2021 (7) TMI 901 - AT - Income Tax

Addition on account of rehabilitation expenses being capital in nature - HELD THAT - There is no infirmity in the order of the CIT(A) in deleting the addition made by the AO on account of rehabilitation expenses as the decision of CIT(A) is in consonance with the decision of ITAT in own case for AYs 2002-03 to 2004-05. Therefore, we uphold the order of CIT(A) and dismiss the grounds raised by the revenue on this count. Addition on account of penalty suspense account - HELD THAT - As assessee withholds some amount as per the agreement for different defaults committed by the contractor which accounted for under the head penalty suspense and once the contractor makes good for the defaults, the amount withheld is returned back to the contractor. Therefore, we are of the view that treating the recovery amount, which is made as per the agreement, for which the contractors are agreed and refunded to the concerned contractor on completion of the targeted work satisfactorily, but, the assessee failed to prove the same by way of documentary evidence when it was refunded, whereas, assessee stated that it has been refunded. Considering the facts and circumstances of the case, we restore the issue back to the file of AO with a direction redecide the issue on submission of the evidence before him by the assessee. The assessee is directed to substantiate its claim by way of producing documentary evidence before the AO. Accordingly, the grounds raised by the assessee on this issue are treated as allowed for statistical purposes. Addition on account of prospecting and leasing expenses - AO observed that the assessee had debited an amount to Profit loss account being 100% of prospecting and mining lease expenses under the head operational expenses - Since the said expenditure is covered under provisions of section 35E of the Act, the AO asked the assessee to show cause as to why the said expenditure should not be allowed only to the extent of 1/10th - Rejecting the submissions of the assessee, treating the above expenditure as capital in nature, the AO disallowed an amount - HELD THAT - When the assessee preferred an appeal before the CIT(A), as contended by the assessee in the ground, the CIT(A) did not adjudicate this ground of appeal. Therefore, we remit this issue back to the file of CIT(A) with a direction to adjudicate the issue on merits after providing reasonable opportunity of hearing to the assessee. Thus, ground No. 2 is allowed for statistical purposes. Addition towards corporate social responsibility expenditure - HELD THAT - CIT(A) before remitting the issue to the file of AO observed that the expenditure debited by the assessee under the head corporate social responsibility is in principle allowable. However, he observed that the AO did not examine the nature and correctness of the expenditure debited. Therefore, we also remit this issue to the file of the AO with a direction to examine the nature and correctness of the expenditure debited and decide the issue in accordance with law after providing reasonable opportunity of being heard to the assessee. Accordingly, this ground is treated as allowed for statistical purposes.

Issues Involved:
1. Addition on account of rehabilitation expenses being capital in nature.
2. Addition on account of penalty suspense account.
3. Addition on account of donations.
4. Addition of prospecting and leasing expenses.
5. Deduction for the amount of penalty suspense account.
6. Verification of Corporate Social Responsibility (CSR) expenditure.

Issue-wise Detailed Analysis:

1. Addition on account of rehabilitation expenses being capital in nature:
The assessee had debited ?10,27,39,144/- towards 'Rehabilitation Expenses'. The Assessing Officer (AO) considered this expenditure as capital in nature and disallowed it, adding the amount back to the income returned. The assessee argued that the expenditure was for the welfare of people displaced from mining sites and should be allowed. The CIT(A) deleted the addition, following the ITAT's decision in the assessee's own case for earlier assessment years (AYs 2002-03 to 2004-05). The ITAT upheld the CIT(A)'s decision, finding no infirmity in deleting the addition, as it was consistent with ITAT's previous decision.

2. Addition on account of penalty suspense account:
The AO observed an amount of ?1,23,04,407/- towards penalty suspense account in the assessee's sundry creditors. The assessee contended that penalties were recovered from contractors, which could be refunded if the contractors compensated for shortfalls within a specified period. The AO disallowed the amount, treating it as income since the assessee failed to provide evidence of refunding the penalties. The CIT(A) confirmed the addition due to lack of evidence. The ITAT restored the issue to the AO, directing the assessee to substantiate its claim with documentary evidence.

3. Addition on account of donations:
The CIT(A) confirmed the addition of ?1,30,000/- made by the AO on account of donations. This issue was not contested further in the ITAT judgment.

4. Addition of prospecting and leasing expenses:
The AO disallowed ?1,06,63,344/- out of ?1,18,48,159/- debited by the assessee as prospecting and mining lease expenses, treating it as capital expenditure. The assessee argued that such expenses were routine operational expenses and should not be considered capital in nature. The CIT(A) did not adjudicate this ground. The ITAT remitted the issue back to the CIT(A) for adjudication on merits after providing the assessee an opportunity to be heard.

5. Deduction for the amount of penalty suspense account:
Similar to the second issue, the ITAT remitted the issue back to the AO for re-examination, directing the assessee to provide evidence of refunding the penalties to the contractors.

6. Verification of Corporate Social Responsibility (CSR) expenditure:
The AO disallowed ?47,58,803/- debited as CSR expenses, stating there was no provision in the Income Tax Act to allow CSR expenses as business expenditure. The CIT(A) observed that such expenditure is in principle allowable but remitted the issue to the AO for verification of the nature and correctness of the expenditure. The ITAT concurred with the CIT(A) and remitted the issue back to the AO for factual verification and decision in accordance with the law.

Conclusion:
The ITAT dismissed the revenue's appeal regarding the deletion of the addition on account of rehabilitation expenses. The assessee's appeals on the penalty suspense account and prospecting and leasing expenses were allowed for statistical purposes, with directions for re-examination and verification by the AO. The CSR expenditure issue was also remitted back to the AO for verification. The appeal regarding donations was not contested further. The ITAT's decisions were pronounced in the open court on 20th July, 2021.

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