TaxTMI 
TaxTMI 
2020 (2) TMI 984
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the assessee itself vide letter dated 07.03.2016 has submitted that the assessee company falls under Category 'B' of the Mines for which mining was permitted to be continued with payment of penalty/ compensation by the assessee and that the expenditure is punitive in nature and is not allowable u/s 37 of the Act. 4. Any other ground that may be raised at the time of hearing". 2. Brief facts of the case are that the assessee company which is engaged in the business of Mining of Iron Ore, Diamonds etc., and generation of Wind Power, filed its original return of income for the A.Y 2015-16 on 29.09.2015 admitting total income at Rs. 9765,78,96,000/- and book profits u/s 115JB at Rs. 9802,24,54,613/-. Subsequently, it filed a revised return of income on 23.11.2016 admitting total income at Rs. 9942,41,00,630/- and book profit u/s 115JB at Rs. 9802,24,54,613/- stating that there is a mistake in the original computation of total income. In the computation of total income, the assessee company claimed deduction u/s 80IA of the Act amounting to Rs. 481,26,169/-. The return was initially processed u/s 143(1). Subsequently, the case was selected for scrutiny and during the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Special Purpose Vehicle (SPV) and compensation for encroachment of the mining area beyond the sanctioned lease area as per the directions of the Hon'ble Supreme Court. The assessee has filed a copy of the order of the Hon'ble Supreme Court, which is placed at pages 8 to 88 of the paper book. We find that the illegal mining activity in the State of Karnataka (in Bellary region) had come up before the Hon'ble Supreme Court of India and the Apex Court had formed a Committee viz., Central Empowered Committee (CEC) to examine and suggest the remedial action. The CEC submitted its report indicating large scale illegal mining at the cost and detriment of the environment due to which by order dated 29.07.2011 a complete ban on mining in the district of Bellary was imposed by the Hori'ble Supreme Court. Further, vide order dated 26.08.2011, the ban was extended to Tumkur and Chitradurga Districts. Thereafter, a Joint Team was constituted by the Apex Court vide its order dated 06.05.2011 to determine the boundaries of initially 117 mining leases which has subsequently extended to 166, by inclusion of Tumkur and Chitradurga Districts. The Joint Team revealed a shocki....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fic reasons as mentioned in the Page 9 9 statement of "Category-B" leases, M/s. S.B. Minerals (ML No. 2515), M/s. Shantalaxmi Jayram (ML No. 2553), M/ s. Gavisiddeshwar Enterprises (ML No. 80) and M/s. Vibhutigudda Mines (Pvt.) Ltd. (ML No. 2469) have been assigned in "Category- B". The numbers of such leases in "Category-B" comes to 72. 30. The "Category-C" comprises of leases wherein (i) the illegal mining by way of (a) mining pits outside the sanctioned lease area have been found to be more than 10% of the lease area and/or (b) over burden/ waste dumps outside the sanctioned lease areas have been found to be more than 15% of the lease areas and/ or (ii) the leases found to be involved in flagrant violation of the Forest (Conservation) Act and/ or found to be involved in illegal mining in other lease areas. The number of such leases comes to 49. RECOMMENDATIONS (as modified by CEC by its Report dated 13.3.2012. Items 1 to IV of the Report dated 3.2.2012 stood replaced by Items A to I of the Report dated 13.3.2012 which are reproduced below along with Items V to XIV of the initial Report dated 3.2.2012). (A) the findings of the Joint Team and as modified....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e buyer directly to the respective lease holders and the balance 10% may be deposited with the Monitoring Committee alongwith the royalty, FDT and other applicable taxes/ charges; (G) The responsibility of the Monitoring Committee will be (a) to monitor the implementation of the various provisions/prescriptions of the R&R Plans, (b) to ensure strict compliance of the conditions on which the environment clearance, the approval under the Forest (Conservation) Act, 1980 and the other statutory approvals/ clearances have been accorded, (c) to ensure that the mining is undertaken as per the approved Mining Plan, (d) to ensure Page 12 12 that the ceiling on annual production fixed for the lease does not exceed, (e) to ensure that the safety zone is maintained around the lease area and in respect of the clusters of mining leases around the outer boundary of such cluster of mining 10 leases and (f) to ensure compliance of the other applicable condition/provisions. Any lease found to be operating in violation of the stipulated conditions/provisions should be liable for closure and/ or termination of the lease; (H) the present Members of the Monitoring Committee sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vidual leases should be dealt with depending upon the level of the illegality found; and v) Out of the sale proceeds of the existing stock of the mining leases, after deducting : a) The penalty/compensation payable; b) Estimated cost of the implementation of the R& R Plan; and c) 10% of the sale proceeds to be retained by the Monitoring Committee for being transferred to the SPV d) The balance amount, if any, may be allowed to be disbursed to the respective lessees. (ii) Conditions which have been suggested for opening of Category 'A' mines and additionally the R& R Plans for Category 'B' mines 43. The conditions subject to which Category 'A' and 'B' mines are to be reopened and the R&R Plans that have been recommended as a precondition for reopening of Category 'B' mines are essentially steps to ensure scientific and planned exploitation of the scarce mineral resources of the country. The details of the preconditions and the R&R plans have already been noticed and would not require a repetition. Suffice it would be to say