ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. SWATI MINERALS, KOLHAPUR

आदेश / ORDER

PER VIKAS AWASTHY, JM :

These three appeals by the Revenue are directed against the order of Commissioner of Income Tax (Appeals)-1&2, Kolhapur dated 26.03.2015 common for the assessment years 2001-02, 2002-03 and 2003-04.

Since, the issue raised in all these appeals is identical and is arising from same set of facts, these appeals are taken up together for adjudication and are being disposed of vide this common order.

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assessee is a firm engaged in the business of mining and sale of minerals

(Bauxite). The re-assessment proceedings were initiated against the

assessee in assessment year 2001-02. The Assessing Officer inter-alia

made disallowance u/s 43B(a) of the Income Tax Act, 1961 (hereinafter

referred to as ‘the Act’) of Rs.49,53,173/- on account of royalty payable on

mining of Bauxite. Similar disallowance was made in the assessment

years 2002-03 and 2003-04 in scrutiny assessment proceedings u/s

143(3) of the Act.

Aggrieved by the assessment order for the respective assessment

years, the assessee carried the matter in appeal before the Commissioner

of Income Tax (Appeals). In first appellate proceedings, the Commissioner

of Income Tax (Appeals) vide order dated 22.08.2006 confirmed the

disallowance made u/s 43B of the Act. The assessee carried the matter in

appeal before the Tribunal, in ITA Nos.194 to 196/PN/2007 for the

assessment years 2001-02 to 2003-04 respectively, the Tribunal vide order

dated 24.03.2008 restored the issue back to the file of Commissioner of

Income Tax (Appeals) for de-novo consideration. The Commissioner of

Income Tax (Appeals) in second round deleted the addition made u/s 43B

of the Act. Hence, the present appeals by the Revenue.

Income Tax (Appeals) by raising following grounds of appeal for the

assessment year 2001-02 :-

“1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in deleting the additions made by the Assessing Officer on account of unpaid royalty which covers under provisions of section 43B? 2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in holding that unpaid royalty as stated by the assessee that the same will reflected on liability side. However, as per accounting principles the same needs to be reflected on assets side of the balance sheet under the hand current assets as royalty paid in advance is nothing but advance payment of expenditures.

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3) The appellant craves leave to add, alter, amend or modify any other ground of appeal at the time of hearing.”

Identical grounds have been raised by the Department against the

findings of the Commissioner of Income Tax (Appeals) in assessment years

2002-03 and 2003-04.

assessee was required to pay royalty to the Government for mining of

Bauxite. A perusal of the Balance Sheet shows that the assessee has

shown royalty payable for the respective assessment years, which is as

under :-

Assessment Year Royalty Payable (in Rs.) 2001-02 - 49,53,173/- 2002-03 - 1,42,13,164/- 2003-04 - 88,58,017/-

Payment of Royalty is akin to cess/fee payable to the Government.

Thus, in the light of the provisions of section 43B(a), unpaid liability

towards payment of royalty is not allowable. The ld. DR submitted that the

Commissioner of Income Tax (Appeals) in para 6 of the impugned order has

given wrong finding of fact that the assessee has paid advance royalty. The

ld. DR prayed for setting-aside the findings of the Commissioner of Income

Tax (Appeals) and restoring the disallowance made by the Assessing

Officer.

assessee vehemently defended the order of Commissioner of Income Tax

(Appeals) in deleting the disallowance made u/s 43B of the Act. The ld. AR

submitted that the activities of mining carried out by the assessee are

regulated by the Mines and Minerals (Development and Regulation) Act,

4 ITA Nos.1022 to 1024/PUN/2015

1957. The royalty is payable at the rates prescribed in Second Schedule of

the Act. As per the Second Schedule, royalty is paid at the prescribed

rates on the contents of aluminium metal in ore produced for those

dispatched for use in alumina and aluminium metal extraction. There

would always be difference between the ore extracted and ore dispatched.

The AR submitted that the royalty is paid in advance and is not debited to

the Profit & Loss Account. The same is reflected only in the year when it is

due. Till then such amount is kept in royalty payable account. The ld. AR

asserted that since the amount is not debited to Profit & Loss Account and

is not claimed as “expenditure”, the same cannot be disallowed. The ld. AR

referred to Profit & Loss Account at page 22 & 23 of the Paper Book to

show that no amount has been claimed towards payment of royalty. The

Commissioner of Income Tax (Appeals) has appreciated this fact and has

granted relief to the assessee.

