Income Tax Appellate Tribunal - Hyderabad
Nmdc Limited,, Hyderabad vs Assessee on 23 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" : HYDERABAD
BEFORE S/SHRI B. RAMAKOTAIAH, A.M. & SAKTIJIT DEY, J.M.
ITA.No. A.Y. Appellant Respondent
The DCIT, M/s. NMDC Ltd.,
1792/Hyd/2013 2007-08 Circle 16(1), Hyderabad.
Hyderabad PAN AAACN7325A
The DCIT, M/s. NMDC Ltd.,
1793/Hyd/2013 2010-11 Circle 16(1), Hyderabad.
Hyderabad PAN AAACN7325A
M/s. NMDC The DCIT, Circle
1794/Hyd/2013 2007-08 Ltd., 16(1), Hyderabad
Hyderabad.
PAN
AAACN7325A
M/s. NMDC The Addl. CIT,
1795/Hyd/2013 2010-11 Ltd., Range-16,
Hyderabad. Hyderabad
PAN
AAACN7325A
For Assessee : Mr. Laxminiwas Sharma
For Revenue : Mr. D. Sudhakar Rao CIT-DR
Date of Hearing : 23.04.2014
Date of pronouncement : 09.05.2014
ORDER
PER B. RAMAKOTAIAH, A.M.
These four are cross-appeals by Assessee and Revenue for A.Y. 2007-2008 and 2010-2011 against the Orders of the CIT(A)-V, Hyderabad dated 16.09.2013. Since common issues are involved in these appeals, these are heard together and decided by this common order. Assessee placed on record paper books relevant for each A.Y. including case law and also brief submissions on the grounds raised.
2ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad
2. We have heard Ld. Counsel Mr. Laxminiwas Sharma and the Ld. CIT D.R. Mr. D. Sudhakar Rao in detail.
3. Assessee is a public sector undertaking engaged in the business of mineral exploration and extraction. Assessee filed its returns for the impugned assessment years and the assessment was completed for A.Y. 2007-08 originally under section 143(3) on 29.12.2009 determining the total income at Rs.3502,79,16,045/-. Subsequently, on the basis of information obtained through news papers followed by the report of Lokayukta of Karnataka received/obtained by the A.O. and also enquiries made in this regard from the Director's of the Company, assessment was reopened under section 147 of the Act by issuing notice under section 148 and re- assessment was completed for A.Y. 2007-08 determining the total income at Rs.4042,93,38,564/- by making the following additions.
a) Suppression of sale value of exports Rs. 506,10,92,507
b) Disallowance u/s.40(a)(ia) Rs. 20,56,93,044
c) Disallowance u/s.40(a) Rs. 19,83,98,000
d) Disallowance of additional Rs. 7,46,73,168 depreciation wrongly claimed
e) Disallowance of claim of expenses of Rs. 22,62,104 earlier year
f) Loss on sale of assets Rs. 48,335
4. For A.Y. 2010-2011 assessee filed return of income on 24.09.2010 admitting total income at Rs.5114,44,66,450/- and the assessment was completed under section 143(3) determining total income at Rs.5522,12,83,862/- inter alia, making various additions.
5. Assessee contested before the Ld. CIT(A) amongst various additions made, the issue of reopening of assessment under section 147 of the Act in AT 2007-08. While upholding 3 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad the reopening for A.Y. 2007-08, the Ld. CIT(A) confirmed most of the additions while giving some relief on some of the issues. Accordingly, both Revenue and Assessee are aggrieved on the Orders of the Ld. CIT(A). These are decided year-wise and appeal-wise as under:
ITA.No.1794/Hyd/2013 - A.Y. 2007-08 :
6. This is assessee's appeal in which assessee has raised various grounds. Ground Nos. 1 and 6 are general in nature and therefore, need not be adjudicated.
7. Ground No.2 pertain to the issue of reopening. It was contended that it was bad in law as it was only a change of opinion. It was contended that A.O. has considered all the issues at the time of assessment and there is no tangible material that has been brought on record to suggest escapement of income.
8. As briefly stated, A.O. basing on the Newspaper report published and the report of the Hon'ble Lokayukta of Karnataka observed that the assessee has been resorting to suppression of the value of sale towards export of iron ore during the periods 2006-07 to 2009-10. Accordingly, he reopened the assessment for the A.Y. 2007-08 by issue of notice under section 148. During appeal proceedings before the Ld CIT(A) , assessee submitted the following:
1. The AO has considered all the facts and information while completing the assessment u/s 143 (3).
2. No change in the facts that existed at the time of original assessment.
The following case-laws were relied upon.
4ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad
(a) IT Vs Shiv Shakti Build Home Ltd 141 DJ 123 (Jodhpur) (Trib)
(b) IClCI Home Finance (WP 430/2012 decided on 25-7-2012 (Bombay HC)
(c) Kelvinator Limited 256 ITR 1 (Delhi HC)
(d) CIT Vs Nirma Chemical Works (309 ITR 67)
(e) Idea Cellular 301 ITR 407 (Bombay HC)
(f) Parveen Bharucha Vs. DClT R 350 (Bombay HC)
(g) CIT Vs SFIL Stock Broking Ltd41 DTR 98 (Del)
9. The Ld. CIT(A) did not agree with the assessee's contentions by stating as under :
"4.3. I have gone through the facts of the case and the submissions of the appellant. The fresh set of facts in the form of Newspaper reports and report of Hon'ble Member of Lokayukta, Karnataka very well form the base for prima facie evidence for reopening of the assessment and it cannot be said that they do not have any evidentiary value. Even the Hon'ble High Court of Andhra Pradesh, in a recent judgment on a Writ Petition filed by the Hon'ble Minister in a disproportionate assets case, held that there is prima facie evidence in the contents of the petition and ordered for CBI enquiry against a Member of Parliament. Similarly, the reopening of the assessment in the present case basing on the reports of the Newspaper and report of Hon'ble Lokayukta of Karnataka is not bad in law and is correctly justified. As a matter of fact, the scrutiny assessment proceedings in the appellant's case for assessment year 2009-10 have also concluded on 30-12- 2011 i.e., prior to completion of the reassessment proceedings, which led to the conclusion that the assessee is resorting to suppression of value of sales towards export of Iron Ore. As such, the fresh set of fact of resorting to suppression of value of sales emerged during the regular assessment for assessment year 2009-10, which has been in the knowledge of the appellant. Hence, the reopening of assessment for assessment year 2007- 08 is not bad in law and is justified.5
ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad 4.4 So far as sequence of events leading to the reassessment is concerned, the appellant's main contention is that the Assessing Officer has not followed the due procedure laid down by Supreme Court in the case cited supra. In this context, it is seen that the Assessing Officer, after recording his reasons for reopening, issued Notice u/s 148 on 16-12-2011 and thereafter on the request of the appellant, vide its letter dated 16-12-2011, communicated the reasons for reopening on 29-12-2011. Simultaneously; he issued a Notice u/s 143(2) dated 29-12-2011 was issued taking up the case for scrutiny. Though the appellant is aware of the proceedings before it for assessment year 2009-10 and the reasons for reopening of the assessment year 2007- 08, did not even raised any objection to the proposed reopening and chose to be silent. The appellant did not even respond with any objections before the reasonable time of 15 days. Only after commencement of the proceedings, the appellant raised its objections on 23-1- 2012 i.e.. nearly a month after communication of the reasons for reopening. The sum and substance of the Hon'ble Supreme Court decision that due procedure to be followed before assessment proceedings, is that objections, if any, to be filed by the appellant within a reasonable time and to be addressed by the Assessing Officer before proceeding with the assessment. In the present case, the appellant responded to the communication of reasons for reopening only after consuming 25 days, which in common parlance is not called for when the appellant itself is aware of the reasons as also the issue embroiled in the assessment proceedings for assessment year 2009-10 is common for assessment year 2007-08. In these circumstances, the Assessing Officer is well within law to assume that the appellant has no objection for the proposed reopening. As such, there is no lapse on the part of Assessing Officer in following the procedure laid down in the Hon'ble Apex Court".
