothing to show that these expenses are incurred in respect of revenue mines, is, therefore, wholly unwarranted and it only shows his not applying the mind to the facts of the case. While the AO disallowed the expenses that it is capital expenditure in nature, the CIT(A) upheld it on the ground that there is no material to come to the conclusion that this expenditure pertains to revenue mines. The basis on which the CIT(A) upheld the disallowance is clearly wrong. We have also noted that in the earlier assessment years, this issue has been decided in favour of the assessee and matter rests there. We have
41 Mah anadi Coalf ield Ltyd.,
also noted that this issue has been decided, in assessee's own case for the assessment year 2008-09, in favour of the assessee by a coordinate bench of this Tribunal. Such deviations from accepted past history of the case, as canvassed before us by the revenue authorities, are made only in exceptional situation and no such case has been successfully made out before us. In view of these discussions, as also bearing in mind entirety of the case, we deem it fit and proper to direct the AO to delete this disallowance of Rs.1973.98 lakhs as well. The assessee gets the relief accordingly.”
Respectfully following the judicial precedence and decision of the
Co-ordinate Bench of this Tribunal, we uphold the findings of the CIT(A) in
deleting the addition made for all the assessment years under
consideration. Thus, this ground of appeal is dismissed.
The next issue raised by the revenue is against deletion of
Rs.1487.46 lakhs towards cost of exploration and development
expenditure.
We have heard the rival submission, perused the orders of lower
authorities and materials available on record. The assessee has claimed
separately in the computation of income of Rs.1487.46 lakhs towards the
cost of exploration and other development expenditure. The Assessing
Officer disallowed Rs.1487.46 lakhs. Before the CIT(A), it was submitted
by the assessee that the above expenditure incurred in respect of blocks
in one five year plan period is kept into capital work-in-progress till the
end of subsequent two-five year plan periods for formation of projects
beyond which it is written-off by way of amortisation over a period of 20
years or working life of the mines whichever is less and these facts have
42 Mah anadi Coalf ield Ltyd.,
been clearly disclosed in Accounting Policy(Schedule-O). The CIT(A)
refers to section 35E(1) of the Act and relying on the judicial decisions
observed that in the case of winning of minerals, exploration is an
essential pre-activity. Expenses incurred towards exploratory and
prospecting activities are normally of capital expenditure but amortization
thereof over a period of ten years has specially been provided for and
same will be allowed in equal instalments over a period of 10 years
against the profit arising from the commercial exploitation of any mine.
Hence, the CIT(A) directed to work out the amortisation of qualifying
expenditure as per section 35E(1) of the Act. This finding of fact was not
controverted by ld D.R. during the course of hearing. Hence, we dismiss
this ground of appeal of the revenue and uphold the findings of the
CIT(A).
The next raised by the revenue is against deletion of addition on
account of overburden removal expenditure of Rs.50383.53 lakhs,
Rs.9875.22 lakhs, Rs.159043.50 lakhs, Rs.129209.00 lakhs and
Rs.126929.70 lakhs for the assessment years 2010-11, 2011-12, 2012-
13, 2013-14 and Rs.2014-15, respectively.
The Assessing Officer has disallowed the expenditure incurred by
the assessee towards overburden removal expenditure of Rs.50383.53
lakhs, Rs.9875.22 lakhs, Rs.159043.50 lakhs, Rs.129209.00 lakhs and
43 Mah anadi Coalf ield Ltyd.,
Rs.126929.70 lakhs for the assessment years 2010-11, 2011-12, 2012-
13, 2013-14 and Rs.2014-15, respectively.
Before the CIT(A), the assessee relied on various judicial decisions
including the decision of this Bench in the case of ACIT vs. Patnaik
Minerals Pvt Ltd., and others for A.Y. 2009-10, wherein, it has been
categorically held that the expenditure incurred on removal of overburden
in coal in mining is a revenue expenditure, The CIT(A) following the
decision of ITAT, Jabalpur in the case of Northern Coalfields Ltd vs ACIT in
ITA No.42 & 43 of 2002 and also the decision of this Bench of the Tribunal
in the case of Patnaik Minerals Pvt Ltd. (supra) has deleted the addition
made by the Assessing Officer.
