TaxTMI 
TaxTMI 
2021 (3) TMI 113
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.... case are that the assessee had claimed Special Purpose Vehicle charges being 15% of sales done through e-auction. The said SPV charges was deducted by Monitoring Committee and retained by Central Empower Committee (CEC) as per the directions of the Supreme Court for the purpose of taking various ameliorative and mitigative measures as a compensatory payment. The Assessing Officer held that the said payment cannot be said to be incurred wholly and exclusively for the purpose of business u/s. 37 of the Act. The 15% of sale proceeds from e-auction of iron ore is to be utilized as per the directions of Hon'ble Supreme Court. This is exclusively for the development, conservation of forest, developing common facilities for transportation of iron are by maintaining and widening of roads, etc. These expenditures are very much required in the course of mining operations and are all allowable expenditure. Here, all the expenditures are directed to be handled by Central Empowered Committee (CEC) formed by the Hon'ble Supreme Court and hence deducted an executed through CEC on our behalf. These expenditures are allowable u/s. 37(1) of the Act. After considering the submissions of the ....
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....ction of any expenditure incurred which is an offence or which is prohibited by law. The Assessing Officer stated that the said amount liable to be assessed to tax as trading receipts during the financial year of e-auction and particularly such nature of expenditure is also not allowable u/s. 37 of the Act. Aggrieved by the assessee, filed an appeal before the CIT(A). On appeal, the CIT(A) observed that the expenditure incurred by the assessee hit by the Expln. 1 to Section 37 of the Act. Aggrieved by the order of CIT(A), the assessee is in appeal before us. 4. We have heard both the parties and perused the material on record. Similar issue came up for consideration before this Tribunal in the case of Ashwathnarayana Singh and Co. Vs. ACIT in ITA No.522/Bang/2019 for the Asst. Year 2013-14 vide order Dt.1.2.2021 in Para 7.8 observed as under : " 7.8. We have considered rival submissions of both sides in light of records placed before us. We note that this issue stands squarely covered by decisions of coordinate bench of this Tribunal in case of M/s. Ramgad Minerals & Mining Ltd Vs. ACIT in ITA No. 1270&1271/Bang/2019 by order dated 04/11/2020 and M/s. Veerabhad....
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....#39;ble Supreme Court in case of CIT vs Sitaldas Tirath.das (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 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 o....
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....tc., beyond sanctioned lease area were carried out. Here, we also note that, Hon'ble Supreme Court directed CEC to refund any leftover guarantee money, after completion of implementation of R& R plan, subject to satisfaction of CEC and approval by Hon'ble Supreme Court. For this peculiar reason amount so contributed towards SPV being l0%/15% of sale proceeds, under category A/B, cannot be treated as penal in nature. 7.10.8. We note that co-ordinate Hyderabad bench. of Tribunal in NMDC (supra) was the case of Category `A' wherein it was allowed as expenditure by observing as under: "2. Brief facts of the case are that the assessee-company, a Public Sector Undertaking, engaged in the business of 'mining of iron ore diamonds; and generation and sale of wind power', filed its return of income for the relevant Assessment Years 2013-14 and 2014-15 both. under the normal provisions as well as u/s 1 15J of the Act for the relevant AYs. During the assessment proceedings u/s 143(3) of the Act, the A.O. observed that the assessee-company is carrying out mining activity in India and particularly in Karnataka and that the Hon'ble Supreme Court of India ....
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....king leases' wherein no marginal / illegalities have been found, whereas Category-B comprises of (i) mining leases wherein illegal mining is 10% to 15% of the sanctioned lease areas. However, CEC had recommended that both "A" and "B" categories may be allowed to resume the mining activity subject to the payment of penalty / compensation decided by the Court. Thus, according to the assessee, the said expenditure is nothing but a payment which was required to be made without which the assessee could not have carried on the mining activities and therefore, it is a 'business expenditure'. Since the CEC had categorised the assessee as a Category-A company and the Hon'ble Supreme Court has accepted the said categorization, there would have been marginal illegalities committed by the assessee and the compensation / penalty as directed by the Hon'ble Supreme Court is only to compensate the Government for the loss of revenue from such mining or marginal illegalities and not as a penalty. Though the nomenclature given is "penalty" it is not for infraction or violation of any law to hold it to be punitive in nature, as presumed by the Assessing Officer. Learned Counsel for....