10. We have considered the arguments on the issue and various case law relied upon which are as under:
i) Kelvinator 256 ITR 1
ii) CIT vs. Nirma Chemical Works 309 ITR 67 (Guj.) (HC)
iii) Idea Cellular 301 ITR 407 6 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad
iv) ICICI Home Finance Co. Ltd. vs. ACIT, Mumbai WP.No.430 of 2012 dated 20.07.2012
v) Parveen P. Bharucha vs. DCIT WP.No.10437/2011 dt.
27.06.2012
vi) ITO vs. Shiv Shakti Build Home (P) Ltd. (2011) 141 TTJ 123 (ITAT Jodhpur)
vii) CIT vs. S.F.I.L. Stock Broking Ltd. (2010) 41 DTR 98 (Del.)
viii) VXL Technologies Ltd. vs. ACIT ITA.No.2728/Del/2013
11. After considering the various case law, on the facts of the case we agree with the findings of the Ld. CIT(A). Before reopening the assessment, A.O. has in fact got the reports from the news papers and then A.O. also mentioned in the assessment order the steps taken for obtaining the information from Lokayukta, various enquiries caused including statements recorded from the Officers involved in export of iron ore before reopening assessment. As already pointed out by the Ld. CIT(A), proceedings for A.Y. 2009-10 were also pending at that point of time. Therefore, we are of the opinion that A.O. has prima facie belief to reopen the assessment under section
147. At the stage of reopening the assessment, it is not necessary to examine the quantum of escapement. What is required to be verified is whether there is any belief for coming to a decision whether income has escaped assessment. On the basis of the information available in the form of newspaper reports and also report of Lokayukta, we are of the opinion that there is prima facie belief for reopening the assessment. Therefore, grounds raised by the assessee on this issue are rejected. We do not intend to examine the various case law relied upon by the assessee which are given in particular set of facts. Since the assessment order itself contains the steps taken consequent to the information obtained in the form of newspaper reports as part of the order itself, we are of the 7 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad opinion that in the given set of facts, we cannot hold that AO has no reason to believe at the time of reopening the proceedings. Accordingly, this ground is rejected.
12. Ground No.3 pertains to the issue of addition of Rs.506,10,92,507/- as suppression of sale based on the report of Lokayukta. The facts relating to the addition are that Assessing Officer relying on the investigation report of Dr.U.V.Singh, Chief Conservator of Forests, who has been assigned as Investigating Officer by Hon'ble Lokayukta of Karnataka, where in it was reported that assessee was under- invoicing sales, called for information and after analyzing the various details, held that the export sale prices disclosed by the assessee in its books of account are not reliable and accordingly worked out the unaccounted income of the assessee. In course of the proceedings, the Assessing Officer examined the following officers of NMDC, and officers of M/s. Minerals & Metals Trading Corporation, New Delhi who are involved in export of Iron Ore, by issuing of summons and recorded their statements.
Sl.No. Name & Designation Name of the Date of
Company recording
statement
1. Sri Rana Som, Chairman - NMDC 2.12.11
cum- Managing Director
2. Sri B. Ramesh Kumar, NMDC 14.12.11
Chairman -cum- Managing
Director (Retd.)
3. Sri Munrali Manohar, NMDC 30.11.11
Director Commercial
(Retd.)
4. Sri S.K. Das, Director NMDC 01.12.11
(Commercial)
5. Sri Adarsh R. Goel, MMTC 19.12.11
Director Marketing (Retd.)
6. Sri Sunil Kkhurana, MMTC 20.12.11
Director (Marketing)
8
ITA.No.1792 to 1795/Hyd/2013
M/s. NMDC Ltd. Hyderabad
12.1. On examination of the above officers, the
Assessing Officer noticed that the exports by NMDC are stated to have been covered by long term and short term agreements. The long term agreement which normally covers a period of five years essentially contains the produce-wise quantities to be exported every year during the pendency of the long term contract. As far as the price is concerned, there is a specific provision in the long term agreement that prices shall be negotiated mutually each year for supply during the year. With regard to fixation of price, short term agreements, yearly and quarterly are made. The basis for fixation of the price is stated to be the "bench mark price". The 'bench mark price' is stated to be based on the negotiations held between the main importing and exporting countries and this is in the form of percentage increase/decrease over the previous year's price. Further, it is learnt from the statements given by the above officers that NMDC has not adhered to or taken into account the market price for fixation of export price. On further investigations revealed that there is difference between export sales stated by MMTC and sales declared by NMDC. There is huge difference between the sale rate of NMDC and the sale rate of other exporters during the financial year 2006-07 to financial year 2009-10. Thus, he opined that NMDC was declaring export sales at a very low rate when the market rates/ the rates at which the other exporters exported iron ore during the same period are very high. Moreover, he also came to a conclusion that the persons who have signed the agreements on behalf of NMDC could not give any satisfactory explanation in their statement on the discrepancies. On that basis Assessing Officer came to a conclusion that the assessee has been resorting to suppression of the value of sales towards 9 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad export of iron ore during the period relevant to the assessment year.
12.2. During appeal proceedings before CIT(A), assessee submitted that the export of Iron Ore to Japanese Steel Mills (JSM) and Korean Steel Mills is governed by long term export contracts and the prices are settled every year on the basis of international benchmark prices arrived at between JSM, Brazilian and Australian Iron Ore suppliers. It was further submitted that subsequent to approval from the Union Cabinet, a high powered delegation comprising of Officials from Ministry of Commerce, Ministry of Steel and Senior Officials of assessee company and MMTC Limited visit Japan and Korea and have extensive negotiations with the respective Steel Mills as regards price and the quantity applicable for that year. Further, it was also submitted that it is the collective prudence and commercial sense of the entire team of officials representing Government of India as well as the two CPSE's which is instrumental in fixing the prices applicable for the long term contractual quantity for each year. The assessee also submitted that since the international trade agreements at that point of time did not provide for any midterm price revisions in line with spot market variations, so as to insulate the steel companies against volatile swings in prices of raw materials, even the long term agreements of assessee could not contrive any departure from the existing trade practice. The assessee further submitted the procedure being followed between the assessee company and MMTC. Finally, it was argued that the entire sales revenue generated from exports has been accounted by both the assessee and MMTC and submitted 10 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad that the commercial prudence of the Assessing Officer based on spot prices, can only indict the commercial judgment of the esteemed team of government Officials responsible for fixation of prices but cannot challenge the correctness of the amounts nor the flow of transactions which are entirely transparent and have been upheld to be true and fair by the Government and statutory auditors. Accordingly, the assessee requested to reject the contentions of the Assessing Officer that there is under invoicing of exports.
