AI Drafter 
TaxTMI 
TaxTMI 
2020 (12) TMI 1145
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....eciate that section 5 manifests that an income can be said to have accrued only when a person has a legal right to receive such income and its recognition is on such accrual which is tempered by section 145 r.w. Accounting Standard 9 of ICAI. 2.1.2. The lower authorities have failed to appreciate that the Appellant has not recognized the revenue attributable to sale proceeds of confiscated stock by MC [which includes the sale proceeds of declared stocks Rs. 25,59,99,429/-]due to uncertainty of its recovery and in accordance with the Accounting Standard 9 issued by ICAI. 2.1.3. The Learned Commissioner (Appeals) has failed to appreciate that Accounting Standard 9 provides for postponement of recognition of revenue in case where there exists an uncertainty regarding ultimate realization. 2.1.4. The Learned Assessing Officer having noted that the Appellant has received the sale proceeds of declared stocks in subsequent years and the same is charged to tax in the subsequent years, is not justified in taxing the very same sale proceeds in the impugned year leading to double levy. 2.1.5. Without prejudice to the above, the action of the Learned Assessi....
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.... as business loss under Section 28. 2.2.7.Without prejudice to the above, the lower authorities having not disputed that the aforesaid sum was retained by MC as per direction of Hon'ble Supreme Court, ought to have regarded the same as having been diverted at source by overriding title. 2.2.8.Without prejudice to the above, the lower authorities ought to have allowed the above sum under section 37(1) of the Income tax Act. 2.3. As regards taxing the amounts retained towards contribution to SPV: 2.3.1 .The Learned Commissioner (Appeals) is not justified in upholding the additions made by the Learned Assessing Officer of Rs. 13,10,94,826/- without appreciating that the Appellant's Mining case No.2296 is placed under 'Category A' and as per the Hon'ble Supreme Court's direction 10% of sale proceeds of confiscated stocks is to be treated as compensation towards reclamation & rehabilitation of the mining area. 2.3.2.The Learned Commissioner (Appeals) is not justified in upholding the additions made by the Learned Assessing Officer of Rs. 3,18,41,886/- without appreciating that the Appellant's Mining Lease No. 2160 ....
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.....3.10. The lower authorities are not justified in treating the aforesaid sum as being in the nature of penalty as they have failed to appreciate that the aforesaid sum does not relate to any infraction of law but towards rehabilitation more particularly in the light of the observations in para (IX) of page no. 16 of the order of the Apex court, dated 18.04.2013 in WP (C) No. 562/2009. 2.3.1 1. Without prejudice to the above, the Explanation to section 37(1) is not at all applicable as in the instant case, no illegality whatsoever was noticed in the case of Appellant in respect of lease No. 2296 which is classified as Category A. 2.3.12.The Learned Assessing officer is not justified in taking contradictory position by first calling the impugned sum is towards corporate social responsibility not relating to business and next calling it as expenditure on illegality associated with the business. 2.3.13. The Learned Assessing officer having accepted the sale proceeds transferred to SPV is part of Corporate Social Responsibility, is unjust ii denying the said expenditure which is expended towards the conservation of eco-system. 2.3.14. Without prejudic....
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.....4.7.The lower authorities have failed to appreciate that the sum of Rs. 27,03,000/- retained by the MC as per the direction of Hon'ble Supreme Court cannot be construed as income accrued to the Appellant. 2.4.8.Without prejudice to the above, the lower authorities having treated the sale proceeds of Rs. 27,03,000/- as revenue of the Appellant and having not disputed that the same were retained by MC as per direction of Hon'ble Supreme Court, ought to have allowed the same as business loss under Section 28. 2.4.9.Without prejudice to the above, the lower authorities having not disputed that the aforesaid sum was retained by MC Rs. 27,03,000/- as per direction of Hon'ble Supreme Court, ought to have regarded the same as having been diverted at source by overriding title. 2.5. The Learned Commissioner (Appeals) is not justified in upholding the action of the Learned Assessing Officer in disallowing the expenditure of Rs. 9,69,00,000/- paid to the department of Mining and Geology on the premise that the said payment is in the nature of penalty for breach of law under Explanation 1 to section 37. 2.5.1 .The lower authorities have failed t....
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....allowable as expenditure under Income Tax Act, 1961, where the said prohibition has been introduced by Finance (No.2) Act, 2014 by inserting Explanation 2 to Section 37(1) of IT Act which is prospective in nature and in the impugned case the assessment year involved is prior to said amendment. 4. As regards unaccounted receipts of Rs. 21,62,803/-: 4.1. The lower authorities are not justified in making additions of Rs. 21,62,803/- as unaccounted receipts on the basis of amount reflected in Form 26AS, without inquiring into the nature of transaction. 4.2. The lower authorities have failed to appreciate that the said receipts reflected in Form 26AS do not relate to the Appellant except transactions with M/s. Orris Infrastructure Pvt. Ltd., of Rs. 4,75,540/- and M/s. Pragathi Krishna Gramin Bank of Rs. 1,14,7 10/- 4.3. The Learned Commissioner (Appeals) has failed to appreciate that the Appellant having brought to the notice of the Learned Assessing Officer during assessment proceedings that the receipts do not relate to Appellant, the Learned Assessing Officerought to have conducted enquiry in the hands of deductor. 4.4. Without prejudice t....
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....ng additional evidence at this stage, Ld.Counsel submitted that, these documents are revised working prepared on the basis of various payment advises received from monitoring committee in subsequent years which are already on record. He submitted that, some of the documents though do not refer to relevant assessment year, but would be helpful in understanding overall reconciliation in relation to the mines held by assessee for each preceding and subsequent assessment years. He also submitted that, some of the documents/letters from government was inadvertently missed out to be filed before authorities below, in support of contention regarding certain compulsive payments made by assessee, and some others were part of assessment records for immediately preceding assessment year. He also submitted that, assessee received certain refund, which was subsequent to the completion of assessment proceedings for year under consideration and therefore would be relevant to decide various claims of assessee. He thus submitted that, these documents would be relevant to ascertain revenue recognition by assessee on receipt basis in subsequent assessment years. 2.2. On the contrary, Ld.CIT.DR veh....
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....fore assessing officer. It was under these circumstances that this Tribunal held that, additional evidence could not be accepted. In case of Jawahar Lal Jain (HUF) vs. CIT, case was of penalty levied under section 271(1) (c ) wherein, Hon'ble High Court held that, additional evidences were filed by assessee, six years after assessment and assessee did not substantiate delay with a reasonable cause. 2.3.4. On careful reading of decisions relied on by Ld.CIT DR, it is clear that facts in each case, are different. In these decisions, additional evidences were in support of new set of facts, and therefore not admitted. 2.3.5. Per contra, in present case before us, additional evidences filed relate to facts, that are considered by authorities below. We note that except for ledger accounts, all other documents were there on public domain. Ledger accounts filed for preceding and succeeding assessments years, cannot be considered as new documents as these are available in assessment records for relevant year. No prejudice will be caused to Revenue, if these documents are admitted. Accordingly we do not find necessary to remit the appeal back to Ld.AO for consideration. As we analy....
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....in the report that, where there is no illegal mining, 80% of sale proceeds to be released and 20% to be retained. MC was to be constituted to supervise and control E-Auction, size of lot, transportation etc. It was submitted therein that, MC would utilise sale proceeds for payment of royalty, taxes etc. • Subsequently, a plea by Karnataka Iron and Steel Manufacturers Association was raised regarding shortage of supply of minerals due to suspension of mining activity, before Hon'ble Apex Court. The association also sought for a direction to reopen Category 'A' mines. • Thereafter, by order dated 03/09/2012 Hon'ble Apex Court in case of Samaj Parivartana Samudaya vs state of Karnataka, reported in (2013) 8 SCC 219 approved 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', base....
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....each of the leaseholders must pay the estimated amount as guarantee for implementation of the R & R plans in their respective sanctioned a lease area and in the areas where they carried on illegal mining activities which were used for illegal overburden dumps, roads, offices etc beyond the sanctioned lease area. In case, any leaseholder defaults in implementation of the R&R plan, it will be open to CEC is to carry out the R&R plan for that leasehold to some other proper agency from the guarantee money deposited by the leaseholder. However on the full implementation of the R&R plan to the complete satisfaction of CEC and subject to the approval of the court, the guarantee money would be refundable to the leaseholder. 5.3 In addition to the above, each leaseholder must pay a sum equivalent to 15% of sale proceeds of its iron oversold through the monitoring committee as per the earlier orders of this court. In this regard, it may be stated that though the Amicus suggests the payment at 10% 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 clarifi....
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....ed that, only caveat was in regard to Category 'C' mines. 3.6. Hon'ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra) categorically expressed its opinion in respect of Category 'C' in para 55 at page 196 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 cannot have even a persuasive value. As against the individual interest of the 49 categories see leaseholders, public interest at large would require the court to lean in favour of demonstrative in the efficacy and effectiveness of a long arm of the law. We, therefore, order for the complete closure of the Category 'C' mines and for necessary follow up action in terms of the recommendations of CEC in this regard, details of which have already been extracted in an earlier part of this order." Hon'ble Supreme Court ap....