We heard the rival submissions, perused the orders of lower
authorities and materials available on record. The dispute arise in this
ground of appeal is whether the expenditure incurred on removal of
overburden in coal is allowable expenditure or not. We find that similar
issue arose in the case of Northern Coalfield ltd, wherein, on similar facts,
the Jabalpur Bench of the Tribunal after a thorough and detailed
discussion on the issue, has deleted the addition. The relevant portion is
reproduced hereunder:
“40. We are unable to find any legally sustainable merits in this objection either. “The criterion on the basis which call is taken as to be whether a mine can be treated as a development mine or as a revenue mine is, as we have noted in paragraph 22 earlier in this order, is uniform all along not only in this case of this assessee but
44 Mah anadi Coalf ield Ltyd.,
in the case of other similarly placed assessees, and the revenue authorities have accepted that criterion all along. It is a purely a factual matter which permeates through different assessment years, and for the detailed reasons discussed earlier, there is no good reason to disturb this criterion. In any case, the authorities below have neither suggested any alternative criterion, which will be appropriate on the facts of this case, nor have they have demonstrated that the facts implicit in their stand actually exist. As a matter of fact, the apprehensions of the Assessing Officer seem to be purely hypothetical and in the realm of conjectures and surmises inasmuch as not one instance is shown in which the overburden removal expenses, booked in the accounts as revenue expenditure, actually pertain to removal of overburden only at the surface level and should be, therefore, treated as capital expenditure. Similarly, while -declining the deduction of overburden removal as capital expenditure, the Assessing Officer, as also the CIT(Aj, has not treated any part of this expenditure, which essentially includes the expenditure incurred on removing overburden in the process of coal mining and production, as revenue expenditure. It seems to be more or less an undisputed position, given the nature of overburden removal expenses as we have discussed earlier, that a part of the overburden removal expenses is admittedly revenue expenditure, but if we have to uphold the stand of the authorities below, entire overburden removal expenses is required to be treated as capital expenditure eligible only for amortization under section 35D. In any case, there is nothing on record to establish, or even suggest, that expenses incurred on removal of overburden at the surface level, which were capital expenditure in nature, have been claimed as revenue deduction on the strength of coal mining in another piece of land within that coal mine.
In view of these discussions, as also bearing in mind entirety of the case, we consider it fit and proper to direct the Assessing Officer to delete the disallowance of Rs 2,05,616.72 lakhs. The assessee gets the relief accordingly.”
This findings of the Tribunal has been upheld by the Hon’ble M.P.High
Court in ITA No.71/Jab/2014 order dated 24.4.2015.Following the above
decision, The Jabalpur Bench of this Tribunal in the case of Norther
Coalfield Ltd for the assessment year 2011-12 has deleted the similar
addition. We also find that similar addition made in the case of Western
Coalfields Ltd., for the assessment year 1978-79 to 1984-85 by the
45 Mah anadi Coalf ield Ltyd.,
Assessing Officer was deleted by the CIT(A) and on further appeal, the
Nagpur Bench of this Tribunal has upheld the findings of the CIT(A).
Before us, ld D.R. could not place any contrary judgment of the higher
forum to controvert the above decisions of the Tribunal and also High
Court. The CIT(A) has followed the decision of the Tribunal while deleting
the addition made by the Assessing Officer. Hence, we do not find any
reason to interfere with the order of the CIT(A), which is hereby
confirmed and this ground of appeal of revenue is dismissed for the
assessment years 2010-11 to 2014-15.
The next issue relates to deletion of Rs.3371.57 lakhs and
Rs.6481.34 lakhs towards admissibility of additional depreciation for the
assessment years 2010-11 and 2011-12, respectively.
The Assessing Officer has disallowed the claim of additional
depreciation on the ground that the assessee is not engaged in the
business of manufacturing or production of any article or thing. On
appeal, the CIT(A) deleted the addition made by the Assessing Officer by
following the various judicial decisions including the Hon’ble Supreme
Court in the case of CIT s. Sesa Goa Ltd., 271 ITR 331 (SC).
Having heard the rival submission and perusing the materials
available on record, we find that the assessee company is producing coal
and the coal became excisable vide Notification No.1/2011-Central Excise
of Ministry of Finance, Department of Revenue w.e.f 1.3.2011. The
46 Mah anadi Coalf ield Ltyd.,
Hon’ble Supreme Court in the case of Sesa Goa Ltd (supra) has held as
under:
Extraction and processing of ore amounts to "production" within the meaning of s. 32A(2)(b)(iii) since ore is "a thing" which is the result of human activity or effort—Some other provisions of the Act, particularly s. 33(1)(b)(B) r/w item No. 3 of Fifth Schedule and s. 35E also show that mining of ore is treated as "production"— Language of these sections is similar to the language of s. 32A(2)— There is no reason to assume that the word "production" was used in a different sense in s. 32A—Consequently, assessee was entitled to investment allowance in respect of machinery used in mining activity.”
