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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: Shri A. T. Varkey, JM & Shri Rajesh Kumar, AM]
ORDER Per Shri A.T.Varkey, JM These are appeals preferred by the assessee against the order of Ld. CIT(A)-Asansol dated 14.02.2020 for AYs 2010-11 & 2011-12 respectively.
At the outset the Ld. A.R. of the assessee Shri Arvind Agarwal brought to our notice that though the assessee had preferred an appeal against the reopening of the assessment u/s 147/148 of the Income Tax Act, 1961 (hereinafter referred to as the Act), the sole issue involved on merits is against the action of the Ld. CIT(A) in sustaining the disallowance of additional depreciation to the extent of Rs. 1,96,37,620/- being 20% of the total claim of additional depreciation of Rs. 9,81,88,100/-. So first we will deal with the merits of this claim of the assessee which was denied by the AO/Ld. CIT(A).
Brief facts of the case as noted by the AO is that the assessee is a Public sector company engaged in the business of production/extraction of coal. During the original scrutiny assessment proceedings by assessment order dated 25.03.2013 the AO had allowed 50% of the total claim on account of additional depreciation amounting to Rs. 4,90,94,050/- in place of total claim of the assessee to the tune of Rs. 9,81,99,100/-. Thereafter the AO issued notice u/s 148 of the Act to reopen the assessment of the assessee and thereafter completed the re-assessment u/s 147/143(3) of the Act dated & 377/Kol/2020 Eastern Coalfields Ltd. AYs: 2010-11 & 2011-12 30.11.2015 wherein he was pleased not to allow the total depreciation claim of Rs. 9,81,88,100/-.
Aggrieved by the aforesaid order of the AO, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to give partial relief to the assessee by allowing 80% of the total depreciation claim of the assessee, and thereby sustaining 20% of the disallowance of the claim of the assessee.
Still not satisfied by the aforesaid action of Ld. CIT(A), the assessee is before us claiming the balance 20% additional depreciation of Rs. 1,96,37,620/- which has been sustained by the Ld. CIT(A).
We have heard both the parties and perused the records. At the outset, the Ld. A.R. drew our attention to the fact that similar issue had cropped up in assessee’s own case before this Tribunal; and the Tribunal was pleased to remand the issue back to the AO and drew our attention to the assessee’s own case decided by the Tribunal in & 1015/Kol/2015 for AY 2009-10 & ITA No. 916 & 999/Kol/2017 for AY 2008-09 dated 16.01.2019 wherein this issue was considered from para 4.1 to 4.5 which is as under:
4.1 Ground No.3 is on the issue of allowability of depreciation. The Assessing Officer rejected the claim of the assessee on the ground that excavation/raising of coal is not manufacture or production of any article or thing. On appeal, the ld. First Appellate Authority at Para 5.4 of his order relied on the order of the ld. CIT(A) for the Assessment Year 2009-10 and followed the view taken therein and directed the Assessing Officer to allow the claim of the assessee to the extent of 80% of the amount claimed. For the Assessment Year 2009-10, we find that the Assessing Officer has disallowed the claim of the assessee for additional depreciation on the ground that, the assessee has not submitted break-up details of machinery on which additional depreciation has been claimed. At Para 6.4 Page 6 of his order, the Assessing Officer on the issue of additional depreciation held as under: “6.4 The reply of the assessee is considered. Additional depreciation is allowable only on the assets used in the manufacturing of production of any article or things. The assessee is entitled to claim depreciation only on the assets used directly in the extraction/production of coal. It is evident from the above list furnished by the assessee that additional depreciation is claimed on many items that are not used directly in the production process. No detailed breakup of the addition to Plant & Machinery on which additional depreciation have been claimed to have been furnished by the assessee and also the assessee could not furnish the value of item wise details. In absence of quantitative value of each item of the asset, 50% additional depreciation is disallowed. Therefore, the additional depreciation claimed by the assessee and as such a sum of Rs.13,23,40,200/- is added to the total income.” From the above, it is clear that the Assessing Officer has disallowed 50% of additional depreciation claimed only on the ground that lack of details being filed. The issue whether ITA No.376 & 377/Kol/2020 Eastern Coalfields Ltd. AYs: 2010-11 & 2011-12 production/extraction of coal is manufactured or not, was not in dispute and the claim of the assessee was accepted by the Assessing Officer. 4.2 On appeal, the ld. First Appellate Authority observed as under: “16. From the submissions made, I find that: (a) In depreciation schedule that under plant and machinery Rs.834,812,000/- and Rs.1,380,039,000/- or claimed as additional depreciation. (b) Additional depreciation is claimed excluding “tele-communication tools & equipments and Railway siding” at 20% for assets acquired prior to October 08 and 10% for others. (c) Full details establishing Assessing Officer to come to a firm conclusion as to whether the stiff conditions are met for claiming additional depreciation is not furnished. Furnishing of details will only help Assessing Officer to come to a conclusion.