13. Assessee inter alia made various submissions which can be summarized as under :
"Firstly, the appellant has not directly exported the iron ore. It has sold the iron ore to MMTC (another Govt. of India PSU) and MMTC has exported the iron ore to Japan, Korea, China etc.
1. It is squarely covered by case-law :
The above issue regarding under invoicing of sales are squarely covered in the case of Mysore Minerals Ltd for four A.Ys 2004-05 to 2007-08, vide ITA No.350,351/Bang/2011 and ITA No.679 & 680 and 733/Bang/2010 for A. Y.2004-05, 2005-06, 2006- 07 and ITA No.971/Bang/2011 for AY 2007-08.
2. Real income is taxable but not hypothetical income »> Lokayukta stated that, "the list of exporters and their preferred consignee" In the list of exporters, who have under-invoiced exports, there is no name of NMDC »> Also, Dr. UV Singh only states that "In some exports, the NMDC sale rates are very low as compared to sale rates of other exporters and prevailing market rates".11
ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad * Further, Dr. U. V.Singh stated that "PSU's iron ore export realization is far less than the potential earnings".
* Also, he observed that "NMDC has exported iron ore at a rate much below the prevailing rates due to this public sector undertaking has incurred a huge loss"
* Under the ITA Act, 1961, in order that income should accrue it should not merely fall due or become legally recoverable, but should also be factual and practically realizable. The theory of only real income is to be taxed is settled law and it has been held by various courts that notwithstanding than an assessee may be following the mercantile system of accounting, the assessee could only be taxed on real income and not on any hypothetical/illusory income. The assesse relied on the following case-laws:
1. ClT Gujarat Vs A. Raman & Co AIR 1968 SC 49
2.ClT Vs Shorji Va/labhdas & Co. 461TR 144 SC
3.State Ban of Travancore Vs ClT 158 ITR 102 SC
3. ClT Vs Vasisth Chay Vyapar Ltd 330 ITR 440 (Del)
4.UCO Bank vs ClT 2371TR 889 SC
5.Godhra Electricity Co. Ltd Vs. ClT 225 ITR 746 (Guj)
3. The assessee is bound by the MOU with the purchaser (Contractual Obligations). In support, reliance is placed on the following case laws :
* RB jodha Mal Kuthiala Vs ClT 82 ITR 570 SC
4. The assessee was not provided with natural justice to cross examine the third party: In support, reliance is placed on Prakash Chand Nahta Vs ClT 301 ITR (MP) and ClT Vs SMC Share Brokers Ltd 288 ITR 345 (del) and Kishenchand Chellaram Vs ClT 1251TR 713 (SC)."12
ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad
14. Ld. CIT(A) however, did not agree with the assessee's contention and upheld the addition made by the A.O. by finally concluding in para 5.5.6 as under :
"5.5.6 In the light of the observations in the preceding paras, it can be concluded that there are inconsistencies in the pricing policy of the appellant with Japan and South Korea and the appellant could not give concrete explanation rather substantiate with proper evidence to the figures reported in the report of Dr U.V.Singh. As such, the appellant failed to bring out a case that the figures in the report of Dr U.v.Singh are incorrect except stating that the report is wrong. Hence, the addition made by the Assessing Officer on this count is upheld and the grounds raised by the appellant are dismissed".
15. Ld. Counsel reiterated the submissions made before the authorities. His main contentions are that (1) there are factual errors in the report as assessee is not a direct exporter but routed the exports only through MMTC (2) that assessee was always exporting by way of long term contracts negotiated through MMTC, representatives of the foreign companies and as approved by the Ministry of Steel and also Cabinet notes. (3) that Lokayukta did not quantify any concealment of income but only expressed opinion based on the spot price for China that MMTC under invoiced exports (4) That in the list of exporters enclosed as list by Lokayukta, NMDC was not mentioned and (5) an important aspect which require consideration was that Lokayukta/A.O. compared Iron ore spot prices of China with the long term prices negotiated with Japan and Korea. It was further contended that being 13 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad public sector undertaking there is no scope for any concealment of income and the so-called sale proceeds as arrived at by the A.O. was never received by the assessee or by MMTC or by any other person. So, hypothetical income cannot be brought to tax.
16. Learned D.R. however, relied on the orders of the A.O. and Ld. CIT(A) and relied on the facts.
17. We have considered the issue and examined facts on record. At the outset, we noticed that the A.O. has taken exports by NMDC during the year at Rs.726,39,88,999/- whereas in table at page 38 while making the addition, the sale value of export declared by NMDC was taken at Rs.469,55,65,037/-. As there is huge variation between the sale value declared by NMDC itself and amount taken by AO, the addition made by the A.O. at Rs.506.10 crores itself is to be reconciled. Assessee was asked to submit the reconciliation of the various amounts considered by the A.O. vis-à-vis actual exports undertaken by the assessee-company. Assessee placed on record the following re-conciliation :
Data as per AO order.
Port Total Sales Sales value of Suppression of
Value of export as sales value by
exports as per declared by NMDC
International NMDC
Market
Chennai 2,413,920,813 1,824,509,457 589,411,356
Vizag (iron 4,781,928,856 893,727,604 3,888,201,252
ore Sized
Lump)
Vizag (iron 2,560,807,875 1,977,327,976 583,479,899
ore Sized
Lump)
Total *9,756,657,544 4,695,565,037 5,061,092,507
14
ITA.No.1792 to 1795/Hyd/2013
M/s. NMDC Ltd. Hyderabad
From the above table, following observations are made.
a) For Chennai Port, no entry has been made of S.No.2 in Annexure-A in the table referred in assessment order at 89 of appeal paper (page 35 of assessment order)
b) In column-3 of the above table, it is stated that the sales value declared by NMDC is 4,695,565,037, which is not correct. It is amount of sales declared by MMTC.
c) For Vizag (Iron ore lumps), at annexure-B, transaction from S.No.1-13 amounting to Rs.1,934,739,002 & S.No. 16 & 17 amounting to Rs.37,253,4936 that has not been taken into consideration while computing sales value of export as declared by NMDC in column 3 as per page 90 of appeal paper. (page 36 of assessment order)
d) Total sales value of export as per International market is Rs.9,756,657,544 whereas in the assessment order (at page 81 of appeal paper & 27 of assessment order) it is valued at Rs.12,201,629,446. The A.O. can only give the explanation how he arrived at this figure.
e) Total sales value of export as declared by NMDC is valued at Rs.4,695,565,037 by the A.O. whereas the actual export sales value of NMDC is Rs.7,264,000,000.
