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2002 (2) TMI 344
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....mpany is a wholly owned subsidiary of M/s. Coal India Ltd. which is a Government of India Undertaking. It is engaged in the business of extracting coal from the coal fields located in M.P. It is regularly assessed to income-tax and its assessments for assessment years 1989-90 and 1990-91 were initially completed by the Dy. C.I.T., Special Range, Raipur under section 143(3). Subsequently, the same were reopened by the Assessing Officer for the reason recorded in writing and the reassessments under section 147/143(3) were completed making substantial additions to the income returned by the assessee company. The assessments for the assessment years 1994-95, 1995-96 and 1996-97 of the assessee company were also completed making substantial additions vide orders passed by the Assessing Officer under section 143(3). Aggrieved by the orders of the Assessing Officer, the assessee company preferred appeals for all the five years before the learned CIT(Appeals) who dismissed the same and also assumed jurisdiction under section 251 to enhance the income of the assessee company. Aggrieved by the same, the assessee company is in appeal before the Tribunal. At the time of hearing, the learned re....
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....ratio of the said decision applies with equal force to the facts of the present case wherein the main reason being contribution to CPRA did not survive and, therefore, the Assessing Officer had no jurisdiction to proceed with the reassessment and to make any other additions. 4.2 The learned Departmental Representative, on the other hand, submitted that the Assessing Officer had rightly reopened the assessment for assessment years 1989-90 and 1990-91 after recording the reasons for doing so and the said reasons were also communicated to the assessee vide his letter dated 19-11-1996. She further submitted that once the case is reopened under section 147, the full assessment was open before the Assessing Officer. Relying on the decision of Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd v. ITO [1999] 236 ITR 34, she contended that for determining whether initiation of reassessment proceedings was valid, it is only toether there was prima facie some material on the basis of which the Department could reopen the case. She further contended that itin therescaped items in the reassessment though such items did not form the basis of initiation. In support of this conten....
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....ispute about the fact that no addition in respect of contribution to CPRA was made in the reassessment completed by the Assessing Officer for both the years i.e. assessment years 1989-90 and 1990-91. Before us, the learned counsel for the assessee has contended, relying on the decision of Hon'ble Punjab & Haryana High Court in the case of Atlas Cycles Industries Co. that when the main reason on the basis of which the assessments were reopened did not survive, the Assessing Officer had no jurisdiction to proceed with the reassessment and make any other additions. The learned Departmental Representative, on the other hand, has contended that there was a valid reason for reopening the assessments and once such assessments were reopened, the Assessing Officer had every right to bring to tax any other income that had escaped assessment. In support of this contention she has relied on various judicial pronouncements, which are enumerated above. 4.5 Before we proceed further to consider the contentions raised by the learned representatives of both the parties in the light of the facts and circumstances of the present case, it would be appropriate to summarise the legal position emana....
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....aterials before him which have to be examined and scrutinized on such evidence as may be available in the proceedings for reassessment. Badriprasad Rameshwar Prasad's case It is only when certain material has been used by the Assessing Officer for the purpose of assessment and he has acted upon that and passed the assessment order, then with the same material the assessment cannot be reopened on account of change of opinion. If some material has not been acted upon by the assessing authority and was not brought to the notice of assessing authority, it cannot be said that the Assessing Officer had assessed the income on that basis. Atlas Cycles Co. case In this case, assessment was reopened on two grounds. However, both the grounds did not survive. Hon'ble High Court accordingly held that: "..the Income-tax Officer did not have the jurisdiction to proceed with the reassessment, the moment he found the two grounds mentioned in the reassessment notice incorrect or non-existent." 4.6 It is pertinent to note here that all the aforesaid decisions cited by the learned representatives related to a period prior to 1-4-1989 when the conditions precedent for invoking jurisdic....
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....nt High Courts regarding the jurisdiction of the Assessing Officer in reopening the assessments when the condition for reopening did not survive or found to be not in existence. It is also quite clear that all these decisions were rendered on the basis of existence or non-existence of the information in the possession of the Assessing Officer at the relevant time to entertain belief about escapement so as to acquire jurisdiction under section 147 read with section 148. 4.8 It is pertinent to note that section 147 was substituted by the Direct Tax Amendment Act, 1987 with effect from 1-4-1989 and as per the amended provisions of the said section the only condition precedent for invoking the jurisdiction under section 147 is that the Assessing Officer should have a reason to believe that income chargeable to tax has escaped assessment. It is thus clear that the requirements in the old provisions that the Assessing Officer should have 'information in possession' before taking action to assess or reassess the income escaping assessment have been dispensed with and the only requirement for reopening the assessment within a period of four years from the end of the relevant asses....
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.... Officer was required to have such information in his possession to enable him to validly acquire the jurisdiction under section 147 and in the absence of the very existence of such information, the various judicial authorities proceeded to conclude that the Assessing Officer did not have jurisdiction to assess or reassess the income of the assessee under section 147. However, where the factum of having such information was found to be in existence at the time of reopening the assessment but in the ultimate analysis the Assessing Officer did not find any escapement, the reopening was considered valid by the judicial forum giving jurisdiction to the Assessing Officer +Lo proceed under section 147. 4.10. After the amendments made to section 147 with effect from 1-4-1989, the condition precedent is only that the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment. In the present case, the reason to entertain belief about the escapement of income by way of allowing wrong deduction on account of contribution to CPRA was very much there and the same was also communicated to the assessee by the Assessing Officer. Although this belief turne....
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....e end of the concerned assessment year if and only if the assessee has not filed its return of income or he has failed to disclose fully and truly all material facts necessary for his assessment for that year. He submitted that the Assessing Officer assumed jurisdiction for reopening the assessment proceedings on the premise that the assessee had failed to disclose truly and fully all the material facts relating to the contribution to CPRA. In this regard, he contended that the appellant had made complete disclosure about its contribution to CPRA by clearly disclosing the same separately in the profit & loss account. He also drew our attention to the profit & loss account of the relevant period placed at page Nos. 3.4 and 3.5 of his paper book to show that the contribution to CPRA was separately claimed as expenditure by the assessee in its profit & loss account. Relying on the decision of Hon'ble Supreme Court in the case of Bankipur Club Ltd., he contended that the disclosure by way of expenditure in tile profit and loss account filed with the Assessing Officer along with the return of income was complete disclosure by the assessee and there was no failure or omission to disc....
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....se laws cited by the learned representatives of both the parties in support of their stands. In the case of Garden Silk Mills Ltd. the Hon'ble Gujarat High Court has observed that the Assessing Officer was aware about the investment and fluctuations in the exchange rate from the fact that the depreciation claimed by the assessee on the enhanced cost was duly allowed by him and thus there was no failure on the part of the assessee to disclose material facts necessary for assessment to warrant the issue of notice for reassessment beyond a period of four years. In the present case the assessee had claimed the contribution to CPRA as an expenditure separately in its profit & loss account filed with the return of income and the nature of the said contribution was also explained in the following explanatory note No. 9 forming part of assessee's annual account filed before the Assessing Officer: "Contribution on account of retention price to Coal Price Regulation Account The Government of India vide its Notification No. 28012/86-CA dated 16-3-1989 has fixed Rs. 182 per mtr. as retention price for the year 1988-89. In pursuance of this Notification Rs. 20,737.50 lakhs (previous....
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....re an assessment is made under section 143(3), the same cannot be reopened under section 147 after the expiry of four years from the end of the relevant assessment years unless there is a reason to believe that any income chargeable to tax has escaped assessment for such assessment year by reason of the assessee's failure to make a return under section 139 or in response to a notice issued under section 142(1) or 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. In the present case, the stand of the Revenue is that there was a failure on the part of the assessee to disclose fully the material facts regarding its claim for deduction in respect of contribution to CPRA. In this regard, when the learned Departmental Representative was required by the Tribunal to point out any such specific failure of the assessee, she stated that the full scheme relating to the CPRA was not furnished by the assessee before the Assessing Officer, Referring to Explanation 1 to section 147, she has also contended that mere writing a small note regarding the contribution to CPRA was not a full and true disclosure on the part of the assessee. Fr....
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....ts which help in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of facts disclosed, or otherwise, the assessing authority has to draw inference as regards certain other facts and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences and ascertain on the correct interpretation of the taxing enactment, the proper tax leviable." After referring to the aforesaid observations, the Hon'ble Supreme Court proceeded to hold that the finality of proceeding is certainly a consideration but that avails one who has fully and truly disclosed all material facts necessary for his assessment for that year and not to others. 5.5 From the perusal of aforesaid observations of the Hon'ble Supreme Court, it is clear that the assessee is required to place before the Assessing Officer all the primary facts necessary for his assessment and once that is done the assessee can be said to have discharged his obligation in this regard. In the present case, as already mentioned, the assessee had claimed the contribution to CPRA....
