TaxTMI 
TaxTMI 
2020 (11) TMI 174
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....es of Rs. 8,71,00,614/-, failing to appreciate the fact that SPV Charges is in the nature of Business expenditure and fit into the definition of section 37(1) of Income Tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the addition made by the assessing officer amounting to Rs. 20,22,24,624/-being the net amount received on the sale of carbon credit included under Book Profit for calculation of MAT u/s 115JB, failing to appreciate the fact that Income credited to P&L account for Sale of carbon credits is not in accordance with Part II of Schedule VI as the same does not arise out of the working of the company during the period covered by the account and hence in order to compute the correct Book Profit u/s 115JB, the same needs to be excluded. 3. The appellant further prays to allow adding, altering or amending any of the aforesaid grounds of appeal at or before the time of hearing. Grounds for AY 2014-15 1. On the facts and in the circumstances of the case and in law, the Hon'bleCIT(A) erred in confirming the addition made by the Ld. AO of SPV(Special Purpose Vehicle) Charges....
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.... filed revised return of income declaring total income as in the original return of income filed on 24/09/2003 with only difference that assessee reduced the book profit to Rs. 35,19,31,337/- under section 115 JB of the Act. 2.1. Ld.AO observed that the total income declared by assessee includes income from mining activity, Trading in iron ore, transportation and hire charges, loading charges, income and sale of wind power. The return was selected for scrutiny and statutory notices were issued to assessee in response to which representative of assessee appeared before Ld. AO and furnished details as called for. 2.2. During the scrutiny assessment proceedings, Ld.AO observed that, assessee reduced a sum of Rs. 8,71,00,614/- towards special purpose vehicle (SPV) from the gross eauction sale of iron ore. Upon calling for details in respect of the same, Ld. AO noted that; • Sum of Rs. 1,84,075/- pertained to previous year (assessment year 2012-13) being 5% of the sale value; • Sum of Rs. 8,69,16,539/- pertain to year under consideration being 15% of sale value. 2.3. Assessee has thus reflected net sale of iron ore at Rs. 49,23,42,978/- in the profit a....
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....ame would be recouped from the guarantee paid by assessee. SPV Contribution: In course of hearing of these appeals, arguments were raised by both sides on issues raised by assessee. It is submitted that disallowance of SPV (Special Purpose Vehicle) Charges are common for both years. Ld.AR submitted that, disallowance of SPV (Special Purpose Vehicle) Charges in AY.2013-14 is Rs. 871,00,614/- and for AY:2014-15 is Rs. 8,44,79,372/-. 7.1. Assessee placed before us annual returns filed with the Indian Bureau of Mines filed for financial year 01/04/2012 to 31/03/2013 in Form H-1. We note that the assessee is lease holder of mine, "Iyli Gurunath Iron Ore Mines", having sanctioned lease area of 20.23 ha. It also reveals that assessee declared stock of 2,34,081.710 MT of Iron Ore for the relevant period that includes fines and lumps with the closing stock of 1,08,380.250 MT 7.2. For the period 01/04/2013 to 31/03/2014 in Form H- 1, assessee declared total stock of 3,20,000 MT of iron ore including fines and lumps and the assessee also had an opening stock of 1,08,380.250 MT from previous year. 7.3. Assessee debited sum of Rs. 8,71,00,614/- for assessment year 2013-14 and sum....
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....category at the rate of Rs. 5 Crore per Hectare for pits beyond Lease Area and Rs. 1 Crore per Hectare for overburden/waste dump beyond lease area. He submitted that in the present case, the assessee paid Rs. 229 Lakhs as penalty on the basis of area of pits and overburden/waste dumps outside the lease area and this amount was paid by the assessee in F. Y. 2011 - 12 relevant to A. Y. 2012 - 13 and the same is disallowed by assessee itself in the computation of income for that year. Ld.AR filed copy of computation of income for that year showing the disallowance made. The Ld. AR filed written submission detailing all the above arguments advanced before us referring to various observations by Hon'ble Supreme Court in case of Samaj Parivartan Samudaya & Ors Vs. State of Karnataka & Ors. In (Civil) No.562 of 2009 dated 18/04/2013 7.7. Ld. CIT DR supported the orders of the lower authorities. About the decision of Hon'ble Hyderabad Tribunal, cited by Ld.AR in the case of NMDC Ltd. Vs. ACIT (Supra), it was submitted that in that case, the assessee was in 'A' category and therefore, this tribunal decision is not applicable in the present case. He placed reliance on various observati....