Hence, since the coal is coming under the purview of mining ore and is
treated as production, following the decision of the Hon’ble Supreme
Court in the case of Sesa Goa (supra), we hold that the CIT(A) is fully
justified in deleting the addition for the assessment years 2010-11 and
2011-12. We also observe that in the subsequent assessment years, the
revenue has not accepted the contention of the assessee on this issue.
This ground of appeal of the revenue is dismissed for both the assessment
years under consideration.
The next issue relates to deletion of Rs.5128.76 lakhs and
Rs.2321.01 lakhs towards employee’s remuneration and benefits for the
assessment years 2010-11 and 2011-12, respectively.
We have heard the rival submissions, perused the orders of lower
authorities and materials available on record. For the assessment year
2010-11, the Assessing Officer has disallowed Rs.3555.00 lakhs towards
performance based pay pertaining to years 2007-08 and 2008-09 on the
47 Mah anadi Coalf ield Ltyd.,
ground that the liability was ascertained and had crystalised during
financial year 2009-10 and Rs.1573.76 lakhs towards superannuation
benefits pertaining to years 2006-07, 2007-08 and 2008-09 on the
ground that the assessee has not produced such scheme. Similarly, for
the assessment year 2011-12, the Assessing Officer found that the
provision made by the assessee towards incremental liability for various
employees benefit schemes and remuneration on the basis of actuarial
valuation, which is not contingent in nature and, therefore, disallowed
Rs.2321.00 lakhs.
On appeal before the CIT(A), it was submitted that the liability
towards performance related pay and superannuation benefits has
accrued and crystallised during the year under consideration, which is
evident from the Office Memorandum dated 2/7.5.2009 issued by Coal
India Limited, the holding company of the assessee. Based on the said
Office Memorandum and also relying on judicial decisions, the CIT(A)
deleted the addition. It was informed during the course of hearing that
no such addition has been made in the subsequent assessment years
against the claim of the assessee. Therefore, we see no reason to
interfere with the order of the CIT(A) and dismiss this ground of appeal of
the revenue for the assessment year 2010-11 and 2011-12, respectively.
The next issue relates to deletion of Rs.1694.10 lakhs made on
account of provisions.
48 Mah anadi Coalf ield Ltyd.,
The Assessing Officer found that in the computation of return of
income, the assessee has added provision of Rs.401.33 lakhs to the
returned figure. The Assessee could not explain how gross provision
debited for Rs.1696.10 lakhs could be considered as accrued liability
which has arisen and crystalised during the financial year 2009-10 and
why unascertained liability should not be a mere provision of contingent
in nature.
In the appellate proceedings before the CIT(A), the assessee
furnished the details of provisions and the total being Rs.688.82 lakhs,
whereas the Assessing Officer mentioned total of Rs.1696.10, which is
apparent mistake on record. It was further submitted that the Assessing
Officer has added the positive items only and left the negative total of
Rs.1294.77 lakhs, the details of which, are mentioned in the impugned
order. It was also submitted that the assessee has itself added the
provision of Rs.401.33 lakhs in the computation of income from such
addition, the amount towards obsolescence of store (Rs.-2.09 lakh) and
shortage of stores (Rs.5.08 lakh) has been claimed separately. Hence,
the net addition should have been Rs.398.34 lakhs (Rs.401.33 lakhs –
(Rs.5.08 lakhs – Rs.2.09 lakhs). Hence, this has resulted into double
effect i.e. of Rs.5.98 lakhs, which should be allowed.
49 Mah anadi Coalf ield Ltyd.,
The CIT(A) considered the submissions of the assessee and also
relied on the Annual Reports & accounts of the assessee for the financial
year 2009-10 and found that as per Schedule-16(A) to the P&L account ,
the provision is Rs.401.33 lakhs. The Assessing Officer has taken positive
items but left behind the negative items and, accordingly, deleted the
addition of Rs.1289.78 lakhs. Regarding the submission of the assessee
that net addition in the computation of taxable income should have been
Rs.398.34 lakhs, the CIT(A) directed the Assessing Officer to examine it
from the record and take remedial measures as per the provisions of the
Act.
Having heard the rival submissions, we see no reason to interfere
with the order of the CIT(A) on this issue, which is hereby confirmed and
ground of appeal of the revenue is dismissed.
The next issue relates to deletion of contribution to rehabilitation
fund of Rs.5889.12 lakhs and Rs.6125.28 lakhs for the assessment years
2010-11 and 2011-12, respectively.
