TaxTMI 
TaxTMI 
2002 (2) TMI 344
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.... would be appropriate to narrate the facts of the case giving rise to these appeals. The assessee company 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....
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....tention, he relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v. Atlas Cycle Industries [1989] 180 ITR 319 and emphasized that 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 reop....
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.... assessment without the assessee filing any particulars or other details in respect of the same and there is no dispute about the fact that this was the reason given by the Assessing Officer for reopening. There is also no dispute 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 pr....
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....notice it is not incumbent on the ITO to come to a finding that income has escaped assessment by reason of failure or omission of the assessee to disclose fully or truly all material facts necessary for assessment. The belief which ITO entertains at that stage is tentative belief on the materials 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 ....
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....kipur Club Ltd.'s case proceeded to dissent from the view taken by the Hon'ble Gujarat High Court and concurred with the view taken by the Hon'ble Rajasthan High Court. 4.7 It is thus clear that even in the context of pre-amended provisions of section 147, contradictory views were expressed by the different 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 requ....
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....ly lead to the inference that there has been an escapement of income. 4.9 A resume of all the case laws discussed above relating to the preamended provisions of section 147 goes to show that the information was the basis for forming belief about the escapement of income as per the pre-amended provisions and the Assessing 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 tha....
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....d that the notice for reopening the assessment was, however, issued by the Assessing Officer on 14-9-1994 and the same was served on the assessee only on 17-10-1994. Referring to the provisions of section 147, the learned counsel for the assessee pointed out that an assessment can be reopened beyond a period of four years from the 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 ac....
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....r the proviso to section 147. In support of her contention, she cited the cases of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) and Shri Krishna P. Ltd. v. ITO [1996] 221 ITR 538 (SC). 5.3 We have considered the rival submissions and also perused the relevant material on record. We have also carefully gone through the case 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....
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....e assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, from that assessment year." From the perusal of the above, it is evident that as per the proviso to section 147 substituted with effect from 1-4-1989 where 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 Tribun....
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....all material facts necessary for his assessment for that year.' It postulates a duty of every assessee to disclose fully and truly all material facts necessary for assessment will differ from case to case. In every assessment proceedings, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts 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 th....
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....nhancement with regard to the matters, which are not dealt with or considered by the Assessing Officer in the assessment. Relying on the decisions of Hon'ble Supreme Court in the case of CIT v. Shapoorji Palionji Mistry [1962] 44 ITR 891, CIT v. Sardari Lal & Co. [2001] 251 ITR 864 (Delhi) (FB) and CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC), the learned counsel for the assessee contended that the 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. Nirb....
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....excessive relief or the assessment of income is in any way erroneous. In the case of CIT v. Nirbheram Daluram, the Hon'ble Supreme Court has held that the powers of enhancement of first appellate authority are not just confine to the items considered by the Assessing Officer. In the case of Kanpur Coal Syndicate, the Hon'ble Supreme Court has held that the powers of first appellate authority are co-terminus with that of the 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 9....
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....onsidering the submission made on behalf of the assessee, the Assessing Officer was of the opinion that the said expenditure incurred by the assessee on rehabilitation of HEMM is considerable in terms of quantum and rejuvenates the concerned HEMM by putting into it a new life of efficient working without which its optimum use cannot be made. It was also found by the Assessing Officer that such an expenditure has been treated by the assessee to be capital in nature in its books of Account whereas for the purpose 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 exp....
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....e to a stand still and relying on the decision of Hon'ble Madras High Court in the case of CIT v. Sri Rama Sugar Mills Ltd. [1952] 21 ITR 191 as well as the other judicial pronouncements mentioned in para 4.3(b) of his order, proceeded to hold that the expenditure incurred on rehabilitation of HEMM was of capital nature. He, therefore, upheld the action of the Assessing Officer on this issue. Aggrieved by the same, the assessee is in appeal before us. 7.3 The learned counsel for the assessee submitted that there was a confusion in the mind of the learned CIT(Appeals) 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....
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....hinery was still in operating condition and there was no reason for the learned CIT(Appeals) to assume that the same had come to a stand still. He, therefore, contended that the reliance placed by the learned CIT(Appeals) on the decision of Hon'ble Madras High Court in the case of Sri Rama Sugar Mills Ltd. was misplaced. He also made an attempt to distinguish the citations UCO Bank's case and State Bank of Travancore's case relied upon by the learned CIT(Appeals) stating that the assessee has not given a different treatment to the HEMM rehabilitation expenses in 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....
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....nded that the said expenditure clearly falls within the four corners of the definition given by ICAI as well as ICMA quoted by the learned counsel for the assessee himself and, therefore the claim of the assessee-company on account of the expenditure on rehabilitation of HEMM being "deferred revenue expenditure" cannot be allowed as revenue expenditure. She also submitted that the rehabilitation work is to be done by dismantling the entire machine and only the experts in that field can do such work. Her contention in this regard was that the nature of such heavy and specialised 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 trea....
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....the very purpose of categorizing certain expenditure differently under the head "deferred revenue expenditure" for the purpose of drawing financial statements appears to be that the said expenditure even though is of revenue nature results into benefit of enduring nature on the assessee and the same therefore deserves a different treatment in terms of preparation of the annual accounts to determine inter alia, the profit of a particular period/year as the benefit thereof accrues over a period exceeding the accounting year in which the same are incurred. It is thus clear that when 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 a....
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....ind out or ascertain as to whether such expenditure results into an advantage of enduring nature to the assessee in the capital field or revenue field so as to decide the exact nature of the said expenditure and allowability of the same under the Income-tax Act. 7.8 As regards the relevance of accounting method followed by the assessee, we have already observed that the treatment given by the assessee to the impugned expenditure as deferred revenue expenditure cannot be considered as different from the one followed for the purpose of computing the total income under the Income-tax Act. In 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 t....
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.... clearly show that the same was incurred by the assessee-company to preserve and maintain an already existing asset and by spending the amount on rehabilitation work, neither any new asset came into existence nor any different or added advantage accrued to the assessee. 7.10 The expenditure on current repairs is admissible under section 31 and the expression "current repairs" used in the said section normally connotes the expenditure incurred to bring back the asset to normal condition for use. In the case of CIT v. Mahalakshmi Textile Mills Ltd. 1967] 66 ITR 710 the Hon'ble Supreme Court 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. Collect....
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..... (viii) The expression 'current' preceding 'repairs' appears to have been used by the Legislature with a view to restricting the allowance to expenditure incurred for preservation and maintenance thereof in its current state in contradiction to that incurred on any improvement or on addition thereto." 7.11 It is observed that the learned CIT (Appeals) has placed reliance on the decision of Hon'ble Madras High Court in the case of Sri Rama Sugar Mills Ltd. in support of his decision to treat the expenditure on rehabilitation of HEMM as capital expenditure. A perusal of the said decision, however, reveals that the repairs 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 machi....