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....learned CIT (Appeals) had no jurisdiction to assess a new source of income which had not been considered or processed by the Assessing Officer in the assessment order. He, therefore, urged that the impugned orders of the learned CIT (Appeals) insofar as the same relate to enhancement of assessments be set aside. 6.2 The learned Departmental Representative submitted that it is a settled law that the scope of the powers of the first appellate authority is co-terminus with that of the Assessing Officer and as held by Hon'ble Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 he can do what the Assessing Officer can do and also he can direct the Assessing Officer to do what he has failed to do. She also cited the case of CIT v. Nirbheram Daluram [1997] 224 ITR 610 (SC) wherein it was held by the Hon'ble Supreme Court that the powers of the first appellate authority are not confined to the matters considered by the Assessing Officer and, therefore, it is open to him to make addition relating to new sources of income not considered by the Assessing Officer. She also clarified that the decisions of Hon'ble Supreme Court in Shapoorji Palionji Mistry....
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....e Assessing Officer and he can do what the Assessing Officer can do and can also direct him to do what he has failed to do. As such, considering all the facts of the case and the legal position emanating from the afore said judicial pronouncements, we are of the opinion that the learned CIT(Appeals) has acted within his jurisdiction while making enhancement in the present case as per the powers conferred on him under section 251. 7. The next issue relating to the disallowance of Heavy Earth Moving Machinery (HEMM) rehabilitation expenses is raised by the assessee in the following appeals: (Rs. in lakhs) ITA No. Asstt. Year Grd. No. Expenditure claimed. Depreciation Allowed Net grievance 18/Nag./2001 1989-90 4 278.40 92.79 185.61 19/Nag./2001 1990-91 3 331.59 110.52 221.07 20/Nag./2001 1994-95 8 965.79 241.45 724.34 21/Nag./2001 1995-96 3 1200.28 300.07 900.21 22/Nag./2001 1996-97 2 1254.16 313.54 940.62 7.1 The Heavy Earth Moving Machinery (HEMM) is used by the assessee company in its business of extracting coal either by the shaft method or by the cast method. During the years under consideration, substantial expenditure was incurred on the r....
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....pose of income-tax, the same has been claimed as revenue expenditure by the assessee. He, thus, noticed that the assessee has given different treatment to the same expenditure for the purpose of income-tax from the one given in the books of account. Therefore, considering that the said expenditure involving substantial amount has been incurred by the assessee on replacement of major components to put back new life into the HEMM and the same has been treated as capital expenditure by the assessee in its books of account, he came to the conclusion that the said expenditure is clearly of capital in nature and disallowed the claim of the assessee in respect of the same as revenue expenditure. He, however, allowed depreciation on the same at the rates specified in the I.T. Rules. The matter was carried before the learned CIT(Appeals) and the submission made before the Assessing Officer on this issue was reiterated by the assessee before him. It was also brought to the notice of the learned CIT(Appeals) by the assessee that his predecessor has decided the similar issue in favour of the assessee in assessee's own case for assessment year 1991-92 allowing deduction to the assessee on a....
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....) about the treatment given by the assessee to the impugned expenditure in the books of account. He submitted that the assessee had not treated the said expenditure as capital in its books of account but the same was treated as deferred revenue expenditure. Referring to the definition of "deferred revenue expenditure" given in the guidance note on "Terms used in financial statement" published by ICAI as well as the one issued by ICMA, the learned counsel for the assessee contended that the deferred revenue expenditure in fact is of revenue nature and the same is certainly distinct from capital expenditure. He also crew our attention to Schedule 11 and Schedule 24 to the assessee's audited annual accounts placed in his paper book at page Nos. 4.7 and 4.8 to point out that the assessee has treated the said expenditure as deferred revenue expenditure in its books of account. He, therefore, contended that the main basis for disallowance given by the learned CIT(Appeals) does not survive as the assessee had not treated the said expenditure as capital expenditure in its books of account. As regards the nature of the said expenditure, the learned counsel for the assessee explained tha....
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....n the books of account. He pointed out that a similar issue has been decided in assessee's own case for assessment years 1991-92 and 1993-94 by the predecessor of the learned CIT(Appeals) who passed the impugned orders and even though this aspect was brought to the notice of the learned CIT(Appeals) no reason has been given by him while taking a contrary view on this issue especially when facts are identical in all the relevant years. He, therefore, contended that the learned CIT(Appeals) was not justified in upholding the action of the Assessing Officer and treating the expenditure incurred by the assessee on rehabilitation of HEMM as of capital nature and urged that the same be allowed as revenue expenditure as claimed by the assessee. 7.4 The learned Departmental Representative submitted that the assessee has adopted the accounting policy as governed by the holding company i.e. Coal India Limited. She contended that it may be good for the purpose of accounting. However, the actual allowability of such expenditure has to be seen as per the provisions of the Income-tax Act under which only the current repairs are allowable as revenue expenditure. Relying on the judgment of Ho....
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....sed repairs or overhauling work resulted in giving a new life to HEMM and therefore the authorities below were right in holding the same as capital expenditure considering the facts and circumstances of the instant case as well as the treatment given by the assessee-company to such expenditure in its books of account. 7.5 We have considered the rival submissions in the light of material available on record and the decisions cited at the bar. It is observed that the expenditure on rehabilitation of HEMM was treated by the authorities below as capital expenditure mainly for the reason that the assessee had treated the same as "deferred revenue expenditure" in its books of account and according to the revenue authorities the said expenditure incurred on major repairs to HEMM resulted into putting a new life in the said machinery. So far as the treatment given by the assessee-company in its books of account in respect of the said expenditure is concerned, it is pertinent to ascertain as to whether such expenditure has been treated by the assessee as capital expenditure in its books of account. In this regard, we find that the assessee has treated the said expenditure as "deferred reve....
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....hen any expenditure is treated as a "deferred revenue expenditure", it pre-supposes that the concerned expenditure, creating benefit in the revenue field, is a revenue expenditure but considering its enduring benefits as well as the fact that it does not result in the creation of any new asset or advantage of enduring nature in the capital field, the same is required to be treated distinctly from capital expenditure. It is thus clear that the authorities below misconstrued the term "deferred revenue expenditure" as capital expenditure on the basis of accounting treatment given by the assessee in its books of account and proceeded to draw an adverse inference without considering the nature of the impugned expenditure as its allowability of the same under the provisions of the Income-tax Act. 7.6 It is observed that the learned CIT(Appeals) placed reliance on the decision of Hon'ble Supreme Court in the case of State of Travancore and that of Hon'ble Calcutta High Court in the case of UCO Bank in coming to the conclusion that the particular method of accounting followed by the assessee in its books of account has to be followed for the purpose of income-tax also and he canno....
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.... any case, as held by Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd., the allowability of a particular deduction depends on the provisions of law relating thereto and not on the basis of entries made in the books of account, which are not decisive or conclusive in this regard. In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT[1997] 227 ITR 172 the Hon'ble Supreme Court has observed that the question whether a certain deduction from the income is permissible in law or not has to be decided according to the principles of law and not in accordance with the accountancy practice. 7.9 To appreciate the nature of the expenditure incurred by the assessee-company on rehabilitation of HEMM and to decide the question about the allowability of the same under the Income-tax Act, it is pertinent to consider the facts involved in the present case in the light of relevant judicial pronouncements. It is observed that the HEMM is regularly used by the assessee-company for the purpose of its business of extracting coal from the coal mines. When a unit of HEMM covers more than 50% of its rated life, the same is undertaken for overhauling and repairs. Durin....
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.... has held that the amount spent on repairs made to the plant and replacement of the old parts needed as a result of the stress and strains of production over along period is admissible under section 10(2)(v) of the 1922 Act which is similar to section 31 of the 1961 Act. In the case of CIT v. Mahalakshmi Textile Mills Ltd. [1965] 56 ITR 256 the Hon'ble Madras High Court observed that replacement of worn out parts does not by itself bring the new asset into existence and held that expenditure incurred on such replacement was deductible. In the case of Rhodesia Railways Ltd. v. LT. Collector [1933] 1 ITR 227, their lordships of Privy Council observed that the fact that the wear although continues, is not, and cannot be, made good annually, does not render -the work of renewal, when it comes to be effected, necessarily a capital charge. Explaining further, their lordships observed that when such expenditure does not result in the creation of any new asset and it has been incurred to maintain the appellant's existing line in a state to earn revenue, the same has to be allowed as a revenue expenditure. In the case of CIT v. Cooperative Sugars Ltd. [1999] 235 ITR 343, the Hon'....
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.... in that case were effected by the assessee to a machinery which had come to a stand still and considering that the "Current repairs" contemplates expenditure incurred on repairs of the machinery in running condition, their lordships of Hon'ble Madras High Court rejected the claim of the assessee to treat the same as revenue expenditure. Before us, reliance was placed by the learned Departmental Representative on the case of Himalayan Properties Ltd. wherein the Hon'ble Calcutta High Court has observed that renovation of machinery with the intention to increase its value and efficiency will not constitute current repairs. In the present case, there appears to be no such intention to increase the value and efficiency of the machinery behind carrying out the rehabilitation work and it is only for the purpose of preserving and maintaining the said machinery, the rehabilitation work was carried out by the assessee company. 7.12 It is thus clear that the expenditure on rehabilitation of HEMM was incurred by the assessee to preserve and maintain the already existing machinery operational at its optimum capacity during the balance period of its rated life and the said rehabilitat....
