2014 (9) TMI 629 - AT - Income Tax

Tribunal Upholds Assessment Reopening, Deletes Additions, Directs Verification

M/s. National Mineral Development Corporation Limited. Versus Dy. Commissioner of Income Tax

The Tribunal upheld the legality and validity of the reopening of assessment under Section 147 for the assessment year 2008-09, based on reports ... Validity of reopening of assessment – tangible material to suggest escapement of income - Held that:- Following the decision in assessee’s own case as decided in DCIT Versus M/s NMDC LTD [2014 (7) TMI 993 - ITAT HYDERABAD] - AO has got the reports from the newspapers 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 value of exports – Held that:- Following the decision in assessee’s own case as decided in DCIT Versus M/s NMDC LTD [2014 (7) TMI 993 - ITAT HYDERABAD] - AO has taken exports by NMDC during the year of ₹ 2517,21,27,295 - 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 of ₹ 2517,21,27,295 is set aside as it cannot be made on presumptions and hypothesis – Decided in favour of Assessee. Addition 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:- Following the decision in assessee’s own case as decided in DCIT Versus M/s NMDC LTD [2014 (7) TMI 993 - ITAT HYDERABAD] - 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. Depreciation on lease hold land disallowed – Held that:- Following the decision in assessee’s own case as decided in DCIT Versus M/s NMDC LTD [2014 (7) TMI 993 - ITAT HYDERABAD] - Assessee rightly contended that the denial of claim of depreciation has been made on misinterpretation of law and the applicability - Explanation to Section 32(1)(ii) leans in favour of the assessee to the extent that it is the actual action of put to use which entitles the assessee to claim depreciation - A straight line method of claiming the writing off of lease hold rights for the period of lease cannot be denied to the assessee for the simple reason it being intangible asset has been written off which pertains to land being an intangible asset - All expenses are incurred for the purpose of business and are incidental to the holding of rights were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset - The definition of depreciation has been misconstrued for the purpose of allowing deduction by the AO and the CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended w.e.f. AY 2003-04 - the assessee is entitled to depreciation as charged to the P & L account in accordance with its business exigencies – thus, the assessee is eligible for claim of depreciation on lease hold land – Decided in favour of assessee. Addition of stamp duty and registration charges – Capital in nature or not – Held that:- Following the decision in assessee’s own case as decided in DCIT Versus M/s NMDC LTD [2014 (7) TMI 993 - ITAT HYDERABAD] and completely relying upon CIT Vs. Panyam Cements and Minerals Industries Ltd. [1996 (9) TMI 49 - ANDHRA PRADESH High Court] it has been held that 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:- Following the decision in assessee’s own case as decided in DCIT Versus M/s NMDC LTD [2014 (7) TMI 993 - ITAT HYDERABAD] - 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 – relying upon 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. Preoperative expenses disallowed – Held that:- Following the decision in NMDC Ltd., Hyderabad. Versus Joint Commissioner of Income-tax [2014 (3) TMI 682 - ITAT HYDERABAD] - The CIT(A) gave a categorical finding that 'these expenses are definitely capital and have been rightly categorized so by the appellant and also certified as capital expenditure by the auditors - It is only at the time of computation of income the assessee claimed this expenditure as revenue without providing any details or reasons” - the assessee has not placed any evidence to establish the expenditure incurred as revenue expenditure – thus, there was no infirmity in the order of the CIT(A) – Decided against Assessee. Issues Involved:1. Legality and validity of the reopening of assessment under Section 147 of the Income Tax Act, 1961.2. Addition on account of suppression of export sales by under-invoicing.3. Addition on account of mine closure obligation.4. Disallowance of depreciation on leasehold land.5. Disallowance of stamp duty and registration charges as capital expenditure.6. Disallowance of expenditure incurred in discharge of corporate social responsibility.7. Disallowance of preoperative expenses.Issue-wise Detailed Analysis:1. Legality and Validity of Reopening of Assessment under Section 147:The assessee challenged the legality and validity of the reopening of the assessment for the assessment year 2008-09. The reopening was based on a newspaper report and the report of the Hon'ble Lok Ayukta of Karnataka, which suggested suppression of export sales. The CIT(A) upheld the reopening, stating that these reports formed a prima facie basis for reopening the assessment. The Tribunal, referencing its previous decision for the assessment year 2007-08, upheld the legality and validity of the reopening, noting that the Assessing Officer had a prima facie belief to reopen the assessment based on the available information.2. Addition on Account of Suppression of Export Sales by Under-invoicing:The Assessing Officer added Rs. 2517.21 crores for the assessment year 2008-09 and Rs. 278.02 crores for the assessment year 2009-10, alleging suppression of export sales based on the investigation report of Dr. U.V. Singh. The CIT(A) upheld the additions, citing inconsistencies in the pricing policy and the inability of the assessee to substantiate the figures reported. However, the Tribunal, referencing its earlier decisions for the assessment years 2007-08 and 2010-11, deleted the additions, noting that the assessee's long-term contracts and pricing were approved by the Government of India and there was no evidence of additional unrecorded income.3. Addition on Account of Mine Closure Obligation:The Assessing Officer disallowed Rs. 15.38 crores for the assessment year 2009-10, treating the mine closure obligation as a contingent liability. The Tribunal, following its earlier decisions, held that the mine closure obligation is an ascertained liability and directed the assessee to furnish relevant data to the Assessing Officer for verification and recomputation.4. Disallowance of Depreciation on Leasehold Land:The Assessing Officer disallowed Rs. 10.66 crores for the assessment year 2009-10, treating the depreciation on leasehold land as not allowable. The Tribunal, referencing its earlier decisions, allowed the depreciation, holding that the leasehold rights are intangible assets eligible for depreciation under Section 32(1)(ii).5. Disallowance of Stamp Duty and Registration Charges as Capital Expenditure:The Assessing Officer disallowed Rs. 42.80 lakhs for the assessment year 2009-10, treating the stamp duty and registration charges as capital expenditure. The Tribunal, following its earlier decisions, upheld the disallowance but directed the Assessing Officer to allow depreciation on the capitalized amount.6. Disallowance of Expenditure Incurred in Discharge of Corporate Social Responsibility:The Assessing Officer disallowed Rs. 33.30 crores for the assessment year 2009-10, treating the expenditure incurred on corporate social responsibility (CSR) as non-business expenditure. The Tribunal, referencing its earlier decisions, directed the Assessing Officer to examine the nature of the expenditure and allow it if it was incurred for business purposes.7. Disallowance of Preoperative Expenses:The Assessing Officer disallowed Rs. 4.69 crores for the assessment year 2009-10, treating the preoperative expenses as capital expenditure. The Tribunal upheld the disallowance, noting that the assessee failed to provide evidence to establish the expenditure as revenue in nature.Conclusion:The Tribunal partly allowed the appeals for both assessment years 2008-09 and 2009-10, providing relief on certain issues while upholding the disallowances on others. The detailed analysis and references to earlier decisions ensured consistency and adherence to legal principles.