Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
The present appeal has been filed by the Revenue and Cross Appeal by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “CIT(A)”), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi dated 07.03.2024 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2015-16.
At the outset, Ld. Counsel for the assessee pointed out that the issue raised by the assessee in his cross objection was squarely covered in favour of the assessee and so also department’s appeal needed to be rejected being covered by the order passed by the ITAT in the case of the assessee itself in A.Y. 2013-14 vide order in dated 19.10.2022. Copy of the order was placed before us.
Having said so, our attention was drawn to the facts of the case, pointing out that the AO, in an order passed in re-assessment proceedings u/s.147 of the Act, disallowed Rs.9,61,71,791/- claimed by the assessee u/s.43B of the Act in respect of Mine Closure Expenses noting that it was not in the nature of expenses covered u/s 43B of the Act which related to tax, duty, cess or fee. The assessee had explained the nature of the same as actual expenses incurred for mine closure, for which purpose it was required to make a provision every year as per guidelines issued by the Ministry of coal. The Ld. CIT(A), however, held that the same was allowable to the assessee in terms of Section 43B of the Act holding at para 5.4.1 of his order as under:
“5.4.1 I find that the appellant had referred to the circular No. 55011-01-2009-CPAM issued by the Government of India, Ministry of Coal dated 11.11.2012 stating that the provision for mine closure expense had been made based on said Government Circular as per the provisions of Section 43B(a) of the Act. It was for this reason that provision for mine closure expense had to be created by the appellant The AO in detailed discussion both during the reopening of assessment in the assessee's case and during assessment proceedings, quoting relevant provisions of Section 43B of the Act vis-à-vis the contention of the appellant inferred that the said amount of Rs. 9.61.70.791/- could not be provided u/s. 43B of the Act though subsequently on actual basis such payment had been made, the modes of holding such funds in the escrow account, the same could not be said as revenue expenditure, but was in fact a capital expenditure. I don't agree with the contention of the AO The assessee has correctly disallowed provision made for Mine closing expenses. However actual expenses incurred and paid by the assessee on this head has to be allowed u/s 43. The mode of holding such funds in an escrow account cannot be the determining factor in deciding such expenditure as Capital in nature. This expenditure when made on actual basis is clearly revenue in nature. AO is directed to delete this addition. As far as other submissions made regarding allowability of entire expenditure of Rs.80,10,05,553/-, is concerned, this is a without prejudice argument and is therefore not considered in view of decision on Ground No b. Ground No b is allowed. Ground no c is not adjudicated for reasons mentioned above.”
Aggrieved by the order of the same, Ld.Counsel for the assessee pointed out, the Revenue has challenged the allowance of claim of the assessee u/s 43B of the Act of 9.61 Crs. The assessee in its CO has on the other hand pressed claim of entire provision created by the Assessee towards Mine Closure amounting to Rs.80,10,05,553/-. The grounds raised by the Revenue read as under:
"Whether on facts and circumstances and in law, the Ld. CIT(A) has erred by allowing a disallowance of Rs.9,61,70,791/- made on account of expenses claimed u/s. 43B, without appreciating the facts of the case?" 2."The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary". 3. "It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored".
The grounds raised by the assessee read as under:
“1. In facts & Circumstances of the case, Your Appellant, most respectfully submits that both lower authorities has erred on law and on facts by not considering the claim of appellant company in respect of allowability of Rs.80,10,05,553/- for provision for Mine Closure expense u/s37(1) of the IT Act and per the decision of Hon’ble ITAT in A.Y. 2013-14 in appellant’s case.”
Ld.Counsel for the assessee pointed out that in the preceding year identical disallowance of claim of mine closure expenses u/s 43B of the Act by the AO was confirmed by the Ld.CIT(A) and the assessee had carried the matter in appeal before the ITAT where during the course of hearing, an additional /alternate plea of allowance of provision created for mine closure was raised. He pointed out that while the ITAT confirmed the disallowance of claim u/s 43B of the Act, however the alternate plea of provision for mine expenses claimed was allowed. He contended therefore that the issues raised in the present appeal of the Revenue and the CO of the assessee were squarely covered by the order of the ITAT in the case of the assessee in the preceding year.
Ld.DR though fairly agreed with the same, however he vehemently supported the order of the AO.