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....ns in the respective sanctioned lease areas. It was also directed that on full implementation of R&R plans to the complete satisfaction of CEC and subject to the approval by Hon'ble Supreme Court, guarantee money would be refundable to the leaseholders. It was also held that the lessees shall be liable to pay additional amount, if the R and R plan expenditure exceeded the estimates. Hon'ble Supreme Court directed balance amount, if any, to be reimbursed to respective lessee. Category 'C' comprised of leases: (a) the illegal mining by way of;- (i) mining pits outside the sanctioned lease areas have been found to be more than 10% of the lease area, and/or; (ii) overburden/waste dumps outside the sanctioned lease areas were found to be more than 15% of lease areas and/or; (iii) the leases were found to be involved in flagrant violation of Forest (conservation) act and/or; (iv) found to be involved in illegal mining and other lease areas. 2. Reclamation and Rehabilitation (R&R) Plans; 3. Reopening of Categories 'A' and 'B' mines, subject to conditions 4. Closure/reopening of Category 'C' mines ; a....
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.... 1,48,97,000/- Total 77,71,82,153/- 5.3. In the revised return filed by assessee, amount of Rs. 77,71,82,153/- was reduced by assessee from sale proceeds itself on the ground that the above said amount did not accrue in the hands of assessee as the same was retained by MC out of the sale proceeds of iron ore as per the directions of Hon'ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra). 5.4. Ld.AO called upon assessee to file various details in respect of the expenditure claimed by assessee. In response, representative of assessee appeared before Ld.AO, and filed various details like; annual stock statement submitted to the Department of Mines and Geology for year under consideration, basis of valuation of closing stock, copy of bank account statements, confirmation from bank authorities about fixed deposits, reasons for filing revised return of income, details of property wise rent received with copy of lease deed and taxes paid thereon, details of unsecured loans and sundry creditors with confirmation etc. Assessee also filed details of deduction made by MC with write-up on the said expenditure, Ledger account extracts of over loa....
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....eds of stock not considered in IBM return were treated as undeclared stock by MC and transferred in entirety to SPV. 6.3. Sale of declared stock During the year under consideration Ld.AO noticed that, MC sold iron ore belonging to assessee through E auction out of the declared stock. The sale proceeds of such declared stock was to the tune of Rs. 25,52,89,418/-. Ld.AO during assessment proceedings, called upon assessee to explain, as to why, such sale proceeds was omitted to be offered to tax, being the year of sale, relevant to assessment year under consideration. Assessee in response, submitted that, though it followed mercantile system of accounting, did not offer said sum, since receipt of the same was highly uncertain. Assessee submitted that, revenue was recognised by assessee only on receipt basis, as per AS-9 issued by ICAI. It was submitted that, since there was uncertainty about collection of said revenue, recognition of such revenue was postponed to the extent of uncertainty involved, which was in accordance with theory of taxing only real income. It was submitted that, essential criteria for recognition of revenue is, consideration receivable from sale of goods....
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....ed from the sales revenue itself. It was submitted by assessee that the same did not accrue, as the same was diverted to SPV by MC. Assessee submitted that such stock sold by MC was not recognised by it in its books and was over and above the stock declared in IBM return. Assessee submitted that, such stock related to accumulated waste/debris, which was not recognised as saleable. It was submitted that, MC excavated such stock from accumulated dump, after suspension of mining activity, which was over and above stock declared in IBM return filed by assessee. Such stock was treated as undeclared by MC in payment advises, and therefore the sale proceeds arising from sale of such stock does not belong to assessee. Assessee submitted that sale proceeds were never transferred to assessee of such undeclared stock, and the same was contributed to SPV. 6.4.1. Ld.AO therefore treated sale proceeds from such undeclared stock as income in the hands of assessee for year under consideration. 6.5. Revenue Recognition: Ld.AO observed that MC sold iron ore of assessee by E auction to the extent of Rs. 50,24,48,441/- during financial year relevant to assessment year under consideration. ....
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....the same date, wherein, it has stated under : Relevant portion of the letter is extracted below: "12. As regards sale proceeds of declared stocks and un-declared stocks: 1) It is submitted that the Assessee did not offer to tax sale proceeds of Rs. 28,55,04,732/- relating to declared stocks and sale proceeds of Rs. 24,64,49,012/- relating to un-declared stocks during the impugned assessment year for the reason that receipt of the same was highly uncertain. 2) It is submitted that in the instant case, Assessee is following mercantile system of accounting. In mercantile system, income is to be charged on accrual basis. Income is said to be accrued when there is a reasonable certainty of receiving such income. When the same cannot be determined with reasonable certainty, the recognition of such income should be postponed. 3) In this regard a reference may be made to Accounting Standard - 9 i.e. Revenue Recognition. The relevant extract of the same reads as under.' "9. Effect of Uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the renderi....
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....tainty is lacking, then the revenue recognition shall be postponed to the extent of uncertainty involved. 6) In the instant case, the MC had complete control and command over declared and undeclared stocks. As submitted above, it was the sole discretion of MC to decide to whom the aforesaid stocks have to be sold. The sale proceeds of the said stocks are received by MC from the respective buyers. MC, after making necessary deductions gives the balance sale proceeds to Assessee. In this entire process, Assessee has no control over the value and time of receipt of the sale proceeds. 7) Thus, it is submitted that as the amount of Rs. 28,55,04, 732/- and Rs. 24,64,49,0121-, did not accrue to the Assessee, there is no question of any liability of the same to tax during the impugned assessment years. 8) In the case of in State Bank of Travancore v. CIT [1986] 158 ITR 102 / 24 Taxman 337 (SC), the Honourable Supreme Court held as under: "In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real i....
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....e firm and debited to P & L Ale. However, the said sales proceeds of Rs. 50,24,48,441/- is to be assessed as income on accrual basis in view of the accounting method (i.e. Mercantile System) followed by the assessee firm. 4.1.c. The submissions/explanations filed and judicial decisions relied on by the assessee firm have been gone through in detail. The contention of the assessee firm that, the Sale proceeds will be accounted and offered to tax as and when realised cannot be accepted and further, the judicial decisions relied on by the assessee firm have no direct nexus with the facts of the instant case as the Hon'ble Apex Court in its order dated: 18/04/2014 in WRIT PETITION (CIVIL) NO. 562 of 2009, referred above (in para.9) - Order that, the CEC was allowed to sell the stock on behalf of the assessee and to retain the sales proceeds on account of the assessee/leaseholder and the CEC was authorized to deduct the assessee's compensatory and penal liabilities out of such sales proceeds and to return the balance proceeds to the assessee - Here it needs to be clarified that the CEC/Monitoring Committee is holding the sale proceeds of the iron ores of the lease holde....
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....nnot be taken on piecemeal / receipt basis. Hence, the assessee's contention that the said amount is not liable to tax since the said amount was not actually received from the CEC/Monitoring Committee during the financial year, cannot be accepted. 4.1.e. Thus, the E-Auction sales took place on behalf of the assessee firm and the money was received from the purchaser of Iron-ore by the CEC/Monitoring Committee on account of the assessee firm. Hence, the assessee firm was required to reflect these Sales as Trading Receipts in its Books of Account keeping in view the mercantile system of accounting followed by the assessee firm and disclose the same in its return of income filed for the A.Y- 2013-14 being the Asst. Year under question without claiming the said amount as deduction in the P & L A/c. 4.1.f Further, the details of e-auction sale are available on public domain hoisted / posted by Monitoring Committee. Similarly, the Monitoring Committee also e-auctioned material with the consent of the Mine Owners and issued a sale order for lifting the material from the mines of concerned Mine Owner. From this, it is evident that the assessee was well aware of the e-....
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....ealised. "3.2.) I have gone through the facts of the case and the submissions of the appellant. The contention of the appellant that did its income was highly uncertain is not accepted for the following reasons: "The CEC was allowed to sell the stock on behalf of the assessee and to read in the sale proceeds on account of the assessee/leaseholder and the CEC was authorised to deduct the assessee is compensatory and penal liabilities out of such sale proceeds and to return the balance proceeds to the assessee. The CEC is/Monitoring Committee is holding the sale proceeds of the iron ores of the leaseholders. In case, the money held by the CEC/Monitoring Committee on the account of any leaseholder is sufficient to cover the payments under the 3 heads, the lease holder may, in writing, authorise the 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, the CEC shall retain the amounts covering the aforesaid 3 heads and pay to the concerned leaseholder the balance amount, if any. It is expected t....
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....eceive such income during the year under consideration. He submitted that, MC could not be considered as agent of assessee as there was no agreement between assessee and MC, for principle agent relationship to exist. Ld.Counsel submitted that, MC was acting in accordance with direction of Hon'ble Supreme Court vis-à-vis assessee. He also submitted that, assessee had not appointed MC to act on its behalf in order to constitute an 'Agent' under section 182 of Indian Contract Act, 1872. He thus submitted that, it is settled rule that, contract is not assignable without consent of both parties thereto, where, personal acts and qualities of one of the parties, form material and ingredient part of the contract. A.2. Ld.Counsel argued that, revenue from declared stock was not recognised during the year under consideration due to existence of uncertainty in realisation of said amount. It has been submitted that, Section 5 of the Act, manifests that, an income can be said to have accrued, only when a person has legal right to receive such income, and its recognition is on such accrual, which is tempered by section 145 read with AS-9 of ICAI. Ld.Counsel submitted that, in order to ....
