Tc/2117/2008 Of Cairn Energy India Pvt.ltd v. The Joint Commissioner Of Income Tax] 1/40

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.01.2020 CORAM: THE HON'BLE DR. JUSTICE VINEET KOTHARIandTHE HON'BLE MR. JUSTICE R.SURESH KUMAR Tax Case (Appeal)Nos.2117 to 2119 of 2008 M/s.Vedanta Limited(Which is successor to Erstwhile Cairn India Limited)[Appeal of Cairn Energy India Pty. Ltd.Allowed to be continued by Erstwhile Cairn India Ltd.Under Scheme of Arrangement approvedBy Hon'ble Bombay High Court]Core 6, 3rd Floor,7, Lodhi Road,New Delhi-110003PAN:AACCS7101B(Amended vide order dated 09.09.2019made in C.M.P.Nos.13260, 13257 and13256 of 2019 in TCA Nos.2117 to 2119 of 2008) ...Appellant in all TCA's ..Vs.. The Joint Commissioner of Income Tax,Special Range-I,No.121, Nungambakkam High Road,Chennai-600 034. ... Respondent in all TCA's Prayers: Tax Cases (Appeals) are filed under Section 260-A of the Income Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]2/40 Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Chennai 'A' Bench, dated 24.07.2006 passed in I.T.A.Nos.490/MDS/2000, 352/MDS/2000 and 353/MDS/2002 for Assessment Year 1996-1997, 1997-1998 and 1998-1999. For Appellant : Mr.R.V.Easwar Sr.Advocate M/s.Rubal Bansal for Mr.P.SenthikumarFor Respondent: Mr.T.Ravikumar Senior standing counsel C O M M O N J U D G M E N T (Delivered by DR.VINEET KOTHARI, J.)These Appeals have been filed by the Assessee raising the Substantial Questions of Law arising from the order of the learned Income Tax Appellate Tribunal dated 24.07.2006 for Assessment Years 1996-1997, 1997-1998 and 1998-1999. 2. These Appeals were admitted by the Co-ordinate Bench of this Court, on 28.01.2009 on the following Substantial Questions of Law: Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]3/40 T.C.(A)No.2117 of 2008 1. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the amount of Rs.30,91,868/- debited in the profit and loss account towards provision for site restoration cost was not an allowable deduction under the Act.?" T.C.(A)No.2118 of 2008 1. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the amount of Rs.48,03,344/- debited in the profit and loss account towards provision for site restoration cost was not an allowable deduction under the Act.?" T.C.(A)No.2119 of 2008 1. Whether in the absence of any specific ground of appeal, could it be held that, the Tribunal had impliedly held that, provision for site restoration cost is not an ascertained liability and, therefore adjustment could be made while computing the income under Section 115J of the Act?" 2. The learned Tribunal disallowed the provisions made by the Assessee for site restoration cost for the Assessment years in question by holding that "an expenditure which is deducted for income-tax purpose is one which is towards a liability actually existing at the time, but putting aside Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]4/40 some money which may become an expenditure on the happening of an event is not an expenditure." In other words, the Tribunal held that since the provision made under site restoration fund is a contingent liability incurred by the Assessee, the same is not an allowable expenditure. In paragraph 16 of the Impugned Order the Tribunal has clearly held that the provision for site restoration fund cannot be allowed even under Section 37 (1) of the Income Tax Act 1961 (in short 'Act') and therefore the Tribunal set aside the order of the Commissioner (Appeals) and restored the order of the Assessing Officer. Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]4/40 some money which may become an expenditure on the happening of an event is not an expenditure." In other words, the Tribunal held that since the provision made under site restoration fund is a contingent liability incurred by the Assessee, the same is not an allowable expenditure. In paragraph 16 of the Impugned Order the Tribunal has clearly held that the provision for site restoration fund cannot be allowed even under Section 37 (1) of the Income Tax Act 1961 (in short 'Act') and therefore the Tribunal set aside the order of the Commissioner (Appeals) and restored the order of the Assessing Officer. 3. The Tribunal also referred to the provisions of Section 33ABA inserted by Finance Act (No.2) 1998 with effect from 01.04.1999 from which date such a provision for site restoration made by the Assessee cannot be allowed unless a actual deposit is made in the Site Restoration Fund under Section 33ABA of the Act. But the Assessment Years in question before us are prior to this amendment of law. 4.The three relevant provisions in this regard in the present case are Section 33ABA, Section 37 and Section 42 of the Income Tax Act 1961. Section 33ABA was inserted by Finance Act (No. 2) of 1998 with effect from 01.04.1999 is not applicable for three Assessment Years which are Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]5/40 Assessment Year 1996-1997 to 1998-1999. Further, the special provision for deductions in the case of business for prospecting, etc., for mineral oil for the purpose of computing the profits or gains of any business under Section 42 of the Act is also not presently relevant because the claim under Section 42 was given up by the learned Senior counsel for the Assessee Mr.R.V.Easwar appearing for the Assessee. Therefore the only question left for our consideration for deciding the controversy in hand is whether such deduction of 'Provision made for Site Restoration' by the Assessee can be allowed as a business expenditure under Section 37(1) of the Act. 5. The said three provisions of Act are quoted below for their relevant extent herein below:- Section 33ABA "33ABA.