Identical issue had come up for adjudication in assessee’s own case
for the assessment year 2005-06 to 2007-08 in ITA Nos.51,52 &
53/CTK/2011, wherein, the Tribunal has confirmed the deletion of
disallowance by the CIT(A) in the appeals filed by the revenue. The
relation portion of findings of the Tribunal is as under:
50 Mah anadi Coalf ield Ltyd.,
“13. The learned AR of the assesses reiterated the submissions as were made before the learned CIT(A) and submitted that the assessee Company has contributed the aforesaid amount under the head "Contribution to Rehabilitation Fund” under the direction of Govt, of India, Ministry of Coal conveyed to CIL as additional levy from all the subsidiaries except ECL and BCCL since these two companies are already sick and additional burden of levy may cause disharmony. On receipt of the said letter by CIL, the Board of Directors of CIL decided and instructed all its subsidiaries to pay @ ?6 per Ton of dispatch of coal to CIL. These facts could not be negated by the Revenue before us. Whenever the assessee is able to establish that the assessee Company has incurred the expenditure on the directions/instructions of the Central/State Government and other Govt, organisation which are having direct control over the business of the assessee Company then the same are allowable as deductions as business expenditure u/s.37(l) of the income- tax Act,1961. This was so held by the ITAT, Cuttack Bench in assessee's own case for the Assessment Years 1999-2000 to 2002-03. Since the assessee has paid the amount in question under the direction df the Ministry of Coal, Government of India, the ld IT(A) is justified in deleting the disallowances relying on the above order of the ITAT, Cuttack bench holding the same as business expenditure allowable u/s.3791). We, therefore, uphold the impugned order of the ld CIT(A) on this issue and dismiss the ground raised by the revenue.”
Following the judicial precedent, we dismiss this ground of appeal of the
revenue for the assessment years 2010-11 and 2011-12, respectively.
The next issue relates to deletion of prior period expenses of
Rs.312.65 lakhs and Rs.2821.46 lakhs for the assessment years 2010-11
and 2011-12, respectively.
We find that a similar issue arose for consideration before the
ITAT, Nagpur in the case of Western Coalfields Ltd in ITA
Nos.164/Nag.1986 for the assessment year 1979-80, wherein, the
Tribunal upheld the findings of the CIT(A) observing that in such line of
business, it is not possible to have the full items of expenses incurred at
once given time. As and when the debit notes are raised the same will
have to be debited to the accounts. In the present case, the CIT(A)
observed that the expenditure is an outcome of crystalisation of liability
51 Mah anadi Coalf ield Ltyd.,
rather than a result of any error or omission. The CIT(A) referred to
CBDT Notification No.S.O.69€ dated 25.1.1996 ( 218 ITR (St) 1, wherein,
the CBDT has clarified that the term ‘prior period items’ means material
charges or credits which arise in the previous year as a result of errors or
omissions in the preparation of financial statements of one or more
previous years and also further clarification that the charge or credit
arising on the outcome of a contigency, which at the time of occurrence
could not be estimated accurately shall not constitute the correction of an
error but a change in the estimate and such an item shall not be treated
as a prior period item. This finding of fact of the CIT(A) was not
controverted by ld D.R. during the course of hearing. Hence, respectfully
following the decision of the ITAT Nagpur Bench in the case of Western
Coalfield Ltd. (supra), we dismiss this ground of appeal of the revenue for
the assessment year 2010-11 and 2011-12, respectively.
The next issue relates to deletion of Rs.520.40 lakhs towards
training expenses for the assessment year 2010-11.
The Assessing Officer observed that although in the books of
account, a sum of Rs.630.50 lakhs towards training expenses includes a
sum of Rs.520.40 lakhs levied by the Coal India Limited @ 50 paise per
ton of coal dispatched, in reality such levy at fixed rate is not directly
related to any training expenses incurred. Therefore, he made the
addition.
52 Mah anadi Coalf ield Ltyd.,
The CIT(A) deleted the addition by observing as under:
“I have gone through the related documents in respect of training expenses incurred by the appellant company under the broad head “social facilities expenses”. The expenditure in question is levied by Coal India Ltd., the holding company on coal produced on account of payment to the Indian In statute of Coal Management, Ranchi. This act has been disclosed at para No.14.2 to Notes on accounts (Schedule-F) of the Annual Report & Accounts of the appellant company. Similar expenditure i.e. apex office expenditure was disallowed by the AO in the earlier years i.e. AY 2005-06, 2006-07 & 2007-08. On appeal, the above disallowance was deleted by the CIT(A). On second appeal by the Department, the ITAT, Cuttack has dismissed the appeal on the above point in ITA No.051, 052 & 053/CTK/2011. In view of the above, the disallowance of Rs.520.40 lakh made by the AO is deleted.”
