TaxTMI 
TaxTMI 
2016 (7) TMI 734
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....the authorized representative of the assessee appeared from time to time and furnished books of accounts, bills vouchers and other documents. During the course of assessment proceedings, the A.O. noticed that the assessee has claimed an amount of Rs. 49,14,000/- towards land reclamation and afforestation expenditure. The A.O. called upon the assessee to explain the nature of said expenditure. In response to notice, the assessee vide letter dated 31.12.2012 submitted that the expenditure claimed under the head land reclamation and afforestation is incurred towards land filling and other charges for leveling the pits formed after mining and put the land for agricultural use. The assessee further submitted that he is into the business of mining has taken 206 acres of land on lease situated in Belgundi Village of Belgaum district of Karnataka state from various farmers for a period of 20 years. As per the agreement entered into with the farmers, the land used for mining should be refilled and handed over back to the farmers for the purpose of agricultural operations. Therefore, he had made adequate provisions in the books of accounts to meet the expenditure towards land filling and oth....
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....s of land per year and the remaining land will be with the lessor for grassing purpose. The assessee further submitted that as per the environmental clearance letter issued by the Ministry of Environment and Forest, Government of India, the assessee needs to undertake a reclamation programme of the 30.53 Hectares of mined out area and the land used for mining should be refilled. As per the permission granted by the Government of India, the assessee should top soil with adequate measures at earmarked site and also it should be used for reclamation and rehabilitation of the mined out areas. The assessee further submitted that since he is following mercantile system of accounting, he has to necessarily to provide all the expenditure relatable to earning of income in the same financial year. The said expenditure of land reclamation and afforestation is accrued to the assessee as soon as the land is used for mining. Therefore he had made a provision in the books of accounts on the basis on quantity of minerals extracted in the land towards land refilling charges. The assessee further submitted that the A.O. was not correct in holding that the expenditure incurred by the assessee is in t....
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....maining amount could not be incurred because of weather conditions. However, the same has been incurred in the subsequent period and the relevant information has been furnished to the A.O. The A.R. further submitted that in mercantile system of accounting, the expenditure is recognized as and when the liability is accrued irrespective of the fact that whether it is actually paid or not. The assessee being followed mercantile system of accounting has reasonably estimated the expenditure to be incurred for the above purpose and made a provision in the books of accounts. He also proved that the said expenditure has been incurred as and when the mining activity is completed. Therefore, the A.O. was not correct in disallowing the said expenditure. 7. On the other hand, the Ld. D.R. strongly supported the order passed by the Ld. CIT(A). 8. We have heard both the parties and perused the materials available on record. The A.O. disallowed the land reclamation and afforestation expenditure of Rs. 49,14,000/- for the reason that the assessee has made a mere provision in the books of accounts without incurring the expenditure under the relevant period. The A.O. further was of the opinion....
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....accounts is allowable deduction while computing the income under the head profits & gains of business or profession? It is an admitted fact that when you follow the mercantile system of accounting, assessee needs to made a provision in the books of accounts towards all related expenditure whether or not paid during the same financial year. The only requirement is that the assessee needs to make a provision with a reasonable estimate. A provision is required to be recognized in the books of accounts when assessee has a present obligation as a result of past event, it has probability that an outflow, of resources embodying economic benefits will be required to settle the obligation and also a relatable estimate can be made of the amount of the obligation. 11. In the present case on hand, on perusal of the facts available on record, we find that the assessee needs to incur certain expenditure towards land reclamation and afforestation as per the terms of lease agreement with the farmers. The environment clearance letter issued by the Government of India also put a condition on the assessee that assessee should undertake a rehabilitation and reclamation programme and compliance repo....