8. We have heard both the parties, gone through the orders of the authorities below and more importantly the order of the ITAT also in the case of the assessee for A.Y. 2013-14. On going through the said order, we find that the issue before it was identical wherein the assessee’s claim of mine expenses u/s.43B of the Act had been consistently allowed by both AO & Ld. CIT(A). ITAT though confirmed the order of the Ld. CIT(A) holding that the impugned claim was not allowable u/s.43B of the Act, however, it agreed with the alternate argument of the assessee before it that the entire provision created by the assessee during the year needed to be allowed since it was an ascertained liability for which provision was created. The findings of the ITAT in this regard are contained at para 7 & 8 of the order as under:
“7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee company made provision in Mining Closure Fund as per the guidelines issued by the Ministry of Coal which is mandatory to each mining company. It is not disputed fact that the assessee made claim u/s 43B every year as and when the actual expenditure is made. The department in the past has accepted this position. The said provision is mandatory and the assessee has made the said provision in books of accounts following the guidelines of the Ministry of Coal. The issue of ascertaining the said provision is covered in favour of the assessee by the decision of the Hon’ble Rajasthan High Court in case of Rajasthan state Mines and Mineral Ltd. (supra) as per the contentions of the Ld. AR. But the observation of the CIT(A) that the said Mining Closure Funds is not in the nature of tax, duty, cess, fee etc. as per Section 43B, appears to be justifiable as the guideline of Ministry of Coal has given the procedure and time period for the closure expenses to be incurred by the coal mine owners who are operating coal mines without the approval of any Mine Closure Plan. Thus, Section 43B claim is not applicable in assessee’s case. Thus, the CIT(A) was right in the said context. As regards the decision of the Hon’ble Rajasthan High Court the same is in the context of Section 37 claim made by the assessee therein. Thus, the said argument of the Ld. AR is rejected.
As regard to alternate argument that “even if the Tribunal is of the view that provision of Section 43B are not applicable to mine Closure Expense than the amount or provision of for mine closure of Rs. 49,60,39,000/- already disallowed by the assessee company u/s 43B of the Act in its computation of income during A.Y. 2013-14, should be allowed as expenses as the same has been made on accrual basis as per the Guidelines issued by Ministry of Coal and same relates to the business of the assessee” appears to be correct. Since the assessee has to make provision for mine closure as the requirement of the Mine owners, the same should be allowed as expenses. Thus, appeal of the assessee is partly allowed.”
We have gone through several documents referred to before us during the course of hearing explaining the nature of claim made by the assessee.
Vide letter dated 22-03-2022 (P.B 246-247) addressed to the AO during assessment proceedings the assessee had explained that for purposes of Mine closure expenses to be incurred as per guidelines issued by the Ministry of Coal Govt. of India, the assessee had created a provision of 80.10 Crs which was added back while computing the taxable income for the year, and the actual expense incurred of Rs.9.61 Crs was claimed u/s 43B of the Act.
A/w. CO No. 52/Ahd/2025 [Gujarat Mineral Development Corporation Limited] A.Y. 2015-16 - 7 – 11. Copy of the Circular issued by the Government of India, Ministry of Coal dt 11th January 2012 containing Guidelines for preparation of Mine Closure Plan placed at P.B 256-266 was also perused which corroborated assesses explanation that being in the business of mining, it was required to prepare a Mine Closure Plan (‘MCP’) and get the same approved within the stipulated time from the Ministry of Coal. Such MCPs had two components; i.e. (i) Progressive or Concurrent Mine closure Plan and (ii) Final Mine Closure Plan. Progressive MCP included various land use activities to be done continuously during the entire period of mining. On the other hand, the final MCP would start around the end of mine life and continue till the area was restored to an acceptable level. Various activities for the plan needed to be identified and a cost estimate to be arrived. The assessee was required to deposit amount calculated on amount to be spent per hectare of mining lease on closure of mine into a designated escrow account every year which could be utilized only for final MCP with the necessary approvals.
The Profit & Loss account of the assessee for the impugned year, placed at P.B 121 revealed expenses of Rs.80.10 Crs debited therein on account of Mine Closure.
Notes to the accounts forming part of the audited Financials for the year, placed at P.B 119 revealed that the assessee had deposited Rs.80.10 Crs in escrow account as per MCP (P.B 119).
A/w. CO No. 52/Ahd/2025 [Gujarat Mineral Development Corporation Limited] A.Y. 2015-16 - 8 – 14. Computation of Income for the year (P.B 21) revealed Mine closure expenses debited to P&L of Rs.80.10 Crs being added back and expenses amounting to Rs . 9.61 Crs being claimed u/s 43B of the Act.
It is evident that in the impugned year also the assessee had claimed mine closure expenses deposited in escrow account as per MCP approved in its Profit and Loss account and added back the same while computing its income for the year. Nature of the same being by way of provision for final expenses to be incurred for Mine Closure and having been calculated on a scientific basis, the issue, we hold, is squarely covered by the decision of the ITAT in the case of the assessee for the preceding year.
No distinguishing facts having been brought to our notice, we see no reason why the assesses claim for provision created for Mine Closure expenses of Rs.80.10 Crs be not allowed and its claim of these expenses u/s 43b of the Act amounting to Rs.9.61 Crs be disallowed as held by the ITAT in the preceding year.
Accordingly both the appeals filed by the Revenue and the CO of the assessee are allowed.
The AO is directed to allow the assessee’s claim of provision for mine restoration expenses amounting to Rs.80.10 Crores while expenses amounting to Rs.9.61 Crores claimed u/s 43B of the Act is to be disallowed.
In the result, appeal filed by the Revenue and Cross Objection of the assessee, both are allowed.
This Order pronounced on 07/08/2025 Sd/- Sd/- (T.R. SENTHIL KUMAR) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 07/08/2025 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,