Allowance of additional depreciation is a matter to be decided based on each asset acquired. Decision depends on whether it is new (condition in proviso to section 32(1)(iia) alsois to be applied) and goes into ‘manufacture or production’ of “article or thing” are to be established with hard documents. There are not brought to record. The additional depreciation is also a business expense and the onus is on assessee to prove before Assessing Officer the eligibility as prescribed in law. This clearly is not discharged here. Therefore Assessing Officer is correct in exercising best of judgment. Thus to decision before me is whether manner of exercising best of judgment is fair or not.
The broad nature of expense is let know by appellant. He also stated that the volume of documents is too much to produce the same (assets of Rs.221.4 crore are covered in additional depreciation) which are located in many units of Eastern Coalfields Ltd.. The fact is that appellant is a PSU and having proper documents. Exercise of proper internal financial control within the PSU cannot be negated. Normal depreciation is fully granted as claimed. All that can create dispute is whether the asset is ‘new’ and whether it goes in ‘manufacture or production’ of article or thing’. The decision cannot come without examining relevant documents. These were not produced and hence best of judgment was rightly exercised. However, a 50% disallowance is found to be an higher side on an examination of overall picture presented in this paragraph. A disallowance of 20% would suffice with case as against 50% made by Assessing Officer. Accordingly I direct Assessing Officer to restrict disallowance to Rs.5,29,36,080/-. The ground 3 is partly allowed.” Hence an ad hoc decision was taken to disallow 20% of the claim for the assessee for the reasons mentioned. 4.3 The ld. Counsel for the assessee relies on a number of case laws and submits that raising/extraction of coal amounts to production. (i) CIT vs. G.S. Atwal and Co. 254 ITR 592 (Cal) (ii) Bla Industries Pvt. Ltd. vs. Pr. CIT in order dated 28.02.2018. The ld. Counsel further submitted that ad hoc disallowance is bad in law and has to be deleted. The ld. Departmental Representatives submitted the disallowance was made as the assessee has not furnished the required particulars before the Assessing Officer. He challenged the disallowance sustained by the ld. CIT(A) at 20% of the claim. He did not dispute the claim of the assessee that extraction/raising of coal from the mines is production of an article or thing. 4.4 On consideration of the fact and circumstances of the issue, we are of the considered opinion that the matter should be restored to the file of the Assessing Officer for fresh adjudication, after & 377/Kol/2020 Eastern Coalfields Ltd. AYs: 2010-11 & 2011-12 considering the details of plant and machinery used by the assessee for the purpose of extraction/raising of coal. The assessee claims to have produced audit statements which gave all the required particulars before the Assessing Officer. We direct the assessee to once again produce all the details as required by the Assessing Officer in support of his claim for deduction of additional depreciation. The additional depreciation should be granted on such plant and machinery that have been used for the production of coal. The Assessing Officer should keep in mind that the assessee is a public sector undertaking and its accounts are audited by the Comptroller & Auditor General of India and such audited statements have evidentiary value. 4.5 In the result, this ground of the assessee is allowed for statistical purposes.”
From a perusal of the aforesaid order of the Tribunal in assessee’s own case on the additional depreciation claim, we note that the issue was restored back to the file of the AO and the assessee was directed to produce all the details as required in support of its claim for deduction in respect of additional depreciation and the Tribunal has directed the AO to grant additional depreciation on such plant and machinery that have been used for the production of coal and reminded the AO the fact that the assessee is a Public Sector Undertaking which undergoes audit by the Comptroller and Audit General (in short CAG); And in this regard it has been brought to our notice, that pursuant to the remand, the AO has allowed the claim of additional depreciation to the assessee. Be that as it may be, we set aside the order of the Ld. CIT(A) and this issue is remanded back to the AO, with the same observation and directions given in the assessee’s own case on this issue (Mutatis- mutandis) and direct him to consider the claim of the assessee and to pass order in accordance to law. Thus, the sole issue is decided on merits for statistical purposes. Since the issue has been disposed off on merits, the legal issue regarding the validity of re- opening is left open and not adjudicated.
Coming to AY 2011-12 we note that similar issue of additional depreciation has been claimed by the assessee as per Ground number 3. As stated in the aforesaid appeal, the assessee is aggrieved by the order of the Ld. CIT(A) who has granted only 80% of the claim of assessee regarding additional depreciation. Therefore the assessee is claiming balance 20% of the additional depreciation as in the aforesaid appeal decided by us. And since we have already adjudicated this issue for AY 2010-11 (supra), the same direction mutatis-mutandis will be applicable on this issue and the impugned order is set-aside and issue remanded back to AO for similar action as afore-stated. & 377/Kol/2020 Eastern Coalfields Ltd. AYs: 2010-11 & 2011-12 9. The next issue is against the action of the Ld. CIT(A) who has allowed only 50% of total claim of Rs. 27,27,000/- which was claimed as expenses for donation given by the assessee.