6. Taking into consideration, the above facts, the export sales made by MMTC works out to Rs.734,61,80,143 We would like to bring to your notice that in table F.Y. 2006-07 (A.Y. 07-08) - Iron ore sized Lump at page 90 of appeal paper (page 36 of assessment order), in S.No.1, Quantity of export has been taken at 1398150 instead of 13981.50 (as reflected in Annexure-B in S.No.15) inflating the suppression of sales value by - 3,648,359,911."
18. As can be seen from the above as against the export sales recorded by the assessee at Rs.726,39,89,000/- A.O. wrongly took the value at Rs.469,55,65,037/-. This itself has lead to lot of discrepancy. Not only that in Annexure-A of 15 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad the table, there is no serial No.2 as the table contains Sl.No.1 and Sl.No.3, that means some information pertain to Sl.No.2 was missing and as pointed out the sales declared in column No.3 was not actually sale values of assessee-company but that of MMTC. Moreover, another mistake committed was the quantity of export at Sl.No.1 taken at Rs.13,98,150/- instead of Rs.13981.50. Therefore, instead of Rs. 3.64 crores, the multiplication has to come i.e., Rs.364 crores, as suppression of sales value by NMDC. If these factual errors are corrected, we are of the opinion that addition would not have come to the amount as was determined by the A.O.
19. Be that as it may, the issue in this appeal is whether A.O. is correct in making the addition on the so called suppression of sales. We are not convinced with the action of the A.O. First of all, the comparison between spot price of China in which assessee hardly indulges in any transaction with that of long term contracts with companies in Japan and Korea on five year agreement, which was duly approved by the Government of India is not appropriate. Moreover, assessee is not involved directly in exports of goods. Power to export was given to MMTC, through which assessee channels its exports. As admitted by the Directors and as stated by the company, there were negotiations with the foreign buyers and generally for five year contract period with quantum and prices are bench marked on international prices and decided accordingly. Assessee has received the amounts as per the invoices raised and even the report of the Lokayukta as prepared by Dr. U.V. Singh only mentions that there is under invoicing by the NMDC, vis a vis the spot prices of market. It is generally understood in commercial parlance that the price in the spot 16 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad market is higher than price for long term contracts. Sometimes it may vary depending on the market requirements. Assessee always entered into long term contracts through MMTC and honoured those contracts at the price negotiated. A.O. also acknowledges the receipt of the communication from the Under Secretary, Government of India of the various Cabinet notes and the approval of prices including the agreements entered by the parties. These cannot be brushed aside.
20. More over, similar issue was considered by the Coordinate Bench in the case of Mysore Minerals Ltd. vs. ACIT ITA.No.351/Bang./2011 for A.Y. 2005-06. On similar additions made by A.O. therein, the Hon'ble ITAT vide its order dated 2nd November, 2012 held as under :
"18.4 We have heard both parties and carefully perused and considered the material on record. We find from the record that the assessee has furnished all the details required by the Assessing Officer. From the details on record in respect of the additions made to the returned income on account of sales to M/s. Kalyani Steels Ltd below market price, we agree with the observations of the Assessing Officer that the price charged for C-ore is below the market price. We also observe that the Assessing Officer has recorded that Karnataka Lok Ayukta in its report on the Mining Scam alleged malpractices on the part of the officials of the assessee company. From the submissions made by the assessee, a Govt of Karnataka Undertaking, it can be inferred that the sales of C-ore to Kalyani Steels Ltd are supported by invoices raised, entries in the books of accounts audited by Chartered Accountants. The system of accounting followed by the assessee is the Mercantile System as per the provision of section 145 of the Act and we find that no fault has been found therein nor has it been rejected. Nowhere in the order of assessment or the material on record do we find anything to establish that there were any realization on account of sales beyond what is recorded in the books of accounts. As per the I.T. Act, 1961 profits from business are to be computed under section 28 of the Act as per the accounting policies mandated by section 145 17 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad of the Act which in the assessee's case is the Mercantile System. The scope of total income is also defined under section 5 of the Act. The I.T. Act, 1961 is very clear that what is to be taxed is the real income of an assessee and not notional or hypothetical income and it does not permit an Assessing Officer to compute income without any evidence. There is no finding by the Assessing Officer that the assessee has sold its C-ore at a price less than that agreed to in the contract entered into with M/s. Kalyani Steels Ltd or that it has realized from M/s. Kalyani Steels Ltd additional amounts on such sales which it had not recorded in its books. The assessee is legally bound to abide with the terms of the contractual obligations arising out of its agreement to sell C-ore to M/s. Kalyani Steels Ltd and the contract entered into being legal and valid, it cannot be brushed aside. After taking into account the facts and circumstances of the case on this issue, we find that no evidence whatsoever has been brought on record by the Assessing Officer to establish that the assessee has realized from the sale of C-ore to M/s. Kalyani Steels Ltd more than what is recorded in the assessee's books of account. In this view of the matter, the addition made on account of sales to M/s. Kalyani Steels Ltd below market rate, in our considered opinion is not founded on sound and accepted accounting and legal principles and is therefore liable to be deleted. We, therefore, find no reason to interfere with the decision of the learned CIT(Appeals) in deleting the addition of Rs.15,51,45,117. The grounds at S.Nos.2 and 3 raised by revenue are accordingly dismissed".
21. We agree with the above findings of the Coordinate Bench given in similar circumstances. In fact, assessee's case is much better than the above case as the facts in that case are that assessee entered into agreement with a private company whereas this assessee has entered into long term contract with foreign buyers which were duly negotiated and finally approved by Government of India. We, therefore, find no reason to confirm the addition of the above amount, as the assessee company had furnished all the details required by the A.O. and assessee has accounted for all the amounts it received. There is no iota of information that assessee or any 18 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad agent received any amount over and above the amounts accounted in the books of accounts. Moreover, I.T. Act does not permit making additions on hypothetical income particularly, as suppression of sales when there is no evidence at all. Additions cannot be made on presumptions and hypothesis. In view of this, we have no hesitation in deleting the addition of the above amount. Ground No.3 raised by the assessee is accordingly allowed.