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....the assessee on the decision of Hon'ble Supreme Court in the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 in support and the decision of ITAT in assessee's own case as well as the CBDT letter dated 27-12-1985 were also brought to the notice of the learned CIT (Appeals) to support its case on this issue. The learned CIT (Appeals), however, found from the perusal of sections 4A, 4B, 7 and 8 of the Colliery Control Order (CCO) that the assessee has to make payment to the CPRA. When the retention price is lower than the corresponding sale price and as and when the retention price is higher than the corresponding sale price, the assessee is entitled to receive the difference of the retention price and the corresponding sale price from the money standing to the credit of CPRA. The learned CIT (Appeals) also observed that the said Act nowhere mentions anything about the appropriation of the amount standing to the credit of CPRA by the CIL on behalf of the Central Government and in fact the CIL was entitled to draw any fund from CPRA on behalf of its subsidiary as per sections 7 and 8 of the said Act. He, therefore, came to the conclusion that the amount paid to ....
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....tled to receive moneys from the CPRAU on account of their selling price being less than the retention price. He submitted that under the said scheme, the CIL was obliged to maintain a set of commercial books of account for the purpose of audit and the special unit created by CIL as an agent of Govt. of India for effective administration and operations of CRPA was also subject to a review by a joint committee of Director (Finance) of subsidiaries headed by Director (Finance), CIL. He further submitted that the final powers have been expressly given to Chairman, CIL to resolve any dispute in the implementation of the said scheme and be had a discretion to consult the Department of Coal, Government of India in such matters whenever necessary. He contended that this specific procedure laid down in the scheme clearly depicts that the contribution made by the assessee to CPRA was a statutory liability created by a statute viz. Essential Commodities Act, Defence India Rules, CCO read with the scheme. He also submitted that the assessee company was entitled only for the retention price and any excess amount realised over the retention price was to be statutorily handed over to CPRA. His co....
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....e assessee company has neither paid any contribution to CPRA from financial year 1996-97 onwards nor has received any amount from CPRA so far. 8.4 The learned counsel for the assessee submitted that the question of allowability of expenditure on account of contribution to CPRA was examined by the CBDT and an instruction dated 27-12-1985 was also issued by it to the Ministry of Steel, Mines and Coal communicating that the contribution to CPRA is a deductible revenue expenditure. He also submitted that this view expressed by the CBDT was also brought to the notice of the learned CIT (Appeals), but he did not take cognizance of the same, which in fact was binding on him especially while exercising the powers of enhancement under section 251. He submitted that the decision of the Tribunal dated 4-11-1991 in the case of Western Coalfield Ltd. for assessment year 1983-84 on a similar issue was also cited before the Id. CIT (Appeals), but the same was brushed aside by him without giving any cogent reason for distinguishing the same. He also pointed out that the Department has not preferred a reference application against the said order of the Tribunal. Reliance was also placed by him on ....
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....niversally. She also submitted that the case of Poona Electric Supply Co. Ltd. relied upon by the learned counsel for the assessee is distinguishable on facts because the excess amount collected by the assessee in that case was to be distributed in the form of rebate to the customers whereas in the instant case, it is only the assessee who was going to be benefited by receiving back the amounts contributed to CPRA. She therefore contended that the contribution to CPRA cannot be considered as expenditure in computing the income of the assessee and the learned CIT (Appeals) was right in disallowing the same by invoking the enhancement power conferred on him under section 251. 8.6 We have considered the rival submissions and also perused the relevant material on record. We have also gone through the Colliery Control Order issued by the Central Government in 1945 and the scheme formulated for the maintenance and operation of the Coal Price Regulation Account. It is observed that the learned CIT (Appeals) disallowed the deduction on account of contribution to CPRA mainly because he was of the opinion that the Coal India Ltd. being entitled to withdraw any fund from CPRA only on behalf ....
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....e sale price in respect of each tonne of coal or coke sold by him. (4) The expenses for administration, if any, of the Coal Price Regulation Account shall be paid from the money standing to the credit of the said account." 8.7 The "retention price" envisaged in the above clause is defined in clause 2(5A) as the price fixed by the Central Government in respect of each colliery owner per tonne of each grade or size of coal and coke produced and sold by such owner. Further the Government is also authorized having regard to all the relevant factors, including the geological and mining condition of and the mining technology employed in the collieries by the colliery owners as well as the estimated cost of production of coal and coke produced by such colliery owner to fix by notification in the official gazette the retention price in respect of each class, grade or size of coal and coke produced and sold by such colliery owner. Accordingly, notifications were issued by the Central Government from time to time fixing the retention price and the copies of such notifications issued during the relevant period are placed in assessee's paper book at page Nos. 6.25 to 6.31. 8.8 From a p....
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....o the CPRA went irrevocably and irretrievably from the hands of the assessee and this being so, we find it difficult to concur with the view taken by the learned CIT (Appeals) relying on the decision of Hon'ble Supreme Court in the case of Indian Molasses Co. (P.) Ltd. that the said outgoing cannot be considered as expenditure. 8.9 The other reason given by the learned CIT (Appeals) to disallow the impugned amount is that the CIL was not authorized to appropriate the amount standing to the credit of CPRA on behalf of the Central Government and in fact it was entitled to draw any fund from CPRA only on behalf of its subsidiaries. In this regard, it is observed that the Central Government very much had a control over the administration of CPRA and as a matter of fact the maintenance and operation of the said account was governed by the scheme formulated by Central Government itself. As regards the observation of the learned CIT (Appeals) that the CIL who was appointed to administer the CPRA was authorised to draw any fund from the CPRA only on behalf of the subsidiaries and the assessee company being a subsidiary of CIL, had retained its right to receive contribution amount back....
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....ent in pursuance of the Colliery Control Order to achieve the objectives and purpose specified therein. It is worthwhile to note here that a similar issue came up for consideration before this bench in the case of Western Coalfields Ltd. and vide its order dated 4-11-1991 (copy placed in assessee's paper book at page Nos. 6.46 to 6.65), the Tribunal upheld the order of the learned CIT(Appeals) allowing deduction on account of contribution paid to CPRA. Moreover in assessee's own case for assessment year 1992-93, the proceedings initiated under section 263 by the Commissioner of Income-tax, Jabalpur (M.P.) were subsequently dropped keeping in view the letter dated 27-12-1985 issued by the CBDT treating the contribution to CPRA as revenue expenditure allowable under the Income-tax Act. Furthermore, the learned CIT(Appeals)-I, Raipur vide his order dated 14-10-1996 also deleted the addition made by the Assessing Officer on a similar issue in assessee's case for assessment year 1993-94 and although the reassessment proceedings had been initiated under section 148 for assessment years 1989-90 and 1990-91 on the basis of this issue, no additions in respect of the same were ma....
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....amount, which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible, but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequences, in law, does not follow. It is the first kind of payment, which can truly be excused, and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable." 8.12 In the present case, it is observed that such excess amount was received by the assessee company as a part of sale proceeds from its customers which constituted its trading income at the point when it reached or accrued to the assessee and only after it reached to the assessee, the same was paid over to CPRA as per the requirement to discharge the statutory liability. In the case of CIT v. Imperial Chemical Indu....
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.... of this liability has been made in the assessee's case for assessment year 1991-92 for the detailed reasons given in the order of assessment dated 30-3-1994 which were as follows: "The nature of the same was enquired into and it was explained by the A.R. vide order sheet entry dated 30-3-1994 that the pension fund has been created by the company by way of the deduction from the gross emoluments of the employees @ 2 per cent in terms of the agreement with National Wage Board and CIL, the holding company of the assessee. The purpose of the same was given to be setting up of a scheme for that purpose. However, no copy of agreement or for that matter the minutes of the meeting giving out the modalities of the said scheme placed on record. But it has been informed that no scheme has yet been set up till date and this deduction in the name of the pension fund is continued to be collected as aforesaid. Under such circumstances the fate of such money, which is in the hands of the company and is used by it is quite uncertain. Since no scheme for pension has yet been formulated and otherwise also for the present it is not known whether in absence of the scheme the money would be ref....
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....he amount in trust as a deposit. Since no fund was created there was no question of crediting the accounts of the employees in the fund by the due date. A chart was also filed to show that in various financial years from 1991-92 to 1994-95 refunds from the collections so made from the employees were given to employees who had left the organization. However, the fact remains that the provisions of section 2(24)(x) are applicable and in view of the express provisions of the said section mentioned above in detail the appellant would not be entitled to relief'. The addition of Rs. 4,50,00,000 is thus confirmed." 10.3 The learned counsel for the assessee submitted before us that the amount collected from employees towards pension funds from financial year 1989-90 was treated as income of the assessee-company under section 2(24)(x) since the same could not be deposited in the pension fund, which was pending finalisation, by the Government of India. In this regard, he contended that a significant and turning event was taken place in the financial year 1997-98 when the Coal Mines Pension Scheme, 1998 was formulated vide Notification No. GSR 123(E) dated 5-3-1998 in exercise of the pow....
