2018 (3) TMI 1809 - AT - Income Tax

Tribunal rulings on deductions, depreciation, and expenses under section 35E

The Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal. The Tribunal directed the Assessing Officer to allow deductions for ... Addition on account of “donation and subscription” - HELD THAT:- In the present case in hand, the assessee has filed details of donation covered u/s.80G of the Act, which are relied by the Assessing Officer in assessment order and the Assessing has granted relief available under 80G being 50%, which is not disputed and made disallowance of balance claim and other claims and we consider the facts and restrict the disallowance to the extent of ₹ 3.69 lakhs and partly allowed the ground of appeal of the assessee. Disallowance of CMPDIL expenses - eligible for deduction u/s.37(1) - CIT(A) confirmed the action of the Assessing Officer with a rider that the said expenditure is to be allowed as per provisions of section 35E - HELD THAT:- CIT(A) observed that the expenditure is not incurred on existing revenue yielding mine but such expenditure is in connection with a new capital asset. Therefore, this expenditure is in the nature of preliminary and prospecting expenditure covered u/s.35E of the Act and directed the Assessing Officer accordingly. CIT(A) gave his findings that the claims of the assessee has to be allowed u/s.35E and not under section 37 of the Act, as the expenses being preliminary and prospecting expenditure. We also find that the Tribunal for the assessment year 2008-09 [2018 (1) TMI 326 - ITAT CUTTACK] on similar issue has held that the assessee shall approach the respective assessing authorities to consider the claim of the assessee. Following the same, we direct the Assessing Officer to allow the claim of the assessee u/s.35E of the Act. This ground of appeal of the assessee is allowed for statistical purposes. Addition under the head “deterioration of stock ‘ - HELD THAT:- As the net realizable price is less than notified price and deterioration occurs due to degradation of coal for losing its Useful Heat Value, such provision is to be made to give a true and fair valuation of the stock of coal. Hence, to take care of all such contingency it was found that a provision of 10% is sufficient and accordingly the stock is valued. Ld A.R. submitted that the disallowance made by the Assessing officer is reduced by ₹ 361.20 Lakhs in the order u/s. 154 dated 28/03/2012 pertaining to amount of provision on account of deterioration in opening stock. Hence the net disallowance on this account remains at ₹ 537.87 Lakhs’. It was submitted that as per accounting policy consistently followed by the assessee company (clause 10.2 of Schedule - 'O' , Provision @ 10% on the value of closing stock of coal is made to take care of deterioration of stock due to fire and longer period of stocking etc. where the stock is valued at Net Realizable Value. No such provision is made where the stock is valued at cost.' Before us, both the parties agreed that the issue requires reconsideration for the assessment year 2004-05 to 2007-08 in absence of any technical report In support of the claim and as there is any evidence in support of the claim, the learned CIT(A) is not justified in allowing the claim of the assessee which has been quantified on a percentage basis i.e., 10% that too without any material basis. At the same time, it is not improbable that there might be certain deterioration of stock due to fire and longer period of stocking etc., but a basis has to be based on the books of accounts itself and not in a whimsical manner. These facts, in our view, require reconsideration Addition towards provision for obsolete and non-moving stores - HELD THAT:- As decided in own case authorities below have disallowed the claim of the assessee mainly on the ground that no details thereof could be furnished by the assessee. The assessee vehemently contended that the details thereof were produced before the ld CIT(A) including the area-wise details of amount charged against non-moving stores and spares. He also submitted a copy of such details, which is found placed at page 165 of the paper book. If that is so, in our considered view, without examining such details furnished before him the ld CIT(A) is not justified in upholding the disallowance as made by the Assessing Officer. Therefore, for the ends of justice, we set aside the impugned order of the CIT(A) and restore this issue to the file of the AO for consideration afresh Addition of charge on lease hold land - HELD THAT:- As decided in own case [2018 (1) TMI 326 - ITAT CUTTACK] hold that the lease hold rights are not eligible for depreciation u/s.32(1)(ii) of the Act considering it as intangible asset and, hence, dismiss this ground of appeal of the assessee. Short