2018 (4) TMI 313 - AT - Income Tax

Reopening of assessment - validity of reasons to believe - Held that - We find that notice u/s 148 of the Act was issued before the expiry of 4 years from the end of relevant A.Y. and the reason for reopening related was the issue of additional royalty privilege fees and there was no finding of the Ld. AO on this issue in the regular assessment completed u/s 143(3) of the Act. We, therefore, find no merit in the grounds raised by the assessee in view of the facts and circumstances of the case wall as in view of Hon ble Apex Court judgment in the case Kalyanji Mobji & Co. vs. CIT (1975 (12) TMI 2 - SUPREME Court) wherein observed that reassessment can be initiated even when the information is obtained from the record of the original assessment, investigation of the material of the record or facts disclosed thereby from an inquiry or research into facts or law. The information need not be from external source. - Decided against assessee. Disallowance of ex-gratia payment provided for labourers - Held that - Respectfully following the judgment of Hon ble Apex court in the case of SA Builders Ltd. (2006 (12) TMI 82 - SUPREME COURT) and in view of the facts and circumstances of the case, discussed in the preceding para are of the considered view that the alleged expenditure of exgratia payment in the shape of Anugrah Rashi/Protsahan Rashi to labourers working in the mines held on lease by the assessee are allowable as business expenditure and both the lower authorities erred in disallowing the same. In the result the issue of disallowance ex-gratia payment is allowed in favour of the assessee Disallowance of privilege fee - provision in in the nature of additional royalty i.e. tax payable to the state government for mining or it is a privilege fee - Held that - From the perusal of records, we find that the alleged provision was made as per government order No.F19-95/2004/12/2 dated 13.10.2004 issued by the State Government by the Ministry of Mines and Minerals. The copy of alleged order is not placed on record. Even though the assessee has paid the amount equivalent to the royalty paid on the sand and has also deposited ₹ 15 crores through challans in the government treasury, but still its actual nature is not discernable from the records placed before us. The fact needs to be inquired by the AO duly assisted by the assessee as well as information to be taken from the Madhya Pradesh State Government( Mines and Minerals Department) duly, referring to the notification as discussed above and then to decide accordingly. In case the alleged amount is in the nature of tax duty or cess (by whatever name called under any law for the time being enforce) then the alleged disallowance needs to be sustained and if found otherwise then the claim of assessee should be allowed. - Allow this issue in favour of assessee for statistical purposes and remit it to the file of Ld. AO to make necessary verification

Summary

Issues Involved:
1. Validity of reopening of assessment for A.Y. 2007-08.
2. Disallowance of ex-gratia payments to laborers for A.Ys. 2007-08, 2009-10, and 2010-11.
3. Disallowance of claim of privilege fees and treating them as royalty under section 43B of the Income Tax Act for A.Y. 2007-08.

Detailed Analysis:

1. Validity of Reopening of Assessment for A.Y. 2007-08:
The assessee challenged the legality of the notice issued under section 148 of the Income Tax Act and the reassessment proceedings. The Tribunal found that the notice under section 148 was issued within four years from the end of the relevant assessment year, based on the issue of additional royalty privilege fees, which was not addressed in the original assessment. Citing the Supreme Court judgment in Kalyanji Mobji & Co. vs. CIT, the Tribunal held that reassessment can be initiated even when the information is obtained from the record of the original assessment. Consequently, the Tribunal dismissed the assessee's ground and upheld the reassessment proceedings as valid.

2. Disallowance of Ex-Gratia Payments to Laborers:
The assessee, a government undertaking, made ex-gratia payments to laborers working in sand mines. The payments were made in pursuance of a State Government resolution to support local laborers. The Assessing Officer (AO) treated these payments as charity and disallowed them. The CIT(A) upheld this view. However, the Tribunal, referring to the Supreme Court judgment in SA Builders Ltd. vs. CIT, found that the payments were made for business purposes and commercial expediency. The Tribunal noted that the payments were made under legal obligation and were connected to the revenue-earning activities of the assessee. Therefore, the Tribunal allowed the ex-gratia payments as business expenditure and overturned the disallowance made by the lower authorities.

3. Disallowance of Claim of Privilege Fees and Treating Them as Royalty:
The assessee claimed privilege fees, which the AO treated as additional royalty subject to section 43B of the Income Tax Act, allowing only the amount paid before the due date of filing the return. The CIT(A) upheld this view. The Tribunal noted that the nature of the provision (privilege fees vs. additional royalty) was not clear from the records. The Tribunal directed the AO to verify the nature of the provision with the State Government's order and decide accordingly. If the amount is a tax, duty, or cess, the disallowance should be sustained; otherwise, the claim should be allowed. The Tribunal remitted the issue back to the AO for further verification and provided the assessee an opportunity to be heard.

Conclusion:
- The Tribunal upheld the validity of the reassessment proceedings for A.Y. 2007-08.
- The Tribunal allowed the ex-gratia payments to laborers as business expenditure for A.Ys. 2007-08, 2009-10, and 2010-11.
- The issue of privilege fees was remitted back to the AO for verification, with directions to allow or disallow based on the nature of the fees.

Result:
- The appeal for A.Y. 2007-08 was partly allowed for statistical purposes.
- The appeals for A.Ys. 2009-10 and 2010-11 were allowed.