Case Law Details
ACIT (OSD) Vs Eastern Coalfield Limited (ITAT Kolkata)
Held that assessee failed to provide details of calculation of the Performance Related Pay; also failed to prove the authority to pay the Performance Related Pay to the employees hence claim of Performance Related Pay is unsustainable
Facts- The assessee is a subsidiary of Coal India Ltd. Its main business is raising coal and selling it as per the guidelines issued by the Ministry of Coal from time to time. Assessment under Section 147 r.w.s. 143(3) of the Act for assessment years 2010-11 & 2011-12 was completed on 11.2015 after making various additions. The additions made by the Assessing Officer were challenged by the assessee before learned CIT(A) and appeal of the assessee was partly allowed.
Now, the Revenue is in appeal on various grounds like –
- Addition of Performance related pay;
- Difference in closing and opening value of non-vendible coal;
Conclusion- Addition of performance related pay-
The assessee has not filed any details of computation of income, calculation of the PRP, any authority to pay the PRP to the employees and the observations/notes given by the Auditor, if any, on this issue. We are unable to lay our hands on any specific documents which could show that the alleged amount was part of a crystallised liability which the assessee company ascertained during the year that could make the assessee eligible to claim it as an expenditure. All these facts referred herein above which in our view has not been looked into the right perspective by learned CIT(A).
Difference in closing and opening value of non-vendible coal-
Based on assessee’s own case it is held that value of non-vendible coal is considered as NIL and hence there is no increase in the cost of this stock and hence the addition was deleted.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The captioned appeals filed by the Revenue pertaining to the Assessment Years (in short “AY”) 2010-11 & 2011-12 are directed against the common order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) of ld. Commissioner of Income-tax (Appeals), Asansol [in short ld. “CIT(A)”] dated 14.02.2020 arising out of separate assessment orders framed u/s 147/143(3) of the Act.
2. Registry has informed that both the appeals are time barred by 245 days. Condonation applications have been filed by the Revenue. Perusal of the same shows that the delay was on account of COVID- 19 restrictions. We, therefore, in view of the judgment of The Hon’ble Supreme Court vide Miscellaneous Application No. 21 of 2022 find that the limitation period in filing appeal between 15.03.2020 till 28.02.2022 has been excluded for calculating the limitation period in filing appeal under this period. Since the period of limitation in this case falls during this period, the same deserves to be extended and we, therefore, condone the delay of 245 days and admit the Revenue’s appeals for adjudication.
3. Brief facts of the case are that the assessee is a subsidiary of Coal India Ltd. Its main business is raising coal and selling it as per the guidelines issued by the Ministry of Coal from time to time. Assessment under Section 147 r.w.s. 143(3) of the Act for assessment years 2010-11 & 2011-12 was completed on 11.2015 after making various additions. The additions made by the Assessing Officer were challenged by the assessee before learned CIT(A) and appeal of the assessee was partly allowed.
4. Now, the Revenue is in appeal for assessment years 2010-11 & 2011- 12 raising the following grounds of appeal:
Assessment Year 2010-11:
“1. Whether on the facts and circumstances and in law, the Ld. CIT(A) had erred in deleting the PRP of Rs. 29,97,00,000/- by holding that the said amount is not recoverable advances or loans, without corroborating the office memorandum issued by the Coal India Limited on 15.11.2011.
2. Whether on the facts and circumstances of the case and law, the Ld. CIT(A) is justified in deleting the difference in closing and opening value of non-vendible coal of Rs. 25,73,000/- by holding that the same is unverifiable whereas as per accountancy principle the valuation of the same quantum of non-vendible coal cannot be different in opening & closing stock without any valid reason.
3. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting Stowing subsidy amounting to Rs. 1,43,41,000/- by holding that the amount of addition relates to the last year’s subsidy receivable.
4. Whether on the facts and circumstances of the case and in law, the C1T(A) is justified in allowing 80% of additional depreciation of Rs. 7,85,50,480/- claimed u/s 32(1)(iia) of the I. T. Act, whereas the assessee company not only failed to produce the detailed break-up of assets but also failed to justify the admissibility of additional depreciation on assets as required u/s 32(1)(iia) of the I. T. Act.
5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing 80% of additional depreciation of Rs. 7,85,50,480/- claimed u/s 32(1)(iia) of the I.T. Act, whereas the assessee company is not eligible for additional depreciation u/s 32(1)(iia) of the I.T. Act.
The appellant craves leave to make any amend, addition, alteration, modification etc. of the grounds either before the appellate proceedings, or in the course of appellate proceedings.”
Assessment Year 2011-12:
“1. Whether on the facts and circumstances and in law, the Ld. CIT(A) had erred in deleting the PRP of Rs. 57,55,00,000/- by holding that the said amount is not recoverable advances or loans, without corroborating the office memorandum issued by the Coal India Limited on 15.11.2011.
2. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the difference in closing and opening value of non-vendible coal of Rs. 3,42,00,000/- merely on the basis of that the same as unverifiable whereas as per accountancy principle the valuation of the same quantum of non-vendible coal cannot be different in opening & closing stock without any valid reason.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting Stowing subsidy amounting to Rs. 1,52,02,000/- by wrongly holding that the amount of addition made relates to the last year’s subsidy receivable.
4. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in allowing 80% of additional depreciation of Rs. 12,15,85,520/- claimed u/s 32(1)(iia) of the I.T. Act, whereas the assessee company not only failed to produce the detailed break-up of assets but also failed to justify the admissibility of additional depreciation on assets as required u/s 32(1)(iia) of the I. T. Act.
5. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in allowing 80% of additional depreciation of Rs. 12,15,85,520/- claimed u/s 32(1)(iia) of the I.T. Act, whereas the assessee company is not eligible for additional depreciation u/s 32(1)(iia) of the I.T. Act.
6. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) had erred in allowing 50% of donation of Rs. 27,27,000/- i.e. Rs. 13,63,500/- assuming that donation to coal mafia and antisocial elements is a part of normal and daily expenses of coal businesses.
The appellant craves leave to make any amend, addition, alteration, modification etc. of the grounds either before the appellate proceedings, or in the course of appellate proceedings.”
5. The first common issue raised in ground no. 1 for assessment years 2010-11 & 2011-12 relates to deletion of addition of Performance Related Pay by learned CIT(A) holding that the said amount is not recoverable advances or loans. The impugned amount for assessment year 2010-11 is Rs. 29.97 crore and for assessment year 2011-12 is Rs. 57.55 crore. For the purpose of adjudication of this issue, we will take the fact for assessment year 2010-11.
6. Learned Counsel for the assessee submitted that the concept of Performance Related Pay (PRP) was introduced by the Ministry of Heavy Industries for the first time during the F.Yr. 2009-10 relevant to the assessment year 2010-11. The aim of the scheme was to reward the efficiency of the employees and to give them certain additional benefits with regard to their annual performance. The methodology of the calculation of the PRP was recommended by the Remuneration Committee in the meeting held on 05.02.20 10. So, the amount of PRP payable to all the employees were calculated and the same was debited to the P/L account and a liability/ provision was created on a mercantile basis during the F.Yr. 2009-10 relevant to the assessment year 2010-11. Further, vide Office Memorandum of Coal India Ltd. No. CIL/PERS/PRP/2010-11/73/G dt. 15.11.2011, the approval of Board of Directors was conveyed for the payment of lump sum amount of recoverable advance for the F.Yr. 2007-08, 2008-09 and 2009-10 to various employees with the direction that the advance payment, calculated as per the prescribed methodology, would also be released to the executives. It was also conveyed in the said Office Memorandum that the quantum of amount payable for the years 2007-08, 2008-09 and 2009-10 would be as per the methodology recommended by the Remuneration Committee in its meeting held on 05.02.20 10 and 75% of the amount due would be paid as lump sum recoverable advance. The assessee accordingly booked the expenditure of the Performance Related Pay paid as per the methodology recommended by the Remuneration Committee as per the Office Memorandum of Coal India Ltd. dated 15.11.2011. Learned Assessing Officer disallowed the said amount observing that as per Office Memorandum dated 15.11.2011 the payment of Performance Related Pay (PRP) is a recoverable advance and the alleged amount paid on ad hoc basis is not an allowable expenditure under Section 137(1) of the Act.
7. Learned Counsel for the assessee further placed reliance on the following finding of the learned CIT(A) deleting the alleged disallowance made by the Assessing Officer:
“Justification & Decision for grounds of appeal No. 3 – The submissions of the appellant and asstt. order have been very carefully perused. The concept of Performance Related Pay (PRP) was introduced by the Ministry of Heavy Industries for the first time during the F. Yr. 2009-10 relevant to the assessment year 2010-11. The aim of the scheme was to reward the efficiency of the employees and to give them certain additional benefits with regard to their annual performance. The methodology of the calculation of the PRP was recommended by the Remuneration Committee, which was held on 05.02.2010. So the amount of PRP issued to all the employees were calculated and the same was debited to the P/L account and a liability/ provision was created on a mercantile basis during the F. Yr. 2009-10 relevant to the assessment year 2010-11. Further, vide Office Memorandum of Coal India Ltd. No. CIL/PERS/PRP/2010- 1 1/73/G dt. 15.11.2011, the approval of Board of Directors was conveyed for the payment of lump sum amount of recoverable advance for the F.Yr. 2007-08, 2008-09 and 2009-10 to various employees with the direction that the advance payment, calculated as per the prescribed methodology, would also be released to the executives. It was also conveyed in the said Office Memorandum that the quantum of amount payable for the years 2007-08, 2008-09 and 2009-10 would be as per the methodology recommended by the Remuneration Committee in its meeting held on 05.02.2010 and 75% of the amount due would be paid as lump sum recoverable advance.
Hence from the above O.M., it is observed that the liability to pay was created during the F. Yr. 2009-10 and 75% of the said amount were disbursed during the F. Yr.201 1-12 as recoverable advance on the grounds that in case if some amount have to be recovered from the employees due to any excess payment, then the same can be recovered from the employees. In view of this, the amount disbursed in respect of the liability created during the F. Yr.2009-1 0 was termed as a recoverable advance. But it was not an advance in the actual sense of the word as it was not a loan on any kind but the payment of Performance Related Pay with regard to the services actually rendered by the employees. The payment was only of services actually rendered by the employees as per the terms of employment and fall under the category of remuneration and salaries
Hence the amount of PRP paid or payable cannot be termed as mere loans and advances given to the employees and have to be repaid back by the employees to ECL. They are linked to the official duties performed by the employees and are in the form of payment, rewards, initiatives for better performance of their duties. As the exact calculation of the PRP was still under consideration at various levels, an ad-hoc payment was made and it was termed as a “recoverable advance” to ensure that in case of any excess payment the same would be recovered from the employees. In case there are no excess payment than this amount would not be recovered at all.
Hence these payments are in nature of remuneration but till the final calculations were thrashed out, the same was stated to be recoverable advance to meet any eventualities of excess payments being made. It is the excess payment made which would be recovered and not the actual amount of PRP, which is legally due to the employee. The actual amount of PRP was a liability, which the appellant was liable to pay to its employees in exchange of the services rendered by them, as per the calculations stated. Hence the payment of PRP cannot be termed as an advance in the nature of a loan but it was the excess payment, if any, that was liable to be treated as an advance and be recovered.
