TaxTMI 
TaxTMI 
2025 (8) TMI 536
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..... The Revenue has raised the following grounds of appeal: "I. Whether on the facts and in the circumstances of the case and in law Id.CIT(A) was right in allowing the expense of Rs 64,19,87,000/- claimed by the assessee as contribution made to special Purpose Vehicles (SPV) expenses?" II "Whether on the facts and in the circumstances of the case and in law Id CIT(A) was right in allowing the expense of Rs 64,19,87,000/- claimed by the assessee as SPV expenses treating the said expenditure as compensatory and not penal in nature.?" 3. The brief facts relevant to the issue are that during the year under consideration, the assessee incurred an expenditure of Rs. 64,19,87,000/- towards contribution to a Special Purpose Vehi....
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....ot found to be involved in any illegality were equally mandated to contribute. The assessee also pointed out that penalties for illegal mining had been imposed and disallowed separately and that the present contribution was distinct from such penalties. It was emphasized that similar expenditure had been allowed in the past in the assessee's group companies. Nonetheless, the AO, after considering the submissions, passed the disallowance order in the following terms: "The assessee has claimed an expense of Rs. 64,19,87,000/- being contribution made towards SPV. When asked to furnish details about the nature of expense, how is it incidental to business and a detailed note on its allowability. In response, it was submitted that the co....
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....s activities of mining Failure to comply with this obligation would result in the inability to conduct business activities by the appellant. Therefore, it is integral to the smooth functioning of the appellant's business. The appellant has no option to avoid SPV expenses as the same are incurred as per directions of Hon'ble Supreme Court. The expenditure is compensatory and not penal in nature, aimed at mitigating environmental damage and ensuring sustainable mining practices. Judicial precedents in the cases cited by the appellant including the decision in M/s Ramgad Minerals & Mining Limited Vs. ACIT circle-1, Bellary for AYs 2013-14 & 2014-15 in ITA No. 1270 & 1271/Bang/2019unequivocally support the allowability of SPV contributi....
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....ed by a statutory committee. The classification of mining leases by the CEC into Categories A, B, and C further reveals that even entities without any irregularity (i.e., Category A) were required to contribute, reinforcing the compensatory not penal nature of the expenditure. 9. It is also pertinent to note that the coordinate Benches of the Tribunal have consistently upheld the allowability of such contributions as business expenditure under section 37(1) of the Act. The following decisions squarely support the assessee's claim: "Decision of Hon'ble ITAT in appellant's group company case le. M/s. Ramgad Minerals & Mining Limited vs. ACIT Circle-1, Bellary for AYs 2013-14 & 2014-15 in ITA No. 1270 & 1271/Bang/2019 where....
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....ves that it is a payment made as 'compensation' for extra mining, without which the assessee could not have resumed its activities. Therefore, we are inclined to accept the contention of the assessee that it is compensatory in nature and is a 'business expenditure' and is allowable us 37(1) of the Act. Thus, Grounds No.2 and 3 raised by the assessee Decision of the Hon'ble ITAT, Kolkata in case of ACIT Circle-5, Kolkata vs. Free grade & Co. Ltd in L.T.A No. 934/Kol/2009 Assessment Year: 2006-2007. The relevant portion of the said judgement is reproduced below for your ready reference: "The assessee was engaged in the business of Mining as a licensee for mining in Nadidih Mines in Orissa, which was acqui....