Facts of the Case

The appeals arose out of cross appeals filed by the Revenue and the assessee, M/s Bharat Coking Coal Ltd. (a Government of India PSU), along with cross objections, against orders passed by the CIT(A), Ranchi/NFAC for Assessment Years 2009-10, 2011-12 and 2012-13. The Revenue challenged relief granted on issues of unabsorbed depreciation, contractual unpaid liabilities, and disallowance under Section 14A. The assessee challenged large additions made by the Assessing Officer by disallowing contractual expenses paid to Shri Lal Bahadur Singh and his group, based solely on search proceedings conducted in the case of the contractor group and investigation reports.

Issues Involved

Whether unabsorbed depreciation could be carried forward beyond eight years, whether unpaid contractual liabilities based on accrued bills were allowable, whether disallowance under Section 14A was justified, whether contractual expenses paid by a PSU through proper tender and verification could be disallowed merely due to search proceedings against contractors, and whether additions far exceeding actual expenditure could be sustained.

Petitioner’s Arguments

The Revenue contended that unabsorbed depreciation was time-barred, contractual liabilities were mere provisions, and Section 14A disallowance was mandatory. It further argued that payments made to Shri L.B. Singh and his group were not for genuine business purposes as no work was proved by the contractors and large disclosures were made before the Settlement Commission.

Respondent’s Arguments

The assessee submitted that all contracts were awarded through government-prescribed tender procedures, work was executed, bills were raised and verified, and payments were made through banking channels. It was argued that the assessee was never alleged to be part of any manipulation, that the contractors’ inability or refusal to substantiate work could not invalidate the assessee’s business expenditure, and that the Revenue itself had taxed the entire receipts as business income in the hands of the contractors. The assessee relied on settled law including General Motors India Pvt. Ltd., Bharat Earth Movers, and multiple coordinate bench decisions in its own case.

Court Order / Findings

The ITAT Ranchi held that the issue of unabsorbed depreciation was squarely covered in favour of the assessee by its own earlier orders and by the Gujarat High Court decision in General Motors India Pvt. Ltd., confirming unlimited carry forward post Finance Act, 2001. Contractual unpaid liabilities were held allowable as accrued liabilities following Bharat Earth Movers. Disallowance under Section 14A was deleted following coordinate bench decisions where sufficient interest-free funds were available. On the core issue of contractual expenses paid to Shri L.B. Singh and his group, the Tribunal held that additions were arbitrary, uncorrelated to actual payments, and solely based on third-party search material. It was emphasized that the assessee, being a PSU audited by CAG, followed due tendering process and there was no finding of collusion or non-business purpose. The Tribunal also noted that additions exceeded total expenditure and that Revenue had accepted the receipts as business income in contractors’ hands. Accordingly, major disallowances were deleted. Certain minor issues were restored to the AO, one issue was dismissed as not pressed due to Vivad Se Vishwas, and additional claims were allowed following Goetze (India) Ltd.

Important Clarification

The Tribunal clarified that business expenditure of a bona fide assessee cannot be disallowed merely because a contractor is searched or makes high income disclosures, in the absence of any evidence of non-genuine expenditure or involvement of the assessee. Investigation reports against third parties cannot substitute verification of actual payments and business necessity in the assessee’s case.

Final Outcome

All appeals filed by the Revenue were dismissed. Cross objections of the assessee were dismissed as infructuous. The assessee’s appeal for AY 2011-12 was allowed, while appeals for AYs 2009-10 and 2012-13 were partly allowed for statistical purposes. The major additions on account of contractual expenses were deleted, and relief granted by the CIT(A) was substantially upheld.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769078860_ACITCIRCLE1DHANBADVS.MSBHARATCOOKINGCOALLTDDHANBAD.pdf

 

 

 

 

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