Further vide Office Memorandum CIL/C-5A(PC)/ 1180 dt. 08.03.2016, Coal India Ltd. came out with the final method of computation and payment of PRP to the executives to be done in accordance with the methodology as stated in the said OM. It was also mentioned in the OM dt. 08.03.2016, that the lump sum amount paid earlier for the years 2009-10 and 2010-11 will be adjusted from the amount of PRP payable calculated in accordance with the OM dt. 08.03.2016. Even though the actual crystallization of the calculations have taken place vide OM dt. 08.03.2016, 75% of the payment was already done during the F. Yr. 2011-12 and a liability to pay was created during the A. Yr.2010-1 1 i.e. during the F. Yr. 2009-10 relevant to the assessment year 2010-11 based on the mercantile system of accounting.
During the course of the appeal proceedings, the appellant has stated that after the decision made vide OM dt. 08.03.2016, the amounts determined as excess liabilities created were written off for the F. Yr. 200 7-08 and were added to the income of the appellant during the F.Yr. 2017-18. The entire chart with regard to PRP and payment for the F. Yr. 2009-10 were submitted during the appeal proceedings and the detailed calculations including the recoveries made were verified on a sample basis. On sample verification, it was seen that excess payments have been recovered from the employees. The copies of the journal voucher for writing off of the excess liability created in respect of certain employees for all the earlier years and the extract from the audited accounts, incorporating the said write off were produced during the course of appeal hearings. During the course of the appeal hearings, the appellant produced the list of employees, giving details of PRP payments for the F.Yr. 2009-10 pertaining to the A.Yr. 2010- 11, wherein any excess payment or liabilities created in respect of any employee have been written back and added to the income of the appellant under the head “other income”. In the note No. 25 of the financial statement under the head “other income”, the amount of liabilities written back have been mentioned, which included the amount of excess liabilities, if any, created with regard to the payment of PRP and has been added to the income of the appellant and offered for taxation. Hence it is seen that there is no loss of revenue to the Government exchequer.
With regard to the accounting treatment of the above facts, it is seen that during the F.Yr. 2009-10 relevant to the assessment year 2010- 11, PRP was announced and a liability was created. As a liability was created, 75% of the payment was made during the F. Yr. 2011-12 but it was termed as a “recoverable advance” to safeguard against any excess payment made to the employees. But as stated in the earlier paragraphs, this was not in the nature of an advance or loans but was in the nature of payment of emoluments in exchange of services rendered by the employees as per terms of employment. It is only the amount of the excess payment, if any, to a particular employee, which can be termed as an advance to be recovered. Further, from the sequence of the events, it is seen that the liability to pay by the appellant arose as soon as the PRP scheme was announced by the Ministry of Heavy Industries. The liability thus arose in the F. Yr. 2009-10, although the exact amount of payment and the calculations were under negotiation and were not fully crystallized. Thus, it cannot be denied that the liability to pay arose during the F. Yr.2009-10 and an amount was debited to the P & L account.
Further, the payment of 75% of the amount due made during the F. Yr. 2011-12, evidences that the appellant was firm in its view that the amount was considered as a genuine liability by ECL during the F. Yr. 2009-10 pertaining to the Asstt. Year 2010-11 and hence it had paid 75% of the amount so debited in its books of accounts as payable towards PRP. If the appellant was not clear in its thinking or there were doubts regarding the announcement or the liability created was indeed a contingent one and was not based on any concrete decision to pay the PRP, then the appellant would not have paid 75% of the amount during the F. Yr.201 1-12. The fact that the appellant had made 75% of the payment during the F. Yr. 2011-12 shows that the appellant had considered that it was legally obliged to pay PRP and there were indeed a crystallization of the liability to pay although the amount of payment was under calculation.
As the actual calculations had not firmed up due to the negotiation at various levels, only 75% of the amount was paid and the balance was left unpaid till the issues and the manner of the calculation could be actually brought to a finality. But it cannot be denied that the appellant was convinced that there was a distinct and firm, liability to pay to its employees. This is garnered by the fact that it had paid 75% of the PRP during the F. Yr. 2011-12 even if the actual calculations were finalised vide OM dt. 08.03.2016 i.e. after five years. Further if the expenses were to be debited in the accounts after the OM dt. 08.03.2016 i.e., after the manner of computation was finalised, then it could be argued that the payment pertains to prior period. In view of this, it is held that the liability to pay the PRP was a distinct and genuine liability which arose during the F. Yr. 2009-1 0, with regard to which the appellant debited the expenses and created a liability to j be paid at a future date and 75% of the said liability was actually paid during thej’ F. Yr.201 1-12. Hence in my mind, the amount of Rs.29,97,00,000j’- is not recoverable advances or loans. In view of this, the addition of Rs.29,97,00,000j’- is deleted and hence the appeal is allowed.”
8. Per contra, learned Departmental Representative vehemently argued supporting the order of learned Assessing Officer and also brought to our notice that the Office Memorandum was issued in November, 2011 and till that date liability was not crystallised about the amount payable to the employees.
9. We have heard rival contentions and perused the records placed before us. Through ground no. 1 for assessment years 2010-11 and 2011-12 common grievance of the Revenue is that learned CIT(A) erred in deleting the disallowance of Performance Related Pay (PRP) at Rs. 29.97 crore and Rs. 57.55 crore.
10. We observe that the concept of PRP is introduced by Ministry of Heavy Industry and Public Enterprise in order to reward the efficiency of the employees and to motivate them to work effectively and also to restrict them towards shifting to private sector. As stated by learned Counsel for the assessee the methodology was recommended by Remuneration Committee held on 05.02.20 10. Now, the assessee company has created a provision for the said liability of PRP in its books claiming it as an expenditure and this claim was denied by Assessing Officer stating that it was in the nature of advance. It is also brought to our notice that Coal India Ltd. issued an Office Memorandum No. CIL/PERS/PRP/2010- 1 1/73/G dated 15.11.2011 and for ready reference the same is reproduced below:
“COAL INDIA LIMITED
10, MS. Road, Kolkata-700001
No. CIL/Pers/PRP/2010-1 1/73/G
Date: 15.11.2011
OFFICE MEMORANDUM
Sub: PAYMENT OF LUMPSUM RECOVERABLE ADVANCE
Approval of Board of Directors is hereby conveyed for payment of lump sum recoverable advance for financial years 2007-08, 2008-0 9 and 2009-10 to Board level and below Board level executives of CIL & its subsidiaries. As and when the MOU ratings of die Companies for 2010-11 are approved by DPE, advance payment as per the prescribed methodology would also be released to the executives.
