TMI Blog2021 (4) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... abling provision as long as the expenses, even in discharge of corporate social responsibility on voluntary basis, can be said to be wholly and exclusively for the purposes of business . There is no dispute that the expenses in question are not incurred under the aforesaid statutory obligation. In the present case, the said expenditure is incurred by the assessee on discharging social responsibility so as to earn the goodwill of the society and it is wholly and exclusively for the purpose of business. The provisions of Explanation to section 37 of the Act cannot be applied. Further, in the present case, the assessee being an individual, and not a corporation under the Companies Act, 2013, Explanation 2 to section 37 cannot be applied so as to deny the voluntary expenditure incurred by assessee towards community welfare. Accordingly, we are of the opinion that the expenditure incurred is wholly and exclusively for the purpose of business of assessee and has to be allowed as business expenditure. Accordingly, this ground of appeal is allowed. Loss from derivatives F O - assessable under the head capital gains OR 'business loss' thereby not allowing set off of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER For the Appellant : Shri Chythanya K.K., Advocate For the Respondent : Shri Muzaffar Hussain, CIT(DR)(ITAT), Bengaluru. ORDER Per Chandra Poojari, Accountant Member These are two appeals by the assessee against the separate orders, both dated 30.01.2020 for the assessment years 2015-16 2016-17. 2. The first common ground in these appeals is with regard to disallowance of ₹ 43,55,905 and ₹ 16,73,153 on account of community welfare expenses incurred by the assessee for the AYs 2015-16 2016-17 respectively. 3. The facts are that the assessee incurred this expenditure on upkeep of road as per the direction of Deputy Commissioner, Bellary. The AO treated the expenditure as capital expenditure. The assessee contended that expenditure is revenue in nature allowable u/s. 37(1) of the Act. It was the submission of the assessee that assessee while doing his busines undertook social activities which may directly or indirectly help his business. The ld. AR submitted that incurring of the expenditure has facilitated to carry on its day to day business activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt towards the development of infrastructural facilities of villages and construction of a new market to organize self-help groups that would certainly promote the business of the assessee as the assessee can lend the loan only if such establishments are there in villages. We are also of the opinion that if the assessee can spread its activities to rural parts of the State, it would cater to the needs of the people and would satisfy the purpose for which it is created by the State. Therefore, we are of the opinion that the questions of law framed in this appeal have to be answered against the Revenue. 5. The ld. AR further submitted that there are certain obligations on the mining companies to improve the living conditions i.e. economic, social environmental conditions of the local communities in order to reduce negative impacts of mining projects on the local communities by taking sufficient precautionary measures, etc. Therefore, it was necessary for the Appellant to incur the aforesaid expenses in order to gain the goodwill of the local community. The Appellant is engaged in the business of mines on the land leased by the government, consuming enormous amount of natural reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and applied to the present issue. It is submitted that the amount expended by the Appellant is for the welfare of the society and the said deed of the Appellant cannot be construed as opposed to public policy. The AO has not doubted the genuineness as to the amount expended by the Appellant. The said expenditure incurred by the Appellant in its commercial expediency is for the purpose of business. 7. Without prejudice to above, the ld. AR submitted that the lower authorities have erred in law by failing to appreciate that the Explanation 2 to section 37 introduced by Finance (No.2) Act 2014 barring the allowability of CSR applies only to the companies and not to others. A reference is made to Explanation 2 to section 37(1) inserted by the Finance (No.2) Act, 2014. Prior to amendment by Finance (No.2) Act, 2014 there was no restriction as to the allowability of CSR expenditure incurred wholly and exclusively for the purposes of the business as deduction in computing the taxable business income. From the above provision it is evident that the Explanation refers to CSR as referred in section 135 of Companies Act, 2013. Thus, the said restriction is applicable only to Companies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1.4.2015 as follows:- Explanation 2. - For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. 