2014 (7) TMI 993 - AT - Income Tax

Reopening of assessment No tangible material to suggest escapement of income Held that - AO has got the reports from the news papers and then AO also mentioned in the assessment order the steps taken for obtaining the information from Lokayukta, various enquiries caused including statements recorded from the Officers involved in export of iron ore before reopening assessment - AO has prima facie belief to reopen the assessment u/s 147 - At the stage of reopening the assessment, it is not necessary to examine the quantum of escapement - What is required to be verified is whether there is any belief for coming to a decision whether income has escaped assessment - there is prima facie belief for reopening the assessment it cannot be held that AO has no reason to believe at the time of reopening the proceedings Decided against assessee. Addition on suppression of sale Held that - AO has taken exports by NMDC during the year at ₹ 726,39,88,999/- whereas in table at page 38 while making the addition, the sale value of export declared by NMDC was taken at ₹ 469,55,65,037 - Relying upon Mysore Minerals Ltd. vs. ACIT 2013 (9) TMI 676 - ITAT BANGALORE there was no reason to confirm the addition of the amount, as the assessee company had furnished all the details required by the A.O. and assessee has accounted for all the amounts it received - There is no iota of information that assessee or any agent received any amount over and above the amounts accounted in the books of accounts - I.T. Act does not permit making additions on hypothetical income particularly, as suppression of sales when there is no evidence at all - Additions cannot be made on presumptions and hypothesis Decided in favour of Assessee. Additional depreciation on machinery Held that - CIT(A) wrongly confirmed the addition made by the AO holding that exploration and sale of iron ore does not involve activity of production of any article or thing, ignoring the fact that assessee do extract the iron ore and sell the iron ore after various processes Relying upon Commissioner of Income-Tax Versus Sesa Goa Ltd. 2004 (11) TMI 14 - SUPREME Court - extraction and processing of iron ore amounts to production - activity of winning or extracting the coal from the mines can be aptly described as production activity - on both principles of law and also on fact that assessee was allowed the additional depreciation in all other years, there was no reason to confirm the order of the CIT(A) Decided in favour of Assessee. Disallowance u/s 40(a)(ia) Non-deduction of tax on commission paid to MMTC Held that - There was no reason to interfere with the order of the CIT(A) - since the assessee is not entitled to export directly and export by the MMTC was on principal basis, there can be no commission payment to MMTC, as such the question of sustaining the order of the AO in estimating the commission and disallowing the same u/s 40(a)(ia) does not arise - there is no claim of commission by assessee - Decided against Revenue. Addition of stamp duty and registration charges Capital in nature or not Held that - Following the decision in CIT Vs. Panyam Cements and Minerals Industries Ltd. 1996 (9) TMI 49 - ANDHRA PRADESH High Court - stamp duty paid for renewal of mining lease is a revenue expenditure - if the expenditure incurred by the assessee for first time with respect to the assets claimed as capital asset - the AO is correct in treating the amounts as capital in nature - expenditure incurred by the assessee for the first time with respect to the assets claimed as capital asset, depreciation has to be granted and then this expenditure is also to be considered as capital eligible for depreciation Decided partly in favour of Assessee. Claim on corporate social responsibility Expenses incurred wholly and exclusively for the purpose of business Held that - The contribution is only a welfare measure for the upliftment of the Adivasis in the locality where the mining unit was situated and also for the welfare of the employees of the assessee - Following the decision in NMDC Ltd. Hyderabad Versus Joint Commissioner of Income-tax 2014 (3) TMI 682 - ITAT HYDERABAD - This contribution would definitely go a long way in conducting the assessee s mining business in a profitable manner - indirectly all the contribution made by the assessee takes care of the education of the employees children - This would certainly be a welfare measure on the part of the assessee for carrying out the business in an effective and efficient manner thus, the contribution has to be treated as revenue expenditure for the purpose of the business thus, there is no justification in disallowing the amount Decided in favour of Assessee. Disallowance of mine closure obligation Expenses accrued bases on the quantity extracted - Whether the CIT(A) has erred in disallowing the mine closure obligation to the extent relating to the project under construction or not having any production during the year Held that - Mine closure obligation is not a contingent liability but ascertain liability - it has to be verified that whether assessee has made the claim on the mines which are in working condition which are being operated or not - Following the decision in NMDC Ltd. Hyderabad Versus Joint Commissioner of Income-tax 2014 (3) TMI 682 - ITAT HYDERABAD - If the assessee has made the claim on mines which have not started operations, the same cannot be allowed - ascertainability of liability is to be ascertained year-wise - the assessee is directed to furnish the relevant data to the AO towards the mines closure obligation and A.O. is directed to verify and allow the amount accordingly Decided in favour of Revenue.