For arriving at the quantum of amount payable, it has been advised to calculate Performance Related Pay (PRP) amount payable to the individual Executive for the years 2007-08, 2008-09 & 2009-10 as per the methodology recommended by Remuneration Committee in its meeting held on 5th Feb. 2010 and pay 75% of the amount as lump sum recoverable advance.
Pursuant to above, the amount of recoverable advance payable for the years 2007-08, 2008-09 and 2009-10 will be derived based on the following guidelines/parameters:
a) The payment will be made to such of the Executives, who were on the roll of the Company as on 1st April, 2007 and continue to do so as on 1st November, 2011.
b) Executives who have superannuated are not eligible for the
c) In case of Executives who are likely to superannuate shortly, the advance paid will be adjusted against terminal benefits due to them.
d) Those Executives who joined the company after 1st April 2007 will be paid the recoverable advance on pro-rata basis based on their service during the period under consideration.
e) Management Trainees are also eligible for payment of advance.
f) In case of promotion/demotion to higher / lower grade during the above period, the payment would be made on pro-rata basis for the service rendered in the relevant grade. In case of non-executives promoted to the Executive cadre during the period, the payment would be made on pro-rata basis.
g) For those Executives under suspension, no advance would be paid.
h) CIL’s MoU rating will be applicable to RSOs, Delhi Office, NEC and
i) As regards executives transferred from one subsidiary company to the other, payment of advance will be made from the present place of posting on the basis of data to be made available by the company where the Executive was posted earlier.
j) Methodology for calculation will be as illustrated below: Amount payable to individual executive will be based on the formula A x M x E x G x R x P where,
A = Annual revised Basic Pay for years 2007-08.2008-09 & 2009-10
M= MOU rating of CIL and its subsidiaries (Excellent-100 %; Very Good -80% Good-60% and Fair – 40 %)
E= Percentage applicable to Performance Ratings of Executives in 2007-08. 2008-09 & 2009-10
G = Grade Incentive (% of Basic pay) of the Executive
R = Ratio of required amount to available amount. The ratio of required amount to available amount for the years 2007-08 and 2009-2010 are ‘1’. For the year 2008-09 “R” is ‘0.88’ because of dip in Profit Before Tax (PBT) thereby impacting the ratio of PBT of 200 7-08 & 2008-0 9
P= P for the year 200 7-08 is 60 % being the base year. P for 2008-0 9 is 60 % as there was no incremental profit and P for the year 2009- 10 is 100 % due to incremental profit.
Actual MOU ratings of CIL and its subsidiaries, Percentage applicable to Executive Evaluation Ratings and Grade Incentive along with illustrations for calculation are enclosed as Annexure -1 (4 pages).
The payment may be released as soon as possible.
This issues with the approval erf competent authority.”
11. Now, from perusal of the above Office Memorandum certain important points observed by us are that the approval for payment of lump-sum recoverable advance for assessment years 2008-09 and 2009-10 is granted through this Office Memorandum. It is also mentioned in this memorandum that as and when MoU ratings of the companies for assessment year 2010-11 are approved by DPE, advance payment as per the prescribed methodology could also be released to the executives. Reference has been given in this memorandum about the methodology recommended by Remuneration Committee in its meeting held on 05.02.2010 and for paying 75% of the amount as lump-sum recoverable advance. It is also important to note that as per the guidelines/parameters given in the Office Memorandum under the first condition which says that the payment will be made to those executives who were on the roll of the company as on 01.04.2007 and continue to do so as on 01.11.2011.
12. The first condition provided in Clause (a) of the above referred Office Memorandum makes it very clear that only those executives who are on the roll of the company as on 01.04.2007 and continue to do so on 01.11.2011 are eligible and there is further relaxation as per Clause 3 which says that those who have joined after 01.04.2007 but are on roll as on 01.11.2011 will be paid recoverable advance on pro rata basis based on their service. So, the crucial date is 01.11.2011 and for any employee to be eligible for such advance/PRP, he/she needs to be on roll of the company as on 01.11.2011.
13. Another important fact brought to our notice by way of the submissions made by learned Counsel for the assessee at page 2 of the paper book states that the final payment towards PRP have been made in F.Yr. 2016-17 after receipt of advice from Coal India and final adjustment for all the years i.e. F.Yr. 2008-09 to F.Yr. 2015-16 have been made in F.Yr. 2016-17 and amount determined as excess provision has been written off in F.Yr. 2017- 18.
14. Now, the two issues which need to be adjudicated is that firstly when the Office Memorandum is issued on 15.11.2011 and the employee has to be on roll as on 01.11.2011 then on what basis the provisions can be made in the books of account during F.Yr. 2007-08, 2008-09, 2009-10 & 2010-11. One cannot foresee the future that an employee will remain in the company till 01.11.2011 so as to book the provisions in the books.
15. Secondly, there is no document showing the methodology recommended by the Remuneration Committee in the meeting held on 05.02.20 10. Though the method of calculation is attached to the Office Memorandum dated 15.11.2011 but the actual minutes of the meeting held on 05.02.20 10 is not available on record. No such order has been placed before us which could show that the assessee company had an authority before the issuance of Office Memorandum dated 15.11.2011 to book the provisions of PRP.