(1) Where an assessee is carrying on business consisting of the prospecting for, or extraction or production of, petroleum or natural gas or both in India and in relation to which the Central Government has entered into an agreement with such assessee for such business, has before the end of the previous year— Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]6/40 (a) deposited with the State Bank of India any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Government of India in the Ministry of Petroleum and Natural Gas; or (b) deposited any amount in an account (hereafter in this section referred to as the Site Restoration Account) opened by the assessee in accordance with, and for the purposes specified in, a scheme framed by the Ministry referred to in clause (a) (hereafter in this section referred to as the deposit scheme), the assessee shall, subject to the provisions of this section, be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of— (i) a sum equal to the amount or the aggregate of the amounts so deposited; or (ii) a sum equal to twenty per cent of the profits of such business (computed under the head “Profits and gains of business or profession” before making any deduction under this section), (b) deposited any amount in an account (hereafter in this section referred to as the Site Restoration Account) opened by the assessee in accordance with, and for the purposes specified in, a scheme framed by the Ministry referred to in clause (a) (hereafter in this section referred to as the deposit scheme), the assessee shall, subject to the provisions of this section, be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of— (i) a sum equal to the amount or the aggregate of the amounts so deposited; or (ii) a sum equal to twenty per cent of the profits of such business (computed under the head “Profits and gains of business or profession” before making any deduction under this section), whichever is less : Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner or, as the case may be, any member of such firm, association of persons or body of individuals : Provided further that where any deduction, in respect of any amount deposited in the special account, or in the Site Restoration Account, has been allowed under this sub-section in any previous year, no deduction shall be allowed in respect of such amount in any other previous year : Provided also that any amount credited in the special account or the Site Restoration Account by way of interest shall be deemed to be a deposit. (2) The deduction under sub-section (1) shall not be admissible unless the accounts of such business of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed formduly signed and verified by such accountant : Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section. (3) Any amount standing to the credit of the assessee in the special account or the Site Restoration Account shall not be allowed to be withdrawn except for the purposes specified in the scheme or, as the case may be, in the deposit scheme. (4) Notwithstanding anything contained in sub-section (3), no deduction under sub-section (1) shall be allowed in respect of any amount utilised for the purchase of— (a) any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest-house; (b) any office appliances (not being computers); (c) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year; (d) any new machinery or plant to be installed in an industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule. (a) any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest-house; (b) any office appliances (not being computers); (c) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year; (d) any new machinery or plant to be installed in an industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule. (5) Where any amount standing to the credit of the assessee in the special account or in the Site Restoration Account is withdrawn on closure of the account during any previous year by the assessee, the amount so withdrawn from the account, as reduced by the amount, if any, payable to the Central Government by way of profit or production share as provided in the agreement referred to in section 42, shall be deemed to be the profits and gains of business or profession of that previous year and shall accordingly be chargeable to income-tax as the income of that previous year. Explanation.—Where any amount is withdrawn on closure of the account in a previous year in which the business carried on by the assessee is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year. (6) Where any amount standing to the credit of the assessee in the special account or in the Site Restoration Account is utilised by the assessee for the purposes of any expenditure in connection with such business in accordance with the scheme or the deposit scheme, such expenditure shall not be allowed in computing the income chargeable under the head “Profits and gains of business or profession” . (7) Where any amount, standing to the credit of the assessee in the special account or in the Site Restoration Account, which is released during any previous year by the State Bank of India or which is withdrawn by the assessee from the Site Restoration Account for being utilised by the assessee for the purposes of such business in accordance with the scheme or the deposit scheme is not so utilised, either wholly or in part, within that previous year, the whole of such amount or, as the case may be, part thereof which is not so utilised shall be deemed to be profits and gains of business and accordingly chargeable to income-tax