No contrary decision was placed on record by the ld D.R. It
was also submitted before us that in the subsequent years, the revenue
has not made any such disallowance. Hence, we dismiss this ground of
appeal of the revenue and uphold the findings of the CIT(A).
The next issue raised by the revenue is against deletion of
Rs.2000.00 lakhs towards renovation of railway siding.
The facts of the case are that the assessee has incurred
Rs.2000.00 lakhs towards repair of railway tracks and claimed the same
as deduction. The Assessing Officer disallowed the same on the ground of
non-current repair expenditure having long term benefits for the
company.
53 Mah anadi Coalf ield Ltyd.,
Before the CIT(A), the assessee submitted a break-up of the
expenditure on repair of rail tracks and submitted that the assessee has
deposited total advance of Rs.3335.94 lakhs with Railways against which
a deduction of Rs.700.13 lakhs is made by railways towards general
charges and departmental charges upfront. It was submitted that out of
fund available for execution of work, Rs.2223.39 lakh was incurred till
June, 2011, to substantiate that the total expenditure till June, 2011 was
Rs.2923.52 lakhs (Rs.700.13 lakhs + Rs.2223.39 lakhs). The assessee
relied on the decision of Hon’ble Calcutta High Court in the case of
Cultural Enterprises Corp vs CIT, 196 ITR 488 (Cal) and P&H High Court
in the case of CIT vs. Vishal Paper Ind, 351 TIR 478 (P&H). The CIT(A)
by following the above said decisions relied by ld A.R. of the assessee
deleted the addition.
We have heard the rival submissions, perused the orders of
lower authorities and materials available on record and also perused the
decisions relied upon by ld CIT(A) in the impugned order. In the case of
Cultural Enterprises Cor (supra), it has been held that even where a sum
of money is spent for repairs in a particular year because of the fact that
regular repairs are allowed to fall in arrears and repairs on an extensive
scale have to be undertaken to remedy the effect of several years’
negligence, the expenses for such arrears are allowable. Similarly, in the
case of Vishal Paper Industries (supra), it has been held that the increase
of life by repair and maintenance of the existing assets beyond their
54 Mah anadi Coalf ield Ltyd.,
original estimated economic life could not be a ground to return a finding
that it was not a case of repairs. We find that ld D.R. could not point out
any specific error in the order of the CIT(A) or place any positive material
on record that the amount spent on repair of railway tracks are not
allowable expenditure. In view of above, we uphold the findings of the
CIT(A) and dismiss this ground of appeal of the revenue.
The next issue relates to deletion of disallowance u/s.14A of
the Act of Rs.189.74 lakhs and Rs.516.59 lakhs towards for the
assessment year 2012-13 and 2013-14, respectively.
We have heard the rival submissions, perused the orders of
lower authorities and materials available on record. In the instant case,
the assessee had received tax free income of Rs.18.32 crores from
interest on 8.5% tax free bonds, interest on IRFC bonds and dividend
from mutual fund. The Assessing officer observed that the value of assets
which yielded the above income was Rs.478.53 crores as on 31.3.2012
and the expenditure towards finance cost claimed by the assessee was
Rs.5.38 crores and hence, the Assessing Officer resorted to Rule 8D and
calculated the disallowance u/s.14A at Rs.1.897 crores. Similarly, in the
assessment year, the Assessing Officer calculated the disallowance
u/s.14A of the Act at Rs.5.1659 crores.
55 Mah anadi Coalf ield Ltyd.,
On appeal, the CIT(A) directed the Assessing Officer to delete
the addition made u/s.14A of the Act for both the assessment years under
consideration.
We have heard the rival submissions, perused the orders of
lower authorities and materials available on record. The Assessing Officer
on perusal of audit report found that the amount of deduction
inadmissible in terms of section 14A in respect of expenditure incurred in
relation to income which does not form part of the total income, whereas
the value of assets which yielded income and not includible in the total
income and calculated the disallowance u/s.14A of the Act. On appeal,
the CIT(A) directed the Assessing Officer to delete the addition. We
notice that sub-section(1) of section 14A provides that for the purpose of
computing total income under chapter IV of the Act, no deduction shall be
allowed in respect of expenditure incurred by the assessee in relation to
income which does not form part of the total income under the Act. In the
present case, the Assessing Officer has not given any reason for
calculating the disallowance. The assessee submitted that there were no
borrowings except very old for specific purposes. The CIT(A) in the order
has also stated that the Assessing Officer has not verified whether the
differential amount of the asset has come from any borrowing by the
assessee or it is simply the investment from the reserve & surplus. We
are of the substantive view and deem it proper to restore the issue back
to the file of the Assessing Officer to verify whether the assessee has
56 Mah anadi Coalf ield Ltyd.,
borrowed money or surplus from reserve & surplus amount and redecide
the issue afresh as per law and after giving opportunity of hearing to the
assessee. This ground of appeal of the revenue is allowed for statistical
purpose for the assessment year 2012-13 and 2013-14, respectively.