16. It seems that the learned CIT(A) failed to examine these facts in the impugned order. No such finding has been given in the impugned order about the implication of the Office Memorandum of Coal India Ltd. dated 15.11.2011 and the employees eligible for PRP who are on roll as on 01.11.2011. The date 01.11.2011 is very crucial because an employee who is on roll on that date is only eligible for the said PRP. The instant appeals relate to F.Yr. 2009- 10 & 2010-11 and during these years and even before the due date of filing return of income the assessee company had no idea about the Office Memorandum to be issued in future on15. 11.2011.
17. Before us the assessee has not filed any details of computation of income, calculation of the PRP, any authority to pay the PRP to the employees and the observations/notes given by the Auditor, if any, on this issue. We are unable to lay our hands on any specific documents which could show that the alleged amount was part of a crystallised liability which the assessee company ascertained during the year that could make the assessee eligible to claim it as an expenditure. All these facts referred herein above which in our view has not been looked into the right perspective by learned CIT(A) leaves us with no option except to restore this issue of claim of PRP to learned CIT(A) for fresh examination keeping in view the Office Memorandum issued by Coal India Ltd. on 15.11.2011, the final adjustment made during F.Yr. 2016-17 and also the accounting treatment given by the assessee in its books. In case, after providing reasonable opportunity, the assessee is able to satisfy learned CIT(A) with the relevant documentary evidences then learned CIT(A) can decide in accordance with law and if otherwise, then the alleged scheme of PRP should be given effect in the way the arrear of salary is given in the accounting system. Thus, this common issue raised in ground no. 1 for assessment year 2010-11 is allowed for statistical purposes.
18. The common ground no. 2 raised by the Revenue is against the deletion of difference in closing and opening value of non-vendible coal merely on the basis that the same as unverifiable. At the outset, learned Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of this Tribunal in its own case for assessment years 2003-04 to 2005-06 in ITA No. 463 to 464/Kol/2009 order dated 27.07.20 16 and for assessment year 2009-10 in ITA No. 890/Kol/2019.
19. Learned Departmental Representative failed to controvert this submission made by the learned Counsel for the assessee.
20. We have heard rival contentions and perused the papers on record placed before us. On perusal of the orders of this Tribunal in assessee’s own case referred (supra), we find that the relevant finding of this Tribunal in the order dated 24.09.2020 on this issue reads as follows:
“3. Ground no. 3 of the revenue’s appeal for AY 2009-10 is against the action of the Ld. CIT(A) in deleting the addition of Rs.22,43,24,000/- which was added by the AO taking into consideration the difference between opening and closing value of non-vendible coal of Rs.22,43,24, 000/-.4
4. At the outset, the Ld. AR of the assessee submitted that the assessee is a Public Sector Undertaking and on this issue the Ld. CIT(A) has given relief to the assessee by relying on the Tribunal’s order in assessee’s own case for AYs. 2003-04 to 2005-06. We note that the Ld. CIT(A) has given relief to the assessee by taking note of the decision of this Tribunal in assessee’s own case for AY 2003-04 to 2005-0 6 in ITA No. 462 to 469/Kol/201 9 dated 27.10.2016 which is seen placed at pages 8 and 9 para 12 to 14 of the Tribunal’s order wherein we note that this issue is covered in favour of the assessee. We note that the Ld. CIT(A) at page 6 has decided this issue as under:
“The value of this 472 M. T. of non-vendible col was shown as closing stock in hand in the balance sheet of the previous year i.e. during the AY 2008-09. However, for the current year i.e. 2009-10 the value of this non-vendible coal was not shown in the opening stock as well as in the closing stock as its value was considered was nil. For the previous AY 2008-09, the ITAT Kolkata bench vide ITA No. 2266/Kol/2014 dated 09.02.2018 took the value of the 472 M. T of coal as nil. As the ITAT has taken the value of this non-vendible coal as nil, the value of opening and closing stock will be nil for the AY 2009-10. Hence, there is no increase in the cost of this stock. Hence, the addition is deleted and the appeal is allowed.”
5. Since the revenue has not been able to show that there is any change in facts or law, we are bound by the decision of the Tribunal on this issue and respectfully following the same we confirm the order of Ld. CIT(A), this ground of appeal of revenue is dismissed.”
21. Since, learned Departmental Representative has been unable to show that there is any change in facts or law, we, therefore respectfully following the consistent view taken by this Tribunal find no inconsistency in the finding of the learned CIT(A). Thus, the issue raised in the common ground no. 2 for assessment year 2010-11 & 2011-12 is dismissed.
22. Now, through ground no. 3, the common issue has been raised by the Revenue that learned CIT(A) was not justified in deleting the stowing subsidy received by the assessee during the year. At the outset, learned Counsel for the assessee submitted that this issue stands squarely covered in favour of the assessee by the decision of this Tribunal in its own case for assessment year 2009-10 in ITA No. 891/Kol/2019 dated 24.09.2020.