10. The Memorandum to Finance (No. 2) Bill, 2014 explaining provisions relating to direct taxes on Corporate Social Responsibility is extracted below:- CORPORATE SOCIAL RESPONSIBILITY (CSR) Under the Companies Act, 2013 certain companies (which have net worth of ₹ 500 crore or more, or turnover of ₹ 1000 crore or more, or a net profit of ₹ 5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act expenditure incurred wholly and exclusively for the purposes of the business is only allowed as a deduction for computing taxable business income. CSR expenditure, being an application of income, is not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act, expenditure incurred wholly and exclusively for the purpose of business is only allowed as deduction for computing taxable business income. CSR expenditure being an application of income is not incurred wholly and exclusively for the purpose of carrying on business. As application of income is not allowed as deduction for the purpose of taxable income of a company, the amount spent on CSR cannot be allowed as a deduction for computing taxable income of the company. The object of the CSR expenditure is to share the burden of the Govt. in providing social service by companies having import/turnover/profit above a threshold. If such expenses are allowed as deduction, it will result in subsidizing the amount of one-third of such expenses by Govt. by way of tax expenditure. The provisions of section 37(1) provide that deduction for any expenditure which is not mentioned specifically in section 30 to 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purpose of carrying on business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. (3) The Corporate Social Responsibility Committee shall,- (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company [in areas or subject, specified in Schedule VII]; (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time. (4) The Board of every company referred to in sub-section (1) shall,- (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial year. [(7) If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.] (8) The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions.] [(9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under subsection (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and (b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).] (x) rural development projects] [(xi) slum area development. Explanation.- For the purposes of this item, the term `slum area' shall mean any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning to the general words. Being so, the word assessee used in this Explanation 2 to s. 37 (1) is with regard to the companies for which section 135 of the Companies Act is applicable, not to other assesses which is not covered by the Companies Act. 17. In the present case, the assessee being an individual, the restriction imposed under Explanation (2) to section 37 is not applicable to assessee s case. At this stage, it is appropriate to draw support from the judgment of Hon ble Gujarat High Court in the case of Pr. CIT v. Gujarat Narmada Valley Fertilizers Chemicals Ltd., 422 ITR 164 (Guj). In that case, the following question was before the Hon ble High Court :- Whether in the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in deleting disallowance u/s 37(1) of the Act in respect of expenses being contribution/donation to educational institutions, trust, local bodies? 18. The Hon ble Gujarat High Court held as under:- 8.10 We have also noted that the amendment in the scheme of section 37(1) is not specifically stated to be retrospective and the said Explanation is inserted only with effect from 1st April 2015. In this vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, the said expenditure is incurred by the assessee on discharging social responsibility so as to earn the goodwill of the society and it is wholly and exclusively for the purpose of business. 20. Therefore, the provisions of Explanation to section 37 of the Act cannot be applied. Further, in the present case, the assessee being an individual, and not a corporation under the Companies Act, 2013, Explanation 2 to section 37 cannot be applied so as to deny the voluntary expenditure incurred by assessee towards community welfare. Accordingly, we are of the opinion that the expenditure incurred is wholly and exclusively for the purpose of business of assessee and has to be allowed as business expenditure. Accordingly, this ground of appeal is allowed. 21. The next ground in these appeals is with regard to additions on account of withheld amount by MC towards Reclamation Rehabilitation of mining area as per the direction of Hon ble Supreme Court vide order dated 18.4.2013. 22. The facts are that the AO noted that in the P L Account assessee claimed major indirect expenses on Afforestation Environmental expenses of ₹ 8,87,62,584 which contained a sum of ₹ 8, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Dipesh Chandak [2007] 10 TTJ (Pat) 366 (2) CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC) (3) CIT v. United Breweries Ltd. [2010] 321 ITR 547 (Karn) (4) CIT v. Pandavapura Sahakara Sakkare Karkhane Ltd. (1988) 174 ITR 475 (Kar) approved by Supreme Court in 400 ITR 1 (SC). (5) CIT v. Nagarbail Salt Owners Co-op Society Ltd. [2017] 390 ITR 415 (Kar) (6) Pr. CIT v. Gyan Enterprises Pvt. LTd. in ITA No.940/2016 dt. 17.5.2018 (Delhi HC). Supreme Court dismissed the SLP by department in SLP No.17347/2019 dated 3.7.2019. (7) Moti Lal Chhadami Lal Jain v. CIT [1991] 190 ITR 1 (SC) (8) CIT v. Sunil J. Kinariwala [2003] 259 ITR 10 (SC) (9) Poddar Projects Ltd. v. CIT, 28 taxmann.com 94 (Cal) (10) CIT v. A. Tosh Sons (P) Ltd. [1987] 166 ITR 867 (Cal) (11) F.R. Sabu P Thomas v. UOI, 2015-TIOL-514-HC-Kerala-IT (12) CIT v. DTTDC Ltd. [2013] 350 ITR 1 (Del) (13) Shroff Eye Centre v. ACIT in ITA No.1560/Del/2012 (14) DCIT v. Sri T. Jayachandran [2018] 406 ITR 1 (SC) (15) A F Ferguson Co. v. ACIT, Mumbai 2011-TIOL-604-ITATMUM. (16) RSM Co. v. ACIT, 125 ITD 243 (Mum) 24. The ld. AR submitted that from all the aforesaid judicial pronouncemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the following decisions the Courts have held that the department cannot adopt double standards:- New Delhi Television Ltd vs. DCIT, [2020] 116 taxmann.com 151 (SC) [Para 34]; CIT vs. Woodward Governor India (P.) Ltd., [2009] 312 ITR 254 (SC) [Para 10]; ACIT vs Vijay Gopal Jindal [2008] 24 SOT 296 (DELHI) [Para 25] Balmukund Acharya vs. DCIT, (2009) 310 ITR 310 (Bom); Basant Poddar vs. CIT (2019) 412 ITR 529 (Kar); Girish Bansal v. UOI (2016) 384 ITR 161 (Delhi); Y. Rathiesh vs. CIT, (2015) 372 ITR 73 (AP); Raja Malwinder Singh vs. CWT [2011] 334 ITR 115 (P 86 HI; Azimganj Estates (P.) Ltd. vs. CIT, [2015] 372 ITR 243 (Cal)(Mag.); 27. Without prejudice to the above, it was submitted that Explanation 2 to section 37 introduced by Finance Act, 2015 barring the allowability of CSR applies only to the companies and not to other assessees. It is evident that the Explanation refers to CSR as referred in section 135 of Companies Act, 2013. Thus, the said restriction is applicable only to Companies and not to others. It is pertinent to note that the Appellant being an individual the restriction imposed under Explanation 2 to section 37 is not applicable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensation and compulsory contribution are not in the nature of expenditure but in the nature of business loss, the claim for deduction is traced to Section 28 and not to section 37 (1). When the claim to deduction is found in Section 28 itself, there is no scope for application of Explanation to Section 37 (1) as held in the case of Dr. T.A. Quereshi (supra). As held in CIT v. S.C. Kothari, 82 ITR 794 (SC). It is submitted that business losses should be allowable on ordinary commercial principles in computing profits. The aforesaid loss is not in the nature of expected loss but actual loss. Even the expected loss was allowable upto AY 2017-18. The Finance Bill 2018 proposes to restrict deduction towards expected loss only as per ICDS from AY 2018-19 onwards through proposed section 36(1)(xviii) read with section 40A(13). When the expected loss itself is allowable, deduction of actual loss cannot be denied. 32. The liability crystalizes as soon as the MC withholds 10% of sale proceeds for the purpose of transferring to SPV. Accordingly, the expenditure of ₹ 15,74,62,445/- claimed towards Reclamation Rehabilitation of mining area as per the direction of Hon'ble Supreme. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area as per the directions of the Hon'ble Supreme Court. It is submitted that under no stretch of imagination, the amount retained by the MC in pursuance to the directions of the Supreme Court can be regarded as towards infraction of law. Therefore, any deduction in accordance with the statutory compliance cannot be construed as penalty. In the instant case, no illegality has been noticed. Therefore, there is no question of SPV contribution being regarded as infraction of law. Even otherwise, it is submitted that the expression 'marginal illegality' has to be read with the expression 'no illegality'. The fact that 'marginal illegality' has been categorised along with `no illegality' suggests that 'marginal illegality' is also a case of `no illegality'. 'Marginal illegality' is thus equated with 'no illegality'. However, it is only one-wav movement, in as much as 'no illegality' cannot be equated with 'marginal illegality'. The term 'compensation' is monetary relief paid towards the damages or loss suffered by a person. 'Penalty' is a statutory liability imposed on wrongdoer for infraction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Karnataka 85 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. As in the present case, the assessee falls under the Category-A mines, the issues pertaining to category 'A' mines is discussed. A-Category mines comprises (a) working leases wherein no illegality/marginal illegality have been found and (b) nonworking leases wherein no marginal/illegalities have been found. 41. Further, the ld. DR submitted that the sale of Iron Ore should be through e-auction and the same should be conducted by Monitoring Committee constituted by the CEC and the sale proceeds are to be retained / disbursed to mine owner based on certain conditions. The Hon'ble Apex Court in its order dated 23.09.2011 has described the modalities for the sale of iron ore and has clearly mentioned the procedure to be adopted for e-auction of iron ore and procedure for accounting of sale proceeds. The account of sale proceeds being maintained by the Government under double entry system of accounting which is duly being monitored by CEC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness [Indian Aluminium Co. Ltd Vs. CIT (SC) 79 ITR 514]. 45. He relied on the judgment in the case of Indian Aluminium Co. Ltd Vs. CIT (SC) 79 1TR 514 it was held by the Apex Court that - 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. He emphasized once again the judgement in the case of Maddi Venkataraman Co. (P) Ltd vs. CIT (1998) 229 ITR 534 (SC). The fines/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. The ld. DR supported the orders of lower authorities. 