The next issue relates to deletion of disallowance towards
reclamation of land and Mines closure expenditure of Rs.5935.75 lakhs,
Rs.10821.00 lakhs, Rs.6474.00 lakhs and Rs.7012.00 lakhs for the
assessment years 2011-12, 2012-13, 2013-14 and 2014-15, respectively.
We have heard the rival submissions, perused the orders of
lower authorities and materials available on record. The Assessing Officer
has disallowed the claim of the assessee the above provision should not
be allowed as business expenditure. The CIT(A) observed that the
assessee has created the provision for mines closure plan as per the
guidelines of the Ministry of Coal, Government of India, which states that
the assessee is to prepare the plan and divide the expenditure among
useful life of the mines by creating provision for such in each year.
Further, the guidelines required the company financial assurance by
opening an Escrow account with the Coal Controller Organisation as
exclusive beneficiary. Therefore, the assessee company has made a fresh
provision for expenditure towards mines closure plan and has reversed
the earlier provision booked under the head reclamation of land. Hence, in
view of the guidelines, the assessee has deposited in the Escrow Account
57 Mah anadi Coalf ield Ltyd.,
the provision. We find no good reason could be given by ld D.R. pointing
out the requirement to interfere with the order of the CIT(A), which is in
the spirt of guidelines issued by Ministry of Coal, Government of India.
We, therefore, do not find any merit in this ground of appeal of the
Revenue and, accordingly, same is dismissed for the assessment years
2011-12, 2012-13, 2013-14 and 2014-15.
The next issue relates to deletion of addition of Rs.2834.00
lakhs towards CSR expenses for the assessment year 2012-13.
We have heard the rival submissions, perused the orders of
lower authorities and materials available on record. The Assessing Officer
has observed that the assessee has claimed Rs.28.34 crores as Corporate
Social Responsibility expenses. The Assessing Officer observed that the
assessee has not established the attributability of expenditure to the
business affairs of the assessee. Therefore, he disallowed the same. The
CIT(A)observed that there is an imposition on the assessee by section
135 of the Companies Act, 1913 read with Schedule VII thereto and
Companies (Corporate Social Responsibility) Rules, 2014 that the
assessee has to incur the expenditure and as per which, the assessee
company was bound to incur such expenditure. Corporate Social
Responsibility (CSR) is a concept which suggests that it is the
responsibility of the corporations operating within society to contribute
towards economic, social and environmental development that creates
58 Mah anadi Coalf ield Ltyd.,
positive impact on society at large. Although there is no fixed definition,
however the concept revolves around that fact the corporations need to
focus beyond earning just profits. It was also submitted before us ld
A.R. of the assessee in the subsequent assessment years, no such
addition has been made by the Revenue. Hence, we do not find any good
reason to interfere with the order of the CIT(A) and dismiss this ground of
appeal of the revenue for the assessment year 2012-13.
The next issue is against deletion of disallowance towards
service charges to CIL of Rs.5156.00 lakhs, Rs.5395.00 lakhs and
Rs.5522.00 lakhs for the assessment years 2012-13, 2013-14 and 2014-
15, respectively.
The Assessing Officer found that the assessee has claimed
Rs.5156.00 lakhs, Rs.5395.00 lakhs and Rs.5522.00 lakhs for the
assessment years 2012-13, 2013-14 and 2014-15, respectively towards
services charges to Coal India Limited. As the assessee could not justify
the payment, the Assessing Officer disallowed the same. Before the
CIT(A), the assessee delineated the services rendered by Coal India
Limited, for which, the assessee was required to make such payment to
the holding company. The CIT(A) found that similar disallowance was
deleted by the CIT(A) in earlier years and the same was confirmed by the
ITAT. Therefore, the CIT(A) deleted the addition made by the Assessing
Officer.