22. Ground No.4 pertains to disallowance of additional depreciation claimed by the assessee on machinery. A.O. disallowed the additional depreciation in the re-assessment proceedings which was originally allowed in the scrutiny proceedings, holding that assessee company is not involved in any activity of production of any article or thing, ignoring the fact that assessee has always producing/extracting iron ore, diamonds, wind power etc., and the company is not falling under the negative list of assets. Assessee was allowed additional depreciation in all the assessment years up to and including assessment years 2006-07, 2008-09 and 2009-10. Earlier also, assessee was allowed benefit under section 80HHC when the provisions are on statute, on the reason that assessee is in the business of manufacture and production of article or thing. In our opinion Ld. CIT(A) wrongly confirmed the addition made by the A.O. holding that exploration and sale of iron ore does not involve activity of production of any article or thing, ignoring the fact that assessee do extract the iron ore and sell the iron ore after various processes. The Hon'ble Supreme Court in the case of Sesa Goa Ltd. 271 ITR 331 held that extraction and processing of iron ore amounts to production. Likewise, the Hon'ble jurisdictional High Court in 19 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad the case of Singareni Colleries Ltd. 221 ITR 48 held that activity of winning or extracting the coal from the mines can be aptly described as production activity. Hon'ble Karnataka High Court in the case of CIT vs. Gogte Minerals 225 ITR 16 also held that mining operations carried out for extraction of iron ore involve manufacturing activity. In view of the above, on both principles of law and also on fact that assessee was allowed the additional depreciation in all other years, we do not see any reason to confirm the order of the CIT(A). AO is directed to allow addl. depreciation as claimed and allowed earlier. Ground No.4 is accordingly allowed.
23. Ground No.5 pertains to addition due to rounding of figures between annual report and computation of income. A.O. made addition of Rs.48,335/- as difference between consolidated figures shown in the annual return ignoring the fact that schedules contain the actual amount. Assessee has shown the correct amount of Rs.1,51,665/- in the schedule whereas in the consolidated P & L account the figures are shown as rounded up to Rs.2 lakhs. The addition cannot be sustained as there is no mistake in amounts actually incurred by the assessee. Therefore, ground No.5 is also allowed.
24. In the result, ITA.No.1794/Hyd/2013 of the assessee is partly allowed.
ITA.No.1792/Hyd/2013 - A.Y. 2007-08 (Revenue Appeal) :
25. This is Revenue appeal for the same A.Y. 2007-08. The Revenue has raised the following three grounds which are material for deciding appeal :
20ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad "2. The CIT(A) ought to have appreciated the fact that the disallowance u/s.40(a)(ia) for non-deduction of tax on commission paid to M/s. MMTC @ 2.8% is as per law.
3. The CIT(A) ought to have appreciated the fact that the disallowance u/s.40(a) which are mentioned in Col.No.17(1) of Form No. 3CD are as per law.
4. The CIT(A) erred in accepting the assessee's claim of prior period expenses which is not acceptable one as per law."
26. Ground No.2 pertains to the issue of disallowance under section 40(a)(ia) for non-deduction of tax and commission paid to MMTC at Rs.2.8%. The A.O. made the addition on the reason that MMTC is acting as canalizing agent to NMDC in export of iron ore and NMDC is making payment of commission of 2.8% of FOB price. On the reason that the assessee failed to deduct tax at source on the above payment, A.O. disallowed the amount under section 40(a)(ia). It was the submission of the assessee that assessee is not paying the fixed margin of commission but MMTC is purchasing the ore from assessee and inturn, is supplying to foreign companies and therefore, question of deducting tax at source does not arise.
27. Before the Ld. CIT(A), it was submitted that this issue was covered by the decision of the Hon'ble ITAT, Visakhapatnam Bench in assessee's own case in ITA.No.145, 146 & 147/Vizag/2006 for A.Ys. 2003-04, 2005-06 dated 20.07.2009. It has been further followed by the Hyderabad Bench of the Tribunal in assessee's own case in ITA.No.292 & 293/Hyd/2013 for A.Y. 2008-09 & 2009-10 dated 31.05.2013. The relevant observations of the Order of the Visakhapatnam Tribunal dated 20.07.2009 are as under :
21ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad "4.4 It is very pertinent to note that the Learned -CIT(A) has noted the fact that the assessee has routed the transaction of export through MMTC only because the assessee was not allowed to effect the export on account of Government regulations. It is the most striking feature in the impugned transactions which was not at all considered by the tax authorities. It is well settled law that in any agency agreement, an agent can act on behalf of the principal only in respect of those transactions which the principal is entitled to carry on directly without the assistance/help of the agent, i.e. even in the absence of an agent, the principal should be entitled to carry on the said transaction. In the instant case there is no dispute with regard to the fact that he assessee herein is not entitled to export the iron ore with Fe content of 64% and above. Since the assessee is disentitled to export these goods, it cannot be possible to say that the goods were exported by MMTC on behalf of the assessee on a principal to agent basis. As contended by the assessee, it can only be held that the MMTC has exported the goods on its own and not on behalf of the assessee herein. By virtue of the Government regulations, both the companies had to reach an agreement with regard to the modalities of the incurring expenses and payment and in our opinion, the said modalities of payment are not the deciding factor to determine the nature of transaction. In view of the foregoing, we set aside the orders of the Ld. CIT(A) as well as that of the Assessing Officer . Since we have decide d the first issue in favour of the assessee, the second issue urged by the assessee becomes infructuous."22
ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad
28. It was further submitted that miscellaneous application filed by the department against the above orders were also dismissed by the ITAT. Following the decision of the ITAT, the Ld. CIT(A) deleted the addition. Hence, Revenue is aggrieved.
29. On considering the rival contentions, we do not see any reason to interfere with the order of the CIT(A). Respectfully following the afore cited decisions in assessee's own case, we hold that since the assessee is not entitled to export directly and export by the MMTC was on principal- principal basis, there can be no commission payment to MMTC, as such the question of sustaining the order of the Assessing Officer in estimating the commission and disallowing the same under S.40(a)(ia) does not arise. In fact there is no claim of commission by assessee. So question of deduction of tax does not arise and consequently disallowance u/s 40(a)(ia). Accordingly, the order of the CIT(A) is upheld. Accordingly, ground No.2 of the Revenue is dismissed.
30. Ground No.3 pertains to the disallowance under section 40(a) stated to be following Column 17(f) of Form 3CD of Rs.19.84 crores. A.O. made the addition on the reason that Form 3CD has stated the amounts as inadmissible in Column- 17(f). Assessee submitted that annual return was submitted by the company after considering the profit before tax. Items mentioned under Column 17(f) are below the line items which were not charged against the profit returned. As per disclosure requirement, provisions like Income Tax, FBT, Wealth Tax and differed tax are shown in Form 3CD. Since the above amounts are not charged to P & L account which was taken for the purpose of computation, question of disallowance does not 23 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad arise. The A.O. did not agree and made the addition of the above amount. Ld. CIT(A) on verification found that assessee's contentions are correct but directed the A.O. to examine and allow the claim. Revenue has come in appeal on this issue before the Tribunal.
31. We find that there is no merit in the Revenue contentions as the amounts which are not charged to P & L account cannot be disallowed and only an amount claimed can be disallowed. In case, assessee has not charged this amount from the profit before tax and offers the income on the basis of profit before tax alone, then question of disallowance does not arise. Since this issue was also directed to be examined by the A.O. we do not see any reason to consider the Revenue ground which is basically on facts. Ground No.3 of the Revenue is accordingly dismissed.