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....order to establish that the same constitutes an ascertained liability. He, therefore, called upon the assessee company to explain as to why the same should not be disallowed and added back to the income of the assessee for the years under consideration. In reply, it was submitted on behalf of the assessee that this contribution has been made to Coal India Ltd. which is a nominated authority for managing the CPRA as per section 4B(2) of the Colliery Control Order (CCO) introduced with effect from 30-3-1982. It was also submitted on behalf of the assessee that since this contribution to CPRA is made as per the statutory provisions, the same should be allowed as a statutory liability. Reliance was placed by 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 p....
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..... He submitted that during the years under consideration, the notified selling price of the coal in the assessee's case was higher than the notified retention price and, therefore, the assessee was obliged to hand over such excess amount to the Government. He also invited our attention to the copy of the Scheme drafted by the Government placed at page Nos. 6.32 to 6.36 placed in his paper book and explained the procedure for maintenance and operation of CPRA as well as the manner and method of making the contribution. Referring to para No. 8 of the said document, he pointed out that the Coal India Limited has the authority to appropriate the funds to disburse the same to those collieries, which are entitled 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.....
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....utions to CPRA, on the other hand, became payable by the companies on their selling above the retention price and in such circumstances the contribution paid by the company went once for all. He, therefore, contended that what the member company received or was likely to receive subsequently had no linkage to the quantum of payment made in the earlier years and thus the same in no case could be considered as refund of contributions. Referring to a copy of letter dated 3-10-2000 placed at page Nos. 6.37 and 6.38 of his paper book, the learned counsel for the assessee submitted that the Ministry of Coal has subsequently lifted the price control in respect of the coal from 1-4-1996 and as a result of the same the 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 expenditu....
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....sessee when the retention price becomes higher than the corresponding sale price. Relying on the decision of Hon'ble Supreme Court in the case of Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66, she contended that the "expenditure" primarily denotes the idea of "spending" or "paying out" and, therefore, the same refers to something which is gone from assessee's hands irretrievably. As regards the assessee's emphasis on the CBDT's letter dated 27-12-1985, she submitted that the said letter nowhere states to allow contribution made to CPRA as revenue expenditure and in any case the same being not a Circular or instruction cannot be applied to all the collieries including the assessee company universally. 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 canno....
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....s soon as, may be, after each sale, and in any case not later than such period, as may be specified in this behalf by the Central Government, pay into the Coal Price Regulation Account, an amount equivalent to the difference between retention price and the sale price in respect of each tonne of coal or coke sold by him. (3) Where the retention price of any class, grade or size of coal or coke fixed under clause 4-A for any colliery owner is higher than the corresponding sale price fixed under clause 4 for such class, grade or size of coal or coke, such colliery owner shall be paid from the money standing to the credit of the Coal Price Regulation Account an amount equivalent to the difference between the retention price and the 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 ....
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.... to claim the refund/repayment of the said amount unless and until he comes across the situation mentioned in sub-clause (3). It is pertinent to note here that if the eventuality specified in sub-clause (3) does not arise at all in the case of a colliery, it was not entitled for the withdrawal of any amount from CPRA despite having made substantial contribution earlier. It is thus clear that the liability to pay into the CPRA was distinct and separate from the entitlement to receive money from the CPRA inasmuch as these two events/incidents were mutually exclusive and the mere fact that contribution had already been made to CPRA did not give rise to an entitlement to receive the said amount already contributed. Obvious as it is, the amount paid to 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....
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....oney from CPRA in terms of clause 4B(3) of the said order. It is thus clear that the authority to receive and deposit the amount in CPRA on behalf of subsidiary as well as to withdraw any fund from the said account on behalf of the subsidiary was given to CIL by the Central Government of India in pursuance of the said scheme just to facilitate the operation of the said account in accordance with the provisions of the Colliery Control Order, 1945. It appears that the learned CIT(Appeals), however, could not fully appreciate the specific procedure prescribed in the scheme and proceeded to draw an adverse and incorrect inference reading clause Nos. 7 and 8 of the scheme in isolation ignoring entirely the fact that the said scheme was formulated by the Central Government 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 acc....
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....., the profit earning apparatus itself and only in such cases where the source of earning income is charged with an overriding title, the same can be considered as diversion of income by overriding title. The true test for the application of the rule of diversion of income by an overriding title has been explained by the Supreme Court in Shitaldas Tirathdas' case cited by the learned counsel for the assessee as follows : "In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation, which is the decisive fact. There is a difference between an amount, which a person is obliged to apply out of his income and an 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 excus....
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.... assessee are dismissed as not pressed. 10. The next issue relating to action of the Assessing Officer in treating the amount collected from employees towards pension fund and interest due thereon as income of the assessee and the action of the learned CIT(Appeals) in sustaining the same is raised in the following appeals: ITA No Asstt. Year Ground No. Principal Amount Interest Amount (Rs. In lacs) 19/Nag./2001 1990-91 4 397.61 Nil 20/Nag./2001 1994-95 5 & 6 530.41 569.87 21/Nag./2001 1995-96 11 & 12 600.04 307.58 22/Nag./2001 1996-97 11 & 12 863.42 402.63 10.1 Under the head other liabilities and provisions in the balance sheet, the assessee company had shown, inter alia, a liability on account of pension fund. It was noticed by the Assessing Officer that addition on account 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....
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.... considering that the status of the fund has continued to be the same in the years under consideration, the Assessing Officer proceeded to treat the said amount collected towards pension fund as income of the assessee and also disallowed the assessee's claim for deduction on account of interest payable thereon. The matter was carried before the learned CIT(Appeals) who found that a similar issue has already been decided by the CIT(Appeals), Raipur by his order dated 29-12-1995 for assessment year 1991-92 in the case of the assessee and for the following reasons given in the said order, he confirmed the disallowance made by the Assessing Officer on this count: "There is merit in the submission on behalf of the appellant that the employees Voluntarily contributed 2 per cent of their salary in pursuance of the National Coal Wage Agreement. The appellant company held the 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 ....
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....92 when the aforesaid details were not available before him. 10.4 As regards the addition made on this issue under section 2(24)(x), he submitted that the deeming provisions defining income under that section purports to bring within the definition of expression "income" the contribution made by employees of the assessee to a provident fund, superannuation fund or fund set up under Employees State Insurance Act or in other fund for the welfare of such employees. His contention was that the pension fund as set out above was created only on 31-3-1998 and as such the same in fact was not in existence in law up to financial year 1996-97. He, therefore, contended that the contribution collected in these years from workers were only in the nature of trust receipts. According to him, since formalities of creating pension fund took over 7 years, it was not practicable for the assessee to 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 cre....
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....t section, in the alternative, ought to have been allowed against the amount so collected towards Pension Fund when the same was treated as income of the assessee under section 2(24)(x). 10.6 The learned Departmental Representative, on the other hand, submitted that the assessee's plea that the collection of contribution was in the nature of trust receipt cannot be accepted because a mere assertion by the assessee does not create a trust. She contended that no formalities for creation of trust were observed by the assessee and though the pension fund created subsequently was optional, the assessee did not file any details regarding the employees opting for the scheme, the contribution of the employer and the payment of such contribution. She contended that the subsequent action on the part of the assessee to deposit the said amount in pension fund is not relevant for the purpose 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....
