Income Tax Appellate Tribunal - Indore
M/S. The M.P.State Mining Corpn. Ltd., ... vs The Acit 2(1), Bhopal on 9 February, 2018
आयकर अपील
य अ धकरण, इंदौर यायपीठ, इंदौर
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA No.20/Ind/2015
Assessment Year: 2007-08
The M.P. State Mining Asstt. Commissioner of Income
Corpn. Ltd, Vs. Tax-2(1),
Paryavas Bhawan, Block-1, Aaykar Bhawan,
Jail Road, Arera Hills, Hoshangabad Road, Bhopal
Bhopal
(Appellant) (Respondent )
PAN No.AABCM0300K
ITA No.371/Ind/2014
Assessment Year: 2009-10
The M.P. State Mining Asstt. Commissioner of Income
Corpn. Ltd, Vs. Tax-2(1),
Paryavas Bhawan, Block-1, Aaykar Bhawan,
Jail Road, Arera Hills, Hoshangabad Road, Bhopal
Bhopal
(Appellant) (Respondent )
PAN No.AABCM0300K
ITA No.592/Ind/2013
Assessment Year: 2010-11
The M.P. State Mining Asstt. Commissioner of Income
Corpn. Ltd, Vs. Tax-2(1),
Paryavas Bhawan, Block-1, Aaykar Bhawan,
Jail Road, Arera Hills, Hoshangabad Road, Bhopal
Bhopal
(Appellant) (Respondent )
PAN No.AABCM0300K
The M.P. State Mining Corpn. Ltd
Respondent by Shri Rajeev Jain, Sr.DR
Appellant by Shri Sumit Nema, Sr.Adv &
Shri Gagan Tiwari,Advocate
(AR)
Date of Hearing: 03.01.2018
Date of Pronouncement: 09.02.2018
ORDER
PER MANISH BORAD, AM.
These three appeals filed by the Assessee pertaining to A.Ys. 2007-08, 2009-10 & 2010-11 are directed against the separate orders of ld. Commissioner of Income-tax (Appeals)-1, Bhopal [in short referred to as the CIT (A)] dated 18.03.2013, 20.02.2014 & 12.07.2013. Assessments were completed u/s u/s 143(3) r.w. section 147 on 18.03.2013 for A.Y. 2007-08 & u/s 143(3) of the Act for A.Y. 2009-10 & 2010-11 on 21.10.2011 & 15.02.2013 by Asstt. Commissioner of Income Tax-2(1), Bhopal.
2. The issues raised in all these three appeal are mostly common and therefore these appeals were heard together and are being disposed of by this common order for sake of convenience and breavity.
Grounds raised by the assessee for A.Y. 2007-08 are as under:
"(1) That on the facts and circumstances of the case and in law, the issue of notice u/s 148 and the re-assessment made are unlawful and without jurisdiction and, therefore, the same be quashed. The learned CIT(A), therefore, is not justified in his findings that the initiation of re-assessment proceedings are valid in law, such findings be quashed.2
The M.P. State Mining Corpn. Ltd (2) That on the facts and circumstances of the case and in law, the learned CIT(A) erred and not justified in sustaining the disallowance of Rs.25 lacs made towards expenditure-gratia payments to labours. The assessee submits that it is a fully allowable expenditure u/s 37 of the I.T. Act. The deduction claimed at Rs.25 lacs be kindly allowed.
(3) That on the facts and circumstances of the case and in law, it be held that if the disallowance has been made on wrong concession by the assessee or his counsel on point of law is appealable and, hence the learned CIT(A) is erred and not justified in not adjudicating the issue with regard the allowability of Rs.3814708 to the State Govt. is a privilege fee and not royalty as contemplated u/s 43B of the I.T. Act, hence the disallowance of the said amount is neither lawful nor justified and, therefore, be deleted.
(4) That on the facts & in the circumstances of the case and in law, in without prejudice to Ground No.(4) even if it is held that the A.O is justified in making the disallowance of deduction of Rs.3814708 claimed u/s 43B, then the said deduction be directed to be allowed in A.Y. 2008-09 on judicious consideration.
(5) That on the facts and in the circumstances of the case and in law, the levy of interest u/s 234B & 234C are unlawful and hence be cancelled".
