2022 (11) TMI 375 - AT - Income Tax

Addition in respect of Mine Closure expense treating the same as deposit not considering the same as actual payment of liability - HELD THAT - It is pertinent to note that the assessee company made provision in Mining Closure Fund as per the guidelines issued by the Ministry of Coal which is mandatory to each mining company. It is not disputed fact that the assessee made claim u/s 43B every year as and when the actual expenditure is made. The department in the past has accepted this position. The said provision is mandatory and the assessee has made the said provision in books of accounts following the guidelines of the Ministry of Coal. The issue of ascertaining the said provision is covered in favour of the assessee by the decision of the Hon ble Rajasthan High Court in case of Rajasthan state Mines and Mineral Ltd. 2019 (6) TMI 305 - RAJASTHAN HIGH COURT as per the contentions of the Ld. AR. But the observation of the CIT(A) that the said Mining Closure Funds is not in the nature of tax, duty, cess, fee etc. as per Section 43B, appears to be justifiable as the guideline of Ministry of Coal has given the procedure and time period for the closure expenses to be incurred by the coal mine owners who are operating coal mines without the approval of any Mine Closure Plan. Thus, Section 43B claim is not applicable in assessee s case. Thus, the CIT(A) was right in the said context. As regards the decision of the Hon ble Rajasthan High Court the same is in the context of Section 37 claim made by the assessee therein. Thus, the said argument of the Ld. AR is rejected. Alternate argument that even if the Tribunal is of the view that provision of Section 43B are not applicable to mine Closure Expense than the amount or provision of for mine closure already disallowed by the assessee company u/s 43B of the Act in its computation of income during A.Y. 2013-14, should be allowed as expenses as the same has been made on accrual basis as per the Guidelines issued by Ministry of Coal and same relates to the business of the assessee appears to be correct. Since the assessee has to make provision for mine closure as the requirement of the Mine owners, the same should be allowed as expenses. Thus, appeal of the assessee is partly allowed.

Summary

Issues:
1. Disallowance of Mine Closure expense as deposit under Section 43B of the Income Tax Act.
2. Applicability of Section 43B to Mine Closure expenses.
3. Disallowance of provision for Mine Closure expenses as deduction on accrual basis.

Issue 1: Disallowance of Mine Closure expense as deposit under Section 43B:
The appeal concerns the disallowance of Mine Closure expense amounting to Rs.6,56,43,460/- by treating it as a deposit instead of considering it as an actual payment of liability under Section 43B of the Income Tax Act. The assessee argued that the expenditure claimed was actual and not a deposit, supported by ledger accounts showing detailed expenditure. The Assessing Officer had disallowed the claim, leading to the appeal.

Issue 2: Applicability of Section 43B to Mine Closure expenses:
The Ministry of Coal mandates mining companies to provision for Mine Closure expenses annually. The assessee consistently applied Section 43B to these provisions, disallowing them in the statement of total income and claiming them when actual payments were made. The department had previously accepted this practice. However, the CIT(A) and the Assessing Officer contended that the Mining Closure Fund was not akin to tax, duty, or cess as per Section 43B, hence not applicable. The tribunal upheld this view, emphasizing that the fund's purpose was distinct from the Section 43B criteria.

Issue 3: Disallowance of provision for Mine Closure expenses as deduction on accrual basis:
The alternate argument raised was that even if Section 43B did not apply to Mine Closure expenses, the provision of Rs.49,60,39,000/- disallowed by the assessee under Section 43B should be allowed as expenses on an accrual basis. This argument was accepted, acknowledging that the provision, made as per Ministry of Coal guidelines and related to the business, should be treated as an expense. Consequently, the appeal was partly allowed, recognizing the validity of the provision for Mine Closure expenses.

In conclusion, the tribunal partially allowed the appeal, emphasizing the distinction between deposits and actual expenses, the specific nature of Mine Closure expenses, and the validity of provisions made as per regulatory guidelines. The judgment clarified the application of Section 43B and upheld the deduction of Mine Closure expenses as per the Ministry of Coal guidelines.