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....the formal or approved funds. We, therefore, find no merits in the contention of the learned counsel for the assessee and hold that there was no infirmity in the action of the authorities below in treating the amount received by the assessee company from its employees towards pension funds as its income in terms of the provisions of section 2(24)(x). 10.9 However, we are also of the view that, at the same time, the said amount ought to have been considered as an allowable item by them as per the provisions of clause (va) of section 36(1) if the amount so collected by the assessee company had been paid to the credit of the said fund within the due date specified in the relevant statute. In this regard, it is observed that the pension fund was formally set up under the scheme known as "Coal Mines Pension Scheme, 1998" formulated by the Central Government vide Notification dated 30th March, 1998. As 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 emplo....
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....envisaged in section 36(1)(va) was also not known either to the assessee or to the concerned Revenue authorities in order to allow the deduction under that section at the relevant time. However, this factual position emerging on the setting up of formal pension fund in the year 1998 was specifically brought to the notice of the learned CIT(Appeals) but he proceeded to follow the order of his predecessor in assessee's own case for assessment year 1991-92 without giving due consideration to this relevant aspect brought to his notice on behalf of the assessee. As a matter of fact, the position regarding the setting up of the formal fund as well as the due date specified therein was not before the learned CIT(Appeals) while passing the appellate order in assessee's case for assessment year 1991-92 and the successor learned CIT(Appeals) was not justified in following the decision of his predecessor 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) fo....
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.... of such contribution and the amount so collected was retained by the assessee company separately and interest thereon was also duly provided on yearly basis. The bona fide intention of the assessee company also becomes clear from the fact that the employees who retired during the intervening period i.e., from the date of collection of the contribution to the date of formal setting up of the fund, were paid their dues on account of amount contributed together with interest thereon. The facts of the present case also make it clear that it was not possible for the assessee company, in the absence of existence of a formal fund, to pay the amount of contribution so collected and since the pension fund was to be set up by the Central Government, this act was also beyond the control of the assessee company. It is a general rule, which admits of ample practical illustration, that Impotentia excus at legem, where the law 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....
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....lating to the disallowance of expenditure incurred by the assessee on account of payment made to State Government and for rehabilitation of people for use of land for the purpose of mining is raised by the assessee in the following appeals: ITA No. Asstt. Year. Ground No. Amount (Rs. in lacs) 20/Nag./2001 1994-95 2 350.75 21/Nag./2001 1995-96 4 234.83 22/Nag./2001 1996-97 4 226.82 11.1 During the relevant previous years, the assessee company spent substantial amount on account of payment to the State Government and for rehabilitation of villages in the course of obtaining use of land for its business purposes. This amount was capitalized by the assessee in its books of account under the head "leasehold land", but for the purpose of computing income under the Income-tax Act, the same was claimed as revenue expenditure. When the assessee-company was called upon by the Assessing Officer to explain the position, 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 purpos....
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....talized the said expenditure in its books of account, cannot treat and claim the same as revenue expenditure for income-tax purposes. He also relied on the decision of Hon'ble Supreme Court in R.B. Seth Moolchand Suganchand's case referred to by the Assessing officer in his order and confirmed the disallowance made by the Assessing Officer on this count. 11.2 The learned counsel for the assessee submitted before us that the expenditure was incurred by the assessee company for obtaining use of land for a limited period and it did not become the owner of the land by spending the said amount. He submitted that the land was acquired on lease for a period not exceeding 30 years and the assessee enjoyed only the extraction rights in respect of the said land as set out in the model form of lease deed furnished at page Nos. 14.8 to 14.16 of his paper book. He further submitted that with a view to enable the assessee company to build office complex, health centres 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 acq....
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....he Hon'ble Apex Court in the case of Bikaner Gypsums Ltd. v. CIT[1991] 187 ITR 39 wherein it was held that the expenditure incurred to relocate a railway line under the terms of the lease is a revenue expenditure. He also placed strong reliance on the decision of Hon'ble Madhya Pradesh High Court in the case of R.J. Trivedi (HUF) v. CIT[1987] 166 ITR 856 wherein it was held by the Hon'ble jurisdictional High Court that the expenditure incurred for removing obstruction in the course of mining operation is a revenue expenditure. He contended that the expenditure incurred for rehabilitating the people in the present case is akin to removal of obstruction in the course of mining operation and, therefore, the decision of Hon'ble Madhya Pradesh High Court in the case of R.J. Trivedi is directly applicable. Relying on the decision of Hon'ble Supreme Court in the cases of Kedarnath Jute Mfg. Co. Ltd. and Tuticorin Alkali Chemicals & Fertilizers Ltd., 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 im....
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....face rights as well as right to possession in respect of the same from the occupants for the purpose of construction of utility buildings. She contended that similarly in the case of R.J. Trivedi relied upon by the assessee, expenditure was incurred for removing the obstruction in the course of mining operation, which is not the fact in the present case. She further contended that the case of Gotan Lime Syndicate v. CIT [1966] 59 ITR 718 (SC) is also out of context as the expenditure incurred by the assessee in that case was related to the raw material whereas in the present case the expenditure has been incurred to acquire the surface rights. She submitted that the assessee in the present case has acquired the surface rights and right to possession under a lease in respect of a land and, therefore, the decision of Hon'ble Supreme Court in the case of Madras Auto Services (P.) Ltd. involving the advantage of lower or concessional rate cannot be extended to the 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 al....
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.... nature is a vexed question and it is very difficult to lay down exhaustive test for distinguishing the capital expenditure from revenue expenditure and each decision in this regard has to be founded on its own facts and circumstances. It is thus pertinent to cull out the facts relevant to the issue under consideration in the present case. In this regard, it is observed that the assessee company acquired certain land on lease from the State Government for a period not exceeding 30 years under the Mines and Minerals (Regulation and Development) Act, 1957 on the terms and conditions as set out in the model form of mining lease. As per the said model form of mining lease (copy placed in assessee's paper book at pages 14.8 to 14.16), the assessee acquired certain liberties, powers and privileges to be exercised and enjoyed in respect of the lease-hold land for a period not exceeding 30 years as specified in Part II of the said model form. As per clause 2 of Part III of 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 a....
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.... to facilitate the enjoyment of surface rights in respect of the leasehold land. We are, therefore, of the opinion that the present case is distinguishable on facts from the case of R.J. Trivedi and, therefore the said decision cannot help the assessee's case. Reliance was also placed by the learned counsel for the assessee on the decision of Hon'ble Supreme Court in the case of Gotan Lime Syndicate wherein the payment of royalty was made by the assessee in relation to the raw material i.e. lime stone to be obtained from mines taken on lease and the same was not referable to the acquisition of the mining lease. Considering these facts, the Hon'ble Apex Court found the said expenditure incurred in relation to the raw material, which was going to be excavated or extracted by the assessee, and accordingly treated the same as revenue expenditure. The facts in the present case, however, are different inasmuch as the impugned expenditure has been incurred by the assessee 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 L....