59 Mah anadi Coalf ield Ltyd.,
We after hearing the rival submissions, find no infirmity in the
order of the CIT(A) who has followed the decision of the Tribunal order
dated 12.9.2011 for the assessment years 2004-05 to 2007-08 in
assessee’s own case, wherein, it has been held as under:
“ 41. The amount in question is claimed by the assessee- Company to have been paid to Coat India Ltd., (CIL) @ Rs.5 per ton of coal produced towards rendering various services like procurement, foreign contract, marketing & corporate services based n agreement entered with them. The Assessing Officer observed that this payment to Coal India Limited has been worked out on the basis of Rs.5 per ton of coal produced and not for any expenses incurred or services rendered on actual basis by the CIL. Accordingly, he was of the view that this payment is basically on presumptive basis and cannot be said that the whole amount is spent for wholly and exclusively for business purpose. Thereafter, he examined the debit memo and concluded that the payment in question under the head of “apex office expenses” by the assessee to the holding company is totally predetermined and presumptive and without any logical linkage to the quantum of services rendered. This payment by the subsidiary to the holding company which is not commensurate with the services/benefits also cannot escape from the provision of section 40A(2). On the basis of above, the Assessing officer disallowed 10% of such expenditure. It was the stand of the assessee that Coal India Limited was formed by Govt. of India as a Public Sector Undertaking whole 100% shares are held by the President of India and controlled through Ministry of Coal. after making lot of permutation and combinations by CIL, it was found that if Rs.5 per ton of coal produced is contributed by all the subsidiaries are reimbursement of expenses, it will be sufficient to take care of apex office expenses and accordingly, the amount was paid in pursuance of an agreement entered into between the assessee and CIL. These facts are not disputed by the revenue. But, however, the ld AO has disallowed 10% of such expenses presumably u/s.40A(2) on adhoc basis. The AO has not justified such disallowance in his order. The ld CIT(A) in his order observed that books of account of the assessee company are audited where the comments of the Comptroller and Auditor General of India u/s.619(4) of the Companies Act, 1956 on the accounts are also available. We fin that the AO has not disputed the payment o apex office expenses to CIL. In view of the above, we have no hesitation to uphold the impugned order of the ld CIT(A) on this issue the AO having disallowed 10% out of such expenses without any cogent
60 Mah anadi Coalf ield Ltyd.,
reasons. Therefore, the ground raised by the revenue on this issue is dismissed.” We find no good reason could be given by ld D.R. pointing out the
requirement to interfere with the order of the CIT(A), which is in
consonance with the order of this Bench of the Tribunal in assessee’s own
case. Hence, we dismiss this ground of appeal of the revenue for the
assessment years 2012-13, 2013-14 and 2014-15, respectively.
The next issue relates to deletion of disallowance towards
grants to School and Institution of Rs.1674.00 lakhs, Rs.1868.00 lakhs
and Rs.2818.00 lakhs for the assessment years 2012-13, 2013-14 and
2014-15, respectively.
The Assessing Officer disallowed grants to school and
institution of Rs.1674.00 lakhs, Rs.1868.00 lakhs and Rs.2818.00 lakhs
for the assessment years 2012-13, 2013-14 and 2014-15, respectively
being not satisfied how such expenditure is related to business of the
assessee. On appeal, the CIT(A) deleted the disallowance on the ground
that since the mines are located in remote areas where no civil facilities
are facilities and in order to retain the employees at those areas, the
assessee was required to provide for schools and other institutions.
Therefore, the expenditure is relatable to welfare of the employees of the
company.
Before us, ld A.R. submitted that similar disallowance made
by the revenue in the case of Northern Coalfields Ltd., was deleted by the
ITAT, Jabalpur vide order dated 21.10.2013. Ld D.R. could not point out
61 Mah anadi Coalf ield Ltyd.,
any specific reasons to deviate from the findings of the CIT(A). Hence,
we dismiss this ground of appeal of revenue the assessment years 2012-
13, 2013-14 and 2014-15, respectively.
The next issue relates to deletion of disallowance of
Rs.7347.88 lakhs towards Central Excise duty.
We have heard the rival submissions, perused the orders of
lower authorities and materials available on record. In the instant case,
the assessee had created a provision of Rs.7347.88 lakhs regarding
central excise duty on coal to meet the statutory liability for the impugned
financial year. The Assessing Officer disallowed the above provision of
Rs.7347.88 lakhs on the ground that the assessee could not produce any
evidence of actual payment of Central Excise duty for the month of
march, 2011 and whether the provision made towards Central Excise
Duty was fully paid before the due date of filing of the return of income.
On appeal, before the CIT(A), the assessee submitted the details of excise
duty of Rs.7776.03 lakhs upto June, 2011. The CIT(A) observed that the
assessee has paid the amount more than the provision created for this
purpose. Therefore, he deleted the addition made by the Assessing
Officer. The above findings of the CIT(A) was not controverted by ld D.R.
and, therefore, we are inclined to uphold the order of the CIT(A) and
dismiss this ground of appeal of the revenue.
