2012 (5) TMI 652 - AT - Income Tax

Depreciation computation - Held that - This matter can easily be verified by the assessing officer and the explanation of the assessee in this regard can be checked from the records by the assessing officer. In these circumstances, we agree with the order of the CIT insofar as this issue is concerned referring to the matter to the AO for arithmetical verification and reconciliation between depreciation which in effect is debited to the profit and loss account and the amount which is added back in the memo of income, who will decide the issue after giving reasonable opportunity to the Assessee. Provision made towards mine closure obligation - revision u/s 263 - Held that - It is observed that the basis of calculation for the relevant AY 2006-07 for ₹ 71.18 crores was submitted during the original assessment and accepted by the AO. The detailed calculation of ₹ 21.31 crores charged to P&L A/c (on the basis of ₹ 71.18 crores) was also enclosed and produced before the CIT. Hence, the CIT is wrong in his observation that the estimate of ₹ 21.31 crore is excessively on a higher side and absolutely no realistic or rational basis for such calculation. The CIT is not correct in invoking the provisions of Sec.263 as we find that the issue is debatable and when two views are possible the Assessing Officer has taken one view. The provisions for an accrued existing liability, even though, the actual expenditure may take place at a later date, is an allowable deduction and the CIT erred in treating it as an unascertained liability. Therefore, we set aside the order of the CIT passed u/s 263 and the order of the AO is restored.

Summary

Issues:
1. Addition of depreciation amount in the computation statement.
2. Provision made by the Assessee towards mine closure obligation.

Analysis:

1. Addition of Depreciation Amount:
The CIT observed a difference in the depreciation amount debited to the profit and loss account and the amount added back in the income memo. The CIT directed the addition of the variance of Rs. 59,45,326. The assessee argued that the difference was due to transferring part of the depreciation to various accounts. The AR later claimed that the variance represented impairment of assets as per Accounting Standard - 28. The Tribunal opined that the assessing officer could easily verify this matter and directed a reconciliation between the depreciation debited to the account and the amount added back. The Tribunal agreed with the CIT's order, referring the issue to the AO for verification and decision after providing a reasonable opportunity to the Assessee.

2. Provision for Mine Closure Obligation:
The CIT questioned the provision made by the Assessee towards mine closure obligation of Rs. 21.31 crores, considering it a contingent liability and referred the issue for reconsideration by the AO. The Assessee argued that the obligation to close mines accrued yearly and should be estimated and provided in the books. The Assessee relied on various court decisions supporting the allowance of provisions for accrued liabilities. The Tribunal noted that the AO had accepted the basis of calculation for the previous assessment year and found the CIT's observation on the estimate to be unfounded. The Tribunal held that the provision for an accrued existing liability, even if the actual expenditure occurs later, is an allowable deduction. Citing precedent cases, the Tribunal concluded that the CIT erred in treating it as an unascertained liability. Therefore, the Tribunal set aside the CIT's order under section 263 and restored the AO's order.

In conclusion, the appeal of the assessee was partly allowed for statistical purposes, and the Tribunal's decision was pronounced on 18/05/2012.