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....o expect the poor workers to contribute the arrears of 7 years in one lump sum in the year in which the pension fund was formally created. He contended that the assessee, therefore, resorted to collect the amounts from each employee in order to spread over their burden and kept such collections to the credit of each employee. He also contended that the employees who retired during the intervening period i.e., from the date of collection up to the date of formal setting up of the fund, were paid the amount collected from them towards pension fund together with interest thereon. He contended that a fiction has been created under section 2(24)(x) to treat certain amounts as income and such legal fiction according to accepted principles of Jurisprudence has to be carried to its logical conclusion. In this regard, his contention was that the collection from the workers cannot be treated as a sum received by the assessee from his employees as contribution to a fund for welfare of such employees in the absence of any formal pension fund and, therefore, the same cannot be classified as income under section 2(24)(x). He submitted that till the time the pension fund scheme came into force an....
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.... of allowing deduction in respect of the same for the years under consideration and the authorities below were right in disallowing the claim of assessee for deduction on this count. She also contended that the assessee's alternative plea that no disallowance is warranted even under section 43B as the amount collected from employees was finally deposited with the pension fund within the prescribed period is also not relevant in the context of years under consideration because the pension fund was not in existence at the relevant time and the question of its payment within due date does not arise at all. 10.7 We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessee company collected by way of deduction from the salary of the employees a contribution at the rate of 296 of the gross emoluments towards pension fund in terms of the agreement with National Wage Board and CIL, the holding company of the assessee. The purpose of the same was stated to be for setting up a scheme of pension fund. The assessee company continued to collect such contribution from financial years 1989-90 to 1997-98 but the fund was finally a....
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....s per section 3(C) of the said scheme, the pension fund consisted of, inter alia, an amount equivalent to 2% of salary of the employees from the first day of April, 1989 or the date of joining whichever is later, up to the 31st day of March, 1996 and 2% of the notional salary of the employees from first day of April, 1996 or the date of joining whichever is later, which was to be transferred by the employer from the salary of the respective employees. As regards the payment of the said amount mentioned in section 3(c), it was provided in section 7(3) of the said scheme that the said amount which had already been deducted in part or in full but not remitted to the authorized officer on or before the appointed day, shall be remitted to the authorized officer within a period of 120 days from the appointed day and an interest of 12% per annum accrued on such amount as on the appointed day shall have also to be remitted by the employer to the authorized officer. As per the clause 1(2) of the said scheme, the said scheme was to come into force from such date as the Central Government may by Notification in the official gazette appoint and vide Notification No. S.O. 233(E), dated 20-3-199....
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....r on this issue which had become inapplicable to the assessee's case for the years under consideration due to the material change in the relevant facts of the case. 10.11 The learned counsel for the assessee has contended before us that the decision of the learned CIT(Appeals) for assessment year 1991-92 on which reliance was placed by the learned CIT(Appeals) while deciding this issue for the years under consideration had become abrogated and lost its binding nature. In this regard, we may observe that the principle of abrogated decision is applicable only, where a decision ceases to be binding by the process of law itself with contrary enactment brought into the relevant statute having the effect of nullifying the said decision. In the present case, there was merely a significant change in the material and relevant facts concerning the issue rendering the earlier decision given by the learned CIT(Appeals) in assessment year 1991-92 inapplicable to the years under consideration. 10.12 It is true that the said significant change came into existence only after a lapse of a period of about 9 years and in the absence of the same, the Revenue authorities had no option but to cont....
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.... creates a duty or charge and the party is disabled to perform it, without any default in him, and has no remedy over, there the law will in general excuse him and though impossibility of performance is in general no excuse for not performing an obligation which a party has expressly undertaken by contract, yet when the obligation is one employed by law, impossibility of performance is a good excuse. The same principle has been explained in Craies on statute law as follows : "Under certain circumstances compliance with the provisions of statute which prescribes how something is to be done will be excused. Thus in accordance with the maxim of laws the lex non cogit ad impossivilia, if it appears that the performance of the formalities prescribed by a statute has been rendered impossible by circumstances over which the persons interested had no control, like the act of the God or the King's enemies, these circumstances will be taken as valid excuse." 10.14 Keeping in view the above legal position as well as taking a circumspect view of the matter on hand, we are of the opinion that the provisions of section 2(24)(x) read with section 36(1)(va) should be interpreted liberally k....
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....it was submitted on behalf of the assessee company that the said expenditure has been incurred towards amount payable to State Government and for rehabilitation of people in the course of obtaining use of land for mining purposes for limited period. The nature of the said expenditure was explained as akin to fees for use of land for mining and the amount paid for relocation of the residents occupying/owning the land was stated to be for getting the said land for the purpose of mining. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. to contend that the said amount paid for enabling mining activities is revenue in nature since no asset of enduring benefit was brought into existence. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 while contending that the rehabilitation expenditure having been incurred in the course of expansion of existing business is revenue in nature. The Assessing Officer, however, found both these decisions cited by the assessee company before him to be distinguishable on facts for the reason given in para No. 5....
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....ntres for employees etc., payment was made to the State Government for obtaining the surface right for the balance period of lease with regard to the leasehold land. He further submitted that to enjoy the surface right so acquired in respect of the leasehold land for the unexpired period of the lease, the assessee company incurred expenditure to rehabilitate the villages existing on the said land and for this purpose, new villages were set up in order to relocate the occupants. He submitted that the assessee-company has not acquired any ownership rights in respect of the villages newly set up and, therefore, no new asset of enduring nature belonging to the assessee has come into existence as a result of such expenditure. He submitted that these amounts were spent by the assessee for enabling the extraction of coal and the same being the end product of the assessee's business, the expenditure incurred for obtaining the coal should be allowed as revenue expenditure. He submitted that the Assessing Officer was of the opinion that the said expenditure has been incurred by the assessee for enlarging its profit making apparatus which in fact was incurred by the assessee just to enabl....
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....the learned counsel for the assessee contended that the entries in the books of account made by the assessee are not conclusive to decide the nature of expenditure for the purpose of Income-tax Act. He submitted that the impugned expenditure was incurred by the assessee to facilitate its mining operations and although the advantage procured as a result of the same was of enduring nature, the same being in the revenue field, the same ought to have been allowed by the revenue authorities while computing the income of the assessee. In support of this contention, he placed reliance on the decision of Hon'ble Kerala High Court in the case of Plantation Corpn. of Kerala Ltd. v. CAIT[1994] 205 ITR 364 and that of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. Reliance was also placed by him on the decision of Hon'ble Supreme Court in the case of CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 to contend that the expenditure incurred by the assessee was only to obtain the business advantage and there being no ownership right acquired by the assessee in the resultant asset, the expenditure was allowable as a revenue expenditure. He, therefore, urged that the d....
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....instant case. She contended that in the case Empire Jute Co. Ltd. the advantage was acquired merely for facilitating the assessee's trading operations leaving the fixed capital untouched and, therefore, the same is also distinguishable from the present case wherein the surface rights have been acquired for the purpose of construction of utility building. She, therefore, submitted that all the cases relied upon by the assessee are distinguishable and considering that the expenditure in the present case was incurred by the assessee for acquiring the surface rights in the land for long term, the authorities below were right in treating the same as capital expenditure. 11.5 We have considered the rival submissions and also perused the relevant material on record. We have also deliberated upon the precedents relied upon by the learned representatives of both the sides in support of their plea. It is observed that the expenditure incurred by the assessee company for acquiring surface rights in the leasehold land and for rehabilitation of the people occupying such land was treated by the Assessing Officer as capital expenditure as against the assessee's claim of revenue expenditu....
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.... the said lease agreement, the assessee was under an obligation to obtain a permission from the appropriate authority for using the lease-hold land for surface operations from time to time on payment of surface rent as specified in clause 4 of Part V of the said lease agreement. Accordingly, the assessee acquired the surface rights from the Government in terms of the said lease agreement for using the said land for its surface operations for the balance period of lease which itself was a long-term period. The purpose for acquiring the said surface rights in the leasehold land as mentioned by the assessee company itself was for the purpose of constructing the utility buildings such as office complex, health centres for workers etc. After acquiring such surface rights in respect of the leasehold land, the assessee company acquired the right to possession of the said land from the villagers who were occupying the said land. For this purpose, the assessee company spent certain amount for relocating and rehabilitating the said villagers. The contention of the learned counsel for the assessee before us was that this entire expenditure was incurred by the assessee for the use of land for ....
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....sessee company to acquire the surface rights as well as the right to possession in respect of the leasehold land for enduring benefits and the same being not in the revenue field, the decision in the case of Gotan Lime Syndicate has no application to the facts of the present case. As regards the reliance placed by the learned counsel for the assessee on the decision of Hon'ble Supreme Court in the case of Madras Auto Service (P.) Ltd., it is observed that the assessee in that case had made substantial savings in monthly rent for the entire lease period by spending the amount on construction of a new building on the land taken on long lease and as the said expenditure resulted in a saving of rent which was a revenue expenditure, the Hon'ble Apex Court allowed the said expenditure as revenue expenditure. Similarly, in the case of CIT v. Associated Cement Co. Ltd. [1988] 172 ITR 257 (SC), the assessee by bearing the cost of laying pipelines as per the agreement entered into with the Government / municipality, was not needed to pay municipal taxes for 15 years and considering that the assessee in the absence of the said arrangement would have to pay the taxes every year to the ....