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....e similar line. 11.8 The learned counsel for the assessee has also contended before us that the assessee company did not acquire any right or interest in respect of relocated villages which were built up and handed over to the villagers and ultimately became the property of the said villagers. In this regard, we may observe that the said expenditure on rehabilitation and relocation of the villages was incurred by the assessee company to acquire the right to possession in the leasehold land in respect of surface rights obtained by it and the very purpose of incurring the said expenditure was to acquire such rights in the said immovable property. This being so, it cannot be said that the said expenditure did not result in the acquisition of enduring benefits in the capital asset, the rights or interest in the relocated villages notwithstanding. 11.9 In the case of Assam Bengal Cement Co. Ltd. relied upon by the revenue, the Hon'ble Apex Court observed that the aim and 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 expen....
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....earned counsel for the assessee has contended that the said decision in the case of R.B. Seth Moolchand Suganchand has been distinguished by the Hon'ble Apex Court in its subsequent decision in the case of Bikaner Gypsums Ltd. A perusal of the subsequent judgment of the Hon'ble Apex Court, however, reveals that the facts involved in the case of R.B. Seth Moolchand Suganchand were found to be totally different from the facts involved in the case of Bikaner Gypsums Ltd inasmuch as in the latter case the expenditure was incurred by the assessee for the removal of a restriction which was obstructing his business operation of mining within a particular area. We have already observed that the existence of village was not obstructing the mining operations of the assessee-company and the expenditure in question was incurred to acquire the right to possession in respect of the leasehold land to facilitate the enjoyment of surface rights. Moreover, as the said acquisition resulted 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 Be....
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....pur assuming jurisdiction under section 263 set aside the said order on this issue to be made afresh and when the order passed by the CIT, Jabalpur under section 263 was assailed in the appeal preferred before this bench, the Tribunal set aside the said order of the CIT and upheld the action of the Assessing Officer by observing as under: "The coalfields are located in various backward areas and large staff has to be posted. They have to be provided with various educational facilities. Under section 40A(9) it is not necessary that the assessee as an employer should be allowed deduction in respect of any sum paid by it towards set up or formation of fund, trust, company association of persons etc. for the purposes as described under section 36(1)(iv) or (v). In such areas there are institutions already in existence and the assessee as an employer pays contributions to such institutions for the purposes of running the same as the employees of the assessee gets preference over the 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 o....
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.... Ltd. v. ITO [1993] 45 ITD 33 :- "The object and intention of the Legislature introducing section 40A(9) was only to discourage contribution to any trust which do not benefit the employees in any manner. In the instant case, reading of the Trust Deed would clearly reveal that the beneficiaries of the trust are the assessee's employees. Hence, having regard to the Legislature intention in introducing the said section and the fact that the contribution constituted employees welfare measures as well as with such contribution made pursuant to an agreement with the employees is a requirement under the Industrial Dispute Act violation of which would result in penalty to the defaulter, an assessee is entitled for the allowance of the relief asked for." As a matter of fact, the impugned expenditure on account of contribution to various schools was not incurred by the assessee-company voluntarily but the same was incurred to discharge its obligation terms of a National Coal Wage Agreement entered with 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 o....
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....ion on Power Support Long Equipment (PSLE for short) is raised by the assessee in the following appeals: ITA No. Asst. Year Grd. No. Amount (Rs. In lacs) 20/Nag./2001 1994-95 9 258.59 21/Nag./2001 1995-96 2 193.94 22/Nag./2001 1996-97 6 145.46 15.1 The assessee company had purchased special equipment called PSLE at a total cost of Rs. 3007.12 lacs during the previous year relevant to assessment year 1990-91. The said equipment Commissioned in the assessment year 1990-91 itself and depreciation claimed on the same by the assessee company was also allowed by the Department. Similarly tile depreciation claimed in assessment years 1991-92 and 1992-93 claimed by the assessee was also allowed by the Department. Meanwhile in the previous year relevant to assessment year 1991-92, the said equipment suffered damage and could not be used by the assessee company thereafter. No depreciation on the said equipment was claimed by the assessee in assessment year 1993-94 and even in its return for assessment year 1994-95 the assessee did not claim any depreciation on the said equipment. However, during the assessment proceedings, the assessee prefe....
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....f G.N. Agrawal and that of Jabalpur Bench of ITAT in the case of Packwell Printers cited by the learned counsel for the assessee are distinguishable on facts. According to her, Rule No. 5(1) of the Income Tax Rules, 1962 is relevant in this regard which does not refer to the use of any asset comprised in a block but refers to the block of assets as a whole, which is used for the purpose of the business of the assessee during the relevant previous year. She contended that the basic requirement of use of all the assets falling under the relevant block for the purpose of claiming depreciation is still there even after the introduction of the concept of block of assets, as provided in section 32(1) read with section 43(6)(e). Her contention, therefore, was that the PSLE having not used by the assessee during the relevant previous years, the authorities below were fully justified in disallowing the depreciation claimed by the assessee on the said equipment. 15.4 We have considered the rival submissions and also perused the relevant material on record. It is observed that the PSL equipment was purchased and put to use by the assessee during the previous year relevant to assessment yea....
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....ssessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i). Rule 5(1) Subject to the provisions of sub-rule (2), the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year. 15.5 From the perusal of the aforesaid provisions, it is evident that a reference has been made particularly to the block of assets as such and there is nothing in the said provisions to interpret that the use of individual asset is a requirement of law for claiming the depreciation. As a matter of fact, the new scheme of block of assets has been introduced in the statute f....
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....calculation of depreciation will be in a lump sum for the entire block of depreciable assets. The Tribunal also observed that the theory of new asset which prevailed before 1-4-1988 cannot be considered after the new provisions of block assets came into force and if a particular machinery forming part of block asset is not used during the year, still depreciation is to be allowed on the same for the relevant year. The Tribunal further proceeded to hold that if one single asset out of the entire block has been discarded or not put to use by the assessee for business consideration, on that ground alone partial depreciation cannot be disallowed. 15.7 In the present case, the PSL equipment was purchased and put to use by the assessee in the previous year relevant to assessment year 1990-91 and the same had entered the block assets in that year itself. This being the position, the same had lost its individual identity and for the purpose of allowing depreciation on the same, the requirement of law was to establish the use of the concerned block of asset as such and not the use of the said equipment individually. As such, considering all the facts of the case and keeping in view the s....
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....essee submitted that M/s. Coal India Ltd., the holding company intimated the assessee company vide its letter dated 11-2-1994 that an amicable settlement between the representing trade unions and the management has been arrived at to pay Rs. 100 per month of interim relief to the employees governed by the National Coal Wage Agreement with effect from 1-7-1991. He also submitted that after the end of the relevant previous year but before the closing and finalisation of accounts, M/s. CIL vide its memorandum dated 3-5-1994 further intimated to the assessee that the executives of the company, pending sanction of the executive pay scale, are also eligible to draw interim relief of Rs. 100 per month with effect from 1-1- 1992 which was further revised to Rs. 225 per month with effect from 1-7-1992 vide its memorandum dated 28-7-1994. He submitted that the accounts of the assessee company for the year ended 31-3-1994 were finalised on 30-7-1994 and since the above instructions of M/s. CIL, the holding company, were available before the finalisation of the accounts, the assessee company was well aware of its financial liability prior to closing of its account. He, therefore, contended tha....