23. Learned Departmental Representative failed to rebut this finding.
24. We have heard rival contentions and perused the papers on record placed before us. The common issue raised in ground no. 3 for assessment years 2010-11 & 2011-12 relates to the deletion of the addition made by the Assessing Officer on stowing subsidy received by the assessee. We find that this Tribunal in the decision in ITA No. 890 & 891/Kol/2019 dated 24.09.2020 has adjudicated the issue and dismissed the Revenue’s ground observing as follows:
“10. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has made the addition on the basis of note no. 12.3 of the notes on account found placed in page no. 173 of the Audited Annual Reports of Accounts. It was brought to our notice that receipt on account of stowing subsidy are accounted for on the same basis from the inception of assessee and there has been no change in the practice adopted by the assessee while accounting on this issue and for the first time such an addition has been made by the department. According to Ld. AR, on the principle of consistency this issue/accountancy practice which was regularly followed by the assessee and which is permeating in all these years from inception should not have been disturbed. We note that the assessee’s accounting policy for recording the amount receivable has been consistently followed since its inception. It is noted that total amount receivable for AY 2009-10 was determined at Rs.49,83,32,000/- against which amount the assessee received during the year was Rs.25,21,55,986/- leaving balance amount of Rs.24,66,76,034/- which was receivable as on 31.03.2009. It was brought to our notice that the total amount of stowing subsidy disclosed in the P&L Account is Rs.507,70,29,057/- details which are filed before us as well as before the lower authorities. It was pointed out to us that an amount of Rs.26,47,52,000/- is the balance amount to be received on account of all the years as on 31.03.2009 and the AO failed to appreciate that in the ledger head “subsidy receivable includes all the subsidy receivable”. It was brought to our notice that from the details of receivable accounts it is revealed that opening balance as on 01.04.2008 was Rs.29,89,57,887/- out of which subsidy the assessee received against opening balance was Rs.28,91,19,093/- and the amount receivable against FY 2008-09 was Rs.25,48,73,091/- which means that Rs.98,78,794/- (rounded of Rs.98,79,000/-) was the amount receivable from earlier FYs prior to FY 2008-09 which has already been offered as income in the relevant years. We note that the Ld. CIT(A) has rightly noted that the total subsidy due for the year under consideration (AY 2009-10) was Rs. 50,70,29,057/- which has been shown in the P&L Account under the head ‘other receipts’. The Ld. CIT(A) has rightly noted that Rs.2647.52 lacs is not the subsidy received. Subsidy due at the beginning of the year was Rs.29,89,97,877/- out of which Rs.28, 91,19,093/- was received. Hence, the balance was to be received on account of loan was Rs. 98.79 lacs which is in respect of earlier year and the amount of Rs.2548 lacs due to the current year aggregate to Rs.2647 lacs. Balance receivable which has been shown in the Balance Sheet. Therefore, the Ld. CIT(of Rs. 98.79 lacs since its last year’s subsidy receivable and not pertaining to this year. Therefore, this ground of appeal of the revenue is dismissed.”
25. We further find that learned CIT(A) after examining the facts of the case deleted the addition made by the learned Assessing Officer for assessment year 2010-11 observing as follows:
“in view of the above calculation, the assessing officer held that the appellant had shown less subsidy of Rs. 143.41 lakhs. The assessing officer had added Rs. 2348.65 lakhs and Rs. 2707.24 lakhs to arrive at the subsidy accrued to the appellant during the relevant assessment year. But the amount of Rs. 2707.24 lakhs, shown as subsidy receivable, is not the subsidy receivable for the current year only but also includes the subsidy receivable for the earlier years as well. The total subsidy due for the assessment year 2010-11 was Rs. 49,12,48,149/-, which has been shown in the P & L account under the head “other receipts”. The assessing officer in the assessment order, had reduced from subsidy receivable of Rs. 2707.54 lakhs and subsidy received of Rs. 2348.65, an amount of Rs. 4912.48 lakhs being subsidy received. But this amount of Rs. 2647.52 lakhs is not the subsidy received but is the subsidy receivable for the current A. Y., out of which Rs. 2504.41 lakhs have been received in the first six months. The subsidy due at the beginning of the year was Rs. 26,47,51,885/-, out of which Rs. 25,04,10,710/- was received hence the balance to be received on account of last year was Rs. 143.41 lakhs. Out of the total subsidy receivable for the current year amounting to Rs. 4912.48 lakhs, an amount of Rs. 2348.65 lakhs was received and the balance to be received or due is Rs. 2563.83 lakhs for the current year. Thus, the amount due of Rs. 143.41 lakhs in respect of the earlier year and the amount of Rs. 2563.83 due for the current year aggregating to Rs 2707 lakhs, is the balance receivable which has been shown in the balance sheet. Hence, the amount of Rs. 143.41 lakh; added by the A.O. is the amount due in respect of the last year’s subsidy receivable. Thus the A. O. has erred in treating this amount as the concealed income of the appellant. Hence, the addition is deleted and the appeal is allowed.”
And similarly, for assessment year 2011-12 the facts of the case have been rightly captured by learned CIT(A) in the impugned order which reads as follows:
“In view of the above calculation, the A. O. held that the appellant had shown less subsidy of Rs. 152.02 lakhs. The A.O. had added Rs. 2072.61 lakhs and Rs, 2254.43 lakhs to arrive at the subsidy accrued to the appellant during the relevant assessment year. But the amount of Rs. 2254.43 lakhs, shown as subsidy receivable, is not the subsidy receivable for the current year only but also includes the subsidy receivable for the earlier years as well. The total subsidy due for the A. Y. 2011-12 was Rs. 41,75,02,000/- , which has been shown in the P&L account under the head “other receipts”. The A.O. in the assessment order, had reduced from subsidy receivable of Rs. 2254.43 lakhs and subsidy received of Rs 2072.61, this amount of Rs. 41 75.021akhs being subsidy disclosed as income. But this amount of Rs 2254.43 lakhs is not the subsidy received but is the subsidy receivable for the current A. Y., out of which Rs. 2072.61 lakhs have been received in the first six months. The subsidy due at the beginning of the year was Rs. 2707.24 lakhs, out of which Rs. 2555.22 was received hence the balance to be received on account of last year was Rs. 152.02 lakhs. Out of the total subsidy receivable for the current year amounting to Rs. 4175.02 lakhs, an amount of Rs. 2072.61 lakhs was received and the balance to be received or due is Rs. 2102.41 lakhs for the current year. Thus the amount due of Rs. 152.02 lakhs is in respect of the earlier year and the amount of Rs. 2102.41 lakhs due for the current year aggregating to Rs 2254.43 lakhs, is the balance receivable which has been shown in the balance sheet. Hence, the amount of Rs. 152.02 lakhs added by the A. O. is the amount due in respect of the last year’s subsidy receivable. Thus the A. O. has erred in treating this amount as the concealed income of the appellant. Hence, the addition is deleted and the appeal is allowed.”