as the income of that previous year. 24[***] (8) Where any asset acquired in accordance with the scheme or the deposit scheme is sold or otherwise transferred in any previous year by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired, such part of the cost of such asset as is relatable to the deduction allowed under sub-section (1) shall be deemed to be the profits and gains of business or profession of the previous year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income-tax as the income of that previous year : Provided that nothing in this sub-section shall apply (i) where the asset is sold or otherwise transferred by the assessee to Government, a local authority, a corporation established by or under a Central, State or Provincial Act or a Government company[25] as defined in section 617 of the Companies Act, 1956 (1 of 1956); or (ii) where the sale or transfer of the asset is made in connection with the succession of a firm by a company in the business or profession carried on by the firm as a result of which the firm sells or otherwise transfers to the company any asset and the scheme or the deposit scheme continues to apply to the company in the manner applicable to the firm. Provided that nothing in this sub-section shall apply (i) where the asset is sold or otherwise transferred by the assessee to Government, a local authority, a corporation established by or under a Central, State or Provincial Act or a Government company[25] as defined in section 617 of the Companies Act, 1956 (1 of 1956); or (ii) where the sale or transfer of the asset is made in connection with the succession of a firm by a company in the business or profession carried on by the firm as a result of which the firm sells or otherwise transfers to the company any asset and the scheme or the deposit scheme continues to apply to the company in the manner applicable to the firm. Explanation.—The provisions of clause (ii) of the proviso shall apply only where— (i) all the properties of the firm relating to the business or profession immediately before the succession become the properties of the company; Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]10/40 (ii) all the liabilities of the firm relating to the business or profession immediately before the succession become the liabilities of the company; and (iii) all the shareholders of the company were partners of the firm immediately before the succession. (9) The Central Government may, if it considers necessary or expedient so to do, by notification in the Official Gazette, direct that the deduction allowable under this section shall not be allowed after such date as may be specified therein.Explanation.—For the purposes of this section,—(a) “State Bank of India” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955);(b) the expression “amount standing to the credit of the assessee in the special account or the Site Restoration Account” includes interest accrued to such accounts.]"Section 37"Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, “Profits and Gains of Business or Profession”.Section 42 Special provision for deductions in the case of business for prospecting, etc., for mineral oil Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]11/40 "42(1) For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation[ 1] of the Central Government or any person authorised by it in such business] (which agreement has been laid on the Table of each House of Parliament), there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement in relation- (a)to expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the assessee; (b) after the beginning of commercial production, to expenditure incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for depreciation is admissible under section 32 (a)to expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the assessee; (b) after the beginning of commercial production, to expenditure incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for depreciation is admissible under section 32 [Provided that in relation to any agreement entered into after the 31st day of March, 1981 , this clause shall have effect subject to the modification that the words and figures" except assets on which allowance for depreciation is admissible under section 32" had been omitted; and] (c)to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified in the agreement; and such allowances shall be computed and made in the manner specified in the agreement, the other Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]12/40 provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement.["] (2) Where the business of the Assessee consisting of prospecting for or extraction or production of petroleum and natural gas is transferred wholly or partly or any interest in such business is transferred in accordance with the agreement referred to in sub-section (1), subject to the provisions of the said agreement and where the proceeds of the transfer (so far as they consist of capital sums) (a) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of transfer, shall be allowed in respect of the previous year in which such business or interest, as the case may be, is transferred; (b) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred in connection with the business or to obtain interest therein and the amount of such expenditure remaining unallowed, shall be chargeable to income-tax as profits and gains of the business in the previous year in which the business or interest therein, whether wholly or partly, had been transferred : Provided that in a case where the provisions of this clause do not apply, the deduction to be allowed for expenditure incurred remaining unallowed shall be arrived at by subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed. Explanation.