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....also placed by him on the decision of Hon'ble Bombay High Court in the case of CIT v. United Motors India Ltd. [1999] 181 ITR 347 wherein the assessee had made a provision for additional liability on account of change in service conditions of its workmen pending negotiations with the trading union and although the agreement with the trade union was finalized much after the end of the year, the provision so made by the assessee for liability on account of the amount estimated as payable to the workman pending negotiations was allowed by the Hon'ble High Court. The learned counsel for the assessee, therefore, contended that as the assessee company very much aware of the pending liability at the time of finalisation of its account, the provision made in respect of the same was clearly allowable as held by the Hon'ble Bombay High Court in the case of United Motors India Ltd. 16.4 The learned counsel for the assessee submitted that the claim of the assessee was disallowed by the learned CIT(Appeals) for the reason that the MOU with the employees union was arrived at after the balance sheet date and hence there was no liability cast on the assessee company to make such pay....
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....he relevant judicial pronouncements. She submitted that the decision of ITAT in assessee's own case for assessment year 1988-89 was rendered in entirely different facts and circumstances and, therefore, the issue involved in the present appeal cannot be said to be covered by the said decision. She contended that the decisions in United Motors India Ltd.'s case and 250 ITR 84 cited by the learned counsel for the assessee are also distinguishable on facts since the liability in those cases had crystallised before the end of the relevant previous year whereas in the present case, the liability has crystallised only after the end of the previous year. In support of the Revenue's case, she cited the case of Indian Molasses Co. Ltd. wherein the Hon'ble Supreme Court has held that the expenditure which is deductible for income-tax purposes is one which is towards a liability actually existing at the time, but the putting aside of money which may become expenditure on the happening of an event is not an allowable expenditure. Reliance was also placed by her on the decision of Hon'ble Rajasthan High Court in the case of Rajasthan State Mines &Minerals Ltd v. CIT[1994] 20....
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....at a future date. In the case of Swadeshi Cotton & Flour Mills (P.) Ltd., it was held by the Hon'ble Supreme Court that only when the claim of profit bonus, if made, is settled amicably or by industrial adjudication that a liability is incurred by the employer who follows the mercantile system. In the case of Indian Molasses Co. Ltd., the Hon'ble Supreme Court has held that, expenditure which is deductible for income-tax purposes is one which is towards a liability actually existing at the time, but the putting aside of money which may become expenditure on the happening of an event is not an allowable expenditure. In the case of Rajasthan State Mines & Minerals Ltd., the Hon'ble Rajasthan High Court has held that Income Tax Law makes a distinction between an actual liability in presenti and liability de futuro which for the time being is only contingent. Former is deductible but not the latter. 16.8 Further, we find that the following case laws on the point in issue are also worth consideration. In Swadeshi Cotton Mill Co. Ltd v. CIT[1980] 125 ITR 33, the Hon'ble Allahabad High Court held that if the liability was based on contractual obligation, it arose only w....
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....ication may not be possible'. 16.10 In the light of the above underlying principles emerging from the various judicial pronouncements, we now proceed to consider the issue in dispute raised before us in the present case. It is observed that the provision of Rs. 3266.00 lacs made by the assessee company in respect of interim relief payable to the employees governed by National Coal Wage Agreement was based on a letter bearing No. CIL C-5B-IR-CA/587 issued by the holding company i.e. Coal India Ltd. on 11-2-1994, a date falling in the previous year relevant to assessment year 1994-95. By this letter, the Coal India Ltd., which was carrying on the negotiations with the representing trade unions intimated the assessee company that amicable settlement between the parties has been arrived at according to which Rs. 100 per month of interim relief to the employees governed by the National Coal Wage Agreement is payable with effect from 1-7-1991. It is thus clear that the negotiations between the concerned parties had reached a stage in the accounting year itself and it was possible for the assessee company to anticipate the liability payable to the workers on account of interim reli....
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....tion for the purpose of Income tax and the same has to be decided In accordance with the relevant provisions of the Act and not in. accordance with the accounting practice. It is observed that although the amount of Rs. 3,266 lacs payable in respect of the employees governed by NCWA was agreed as per the settlement reached between the concerned parties in the relevant accounting year itself, the learned CIT (Appeals) confirmed the disallowance made by the Assessing Officer on this count merely because the final MOU to this effect was signed by the concerned parties only after the end of the relevant accounting year. Keeping in view the proposition laid down in the various judicial pronouncements discussed above and considering the fact that the interim relief amount was agreed upon between the parties as per the settlement reached during the concerned accounting year itself, we are of the opinion that the conclusion drawn by the learned CIT (Appeals) on this issue was not well-founded and as already observed, the assessee company was entitled for deduction in respect of the said liability ascertained and fastened during the previous year relevant to assessment year 1994-95. As such....
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...., however, was of the opinion that the balance payable by the assessee company to CIL as per relevant balance sheets being only to the extent of Rs. 15,270.81 lacs and Rs. 10,964.47 lacs and there being nothing on record brought by the assessee to show any additional borrowing from CIL for the purpose of business, interest @ 15% p.m. attributable to the said amount which works out to Rs. 2291.42 lacs and Rs. 1654 lacs only for assessment years 1994-95 and 1995-96 alone could be allowed to the assessee company as business expenditure. He, therefore, allowed the same to that extent and disallowed the balance amount of Rs. 10,992.83 lacs and Rs. 9021.00 lacs for assessment years 1994-95 and 1995-96 respectively considering that the factum of borrowing and utilization of the same for the purpose of business to that extent has not been established by the assessee company as specifically required by section 36(1)(iii). In support of this conclusion, he placed reliance on the decision of Hon'ble Supreme Court in the case of CIT v Calcutta Agency Ltd. [1995] 19 ITR 191 and in the case of Madhav Prasad Jatia v. CIT[1979] 118 ITR 200. 17.2 As regards the decision of this Bench in the ....
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....ture in the nature, described in sections 30 to 36. The rule of construction/interpretation, as expressed in the maxim "Generalia Specialibus non derogant" and further explained in the book "Craies on Statute law" 5th edition page 205 is that whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply. In the case of Calcutta Agency Ltd. relied upon by the learned CIT (Appeals), the Hon'ble Supreme Court has held that when a claim is made for deduction, the onus lies on the assessee to prove that all the conditions for allowing such a deduction are satisfied. The learned CIT (Appeals) has relied on the case of Madhav Prasad Jatia wherein the Hon'ble Apex Court has held that for allowance of a claim for deduction of interest, it is necessary that the capital must have been borrowed by the assessee and the same must have been borrowed for the purpose of business. Keeping in view this position propounded by the Ho....
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.... 18. The next issue relating to the disallowance of community development expenditure is raised by the assessee in the following appeals : ITA No. Asst. Year Ground No. Amount 21/Nag./2001 1995-96 5 43.40 22/Nag./2001 1996-97 5 605.00 18.1 In the computation of its total income, the assessee company claimed expenditure incurred on community development relating to road widening, street lighting, improving drinking water facilities and other welfare measures primarily for its employees. It was claimed that by incurring this expenditure, the employees of the company are benefited at large and the company also discharged its social obligation to the community in and around its area of operation. Considering that the said expenditure has been incurred by the assessee company mainly to fulfil its social obligation, the Assessing Officer was of the opinion that the same could not be treated as wholly and exclusively incurred for the purpose of its business. He, therefore, disallowed the same. The matter was carried before the learned CIT (Appeals) and it was contended on behalf of the assessee before him that the said expenditure has been incurred w....
