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2018 (7) TMI 44 - AT - Income TaxAllowability of Mines Restoration Expenses - Held that - Assessee statutorily has to restore the mine to the original shape and therefore, the Mining Restoration Expenses are ascertained liability. The quantification of which is to be examined and Ld. Counsel fairly admitted that the provision was not made according to the requirement under the Act. AO is therefore directed to examine the quantification, in the light of the additional information filed before us and particularly the workings provided in 148, 149 and 150 of the paper book. While holding that the liability is an ascertained liability and not a contingent liability, the quantification of provision to be allowed is restored to the file of AO. AO should give an opportunity to assessee to explain the quantification of provision and the quantum so decided should be allowed, subject to not exceeding the actual provision made in the books of account by the time of assessment. Grounds in all the years are partly allowed for statistical purposes. Preliminary expenses written-of - ROC fees paid to increase its authorised capital - AO disallowed the same as capital expenditure, following the principles on the issue - as contended before the Ld.CIT(A) that this amount was paid for increasing the authorised share capital and this amount is eligible for deduction u/s. 35D - Held that - Hon ble Supreme Court in the case of CIT Vs. General Insurance Corporation 2006 (9) TMI 116 - SUPREME COURT the amount is allowable as revenue expenditure, as there is no fresh infusion of share capital due to conversion of already existing preference shares. However, this aspect has not been examined by the AO or CIT(A). Since the facts are to be examined afresh, we are of the opinion that the claim of amount is to be examined afresh - It is also to be noted that the contention that no fresh capital was brought in was not raised before the authorities and as seen from the submissions before the Ld.CIT(A), assessee itself has restricted the claim to 1/5th of the amount u/s. 35D. Since the claim was made before us, we deem it proper to restore the issue for examination of facts and for allowing the amount as per the provisions of law. Allowability of Corporate Social Responsibility (CSR) - AO was of the view that the same was not incurred wholly and exclusively for the purpose of business of assessee - Held that - As contented this amount is not related to CSR but pertains to consultancy charges and advertisement expenses wrongly classified under this head. Since this issue was not examined by the AO, we are of the opinion that AO can examine the nature of expenditure and allow the same, if they are eligible for deduction u/s. 37(1). To the extent of an amount of ₹ 28,74,363/- the claim is restored to the file of AO for fresh examination, after giving due opportunity to assessee. Ground is partly allowed for statistical purposes.
Issues Involved:
1. Provision for Mining Restoration Expenses 2. ROC Expenditure 3. Corporate Social Responsibility (CSR) Expenditure Issue of Provision for Mining Restoration Expenses: The assessee, a company manufacturing cement, made provisions for mining restoration expenses in the assessment years (AY) 2011-12, 2012-13, and 2013-14. The Assessing Officer (AO) disallowed these provisions, citing that no actual expenses were incurred during the respective years. The AO relied on the Supreme Court decision in New India Mining Corporation, which held that estimated liability for restoration charges could not be allowed as a deduction if no expenses were incurred. The assessee argued that the provision was a statutory liability under the Mineral Conservation and Development Rules (MCDR) and the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR). The liability accrued as soon as mining operations commenced and was an allowable expenditure under Section 37(1) of the Income Tax Act. The assessee cited various case laws, including Bharat Earth Movers and Rotork Controls India Pvt. Ltd., to support their claim that the liability was ascertained and not contingent. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the liability for mine restoration does not arise until the mine is matured for backfilling. The CIT(A) also noted that the provisions were merely estimates and not actual expenses incurred. In the present proceedings, the Income Tax Appellate Tribunal (ITAT) considered the statutory requirements under the MCDR and the principles laid down by the Supreme Court in Bharat Earth Movers and Rotork Controls India Pvt. Ltd. The ITAT held that the liability for mine restoration is a statutory and ascertained liability. However, the quantification of the provision needs to be examined. The ITAT directed the AO to verify the quantification of the provision based on the additional evidence provided by the assessee and allow the provision accordingly. The grounds were partly allowed for statistical purposes. Issue of ROC Expenditure: The AO disallowed an amount of ?14,95,000/- paid towards fees to the Registrar of Companies (ROC) for increasing the authorized capital, treating it as capital expenditure. The assessee contended that the amount was eligible for deduction under Section 35D of the Income Tax Act and claimed 1/5th of the amount as revenue expenditure. The CIT(A) rejected both the main and alternate contentions of the assessee. The ITAT noted that the amount was paid for the conversion of preference shares and not for the issuance of new shares. The ITAT referred to the Supreme Court decision in CIT vs. General Insurance Corporation and the Co-ordinate Bench decision in DCIT(LTU) vs. M/s. Hero Motors Ltd., which allowed such expenditure as revenue expenditure. The ITAT directed the AO to examine the facts afresh and allow the amount as per the provisions of law and relevant case law. The ground was allowed for statistical purposes. Issue of CSR Expenditure: The AO disallowed an amount of ?62,11,173/- incurred towards Corporate Social Responsibility (CSR) in AY 2013-14, stating that it was not incurred wholly and exclusively for the purpose of business. The assessee argued that the expenditure was necessary for the development of surrounding villages affected by mining operations and should be allowed as business expenditure. The assessee also contended that the amendment to Section 37(1) and Explanation-2 was effective from AY 2015-16 and not applicable to the impugned year. The CIT(A) upheld the AO's decision without analyzing the nature of the expenditure. Before the ITAT, the assessee clarified that ?28,74,363/- was wrongly classified as CSR expenditure and pertained to consultancy and advertisement charges. The ITAT directed the AO to examine the nature of this expenditure and allow it if eligible under Section 37(1). The ITAT allowed ?23,46,000/- as business expenditure, considering it necessary for smooth operations and local support. The disallowance of ?9,90,810/- was confirmed as the assessee admitted it was not supported by bills or directly related to business. The ITAT partly allowed the appeal for statistical purposes, directing the AO to examine the nature of the expenditure and allow it accordingly. Conclusion: The appeals for AY 2011-12 and 2012-13 were allowed for statistical purposes, and the appeal for AY 2013-14 was partly allowed for statistical purposes. The ITAT directed the AO to re-examine the quantification of the mining restoration provision, the nature of ROC expenditure, and the classification of CSR expenditure.
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