that such recommendations are wholesome and in the interest not only of the environment and ec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....39;ble Supreme Court is only to compensate the Government for the loss of revenue from such mining or marginal illegalities and not as a penalty. Though the nomenclature given is "penalty" it is not for infraction or violation of any law to hold it to be punitive in nature, as presumed by the Assessing Officer. Learned Counsel for the Assessee placed reliance on various case law, particularly the decision of the Coordinate Bench of the ITAT, Kolkata in the case of Essel Mining & Industries Ltd vs. Addl. CIT (ITA No. 352/Kol/2011 and others, dated 20.05.2016); ACIT vs. Freegade & Co. Ltd (ITA No.934/Kol/2009, dated 05.08.2011) and also the decision of the Hon'ble Calcutta High Court in the case of Shyam Sel Ltd vs. DCIT (72 Taxmann.com 105) (Cal.). On going through the said decisions, we find that the Hon'ble Calcutta High Court has considered the case of an assessee who failed to install Pollution Control Device within factory premise within prescribed time and that the assessee had to pay Rs. 12.50 lakh for compensating damage to environment and the same was recovered by State Pollution Control Board on the principle of 'polluter pays' and the A.O. had treated it a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g in «(Category A), 10% of the sale proceeds may be transferred to the SPV while the balance 10% of the sale proceeds may be reimbursed to the respective lessees. In respect of the mining leases falling in "Category -B", after deducting the penalty / compensation, the estimated cost of the implementation of the R & R Plan, and 10% of the sale proceeds to be retained for being transferred to the Spv, the balance amount, if any may be reimbursed to the respective lessees;" The fact that the compensation is proportionate to area of illegal mining outside the leased area and that the assessee has paid the proportionate compensation for mining in the areas outside the sanctioned area allotted to it and that 1 0% of sum is to be transferred to Spy and the balance 10% is to be reimbursed to the respective lessees, according to us, proves that it is a payment made as 'compensation' for extra mining, without which the assessee could not have resumed its activities. Therefore, we are inclined to accept the contention of the assessee that it is compensatory in nature and is a 'business expenditure' and is allowable ix] s 37(1) of the Act. Thus, Grounds ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also enclosed and produced before the CIT. Hence, the CIT is wrong in his observation that the estimate of Rs. 21.31 crore is excessively on a higher side and absolutely no realistic or rational basis for such calculation. 12. The CIT is not correct in invoking the provisions of section 263 as we find that the issue is debatable and when two views are possible the AO has taken one view. The Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 as well as CIT Vs. Max India Ltd. reported in 295 ITR 282 has held that when there are two views possible and the AO has taken one view, the order of the AO cannot be considered as erroneous and hence the CIT cannot exercise revisional power u/s 263. As pointed out above, the provisions for an accrued existing liability, even though, the actual expenditure may take place at a later date, is an allowable deduction and the CIT erred in treating it as an unascertained liability. Therefore, we set aside the order of the CIT passed u/s 263 and the order of the AO is restored." 9.1 The above decision relied upon by the AR of the assessee, though, it was delivered in assessee's own case for AY 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....certained year-wise. Therefore, to that extent, following the Coordinate Bench decision, we direct the assessee to furnish the relevant data to the A.O. towards the mines closure obligation and A.O. is directed to verify and allow the amount accordingly. Subject to the above observations, the ground No.2 is considered as allowed for statistical purposes." 21. In this view of the matter, following the consistent view taken by the Tribunal in assessee's own cases for other years noted above, we hold that the mine closure obligation is not a contingent liability but an ascertained liability. Since the quantum of such ascertained liability has to be determined year-wise, as observed in the order for assessment year 2010-11, extracted above, we direct the assessee to furnish the relevant data to the Assessing Officer towards mines closure obligation. The Assessing Officer shall verify such data and recompute the disallowance, if any, warranted, in accordance with law and after giving reasonable opportunity of hearing to the assessee. Assessee's grounds on this issue are treated as allowed for statistical purposes". 7. Respectfully following the same, we reject ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....off which pertains to land being a intangible asset. It is nobody's case that the land either belonged to the lessee or to the Government. This simply indicates that a depletion of the land against the payment of premium it was leased has to be claimed after capitalization thereof by the assessee which is for the purpose of its main business. All expenses are incurred for the purpose of business and are incidental to the holding of rights were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset. The definition of depreciation therefore has been misconstrued for the purpose of allowing deduction by the Assessing Officer and the learned CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended i.e. Assessment Year 2003-04. In this view of the mater, we are inclined to hold that the assessee is entitled to depreciation as charged to the P & L account in accordance with its business exigencies. We direct accordingly. On the claim of deduction/s.80G, the A.O., is directed to verify the receipt....