Delhi High Court holds site restoration expenditure is deductible; reassessment reopened after four years is unsustainable

5-Second Takeaway

Site restoration expenditure, being part of the contractual obligation, forms part of the cost of operation and is to be deducted in computing business profits under s. 28(i). The reassessment was unsustainable because the Department did not serve the recorded reasons or a notice under s. 143(2), and gave no valid reason for reopening after four years.

The Delhi High Court considered whether Vedanta could claim deduction for provision made towards site restoration, and whether the reassessment initiated after four years could stand. The dispute arose in the context of the assessee’s business profits and the treatment of site restoration costs as part of those profits.

On the expenditure issue, the court held that site restoration is a contractual obligation and therefore a genuine cost of operation. It observed that the profits and gains of business under s. 28(i) must be computed after allowing deduction for the cost of production, which includes site restoration expenditure. The court also noted that s. 33ABA, dealing with a site restoration fund, is only an incentive provision and does not bar deduction under s. 37.

On reassessment, the court found that no copy of the recorded reasons had been served and no notice under s. 143(2) had been issued. It further noted that the Department did not place any valid reason for reopening the assessment after the period of limitation.

The reassessment was therefore held unsustainable, and the assessee’s position on site restoration expenditure was accepted.