—Where the business or interest in such business is transferred in a previous year in which such business carried on by the assessee is no longer in existence, the provisions of this clause shall apply as if the business is in existence in that Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]13/40 previous year; (c) are not less than the amount of the expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed in respect of the previous year in which the business or interest in such business is transferred or in respect of any subsequent year or years: Provided that where in a scheme of amalgamation or demerger, the amalgamating or the demerged company sells or otherwise transfers the business to the amalgamated or the resulting company (being an Indian company), the provisions of this sub-section— (i) shall not apply in the case of the amalgamating or the demerged company; and Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]13/40 previous year; (c) are not less than the amount of the expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed in respect of the previous year in which the business or interest in such business is transferred or in respect of any subsequent year or years: Provided that where in a scheme of amalgamation or demerger, the amalgamating or the demerged company sells or otherwise transfers the business to the amalgamated or the resulting company (being an Indian company), the provisions of this sub-section— (i) shall not apply in the case of the amalgamating or the demerged company; and (ii) shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the latter had not transferred the business or interest in the business. Explanation.—For the purposes of this section, "mineral oil" includes petroleum and natural gas. 6. Section 37(1) of the Act is a residual provision and besides various deductions for business expenditure prescribed under Section 32 to 36 of the Act which are specific in nature, Section 37(1) of the Act provides that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), 'laid out or expended' 'wholly and exclusively' for the Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]14/40 purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Thus the expenditure incurred by Assessee or a provision made for the same both are allowable under Section 37(1) of the Act, provided such expenditure is incurred wholly and exclusively for the purpose of business and is laid out or expended for the purpose of business. 7. The crux of the matter therefore assumes relevance is whether the 'Provision for Site Restoration' made by the Assessee during the three relevant years viz., Assessment Year 1996-1997, 1997-1998 and 1998-1999 was laid out or expended wholly and exclusively for the purpose of business or not. 8. The Assessee is engaged in the business of oil exploration in India and as per the Product Sharing Contract between The Government of India, Oil and Natural Gas Corporation Limited (ONGC), Videocon Petroleum Limited, Command Petroleum (India) Pte Limited, Ravva Oil (Singapore) Pte Ltd, with respect to contract Area identified as Ravva Oil & Gas Fields. The Assessee Company undertaking such oil exploration was obligated under the Clause 1.77 and 14.9 of the Contract to restore the site by filling up the pits, Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]15/40 after the oil exploration work is over. The said relevant clauses are also quoted below for ready reference: "1.77. "Site Restoration" shall mean all activities required to return a site to its natural state or to render a site compatible with its intended after use (to the extent reasonable, having regard to its former use, if any, and state), after cessation of Petroleum Operations in relation thereto and shall include, where appropriate, proper abandonment of wells or other facilities, removal of equipment, structures and debris, establishment of compatible contours and drainage, replacement of top soil, revegetation, slope stabilisation, infilling of excavations or any other appropriate actions in the circumstances." "14.9Contractor's Abandonment Obligations On expiry or termination of this Contract or relinquishment of part of the Contract Area, the Contractor shall: "1.77. "Site Restoration" shall mean all activities required to return a site to its natural state or to render a site compatible with its intended after use (to the extent reasonable, having regard to its former use, if any, and state), after cessation of Petroleum Operations in relation thereto and shall include, where appropriate, proper abandonment of wells or other facilities, removal of equipment, structures and debris, establishment of compatible contours and drainage, replacement of top soil, revegetation, slope stabilisation, infilling of excavations or any other appropriate actions in the circumstances." "14.9Contractor's Abandonment Obligations On expiry or termination of this Contract or relinquishment of part of the Contract Area, the Contractor shall: (a) Subject to Article 28, remove all equipment and installations from the relinquished area or former Contract Area in a manner agreed with the Government pursuant to an abandonment plan; and Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]16/40 (b) Perform all necessary Site Restoration activities in accordance with good international petroleum industry practice and take all other action necessary to prevent hazards to human life or to the property of others or the environment." 