32. Ground No.4 pertains to the claim of prior period expenses disallowed by the A.O. A.O. disallowed an amount of Rs.22.62 lakhs on the reason that this amount pertains to prior period. Assessee vide the letter dated 23.01.2012 explained that there were prior period expenses and also income which have crystallized during the year as net income credited to P & L account was Rs.7,58,696/-. On the reason that assessee failed to furnish the above account, the A.O.disallowed the entire amount of Rs.22.62 lakhs. On this issue also following the Coordinate Bench decision in ITA.No.1381/H/2012 dated 18.01.2013 for A.Y. 2000-01, Ld. CIT(A) directed the A.O. to verify the claim of expenditure and determine the year of crystalisation/accrual and then accordingly allow the expenditure either in this year or any other year by modifying the relevant orders, if required.
24ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad Therefore, we do not see any grievance of the Revenue since the matter is directed to be examined and allow according to the facts of the case. Therefore, Ground No.4 of the Revenue is rejected.
33. In the result, ITA.No.1792/Hyd/2013 of the Revenue is dismissed.
ITA.No.1795/Hyd/2013 - A.Y. 2010-2011 (Assessee appeal)
34. This is assessee's appeal for the A.Y. 2010-2011. The assessee has raised 7 grounds in this appeal, Ground No.1 and 7 are general in nature and therefore, does not require any adjudication.
35. Ground No.2 pertains to the issue of suppression of sales added by the A.O. and confirmed by the CIT(A) at Rs.255.03 crores. As stated in A.Y. 2007-08, based on the news paper reports of the Lokayukta, A.O. made enquiries and then made the addition of so-called suppression of sales. The arguments of the assessee are similar in this A.Y. also. As noticed by us in A.Y. 2007-08, this year also there are variations in the amounts adopted by the A.O. As per the report of Dr. U.V. Singh which was the basis for making the suppression of sales, the export sales admitted by NMDC are at Rs.1116.00 crores and total export sales as per the international market was arrived at Rs.1289.14 crores thereby, suppression of sales determined at Rs.173.13 crores. This statement was acknowledged at page 14 of the assessment order. However, A.O. while computing the suppression of sales arrived at the sale value declared by the assessee at Rs.730.15 crores. The sale value as per the international market was arrived at Rs.985.18 crores and suppression of sales value at 25 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad Rs.255.03 crores. There is no reconciliation, as seen from the above amounts from the annual report assessee vis-à-vis so- called amounts determined in the Lokayukta report. We are not in a position to reconcile the amounts nor the assessee submitted any reconciliation like in A.Y. 2007-08. However, the fact is that the additions are not based on the amounts, which require reconciliation. Be that as it may, we have already examined the issue legally also and arrived at a conclusion that hypothetical income cannot be brought to tax. For the reasons mentioned therein in A.Y. 2007-08 from para 17 to 21 this issue is decided in favour of the assessee. Accordingly, ground No.2 of the assessee is allowed. A.O. is directed to delete the amount.
36. Ground No.3 pertains to depreciation on intangible assets. Assessee claimed an amount of Rs.16,77,48,219/- towards depreciation on intangible assets. In the course of scrutiny proceedings, assessee was asked to explain the nature of the assets acquired and the liability of such depreciation. It was explained that intangible assets are mainly lease hold lands acquired from various State Governments which can be used for certain period. A.O. noted that from the above explanation that the lands are not owned by the assessee company but are obtained on lease from State Government and the period of lease also was not explained. A.O. was of the opinion that land was taken on lease for the purpose of exploitation of mining and it cannot be treated as plant and machinery for which depreciation was allowable under the Income Tax provisions. He was of the opinion that the lease hold rights does not come within the purview of intangible assets so as to allow depreciation. Therefore, the claim of assessee was disallowed and amount was added back.
26ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad 36.1. On appeal, Ld. CIT(A) following his predecessor order for A.Y. 2008-09 confirmed the disallowance. At the outset it was submitted that the issue in A.Y. 2008-09 was decided in favour of the assessee in assessee's own case by order of the ITAT 'B' Bench in ITA.No.714 & 885/Hyd/2012 dated 28.02.2014 wherein the claim was allowed by holding as under :
"22. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. Similar came up for consideration before the coordinate bench of ITAT, Cuttack in case East India Minerals Ltd. Vs. JCIT in ITA No. 224/CTK/2012, vide its order dated 25/06/2012, on which reliance placed by the assessee, wherein it has been held as follows:
"7. We have heard the rival contentions of the parties and perused the material available on record. Considering the facts and circumstances of the case, we uphold the contention of the learned Counsel for the assessee for the simple reason that the denial of claim of depreciation has been made on misinterpretation of law and the applicability thereof. Explanation to Section 32(1)(ii) leans in favour of the assessee to the extent that it is the actual action of put to use which entitles the assessee to claim depreciation. A straight line method of claiming the writing off of lease hold rights for the period of lease cannot be denied to the assessee for the simple reason it being intangible asset has been written off which pertains to land being a intangible asset. It is nobody's case that the land either belonged to the lessee or to the Government. This simply indicates that a depletion of the land against the payment of premium it was leased has to be claimed after capitalization thereof by the assessee which is for the purpose of its main business. All expenses 27 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad are incurred for the purpose of business and are incidental to the holding of rights were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset. The definition of depreciation therefore has been misconstrued for the purpose of allowing deduction by the Assessing Officer and the learned CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended w.e.f. Assessment Year 2003-04. In this view of the mater, we are inclined to hold that the assessee is entitled to depreciation as charged to the P & L account in accordance with its business exigencies. We direct accordingly. On the claim of deduction/s.80G, the A.O., is directed to verify the receipts and allow the deduction in accordance with the provisions of Income-tax Act,1961."
22.1 Since the issue under consideration is materially identical to that of the case decide by the Tribunal in the case of East India Minerals Ltd., respectfully following the same, we set aside the order of the CIT(A) and direct the AO to delete the addition made in this regard".
37. Respectfully following, we allow the assessee's claim. Ground No.3 of the assessee is allowed.
38. Ground No.4 pertains to issue of addition made by A.O. amounting to Rs.1,30,34,280/- by contending that stamp duty and registration charges are capital in nature. This issue was also covered by the above decision wherein the Hon'ble ITAT held as under :
28. We have heard the arguments of both the parties, perused the record and have gone through the orders of the revenue authorities as well as the 28 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad decisions cited. This issue is squarely covered by the Hon'ble Bombay High Court in the case of CIT Vs. Cinceita (P) Ltd. (supra), wherein the Hon'ble Court held as follows:
"Although the period of the lease was for 20 years and there was option for renewal the expenditure was the only expenditure required for drawing up of effective deed of lease namely, the expenditure in respect of stamp duty, registration charges and professional fees paid to the solicitors, who prepared and got registered the deed of lease. Further there was no element of premium in the amount claimed as expenditure and the expenditure would have been the same even if the lease had been of a shorter duration provided the period of lease was more than one year. Hence, the period of the lease could not be regarded as decisive of the circumstances as to whether the asset or advantage secured is of an enduring nature. Hence the expenditure on registration fee, solicitors fee and stamp duty incurred for registering lease deed was a revenue expenditure allowable under s. 37(1).