62 Mah anadi Coalf ield Ltyd.,
The next issue relates to deletion of disallowance made on
development expenditure of Rs.2457.35 lakhs for the assessment year
2011-12.
Before us, both the parties conceded that identical issue arose
for consideration before this Bench of the Tribunal in assessee’s own case
for the assessment years 2003-04 to 2006-07 on revenue’s appeals and
the Tribunal has upheld the findings of the CIT(A). In the present year
the CIT(A) has followed the decision of the Tribunal for the earlier
assessment years(supra). Hence, we dismiss this ground of appeal of the
revenue.
The next issue relates to deletion of disallowance of interest
paid to CIL of Rs.314.64 lakhs for the assessment year 2011-12.
We have decided similar issue in the assessee’s appeal in
paras 24-25 above. Hence, this ground of revenue is dismissed.
The next relates to deletion of disallowance towards repair expenses
of plant and machinery of Rs.157.45 lakhs for the assessment year 2011-
12.
We having heard the rival submissions and perused the orders
of lower authorities, find that the Assessing Officer disallowed the claim
of Rs.157.45 lakhs towards repairs expenses of plant and machinery on
the ground of documentary evidence. On appeal, the CIT(A) deleted the
addition treating the claim of expenditure as revenue expenditure
63 Mah anadi Coalf ield Ltyd.,
following the decision of Hon’ble apex court in the case of Sarvana Spg.
Mills Pvt Ltd., 293 ITR 201(SC) and Hon’ble P&H High Court in the case of
Vishal Paper Industries, 351 ITR 578(P&H). No contrary decision was
placed on record by the revenue. Hence, we uphold the findings of the
CIT(A) and dismiss this ground of appeal of the revenue.
The next issue relates to deletion of addition towards per tax
of Rs.168.54 lakhs for the assessment year 2011-12.
Having heard both the sides, we find that the amount towards
Perk Tax is not claimed as an expenditure, rather it is reflected in balance
sheet under the broad head “loans & advance”. Since there was no claim
by the assessee, there is no reason to disallow the same by the Assessing
officer. The CIT(A) has rightly deleted the addition made by the
Assessing Officer. Hence, this ground of revenue for the assessment year
2011-12 is dismissed.
The next which requires our adjudication in revenue’s appeal for the
assessment year 2014-15 relates to deletion of addition of Rs.4594.00
lakhs towards difference in opening stock of coal.
The Assessing Officer made an addition of Rs.4594 lakhs
being the difference in valuation of closing stock as on 31.3.2012 and
opening stock as on 1.4.2013 being not satisfied with the explanation
given by the assessee.
64 Mah anadi Coalf ield Ltyd.,
The CIT(A) deleted the addition made by the Assessing Officer by
observing as under:
“I have considered the matter and perused the explanation of the assessee. The assessee's explanation is that the concerned development mines in question was converted to revenue mines and, therefore, the cost of coal was transferred to opening stock as on 1.4.2013. The assessee further explains that the stock of coal represents the normal raising cost of the coal which was not charged to the P&L account during the FY 2012-13 and after conversion of mines from Development to Revenue, the same was charged to P&L account in the FY 2013-14^by bringing the opening stock under P&L account as the sale proceeds of the same stock was credited to the P&L account in the place of Development expenses. The assessee pleads that this is an established accounting policy being followed by the assessee which will be evident from Note-33 of Significant Accounting Policies' wherein at clause 3.4 the accounting policy relating to Development mines is given. The contention of the assessee appears to be correct. The AO has perhaps failed to understand the implications of the entries in question while making the impugned addition. In this view of the matter, I find no justification in the impugned addition and, therefore, direct for deletion of Rs.45.94 crores.”
Before us, no specific error could be pointed out by ld D.R. in the
order of the CIT(A). Therefore, we confirm the findings of the CIT(A) and
dismiss this ground of appeal of revenue for the assessment year 2014-
15.
154 In the result, appeals filed by the revenue for the assessment years
2010-11, 2011-12, 2013-14 & 2014-15 are dismissed and appeal for
assessment year 2012-13 is partly allowed for statistical purposes.
Order pronounced on 20/03/2018. Sd/- sd/- (N.S Saini) (Pavan Kumar Gadale) ACCOUNTANT MEMBER JUDICIALMEMBER Cuttack; Dated 20 /03/2018
65 Mah anadi Coalf ield Ltyd.,
B.K.Parida, SPS
Copy of the Order forwarded to : 1. The Appellant : Mahanadi Coalfields Ltd., Jagriti Vihar, Burla, Sambalpur
DCIT, Circle -2(1), The Respondent. Sambalpur 3. The CIT(A)- Cuttack 4. Pr.CIT- 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack