TaxTMI 
TaxTMI 
2019 (10) TMI 1229
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....rred in confirming the same. 3. The learned Assessing Officer has erred on facts and in law in making disallowance of additional royalty claims of Rs. 31,29,000/- considering it as previous year expenses. The learned CIT(A) has erred in confirming the same.. 4. The learned Assessing Officer has erred on facts and in law in making disallowance of expenses of Rs. 16,62,000/- incurred on exploratory / evaluation studies considering it as capital expenditure. The learned CIT(A) has erred in confirming the same. The appellant craves leave to add, alter, amend, delete or withdraw one or more grounds of appeal. 2. The 1st issue raised by the assessee is that the Ld. CIT (A) erred in confirming the order of the AO by sustaining the addition of Rs. 2,02,45,000.00 as the liability for the has not been crystallized in the year under consideration. 3. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of manufacturing and sale of cement clinker and cement. The assessee in the year 1973 has acquired the land on lease for 30 years from Mumbai Port Trust (for short MPT). The necessary details stand as under: Land area Period o....
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....r the Ld. CIT (A) was of the view that since the matter is pending in the court of law, therefore the same cannot be called a crystallized liability. Accordingly he confirmed the view of the AO. Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. 7. The Ld. AR before us filed a paper book running from pages 1 to 154 and submitted that the liability was crystallized in the year under consideration. Therefore the same should be allowed as deduction. On the other hand the ld. DR vehemently supported the order of the authorities below. 8. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates whether the assessee is eligible for deduction under section 37(1) of the Act for the liability on account of rent to Mumbai Port Trust in pursuance to the order of the estate officer of the Mumbai port trust dated 28th February, 2007. The facts of the case have already been discussed in the preceding paragraph and there is no dispute regarding the same. Therefore we are not inclined to repeat the same for the sake of brevity and convenience. 8.1 There is no dispute that ther....
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....nized when the obligation has already fructified and is not contingent upon an occurrence of any uncertain event in the future. It is not necessary that the obligation must result in a minimum outflow of resources. It is sufficient, if the liability has arisen although the outflow in respect of the same may result later." 8.5 Now, turning to the present facts of the case, we find that liability raised by the MPT has been disputed by the assessee in the court of law which is pending as on date. We also note that the assessee has not made any payment towards such liability. Therefore in over considered view entire liability is contingent in nature and its outcome depends upon the event in future. However, we further note that the Hon'ble Gujarat High Court in the case of Navjivan Roller Flour & Pulse Mills Ltd. Vs. DCIT reported in 224 CTR 55 has allowed deduction for such kind of liability. The relevant extract of the judgment reads as under: "Held that on 28-5-1987 when the Trade Association made an award for damages for breach of contract, the liability to pay such damages had already been incurred by the assessee. Merely because the award was challenged in appeal by the asses....
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....pported the order of the authorities below. 15. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates whether the assessee is eligible for deduction under section 37(1) of the Act for the liability pertaining to the year 2003-04 on account of the royalty but paid/ crystallized in the year under consideration to the Department of Geology and Mining. Admittedly, the demand was raised by the Department of Geology and Mining of Gujarat upon the assessee vide letter dated 13-11-2006 which was pertaining to the earlier year 2003-04. Thus, it is inferred that the liability was crystallized in the year under consideration. As such, the liability for the royalty was provided by the assessee in the books of accounts in the previous year 2003-04 but some part of it crystallized in the year under consideration. Therefore we are of the view that, the assessee was not in a position to ascertain such liability in that relevant year. Accordingly, it was not possible for the assessee claimed the deduction of such liability in the year 2003-04. 15.1 Now the question arises whether the assessee can claim the dedu....
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....ed from such an obligation and hence cannot be regarded a defaulter. We also note that, the law is fairly settled the assessee can claim the deduction for the liabilities in the year in which these were crystallised. In holding so we find support and guidance from the judgement of Hon'ble Ahmedabad Tribunal in the case of Sate Bank of Saurashtra, Bhavnagar v/s DCIT reported in 93 ITD 662, the relevant portion of held part is reproduced hereunder; "A liability to an assessee may either be arising out of contractual obligation or it may arise under a statutory provision. Statutory liability is generally ascertainable and can be determined by applying the provisions of law and could be allowed as a deduction either in the year to which the transaction pertains has occurred, namely, taxable event has happened or it may be allowed in the year in which a demand was raised on the assessee by the statutory authority. It could also be claimed and allowed when it is finally settled by due process of law. The dispute raised by an assessee for its nonlevy cannot deter its allowability in any of the three situations. 15.3 We also note that the genuineness of the expenses and proximity of su....
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.... 17. The assessee in the year under consideration has incurred certain expenditures of Rs. 16,62,000.00 on exploratory/evaluation studies which were claimed as revenue expenses in the profit and loss account. As per the assessee there was neither any new assets came into existence out of such expenditure nor any benefit of enduring nature out of such expenditure. 18. However the AO found that the auditor of the company in his audit report has clearly remarked in clause No. 17 that the impugned expenditures are in the nature of capital expenses. On question by the AO about the auditor remark for treating such expenditure as capital in nature, the assessee could not explain. Accordingly the AO disallowed the same by treating as capital expenditure after allowing the depreciation at the rate of 25% on such expenditure. Aggrieved assessee preferred an appeal to the Ld. CIT (A). 19. The assessee before the Ld. CIT (A) submitted that the impugned expenditure are not generating any enduring benefit and therefore the same needs to be treated as revenue expenses. 19.1 The assessee also claimed that the AO has not given the benefit of the depreciation on such expenditure though it was re....