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....ed report dated 29/08/2012 filed by CEC. Hon'ble Apex Court ordered for reopening of category 'A' mines, and vacated order dated 29/07/2011 passed in case of GOI vs. Obulapuram Mining Co. Pvt. Ltd., (supra) and order dated 26/08/2011 in case of Samaj Parivartana Samudaya vs State of Karnataka (supra). • Thereafter, by order dated 28/09/2012, CEC filed detailed report dated 03/02/2012, categorising mines into 'A', 'B' and 'C', depending on various types of violations by mining lessee. 7.8.2. Report considered 63, Category 'B' mining lessee that includes Assessee's mining lease and suggested compensatory payments by leaseholders for repairing environmental depredation brought by leaseholders to the extent of unplanned illegal mining done in their respective areas. The report suggested reclamation and rehabilitation plan by each leaseholders by constituting a special purpose vehicle by State of Karnataka, to carry out highly essential comprehensive environment plans for mining impact zone, in order to restore environmental damage, caused in such area due to illegal and reckless mining on a very large scale, and to ensure that environment in such areas may not suffer fr....
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.... of the sale proceeds, having regard to the overall facts and circumstances of the case, we have enhanced this payment is to 15% of sale proceeds. 5.3.1. Here it needs to be clarified that CEC/monitoring committee is holding the sale proceeds of the iron ores of the leaseholders, including the 63 leasehold being the subject of this order. In case, the money held by CEC/monitoring committee on the account of any leaseholder is sufficient to cover the payments under the aforesaid 3 heads, the lease holder may, in writing, authorize CEC to deduct from the sale proceeds on its account the amounts under the aforesaid 3 heads and an undertaking to make payment of any additional amount as compensatory payment. On submission of such authorisation and undertaking, CEC shall retain the amounts covering the aforesaid 3 heads and pay to the leaseholder concerned the balance amount, if any. It is expected that the balance amount, after making the adjustment as indicated here, would be paid to the leaseholder concerned within one month from the date of submission of authorisation and the undertaking. 5.3.2. In case of any leaseholder, if the money held on his account is not suf....
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....t of Category 'C' mines, if closure thereof is to be ordered by the court. 7.8.6. Hon'ble Apex Court in para 51 of its order, observed that, IA Nos. 74 and 4 of 2012 filed by Federation of Indian Mineral Industries, a body, that claimed membership of vast number of lessees involved in proceedings, unequivocally accepted findings of survey conducted by joint team and recommendations of CEC, insofar as categorisation of lease, and actions suggested for reopening of Categories 'A' and 'B' mines, along with other pre-conditions stipulated, including, preparation of R&R Plans. Hon'ble Apex Court noted that, only caveat was in regard to Category 'C' mines. 7.8.7. Hon'ble Apex Court categorically expressed its opinion in respect of Category 'C' in para 55 as under: "55. Once the result of the survey undertaken and the boundaries of the leases determined by the joint team has been accepted by the court and the basis of categorisation of the mind has been found to be rational and constitutionally permissible it will be difficult for this court to visualise as to how the Category 'C' mines can be allowed to reopen. There is no room for compassion fervent pleas, for clemency ca....