28.1 The Hon'ble Court concluded that expenditure on registration fee, solicitor's fee and stamp duty incurred in connection with registration of lease deed is revenue expenditure irrespective of period of lease.
28.2 The coordinate bench of ITAT, Cuttack in case of Shri Jitendra Nath Patnaik Vs. DCIT in ITA No. 185/CTK/2010 for AY 2007-08 vide its order dated 17/06/2011, on similar issue, held as follows:
"7. On careful analysis of the impugned orders of the authorities below and the order passed by the CIT(A), Bhubaneswar dt. 21/07/2010 in the case of Orissa Mining Corporation Ltd., copy of which is made available by the assessee before us, we are of the considered view that the assessee is not acquiring any asset nor enduring benefit but is 29 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad having only a right to work of mining in the land given to him for a specific period on lease. Therefore, this amount is practically a revenue expenditure incurred by the assessee while doing his trade of mining operation. Hence, we are of the considered view that the claim of the assessee to allow the same as revenue expenditure is very much within the provisions of the income-tax Act, 1961 applicable thereto. Hence, having find merits in the appeal of the assessee, we set aside the impugned order of the learned CIT(A) on this issue and direct the AO to allow the expenditure in question as revenue expenditure."
28.3 Further, the same view has been followed by the Hon'ble Jurisdictional High Court in the case of CIT Vs. Panyam Cements and Minerals Industries Ltd. , 228 ITR 212 (AP) wherein it has been held that stamp duty paid for renewal of mining lease is a revenue expenditure. However, we make it clear that if the expenditure incurred by the assessee for first time with respect to the assets claimed as capital asset, in earlier paras of this order on which we have granted depreciation, then, this expenditure to be considered as capital expenditure. Thus, this ground is partly allowed".
39. Respectfully following the same, we hold that the A.O. is correct in treating the above amounts as capital in nature. Like in the other year, we make it clear that expenditure incurred by the assessee for the first time with respect to the assets claimed as capital asset, depreciation has to be granted and then this expenditure is also to be considered as capital eligible for depreciation. Ground No.4 of the assessee is partly allowed.
40. Ground No.5 pertain to claim of Rs.71,20,08,354/- on corporate social responsibility stated to have been incurred wholly and exclusively for the purpose of business. Assessee 30 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad has incurred the above amount only to operate mines in remote places. It was submitted that the expenditure was necessary for the smooth conduct of the business such as installing traffic signals at circle near the vicinity of the Office, flood relief etc., and following the Union Government's CSR policy, NMDC has to create budget mandatorily at Rs.104 crores (2% of PBT) whereas, company has spent only Rs.71.20 crores. The A.O. however, held that the amount is not related to the business of the assessee and they are in the nature of donations which cannot be allowed under section 37(1). Ld. CIT(A) confirmed the same.
41. At the outset, it was submitted that similar issue was allowed by the ITAT in earlier years and the latest being ITA.No.714 & 885/Hyd/2012 dated 28.02.2014 wherein this issue was examined and allowed vide para 35 as under :
35. We have considered rival submissions and perused the record. We find that the issue in dispute is squarely covered by the decision of coordinate bench in assessee's own case for AY 2005-06 in ITA No. 1791/Hyd/2008 dated 30/09/2009 wherein it has been held as follows:
"14. We have considered the rival submissions on either side and also perused the material available on record. No doubt the assessee incurred an expenditure of Rs. 5,00,00,000/- as contribution for establishing a medical college. The fact that the assessee is having a mining unit and a steel plant in Chattisgaarh is not dispute. The objection of the Department appears to be that the medical college was located at a distance of 16 kms. And the assessee, instead of providing relief to the affected people, directly incurred the expenditure for establishing the medical college. The fact remains that one of the conditions for contributing the money was to give free medical treatment to the Adivasis who were affected by 31 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad the assessee's project in the locality. Moreover, the employees of the assessee and their dependents were to be treated free of cost. Five seas were reserved in the medical college for the children of the employees of the assessee. In fact admission was also given to the children of the employees of the assessee as per the condition stipulated while contributing the money. The assessee also had a representation in the Board. In view of the above, in our opinion, the contribution of Rs. 5 crores is only a welfare measure for the upliftment of the Adivasis in the locality where the mining unit was situated and also for the welfare of the employees of the assessee. This contribution would definitely go a long way in conducting the assessee's mining business in a profitable manner. When the assessee is having a mining unit in a remote corner of the country, the cooperation of the villagers is very much required for conducting the business. More particularly, the cooperation of the people who are affected by the mining operation of the assessee is required. Merely because the hospital and medical college are situated 16 kms away from the unit, that will not deter the medical institution in giving treatment to the affected people. Moreover, admission was given to the children of the assessee's employees in the medical college. Therefore, indirectly the contribution made by the assessee takes care of the education of the employees' children. This would certainly be a welfare measure on the part of the assessee for carrying out the business in an effective and efficient manner. Therefore, in our opinion, the contribution of Rs. 5,00,00,000 has to be treated as revenue expenditure for the purpose of the business. Therefore, we do not find any justification in disallowing the sum. Accordingly, we set aside the orders of the lower authorities and delete the entire addition."
36. Since the issue under consideration is identical to that of AY 2005-06, we delete the additions made under the heads from (i) to vii).
32ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad 36.1 However, we make it clear that the expenditure incurred at Rs. 3,48,04,548/- shown as miscellaneous expenses cannot be allowed as the assessee has not furnished the details of expenditure, therefore, in the absence of requisite information the said expenditure cannot be allowed. Accordingly, this ground is partly allowed.
42. AO is directed to examine the expenditure in this year also and allow accordingly. Ground No.5 is considered allowed.
43. Ground No.6 pertains to allowance of additional depreciation claimed by the assessee on machinery used for production of iron ore / diamonds to an extent of Rs.7,74,23,161/-. This claim is similar to ground No.3 decided in ITA.No.1794/Hyd/2013 vide para No. 22. In the light of discussion therein, assessee is eligible for additional depreciation. Accordingly, ground No.6 is allowed.
44. In the result, ITA.No.1795/Hyd/2013 of the assessee is partly allowed.
ITA.No.1793/Hyd/2013 - A.Y. 2010-11 (Revenue Appeal) :
45. In this appeal, Revenue has raised 7 grounds. Ground Nos. 1 and 7 are general in nature and therefore, it does not require adjudication.
46. Ground No.2 pertains to the issue of mine closure obligation of Rs.12.13 crores. The facts are that assessee is a public sector undertaking and debited the above amount towards mine closure obligation. This was a provision made towards expected future liability to close mines which are exploited by the organization. Assessee explained that that this is a statutory liability for which a separate fund has been 33 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad created with LIC. The A.O. did not agree and disallowed the obligation on the reason that it is a contingent upon certain future events. Therefore, it was not allowable as revenue expenditure. Considering the detailed submissions and also the orders of his predecessor in the earlier year i.e., A.Y. 2008- 09, the Ld. CIT(A) allowed the expenditure.