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....Ltd. too far which in face has no application in the present case. He submitted that the Assessing Officer has disallowed this expenditure mainly on the basis of assessee's submission that the same was incurred to discharge a social obligation. He contended that the Assessing Officer, however, overlooked the important fact that such obligation was being discharged by the assessee company for the purpose of community which was mainly comprising of its own workers and their families. He, therefore, contended that the said expenditure was incurred by the assessee mainly for the welfare of its employees and the same being in the nature of business expenditure, was an allowable expenditure. In support of his contention, he cited CIT v. Premier Cotton Spg. Mills Ltd. [1997] 223 ITR 440 (Ker.), Empire Jute Co. Ltd.'s case, Sarabhai M. Chemicals (P.) Ltd. v. CIT [1981] 127 ITR 74 (Guj.), CIT v. Rupsa Rice Mill [1976] 104 ITR 249 (Ori.), CIT v. T V Sundaram 186 ITR 276, CIT v. Panbari Tea Co. Ltd. [1985] 151 ITR 726 (Punj. & Har.) and Madras Auto Services (P.) Ltd.'s case. 18.3 The learned Departmental Representative, on the other hand, submitted that the impugned expenditure....
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....e's employees in isolation as the said expenditure in any case had to be incurred for the entire area as a whole. Before us, the learned counsel for the assessee has contended that over 90% of the population residing in that area constituted assessee's own workers and their families and it appears from the record that this fact has not been disputed by the Revenue at any stage. Moreover, in the absence of such facilities in that area, it would not have been possible for the assessee company to get the pro per work force for its operation without which it was not possible to carry on its business effectively and efficiently. The labour by itself is an important input for any type of business, more particularly for the business of the assessee company of mining operation and therefore, the expenditure incurred mainly for the welfare of the labour force has to be treated as incurred wholly and exclusively for the purpose of its business. 18.5 It is observed that the learned CIT (Appeals) has confirmed the disallowance made by the Assessing Officer on this count for lack of nexus between the said expenditure and the business of the assessee, relying heavily on the decision o....
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....ment to the ailing workmen of the assessee also and the assessee was under an obligation to provide such benefits. In the present case, although there is nothing on record to show that such an obligation was there on the assessee company, the incurring of such expenditure was very much warranted from the point of view of business expediency, as already mentioned. In the case of Sanghameshwar Coffee Estates Ltd. v. State of Karnataka [1986] 160 ITR 203, the expenditure incurred by the assessee towards salary paid to the teachers of the school was held undoubtedly to be in the interest of the children of its employees and the same being a welfare measure was allowed as business expenditure. in the case of ITAT v. B. Hill & Co. (P.) Ltd. [1983] 142 ITR 185 (All.), the expenditure incurred on donations made to the schools with a view to provide educational facilities to the labourers and their children was considered to be for the purpose of facilitating the smooth running of assessee's business and, therefore, was held to be an admissible business expenditure by considerations of commercial expediency. As such considering all the facts of the case and the legal position emanating ....
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....t to assessment year 1995-96, the Assessing Officer allowed this deduction in the subsequent year i.e. assessment year 1996-97 on the basis that the relevant board meeting taking a decision to write off these bad debts was held on 24-7-1995 and thus the fact of these debts becoming bad was established only in the previous year relevant to assessment year 1996-97. In this regard, we may observe that the position regarding deduction on account of bad debts has undergone a substantial change after the amendment made in the provisions of section 36(1)(vii) with effect from assessment year 1989-90. The object and purpose of this amendment made in 1987 have been explained by the CBDT in its Circular No. 551 dated 23-1-1990 and we find it relevant to reproduce para Nos. 6.6 and 6.7 of the said circular hereunder: "6.6 Amendments to sections 36(1)(vii) and 36(2) to rationalize provisions regarding allowability of bad debts. - The old provisions of clause (vii) of sub-section (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debt. It was provided that the debt must be established to have become bad in the previous year. This led to ....
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....n written off by the assessee as bad in the books of account relevant to assessment year 1995-96 and this fact is not in dispute. As such, considering all the facts of the case and respectfully following the aforesaid decision of the Tribunal, we hold that the assessee was entitled for the deduction on account of bad debts for the assessment year 1995-96 and not in assessment year 1996-97 as allowed by the Revenue. We order accordingly. 20. The next issue relating to the disallowance of Rs. 27.58 lacs on account of additional expenditure on power and fuel is raised by the assessee in ground No. 7 of ITA No. 21/Nag./2001 for assessment year 1995-96. 20.1 After considering the rival submissions and perusing the relevant material on record, it is observed that the disallowance has been made by the Revenue on this count for the reason that the relevant liability according to them arose during the year relevant to assessment year 1996-97 and not in assessment year 1995-96 as claimed by the assessee. This issue relating to the period of accrual of liability and corresponding deduction in respect of the same has already been discussed by us in detail in Para Nos. 16.7 and 16.8 of th....
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....ion in computing the total income for income-tax purposes. As regards the liability on account of enhancement in power and fuel expenditure is concerned, the same had arisen only on the receipt of the concerned bill from the Electricity Board on 27-6-1995 and as the said date was falling in the accounting year relevant to assessment year 1996-97, we are of the view that the assessee was not entitled to claim deduction in respect of the same for assessment year 1995-96 merely because it arose before the date of finalisation of its accounts for that year. As such, considering all the facts of the case and the foregoing discussion about the legal proposition, we find no infirmity in the impugned order of the learned CIT (Appeals) confirming the disallowance made by the Assessing Officer on this count. 21. The next issue relating to the disallowance of Rs. 23.84 lacs under section43B is raised by the assessee in para no. 8 of ITA No. 21/Nag./2001 for assessment year 1995-96. 21.1 After considering the rival submissions and perusing the relevant material on record, it is observed that against the liability on account of Provident Fund for the month of March 1995 amounting to Rs. 8....
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....that the assessee company has actually paid a sum of Rs. 160.35 lacs only against the overall statutory dues of Rs. 271.21 lacs debited in the profit and loss account. This disallowance also appears to have been made by the Assessing Officer without giving any opportunity to the assessee to explain his stand as there contains no discussion whatsoever about the assessee's submission or Assessing Officer's findings regarding the same in his order. When the matter was carried before the learned CIT (Appeals), the assessee company made a detailed written submission a copy of which is placed in assessee's paper book at page Nos. 26.2 to 26.12. A perusal of the same reveals that a detailed submission showing details about the nature of each liability as well as the payments made against the same was furnished by the assessee before the learned CIT (Appeals). It also appears that the statements showing details of payments made with respective mode of payment were also annexed to the said submission. The learned CIT (Appeals), however, appears to have not fully appreciated the said submission and proceeded to decide the issue against the assessee in a summary manner stating tha....