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..... He submitted that, as per disclosure standards, revenue shall be recognised when there is reasonable uncertainty of its ultimate collection. Referring to AS 9, Ld.Counsel submitted that, recognition of revenue requires that it is measurable, and that at the time of sale or rendering of services, it would not be unreasonable to expect ultimate collection. He relied on AS-9, paragraph 9.1 and 9.2, where ability to assess ultimate collection with reasonable uncertainty is lacking at the time of raising any claim. He thus submitted that revenue recognition is to be postponed to the extent of uncertainty involved. In such circumstances, it was appropriate to recognise such revenue, only when it is reasonably certain that ultimate collection will be made. He referred to decision of Hon'ble Supreme Court in case of CIT vs Woodward Governor India Pvt.Ltd., reported in (2009) 312 ITR 254, wherein, Hon'ble Court held that, profits and gains of previous year are required to be computed in accordance with relevant accounting standard. Referring to decision of Hon'ble Supreme Court in case of JK industries Ltd vs UOI, reported in (2008) 297 ITR 176, Ld.Counsel submitted that, rules by which i....
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....submitted that, principle of matching between revenue receipt and expenditure to be incurred is to be applied. Reference was made to decision of Hon'ble Supreme Court in CIT vs. Bilahari Investment (P) Ltd. reported in (2008) 299 ITR 1, wherein referring to concept of matching Hon'ble Court observed that: "82. Matching Concept is based on the accounting period concept. The paramount object of running a business is to earn profit. In order to ascertain the profit made by the business during a period, it is necessary that "revenues" of the period should be matched with the costs (expenses) of that period. In other words, income made by the business during a period can be measured only with the revenue earned during a period is compared with the expenditure incurred for earning that revenue. However, in cases of mergers and acquisitions, companies sometimes undertake to defer revenue expenditure over future years which brings in the concept of Deferred Tax Accounting. Therefore, today it cannot be said that the concept of accrual is limited to one year. 83. It is a principle of recognizing costs (expenses) against revenues or against the relevant time period in order....
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....ee had right to receive 80% of total sale proceeds as on the date of sale by virtue of directions of Hon'ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra). Merely because MC disbursed payments in subsequent financial year, would not postpone revenue recognition in the hands of assessee to subsequent years. He vehemently opposed argument of Ld.Counsel that, income received by assessee was un-ascertainable and hypothetical. Ld.CIT.DR submitted that, accrual of income must be judged on 'Principle of real income theory', and that, what is necessary to be considered is the true nature of transaction. Ld.CIT.DR submitted that, what has really accrued to assessee has to be found out and what has accrued must be considered from the point of view of real income, taking the probability or improbability of realisation in a realistic manner. He also submitted that, merely because receipt takes place of such accrued income by conduct of parties in subsequent year, income which has accrued for year under consideration, cannot be made as 'no income'. A.12. Ld.CIT.DR emphasised that, admittedly, in subsequent years, assessee received 80% of total sale procee....
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....on has resulted in profit or loss to the assessee. Once accrual takes place and income accrues, the same cannot be defeated. Even under the mercantile system of accounting, it is only the accrual of real income which is chargeable to tax. The income should not be hypothetical income, but real income. If income is given up unilaterally by the assessee after it had accrued, it could not escape liability to tax. When income is in fact received but subsequently given up it remains the income of the recipient and taxes payable. When income is not resulted at all, there is neither accrual nor receipt of income even if there is an entry to that effect in the books of account. Mere postponing of an entry in the account books would not always supply conclusive evidence on the question whether the disputed amount has accrued to the assessee or not. Mere effort on the part of the assessee to realise the amount by sending a bill or making a claim or filing a suit for recovery would not in law make it an income which has accrued in the year in question. The transfer of the amount to the profit and loss account is bereft of any significance." A.13.5. We also refer to decision by Hon'ble Bomba....
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....of delivery would be decided/provided by the respective leaseholders. It is also noted that, MC may permit the leaseholders to put up for e-auction the quantities of iron ore planned to be produced in subsequent months. Hence, we cannot agree that, assessee was unaware regarding total quantity of iron ore sold and total sale proceeds received towards total quantities sold during the year. A.13.8. On perusal of documents placed on record, we are of the view that, assessee was aware of total quantity of iron ore sold and dispatched, total sale proceeds received towards total quantity sold during the year and value of stock that was not considered for release. This is evident from page 178, 180-181 of paper book, wherein, date of sale, for both mining leases and amount realised are placed. Under such circumstances, assessee cannot escape from incident of accrual of such income during financial year relevant to assessment year under consideration. A.13.9. There is no dispute with regard to the fact that, declared stock belongs to assessee and assessee has to recognise revenue arising on sale of such stock. We have already noted that the role of MC was to carry out the e-auction o....
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.... find any force in the submissions made by Ld.Counsel that there is no necessity to assess the impugned sale proceeds during the year since it has been already offered to tax in subsequent assessment year and the exercise is tax neutral. Under Income tax Act, total income of each year is to be determined separately and hence income has to be assessed in the right assessment year. Considering totality of facts in the present case, we are of the view that, sale proceeds of assessee's stock accrued to assessee during financial year relevant to assessment year under consideration. Based on above discussions and observations, in our view, we are of opinion that, sale proceeds from disclosed stock accrued to assessee during the year under consideration and has to be considered for determining income under the head 'profits and gains from business for year under consideration. We have already noted that assessee has offered the above sale consideration on subsequent assessment years, and income tax act does not permit to assess same income twice. Hence in our view assessee may move appropriate petition before the authorities below for exclusion of above sale proceeds from declare....
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....agraph 11. He submitted that, assessee's lease No.2296 in Category 'A' was visited by CEC to ascertain availability of sub grade iron ore in existing overburden dumps, which could be removed and sold through E auction. The report also recommended sale proceeds of such sub grade iron ore from the area outside sanctioned mining lease areas will be retained by MC, to be transferred to SPV for undertaking comprehensive environment plan for mining impact zone. B.4. Ld.Counsel, referring to paragraph 15 of order passed by Hon'ble Supreme Court in case of Samaj Parivartana Samudaya (supra), submitted that, in order to meet market demand, recommendations of CEC was approved by Hon'ble Supreme Court. He submitted that these dumps were lying in mining area which were not treated as part of inventory by assessee, and therefore, were neither accounted in books of accounts, not declared in IBM return. Ld.Counsel submitted that, such sale proceeds from sale of Fines/Lumps/Dumps not declared in IBM return of assessee, were wrongly treated as undisclosed income by Ld.AO. Ld.Counsel submitted that, sale proceeds were never transferred to assessee and the same were contributed to SPV for R & R pl....
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.... v. CIT vs TJayavhandran (2018) 406 ITR 1(SC). vi. Pr.CIT vs Gyan Enterprises Pvt. Ltd., SLP (CIVIL) Diary No(s). 17347/2019. vii. Pr.CIT vs Gyan Enterprises Pvt. Ltd., ITA 940/2016(DEL) dated 17/05/2018. viii. CIT vs United Breweries Ltd (2010) 321 ITR 4546 (KARN.). ix. CIT vs Pandavapura Sahakara karkhane Ltd. (1988) 174 ITR 475 (KARN). x. CIT vs Pandavapura Sahakara karkhane Ltd. (1992) 198 ITR 690 (KARN.) xi. Poddar Project Ltd vs. CIT (2012) 211 Taxmann 493 (CAL) xii. Invest Exports, Gmbh. vs ACIT in ITA No. 371/Vizag/2002 by Order dated 13/05/2010 B.5.1.1. Ld.Counsel, then submitted that, there is no principal and agent relationship between assessee and CEC/MC, and that, CEC/MC was not acting on behalf of assessee, but was following directions of Hon'ble Supreme Court, by order dated 18/04/2013, to sell confiscated stock, retention of part of sale proceeds towards R&R plan and payment of balance to assessee. Referring to page 177-183 of paper book, Ld.Counsel submitted that, merely because VAT returns mentioned that stock were sold by MC on behalf of assessee as its principal, does not mean that MC act....
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....ccount for such contribution towards SPV that is: i. to account for net of contribution of SPV, meaning thereby, to deduct such contribution as business loss while computing profits and gains under section 28 of the Act. In support of this contention, Ld.Counsel relied on decision of Hon'ble Supreme Court in case of Dr.T.A Quereshi vs CIT (supra). OR; ii. To treat it as expenditure in the hands of assessee under section 37 of the Act. It has been submitted by Ld.Counsel that Explanation 2 to section 37 is not applicable, as the same is introduced by Finance Act 2014, which is prospective in nature. It is also been submitted that Explanation 2 is applicable to Companies and not to partnership firms like that of assessee. Ld.Counsel placed reliance upon decision of coordinate bench of this Tribunal in case of ACIT vs Essel Mining & Industries Ltd reported in (2016)-TIOL-371-ITAT-KOL, Shyam Sel Ltd vs DCIT reported in (2016)-TIOL-1592-HC-KOLIT, decision of Hon'ble Calcutta High Court in case of Mundial Export Import Finance (P) Ltd vs CIT reported in (2016) 238 Taxman 34 and decision of coordinate bench of this Tribunal in case of NMDC Ltd vs ACIT reported in (2019) ....