46. According to the ld. DR, Explanation (2) to section 37 is applicable to all the assesses including individual assesses and since Explanation 2 states that any expenditure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of one s own income which has been received and essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable. Emphasis Supplied 7.8.13. In the present case, we note that 15% of sale proceeds was payable to SPV account after it accrued to assessee and the fact that, assessee was 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 B , from the sale proceeds as well as otherwise. All the payments form part of R R plan for recouping and rehabilitating the enviro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibution to SPV being 15% of sale proceeds, under category B, is an allowable expenditure for year under consideration. 48. This issue also came up for consideration in earlier year before the Tribunal in the case of Veerabhadrappa Sangappa Co. in ITA No.1270 1271/Bang/2019 for the AY 2013-14, order dated 4.11.2020 wherein the above decision was followed by Tribunal:- 7.10.1. Ld.Counsel again raised 3 prepositions before us in respect of the contribution made to SPV account from the sale proceeds. Primarily he contended that there is diversion of income by overriding title to SPV account, and therefore such amount is not liable to tax in the hands of assessee. Alternatively he submitted that the said sum may be treated as loss under section 28 while computing profit and loss under the head income 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation to pay another portion of one s own income which has been received and essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable. Emphasis Supplied 7.10.5. Applying, thin line of difference interpreted by Hon ble Supreme Court to present facts, we are of the opinion that, contribution to SPV account, cannot be considered to be diversion of income. This is because, we have already held while deciding ground 2.1 and 2.2 hereinabove, that entire sale proceeds accrued to assessee, and it is only due to direction of Hon ble Supreme Court that such amount was contributed to SPV account, for which 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 Karnatak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.04.2013 levying appropriate charges on the leaseholders. A.O. also observed that the Hon'ble Supreme Court, based on the extent of illegal mining, classified the mining leases into three categories viz., Category A , B and C and that the assessee is falling in Category-B in respect of Donimali Complex and that in their order, the Apex Court observed that before consideration of any resumption of mining operations by Category-B leaseholders, each of the lease holder must pay compensation for the areas under illegal mining pits outside the sanctioned area at the rate of ₹ 5 Crs per hectare and for illegal overburden for at the rate of ₹ 1 Cr per hectare. Further, A.O. observed that the said direction of the Apex Court was subject to the 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 ₹ 337.13 Crs towards contribution for the Special Purpose Vehicle a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssel Mining Industries Ltd vs. Addl. CIT (ITA No. 352/Kol/2011 and others, dated 20.05.2016); ACIT vs. Freegade Co. Ltd (ITA No.934/Kol/2009, dated 05.08.2011) and also the decision of the Hon'ble Calcutta High Court in the case of ShyamSel Ltd vs. DCIT (72 Taxmann.com 105) (Cal.). On going through the said decisions, we find that the Hon'ble Calcutta High Court has considered the case of an assessee who failed to install Pollution Control Device within factory premise within prescribed time and that the assessee had to pay ₹ 12.50 lakh for compensating damage to environment and the same was recovered by State Pollution Control Board on the principle of 'polluter pays' and the A.O. had treated it as penalty and did not allow 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The fact that the compensation is proportionate to area of illegal mining outside the leased area and that the assessee has paid the proportionate compensation for mining in the areas outside the sanctioned area allotted to it and that 10% of sum is to be transferred to SPV and the balance 10% is to be reimbursed to the respective lessees, according to us, proves that it is a payment made as 'compensation' for extra mining, without which the assessee could not have resumed its activities. Therefore, we are inclined to accept the contention of the assessee that it is compensatory in nature and is a 'business expenditure' and is allowable u/s 37(1) of the Act. Thus, Grounds No.2 and 3 raised by the assessee are allowed. 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 04-112020) 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 assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on out of sale proceeds, even after accrual of such liability. Ld.AO was of opinion that, even in Category A mines, there was marginal illegality found by CEC, because of which 10% of contribution was attributed out of sale proceeds to the SPV. 7.8.12. On careful reading of decision of Hon ble Supreme Court dated 18/04/2013, it is clear that 15% contribution to SPV account was guarantee payment for implementing of R R plan, which would be deducted from sale proceeds. This was one of the conditions for resuming mining operations under Category B . We refer to and rely on observations by Hon ble Supreme Court in case of CIT vs Sitaldas Tirathdas reported in(1961) 41 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Hon ble Supreme Court are in the nature of guarantee payment necessary for resuming mining activity. We also note that, alleged sum in these grounds are for implementation of R R Plans in respective sanctioned lease areas held by assessee, where illegal mining activities or which