TaxTMI 
TaxTMI 
2018 (7) TMI 44
X X X X Extracts X X X X
X X X X Extracts X X X X
....- (i) Provisions for Mining Restoration Expenses Rs. 2,53,00,000/- & (ii) Fees paid to ROC for increase of authorised capital Rs. 14,95,000/-. In AY. 2012-13, AO disallowed Mining Restoration Expenses to an extent of Rs. 40 Lakhs, whereas in AY. 2013-14, an amount of Rs. 1,94,00,000/- towards provision for Mining Restoration Expenses and an amount of Rs. 62,11,173/- claimed as Corporate Social Responsibility. Issue of provision for Mines Restoration Expenses: 3. Assessee has made the provision in all the impugned three assessment years and the same was debited to P&L A/c. Since it was the provision, AO has asked why the same should be allowed. It was submitted that the same was mandatory for all lease-holders to back fill the excavated void after exhaust of mineral to the extent the waste material is available. It was further submitted that one need to develop the mineral bearing land by removing top soil which was stocked outside the lease area temporarily, till the mine is matured for backfilling. Normally, it will take long time for maturing the area may be 5 to 10 years and later it is a continuous process. It was submitted that the provision is being made from the beginn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or various approvals. c. In India, mines are required to be closed / abandoned as per the provisions of Mines and Minerals (Development and Regulation) Act, -1957 (MMDR) and the Rules made under Mineral Conservation and Development Rules, 1988 (MCDR). These are administered by M/s Indian Bureau of Mines. As per Rule 23Aof MCDR 1988 there are two types of mine closure plans viz. Progressive Mine Closure Plan (PMCP) and Final Closure Plan (FCP). Accordingly the company has submitted Scheme of Mining including Progressive Mine Closure Plan to India Bureau of Mines. d. As per Rule 23F of MCDR every leaseholder has to furnish financial assurance for closure of Mines. e. Further Ministry of Environment & Forests, Government of India while issuing the environmental clearance has stipulated a condition that the Top Soil, if any, shall be stacked with proper slope at earmarked site(s) only with adequate measures and should be used for reclamation and rehabilitation of mined out areas. f. The Appellant being a Company has to maintain the books of accounts on accrual basis of accounting and has to follow the various Accounting Standards as prescribed. 5. In the above background....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity towards Mines restoration does not arise at all till the mine is matured for back filing. This being the case, the question of creating a provision towards mines restoration expenditure and claiming it as expenditure does not arise. ii) Further, i) Rs. 2,53,00,000, ii) Rs. 40,00,000/- and iii) Rs.l,94,00,000/- for the A.Ys.2011-12, 2012-13 and 2013-14 respectively, that has been debited by the assessee to the profit and loss account is merely a provision created and the assessee has not incurred any expenditure during the year under consideration. The provisions so created, does not represent the true value of expenditure and it cannot be estimated accurately. The expenditure which has not been incurred by the assessee during the year under consideration, cannot be allowed as deduction on a rough estimate basis. iii) The case laws relied upon by the assessee were considered and found to be not applicable for the facts of the assessee's case. The above mentioned case laws have not dealt with the question of mines restoration fund. For instance, the question dealt in the case of Bharat Earth Movers Ltd (2005) 245 ITR 428 SC is about the provisions for leave ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eliance on the decision of Hon'ble Apex Court in the case of New India Mining Corporation - 243 ITR 632 (SC) which is squarely applicable to the assessee's case, the above action of the AO is hereby confirmed. The case laws relied upon by the AR are not applicable to the facts of the assessee's case. Therefore, I am of the considered view that the AO's action in disallowing mine restoration expenses of i) Rs. 2,53,00,000, ii) Rs. 40,00,000/- and iii) Rs. 1,94,00,000/- for the A.Ys.2011-12, 2012-13 and 2013-14 respectively is justified. As a result, the grounds raised are dismissed". 7. In the course of present proceedings, assessee filed an additional evidence in the form of a Paper Book containing pages 1 to 236 mainly with reference to the provision of Mines Restoration Expenses with the following prayer: 1. ......... 2. ......... 3. ......... 4. The assessee had sought to explain the concept behind the expenditure that was disallowed before the Ld.CIT(A) but did not succeed in the appeal and has, consequently, preferred these appeals before the Hon'ble ITAT, Hyderabad Benches. 5. In order to substantiat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that same is allowable". Ld. Counsel also placed on record the order of NMDC by the Co-ordinate Bench at Hyderabad, wherein such mining closure expenditure was allowed. 9. Coming to estimation of expenditure under the Mining Rules, Ld. Counsel fairly admitted that the Unitary Cost Method adopted by assessee (placed in the additional evidence at pgs. 148 -149) has to be examined and as such the quantum of allowance can be worked out by the AO, but the provision has to be allowed as it is not a contingent liability. 10. Ld.DR, however, relied on the orders of the CIT(A) and submitted that the mining work is still in progress and so the mine closure expenditure does not arise in the impugned years. In case of examination, he has submitted that the issue can be restored to the file of AO for fresh examination as assessee has filed additional evidence in the form of orders of Government and project report and estimations submitted to the Indian Bureau of Mines. 11. We have considered the rival contentions and perused the Paper Book and the additional evidence. As per the Conservation and Development Rules, it is statutory / mandatory that any person who is holding the license h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty results in environmental degradation and ecological imbalance on the mining and surrounding area and conscious support, is required to rectify the same. Closure down and restoration costs are a normal consequence of mining and the majority of close down and restoration expenditure is incurred at the end of the life of the mine. Although the ultimate cost to be incurred is uncertain it is necessary to estimate and to provide for the same during periods when the related environmental disturbance occurs. 2. The liability towards mine closure is accrued as soon as the mining operations commence and in compliance with the "matching concept': such liability may be charged over the periods when the related environmental disturbance occurs i. e. the period of operation of the mine. International Mining companies of repute have defined policy for recognition of obligations towards mine closure. In our country also the subject is getting focused and the environmental protection, rehabilitation and reclamation measures required under Statutes have become more stringent. 3. In India, mines are required to be closed/abandoned as per the provisions contained in the Mines....
