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TMI Blog2016 (7) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the A.O. was not correct in holding that the expenditure claimed by the assessee under the head land reclamation and afforestation is not an allowable deduction. Considering the facts and circumstances of the case and also respectively following the decision of High Court of Rajasthan, in the case of Udaipur Mineral Development Syndicate (P) Ltd vs. DCIT (2002 (8) TMI 26 - RAJASTHAN High Court) we are of the view that the assessee is eligible for deduction towards land reclamation and afforestation expenses on accrual basis, whether or not, said expenditure is paid during the relevant financial year. The assessee has made a provision in the books of accounts based on the terms of lease agreement and also conditions stipulated by the Ministry of Forest & Ecology, Government of India on reasonable estimate basis. It is also an admitted fact that the assessee has continuously incurred the above expenditure towards the rehabilitation and reclamation programme. Therefore, we direct the A.O. to delete the additions made towards land reclamation and afforestation expenditure. - Decided in favour of assessee - I.T.A.No.621/Vizag/2014 - - - Dated:- 10-6-2016 - SHRI V. DUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture because of weather conditions and hence a part of expenditure has been incurred during the year under consideration and remaining has been provided in the books of accounts to be incurred during the subsequent financial years. 3. The A.O. after considering the explanations furnished by the assessee held that the expenditure incurred by the assessee under the head land reclamation and afforestation has no proximity/nexus with the business operations of the assessee. Afforestation is the process of establishing a forest on land that is not a forest, or has not been a forest for a long time by planting trees or their seeds. Reclamation is a process of reclaiming or regaining. The assessee has coined the name in such a way that it suits to the permissible modes of expenditure, but actually it is admitted that such expenditure is incurred for setting right the pits and the excavated area for agricultural operations by land filling. The assessee has failed to furnish cogent evidences for incurring the expenditure and also failed to prove the genuineness of such expenditure. The A.O. further held that expenses incurred by the assessee for developing such land cannot be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons furnished by the assessee, held that from the perusal of the environment clearance letter it is evident that the assessee is required to incur certain expenditure towards land reclamation and afforestation and held that the said expenditure cannot be characterized as capital expenditure. The CIT(A) further held that however from the ledger extract filed by the assessee it is seen that the assessee has only made a provision of ₹ 49,14,000/- during the year and the actual amount utilized was only ₹ 17,00,243/-. Though the assessee has incurred ₹ 17,00,243/- for the relevant period, failed to prove the expenditure with necessary evidences. The CIT(A) further held that there is no evidence to show that any land reclamation or afforestation expenses were incurred during the subject year in relation thereto. With these observations confirmed the additions made by the A.O. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 6. The Ld. A.R. for the assessee submitted that the Ld. CIT(A) erred in confirming the disallowance of ₹ 49,14,000/-, though assessee proved that the said expenditure is incurred in relation to earning of income. The A.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove purpose, therefore, opined that the expenditure incurred by the assessee is in the nature of capital expenditure and cannot be allowed as deduction. The CIT(A) has accepted that the expenditure incurred by the assessee is not a capital expenditure, however, held that the assessee has made a mere provision in the books of accounts, therefore, a provision in the books of accounts is not an allowable deduction while computing the income under the head profits gains of business or profession. 9. It is the contention of the assessee that it has made a provision in the books of accounts towards expenditure to be incurred in relation to earning of income for the relevant financial year. The assessee further contended that he is following mercantile system of accounting and as per the mercantile system of accounting, all related expenditure accrued in a financial year should be provided in the books of accounts whether or not said expenditure is paid during the relevant financial year. The assessee further contended that as per the lease agreement, the assessee needs to refill the land and hand over back to the farmers for agricultural operations. The assessee also refers to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amation and afforestation on reasonable estimate basis. It is also an admitted fact that the assessee has incurred the said expenditure on every year in a systematic manner. As per the terms of lease agreement and also terms of conditions of the Government of India environment clearance letter, the assessee require to restore surface land used by it for excavating the minerals by refilling the land and make it suitable for agricultural operations. As soon as the assessee has dug the pits, he is duty bound under the contract to fill those pits before restoring the leased land to the farmers in its original shape. The moment assessee digs pits, a liability arises and he is entitled to deduction for the expenses which he is supposed to incur for filling those pits when the assessee is following a mercantile system of accounting. Therefore, we are of the view that the A.O. was not correct in holding that the expenditure claimed by the assessee under the head land reclamation and afforestation is not an allowable deduction. 12. Coming to the case laws relied upon by the assessee. The assessee relied upon decision of High Court of Rajasthan, in the case of Udaipur Mineral Development ..... X X X X Extracts X X X X X X X X Extracts X X X X
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