Summary

Issues Involved:
1. Reopening of assessment under Section 147.
2. Suppression of sale value of exports.
3. Disallowance under Section 40(a)(ia) and 40(a).
4. Disallowance of additional depreciation.
5. Disallowance of claim of expenses of earlier years.
6. Loss on sale of assets.
7. Depreciation on intangible assets.
8. Mine closure obligation.
9. Corporate social responsibility (CSR) expenses.
10. Interest under Section 115P for delayed remittance of dividend distribution tax.

Detailed Analysis:

Reopening of Assessment under Section 147:
The Assessee contended that the reopening was bad in law as it was based on a change of opinion without any tangible material suggesting escapement of income. The Assessing Officer (A.O.) reopened the assessment based on newspaper reports and the Lokayukta's report, which indicated suppression of export sales. The CIT(A) upheld the reopening, stating that the new information formed a prima facie basis for reopening. The Tribunal agreed with the CIT(A), noting that the A.O. had a prima facie belief based on substantial information, thus rejecting the Assessee's grounds.

Suppression of Sale Value of Exports:
The A.O. added Rs. 506,10,92,507/- for suppression of sale value based on the Lokayukta's report, which alleged under-invoicing of exports. The Assessee argued that exports were governed by long-term contracts negotiated and approved by the Government of India, and any deviation from spot market prices was due to these long-term agreements. The Tribunal found discrepancies in the A.O.'s calculations and noted that the comparison with spot prices was inappropriate. The Tribunal concluded that hypothetical income cannot be taxed and deleted the addition.

Disallowance under Section 40(a)(ia) and 40(a):
The A.O. disallowed amounts under Section 40(a)(ia) for non-deduction of tax on commission paid to MMTC. The CIT(A) deleted the disallowance, noting that the issue was covered by earlier Tribunal decisions, which held that MMTC acted on a principal-to-principal basis, not as an agent. The Tribunal upheld the CIT(A)'s decision.

Disallowance of Additional Depreciation:
The A.O. disallowed additional depreciation, arguing that the Assessee was not involved in the production of any article or thing. The CIT(A) confirmed this view. However, the Tribunal noted that the Assessee was engaged in the extraction and processing of iron ore, which amounts to production as per Supreme Court and jurisdictional High Court rulings. The Tribunal directed the A.O. to allow the additional depreciation.

Disallowance of Claim of Expenses of Earlier Years:
The A.O. disallowed Rs. 22,62,104/- claimed as prior period expenses. The CIT(A) directed the A.O. to verify the claims and allow them if they were found to have crystallized during the relevant year. The Tribunal upheld this direction.

Loss on Sale of Assets:
The A.O. added Rs. 48,335/- due to rounding differences between the annual report and the computation of income. The Tribunal found no mistake in the actual amounts incurred by the Assessee and deleted the addition.

Depreciation on Intangible Assets:
The A.O. disallowed depreciation on leasehold lands, treating them as non-depreciable assets. The CIT(A) confirmed the disallowance. The Tribunal, following earlier decisions, allowed the depreciation, noting that leasehold rights are intangible assets eligible for depreciation.

Mine Closure Obligation:
The A.O. disallowed Rs. 12.13 crores towards mine closure obligations, treating it as a contingent liability. The CIT(A) allowed the expenditure, and the Tribunal upheld this decision, noting that mine closure obligations are ascertainable liabilities.

Corporate Social Responsibility (CSR) Expenses:
The A.O. disallowed Rs. 71,20,08,354/- spent on CSR activities, treating them as donations. The CIT(A) confirmed the disallowance. The Tribunal, following earlier decisions, allowed the expenses, recognizing them as necessary for the smooth conduct of business in remote areas.

Interest under Section 115P:
The A.O. levied interest under Section 115P for delayed remittance of dividend distribution tax. The CIT(A) deleted the interest, noting that the dividend was declared in the AGM, and the tax was paid within the stipulated time. The Tribunal upheld this decision.

Conclusion:
- The Assessee's appeals were partly allowed, with significant relief granted on issues of suppression of sales, additional depreciation, and CSR expenses.
- The Revenue's appeals were dismissed, upholding the CIT(A)'s decisions on disallowances under Section 40(a)(ia), mine closure obligations, and interest under Section 115P.