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....s / Workers. The character of demand submitted by the different Unions were integrated and after prolonged negotiations the representing management and Union arrived at a Memorandum of Understanding (MOU) on 28th and 29th April, 1995. Based on this MOU the financial impact of the company after setting off interim relief paid as per the directions of Government of India worked out to be of Rs. 6213 lacs which has been exhibited in the Profit and Loss Account. It is to submit before your goodself that the assessee company for the year ended 31-3-1995 finalised its accounts in September 1995 as is evident from the date of signature in the balance sheet and profit and loss account in the printed accounts submitted along with the computation of income. As the MOU, was signed in the month of April 1995, the company was well aware of its financial liability during the period of closing of accounts and gave effect of the same in the books of account for the year ended 31st March, 1995. The liability which arose under this MOU is a definite and ascertained liability constituting expenditure to earn income for the year and is a charge there against. The assessee co....
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....ssee during the accounting period relevant to assessment year 1995-96. He, therefore, came to the conclusion that the relevant liability had not definitely arisen in the relevant accounting year and considering that the deduction is admissible only in respect of an ascertained liability, proceeded to hold that the expenditure in respect of the liability arising out of MOU which was not available with the assessee prior to the close of the relevant accounting period cannot be allowed in computation of income for assessment year 1995-96. For arriving at this conclusion, he derived support from the following case laws: (1) CIT v. Sugar Dealers [1975] 100 ITR 424 (All.) (2) Girwar Lal Sri Chand v. CIT [1967] 63 ITR 248(All.) (3) M.S.P. Santikumar Nadar & Sons v. CIT [1957] 32 ITR 138(Mad.) (4) CIT v. Roborts Mclean & Co. Ltd. [1978] 111 ITR 489 (Cal.) (5) Andrew Yule & Co. Ltd. v. CIT [1967] 49 ITR 57 (Cal.). 23.3 Aggrieved by the order of the Assessing Officer, the assessee company carried this matter before the learned CIT(Appeals) who was of the opinion that the impugned liability, being the outcome of the Memorandum of Understanding w....
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.... company much after the close of the previous year has been allowed by the Tribunal. He also brought it to our notice that the reference application filed by the Department against the said order of the Tribunal has been rejected by this Bench and thus the matter has already achieved a finality. He, therefore, contended that the disallowance made by the Assessing Officer and confirmed by the CIT(Appeals) on this issue was not warranted and urged that the same may be deleted. 23.5 The learned Departmental Representative, on the other hand, mainly relied on the orders of the authorities below on this issue and further submitted that nobody from the assessee company was participating in the meetings of Joint Bipartite Committee on Coal Industry held on 9th and 10th January, 1995 at the Headquarter of Coal India Ltd. located in Calcutta. According to her, the details of the said meeting in fact were obtained by the assessee-company only in the year 1999 which is evident from the document placed in assessee's paper book at page No. 27.5. Her contention therefore, was that the assessee company came to know about this liability arising out of Coal Wage Agreement-V only when the MOU....
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....pear to be different from that case inasmuch as the impugned liability has been provided by the assessee company on the basis of the Memorandum of Understanding reached only after the end of the relevant previous year. We, therefore, find it difficult to agree with the contentions of the learned counsel for the assessee that the same had definitely arisen and became an ascertained liability during the relevant previous year. It is also pertinent to note here that although certain terms and conditions regarding the wage structure were agreed upon between the parties in the form of interim relief in the meeting held on 9th and 10th January, 1995, no attempt was made by the assessee-company to quantify the financial implications of the same in order to provide for the corresponding liability in the relevant previous year itself. On the contrary, a consolidated provision of Rs. 6213 lacs was made finally on the basis of Memorandum of Understanding signed on 28th and 29th April, 1995. 23.8 Before us, the learned counsel for the assessee has also contended that although the MOU was signed after the end of the relevant previous year, the assessee came to know about the liability arisin....
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....ous year relevant to assessment year 1996-97 when the MOU was finally signed by the concerned parties and this being the position, we find no infirmity in the impugned order of the learned CIT (Appeals) in upholding the action of the Assessing Officer in not allowing the deduction in respect of the same for the assessment year 1995-96. The same is, therefore, upheld on this issue. 24. The next issue relating to the incorrect set off brought forward losses is raised by the assessee in the following appeals : ITA No. Asstt. Year Ground No. 21/Nag./2001 1995-96 13 22/Nag./2001 1996-97 16 24.1 After considering the rival submissions and perusing the relevant material on record, it is observed that the issue raised by the assessee relating to the incorrect set-off of losses and unabsorbed allowances of the earlier years allowed by the Assessing Officer against the income of assessment years 1995-96 and 1996-97 was found to be having no merits by the learned CIT(Appeals) mainly because the correct working of such claim had not been furnished by the assessee-company before him. Before us, the learned counsel for the assessee has submitted that the correct ....
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.... does not specify any amount to be charged under any particular section, the decree cannot contain any such amount. Similarly when the assessment order is silent if any interest is leviable, the notice of demand under section 156 of the Act cannot go beyond the assessment order and the assessee cannot be served with any such notice demanding interest." Further, he has also cited the decision of Hon'ble Supreme Court in the case of CIT v. Ranchi Club Ltd. [2001] 247 ITR 209 affirming the decision of Hon'ble Patna High Court and pointed out that the said decision of the Hon'ble Apex Court has been explained by the Hon'ble Patna High Court in the case of Smt. Tej Kumari v. CIT [2000] 247 ITR 210 as follows : "In the said case it has been held that interest to be charged has to be indicated in the assessment order. The order to charge interest has to be specific and clear, as for that matter, any order to charge any tax, penalty or fine; because the assessee must be made to know that the Assessing officer, after applying his mind, has ordered the charging of interest as well the section under which it is to be charged. If the assessment order is silent on wh....
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.... for expenditure on account of repairs to guest house and Rs. 13.70 lacs on account of depreciation on the assets used in the guest house. This claim of the assessee, however, was not allowed by the Assessing Officer in view of the specific and express provisions of section 37(4) and the learned CIT(Appeals) also confirmed the disallowance made by the Assessing Officer considering that the provisions of section 37(4) introduced by the Finance Act, 1970 with effect from 28th February, 1970 specifically and expressly prohibits allowance of any expenditure on the maintenance of a guest house incurred after 28-2-1970 and also prohibits any depreciation allowance in respect of any building used as guest house or any assets used in such guest house. Before us the learned representatives of both the parties have cited various decisions of the different High Courts as well as that of the Tribunal in support of their stand. 28.2 Insofar as the expenditure on account of repairs to guest house is concerned, the learned counsel for the assessee has submitted before us that the same is allowable under the specific provisions of section 30 and, therefore, deduction in respect of the same cann....
