The Income Tax Appellate Tribunal (ITAT), Hyderabad bench directed to delete 75% of total addition made towards the overburden removal expenditure incurred for mining operations.
The assessee, Veerabhadra Minerals is engaged in the business of mining contracts. In pit mining operations, it is necessary to remove overburden and other barren waste materials to access ore and other minerals. Costs incurred to extract the same are called overburden charges or stripping costs. Subcontract was awarded by assessee company to GVP E&C which is the proprietorship of Mr. GV Pratap Reddy, the Managing Director of the assessee company.
Accordingly , the subcontracts were then given to the employees of the assessee company. Mr. GV Pratap Reddy also executed substantial amounts of other works apart from the works awarded by the assessee company. The assessee claimed expenditure on overburden charges which disallowed the AO and made addition then passed assessment order.
Aggrieved by the order, the assessee filed an appeal before the CIT(A) who deleted the addition made by the AO. Thereafter, the revenue filed a second appeal before the tribunal.
TH Vijaya Lakshmi, Counsel for revenue submitted that assessee company claimed the business expenditure by way of transfer of its money in the guise of subcontract work to its employees, who in turn gave it to some unknown subcontractors, who does not have either bank account or PAN and whose details are virtually never received by the assessee.
Further, the counsel for the revenue submitted that no contract agreement/work order or documentary evidence in support of the expenses claimed were found during the search operations nor were submitted during the assessment proceedings.
Sashank Dundu, Counsel for assessee submitted that the only reason the assessing officer made the addition in the year under consideration was because voluntary disclosure had been made in previous years; there is no evidence in the officer’s file to indicate that the expense incurred was fraudulent or that no expenditure was incurred at all.
No voluntary disclosure made by the assessee company for the year under consideration.
The tribunal observed that assessee has been in the mining contracts, and in mining contracts, for extracting the required ore or minerals the overburden has to be removed involving expenditure, which goes on decreasing year after year.
Further, in respect of the overburden removal expenditure of the earlier years, the assessee voluntarily made a disclosure in respect of such expenses.
However, there were no written agreements for subcontractor and sub subcontract and also the subcontractor as well as the sub subcontractor, sub-sub-unknown contractors are all related parties and the payments and withdrawals do not inspire any confidence
After reviewing the facts and records, the two-member bench of K.Narasimha Chary,(Judicial Member) and RamaKanta Panda, (Vice President) directed to estimate the disallowance at 25% of such expenditure and balance 75% directed to be deleted.
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