26. The above finding of the learned CIT(A) remains uncontroverted by learned Departmental Representative by placing any document on record.
27. We, therefore, respectfully following the view taken by this tribunal and the facts narrated in the impugned order, find no infirmity in the finding of the learned CIT(A) deleting the addition made by the learned assessing officer towards stowing subsidy. Thus, the common ground no. 3 for the assessment years 2010- 11 & 2011-12 is allowed.
28. The common ground nos. 4 & 5 for the assessment years 2010-11 & 2011-12 relate to the assessee’s claim of additional depreciation at the rate of 100%. But, learned Assessing Officer restricted it to 50% observing that the assessee company is not engaged in any manufacturing activity and, therefore, not eligible for any deduction for additional depreciation. When the matter was carried before the learned CIT(A), in view of the judgement of the jurisdictional High Court in the case of Commissioner of Income-tax vs. G.S. Atwal & Co. (Gua) reported in [2002] 254 ITR 592 (Calcutta) held that the appellant is entitled to the claim of additional depreciation as the mining of coal was held we are manufacturing activity. However, since the appellant was not in a position to produce all the necessary details and vouchers, the learned CIT(A) restricted the claim to 80% as against 100% claimed by the assessee.
29. Before us, learned Departmental Representative argued supporting the order of the learned Assessing Officer.
30. Per contra, learned Counsel for the assessee stated that the issue needs to be restored to the learned Assessing Officer in view of the decision of this Tribunal given in the assessee’s own case of another sister concern Eastern Coalfield Limited in ITA Nos. 376 & 377/Kol/2020 order dated 02.02.2022.
31. We have heard rival contentions and perused the papers on record placed before us. Allowing of 80% of the additional depreciation by the learned CIT(A) is in dispute before us at the instance of Revenue. Learned Assessing Officer has not treated assessing as manufacturing company and denied that additional depreciation. We, however, find that the honourable jurisdictional High Court in the case of G. S. Atwal & Co. (supra) has held that the mining of coal is a manufacturing activity and since the assessee is engaged in the mining of coal the assessee is eligible for additional depreciation. Learned CIT(A) has restricted to 80% of the additional depreciation for want of complete details of the assets purchased during the year.
32. We find that similar issue came up before this tribunal in the case of Eastern Coalfield Limited vs. DCIT in ITA Nos. 376 & 377/Kol/2020 order dated 02.02.2022 and the claim of additional depreciation has been restored to the file of the Assessing Officer observing as follows:
“6. We have heard both the parties and perused the records. At the outset, the Ld. A.R. drew our attention to the fact that similar issue had cropped up in assessee’s own case before this Tribunal; and the Tribunal was pleased to remand the issue back to the AO and drew our attention to the assessee’s own case decided by the Tribunal in ITA No. 1010 & 1015/Kol/2015 for AY 2009-10 & ITA No. 916 & 999/Kol/201 7 for AY 2008-0 9 dated 16.01.2019 wherein this issue was considered from para 4.1 to 4.5 which is as under:
4.1 Ground No.3 is on the issue of allowability of depreciation. The Assessing Officer rejected the claim of the assessee on the ground that excavation/raising of coal is not manufacture or production of any article or thing. On appeal, the Id. First Appellate Authority at Para 5.4 of his order relied on the order of the Id. C1T(A) for the Assessment Year 2009-10 and followed the view taken therein and directed the Assessing Officer to allow the claim of the assessee to the extent of 80% of the amount claimed. For the Assessment Year 2009-10. we find that the Assessing Officer has disallowed the claim of the assessee for additional depreciation on the ground that, the assessee has not submitted break-up details of machinery on which additional depreciation has been claimed. At Para 6.4 Page 6 of his order, the Assessing Officer on the issue of additional depreciation held as under:
“6.4 The reply of the assessee is considered. Additional depreciation is allowable only on the assets used in the manufacturing of production of any article or things. The assessee is entitled to claim depreciation only on the assets used directly in the extraction/production of coal. It is evident from the above list furnished by the assessee that additional depreciation is claimed on many items that are not used directly in the production process. No detailed breakup of the addition to Plant & Machinery on which additional depreciation have been claimed to have been furnished by the assessee and also the assessee could not furnish the value of item wise details. In absence of quantitative value of each item of the asset, 50% additional depreciation is disallowed. Therefore, the additional depreciation claimed by the assessee and as such a sum of Rs. 1 3,23,40.200/- is added to the total income.”
From the above, it is clear that the Assessing Officer has disallowed 50% of additional depreciation claimed only on the ground that lack of details being filed. The issue whether production/extraction of coal is manufactured or not, was not in dispute and the claim of the assessee was accepted by the Assessing Officer.
4.2 On appeal, the Id. First Appellate Authority observed as under:
“16. From the submissions made, I find that: (a) In depreciation schedule that under plant and machinery Rs.834,812,000/- and Rs. 1,380,039.000/- or claimed as additional depreciation.
(b) Additional depreciation is claimed excluding “tele-communication tools & equipments and Railway siding” at 20% for assets acquired prior to October 08 and 10% for others.
(c) Full details establishing Assessing Officer to come to a firm conclusion as to whether the stiff conditions are met for claiming additional depreciation is not furnished. Furnishing of details will only help Assessing Officer to come to a conclusion.
17. Allowance of additional depreciation is a matter to be decided based on each asset acquired. Decision depends on whether it is new (condition in proviso to section 32(1)(iia) also is to be applied) and goes into ‘manufacture or production’ of “article or thing” are to be established with hard documents. There are not brought to record. The additional depreciation is also a business expense and the onus is on assessee to prove before Assessing Officer the eligibility as prescribed in law. This clearly is not discharged here. Therefore Assessing Officer is correct in exercising best of judgment. Thus to decision before me is whether manner of exercising best of judgment is fair or not.