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....d object of the expenditure would determine the character of expenditure whether it is a capital or revenue and the source or the manner of payment would then be of no consequence. In the present case, the expenditure was incurred by the assessee-company with aim and object to acquire the surface rights as well as the right to possession in respect of the leasehold land for a long period and, therefore, the nature of such expenditure was certainly of capital nature. The revenue has also relied on the decision of Hon'ble Mysore High Court in the case of N. Peer Sahib in respect of which the learned counsel for the assessee has contended that the lease amounts having been paid to the surface owners by the assessee therein for extracting iron coal at the beginning of the mining operation, it was considered as capital in nature whereas in the present case the assessee has made the relevant payments during the currency of the lease period. After carefully perusing the said decision of Hon'ble Mysore High Court, it however, appears that the payment made to the Pattedars who were occupying rights over the land which had been acquired by the assessee from the Government was found t....
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....lted into accrual of enduring benefits to the assessee-company for the balance period of lease, the same has to be treated as capital expenditure, as held by the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. As such, considering all the facts of the case and legal position enumerating from the judicial pronouncements discussed hereinabove, we are of the considered opinion that the impugned expenditure incurred by the assessee for acquiring surface rights as well as the right to possession in respect of leasehold land for enduring period was a capital expenditure and the learned CIT(Appeals) was fully justified in upholding the action of the Assessing Officer in treating the same as capital expenditure and thereby disallowing the deduction claimed by the assessee in respect of the same. 12. The next issue relating to the disallowance of payments made under section 40A(3) amounting to Rs. 13,20,261 raised by the assessee in ground No. 3 of ITA No. 20/Nag./2001 for assessment year 1994-95 has not been pressed by the learned counsel for the assessee before us. Accordingly, this ground is dismissed is not pressed. 13. The next issue relating to disallowance of ....
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....others in matters of admission. The assessee-company is a Government company and as discussed above is audited not only by the Chartered Accountants but also by the Auditor and Comptroller General of India. Section 40A(9) also does not talk about contribution to the institution run by the assessee. It may be made to any institution which provides certain facilities to the employees." 13.2 It is observed that the aforesaid decision was also followed by the Tribunal in assessee's own case for assessment year 1987-88 while deleting the disallowance made by the Revenue on this count in its consolidated order dated 20-9-1996 in ITA Nos. 740 to 742/Nag./95. The learned CIT(Appeals), however, declined to follow the same observing that the important aspect of absence of direct nexus as well as intimate connection of the said expenditure to the business of the assessee was riot examined by the ITAT and proceeded to confirm the disallowance made by the Assessing Officer on this count. In this regard, it is observed that a similar issue involving identical facts came up for consideration before the Hon'ble Kerala High Court in the case of P. Balakrishnan, CIT v. Travancore Cochin Che....
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....h the employees and as the said agreement was enforceable in law under the Indian Contract Act as well as the Industrial Dispute Act, the assessee company was under a statutory obligation to incur the said expenditure. As such, considering all the facts of the case and keeping in view the aforesaid decisions including the decision of this bench in assessee's own case, we hold that the expenditure incurred by the assessee company on account of grants made to various schools was an admissible business expenditure and the learned CIT(Appeals) was not justified in confirming the disallowance made by the Assessing Officer on this count. His impugned order on this issue is, therefore, reversed and the Assessing Officer is directed to allow the said expenditure. 14. The next issue relating to the alternative plea of the assessee regarding the addition of interest on pension fund not relating of the concerned year is raised in ground No. 7 of ITA No. 20/Nag./2001 for assessment year 1994-95. 14.1 After considering the rival submissions and perusing the relevant material on record, it is observed that the entire amount of Rs. 569.87 lakhs shown as payable on account of interest on pen....
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.... 1994-95 the assessee did not claim any depreciation on the said equipment. However, during the assessment proceedings, the assessee preferred a claim of depreciation on the said equipment by filing a revised chart of depreciation. It was submitted on behalf of the assessee before the Assessing Officer that as per the concept of "block of asset", the individual item of machinery looses its identity and its use in a later year is not relevant for the purpose of allowing depreciation on the same. The Assessing Officer, however, found no merits in this contention of the assessee as according to him the identity of the individual item of block of asset has not been done away in view of the definition of "written down value" given in clause (c) of section 43(6). He, therefore, refused to entertain the claim of the assessee for depreciation on PSLE. In the first appeal filed before him, the learned CIT (Appeals) upheld the action of the Assessing Officer on this issue considering that one of the conditions of "user" has not been satisfied by the assessee to be entitled to claim the depreciation. 15.2 The learned counsel for the assessee submitted that the learned CIT (Appeals) could not....
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.... is observed that the PSL equipment was purchased and put to use by the assessee during the previous year relevant to assessment year 1990-91 and depreciation on the same as claimed by the assessee was also allowed by the Assessing Officer for assessment years 1990-91 to 1992-93. Although the assessee did not claim any depreciation on the said equipment for assessment year 1993-94 under a mistaken belief that no depreciation can be claimed thereon because of non-use of the same for the use for the purpose of business, it claimed the depreciation for assessment year 1994-95 during the assessment proceedings before the Assessing Officer by filing a revised schedule of depreciation. The basis of this claim made by the assessee company was that as per the new scheme of block of assets introduced with effect from 1-4-1988, once the asset is emerged into the block of asset. it loses its identity and the question of actual use of a particular asset in the later years is not relevant for allowing depreciation in respect of the same. The Revenue's stand in this regard is that as per the meaning of "written down value" given in section 43(6)(c) with reference to the block of asset and in....
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.... new scheme of block of assets has been introduced in the statute from 1st April, 1988 to simplify the position regarding depreciation allowance and in the case of Nathan Steels Ltd. v. Dy. CIT[1996] 56 TTJ 240 the Bombay Bench of ITAT has summarized the effects of the said new scheme after reviewing the relevant amendments brought out in the Act as under-: "The effect of all these amendments is that in case of a running concern, which has expanded or installed new plant and machinery, there is no need of separate computation of depreciation allowance as also separate computation in case of sale or demolition of such assets. The individual working of the machinery also is not necessitated as the new asset falling within the block gets added to the written down value. The effect of all these is that under the new system, even when all the assets of the block are sold, if tire block has positive balance (the moneys payable being less than the written down value), depreciation continues to be allowable even if the asset is no more in existence. Similarly, if only some assets forming part of a block are sold and if the sale proceeds of these assets wipe out the entire value of the bl....
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....acts of the case and keeping in view the scheme of block of assets effective from 1-4-1988 as elaborately explained in the aforesaid decisions of the Tribunal, we are of the opinion that the assessee company was entitled to claim the depreciation allowance on PSL equipment for the year under consideration. In that view of the matter, we find no justification in the impugned orders of the learned CIT (Appeals) upholding the action of the Assessing Officer in not allowing the assessee's claim for depreciation on the said equipment. We, therefore, reverse the same on this issue and direct the Assessing Officer to allow the claim of the assessee on this count. 16. The next issue relating to the enhancement of income by the learned CIT (Appeals) on account of provision made by the assessee company for interim relief of Rs. 3,328.49 lakhs payable to its employees is raised in ground Nos. 15 and 16 of ITA No. 20/Nag./2001 for assessment year 1994-95. 16.1 In its books of account, the assessee company had made a provision for interim relief payable to its employees covered by the National Coal Wage Agreement for the period 1-7-1991 to 31-3-1994 to the extent of Rs. 3266.00 lacs and p....
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....ccount. He, therefore, contended that the effect for the same was given in the books of account for the assessment year 1994-95 as per the Accounting Standard (AS) 4 prescribed by the Institute of Chartered Accountants of India according to which the adjustments in respect of events occurring after the balance sheet date affecting materially the determination of the amounts relating to conditions existing at the balance sheet date ought to have been provided for. He contended that looking to the materiality of the amount payable on account of interim relief to employees, the correct profit could not have been determined without charging the said amount to the profit and loss account. He also contended that even as per the accounting standard issued by the CBDT, the assessee was required to follow such accounting policies so as to represent a true and fair view of the matter. According to him, the prudence requires that the provision should be made for all known liabilities even though the same cannot be determined the certainty and represents only a best estimate in the light of available information. He submitted that in the instant case it was possible for the assessee company to....
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....ssessee company to make such payment during the relevant previous year. In this regard, he contended that the liability in fact had crystallized before the finalisation of accounts and the same being evident from the letters received from CIL, the liability was correctly and completely ascertained and quantified prior to the date of finalisation of accounts. He also cited the decision of Hon'ble Bombay High Court in the case of CIT v. Mahindra Ugine & Steel Co. Ltd. [2001] 250 ITR 84 and that of Hon'ble Supreme Court in the case of CIT v. Bharat Earth Movers [2000] 245 ITR 428 in support of his contention that once the liability for an expenditure is determinable with substantial accuracy, the same should be allowed irrespective of the fact that it is quantified at a subsequent date. He also contended that the said liability had definitely arisen during the relevant year and, therefore, deduction in respect of the same was allowable to the assessee following mercantile system of accounting even as per the decision of Hon'ble Apex Court in the case of Swadeshi Cotton Mills relied upon by the learned CIT (Appeals). He, therefore, contended that as the liability in respect....