Grounds raised by the assessee for A.Y. 2009-10 reads as under:
"(1) That on the facts and circumstances of the case and in law, the findings of the learned CIT(A) in sustaining the disallowance of Rs.27,11,416 are wholly injudicious and unlawful hence such findings be quashed and it be held that it is a fully allowable expenditure in computing income u/s 28 of the I.T. Act of the assessee. The deduction claimed at Rs.27,11,416 be kindly allowed".
Grounds raised by the assessee for A.Y. 2010-11 reads as under:
"(1) That on the facts and circumstances of the case and in law, the findings of the learned CIT(A) in sustaining the disallowance of Rs.25 lacs are wholly injudicious and unlawful hence such findings be quashed and it be held that it is a fully allowable 3 The M.P. State Mining Corpn. Ltd expenditure in computing income u/s 28/37(1) of the I.T. Act of the assessee. The deduction claimed at Rs.2500000 be kindly allowed".
From perusal of grounds raised in all these three appeals, following three issues needs to be adjudicated for which assessee is aggrieved with the order of Ld. CIT(A).
i. Challenging the reopening of assessment for A.Y. 2007-08. ii. Disallowance of ex-gratia payments to labourers at Rs. Rs.25,00,000/-, Rs. 27,11,416/- & Rs.25,00,000/- for A.Ys. 2007- 08, 2009-10 & 2010-11 respectively.
iii. Disallowance of claim of privilege fees of Rs.38,14,708/- and further treating them as royalty and not privilege fee and applying provision of section 43B of the Act.
We will first take up the issue of validity of reassessment proceedings
3. In assessee's appeal for A.Y. 2007-08 through ground no.1 of assessee has challenged the legality of the notice issued u/s 148 of the Act and also challenged the reassessment proceedings being bad in law.
4. We have heard the rival contentions and perused material on record placed before us. We find that the regular assessment u/s. 143(3) of the Act completed on 31.12.2009 and disallowance was made for Anugrah Rashi of Rs.25 lacs. The matter went up to the Tribunal and vide order dt. 22.5.2012 the issue was set aside to the 4 The M.P. State Mining Corpn. Ltd file of Ld. AO for fresh adjudication by the Tribunal. During the period when the appeal was pending before the tribunal the notice u/s 148 of the Act was issued on 19.03.2012 recording reasons. We find that notice u/s 148 of the Act was issued before the expiry of 4 years from the end of relevant A.Y. and the reason for reopening related was the issue of additional royalty privilege fees and there was no finding of the Ld. AO on this issue in the regular assessment completed u/s 143(3) of the Act. We, therefore, find no merit in the grounds raised by the assessee in view of the facts and circumstances of the case wall as in view of Hon'ble Apex Court judgment in the case Kalyanji Mobji & Co. vs. CIT (1976) 102 ITR 287 (SC) wherein Hon'ble Apex Court observed that "reassessment can be initiated even when the information is obtained from the record of the original assessment, investigation of the material of the record or facts disclosed thereby from an inquiry or research into facts or law. The information need not be from external source". We accordingly dismiss ground no.1 raised by the assessee and confirm the view taken by Ld. CIT(A) upholding the reassessment proceedings as valid.
Now we take up the issue related to disallowance of ex-gratia payment provided for labourers.
5. Brief facts relating to this issue are that the assessee is a government undertaking owned by the Government of Madhya Pradesh and is engaged in the mining and marketing of major and minor minerals such as rock phosphate, and bauxite etc. During all 5 The M.P. State Mining Corpn. Ltd these three A.Ys. under appeal respective amount of Rs.25,00,000/- , Rs. 27,11,416/- & Rs.25,00,000/- were debited under the head 'Anugrah Rashi to labourers'. During the course of assessment proceedings it was contended that the sand mines are located in the district of Hoshangabad and Sehore. More than 2000 self-employed labourers are engaged in the loading of sand on the truck and are hired by the truck owners which enters into mining area for the excavation of sand. The said truck owner pays royalty to the assessee company at the rate specified by the government. These labourers are employed by the truck owners and not by the assessee. The state Government vide minutes of board meeting dated 30.05.1997 resolved that ex-gratia payment should be given to the labourers who were from the local area and are generally poor and do the labour of filling the sand to earn their living. In view of these instructions and also in view of the facts that these labourers were indirectly associated with the company through the truck owners, the impugned amount was paid through the government agency. The Ld. AO however, treated the alleged expenditure as charity and also did not appreciate that alleged expenditure was incurred wholly and exclusively for business purpose and accordingly disallowed the same during all these three years.