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....rd, is thus, spent by encashing the bank guarantee or is adjusted thread and this exercise would fall in the realm of compensatory restoration and not a penal consequence. In gathering the meaning of the word penalty' in reference to a law, the context in which it is used is significant." 11. Applying this ratio to the facts of the case before us, we find from para 43 of the Hon'ble Supreme Court's order reproduced above that the condition of payment for resuming the mining activity by Categories A' & 'B' companies is to not to punish the companies for any violation of law but is to ensure scientific and planned exploitation of mineral resources in India. Further the Hon'ble Supreme Court had directed as under:- "(X) Out of the 20% of sale proceeds retained by the Monitoring Committee in respect of the cleared mining leases falling in "Category- A", 10% of the sale proceeds may be transferred to the SPV while the balance 10% of the sale proceeds may be reimbursed to the respective lessees. In respect of the mining leases falling in "Category-B", after deducting the penalty / compensation, the estimated cost of the implementation of the ....
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....ssment order for AY:20.13-14, Ld.AO is stating this that SPV rate is 10% in category 'A' Mines but 15% in Category 'El' Mines and this extra 5% in Category 'B' Mines is for various violations and illegal mining and even after this observation, he finally held in the same para that whole SPV Expenses of 15% is not allowable. 7.8.10. Ld.AO observed that, these SPV were deducted pursuant to directions of Hon'ble Supreme Court (supra) by order dated 18/ 04/2013, wherein, it was directed that, sum so paid towards SPV charges should be exhaustively and exclusively used to undertake socio economic and infrastructure development, afforestation, soil and biodiversity conservation and for ensuring inclusive growth. of the area surrounding mining leases. 7.8.11. Ld.AO further observed that these payments are nothing but appropriation of profits earned by assessee that cannot be said to have incurred for purpose of business or earning profits. Accordingly, entire amount adjusted towards SPV was disallowed by Ld.AO. Ld.AO was of opinion that entire sale proceeds as per E auction bid Sheets/invoices were to be assessed as trading receipts. The amount....
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....e to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable. " 7.8.13. In the present case, we note that 15% of sale proceeds was payable to SPV account after it accrued to assessee and the fact that, assessee was obliged to part with. such portion of income, by virtue of directions of Hon'ble Supreme Court, as a precondition to resume mining operations under Category `B'. At this juncture, we also emphasise that, but for the intervention by Hon'ble Supreme Court, assessee would not have contributed 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. 7.8.14. Hon'ble Supreme Court has been very clear regarding the types of payments that needs to be recovered from lessee's under Category `E3', from the sale proceeds as well as otherwise. All the payments form part of R&R plan for recouping and rehabilitating the environment. Certain payments are onetime payment and some others are recurring depending upon the sale of iron ore sold in the name of each l....
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....ceeds of the confiscated material etc., may be directed to be transferred to the SPV and used exclusively for the socio- economic development of the area/local population, infrastructure development, conservation and protection of forest, developing common facilities for transportation of iron ore (such as maintenance and widening of existing road, construction of alternate road, conveyor belt, railway siding and improving communication system, etc.). A detailed scheme in this regard may be directed to be prepared and implemented after obtaining permission of this Hon'ble Court;" 7.10.11. Hon'ble Supreme Court at .176 of its order made following observations with regard to SPV:- "By order dated 28-09-2012, this Court had constituted a Special Purpose Vehicle (for short "SPV") on the suggestion of the learned amicus curiae. The purpose of constitution of the SPV, it may be noticed, is for taking of ameliorative and mitigative measures as per the "Comprehensive Environment Plans for Mining Impact Zone (CPEMIZ) around mining leases in Bellary, Chitradurga and Tumkur. By order dated 28-09-2012, the Monitoring Committee was to make available the payments receiv....