TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 44
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....ses 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 beginning for site restoration as it will have a huge i....
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....losed / 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, it was submitted that company has debited to P&L A/c various accounts ....
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....he 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 encashment. Similarly, the question involved in the case of Rotrok Controls India Pvt. Ltd v. CIT (2009) 314 ITR 62 is about the p....
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....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 substantiate the Grounds of Appeal taken before the Hon'ble ITAT, Hyderabad Benches, the assessee would like to file additional evidence that go to the root of the matters on which disallowance has been made/upheld. 6. The additional evidence was not focus....
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....y 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 has to submit a project report and bank guarantee for mine closure operations in order to conserve the environment. Therefore, there is merit in the assessee's contentions that this liability is a statutory liability. Moreover, the decision relied upon by the AO and Ld.CIT(A) in the....
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....ine. 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 & Minerals (Development and Regulation) Act, 1957 (MMDR 1957) Act, 1957 (MMDR 1957) and the rules made under i.e. Mineral Conservation and Development Rules, 1988 (MCDR 1988). administered by M/s Indian Bureau of Mines. 3.1 Rule 23A of MCDR 1988 provided for two types of mine closure plans viz., Progressive Mine Closure Plan (PMCP) and F....
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....rch, 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 closure. The estimated current liability of mine closure of the operating mines to the company was worked out to Rs. 19.63 crores and charged to the Profit & Loss Account.' 5.1 It was further stated that the Indian Bureau of Mines administers the Mines and Mineral (Development & Regulation) Act known as MMDR, 1957. Coupled with this, the Mineral Conservation & Development Rules, ....
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.... 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 the appellant, the mine closure liability is an ascertained liability, It gets ascertained the day the mine is opened. This expense even though not incurred, accrues when the mining is done. As per the matching principle as well as the mercantile system of accounting the liability is allowable in principle u/s 37 of the Act. 4.2.7 However, what is to be seen is the year of allowability i.e. it is not up to the assessee to claim the liability as expense in any fin....
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....arly, 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 the obligation allowable will correspond to the current year mining as compared to the total mining. i.e. current year mining xRs.2,38,12,707 ................................... total mining from Feb'02 to Mar'08 If no data is provided then the amount allowable would be Rs. 2,38, 12,707/- (i.e. FY 2002-03 to FY 2007 -08). This issue is accordingly partly allowed." 11.3. This order of Ld.CIT(A) was upheld by the ITAT in the case of NMDC Ltd., Hyderabad Vs. JCIT Range 16, Hy....
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.... 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 the amount is paid for increasing the authorised capital which comes under the character of a capital expenditure. However, it was submitted that this amount was paid towards conversion of preference shares and not for issuance of new shares. In that sense, following the principles laid down by the Co-ordinate Bench in the case of DCIT(LTU) Vs. M/s. Hero Motors Ltd., in ITA Nos. 2919 and 2920/Del/2012, wherein the Co-ordinate Bench has followed the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Gene....
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....vertisement 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 of Rs. 23,46,000/-, it is explained as under: CSR Expenditure in local/surrounding area of factory to facilitate smooth operations, goods movement and local support Rs. Scholarship/support to junior tennis play, Raymond Jude, from Cuddapah district 1,80,000 Gravel Road from Jambuapuram to Kothapalli (near area under Mining lease) 3,60,000 Construction of public toilet at Agasthalaingayapalli (behind factory) 5,40,000 Temple at ST Colony, Thippaluru (village in the surrounding of the Mine under lease) 6,00,00....