6. The issue came up before the Ld. CIT(A), it was submitted by the Ld. counsel for the assessee that the alleged expenditure being ex- gratia payment is directly related to business and should be allowed 6 The M.P. State Mining Corpn. Ltd as business expenditure. The reliance was placed on SA, Builders Ltd. vs. CIT (2007) 288 ITR 1(Hon'ble Supreme Court) and other judgments. However assessee failed to succeed. The Ld. CIT(A) consistently affirmed the view taken by the Ld. AO for all these three years.
7. Now the assessee is in appeal before the Tribunal. Ld. counsel for the assessee relied on the submissions made before the lower authorities as well as written submissions given before the Tribunal. On the other hand, Ld. DR supported the orders of the authorities below.
8. We have heard the rival contentions and perused material on record placed before us. The common issues raised in all these three appeals relates to disallowance of ex-gratia payment to labourers working at the sand mines located in the district of Hoshangabad and Sehore. These labourers are engaged in the excavation and loading of sand in truck which enters into mining area and the truck owners pay royalty to the assessee at the rates specified by the government. In pursuance to decision taken by the State Government in the year 1998 the assessee is making the alleged payment to the labourers as 'Anugrah Rashi'. It is contended by the Ld. counsel that these payments were made in the business interest of the assessee corporation and for commercial 7 The M.P. State Mining Corpn. Ltd expediency. Both the lower authorities treated the alleged payment in the nature of personal expenditure i.e. charity in donation.
9. We further find that the alleged expenditure is in the shape of provision which is made on the basis of estimates available on record.
10. Now the issue to be examined is that whether the alleged payments are allowable as business expenditure or not. We find that Hon'ble Apex Court in the case of SA Builders Ltd. (supra) defines the word 'commercial expediency' as an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. The Hon'ble Apex Court further held confirming the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent 8 The M.P. State Mining Corpn. Ltd businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.
11. From perusal of the judgment of Hon'ble Apex Court in case of SA Builders (supra) as referred above and examining facts of the case in light thereof, we find that the assessee paid/provided for the alleged expenditure in pursuance to legal obligation casted upon it by the State Government. Rather it was compelled to pay the alleged amount to the labourers. So, it is not disputed that the assessee was under legal obligation to pay this amount, as required by the orders of the State Government of Madhya Pradesh.
12. Examining further "whether the alleged expenditure was for business necessity," we observe that the alleged payment was not made to general public or labourers/workers in general. Rather the payment was specifically made to the labourers who were working at the sand mines run by the assessee on lease. These labourers were working with the truck owners and in turn of the work of these labourers for filling the sand in the trucks. The truck owner has to pay royalty to the assessee. It shows that the activity of labourers of filing the sand in the truck has a connection with the revenue earning of the company. Even, though the labourers are not the employees of the assessee company, they are very much connected to the assessee company through truck owners.
9The M.P. State Mining Corpn. Ltd
13. Further all these labourers are residing in the same locality near sand mines and if with the help of ex-gratia payment/Protsahan Rashi, they earn better living, then certainly with the better living and good health they can work more efficiently and also will not be forced to migrate to other areas. If shows that even though the alleged payment to labourers are not directly linked to the revenue earned by the company but they are very much directly linked with the royalty paid by the truck owners which is calculated on the basis of sand excavated from the mines. It is also observed that the alleged payment is made, through constituted body of the local collector which comprise of Sub Divisional Magistrate, Mining Inspector, Tahsildar & Nayab Tahsildar. This fact is also not in dispute that the assessee was under legal obligation to abide by the decision/instruction of the Government else the business of the company may get affected if lease rights are terminated by the government. Genuineness of the expenditure has also not been challenged at any stage. The assessee has also furnished the copies of following documents in support of the contention that the expenditure was genuine and allowable u/s 37 of the Act.
1. Board Notification No.9949 dated 25.01.96
2. Board meeting minutes dated 30.05.1997
3. Board meeting minutes dated 18.09.1998
4. Note sheet of the Chief Minister dated 14.08.2008
5. Order of Under Secretary, Govt. of M.P. dated 17.10.2002
6. Copy of note sheets of different dates and payment of Anugrih Rashi receipt sheet 10 The M.P. State Mining Corpn. Ltd
7. Copy of order of collector, Hoshangabad dated 07.05.2006
14. We therefore, respectfully following the judgment of Hon'ble Apex court in the case of SA Builders Ltd. (supra) and in view of the facts and circumstances of the case, discussed in the preceding para are of the considered view that the alleged expenditure of ex- gratia payment in the shape of Anugrah Rashi/Protsahan Rashi to labourers working in the mines held on lease by the assessee are allowable as business expenditure and both the lower authorities erred in disallowing the same. In the result the issue of disallowance ex-gratia payment is allowed in favour of the assessee and accordingly ground no.2 of A.Y. 2007-08 & ground no.1 of A.Y. 2009-10 & 2010-11 are allowed.