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....f section 30. Learned counsel for the assessee relied on the decisions in Chase Bright Steel Ltd.'s case and CIT v. Ahmedabad Mfg. & Calico Printing Co. Ltd. [1992] 197 ITR 538 (Guj.) in support of its contention. On examining these decisions, we find the first decision which is rendered by the Bombay High Court, considered a case prior to the introduction of sub-sections (4) and (5) of section 37. The second decision which was rendered by the High Court of Gujarat, just followed the Bombay High Court's decision even though, by that time, sub-section (4) of section 37 had been introduced. We are not inclined to follow the above decisions in the present case." 28.3 From the perusal of the aforesaid observations, it can be reasonably gathered that after the insertion of sub-section (4) and sub-section (5) of section 37 by the Finance Act, 1970, any expenditure on the maintenance of a guest house incurred after 28th Feb., 1970 as also depreciation in respect of any building used as a guest house or any assets used in such guest house has been made expressly inadmissible. However, the Hon'ble Bombay High Court in the case of Century Spg. & Mfg. Co. Ltd. v. CIT [1991] ....
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....ue as no decision of the Hon'ble Madhya Pradesh High Court, which is a jurisdictional High Court in this case, on this issue has been brought to our notice. As such, considering all the facts of the case and keeping in view the decision of the Hon'ble Supreme Court in the case of Vegetable Products Ltd., we follow the view expressed by the Hon'ble Bombay High Court in the case of Century Spg. & Mfg. Co. Ltd. and direct the Assessing Officer to allow the expenditure incurred by the assessee on repairs to the guest house after verifying that the same satisfies the requirement of section 30. 28.5 Insofar as the depreciation on assets used in a guest house is concerned, we find no reason why the analogy given by the Hon'ble Bombay High Court in the case of Century Spg. & Mfg. Co. Ltd. cannot be applied to this expenditure also which is allowable under section 32. As a matter of fact, in the case of Wolken India Ltd. v. Dy. CIT [1999] 65 TTJ (JP) 59, the Jaipur Bench of ITAT held that disallowance under section 37(4) cannot be made in respect of depreciation on assets used in guest house including the guest house building, furniture etc. as the same is covered by the ....
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....e was provided at the rate of 10 per cent of the value of closing stock. The Assessing Officer noticed that the Auditors of the company in their report had commented that the basis of creation of such provision for deterioration was not satisfactorily explained and justified by the management. The explanation offered by the assessee-company before him in this regard that the said change was effected by it as per the policy framed by its holding company i.e., Coal India Ltd. and the reasons given in justification of the same were found to be unsatisfactory by the Assessing Officer. In the opinion of the Assessing Officer, by making such provision the assessee had provided for the contingency which was not justifiable in law. He, accordingly, worked out the monetary effect of the change in valuation method and made addition to that extent to the total income of the assessee. The matter was carried before the learned CIT(Appeals) who upheld the action of the Assessing Officer on this count considering that the basis for creation of provisions towards deterioration in the value of coal stock could not be satisfactorily explained and justified by the assessee. 29.2 The learned counse....
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....by the management to the Auditors also and considering the specific comments made by them in their report on this issue, the authorities below were fully justified in rejecting the assessee's claim on this count. She submitted that the said provision was made by the assessee for contingent reasons and considering that no such instance of fire or any loss has been pointed out by the assessee, there is no reason to disturb the stand taken by the revenue on this issue. She also made an attempt to distinguish the cases cited by the learned counsel for the assessee stating that the change in method adopted by the assessee in those cases was found to be consistently followed in the subsequent years also whereas in the present case, the assessee has again changed its method immediately in the assessment year 1997-98. 29.4 In his rejoinder, the learned counsel for the assessee clarified that there has been no change in the method either in the assessment year 1997-98 or even in the subsequent years and the method as changed in the year under consideration is being followed by the assessee-company consistently in the subsequent years also. 29.5 We have considered the rival submiss....
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.... India Ltd. and the same was even accepted by the Tribunal, inter alia, in the case of M/s. Western Coal Fields Ltd. for assessment years 1978-79 to 1984-85 vide its order dated 20-5-1992. In the year under consideration, as already observed, the change was effected by the assessee-company only in the rate and basis for working out this provision and considering that the matter of providing for such deterioration in the value of closing stock in principle was accepted by the Revenue in the earlier years, the Assessing Officer had no reason to challenge / dispute the entire provision as a whole on the ground that the same provides for contingencies. In any case, the explanation offered by the assessee like loss in quality and quantity due to spontaneous heating, exposure to weather etc. to justify the said provision appears to be quite satisfactory considering the chemical characteristics of the coal and after taking a circumspect view of the matter, we find the provision made by the assessee-company for deterioration etc. while valuing the stock of coal to be quite fair and reasonable. 29.7 In the case of Snow White Food Products Co. Ltd., the Hon'ble Calcutta High Court has....
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.... us, the learned counsel for the assessee has submitted that if the main issue relating to the deduction on this count in the years of accrual as claimed by the assessee is decided in favour of the assessee, this ground may be treated as not pressed by the assessee. Accordingly, in view of our decision on the main issue rendered in the preceding paras of this order, this ground is treated as not pressed by the assessee and the same is dismissed as not pressed. 31. The next issue relating to the disallowance of assessee's contribution to coal mines provident fund amounting to Rs. 474.14 lacs is raised in ground Nos. 14 and 15 of ITA No. 22/Nag./2001 for assessment year 1996-97. 31.1 After considering the rival submissions and perusing the relevant material on record, it is observed that a provision for the contribution payable by the assessee company in respect of provident fund arising out of revision of salaries and wages was made in the books of account and deduction on account of the same was also claimed in computing the income for assessment year 1996-97. During the assessment proceedings, it was noticed by the Assessing Officer that the arrears of salary and wages w....
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.... regards the assessee's alternative plea for allowing the said deduction in the assessment year 1997-98, we have already observed that the impugned liability on account of contribution to provident fund accrued during the previous year relevant to assessment year 1997-98. Further, we may also observe that the assessee, having made the payment against the same in the relevant financial year, was entitled to claim deduction of the said amount in assessment year 1997-98 in accordance with the view taken consistently by this Bench on this issue. However, we cannot go any further in the matter relating to assessment year 1997-98 as the same is not under consideration before us in the present appeals. 32. The next issue relating to the incorrect imposition of interest under section 234C amounting to Rs. 174.55 lacs is raised in ground No. 17 of ITA No. 22/Nag./2001 for assessment year 1996-97. 32.1 For the assessment year 1996-97, the assessee company filed its return of income originally on 30-11-1996 declaring a total income of Rs. 56,58,79,610. The said return was revised on 18-11-1997 declaring a total income of Rs. 53,55,44,550. Subsequently the assessment for assessment y....
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....r of the learned CIT (Appeals) on this issue may be set aside and the Assessing Officer be directed to delete the interest charged under section 234C. 32.3 The learned Departmental Representative, on the other hand, contended that the assessee's submission on this issue is not acceptable because as per the last valid return filed by the assessee on 18-11-1997 the income of the assessee company was declared at Rs. 53,55,44,550. She also contended that filing of a revised computation sheet later cannot as a valid and legal return and therefore, the Assessing Officer was right in levying interest under section 234C on the basis of income returned by the assessee company in the last valid return, in accordance with the specific provision of the said section. According to her, the impugned order of the learned CIT (Appeals) confirming the levy of interest by the Assessing Officer under section 234C, therefore, deserves to be upheld. 32.4 We have considered the rival submissions and also perused the relevant material on record. It is observed that interest for deferment of advance tax is payable under section 234C by the assessee who is liable to pay advance tax under section 2....