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.... 'B' is due to illegal mining outside the sanctioned area. He submitted that, said percentage has been calculated by monitoring committee in its payment advice dated 18/02/2014 placed at page 198-210, issued in respect of both mining leases held by assessee. Ld.CIT.DR submitted that, concentration of iron ore in the undeclared stock was found to be more that 15%. He also submitted that, Dumps in such undeclared stock was 11%. B.6.2. Ld.CIT.DR submitted that, sale proceeds from such undeclared stock in IBM returns, was not parted to assessee, due to excessive salable iron ore, over and above the declared stock. He submitted that, alternative treatment of considering such sale proceeds of undeclared stock in the hands of assessee is irrelevant, as it qualifies to be income in the hands of assessee, though tainted. B.6.2. Ld.CIT.DR submitted that, as the sable stock from overburden dumps exceeded 15% allowed by Hon'ble Supreme Court, MC did not part with such sale proceeds. He submitted that merely because the sale proceeds were to paid to assessee, does not mean it did not accrue to assessee, for the reason that the salable stock eminated from the overburden dumps in and around....
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.....Counsel emphasized that, what is considered to be undisclosed, are over burden dumps in Category A &B, sold by MC, subsequent to permission obtained from Hon'ble Supreme Court, based on Report by CEC dated, 15/02/2013. It was submitted by Ld.Counsel that, there is no illegal mining in Category A. Further from Report of CEC dated 15/02/2013, filed by Ld.Counsel at the time of clarification. Ld.Counsel submitted that, what is considered by revenue as undeclared stock in IBM returns, are over burden dumps under Category 'A' &B, that are not considered salable. It was for this reason that these were relevant to be considered in IBM return. B.7.4. We refer to Annexure R-10 at page 112 of Additional Evidence filed by assessee. We also refer to, and rely on details emanating from page 207-208 of paper book filed by assessee. Valuation of excess quantity dispatched for which payment was been made in respect of Fines/Lumps in Category 'A'(ML No.2296) Particulars Fines/Lumps (Mts) Quantity dispatched for which payment has been made/proposed 6,51,894 Quantity declared by IBM 4,90,082 Excess quantity for which payment has been made 1,61,812 Valuation of excess....
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....l-agent relationship between assessee-MC does not exist. In our opinion MC was acting according to directions by Hon'ble Supreme Court, and not on the authority envisaged by assessee. Further, there is no legal relation that is created between assessee and third party purchasers through MC. Even Ld.AO has not made additions in the hands of assessee by holding MC to be assessee's agent. Whether an Expenditure: B.7.7. We cannot agree with proposition of treating such receipts from sale proceeds of such undeclared stock to be expenditure under section 37 (1) in the hands of assessee, as the said sum was contributed to SPV for R&R Plans. Ld.Counsel placed reliance on decision of Hon'ble Karnataka High Court in case of Prakash Leasing Ltd., Vs. DCIT reported in (2012) 208 Taxman 464, in support his contention. B.7.7.1. In our view, what could be considered under section 37, are probable expenditure for purposes of earning income. On perusal of decision in case of Prakash Cotton (Supra), Hon'ble Court was considering determination of real income in case of 'finance lease' that forms part of 'lease Rentals'. Hon'ble Karnataka High Court following decision of Hon'ble Delhi High Co....
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....eport indicating the categorisation of mines as A, B, C, before Hon'ble Supreme Court, in terms of classification on the basis of level of illegalities found as under: "7. We may now proceed to notice the relevant part of the 2 reports of CEC dated 03/02/2012 and 13/03/2012 as referred to herein above: IV. Classification of pleases in different categories on the basis of level of illegalities found 27. CEC, based on the extent of illegal mining found by the joint team and is appropriately modified by CEC in its preceding dated 25/01/2012 and after considering the relevant information and has classified the mining leases into 3 categories namely Category 'A', Category 'B' and Category'C'. 28. Category 'A' comprises of (a) nonworking leases wherein no marginal/illegalities have been found. The number of such leases come to 21 and 24 respectively. 29. Category 'B' comprises of: (a) mining leases wherein illegal mining by way of:- (i) mining pits outside the sanctioned lease areas have been found to be up to 10% of the lease areas, and/or (ii) overburden/waste dumps outside the sanctioned lease areas have been found to be up to 15% of the le....
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....ion the sub grade iron ore available in the existing overburden dumps in and around the lease area subject to the condition that such removal and sale is not likely to have significant adverse impact on the existing tree growth/vegetation and and/or stability of the overburden dumps. The Monitoring Committee may be authorised to retain the entire sale proceeds in respect of the dumps located outside the sanctioned and presently valid lease areas for the purpose of transfer to the SPV for the implementation of the Comprehensive Environment Plan for Mining Impact Zone (CEPMIZ). B.7.8.6.The above recommendation of CEC was accepted by Hon'ble Supreme Court in paragraph 17 of its order with the following observations:- "17.........It would also be convenient to take note of the fact that as per the CEC"s report dated 15-2-2013 sale of almost the entire quantity of illegally extracted iron ore has been effected through the Monitoring Committee and the sub grade iron ore lying in dumps in and round several lease areas may not have adequate commercial potential. Besides removal thereof for sale, in many cases, may also give rise to environmental problems in as much as removal o....
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....and outside the sanctioned lease area separately. It was submitted by Ld.Counsel that relevant information would be available with MC. B.7.8.9. We refer to observation by Hon'ble Supreme Court in case of CIT vs Sitaldas Tirathdas (supra). Hon'ble Supreme Court laying down following principal referred to various rulings that illustrated aspects of diversion of income by overriding title. "These are the cases which have considered the problem from various angles. Some of them appear to have applied the principle correctly and some, not. But we do not propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached 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 t....
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....view that sale proceeds from undeclared stock, if any, is received by assessee, shall be taxable when it is actually received." Accordingly, we are of the view that, even if the receipt is considered as taxable on accrual basis, the same is deductable as trading loss. Accordingly, we allow Ground No. 2.2 to 2.2.7 and dismiss Ground No.2.2.8. 7. Ground No.2.3.1-2.3.9, 2.3.12-2.3.15 have been raised in respect of addition on account of Category A-10% of confiscated sale proceeds utilised towards SPV amounting to Rs. 13,10,94,826/- and addition on account of Category B-15% of confiscated sale proceeds, utilised towards SPV, amounting to Rs. 3,18,41,886/-. Assessee debited Rs. 16,29,36,712/- to profit and loss account, under the head SPV charges. Facts relating to this issue are as under: 7.1. Hon'ble Supreme Court in case of Samaj Parivartana Samudaya & Ors. Vs. State of Karanataka & Ors. (supra), approved the recommendation of CEC for deducting and retaining part of sale proceeds for purpose of taking various ameliorative and mitigative measures. CEC recommended retaining of 10% of sale proceeds. Hon'ble Supreme Court accepted 10% for Category "A" mines and increased d....
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....etitioner (s) Versus State of Karanataka & Ors. . .. Respondent(s) WITH SLP (C) Nos.7366-7367 of 2010, SLP (C) Nos.32690-32691 of 2010, WP (CrI.) No.66 of 2010, SLP (C) Nos.17064-17065 of 2010, SLP (C) No (CC No.16829 of 2010), SLP (C)No ......(CC No. 16830 of 2010), WP (C) No.411 of 2010, SLP (C) No.353 of 2011 and WP (C) No.76 of 2012: "5. We may now proceed to notice the relevant part of the two Reports of the CEC dated 3.2.2012 and 13.3.2012, as referred to herein above. "IV' CLASSIFICATION OF LEASES IN DIFFERENT CATEGORIES ON THE BASIS OF THE LEVEL OF ILLEGALITIES FOUND. 27. The CEC, based on the extent of illegal mining found by the Joint Team and as appropriately modified by the CEC in its Proceeding dated 25th January, 2012 and after considering the other relevant information has classified the mining leases into three categories namely "Category-A ", "Category-B" and "Category-C". 28. The "Category-A" comprises of (a) working leases wherein no illegality/marginal illegality have been found and (b) nonworking leases wherein no marginal/illegalities have been found. The number of such leases comes to 21 & 24 respectively. 29. ....
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....ease area, exemplary compensation/penalty may be imposed on the lessee. It is recommended that: a) For illegal mining by way of mining pits outside the leases area, as found by the Joint Team, the compensation/ penalty may be imposed at the rate of Rs. 5.00 Crore (Rs.FiveCrore only) for per ha. of the area found by the Joint Team to be under illegal mining pit; and b) For illegal mining by way of over burden dump(s) road, office, etc. outside the sanctioned lease area, the compensation/penalty may be imposed @ is. 1.00 crores (Rs. One Crores only) for per ha. of the area found to be under illegal over burden dump etc. 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. (VI) In respect of the mining leases falling in "CATEGORY-C" (details are given at annexure-R-11 to this Report) it is re....