15. Now we take up the second issue which relates to the disallowance of Rs.38,14,708/- which was claimed by the assessee as a privilege fee and not as royalty on which provision of section 43B of the I.T. Act are attracted.
16. Brief fact relating to the issue are that the assessee made a provision of privilege fees of Rs.15,38,14,708/- (i.e. an amount equal to royalty paid on sand) in pursuance to the government order No.F19-95/2004/12/2 dated 13.10.2004. During the assessment proceedings while examining these expenditure the Ld. AO was of the view that the alleged amount is in the shape of additional royalty which is in the nature of tax and payable to the 11 The M.P. State Mining Corpn. Ltd government and such expenditure is allowable only to the extent of payment made on or before the due date for filing return of income, as provided in section 43B of the Act. Ld. AO accordingly allowed the claim of Rs.15 crores being the payment before the due date of furnishing of return of income u/s 139(1) of the Act and disallowed the remaining amount of Rs.38,14,708/- which was actually paid on 24.01.2008 i.e. after the due date of filing return u/s 139(1) .
17. Against the said disallowance, assessee came in appeal before the Ld. CIT(A) and contended that the alleged amount is privilege fee and not royalty. The assessee referred to the provisions of section 40(iib) of the Act and submitted that this amendment came in effect from 01.04.2014 by Finance Act 2013 and before this amendment the expenditure in the nature of privilege fee are allowable on due basis. However, the Ld. CIT(A) was of the confirmed view that the alleged expenditure is an additional royalty which is in the nature of tax payable to the state Government and provision of section 43B of the Act are squarely applicable on this expenditure.
18. Now the assessee is in appeal before the Tribunal. Ld. counsel for the assessee submitted that the provision of section 40(iib) of the Act came in fact from 1st April 2014 and therefore, those were not applicable on the assessee for A.Y. 2007-08 and further it was submitted that the alleged expenditure is not an additional royalty but an privilege fee. On the other hand, Ld. DR supported the order of the lower authorities.
12The M.P. State Mining Corpn. Ltd
19. We have heard the rival contentions and perused material on record placed before us. The only issue before us is whether alleged provision of Rs.15,38,14,708/- in in the nature of additional royalty i.e. tax payable to the state government for mining or it is a privilege fee. From the perusal of records, we find that the alleged provision was made as per government order No.F19-95/2004/12/2 dated 13.10.2004 issued by the State Government by the Ministry of Mines and Minerals. The copy of alleged order is not placed on record. Even though the assessee has paid the amount equivalent to the royalty paid on the sand and has also deposited Rs.15 crores through challans in the government treasury, but still its actual nature is not discernable from the records placed before us. The fact needs to be inquired by the AO duly assisted by the assessee as well as information to be taken from the Madhya Pradesh State Government( Mines and Minerals Department) duly, referring to the notification as discussed above and then to decide accordingly. In case the alleged amount is in the nature of tax duty or cess ( by whatever name called under any law for the time being enforce) then the alleged disallowance needs to be sustained and if found otherwise then the claim of assessee should be allowed.
20. We, therefore, allow this issue in favour of assessee for statistical purposes and remit it to the file of Ld. AO to make necessary verification as per our directions given hereinabove. Needless to mention that proper opportunity of being heard is to be 13 The M.P. State Mining Corpn. Ltd provided to the assessee. As a result ground No.3, 4 & 5 of assessee's appeal for A.Y. 2007-08 is allowed for statistical purposes.
21. In the result, the appeal of the assessee for A.Y. 2007-08 is partly allowed for statistical purposes & appeal for A.Ys. 2009-10 & 2010-11 are allowed.
The order pronounced in the open Court on 09.02.2018.
Sd/- Sd/-
( KUL BHARAT) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
दनांक /Dated : 9th February, 2018
Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file.
By order Private Secretary/DDO, Indore 14