ITAT Sets Aside Section 43B Disallowance on Royalty Adjustment Claim by NMDC

NMDC Limited, a public sector undertaking engaged in mining of iron ore and diamonds and in wind power generation, filed its return of income for AY 2024-25, declaring total income of Rs. 8,614.64 crore. The return was processed under Section 143(1)(a) by CPC on 16.04.2025, resulting in an adjustment of Rs. 163.93 crore on account of an alleged mismatch in deduction claimed under Section 43B towards royalty payments.

On appeal, the CIT(A) granted partial relief of Rs. 78.01 crore, holding that this portion represented actual payment made before the due date under Section 139(1). However, the balance Rs. 85.92 crore was sustained on the ground that it was adjusted through book entries against receivables from the State Government and did not amount to “actual payment” under Section 43B.

Before the Tribunal, the assessee contended that excess royalty paid earlier on an ad hoc basis had been adjusted against the finally determined liability and such adjustment constituted pre-payment rather than a mere book entry.

Main Issue: Whether adjustment of royalty liability against excess royalty already paid to the State Government amounts to “actual payment” under Section 43B of the Income Tax Act, 1961.

ITAT Held: The Income Tax Appellate Tribunal observed that the disallowance of Rs. 85.92 crore was sustained by the CIT(A) treating the adjustment as a mere book entry. However, the assessee produced orders of the Superintendent of Minerals, State of Chhattisgarh, indicating that royalty determined for various periods resulted in negative balances due to excess payments already made on a self-assessment basis. The Tribunal noted that the lower authorities had not verified whether such excess payments were indeed lying with the State Government and were subsequently adjusted against the current year’s liability.

The Tribunal found that proper factual verification had not been undertaken. The matter was therefore set aside to the Assessing Officer for fresh examination of prior payments and their adjustment, after granting adequate opportunity of hearing. The appeal was accordingly allowed for statistical purposes.

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