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.... &Minerals Ltd v. CIT[1994] 208 ITR 1010 wherein it is held that the Income-tax Law makes a distinction between an actual liability in presenti and a liability de futtiro which for the time being is only contingent. Former is deductible but not the latter The learned Departmental Representative contended that in the present case there was no actual liability in presenti during the relevant previous year and as the same was crystallized only after the end of the relevant previous year, the learned CIT (Appeals) was fully justified in disallowing the claim of the assessee on this count for assessment year 1994-95. 16.6 We have considered the rival submissions in the light of material available on record and the decisions cited at the bar. It is observed that there is no dispute about the very existence of the liability payable by the assessee company towards expenditure on account of interim relief payable to its employees or the quantum of such liability, but the only dispute is regarding the year in which the same can be considered accrued for the purpose of allowing deduction in respect of the same under the Income-tax Act. Before we express our opinion on this issue in dispute, ....
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....igation, it arose only when it was ascertained in the case of an assessee following mercantile system of accounting. In the case of Laxmi Devi Sugar Mills v. CIT [1 993] 200 ITR 603, the Hon'ble Supreme Court held that liability to pay bonus arising under a Government Notification issued after the closing of a relevant accounting year cannot be allowed as deduction merely because the assessee has made a provision for meeting such a contingent liability. In the case of National News Print & Paper Mills Ltd. v. CIT [1978] 114 ITR 172, the Hon'ble Madhya Pradesh High Court has held that the assessee could claim a liability towards an allowable expenditure in the assessment year when it crystallized into an ascertainable liability and become enforceable. 16.9 From the analysis of the aforesaid decisions, the principles which emerge can be summarized as under: "(1) It is only the actual liability which is existing in the relevant assessment year can be considered as an expenditure and the expenditure which is deductible for income-tax purposes is one which is towards a liability actually existing at the time. (2) A liability which is dependent on fulfilment of a condition w....
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.... 1-7-1991 to 31-3-1994. That being the position, we are of the view that the liability to that extent had definitely arisen in the accounting year and the deduction was admissible to the assessee in respect of the said liability. 16.11 So far as the provision of Rs. 62.49 lacs made in respect of employees covered by executive rules for the period from 1-1-1992 to 31-3-1994 on account of interim relief is concerned, the position however, appears to be entirely different inasmuch as the negotiations with the concerned union reached that stage only after the end of the relevant accounting year which is evident from the fact that the letter intimating such settlement was forwarded by Coal India Ltd. only on 3rd May, 1994. Moreover, the further upward revision in the monthly interim relief amount agreed upon by the concerned parties was also intimated by CIL vide its letter dated 28-7-1994. It is thus clear that during the relevant accounting year, it was not possible for the assessee company to anticipate the liability to pay interim relief to this class of employees and the liability on this account, therefore, cannot be said to have definitely arisen in the relevant previous year. B....
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....cts of the case and keeping in view the legal position emerging from the various judicial pronouncements discussed above, we hold that a deduction in respect of provision made for interim relief payable to the employees governed by NCWA to the extent of Rs. 3266 lacs was allowable to the assessee in assessment year 1994-95, but the same payable to the employees governed by executive rules to the extent of Rs. 62.49 lacs was not allowable in the said year. We order accordingly. 17. The next issue relating to the enhancement of income by the learned CIT (Appeals) by way of disallowance of interest paid to holding company i.e. Coal India Ltd. is raised by the assessee in the following appeals: ITA No. Asst. Year Ground No. Disallowance (Rs. in lacs) 20/Nag./2001 1994-95 17 10992.83 21/Nag./2001 1995-96 21 9021.00 17.1 After considering the rival submissions and perusing the relevant material on record, it is observed that the learned CIT (Appeals) in the course of the appellate proceedings before him, found that the assessee company has claimed expenditure on account on interest payable to Coal India Ltd. to the tune of Rs. 13,283.45 lacs and Rs. 10.964.47 lacs f....
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....sel for the assessee before him, it is observed that the learned CIT (Appeals) has not made any attempt to distinguish the same nor has he even made any discussion thereon in his impugned orders. Before us, the learned counsel for the assessee has again relied on the same and has also filed a copy of the said order in his paper book at page Nos. A.4 to A.23. From the perusal of the same, it however appears that neither the factum or quantum of amount advanced by CIL to the assessee company therein nor the utilization of the same for the business purpose was in dispute in that case and the interest was disallowed mainly because the exact nature of amount advanced by the CIL could not be proved by the assessee company before the authorities below. The Tribunal, however, found that the treatment given by the assessee company to half of the advanced amount being loan for the purpose of charging interest to be justifiable considering that the debt equity ratio of 1:1 has been finally approved. The Tribunal therefore, proceeded to allow the claim of the assessee company for deduction of the said interest. In the present case, the basis of disallowance, as mentioned above, appears to be a....
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....resaid rule of construction, we are inclined to concur with the view of the learned CIT (Appeals) that conditions precedent as prescribed in section 36(1)(iii) should be satisfied by the assessee to claim deduction on account of interest from the business income. 17.4 In this regard, the learned counsel for the assessee has filed before us the following documents in order to establish that the aforesaid conditions precedent for claiming deduction under section 36(1)(iii) have been complied by the assessee company. (1) Statement received from CIL showing total investment made in its subsidiary companies including the assessee company for allocation of interest. (2) Statement received from CIL showing allocation of interest between the subsidiary companies. (3) Statement received from CIL showing calculation of total interest. (4) Statement received from CIL showing total interest paid and recovered from subsidiary companies. (5) Annual accounts of M/s. Coal India Ltd. showing receipt of such interest income. The Learned Departmental Representative has contented before us that the above documents have been filed by the assessee for the first time before the Tribunal and t....
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....supply scheme etc. and the same, therefore, is an allowable expenditure under section 37. Reliance was also placed by the assessee on the decision of Hon'ble Supreme Court in the case of Empire Jute Mills Ltd. The learned CIT (Appeals), however, was of the opinion that there being no direct and immediate nexus between the said expenditure by the assessee company and its business, the disallowance made by the AO on this count deserves to be upheld keeping in view the decision of Hon'ble Supreme Court in the case of CIT v. Amalgamations (P.) Ltd. [1997] 226 ITR 188. 18.2 The learned counsel for the assessee submitted before us that the community development expenditure was incurred by the assessee company to provide the basic facilities for the area situated in and around the area of operation of the assessee company and as 90% of the population residing in the said area was company's own workers, the said expenditure resulted into providing the basic facilities mainly to its own workers. He submitted that in the absence of such facilities, it would have been difficult for the company to find suitable employees to work with them and to that extent, it would have been dif....
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....ng to her, such an expenditure may be regarded as philanthropic or humanitarian, but not the business expenditure for the purpose of income tax as there is no nexus between the business of the assessee and the concerned expenditure. Referring to the various decisions cited by the learned counsel for the assessee, she pointed out that in most of these cases, the expenditure was incurred by the assessee exclusively for the welfare of its employees whereas in the present case the expenditure has been incurred by the assessee company for public at large. She, therefore, contended that these cases cited by the learned counsel for the assessee are distinguishable on facts and considering that the expenditure in question had no nexus with the business of the assessee company, the learned CIT (Appeals) was fully justified in confirming the disallowance made by the Assessing Officer on this count. She also contended that the case of Amalgamation (P.) Ltd. is directly relevant to the point in issue and the learned CIT (Appeals) has rightly relied on the same for confirming this disallowance. 18.4 We have considered the rival submissions and also perused the relevant material on record. We h....
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....ure in that case was incurred by the assessee company on payment of managerial remuneration to the Directors of the subsidiary companies and considering that the assessee company was entitled only to the dividend from the subsidiary company as and when declared even without incurring such expenditure, the Hon'ble Apex Court held that such expenditure cannot be said to have a direct and immediate connection with the business of the assessee company and proceeded to disallow the same. in the present case, the assessee company has incurred the expenditure mainly for the purpose of welfare of its employees and in our opinion the same cannot be equated with the expenditure in question before the Hon'ble Supreme Court in the case of Amalgamations (P.) Ltd. which was incurred entirely in the different circumstances mentioned above. 18.6 On the other hand, in the case of Premier Cotton Spg. Mills Ltd., the expenditure was incurred by the assessee on the construction of roads, digging of wells and laying pipelines for housing scheme formulated for its employees and considering the nature of such expenditure being for the welfare of its employees, the Hon'ble Kerala High Court h....
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.... assessee company mainly for the welfare of its employees was an expenditure incurred wholly and exclusively for the purpose of its business by considerations of commercial expediency and the learned CIT (Appeals) was not justified in confirming the disallowance of the same made by the Assessing Officer. We, therefore, reverse his impugned order on this issue and direct the Assessing Officer to allow this expenditure. 19. The next issue relating to the disallowance of loss claimed by the assessee on account of irrecoverable business advances amounting to Rs. 1958.07 lacs is raised by the assessee in ground No. 6 of 1TA No. 21 Nag./2001 for assessment year 1995-96. 19.1 After considering the rival submissions and perusing the relevant material on record, it is observed that the claim of the assessee for bad debts amounting to Rs. 1958.07 lacs has been disallowed by the Assessing Officer and confirmed by the learned CIT (Appeals) for assessment year 1995-96 for two reasons. Firstly, the case of the Revenue is that the assessee could not furnish any evidence to show that the amount of such debts has been taken into account in computing the income of the assessee in the earlier years....