X X X X Extracts X X X X
X X X X Extracts X X X X
....osts assigned for each parameter and final mine closure of cost of Deposit-11B estimated on the basis of existing rates. Based on these parameters, cost of final mine closure per to/me of reserves is arrived. The detailed working of cost per tonne of minerable reserves is given at Annexure-2. Based on this the total mine closure liability for the minerable ore reserves as at 3pt March, 2004 and the proportionate change for the current financial year 2004-05 is worked out and placed at Annexure-3. 7. The final mine closure as per MMDR Act entails commitment of large sums at the time of mine closure and unless a suitable reserve is built up in a phased manner to meet the commitment, it may adversely affect the bottom line of the company at that time. Charging the expenditure of mine closure over the periods when the related environmental disturbances occurs i.e" during the period of operation of the mine will be in compliance with the matching concept of accounting and accordingly the estimated liability is proposed to charge to revenue over the balance life of mines. It is but mete that cost of sales are matched with revenue by recognizing such obligation on account of mine....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Indian Bureau of Mines. Therefore, he disagreed with the view of the Assessing Officer that it is a contingent liability. In case of Bharat Earth Movers Ltd. v. CIT [2000] 245 ITR 428/112 Taxman 61 (SC), the Hon'ble Supreme Court held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in prasenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 5.5 In view of the above observations and referring to the case of Metal Box Co. of India Ltd. v. Their Workmen[1969] 73 ITR 53 (SC) and the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC), the CIT(A) held as follows: "4.2.6 From the above facts and case laws, it is clear that in the case of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 2, then in year 1 mine closure obligation corresponding to the filling 4000 cubic feet will accrue. In the second year and the accrual will correspond to filling of 500 cubic feet. These will be the allowable accrued expenses. In the current case, the appellant has claimed the obligation as below: 4.4 A reading of the above chart shows that for S.No.2, Deposit No. 11B the production yet to be commissioned. Therefore, this obligation of Rs. 4,98,058/- is not allowable. Similarly, for S.No.6, Kumaraswamy and S.No.8, Lalapur, there is no production. Therefore, obligation is not allowable. For the other mines, the appellant has not given any year- wise breakup. Accordingly, the Assessing Officer is directed to ascertain the amount of year-wise mining which has been done from the remaining mines and allow a mine closure obligation to the extent of mining done corresponding to the current year. In case the appellant cannot provide such data, then pro-rata has to be applied. For example, S.No.4, Deposit NO.IO & IIA, the mine started in February 2002. The total obligation claimed is Rs. 2,38,12,707/-. If the appellant gives data on mining from the date of start of mining then th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unity to assessee to explain the quantification of provision and the quantum so decided should be allowed, subject to not exceeding the actual provision made in the books of account by the time of assessment. With these directions, the grounds in all the years are partly allowed for statistical purposes. Issue of ROC Expenditure: 12. AO noticed that assessee has debited an amount of Rs. 15,10,000/- towards preliminary expenses written-off out of which an amount of Rs. 14,95,000/- was paid towards ROC fees to increase its authorised capital. AO disallowed the same as capital expenditure, following the principles on the issue. It was contended before the Ld.CIT(A) that this amount was paid for increasing the authorised share capital and this amount is eligible for deduction u/s. 35D of the Act. Therefore, it has claimed an amount of Rs. 2,99,000/- being 1/5th of Rs. 14,95,000/- be allowed as revenue expenditure. The main contention as well as the alternate contention were rejected by the Ld.CIT(A). 12.1. After considering the contentions of assessee and perusing the case law on the issue, we are of the opinion that this issue requires examination by the AO. It is true that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also contended that the amendment brought to Section 37(1) and Explanation-2 was effective from AY. 2015-16 and so the expenditure incurred during the year is allowable as a business expenditure. Ld.CIT(A) without analysis of the expenditure or the nature of the claims agreed with the AO in his order. 13.1. Before us it was submitted that out of the entire amount of Rs. 62,11,173/-, an amount of Rs. 28,74,363/- was wrongly classified as 'CSR expenditure', whereas this expenditure pertains to consultancy charges and advertisement charges which are not part of CSR expenditure. 13.2. With reference to an amount of Rs. 23,46,000/-, assessee has explained the reasons why the expenditure has to be spent in the mining area. It was fairly admitted that an amount of Rs. 9,90,810/- was not supported by bills or not directly related to business. 14. After considering the rival contentions and case law on the issue, we are of the opinion that an amount of Rs. 9,90,810/- out of the amount disallowed cannot be allowed as assessee has fairly admitted that they have no vouchers or not directly related to the business. The disallowance to that extent is confirmed. 14.1. On the amount o....