2021 (11) TMI 424 - AT - Income Tax

Tribunal allows deduction for reclamation expenses in business

The Tribunal allowed the appeal by the assessee, directing that the deduction claimed for the reclamation and rehabilitation expenses should be allowed. ... Disallowance being expenses incurred by the assessee towards reclamation and rehabilitation of mine area - allowable revenue expenses u/s 37(1) or not? - HELD THAT:- All these documents are public documents and are in the public domain. These documents are necessary for us to adjudicate the issue in this appeal and therefore we admit the aforesaid documents are additional evidence. From a perusal of the sequence of events relating to mining operations and orders of the Hon’ble Apex Court especially in the order dated 28.09.2012, it is clear that the Hon’ble Supreme Court directed compensatory payment to be made by the lease holders of various mines for Restoration and Rehabilitation of damage to ecology owing to mining operations. This payment was made for the purpose of restoring the ecological balance consequent to damaged ecology owing to mining operations. It is pursuant to the aforesaid directions that the assessee had to make the aforesaid payment and this fact is not in dispute. In fact, in the decision rendered by this Tribunal in the case of Ramgadh Minerals and Mining Ltd [2020 (11) TMI 174 - ITAT BANGALORE] Payment in question cannot be regarded as the payment which is hit by explanation to section 37(1) of the Act. Revenue authorities proceeded on the basis that since the assessee did not have licence for mining and could undertake only prospecting operations, the assessee could not have incurred these expenses which are in relation to mining operations and by doing so, the assessee has violated the conditions imposed on them by the Government of Karnataka in their order dated 07.11.2012 permitting the assessee to undertake prospecting operations. The aforesaid conditions imposed in the order dated 07.11.2012 cannot be the basis to construe these expenses in question as the payment which is hit by the provisions of explanation to section 37(1) - these payments cannot be said to be the expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law. As the sequence of event would go to show that the payment in question is for the purpose of reclamation and rehabilitation of mine area and paid consequent to the directions of Hon’ble Supreme Court. The expenditure in question was the revenue expenditure and had to be allowed as a deduction under section 37(1) of the Act as expenditure incurred wholly and exclusively in connection with the business of the assessee. In this regard, that the AO has not doubted the claim of the assessee that the payment in question has been made towards reclamation and rehabilitation of mines. In these circumstances, we direct that the deduction claimed should be allowed. - Decided in favour of assessee. Issues Involved:1. Whether the Revenue authorities were justified in disallowing the expenses incurred by the assessee towards reclamation and rehabilitation of the mine area.Issue-wise Detailed Analysis:1. Disallowance of Expenses for Reclamation and Rehabilitation of Mine Area:The primary issue in this appeal is whether the Revenue authorities were justified in disallowing Rs. 13,02,180/- incurred by the assessee towards reclamation and rehabilitation of the mine area. The assessee, a partnership firm engaged in mining and related activities, had its mining operations suspended due to a Supreme Court order. Despite this, the assessee incurred expenses categorized under 'mining and raising expenses,' which included reclamation and rehabilitation costs.During the assessment proceedings, the AO observed that the assessee was only permitted to carry out prospecting operations, not mining operations, as per the Government of Karnataka's letter dated 07.11.2012. Consequently, the AO disallowed the mining expenses by invoking the Explanation to Section 37(1) of the Income Tax Act, which prohibits deductions for expenses incurred for purposes that are an offense or prohibited by law.The CIT(A) upheld the AO's decision, stating that the expenditure incurred was not wholly and exclusively for the business activity of the assessee, as mining operations were specifically discontinued by the government.Upon appeal, the Tribunal examined the factual background, including the Supreme Court's orders and subsequent developments. The Supreme Court had directed compensatory payments by leaseholders for environmental damage caused by illegal mining activities. These payments were mandated for the restoration and rehabilitation of the affected areas.The Tribunal admitted additional evidence submitted by the assessee, which included public documents and reports related to the reclamation and rehabilitation plans. These documents were deemed necessary for adjudicating the issue.The Tribunal referred to a similar case, Ramgadh Minerals and Mining Ltd. Vs. ACIT, where it was held that such payments for reclamation and rehabilitation are not hit by the Explanation to Section 37(1) and are allowable as business expenditures. The Tribunal emphasized that the payments in question were made pursuant to the Supreme Court's directions and were necessary for the assessee to resume its mining activities.The Tribunal concluded that the expenses incurred by the assessee for reclamation and rehabilitation were revenue expenditures and should be allowed as deductions under Section 37(1) of the Act. The AO had not disputed the nature of the payments towards reclamation and rehabilitation.Conclusion:The Tribunal allowed the appeal by the assessee, directing that the deduction claimed for the reclamation and rehabilitation expenses should be allowed. The Tribunal held that these expenses were incurred wholly and exclusively for the business of the assessee and were not prohibited by law. The appeal was pronounced in the open court.