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....ssing officer in the year in which the same had been written off on the ground that the debt was not established to have become bad in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalize the provisions, the Amending Act, 1987 has amended clause (vii) of section (1) and clause (i) of sub section (2) of the section to provide that the claim for the bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee. 6.7 Clauses (iii) and (iv) of sub-section (2) of the section provided for allowing deduction for a bad debt in an earlier or later previous year, if the Income-tax Officer (now Assessing Officer) was satisfied that the debt did not become bad in the year in which it was written off by the assessee. These clauses have become redundant, as the bad debts are now being straightaway allowed in the year of write off. The Amending Act, 1987 has, therefore, amended these clauses to withdraw them after the assessment year 1988-89." 19.2 It is also observed that a similar issue came up for consideration before the Calcutta Ben....
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....ity arising due to enhancement in tariff of power and fuel involved in the instant issue is concerned, it is observed that this liability was provided by the assessee on the basis of a bill received from the Madhya Pradesh Electricity Board dated 27-6-1995. It is thus clear that the said bill, on the basis of which the liability in fact had been ascertained and fastened on the assessee, was received by the assessee in the accounting year relevant to assessment year 1996-97. Obvious as it is, there was no material or basis available with the assessee during the accounting year relevant to assessment year 199596 to prove that such a liability had actually arisen during that year. It, therefore, follows that the said liability in fact arose for the first time during the accounting year relevant to assessment year 1996-97 when the bill from electricity board of this enhanced liability was received by the assessee. 20.2 The contention of the learned counsel for the assessee in this regard is that the bill dated 27-6-1995 was received by the assessee company prior to the date of finalization of accounts relevant to assessment year 1995-96 and as per the Accounting Standard 4 dealing wit....
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....3,83,757 under section 43B. Before the learned CIT (Appeals), it was submitted on behalf of the assessee company that excess payment of P.F. contribution for the month of February 1995 was made by it and after adjustment of the said excess amount, the balance amount in lump sum was paid on account of liability for the month of March 1995. The learned CIT (Appeals), however, confirmed the disallowance made by the Assessing Officer without making any discussion on the submission made by the assessee. 21.2 Before us, the learned counsel for the assessee has given the details of payment made towards contribution to P.F. for the month of February 1995 as follows D.D. No. Date of payment Amount paid Due date 466330 28-3-95 2,40,00,000 31-3-95 479486 28-3-95 2,25,00,000 31-3-95 232838 28-3-95 4,35,00,000 31-3-95 9,00,00,000 Amount due for Feb. 1995 8,55,45,752 Excess paid. 44,54,248 From the above details given by the learned counsel for the assessee with the facts and figures, it is evident that an excess amount of Rs. 44,54,248 was paid by the assessee on 28-3-1995 itself and as this surplus amount was ....
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....fficer for verifying these factual details furnished before him on behalf of the assessee and accordingly should have directed him to decide the issue afresh in the light of the findings of such verification. In that view of the matter, we find it just and proper to restore back this issue to the file of the Assessing Officer for deciding the same afresh after giving an opportunity of being heard to the assessee in this regard. 23. The next issue relating to the disallowance of business expenditure of Rs. 6213 lacs arising out of memorandum of understanding on National Coal Wage Agreement is raised by the assessee in ground No. 10 of ITA No. 21/Nag./2001 for assessment year 1995-96. 23.1 In the profit and loss account a deduction of Rs. 6213 lacs on account of expenditure arising out of memorandum of understanding on National Coal Wage Agreement was claimed by the assessee. When the Assessing Officer required the assessee company to explain its claim for this deduction, a letter dated 23-3-1998 offering the following explanation was filed by the assessee before the Assessing Officer : "The wage structure and other conditions of service including the fringe benefits of the emplo....
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....en pending negotiations with the trade union. The trade union agreement was finalized much after the end of the year and provision was made by the assessee for liability on account of amount estimated as payable to the workmen pending negotiations. Deduction for the provision was denied by the Assessing Officer on the ground that the agreement was entered into at a later date. The High Court allowed the liability. It can well be appreciated that in the present case, the appellant-company knew of the impending liability and it was finalizing the accounts for the year ended 31-3-1995 and as a prudent businessman it had rightly recognized the liability which having accrued was required to be provided for. The learned Commissioner of Income-tax (Appeals), Raipur in the company's own case for the assessment year 1989-90 allowed such deduction provided in the accounts based on MOU also, the learned Commissioner of Income tax (Appeals), Nagpur, in the case of M/s. Western Coal Fields Ltd. another subsidiary of the Coal India Ltd. has categorically held that where appellant company became aware of a liability after the year and but before the accounts were finalized such liability wa....
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.... that of Hon'ble Supreme Court in Swadeshi Cotton & Flour Mills (P.) Ltd.'s case, he confirmed the disallowance made by the Assessing Officer on this issue. 23.4 The learned counsel for the assessee submitted before us that the negotiations were going on for a long period to finalise the revised terms and conditions of the wage agreement and certain decisions in respect of the same were already taken in the meeting of Joint Bipartite Committee of Coal Industry held on 9th and 10th January, 1995. Referring to the copies of the record notes regarding the discussions and decisions taken in the said meetings placed in his paper book at page Nos. 27.5 to 27.11, he pointed out that certain issues having financial implications were already agreed upon and finally the same were culminated into and formalized by executing the Memorandum of Understanding on 28th and 29th April, 1995. He contended that although the said agreement was signed after the end of the relevant year, it was very much available to the assessee-company before the finalisation of its accounts for the year under consideration in the month of September 1995. He pointed out that a detailed submission on a similar ....
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....e same in a corresponding assessment year has already been dealt with by us in the preceding para Nos. 16.7 and 16.8 of this order and after analysing the various judicial pronouncements on this issue, we have enumerated the emerging principles underlying this issue. In the light of the said discussion, when we appraise of the factual position relating to the issue under consideration, we find that although the negotiations for finalizing the wage structure and other service conditions were going on all along during the relevant previous year and certain terms and conditions having financial implications were also agreed upon in the meeting of JBCC-V held on 9th and 10th January, 1995, the entire understanding in this regard as a whole was reached formally and finally on 28th and 29th April, 1995 when the Memorandum of Understanding was signed by both the parties. As a matter of fact, the provision of Rs. 6213 lacs on account of expenditure arising out of the said MOU was made by the assessee company on the basis of the said MOU itself which having been signed on 28th and 29th April, 1995 became available to the assessee only after the end of the relevant previous year. 23.7 Befor....
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....9;s own case has been decided by this Bench vide its order dated 27-3-1995. A perusal of the said order (copy placed at page Nos. 19.15 to 19.17 of assessee's paper book), however, reveals that the issue of computation of the book profit within the meaning of section 115J(1) was under consideration before the Tribunal in that case and keeping in view the provisions of Part-II and Part-III of Schedule VI to the Companies Act, 1956, the Tribunal held that the liability provided for the fringe benefits cannot be added back in computing the book profit within the meaning of section 115J(1) read with Explanation thereto. In the present case, the issue before us relates to the computation of total income as per the provisions of Income-tax Act and the same being governed by the provisions of the Act itself, we are of the opinion that the conclusion drawn by the Tribunal in assessment year 1988-89 while deciding the issue in the context of computing the book profit within the meaning of section 115J(1) which is governed by the Companies Act, 1956 cannot be applied to the facts of the present case. As regards the accounting policy/treatment followed by the assessee, we have already obs....
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....to assessment year 1987-88. As this issue is entirely factual which can be ascertained from the assessment record available with the Assessing Officer, we deem it just and proper to remit this issue to the Assessing officer with a direction that the relevant details be verified from the record and accordingly the issue be decided in accordance with the provisions of law after giving sufficient opportunity of being heard to the assessee. 25. The next issue relating to the imposition of interest under section 234B amounting to Rs. 4525.30 lacs is raised by the assessee in ground No. 14 of ITA No. 21/Nag./2001 for assessment year 1995-96. 25.1 After considering the rival submissions and perusing the relevant material on record, it is observed that the learned CIT(Appeals) has upheld the action of the Assessing Officer in imposing interest under section 234B considering that a direction was given in the assessment order itself by the Assessing Officer for charging interest as per Law and amount of such interest was also specified in the demand notice issued under section 156 which formed part of the assessment order. In this regard, the learned counsel for the assessee has relied on ....