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.... retained by the Monitoring Committee,' ... (XIV) the Monitoring Committee may be authorized to utilize up to 25% of the interest received by it for engaging reputed agencies for the monitoring of the various parameters relating to mining. " ... III. In addition to the above, each leaseholder must pay a sum equivalent to 15% of the sale proceeds of its iron ore sold through the Monitoring Committee as per the earlier orders of this Court. In this regard, it may be stated that though the amicus suggests the payment @ 10% of the sale proceeds, having regard to the overall facts and circumstances of the case, we have enhanced this payment to 15% of the sale proceeds. Here it needs to be clarified that the CEC/Monitoring Committee is holding the sale proceeds of the iron ores of the lease holders, including the 63 leaseholds' being the subject of this order. In case, the money held by the CEC/Monitoring Committee on the account of any leaseholder is sufficient to cover the payments under the aforesaid three heads, the leaseholder may, in writing, authorize. the CEC to deduct from the sale proceeds on its account the amounts under the aforesaid three heads and ....
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....ce of sale amount should have been shown as receivable from Government. The balance of the sale amount will be reflecting as payable to seller-assessee in the accounts of the Government. 4.2.g. Further, the said SPV is Special Purpose Vehicle for social economic development of the mining area which is nothing but relating to corporate social responsibility only. The deduction claimed towards SPY vis-a-vis against the amount retained by the Monitoring Committee is not allowable under section 37(1) of the Income Tax Act, 1961 as it was not incurred by the assessee wholly and exclusively for the purpose of business. The said part of the proceeds are retained to meet the penal and other liabilities for contravention of law and therefore, the said amount retained by the CEC/Monitoring Committee cannot be allowed as deduction in view of the specific Explanation to section 37(1) of the Act. 4.2.h. The Hon'ble Supreme Court thought on the lines of 'Corporate Social Responsibility' much before its actual introduction in the Act and wanted to improve the lives of people & environment affected by the mining activities. On this line of thought, the Apex Court want....
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....A). 7.3. Ld.CIT(A) observed and held as under: "4.4) The facts of the case, submissions made by the assessee and the assessment order passed by the AO has been carefully considered. In connection with the illegal mining activities in Karnataka, the Hon'ble Supreme Court has established a Monitoring Committee called Central Empowered Committee (CEC) to monitor the e-auction sales of the iron ore and other related work entrusted to it. In this regard, the Hon'ble Apex Court has passed various judgments in the case of Samaj Parivarthana Samudaya &others Vs. State of Karnataka & Others, on various dates in Writ Petition No. 562 of 2009 along with SLP No. 7366-7367. The Hon'ble Supreme Court in its order dated 18.04.2013 in the same case of Samaj Parivarthana Samudaya & Others V/s. State of Karnataka & Others has pronounced its important judgment on illegal mining in the state of Karnataka and accordingly, a Central Empowered Committee (CEC)has identified three category of mining cases, Category - A, B & C. The assessee falls under the Category-B mines, the issues pertaining to category 'B' mines is discussed. B-Category mines comprises (a) mining leases ....
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....penalty may be imposed at the rate of Rs. 5.00 Crore (Rs. Five Crore only) for per ha. Of the area found by the Joint Team to be under illegal mining pit; and b) For illegal mining by way of over burden dump(s) road, office, etc. outside the sanctioned lease area, the compensation/penalty may be imposed @Rs. 1.00 crores (Rs. One Crore only) for per ha. Of the area found to be under illegal over burden dump etc. ..... 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 disburses to the respective lessees. 4.9) A perusal of the directions of the Supreme Court shows that the part proceeds are retained to meet the penal and other liabilities for contravention of law and therefore the said amount was retained by the CEC/Monitoring Committee. The Hon'ble Supreme Court wanted the CEC/MC to collect certain amount of profit from....
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....bu P Thomas vs. UOI (2015-TIOL-514-HC-Kerala-IT) (j) A F Ferguson & Co vs. ACIT (2011-TIOL-604-ITAT-Mum) (k) CIT vs. PandavapuraSahakaraSakkareKarkhane Ltd (1988)(174 ITR 475)(Kar) (l) CIT vs. PandavapuraSahakaraSakkareKarkhane Ltd (198 ITR 690 (Kar)) 7.6. Ld.Councel submitted that the amount retained by MC for contribution to SPV is not taxable in the hands of the assessee, as the same has been diverted at source by overriding title as per the orders of Hon'ble Supreme Court. He submitted that there is no principal and agent relationship between the assessee and MC. Hence it cannot be said that the MC was acting on behalf of the assessee. In fact, the MC is acting as per the directions given by Hon'ble Supreme Court. It was submitted that assessee did not have absolute command, control and right of disposition of this receipt. Ld.Counsel thus submitted that this receipt has been diverted at source and cannot constitute income of the assessee. 7.7. Alternatively, he also proposed that, such receipts could be considered as business loss under Section 28 of the Act, since such proceeds were utilised by SPV towards reclamation and rehabilitation of min....
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....n of environment is based on the principle, "Polluter pays principle" held by Hon'ble Clacutta High Court in the case of Shyam Sel Ltd vs. DCIT reported in (2016) 72 taxmann.com 105. Ld.Counsel submitted that, Ld.AO was not justified in invoking Explanation 1 to sec. 37(1), which relates to the expenses incurred towards infraction of law. He submitted that the deduction was made by MC as per the directions of Hon'ble Supreme Court and the same cannot be equated with infraction of law. He submitted that MC deducted 10% of sale proceeds from Category "A" mine (Lease No.2296), where no illegality was found. He submitted that, the amount so deducted was contributed to the SPV for taking ameliorative measures and hence it is in the nature of compensation and not penal in nature. Further Explanation 1 shall apply only if the purpose of expenditure is for an offence or prohibited by law. Hence, Explanation 1 to sec.37 is not applicable to this payment. Ld.Counsel relied on following decisions in this regard:- (a) ITO vs. Reliance Share and Stock Brokers Ltd (ITA No.274/Mum/2013) (b) CIT vs. Ajanta Pharma Ltd (2017)(85 taxmann.com 252)(Bom) (c) CIT vs. Regalia Ap....
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....ome from business and profession. Or • He submitted that it may be treated as an expenditure incurred by assessee for purposes of business. 7.10.2. On the contrary, Ld.CIT DR submitted that it is an application of income and therefore has to be disallowed in the hands of assessee. He submitted that Ld.AO in support of disallowing the claim of expenditure relied on following decisions: • CIT vs.KCP Ltd. reported in 245 ITR 421(SC) • G.Padnabha Chettiyar & Sons vs.CIT reported in 182 ITR 1(Mad) • ReformFlour Mills Pvt.Ltd Vs.CIT reported in 132 ITR 184,196(Cal) • CIT vs.A.Krishnaswamy udaliar & Ors reported in 53 ITR 122(SC) We note that these decisions are on the accrual of income, which has been considered by us in forgoing paras. We have already held that entire income accrued to assesee while deciding grounds 2.1 &2.2. In the issue of contribution towards SPV, one has to consider its correct nature. In our opinion these decisions do not assist revenue in any manner. 7.10.3. On careful reading of decision of Hon'ble Supreme Court in case of Samaj Parivartana Samudaya & Ors. Vs. State of Karanataka & Ors. (su....
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....ch assessee was to authorise CEC/MC in relevant paragraph 11(III) refer to and relied by Ld.CIT DR. 7.10.6. In the present facts of the case, we note that 10%/15% of sale proceeds was payable to SPV account, after it accrued to assessee, and the fact that, assessee was obliged to part with such portion of income, by virtue of directions of Hon'ble Supreme Court in case of Samaj Parivartana Samudaya & Ors. Vs. State of Karanataka & Ors. (supra), as a precondition to resume mining operations under Category 'A and 'B'. At this juncture we also emphasise that, but for the intervention by Hon'ble Supreme Court, assessee would not have contributed 10%/15% to SPV account for implementation of reclamation and rehabilitation scheme on its own, as there was no statutory requirement to do so under relevant statutes that regulate mining activities. 7.10.7. In our view contributing 10%/15% to SPV account on account of Category 'A'/ 'B' respectively, would be application of income, and therefore should be considered as expenditure incurred for carrying out its business activity. This we hold so, for the reason that, contributions determined by Hon'ble Supreme Court are in the nature of gua....