47. At the outset, it was submitted that this issue was crystalised in favour of the assessee against the Revenue by ITAT in earlier years and in the later year in A.Y. 2008-09 in ITA.No.714 & 885/Hyd/2012 dated 28.02.2014 decision is as under :
"9. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below as well as the decisions cited. In AY 2006-07, the coordinate bench in assessee's own case (supra), held as follows:
"11. We have heard both the parties, perused the record and gone through the orders of the authorities below. It is observed that the basis of calculation for the relevant AY 2006-07 for Rs. 71.18 crores was submitted during the original assessment and accepted by the AO. The detailed calculation of Rs. 21.31 crores charged to P&L A/c (on the basis of Rs. 71.18 crores) was also enclosed and produced before the CIT. Hence, the CIT is wrong in his observation that the estimate of Rs. 21.31 crore is excessively on a higher side and absolutely no realistic or rational basis for such calculation.
12. The CIT is not correct in invoking the provisions of section 263 as we find that the issue is debatable and when two views are possible the AO has taken one view. The Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 34 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad 243 ITR 83 as well as CIT Vs. Max India Ltd. reported in 295 ITR 282 has held that when there are two views possible and the AO has taken one view, the order of the AO cannot be considered as erroneous and hence the CIT cannot exercise revisional power u/s 263. As pointed out above, the provisions for an accrued existing liability, even though, the actual expenditure may take place at a later date, is an allowable deduction and the CIT erred in treating it as an unascertained liability. Therefore, we set aside the order of the CIT passed u/s 263 and the order of the AO is restored."
9.1 The above decision relied upon by the AR of the assessee, though, it was delivered in assessee's own case for AY 2006-07 cannot be applied to the facts of the case as that order was delivered by the Tribunal in connection with the order passed u/s 263. The order passed u/s 263 read with section 143(3) and the order passed u/s 143(3) read with section 251 are standing on different footing. The scope of section 263 is not par with the provisions of section 251 of the Act. Being so, we cannot borrow support from the order of the Tribunal passed in ITA No. 991/Hyd/2011 for AY 2006-07, on which reliance placed by the assessee's counsel. In the present case, there is a categorical finding given by the CIT(A) that there are certain mines not yet commenced. On that mine closure obligation works out to Rs. 4,98,058/-
cannot be allowed. Further, mines at Kumaraswamy and Lalpur where there is no production, being so, no obligation is allowable. Further, assessee has not given year-wise break- up. Being so, the CIT(A) directed the AO to ascertain the account of year-wise mining, which has been done from the remaining mines and allow mine closure obligation to the extent mining done corresponding to the current year. He further gave a direction to the AO if the assessee fails to provide such data, then, prorata has to be applied. Thus, the CIT(A) has given a categorical finding in paras 4.3 & 4.4 of his order. Therefore, we do not find any infirmity on that part of the order and 35 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad accordingly, we confirm the same. This ground raised by the assessee is dismissed".
48. Respectfully following the above decision, we hold that mine closure obligation is not a contingent liability but ascertain liability. However, it has to be verified that whether assessee has made the claim on the mines which are in working condition which are being operated or not. If the assessee has made the claim on mines which have not started operations, the same cannot be allowed. As rightly held by the CIT(A) in A.Y. 2008-09, ascertainability of liability is to be ascertained year-wise. Therefore, to that extent, following the Coordinate Bench decision, we direct the assessee to furnish the relevant data to the A.O. towards the mines closure obligation and A.O. is directed to verify and allow the amount accordingly. Subject to the above observations, the ground No.2 is considered as allowed for statistical purposes.
49. Ground No.4 pertains to issue of disallowance under section 40(a)(ia) for non-deduction of tax and commission paid to MMTC at 2.8%. This issue is covered and already discussed in Revenue appeal for A.Y. 2007-08 vide para No. 26 to 29. For the reasons stated therein, we affirm the order of the CIT(A) and reject the ground No.4 of the Revenue.
50. Ground No.5 is with respect to levy of interest under section 115P on the reason of remitting dividend distribution tax with a delay of 4 months. It was the A.O's contention that assessee has declared dividend on adhoc basis in the year and tax was paid with a delay of 4 months and therefore, interest under section 115P amounting to Rs.2.69 crores was levied. It was contended that the Board of Directors has power to recommend the amount of dividends to be 36 ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad declared or distributed in the annual general body meeting and the amounts are provided on the basis of the proposed dividends whereas, shareholders/members of the company are empowered to declare such dividend fully through AGM only vide Section 166 and 205 of the Companies Act. Therefore, unless the amount was approved by the AGM, question of payment of tax on that distributed dividend does not arise. If calculated from the date of declaration, there is no delay and provisions of section 115P are not applicable.
51. Ld. CIT(A) held that the identical issue has been decided by his predecessor in A.Y. 2007-08 and other years held that issue is identical in the present year also. He also noted that ITAT in A.Y. 2003-04 has affirmed the above opinion and keeping the principles, the date of declaration of dividend is to be taken as date which was actually declared/approved by AGM and not when it was recommended by the Board. Accordingly, he deleted the interest.
52. At the outset, this issue is also covered by the Orders of the ITAT in earlier years. Accordingly, ground No.5 of the Revenue is rejected.
53. Ground No.6 pertains to the claim of prior period expenses. This issue has been considered in ITA.No.1792/Hyd/2013 for A.Y. 2007-08 at para No.33- hereinabove. In fact, the Ld. CIT(A) directed the A.O. to verify the claim of expenditure pertaining to earlier years determining the year of crystallization and then allow the expenditure either in this year or any other year by modifying the relevant orders, if required. This direction of the CIT(A) is upheld and Revenue ground No.6 on this issue is accordingly dismissed.
37ITA.No.1792 to 1795/Hyd/2013 M/s. NMDC Ltd. Hyderabad
54. ITA.No.1793/Hyd/2013 of the Revenue is dismissed.
55. To sum-up, ITA.No.1794/Hyd/2013 of the assessee is partly allowed, ITA.No.1792/Hyd/2013 of the Revenue is dismissed, ITA.No.1795/Hyd/2013 of the assessee is partly allowed and ITA.No.1793/Hyd/2013 of the Revenue is dismissed.
Order pronounced in the open Court on 09.05.2014.
Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER Hyderabad, Date 09th May, 2014 VBP/- Copy to :
1. National Mineral Development Corporation Ltd., Khanij Bhavan, 10-3-311/A, Castel Hill, Masab Tank, Hyderabad - 500 028.
2. The DCIT, Circle 16(1), Hyderabad.
3. CIT(A)-V, Hyderabad
4. CIT-IV, Hyderabad
5. D.R. ITAT, 'B' Bench, Hyderabad.