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....n 234B in the instant case does not survive and this being so, we direct the Assessing Officer to cancel the levy of interest under section 234B following the aforesaid decisions of Hon'ble Patna High Court and also that of Hon'ble Supreme Court. 26. The next issue relating to the enhancement of income by the learned CIT(Appeals) by disallowing deduction on account of contribution to CPRA at Rs. 37,862 lacs instead of an actual expenditure of Rs. 37,162.26 lacs debited by the assessee-company to the profit and loss account is raised by the assessee in ground No. 22 of ITA No. 21/Nag./2001 for assessment year 1995-96. 26.1 After considering the rival submissions and perusing the relevant material on record, it is observed that the claim of the assessee for deduction on account of contribution to CPRA has already been allowed by us in full vide para No. 8.10 of this order. Resultantly, this alternative ground raised by the assessee has become infructuous. Accordingly, the same is dismissed. 27. The next issue relating to the alternative claim of depreciation on the rehabilitation expenses of HEMM treated as capital expenditure is raised by the assessee in ground No. 3 of I....
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....ion 37(4) and pointed out that the same High Court in the case of CIT v. Ocean Carriers (P.) Ltd. [1995] 211 ITR 357 has taken a different view on this issue considering that sub-section (4) of section 37 inserted by the Finance Act, 1970 prohibits totally any allowance in respect of any expenditure on the maintenance of a guest house incurred after 28th February, 1970 and also prohibits any depreciation allowance in respect of any building used as a guest house. She also cited the following decisions in support of the Revenue's case : Raja Bahadur Motilal Poona Mills Ltd. v. CIT [1995] 212 ITR 175 (Bom.) "As per section 37(4)(i) of the Act no allowance shall be made in respect of any expenditure incurred by an assessee on maintenance of any residential accommodation in the nature of a guest house after 28th Feb., 1970. As regards the expenditure incurred for maintenance of the residential accommodation in the nature of a guest house for assessment years 1971-72 and 1972-73 the controversy is squarely covered by our judgment in CIT v. Ocean Carriers Pvt. Ltd. and in view thereof, the question is answered in the affirmative and in favour of the revenue for the assessment years....
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....section 37(4). It is thus evident that there is no consensus view of various High Courts on this issue and it also shows that the provisions of section 37(4) give rise to two different interpretations which are reasonably possible. It is observed that this controversy also arose before the Bombay Bench of the Tribunal in the case of Mahindra & Mahindra Ltd. v. Dy. CIT[1997] 61 ITD 129 (TM) wherein on difference of opinion between the two Members on a similar issue, the matter was referred to Third Member who, after taking into consideration the provisions of sections 37(1), 37(3), 37(4) as well as sections 30 to 36, observed that the provisions of sections 37(3) and 37(4) override the provisions of section 37(1) and opined that such overriding has to be restricted to such item of expenditure that are exclusively dealt with by that section and not the other items of expenditure which are exclusively covered by sections 30 to 36. It was also observed by the learned Third Member in that case that the interpretation of the relevant provisions shows that the issue is quite ambiguous and is not capable of clear interpretation. The Tribunal in the said case also deliberated upon the two d....
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....ing used as guest house. It is, however, observed that the Hon'ble Bombay High Court itself in the case of Century Spg. & Mfg. Co. Ltd. held that the assessee was entitled to depreciation in respect of its property used as guest house under section 32 and this allowance could not be withdrawn or denied to the assessee because of the prohibitory provisions contained in section 37(4). Although the Hon'ble Gujarat High Court in the case of CIT v. Gaekwar Mills Lid [1992] 193 ITR 734 and Hon'ble Madras High Court in the case of T. V. Sundaram Iyengar & Sons Ltd. v. CIT[2000] 244 ITR 133 have taken a different view while deciding this issue against the assessee, judicial propriety requires us to follow the view taken by the Hon'ble Bombay High Court in the case of Century Spg. & Mfg. Co. Ltd which is in favour of the assessee and respectfully following the same, we hold that the depreciation on the assets used in the guest house was allowable to the assessee company under section 32 and its claim for the same could not be denied under section 37(4). The impugned order of the learned CIT(Appeals) on this issue is, therefore, reversed and the Assessing Officer is directed ....
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....accorded to amend the existing accounting policy regarding the provision for deterioration in stock of coal. He, therefore, contended that the said change was effected by the assessee as per the policy framed by its holding company and the same being bona fide, it ought to have accepted by the Revenue authorities. Explaining the reasons for making the provision for deterioration in the value of coal stock, lie submitted that the coal like all other chemicals, loses its quality and weight when exposed to nature for prolong period and because of its chemical characteristics, its quality as well as weight gets spoiled due to spontaneous heating. He submitted that a similar provision made for deterioration of stock value of coal has been allowed by this Bench in the case of M/s Western Coal fields Ltd. for assessment years 1978-79 to 1984-85 in ITA Nos. 163 to 167/Nag./86 and 576-577/Nag./88 vide its consolidated order dated 26-5-1992. He also submitted that the assessee-company has followed the changed method of providing for deterioration of stock in the subsequent years also and the same has also been accepted by the Assessing Officer. He, therefore, contended that the change in the....
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....r consideration in principle and merely the basis of providing for deterioration in the stock value was changed inasmuch as instead of making such provision at the rate of 1.5% of the value of the production of the concerned year, the assessee-company started making such provision at the rate of 10% of the value of the closing stock. It is observed that the proposal for change in the policy of making provision for deterioration in the value of closing stock was placed before the Board of Directors of holding company i.e., M/s. Coal India Ltd. in its meeting held on 29-5-1996 and its formal approval as extracted from the minutes of the said meeting (copy placed on page c.2 of assessee's paper book filed on 30-1-2002) is given below : "The board considered the proposal and on detailed deliberation accorded its approval to amend the existing Accounting Policy regarding provision for deterioration in Stock of Coal due to fire and longer period stocking be made to 10% of the value of the Closing Stock instead of 1.5% of the value of production followed at present. This modification/change in the Accounting Policy will be effective from the accounting year 1995-96." 29.6 From the ....
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....nal accepting the change in method on the ground that the change was also consistently followed by the assessee in the subsequent years. The other decisions in Jaipur Taj Enterprises Ltd.'s case, Siddheswari Cotton Mills (P.) Ltd.'s case and Travancore Cochin Chemicals Ltd.'s case (sic) also support the assessee's case. Before us, the learned Departmental Representative has tried to distinguish these decisions stating that the assessee in the present case has not followed the new method in the subsequent year and the same has been changed immediately in assessment year 1996-97. When the learned counsel for the assessee pointed out that this submission made by the learned Departmental Representative is factually incorrect, the learned Departmental Representative was directed by the Bench to ascertain the correct factual position from the record available with the Department. In reply, she has admitted vide letter dated 14-2-2002 that the method adopted by the assessee-company in the year under consideration has been followed consistently in the succeeding years also and the change in the method, as submitted by her at the time of hearing, was reported by the Assessin....
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....nt fund dues in respect of the same has also been paid after the due date. He, therefore, disallowed the deduction claimed by the assessee on this count. When the matter was carried by the assessee company before the learned CIT (Appeals) in appeal, he confirmed the disallowance made by the Assessing Officer observing that there was no liability cast upon the assessee as on 31-3-1996 to make payment of P.F. dues since the arrears of wages and salary were payable only in the month of January 1997. Before us, the learned counsel for the assessee has submitted that the liability on account of contribution to provident fund on arrears of wages was actually accrued on 31-3-1996 although the same was payable in the month of February 1997. He contended that what accrued on 31-3-1996 was a quantum liability assuming nomenclature of companies contribution to P.F., but the same was incorrectly classified as contribution to provident fund. After considering the facts of the case including the fact that nothing has been brought on record to establish that the liability towards P.F. contribution accrued during the previous year relevant to assessment year 1996-97, we find it difficult to agree ....
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....iming deduction on account of expenditure disallowed by the Assessing Officer in assessment year 1995-96 being related to assessment year 1996-97. The Assessing Officer, however, levied the interest under section 234C amounting to Rs. 174.55 lacs on the basis of returned income declared in the revised return filed on 18-11-1997. In the appeal filed against the order of the Assessing Officer for assessment year 1996-97, the assessee challenged the levy of interest under section 234C stating that the tax payable as per the revised computation of income filed with the Assessing Officer was Nil and the assessee having paid the advance tax of Rs. 1 crore, no interest under section 234C was leviable. The learned CIT (Appeals), however, did not find the contention raised on behalf of the assessee before him in this regard to be acceptable observing that the levy of interest under section 234C is mandatory. 32.2 The learned counsel for the assessee submitted that the expenses claimed in the revised computation sheet filed before the Assessing Officer could not be claimed as deduction by filing a revised return because the due date for revising the return had already expired. He contended ....
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....is, the returned income referred to in section 234C means the total income declared in the return of income furnished by the assessee validly for the relevant assessment year. In the present case the assessee company filed the revised return on 18-11-1997 and the same having been filed validly, the Assessing Officer treated the income declared therein as the returned income for the purpose of computing interest chargeable under section 234C. Before us the learned counsel for the assessee has contended that the assessment for immediately preceding year i.e., assessment year 1995-96 was completed by Assessing Officer disallowing certain deductions claimed by the assessee in that year as the same, according to him, were related to assessment year 1996-97. He has contended that by the time the said order was served on the assessee, the due date for filing the revised return had already expired and, therefore, the assessee could not file the revised return claiming deductions which had not been allowed by the Assessing Officer for the reason that the same related to assessment year 1996-97. The assessee, therefore, filed a revised computation of income before the Assessing Officer showi....