Rajasthan High Court - Jaipur
Udaipur Mineral Development Syndicate ... vs Deputy Commissioner Of Income-Tax ... on 29 August, 2002
Equivalent citations: [2003]261ITR706(RAJ)
JUDGMENT
1. This appeal is directed against the order of the Tribunal dated January 16, 2001.
2. The only issue for our consideration in this appeal is whether the Tribunal was justified in restoring the view taken by the Income-tax Officer regarding disallowance of the expenses accrued on account of agreement with the State Government regarding restoration of the land in its original shape.
3. There was an agreement between the assessee and the State that as far as possible a lessee shall restore the surface land so used to its original condition. Thus as soon as the assessee has dug the pits, he is duty bound under the contract to fill those pits before restoring the lease land to the State in its original shape. The Income-tax Officer denied the claim on the ground that the liability stipulated in the lease agreement to restore the land has not accrued in the assessment year in hand and it does arise when he has filled the pits.
4. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has considered the submissions and the provision in the agreement regarding restoration of the lease land as far as possible, to its original shape on surface and held that the liability does accrue. He allowed the claim of the assessee. In appeal before the Tribunal, the Tribunal restored the view taken by the Assessing Officer.
5. Heard learned counsel for the parties. The submissions made before the Commissioner of Income-tax (Appeals) in writing read as under :
"It is submitted that the assessee-company is engaged in open cast mining of soapstone crude. The lease for the exploration of mines has been granted by the Government of Rajasthan.
From the terms and conditions of the lease agreement, it is obligatory on the part of the assessee-company to restore the land as far as possible to its original shape. An extract from Clause 2 of Party V of the lease agreement is reproduced as below :
As far as possible the lessee shall restore the surface land so used to its original condition.
During the year under consideration, the company had dug new pits in the mining lease area for the purpose of excavating soapstone crude out of which some of the pits dug had no economic value and the land damaged by digging the land was required to be restored. Dimensions of the pit dug which were uneconomic were to the extent of 7,568 cub. mtr. and the estimated cost of their refilling comes to Rs. 1,51,360 and, therefore, the liability in respect of the same had been provided for as per the Clause 2 of Part V of the lease agreement. Thus the cost of refilling of the above is an ascertained liability and is eligible for deduction because the assessee-company observes mercantile system of accounting."
6. It has also been brought to our notice that even in the year 1993-94 though the actual expenditure has been made, but that has been denied on the ground that the Commissioner of Income-tax (Appeals) has allowed this expenditure in the year 1991-92. Thus in both the years, the claim of the assessee has been disallowed.
7. Considering the clause in the agreement, i.e., as far as possible the lessee shall restore the surface land so used to its original condition, the moment the assessee digs pits, he is bound under the agreement to fill those pits and the liability does accrue on the date when the pits are dug. Therefore, in our view, the Tribunal has committed an error in disallowing the claim of the assessee in the year in hand, i.e., 1991-92. We agree with the view taken by the Commissioner of Income-tax (Appeals) that the moment the assessee digs the pits, the liability does arise and it is entitled for deduction of the expenses which it is supposed to incur for filling those pits, as the assessee is following the mercantile system of accounting. It can claim the expenses incur as soon as it digs the pits.
8. In the result, we restore the view taken by the Commissioner of Income-tax (Appeals). The appeal stands allowed.