credit of TDS - HELD THAT:- As decided in own case [2018 (1) TMI 326 - ITAT CUTTACK] Tribunal has observed that the credit of TDS should have been allowed to the assessee on the basis of original TDS certificates submitted by the assessee. Since the facts being identical for the present assessment year under consideration, we confirm the order of the CIT(A) and dismiss the ground of appeal of the assessee. Allowability of HEMM rehabilitation expenses - revenue or capital expenditure - HELD THAT:- revenue has not challenged the order of the CIT(A) in assessment year 2003-04 but it was stated in the ground of appeal that the CIT(A) has not considered the issue on merit. But the CIT(A) has observed that the revenue having accepted the claim of the assessee in the earlier assessment year, has not filed second appeal. The findings of the CIT(A) are supported by the decision of Hon’ble Supreme Court in the case of Saravana Spg. Mills Pvt. Ltd [ 2007 (8) TMI 16 - SUPREME COURT] . Even before us, the revenue could not point out any specific error in the order of the CIT(A) except relying on the order of the Assessing Officer and no new facts have been brought on record to substantiate that the expenditure claimed by the assessee is of capital in nature. Hence, we uphold the findings of the CIT(A) and dismiss this ground of appeal of the revenue. Issues Involved:1. Confirmation of addition on account of “donation and subscription”.2. Confirmation of disallowance of expenses incurred for CMPDIL.3. Confirmation of addition under the head “deterioration of stock”.4. Confirmation of addition towards provision for obsolete and non-moving stores.5. Confirmation of addition towards charge on leasehold land and depreciation on premium paid for leasehold land as intangible assets.6. Short credit of TDS.7. Relief on HEMM expenses.Detailed Analysis:1. Confirmation of addition on account of “donation and subscription”:The assessee claimed Rs. 15.67 lakhs as donation and subscription, out of which the Assessing Officer allowed Rs. 3.86 lakhs and disallowed Rs. 3.79 lakhs. The CIT(A) confirmed this action. The Tribunal found that the assessee had provided sufficient evidence and directed the Assessing Officer to allow the deduction of Rs. 5.25 lakhs under the head “donation and subscription” and restricted the disallowance to Rs. 3.69 lakhs.2. Confirmation of disallowance of expenses incurred for CMPDIL:The assessee incurred Rs. 480.40 lakhs for CMPDIL expenses, out of which Rs. 288.10 lakhs were disallowed by the Assessing Officer as capital expenditure. The CIT(A) confirmed this but directed the allowance under section 35E of the Act. The Tribunal upheld this, directing the Assessing Officer to allow the claim under section 35E.3. Confirmation of addition under the head “deterioration of stock”:The assessee made a provision of Rs. 913.07 lakhs for stock deterioration, which was disallowed by the Assessing Officer. The CIT(A) directed reconsideration based on the Tribunal's previous decisions. The Tribunal upheld the CIT(A)'s direction for reconsideration in light of technical support or evidence in the books of account.4. Confirmation of addition towards provision for obsolete and non-moving stores:The assessee provided Rs. 92.49 lakhs for obsolete stores, which was disallowed due to lack of evidence. The Tribunal, following its previous decisions, restored the issue to the Assessing Officer for fresh consideration with proper details and opportunity for the assessee to be heard.5. Confirmation of addition towards charge on leasehold land and depreciation on premium paid for leasehold land as intangible assets:The Assessing Officer disallowed Rs. 1769.58 lakhs for leasehold land charges and depreciation on leasehold land. The CIT(A) confirmed this based on previous Tribunal decisions. The Tribunal upheld that leasehold rights are not eligible for depreciation under section 32(1)(ii) of the Act.6. Short credit of TDS:The assessee claimed TDS of Rs. 12805.12 lakhs, but the Assessing Officer allowed only Rs. 12444.42 lakhs, further reduced to Rs. 12436.36 lakhs. The Tribunal, following its previous decision, confirmed that TDS credit should be allowed based on original TDS certificates.7. Relief on HEMM expenses:The Assessing Officer disallowed Rs. 663.19 lakhs of HEMM rehabilitation expenses as capital expenditure. The CIT(A) deleted this addition, considering it as revenue expenditure for repairs. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were for extending the life of HEMM to their rated life and did not result in asset replacement.Conclusion:The appeal filed by the assessee was partly allowed, and the appeal of the revenue was dismissed. The Tribunal's decisions were based on previous rulings, technical evidence, and the nature of the expenses involved.