18. The broad nature of expense is let know by appellant. He also stated that the volume of documents is too much to produce the same (assets of Rs.221.4 crore are covered in additional depreciation) which are located in many units of Eastern Coalfields Ltd. The fact is that appellant is a PSU and having proper documents. Exercise of proffer internal financial control within the PSU cannot be negated. Normal depreciation is fully granted as claimed. All that can create dispute is whether the asset is ‘new’ and whether it goes in ‘manufacture or production’ of article or thing’. The decision cannot come without examining relevant documents. These were not produced and hence best of judgment was rightly exercised. However, a 50% disallowance is found to be an higher side on an examination of overall picture presented in this paragraph. A disallowance of 20% would suffice with case as against 50% made by Assessing Officer. Accordingly I direct Assessing Officer to restrict disallowance to Rs.5,29,36,080/-. The ground 3 is partly allowed.”
Hence an ad hoc decision was taken to disallow 20% of the claim for the assessee for the reasons mentioned.
4.3 The Id. Counsel for the assessee relies on a number of case laws and submits that raising/extraction of coal amounts to production.
(i) CIT vs. G. S. Atwal and Co. 254ITR 592 (Cal)
(ii) Bla Industries Pvt. Ltd. vs. Pr. CIT in ITA No. 779/Kol/201 6 order dated 28.02.2018.
The ld. Counsel further submitted that ad hoc disallowance is bad in law and has to be deleted. The Id. Departmental Representatives submitted the disallowance was made as the assessee has not furnished the required particulars before the Assessing Officer. He challenged the disallowance sustained by the Id. CIT(A) at 20% of the claim. He did not dispute the claim of the assessee that extraction/raising of coal from the mines is production of an article or thing.
4.4 On consideration of the fact and circumstances of the issue, we are of the considered opinion that the matter should be restored to the file of the Assessing Officer for fresh adjudication, after considering the details of plant and machinery used by the assessee for the purpose of extraction/raising of coal. The assessee claims to have produced audit statements which gave all the required particulars before the Assessing Officer. We direct the assessee to once again produce all the details as required by the Assessing Officer in support of his claim for deduction of additional depreciation. The additional depreciation should be granted on such plant and machinery that have been used for the production of coal. The Assessing Officer should keep in mind that the assessee is a public sector undertaking and its accounts are audited by the Comptroller & Auditor General of India and such audited statements have evidentiary value.
4.5 In the result, this ground of the assessee is allowed for statistical purposes.”
7. From a perusal of the aforesaid order of the Tribunal in assessee’s own case on the additional depreciation claim, we note that the issue was restored back to the file of the AO and the assessee was directed to produce all the details as required in support of its claim for deduction in respect of additional depreciation and the Tribunal has directed the AO to grant additional depreciation on such plant and machinery that have been used for the production of coal and reminded the AO the fact that the assessee is a Public Sector Undertaking which undergoes audit by the Comptroller and Audit General (in short CAG); And in this regard it has been brought to our notice, that pursuant to the remand, the AO has allowed the claim of additional depreciation to the assessee. Be that as it may be, we set aside the order of the Ld. CIT(A) and this issue is remanded back to the AO, with the same observation and directions given in the assessee’s own case on this issue (Mutatis-mutandis) and direct him to consider the claim of the assessee and to pass order in accordance to law. Thus, the sole issue is decided on merits for statistical purposes. Since the issue has been disposed off on merits, the legal issue regarding the validity of reopening is left open and not adjudicated.”
33. Respectfully following the above view taken by this Tribunal, we restore this issue to the file of the learned Assessing Officer to examine the claim of additional depreciation on the basis of the finding of this tribunal given herein above as well as in light of the ratio laid down by the jurisdictional High Court in the case of S. Atwal & Co. (supra) holding that mining of coal is a manufacturing activity. Thus, the common ground nos. 4 & 5 for assessment years 2010-11 & 2011-12 allowed for statistical purposes.
34. Ground no. 6 for assessment year 2011-12 relates to claim of The assessee claimed expenditure of donation allegedly given to public and clubs on various occasions to ensure smooth functioning of the business and to avoid inevitable hindrances. Learned Assessing Officer denied this claim stating that these were not incurred for business purposes. However, learned CIT(A) allowed 50% of the said expenses incurred in the business purposes. This finding of the learned CIT(A) has been challenged before us.
35. Learned Departmental Representative supported the order of both the lower authorities.
36. We have heard rival contentions and perused the papers on record placed before us. Through ground no. 6, the Revenue has challenged the finding of the learned CIT(A) allowing 50% donation of Rs. 27,27,000/- i.e. Rs. 13,63,500/- as business expenditure. We note that the assessee is into the business of mining of coal and such coal mines are located in remote areas. There are various social commitments of the company so as to keep the employees and their family safe and to have a better working and family A sum of Rs. 27,27,000/- has been spent during the year for the donation given to various club and associations. The claim of the assessee is that this amount is given for smooth transportation of coal and such payments are a matter of commercial expediency. Before us no such details of expenditure has placed. However, looking to the facts and circumstances of the case and the nature of business run by the assessee, magnitude of its turnover and the company being subsidiary of Coal India Ltd. where there is a proper system of accounting and in carrying of expenditure and the approval of the expenditure by the authorized person, we do not doubt the genuineness of expenditure. However, the same being totally spent for business purposes cannot be accepted. We, therefore, looking to the facts and circumstances of the case, restrict the disallowance to 75% of the donation given during the year. Accordingly ground no. 6 is partly allowed.
37. In the result, the appeals filed by the Revenue for assessment years 2010-11 & 2011-12 are partly allowed for statistical purposes.
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