sides and have perused the orders of authorities below. In the first round

of appeal by the assessee, the Tribunal vide order dated 24.03.2008

remitted this issue back to the file of the Commissioner of Income Tax

(Appeals) with following directions :-

“12. ………. We have gone through the order of the CIT(A) on this issue and find that the CIT(A) has only decided the point as to whether the royalty falls within the expression “tax, duty, cess or fee, by whatever name called, under any law for the time being in force” as used in clause (a) of section 43B of the Act. The issue as to whether section 43B is at all applicable to the assessee’s case when the claim on account of royalty was not made by the assessee by debiting the same in the P&L a/c, has not been addressed or adjudicated upon by the CIT(A). In support of the assessee’s contention, the assessee has relied upon the recent decision of Hon’ble Delhi High Court in the case of CIT vs. Noble & Hewitt (I) (P) Ltd. (decided on September 10, 2007) reported in (2008) 166 Taxman 48 (Delhi) in addition to the decision of I.T.A.T. Pune Bench ‘A’, Pune in the case of Dy. CIT, Cir.1, Solapur vs. Laxmi Hydraulics Pvt. Ltd. dated 29th March, 2007 in I.T.A. No.1293, 1406 and 1407/PNB/2002. In the aforesaid order of the I.T.A.T. ‘A’ Bench, the identical issue was involved and the matter was restored back to the file of the CIT(A) for further examination, verification and then to decide the issue in the light of the provisions of section 43B of the Act and in the light of the decisions cited before them. Before the I.T.A.T. ‘A’ Bench in the case of Laxmi Hydraulics Pvt. Ltd. (supra), two more decisions were also cited, viz. CIT Vs. National Duncan Ltd. (2003) 260 ITR 97 (Cal) and CIT Vs. India Carbon Ltd. (2003) 262 ITR 327 (Gau). Since the CIT(A) has not deliberated

5 ITA Nos.1022 to 1024/PUN/2015

upon this issue and since the matter has also to be examined in the light of the Hon’ble Supreme Court decision in the case of Chowringhee Sales Bureau (P) Ltd. reported in 87 ITR 542 (SC) as referred to by the I.T.A.T. Pune Bench ‘A’ in the case of Laxmi Hydraulics P. Ltd. (supra), we have no other alternative than to restore the matter back to the file of the CIT(A) for his decision after providing a reasonable opportunity of being heard to the assessee as well as to the A.O. The whole matter shall remain wide open before the CIT(A). The CIT(A) shall be at liberty to decide this issue as per law after taking into account the position of law as settled or decided by the different courts from time to time in respect of the issue as to whether any amount in the nature of “tax, duty, cess or fee, by whatever name called, under any law for the time being in force” collected by the assessee and credited to the separate account instead of incorporating the same in the P&L a/c can be hit by the provisions of section 43B of the Act. The CIT(A) shall not be guided by any observations, if any, incidentally made by us on merits of the issue in his order. 13. The other aspect of the matter as to whether the royalty falls within the expression “tax, duty, cess or fee, by whatever name called, under any law for the time being in force” as contemplated in clause (a) of section 43B shall also be freshly decided by the CIT(A) after considering the submissions and contentions of the assessee as well as the A.O. We do not wish to express any opinion on merits on that part of the issue, and the matter shall be freshly decided by the CIT(A) as per law. Resultantly, the issue with regard to the disallowance of payment of royalty u/s 43B stands restored back to the file of the CIT(A) for his de-novo consideration and adjudication as per law.”

decided the issue afresh in line with the directions of Tribunal. After decided the issue afresh in line with the directions of Tribunal. After

considering the facts and various case laws, Commissioner of Income Tax

(Appeals) deleted the disallowance made u/s 43B holding as under :-

“8. The ratio of above case, decided in respect of sales tax dues, cannot be universally applied in respect of all types of payments. As per accounting practice, the sales tax collected from customers is normally credited in profit and loss account along with the sale consideration. The sales tax when incurred is then debited in the profit and loss account. By application of section 43B, it is logical to allow the sales tax only when actually paid. It is immaterial whether the assessee has credited the amount in sales tax payable account in the balance sheet. However, in the case of royalty, as has been submitted by the assessee, if the royalty has been paid in advance, it is not debited, as it is debited only in the year when it is due. Till then, such amount is kept in royalty payable account. Since the amount has not been claimed, it cannot be disallowed. The additions made by the assessing officer are therefore, deleted and the ground taken by the assessee is allowed.”

Income Tax (Appeals) on the ground that the assessee has not paid the

royalty amount, therefore, in view of the provisions of section 43B, the

deduction claimed by the assessee has to be added back. A perusal of the

impugned order shows that the Commissioner of Income Tax (Appeals) has

6 ITA Nos.1022 to 1024/PUN/2015

given categorical findings that the royalty amount has not been debited in the Profit & Loss Account. This fact is further evident from the Profit & Loss Account for the year ended on 31st March, 2003, copy of which is placed on record at page 22 and 23 of the Paper Book filed by the Revenue. We concur with the findings of the Commissioner of Income Tax (Appeals), if the amount has not been claimed by the assessee as expenditure, there is no question of making any disallowance. We do not find any infirmity in the impugned order. Accordingly, the same is upheld and the appeals of the Revenue are dismissed being dovoid of any merit.

Order pronounced on Wednesday, the 24th day of October, 2018.

Sd/- Sd/- Sd/- Sd/- (डी. क�णाकरा राव/D. Karunakara Rao) (�वकास अव�थी/ Vikas Awasthy) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER पुणे/ Pune; �दनांक/ Dated : 24th October, 2018 Sujeet आदेश क� ��त�ल�प अ�े�षत/ Copy of the Order forwarded to : अपीलाथ�/ The Appellant. 1. ��यथ�/ The Respondent. 2. आयकर आयु�त (अपील) / The CIT(A)-1&2, Kolhapur 3. 4. The CIT-I/II, Kolhapur/CIT (Central), Pune �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे/ DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल/ Guard File. 6. //स�या�पत ��त// True Copy// आदेशानुसार/ BY ORDER, //True Copy// Senior Private Secretary आयकर अपील�य अ�धकरण, पुणे/ ITAT, Pune