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.... final determination of the notional loss caused by the illegal mining and illegal use of the land; and that the Hon'ble Supreme Court had directed that each of the leaseholder should pay a sum equivalent to 15% of the sale proceeds of its iron ore sold through the Monitoring Committee. In accordance with the said direction, the assessee made payment of Rs. 337.13 Crs towards contribution for the Special Purpose Vehicle and the sum of Rs. 68.66 Crs towards penalty / compensation for encroachment of the mining area beyond the sanctioned / leased area. The A.O. observed that the total of the above payment of Rs. 405.79 Crs was punitive in nature and accordingly sought to disallow the same by issuance of a show-cause notice. ...... 4. The A.O. however did not accept the assessee's explanation and held that the assessee, being a Category-B leaseholder, has been directed to make the payment for infringement of MMDR Act and other allied laws. Therefore, he observed that the payment of Rs. 405.79 Crs is punitive in nature and brought it to tax. .......... 10. Thus, from the table reproduced above, it is seen that the assessee has been classified....
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.... the same as business expenditure. The Hon'ble High Court had taken note of the fact that the assessee's business was not illegal and that compensation was paid because of its failure to install pollution control device within prescribed time and therefore, such payment was undoubtedly for the purpose of business and in consequence of business carried on by the assessee and was thus covered by section 37 of the Act. For coming to this conclusion, Hon'ble High Court has also considered the judgment of the Hon'ble National Green Tribunal in the case of State Pollution Control Board vs. Swastik Ispat (P.) Ltd wherein at para 38 of the judgment the Tribunal held as under:- "Being punitive is the essence of 'penalty'. It is in clear contradistinction to 'remedial' and / or 'compensatory'. 'penalty' essentially has to be for result of a default and imposed by way of punishment. On the contrary, 'compensatory' may be resulting from a default for the advantage already taken by that person and is intended to remedy or compensate the consequences of the wrong done. For instance, if a unit has been granted conditional consent an....
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....llowed." 7.10.9.We also notice that the co-ordinate Bangalore bench of Tribunal has also considered identical issue in the case of Ramgad Minerals & Mining Ltd (ITA No.1270 & 1271/B/2019 dated 04-11- 2020) being Category 'B', an identical addition made by Ld.AO was held to be allowable as expenditure with following observations:- "7.8.9. In present appeals, only issue raised for our consideration is in respect of 15% contribution made to SPV for assessment year 2013-14 and 2014-15; 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 con....
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....ITR 367.Hon'ble Supreme Court laying down following principal referred to various rulings that illustrated aspects of diversion of income by overriding title. "These are the cases which have considered the problem from various angles. Some of them appear to have applied the principle correctly and some, not. But we do not propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached 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 seco....
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.... towards SPV being 15% of sale proceeds, under Category B, cannot be treated as penal in nature. We, therefore, reject observations of authorities below that, such sum having contributed by assessee fall within ambit of explanation 1 to section 37 (1) of the Act." 7.10.10. We note that the CEC, vide its report dated 3-2-2012 and 13-3-2012 made recommendations with regard to setting up of SPV, transfer of funds collected from all lease holders under various heads, manner of utilisation of said funds etc., to Hon'ble Supreme Court, which is incorporated in Paragraph 7 at Page 164 to 171 as under: "(IX) A Special Purpose Vehicle (SPV) under the Chairmanship of Chief Secretary, Government Karnataka and with the senior officers of the concerned Departments of the State Government as Members may be directed to be set up for the purpose of taking various ameliorative and mitigative measures in Districts Bellary, Chitradurga and Tumkur. The additional resources mobilized by (a) allotment/ assignment of the cancelled mining leases as well as the mining leases belonging to M/s. MML, (b) the amount of the penalty/ compensation received/ receivable from the defaulting lessee, (c) t....
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....visions of Explanation 1 to sec.37 will not apply to these payments. We also note that Hon'ble Supreme Court at page 171 observed that, these payments are necessary to be made by the mining lease holders. Hence there is merit in the submission of Ld.Counsel that, without making these payments, assessee could not have resumed the mining operations. Hence, these expenses are incidental to carrying on the business and hence allowable u/s 37(1) of the Act. 7.10.13. Based on above discussions and analysis, we are of opinion that contribution to SPV being 10%/15% of sale proceeds, under category A/B, is to be allowable as expenditure for year under consideration. Thus, alternative plea raised by assessee in ground 2.3.6 and 2.3.7 does not arise. In any event, such payment cannot be considered to be loss in the hands of assessee. Accordingly we allow grounds 2.3.8-2.3.9 and dismiss grounds 2.3.1-2.3.7. 8. Ground No.2.5 has been raised against the disallowance of Rs. 9,69,00,000/-, by treating it as penalty. Ld.AO observed that, for year under consideration, assessee debited sum of Rs. 9,69,00,000/- under the head, compensation for Category 'B'. It was observed that, the said a....
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....provisions of section 37 of the IT Act as the expenditure is penal in nature. Further, the Dept., of Mines and Geology, Bangalore vide its Lr.F.No.DMGIR& RlNotice/2012-13/11 Dated: 28/02/2013 in obedience to the Order of Hon'ble Supreme Court has issued notice to the assessee firm as under: The relevant portion of the letter is extracted below: "The Central Empowered Committee had noticed during the Survey by Joint Team that you, holder of Mining Lease No.2160 in PMB range, Sandur taluk, Bellary, have illegally conducted mining operations and / or illegally dumped the waste outside the lease area and committed certain other illegalities. Accordingly, in the reports dated: 03/02/2012 and 13/03/2012 submitted to the Hon'ble Supreme Court, the Central Empowered Committee had recommended imposing a penalty of Rs. 5 Crores per hectare for illegal mining and Rs.l Crore per hectare for dumping the waste outside the lease area on you for involving yourself in the above illegal act. The Hon'ble Supreme Court in its Orders dated: 13/04/2012 and 28/09/2012 referred to at Sl.No. (2) above accepted the recommendations of the Central Powered Committee." In the circu....
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....r. 4.3.c. As already discussed above as per the Order of the Hon'ble Apex Court, the mine owners were placed in different category based on the illegal or marginal illegal mining done by them. The CEC had noticed during the Survey by Joint Team that the assessee holding a Mining Lease No.2160 in PMB Range, Sandur Taluk, Bellary have illegally conducted mining operations and illegally dumped the waste outside the lease area and committed certain other illegalities. In view of this, the DM&G has imposed certain penaltyX on the assessee firm as per the recommendations of the Apex Court and further has called upon the assessee firm to made payment towards the probable expenditure by ICFRE for implementation of R & R Plan. Out of this, the assessee has claimed a deduction towards penalty imposed at Rs. Rs. 9,69,00,000/- and probable expenditure for implementation of R & R Plan Rs.l,48,97,000/- respectively, during the previous year in question. 4.3.d. The explanation offered by the assessee firm for claiming deduction of said expenditure has been perused and found not acceptable. The various case laws relied on by the assessee firm have no direct nexus to the facts....
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....cannot be trade pursuit. The penalties paid for violating the law in the course of the conduct of business cannot be regarded as deductible expenditure, as the assessee is expected to carry on the business in accordance with law and not in violation of law. In the instant case, the assessee has violated the law and has formed Illegal Mining Pits and Illegal Dumping of waste, whereby, the Hon'ble Apex Court on the recommendation of the CEC has directed to collect the amounts as penalty for violation of such law. 4.3.g. Infraction of the law is not a normal incident of business and, therefore, no expense which is paid by way of penalty for breach of the law can be said to be an amount wholly and exclusively laid for the purpose of business [Haji Aziz & Abdul Shakoor Bros. Vs. CIT (1961) 41 CTR 350 (SC)J. A payment made under a statutory obligation, because the assessee was in default could not constitute expenditure laid out for the purpose of assessee's business [Indian Aluminium Co. Ltd. Vs CIT (SC) 79 ITR 514]. 4.3.h. Further, probable expenditure for implementation of R & R Plan Rs.l,48,97,000/- claimed by the assessee firm is a provisional & probable one. P....
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....the Act, as the expenditure is penal in nature. 5.1) The assessee contested that the expenditure was incurred as compensatory/ compounding fee and paid as a commercial expediency to regularize the pending issue and by doing so the company was allowed to commence its business operations. As such the payment made under commercial expediency be considered for allowing the same as deduction. 5.2) I have gone through the facts of the case and the submissions of the appellant. As per the directions of the Supreme Court part proceeds are to be retained by the CEC/Monitoring Committee to meet the penal and other liabilities for contravention of law. Further, if an assessee is penalized under one Act, he cannot claim that the amount to be set off against his income under another Act, because that will be frustrating/ defeating the entire object of penalizing under the other Act. If the assessee resorts to unlawful means to augment his profits or reduce his loss, then the expenditure incurred for these unlawful activities cannot be allowed to be deducted whether the business is lawful or otherwise. Even if the entire business of the assessee is illegal and income is sought ....
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....s/penalties paid for violating the law in the course of the conduct of business cannot be regarded as deductible expenditure, as the assessee is expected to carry on the business in accordance with law and not violation of law. In the instant case, the assessee has violated the law and has formed Illegal Mining Pits and Illegal Dumping of waste, whereby, the Hon'ble Apex Court on the recommendation of CEC has directed to collect the amounts for violation of such law. In view of the above, the said deduction cannot be allowed which is being compensation and penalty in nature for contravention of laws. This ground is dismissed." Aggrieved by order of Ld.CIT(A), assessee is in appeal before us now. 8.4. Before us, Ld.Counsel referred to breakup of Rs. 9,69,00,000/- at page 201 of paper book: Compensation (mining pit) 0.4 6Ha Rs. 2,30,00,000 Compensation (dump, received etc, 2.50 HA) Rs. 2,50,00,000 Encroachment of road (4.40 HA) Rs. 4,40,00,000 Other category (0.49 HA) Rs. 49,00,000 8.5. Ld.Counsel submitted that payment advises issued by Department of Mines and Geology, clearly mentions that, above amounts retained by MC are towards R&R plan as co....