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....and issue in respect of R&R expenses incurred during assessment year 2013 - 14. First of all, we summarise objections of Ld.AO as in respect of SPV expenses as under:- (a) This is one of the objections of the AO that the SPV Expenses is not allowable because it is not compensation but it is penal in nature for contravention of law as observed by him in para 4.3 of the assessment order for AY:2013-14. (b) Second objection of the Ld.AO is contained in para 4.9 of the assessment order for AY:2013-14 and as per the same, this is the objection of Ld.AO that the said SPV is nothing but CSR Expenses only and therefore not allowable. (c) Third objection of Ld.AO is also contained in para 4.9 of the assessment order for AY:2013-14 and as per the same, this is the objection of the Ld.AO that the said SPV is not allowable u/s 37 (1) as it was not incurred by the assessee wholly and exclusively for the purpose of business. (d) In para 4.8 of the assessment order for AY:2013-14, Ld.AO is stating this that SPV rate is 10% in category 'A' Mines but 15% in Category 'B' Mines and this extra 5% in Category 'B' Mines is for various violations and illegal mining and....
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....ed the assessee as its income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to pay out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee the same consequence in law does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another portion of one's own income which has been received and essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable." Emphasis Supplied 7.8.13. In the present case, we note that 15% of sale proceeds was payable to SPV account after it accrued to assessee and the fact that, assessee was obl....
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....inue its business activities. In our view, these payments in present case do not fall within the category of penalty. Hon'ble Supreme Court has quantified rate for the mass tort, that has occasioned due to illegalities committed in the operation of mines separately. We also note that assessee has suo moto disallowed the payments that fall within the category of penalty which has been computed in accordance with directions of Hon'ble Supreme Court (being Rs. 5 crore per hectare for area as under illegal mining pits outside sanctioned areas and Rs. 1 crore per hectare for area under illegal overburden dumps, roads, offices exception outside the sanctioned lease area). Based on above discussions and analysis, we are of opinion that contribution to SPV being 15% of sale proceeds, under category B, is an allowable expenditure for year under consideration. 7.8.17. At this juncture, we note that, assessee for assessment year 2013-14 has considered 5% expenditure pertaining to previous year. No details pertaining to previous year expenses is made available before us. Assessee has also not placed before us any documents in relation to the same. However, we are of the opinion that m....
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.... Rs. 871,00,614/-. Accordingly ground No. 1 raised by assessee in A. Y. 2013 - 14 stands partly allowed. Admittedly the disallowance made by Ld.AO for assessment year 2014-15 are on identical facts except this difference that there is no previous year expenses in A. Y. 2014 - 15. Applying the same observations made hereinabove mutatis mutandis, we hold that the contribution made by assessee towards SPV in A. Y. 2014 - 15 is an allowable expenditure in the hands of assessee. Accordingly, Ground No.1 raised for assessment year 2014-15 is allowed as indicated hereinabove. 8. There is one more issue for assessment year 2014-15, which is in respect of sum of Rs. 59,45,711/- contributed towards R &R expenses by assessee. This issue has been raised by assessee as revised Ground 2 filed before us. 8.1. In respect of this issue, assessee relied on submissions made in respect of Ground No.1, reproduced herein above, to support its contention to consider contribution towards R&R plan as expenditure allowable under section 37 of the Act. 8.2. Ld. CIT DR also placed reliance on the submissions made in respect of Ground No. 1 reproduced hereinabove. 8.3. We have perused s....
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.... Act During the relevant previous year, the assessee credited Rs. 20,22,24,624/- on account of carbon credit to the profit and loss account. The assessee claimed the same to be capital receipt and did not offer it to tax in the normal computation of income. However, the same was offered to tax while computing Book Profit u/s 115JB of the Act. Subsequently, the assessee revised its return of income and excluded the same while computing Book Profit u/s 115JB of the Act. 9.1. The Assessing Officer did not agree with the contention of the assessee and added the amount received on sale of carbon credit under normal provisions as well as while computing Book Profit u/s 115JB of the Act 9.2. The CIT(A) partly agreed with the contention of the assessee and excluded the amount received on sale of carbon credit under normal provisions of the Act by holding it to be a capital receipt. In support of his findings, the CIT(A) relied on the decision of the Hon'ble Karnataka High Court in the case of CIT v. M/s Subhash Kabini Power reported in 385 ITR 592. However, he upheld the action of the Assessing Officer in taxing the same while computing Book Profit u/s 115JB of the Act since t....