9. The learned counsel for the Assessee Mr.R.V.Easwar, Senior counsel who is also an Ex-Judge of High Court, submitted that the Provisions for such expenditure to be incurred in future for Site Restoration Work made on a scientific and rational basis depending upon the quantum of oil expected to be explored, based on production of the oil which was worked out depending upon the share of the oil of various Companies of which the Assessee had 22.5% of the total oil explored and over the expected production of the oil in barrels and abandonment costs computed by the Company. The Assessee Company computed the said expected liability of site restoration charges and accordingly made provisions for the three assessment years in question and illustratively the computation of the provision for Assessment Years 1997-1998, as explained in the Affidavit filed by the Assessee before this Court on 21.01.2020 is extracted below: Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]17/40 Site restoration charge calculations (FY 1997-98) S.No.ParticularsUSDATotal Abandonment costs estimated in 20,000,000.00Table 31 of PSCBAbandonment Costs provided in FY 1995-96(403,572.21)CAbandonment Costs provided in FY 1996-97(595,963.69)DAbandonment Costs left to be provided in 19,000,464.10USD as on 01/04/97 (A-B-C)EReserves left as on 01/04/97213,070,779.00FAbandonment Cost Per Barrell (D/E)0.09GProduction During 1997-9812,857,377.00HProvision to be made USD (FXG)1,146,549.20ICEIPL Share @ 22.5% (HX22.5%)257,973.57JCEIPL Share in INR (1X39.397)10,163,384.6910. The learned counsel further urged that the Hon'ble Supreme Court in the case of Calcutta Company Limited Vs. CIT reported in (1959) 37 ITR 1 (SC), has laid down that inasmuch as the liability which had accrued during the accounting year, was to be discharged at a future date, the amount to be expended in the discharge of that liability would have to be estimated in order that under the mercantile system of accounting, the amount could be debited before it was actually disbursed. The relevant portion of the said Judgement are quoted below for ready reference: "Turning now to the facts of the present case, we find that the sum of Rs. 24,809 represented the Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]18/40 in the case of Calcutta Company Limited Vs. CIT reported in (1959) 37 ITR 1 (SC), has laid down that inasmuch as the liability which had accrued during the accounting year, was to be discharged at a future date, the amount to be expended in the discharge of that liability would have to be estimated in order that under the mercantile system of accounting, the amount could be debited before it was actually disbursed. The relevant portion of the said Judgement are quoted below for ready reference: "Turning now to the facts of the present case, we find that the sum of Rs. 24,809 represented the Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]18/40 estimated expenditure which had to be incurred by the appellant in discharging a liability which it had already undertaken under the terms of the deeds of sale of the lands in question and was an accrued liability which according to the mercantile system of accounting the appellant was entitled to debit in its books of account for the accounting year as against the receipts of Rs. 43,692-11-9 which represented the sale proceeds of the said lands. Even under s. 10(2) of the Income-tax Act, it might possibly be urged that the word " expended was capable of being interpreted as " expendable "or to be expended " at least in a case where a liability to incur the said expenses had been actually incurred by the assessee who adopted the mercantile system of accounting and the debit of Rs. 24,809 was thus a proper debit in the present case. We need not however base our decision on any such consideration. We are definitely of opinion that the sum of Rs. 24,809 represented the estimated amount which would have to be expended by the appellant in the course of carrying on its business and was incidental to the same and having regard to the accepted commercial practice and trading principles was a deduction which, if there was no specific provision for it under section 10(2) of the Act was certainly allowable deduction, in arriving at the profits and gains of the business of the appellant Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]19/40 under section 10(1) of the Act, there being no prohibition against it, express or implied in the Act." 11. Further relying upon the another Judgment of the Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. Commissioner of Income- tax reported in (2000) 245 ITR 428 (SC), the learned counsel for the Assessee submitted that the law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. The learned counsel for the Assesee also relied upon the Judgment of the Hon'ble Supreme Court in the case of Metal Box Company of India Ltd. Vs. Their Workmen reported in (1969) 73 ITR 53 (SC). In paragraphs 4 and 5 of the Judgment in the case of Bharat Earth Movers (supra), the Hon'ble Supreme Court haddiscussed the ratio of Metal Box Company of India Ltd. Vs. Their Workmen, which is quoted below for ready reference: "4.The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]20/40 "4.The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]20/40 estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 5. In Metal Box Company of India Ltd. Vs. Their Workmen (1969) 73 ITR 53 the appellant company estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the P&L account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employees service either due to retirement, death or termination of service – the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under:- Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]21/40 "(i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is paid; permissible only in case of amounts actually expended or (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfillment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated." Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]22/40 12. The learned counsel for the Assessee further submitted that the three yardsticks, criteria or parameters for allowing the 'Provisions made for furture expenditure was discussed by the Hon'ble Supreme Cort in the case of Rotork Controls India (P) Ltd., Vs. Commissioner of Income Tax reported in 2009 314 ITR 0062, which is quoted below for ready reference Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]22/40 12. The learned counsel for the Assessee further submitted that the three yardsticks, criteria or parameters for allowing the 'Provisions made for furture expenditure was discussed by the Hon'ble Supreme Cort in the case of Rotork Controls India (P) Ltd., Vs. Commissioner of Income Tax reported in 2009 314 ITR 0062, which is quoted below for ready reference "A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]23/40 recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole." 13. Thus, the three criteria of the provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. 14. The learned counsel for the Appellant urged that all the three criteria are satisfied by the Assessee in the present cases and there is no dispute from the side of the Revenue that the Assessee has incurred an obligation under the contract known as 'Product Sharing Agreement' vide clause 1.77 r/w. Clause 14.9 thereof,quoted above. The question of restoring the site of exploration after the work is over for which the said provision is made is based on a scientific method and relevant materials. He submitted that initial period of the said contract of the Assessee entered into in the year 1994 was 25 years and the same has been recently further extended for the period of ten years on 24.10.2019. Thus, after October Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]24/40 2029, it can be expected that oil exploration work would be over and the Assessee will have to restore the site to its original as nearly as possible, and that expenditure is covered by the provisions made in the present Assessment Years. 15. He further submitted that this claim of the said provision as 'business expenditure' under Section 37 (1) of the Act is only for the present three Assessment Years in question A.Y. 1996-1997, 1997-1998 and 1998-1999 as there is amendment with respect to 33ABA with effect from 01.04.1999 viz A.Y. 1999-2000. 16. Drawing the distinction between the allowability of expenditure under Section 37(1) and 57(iii) of the Act which deals with "Income from Other Sources', the Hon'ble Supreme Court in the case of Commissioner of 2029, it can be expected that oil exploration work would be over and the Assessee will have to restore the site to its original as nearly as possible, and that expenditure is covered by the provisions made in the present Assessment Years. 15. He further submitted that this claim of the said provision as 'business expenditure' under Section 37 (1) of the Act is only for the present three Assessment Years in question A.Y. 1996-1997, 1997-1998 and 1998-1999 as there is amendment with respect to 33ABA with effect from 01.04.1999 viz A.Y. 1999-2000. 16. Drawing the distinction between the allowability of expenditure under Section 37(1) and 57(iii) of the Act which deals with "Income from Other Sources', the Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Rajendra Prasad Moddy, reported in (1978) 115 ITR 519 (SC), the Hon'ble Supreme Court quoting the observations from Lord Thankerton in Hughes Vs. Bank of New Zealand reported in (1938) 6 ITR 636 held that language under Section 37 (1) of the Act is little wider than that of Sec. 57(iii) and therefore the expenditure should be laid out or expended wholly and exclusively for the purpose of making or earning income chargeable under the Head "Income From Other Source" so as to be Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of 2008 [M/s.Vedanta Limited Vs. The Joint Commissioner of Income Tax]25/40 allowable deduction under Section 57(iii) of the Act. The relevant discussion made in paragraph 2 of the Judgment is quoted below for ready reference. "2.The determination of the question before us turns on the true interpretation of section 57(iii) and it would, therefore, be convenient to refer to that section, but before we do so, we may point out that section 57(iii)occurs in a fasciculus of sections under the heading 'F- Income From Other Sources'. Section 56 which is the first in this group of sections enacts in sub-section (1) that income of every kind which is not chargeable to tax under any of the heads specified in section 14, Items A to E shall be chargeable to tax under the head 'Income From Other Sources' and sub-section (2) includes in such income various items one of which is 'dividends'. Dividend on shares is thus income chargeable under the head 'Income From Other Sources'. Section 57 provides for certain deductions to be made in computing the income chargeable under the head "Income From Other Sources" and one of such deductions is that set out in clause (iii) which reads as follows:"Any other expenditure (not being in the nature of capital expenditure) laid down or expended wholly and exclusively for the purpose of making or earning such income". Judgment dt. 23.01.2020 in T.C.A.Nos.2117 to 2119 of