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....the bar to persuade us to take the view that we should desist from exercising our powers under the Constitution and instead relegate the parties to the remedies provided by the statute. 8.9. Ld.CIT.DR submitted that, Hon'ble Supreme Court summarised arguments advanced by leaseholders as under: 27. On the above issue the short and precise argument on behalf of the leaseholders is that the provisions of each of the statutory enactments, i.e., the MMDR Act, FC Act and EP Act prescribe a distinct statutory scheme for regulation of mining activities and the corrective as well as punitive steps that may be taken in the event mining activities are carried out in a manner contrary to the terms of the lease or the provisions of any of the statutes, as may be. The argument advanced is that as the statutes in question contemplate a particular scheme to deal with instances of illegal mining or carrying on mining operations which is hazardous to the environment, the CEC could not have recommended the taking of any step or measure beyond what is contemplated by the statutory scheme(s) in force. It is argued that it will not be proper for this Court to act under Article 32 and to acce....
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....passed by authority below. 8.12 . We have perused submissions advanced by both sides, in light of records placed before us. 8.12.1. Ld.AO took the view that these payments are penal in nature as they have been levied for contravention of laws by way of damages caused to forest and environment. Ld.AO referred to the letter F.No.DMG/R & R/Notice/2012-13/11 dated 28-02-2013 issued by Department of Mines and Geology, Bangalore demanding the payment from the assessee. It is pertinent to note that the above said letter uses the expression "penalty" for these payments. Accordingly, the AO took the view that these payments are in the nature of penalty for various irregularities committed by the assessee in the mining area like illegal mining, illegal dumping of waste and other violations like encroachment etc. Ld.AO relied upon following case laws to buttress his view that the penalty is not allowable as deduction:- (a) Maddi Venkataramana& Co (P) Ltd vs. CIT (1998)(229 ITR 534)(SC) (b) Haji Azis& Abdul Shakoor Bros. Vs. CIT (1961)(41 ITR 350)(SC) (c) Indian Aluminium Co. Ltd vs. CIT (79 ITR 514)(SC) 8.12.2. Assessee claimed Rs. 9,69,00,000/- as expendit....
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.... after (a) the implementation of the R& R Plan is physically undertaken and is found to be satisfactory based on the pre-determined parameters, (b) penalty/ compensation as decided by this Hon'ble Court is deposited and (c) the conditions as applicable in respect of "Category-A" leases are fulfilled/followed; iv) In respect of the seven mining leases located on/nearby the interstate boundary, the mining operation should presently remain suspended. The survey sketches of these leases should be finalized after the interstate boundary is decided and thereafter the individual 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". 8.12.5. Hon'ble Supreme Court in para 11 at page 172 accepted the recommendation of CEC by observin....
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....ted as under( page 173 clause): "III.. In addition to the above, each leaseholder must pay a sum equivalent to 15% of the sale proceeds of its iron ore sold through the Monitoring Committee as per the earlier orders of this Court. In this regard, it may be stated that though the amicus suggests the payment @ 10% of the sale proceeds, having regard to the overall facts and circumstances of the case, we have enhanced this payment to 15% of the sale proceeds. Here it needs to be clarified that the CEC/Monitoring Committee is holding the sale proceeds of the iron ores of the leaseholders, including the 63 leaseholds being the subject of this order. In case, the money held by the CEC/Monitoring Committee on the account of any leaseholder is sufficient to cover the payments under the aforesaid three heads, the leaseholder may, in writing, authorize the CEC to deduct from the sale proceeds on its account the amounts under the aforesaid three heads and an undertaking to make payment of any additional amount as compensatory payment. On submission of such authorization and undertaking, the CEC shall retain the amounts covering the aforesaid three heads and pay to the concer....
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....tal rights of a large number of citizens for enforcement of which the writ petition has been filed under Article 32. Shri Divan has submitted, by relying on several decisions of this Court, that in a situation where the Court is called upon to enforce the fundamental rights and that too of an indeterminate number of citizens there can be no limitations on the power of Court. It is the satisfaction of the Court that alone would be material. Once such satisfaction is reached, the Court will be free to devise its own procedure and issue whatever directions are considered necessary to effectuate the Fundamental Rights. The only restriction that the Court will bear in mind is that its orders or directions will not be in conflict with the provisions of any Statute. However, if the statute does not forbid a particular course of action it will be certainly open for the Court under Article 32 to issue appropriate directions..... 31. The question that has been raised on behalf of the leaseholders is whether the aforesaid provisions under the different statutes should be resorted to and the recommendations made by the CEC including closure of Category- "C" mines should not commend fo....
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....nd and environmental degradation caused by the absence of remedial measures (including rehabilitation plan). Time has now come, therefore, to suspend mining in the above area till statutory provisions for restoration and reclamation are duly complied with, particularly in cases where pits/quarries have been left abandoned. 45. Environment and ecology are national assets. They are subject to intergenerational equity. Time has now come to suspend all mining in the above area on sustainable development principle which is part of Articles 21, 48-A and 51-A(g) of the Constitution of India. In fact, these articles have been extensively discussed in the judgment in [M.C. Mehta case (2004) 12 SCC 118] which keeps the option of imposing a ban in future open." 8.12.10. After considering all these judgments rendered by earlier bench, Hon'ble Supreme Court, observed as under:- "35. The issue is not one of application of the above principles to a case of cancellation as distinguished from one of suspension. The issue is more fundamental, namely, the wisdom of the exercise of the powers under Article 32 read with Article 142 to prevent environmental degradation and thereby e....
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....can have no application in a case of mass tort as has been occasioned in the present case. The mechanism provided by any of the Statutes in question would neither be effective nor efficacious to deal with the extraordinary situation that has arisen on account of the large scale illegalities committed in the operation of the mines in question resulting in grave and irreparable loss to the forest wealth of the country besides the colossal loss caused to the national exchequer. The situation being extraordinary the remedy, indeed, must also be extraordinary. Considered against the backdrop of the Statutory schemes in question, we do not see how any of the recommendations of the CEC, if accepted, would come into conflict with any law enacted by the legislature. It is only in the above situation that the Court may consider the necessity of placing the recommendations made by the CEC on a finer balancing scale before accepting the same. We, therefore, feel uninhibited to proceed to exercise our constitutional jurisdiction to remedy the enormous wrong that has happened and to provide adequate protection for the future, as may be required." 8.12.11. Ld.Counsel, during his arguments, poi....
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....TIONS, AFFORESTATION AND OTHER MEASURES 26. The R&R plan would inter alia provide for: i) broad design/specification for: b) retaining walls c) check dams d) gully plugs and/or culverts (if required) e) geo textile/geo matting of dumps f) afforestation in the safety zones g) afforestation in peripheral area, road side, over burden dumps and other areas ii) dust suppression measures at/for loading, unloading and transfer points, internal roads, mineral stacks etc. iii) covered conveyor belts (if feasible) - such as down hill conveyor, pipe conveyor etc. iv) specification of internal roads, v) details of existing transport system and proposed improvements vi) railways siding (if feasible) vii) capacity building of personnel involved in the mining and environmental management viii) rain water harvesting" 8.12.15. We note that co-ordinate bench of Tribunal considered an identical issue in the case of Mysore Minerals Ltd vs. ACIT (ITA No.679/Bang/2010 dated 2.11.2012). In this case, the assessee was engaged in the business of mining of iron ore, other....
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....w have not pointed out the income generated against the purported deferred Revenue expenditure so proposed by them in their impugned orders. The amount was incurred as a Revenue expenditure and is directed tobe allowed in the year it has been incurred." Respectfully following the decision of the co-ordinate bench of the Bangalore Tribunal, in the case of Ramgad Minerals & Mining P. Ltd. (supra), we hold that the entire expenditure of Rs. 5,02,59,000 incurred by the assessee of net present value to CAMPA in the relevant period are to be allowed as revenue expenditure for Assessment Year 2004-05." 8.12.16. Above decision of this Tribunal in case of M/s.Mysore Minerals(supra) was upheld by Hon'ble Karnataka High Court in the appeal filed by revenue against order of this Tribunal. Relevant extract of the view taken by Hon'ble High Court in CIT vs. M/s Mysore Minerals Ltd in ITA No.144/2013 dated 08/03/2017 is as undere:- "2. As such, in our view, the only question of law which may arise is, whether the payment made by way of compensation of Rs. 5,02,59,000/- by the assessee as per the direction of the Apex Court for mining lease to the Forest Department can be said....
