2018 (12) TMI 904 - AT - Income Tax

Disallowing contribution to State Renewal Fund - application of income and not expenditure incurred for business expediency - Held that - There are no changes in the facts and circumstances of case. Following the decision of the Co-ordinate Bench in assessee s own case and decision in case of Pr. CIT vs. Rajasthan State Seed Corporation Ltd 2016 (9) TMI 59 - RAJASTHAN HIGH COURT we upheld the order of the ld. CIT(A). Hence, the ground so taken by the Revenue is dismissed. Allowance of deduction in respect of provision for Mines Closure Expenses - Held that - Following the decision in assessee s own case and decision of the Hon ble Rajasthan High Court in case of Pr. CIT vs. Rajasthan State Seed Corporation Ltd 2016 (9) TMI 59 - RAJASTHAN HIGH COURT we hereby affirm the order of CIT(A). Hence, the ground so taken by the Revenue is dismissed. Receipt from sale of Carbon Emission Certifications were held as capital in nature - Held that - Following the decision of the Co-ordinate Bench in assessee s own case and decision of the Hon ble Rajasthan High Court in case of Pr. CIT vs. Rajasthan State Seed Corporation Ltd 2016 (9) TMI 59 - RAJASTHAN HIGH COURT we hereby affirm the order of ld. CIT(A). Hence, the ground so taken by the Revenue is dismissed. Disallowance of rural development expenses - Held that - In case of Ranbaxy Laboratories Ltd.(supra), where the assessee contributed towards construction of the school hospital, it was held that the hospital constructed by the school was engaged in the providing medical facilities to the school children and other people in the vicinity of the school and the business expediency or commercial expediency might require providing facilities like school, hospital etc. for the employees or their children and accordingly claim was held allowable. We are of the view that where the expenditure has been incurred by the assessee in vicinity of its mining areas and its workers and its employees are also benefited by incurrence of such expenditure, the assessee has established the necessary nexus of such expenditure for the purpose of smooth running of its business operation and such expenditure should be held as allowable deduction. In the result, we delete the addition made by the Assessing Officer under the head of Rural Development Expenses and ground so taken by the assessee is allowed. Disallowance of amortization of mining land - Held that - Rights which are given to the assessee are of commerce rights which are akin to license for mining. In that view of the matter, the contention of the assessee regarding depreciation u/s 32(ii) is required to be accepted. AO is directed to allow depreciation under 32(1)(ii). The ground of assessee is thus allowed with said directions. Allowability of Leave encashment expenditure - Held that - The assessee took a policy from LIC named as Rajasthan State Mines & Minerals Limited Employee Group Leave Encashment Scheme. The payment of leave encashment is a contractual liability, a charge on assessee s profit. To ensure timely payment of leave encashment to its employees, the scheme is devised by the LIC, which works out the leave encashment liability and fixation of premium as per valuation report. The liability is thus ascertained and crystallized on a scientific method by the LIC. Thus, the assessee s payment of ₹ 29.39 Crores during the year towards the same is within the framework of the leave encashment scheme and in our considered view, the same is an allowable business deduction and the AO is directed to allow the said claim of the assessee even though the same has not been made in the return of income but during the assessment proceedings and all the necessary facts are on record. In the result, assessee s ground of appeal is allowed. Chargeability of interest u/s 234A - return filed on or before the date prescribed u/s 139(1) - Held that - AO while working out the interest under section 234A amounting to ₹ 32,10,470 has not given credit of self-assessment tax paid by the assessee amounting to ₹ 17,00,00,000. Apparently, the reason for the same could be that the online functionality to determine the interest liability in the IT system of the department still doesn t allow credit for self-assessment tax while working out the interest u/s 234A inspite of the CBDT Circular No. 2/2015 dated 10-2-2015 which clearly allows such credit. To our mind, the matter is squarely covered by the decision of the Hon ble Supreme Court in favour of the assessee. In such a scenario, where the taxes deposited before filing the return of income were more than the taxes finally determined on regular assessment, the interest under section 234A is held not leviable. We therefore set-aside the matter to the file of the AO for limited purposes of verification of the tax deposit figures before filing of the return of income so submitted by the ld AR and where the same is found to be in order, allow the necessary relief to the assessee.