At the outset, the Ld. A.R. stated that this issue is also covered in favour of the assessee in assessee’s own case for AY 2009-10 and 2012-13 in & 891/Kol/2019 and ITA No. 985 & 986/Kol/2019 for AY 2009-10 and 2012-13 dated 24.09.2020 wherein the similar issue was involved and the Tribunal has adjudicated the issue at para no. 13 and 14 which are as under:
“13. Ground No. 3 of the revenue appeal for AY 2012-13 as well as ground no.2 of the assessee’s appeal for AY 2012-13 is against the action of the Ld. CIT(A) in allowing 50% of the donation of Rs.17 lacs claimed by the assessee. According to revenue the AO has disallowed the donation mainly on the ground that the assessee failed to furnish any proof in support of its claim of deduction as recorded in the assessment order. We note that the AO on perusal of note 31 of Annual Report of Accounts observed that the assessee company incurred an amount of Rs. 17 lacs towards donation and subscription. So, when asked by the AO as to whether the expenditure under this head qualify for deduction, the assessee company replied that Rs. 17 lacs has been spent on donation and subscription for AY 2012713 and had furnished the area/service unit wise details of such expenses as annexure 13 for AO’s reference. The assessee replied that expenses were incurred as subscription to various clubs and organization operating in the vicinity of the mining operations of the assessee besides donation to philanthropic organization like Ram Krishna Mission and Bharat Sevasram Sangha which according to the assessee was renowned for their commitment to society. According to the assessee it had made these donations for smooth running of business activity and claimed that it is allowable u/s. 37(1) of the Act. After perusal of the reply of the assessee, the AO was of the opinion that the assessee company has made payments to various local clubs and organizations as subscription/donation and this kind of expenses does not qualify for deduction under the Act. Further, according to AO, the donation to Ram Krishna Mission and Bharat Sevasram Sangha the assessee failed to furnish any proof in support of its claim of deduction, therefore, the entire amount under the head was disallowed and Rs.17 lacs was added to the total income of the assessee. Oh appeal, the Ld. CIT(A) has restricted the disallowance at 50% of the claim. Aggrieved, the revenue as well as the assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the donations were given to local clubs as well as to Ram Krishna Mission and Bharat Sevasram Sangha, which has been disallowed by AO. On appeal die Ld CIT(A) gave partial relief by allowing 50% of the expenditure claimed as donation.Against the said action of Ld CIT(A) both parties are before us. We note that on similar issue of expenditure claim in respect of donation given to the local clubs during Durga Puja etc. was before the Hon’ble Calcutta High Court in CIT Vs. Bata India Ltd. 201ITR 884 (Cal) wherein it was held to be an allowable expense. However, we find that even though the assessee in its reply has stated that certain donations were given to the local clubs etc. the amount given as donation to the local clubs are not discernible from the materials placed before us, so it has to be verified by the AO and the AO to allow 100% deduction on the claim of expenditure in respect of donations given by the assessee to the local clubs. Coming to the assessee5 s donation to the Ram Krishna Mission and Bharat Sevashram Sangha is concerned again the facts are not clear. So it needs verification by AO and if the donee societies have 80G certification, then deduction in accordance to law should be given to the assessee in respect of the donation given to it. So, we remand this issue back to the file of the AO for factual verification and to pass orders in accordance to law. Therefore, the assessee’s ground no. 2 and & 377/Kol/2020 Eastern Coalfields Ltd. AYs: 2010-11 & 2011-12 revenue’s ground nos. 3 & 4 are set aside back to the AO. Thus, these grounds are allowed for statistical purposes.” Therefore according to Ld. A.R. this issue may be remanded back to the AO so that the assessee can produce the evidence/materials to authenticate the donation made to the nearby clubs in order to substantiate its claim for deduction.
We have heard rival submissions and gone through the facts and circumstances of the case. And we note that the assessee has made a claim of deduction regarding donation made to the tune of Rs. 27,27,000/- but the AO disallowed the claim. On appeal, the Ld. CIT(A) has given partial relief by allowing 50% of expenditure claimed as donation. We note that on similar issue i.e. donation/expenditure claimed by an assessee in respect of donation given to the local clubs during Durga Puja etc. the Hon’ble Calcutta High Court in CIT vs. Bata India Ltd. in 201 ITR 884 (Cal) held that the same was an allowable expenses. However we note that in the present case in hand, since the assessee could not submit materials/evidence before the authorities below in respect of its claim of donation given to the local clubs, we direct the assessee to submit materials to substantiate the fact of donation it gave to local clubs/bodies during festival/sports in order to have good relations with them for smooth running of its business. And if the assessee produce evidence/material as directed by us, the AO may verify the same and allow balance 50% of the expenses which are shown to have been made by the assessee to the local clubs for smooth functioning of its business of extraction of coal and its transportation. With the aforesaid direction this issue is set aside back to the file of AO and the AO is directed to pass a fresh order on this issue after verification as observed supra.
In the result, the appeal of the assessee is allowed for statistical purposes.