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....e made in respect of such expenditure. A careful perusal of the above said provision would show that the "purpose of expenditure" should be an offence or prohibited by law. In the instant cases, the purpose of payments is for "R & R plans" and the same cannot be considered as payment for the purposes, which is an offence or which is prohibited by law. Hence Explanation 1 to section 37 is not applicable to these payments. 8.12.19. Respectfully following Hyderabad bench of Tribunal in case of NMDC Ltd (supra) and Bangalore Tribunal M/s Mysore Minerals Ltd (supra) which has been upheld by Hon'ble Karnataka High Court, the payment of Rs. 9,69,00,000/- is compensatory in nature only as these funds are meant to be used for public purposes and the assessee could not have commenced its operations without paying the same, the same is allowable as revenue expenditure. We are therefore of the view that payment made as compensation is not hit by Explanation 1 to Section 37(1) and is an allowable expenditure. Accordingly this ground raised by assessee stands allowed. 9. Ground 2.4 is in respect of addition on account of probable expenditure for R&R plan amounting to Rs. 1,48,97,000....
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....ards payment of school fees for students, providing books and also expenditure incurred in response to the appeal made by the Govt. of Karnataka. Accordingly, it sought deduction u/s 37(1) of the Act. 7.1) The AG however held that the said expenditure was of personal expenditure and not a capital and accordingly denied the deduction to be allowable u/s 37(1) of the Act. 7.2) I have gone through the facts of the case and the submissions of the appellant including judicial decisions on the issue. Placing reliance on the Hon'ble Supreme Court's decision in the case of 'Indian Molasses Co (P) Ltd Vs CIT 37 ITR 66 (SC), the appellant's claim for deduction u/s 37(1) cannot be considered. Reliance is also placed in the case of CIT Vs Infosys Technologies Ltd 2013-TIOL-507 (HC)(Karn), wherein, the Hon'ble High Court of Karnataka has held that any expenditure incurred which is not a business expenditure or which is not of commercial expediency, cannot be allowed as business expenditure u/s 37 of the I.T.Act. Hence, the appellants contribution towards payment of school fees and school books cannot be considered as allowable expenditure and the same is disallowed....
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....le for depositing statutory levies like royalty, taxes, fees, e-auction service fee etc on behalf of assessee. 9.3.4. He thus submitted that, the said sum was not entitled to be received by assessee by virtue of an overriding title, created in favour of SPV and would get diverted at source. He thus submitted that, as alleged sum was diverted to SPV account at the threshold, it did not attain character of 'income' in the hands of assessee, and therefore cannot be taxed. 9.3.5. Alternatively it was submitted that the amount may be treated as expenditure in the hands of assessee under section 37 of the Act. It has been submitted by Ld.Counsel that Explanation 2 to section 37 is not applicable, as the same is introduced by Finance Act 2014, which is prospective in nature. It is also been submitted that Explanation 2 is applicable to Companies and not to partnership firms like that of assessee. Ld.Counsel placed reliance upon decision of coordinate bench of this Tribunal in case of ACIT vs Essel Mining & Industries Ltd reported in (2016)-TIOL-371-ITATKOL, Shyam Sel Ltd vs DCIT reported in (2016)-TIOL-1592-HC-KOLIT, decision of Hon'ble Calcutta High Court in case of Mundial Export ....
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.... this connection it would be worthwhile to take note of the fact that the guidelines in question have been prepared after detailed consultation with different stakeholders including the Federation of Indian Mineral Industries (FIMI) which claims to be the representative body of the majority of the mining lessees of the present case. II. BROAD OBJECTIVES/PARAMETERS OF R&R PLANS 8. The broad objectives/parameters of the R&R Plans would be: i) to carry out time bound reclamation and rehabilitation of the areas found to be under illegal mining by way of mining pits, over burden/waste dumps etc. outside the sanctioned areas; ii) to ensure scientific and sustainable mining after taking into consideration the mining reserves assessed to be available within the lease area; iii) to ensure environmental friendly mining and related activities and complying with the standards stipulated under the various environmental/mining statutes e.g. air quality (SPM, RPM), noise/vibration level, water quality (surface as well as ground water), scientific over burden/waste dumping, stabilization of slopes and benches, proper stacking and preservation of top soi....
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....t while considering the acceptability of CEC recommendations at page 194 held as under: (ii) Conditions which have been suggested for opening of Category 'A' mines and additionally the R& R Plans for Category 'B' mines 52. 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 ecology but the mining industry as a whole so as to enable the industry to run in a more organized, planned and disciplined manner. FIMI was actively associated in the framing of the guidelines and the preparation of the R&R Plans. There is nothing in the preconditions or in the details of the R&R plans suggested which are contrary to or in conflict or inconsistent with any of the statutory provisions of the MMDR Act, EP Act and F....
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.... vs CIT reported in 37 ITR 66 and decision of Hon'ble Karnataka High Court in case of CIT vs Infosys Technologies Ltd., reported in reported in 203-TOIL-507-High Court-Kar-IT. 10.3. On an appeal before Ld.CIT(A), observations of Ld.AO was upheld. 10.4. Aggrieved by the order of Ld.CIT(A), assessee is in appeal before us now.. 10.4.1. Ld.Counsel placed reliance on page 290 of paper book, wherein, Deputy Commissioner, Bellary, directed assessee to contribute towards education of students residing/studying in schools around mining area. It has been submitted that assessee is engaged in business of mines on the land leased by government, activity consumes enormous amount of natural resources in surrounding area, and that, such amount was paid to support welfare of the locality. He also submitted that Explanation 2 to Section 37 of the Act, is introduced by Finance Act 2014, which is in relation to CSR contributed by companies, whereas, assessee is a partnership firm. 10.4.2. Ld.Counsel submitted that commercial expediency should be judged in the context of prevailing social economic condition and that business undertaking is a product of combined effort's of all. He submitt....
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.... normalcy for nearly about 7.2 lakh people and to build 5.41 lakhs houses spread over 12 affected districts, an appeal came to be made by then Hon'ble Chief Minister to all to lend their hands for restoring normalcy. .......... 13. A plain reading of Section 37 would also indicate that emphasis is on the expression "wholly and exclusively for the purposes of the business or profession". These two expressions namely, "wholly" and "exclusively" being adverb, has reference to the object or motive of the act behind the expenditure. If the expenditure so incurred is for promoting the business, it would pass the test for qualifying to be claimed as an expenditure under Section 37 of the Act. What is to be seen in such circumstances is, what is the motive and object in the mind of the two individuals namely, the person who spend and the person who receives the said amount. Thus, the purpose and intent must be the sole purpose of expending the amount as a business expenditure. If the activity be undertaken with the object both of promoting business and also with some other purpose, such expenditure so incurred would not be disqualified from being claimed as a business....
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....ospitals, etc., for the employees or their children or for the children of the ex- employees. The employees of today may become the ex-employees tomorrow. Any expenditure laid out or expended for their benefit, if it satisfied the other requirements, must be allowed as deduction under Section 37(1) of the Act. Expenditure primarily denotes the idea of spending or paying out or away. It is something which is gone irretrievably, but should not be in respect of an unascertained liability of the future. Expenditure in this sense is equal to disbursement which, to use a homely phrase means something which comes out of the traders pocket." ................ 23. In the matter of SRI VENKATASATYANARAYANARICE MILL CONTRACTORSCOMPANY vs CIT reported in (1997) 223 ITR 101 (SC), question arose as to whether contribution made to District Welfare Fund maintained by the District Collector would be against public policy or is an expenditure allowable under Section 37(1) of the Act and it came to be held that such contribution is not against public policy and would be allowable under Section 37(1) of the Act. It was also held 'any contribution made by an assessee to a public we....
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....opposed to public policy and void under Section 23 of the Contract Act. In fact, Hon'ble Apex Court in case of SRI VENKATA SATHYANARAYANA RICE MILL CONTRACTORS COMPANY's case referred to herein supra has held that where a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Ministers Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business cannot be regarded as payment opposed to public policy. It came to be further held making of a donation for charitable or public cause or in the public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under Section 37(1) of the Act, when such payment has been made for the purposes of assessee's business. In fact, it can be noticed under the MOU in question which came to be entered into by the assessee with Government of Karnataka was on account of the clarion call given by the then Chief Minister of Karnataka in the hour of crisis to all the Philanthropist, industrial and co....
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....10.5.3. In the instant case also, the assessee has contributed funds at the specific request of local administration, which is meant to be used for the benefit of public. As observed in the above said case, the assessee would also be required to approach the appropriate Government and its authorities for grant of permits, licenses. Hence it is a prudent decision of the assessee to oblige to the appeal made by the local administration and incurred the expenses for public purposes. Hence the assessee has incurred expenses not only on account of social responsibility, but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit. Hence this expenditure would be in the realm of "business expenditure". Accordingly, we hold this expenditure is allowable as deduction. Accordingly, we set aside the order passed by Ld.CIT(A) on this issue and direct the AO to delete this disallowance. 11. Ground No.4 is regarding addition of unaccounted receipts of Rs. 21,62,803/- being the difference between books of accounts and Form No.26AS 11.1. Ld.AO added the difference cited above and it is noticed that AR of assessee who appeared before Ld.AO did not object....