Issues Involved:

1. Deletion of addition of ?20,00,000/- made by disallowing contribution to State Renewal Fund.
2. Allowance of deduction of ?3,01,47,000/- for provision for Mines Closure Expenses.
3. Treatment of receipts of ?2,92,48,044/- from sale of Carbon Emission Certifications as capital in nature.
4. Confirmation of disallowance of ?1,22,76,496/- out of rural development expenses.
5. Disallowance of amortization of mining land and leasehold land totaling ?4,05,50,526/-.
6. Non-allowance of leave encashment expenditure of ?29,39,32,282/-.
7. Issue of chargeability of interest under section 234A.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?20,00,000/- for State Renewal Fund Contribution:

Both parties agreed that the issue is covered by the Co-ordinate Bench's decision in the assessee’s own case for AY 2011-12, where it was held that the contribution to the State Renewal Fund is an allowable deduction under Section 37(1) as it is for the welfare of employees and thus, for business expediency. The decision was supported by the Hon’ble Rajasthan High Court in the case of Principal CIT vs. Rajasthan State Seed Corporation Ltd., affirming that such contributions are allowable deductions. Consequently, the ground taken by the Revenue was dismissed.

2. Allowance of Deduction of ?3,01,47,000/- for Mines Closure Expenses:

The issue was similarly covered by the Co-ordinate Bench's decision in the assessee’s own case for AY 2011-12, where it was held that the provision for Mines Closure Expenses is an ascertained liability and allowable under the mercantile system of accounting. The Hon’ble Rajasthan High Court in Pr. CIT vs. Rajasthan State Mines & Minerals Ltd. also supported this view. Therefore, the ground taken by the Revenue was dismissed.

3. Treatment of Receipts from Sale of Carbon Emission Certifications as Capital in Nature:

The issue was covered by the Co-ordinate Bench's decision in the assessee’s own case for AY 2007-08, where it was held that receipts from the sale of Carbon Emission Certifications are capital in nature, following the judgment of the Hon’ble Andhra Pradesh High Court in My Home Power Ltd. The Revenue's ground was dismissed as there were no changes in the facts and circumstances of the case.

4. Confirmation of Disallowance of ?1,22,76,496/- Out of Rural Development Expenses:

The assessee argued that the rural development expenses were incurred for the smooth functioning of its business and benefitted its employees. The Tribunal noted that similar expenses were allowed in earlier years for smooth transportation and street lighting. The Tribunal referred to various judgments, including Rajasthan Spinning & Weaving Mills Ltd., which allowed such expenses if they were directly connected to the business. The Tribunal concluded that the expenses incurred were for the business's smooth operation and allowed the deduction, deleting the addition made by the AO.

5. Disallowance of Amortization of Mining Land and Leasehold Land:

The Tribunal noted that the Co-ordinate Bench for AY 2007-08 directed treating such expenses as capital and granting relief under the law. The Hon’ble Rajasthan High Court in DB ITA No.146/2016 held that licenses for mining are akin to intangible assets, entitling depreciation under Section 32(1)(ii). Therefore, the AO was directed to allow depreciation under Section 32(1)(ii), and the ground of the assessee was allowed.

6. Non-Allowance of Leave Encashment Expenditure of ?29,39,32,282/-:

The Tribunal noted that the amount paid to LIC under the leave encashment scheme was an allowable business deduction under Section 37(1) r.w.s. 43B(f). The Tribunal held that the AO should allow the claim even if not made in the return of income but during assessment proceedings, as all necessary facts were on record. The ground of the assessee was allowed.

7. Issue of Chargeability of Interest Under Section 234A:

The Tribunal referred to the CBDT order extending the due date for filing the return but not for the purposes of Explanation 1 to Section 234A. The Tribunal also referred to the Supreme Court decision in CIT v. Prannoy Roy, which held that interest under Section 234A is not chargeable if the tax due is paid before the due date. The Tribunal directed the AO to verify the tax deposit figures and allow necessary relief if the taxes were paid before the original due date. The ground of the assessee was allowed with directions.

Conclusion:

The appeals were disposed of with the Tribunal affirming the CIT(A)'s orders on several grounds, allowing deductions for Mines Closure Expenses, treating Carbon Emission Certifications as capital receipts, and allowing rural development expenses. The Tribunal also directed the AO to allow depreciation on mining and leasehold land and leave encashment expenditure, and to verify the tax deposits for the purpose of Section 234A interest.

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