were used for illegal overburden dumps, roads, offices etc., 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 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 13-32012 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, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciplined manner. Under these set of facts, it cannot be said that these amounts are penal in nature. We notice that the Hyderabad bench of Tribunal in the case of NMDC Ltd (supra) and Co-ordinate bench of Bangalore Tribunal in Ramgad Minerals (supra) came to the same conclusion. We note that in NMDC case (supra), Hon ble Hydrabad Tribunal followed decision of Hon'ble Kolkatta High Court in the case of ShyamSel Ltd (supra) and State Pollution Control Board vs. Swastik Ispat (P) Ltd (supra), wherein identical types of payments made to remedy the river pollution caused by the parties were held to be compensatory in nature. Hence the provisions 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable. Emphasis Supplied 14. In the present facts of the 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. 15. Hon ble Supreme Court has been very clear regarding the types of payments that needs to be recovered from lessee s under Catagory B , from the sale proceeds as well as otherwise. All the payments forms part of R R plan for recouping and rehabilitating the environment. Certain payments are one time payment and some others are recurring depending upon the sale of iron ore sold i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taldas 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 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 seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 10%/15% of sale proceeds, under category A/B, cannot be treated as penal in nature. We, therefore, reject observations of authorities below that, such sum having contributed by assessee do not fall within ambit of explanation to section 37 (1) of the Act. 8.12.7. 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 expenditure for year under consideration. 19. Facts leading to the disallowance is in the present case is similar and identical to the facts in the case of Veerbhadrappa Sangappa Co. (Supra), we note that same is the view taken by Co-ordinate Bench in case of M/s Ramgad Minerals Mining Ltd. (Supra). 20. Respectfully following the view taken in above decisions and based on the above discussions and analysis, we are of the opinion that 15% contribution to SPV retained by the monitoring committee on behalf of assessee deserves to be treated as business expenditure for the year under consideration. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y any statutory obligation, is allowable as business expenditure. Merely because an expenditure is in the nature of donation, it does not cease to be an expenditure deductible under s. 37(1). 9.7 The Commissioner of Income tax had mentioned in his order that the Apex Court (313 ITR 334 SC) CIT Vs Madras Refineries Ltd., while hearing the allowability of CSR expenses observed that neither the High Court nor the Tribunal concerned had given specific finding to the effect that the said CSR expenditure is allowable as business expenditure . In the above mentioned case, the Apex court has not given any decision on merits of the case. It had only given an observation and remitted the issue back to the Tribunal to give specific finding to the effect that the said CSR expenditure is allowable as business expenditure. 9.8 Since, the assessee had incurred CSR expenses to comply with the directions of Govt. of India, following the above observations made by High Court of Kerala and ITAT, Mumbai Bench, the expenditure incurred is incidental to the assessee's business and ought to be allowed as deduction u/s 37 of the I.T. Act. 51. Identical issue has also been decided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a 'good corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill'. [Para 9] Just because the expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it could not cease to be a business expenditure. Therefore, the authorities below indeed erred in law in declining deduction of the expenditure incurred on 20Point Programme which was, beyond dispute or controversy, at the instance of the Government, and was to discharge the assessee s obligations towards society as a responsible corporate citizen. [Para 10] 52. Now the applicability of Explanation 1 to section 37 is already covered by the above decisions as it was held that the expenditure is allowable as business expenditure. In view of this, we are of the opinion that the AO cannot disallow expenditure by invoking Explanation 1 to section 37 of the Act. 53. Further as discussed in paras 9 to 20 of this order, we take support from the decision of Hon ble Gujarat High Court in the case of Pr.CIT v. Gujarat Narmada Fertilize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with law, which was rejected by the lower authorities. He submitted that the CIT(Appeals) on the erroneous premise that the Appellant has accepted/agreed the additions made by the AO during the assessment proceeding. The CIT(A) s view that the assessee has not made out a case that the addition was not made on agreed basis is perverse as there is no whisper in the impugned assessment order as regards the agreed addition. The Appellant cannot be expected to prove the negative. Reliance is placed on the following decisions which have held that an assessee cannot be expected to prove the negative:- CIT v. T. Ahobala Rao, 221 Taxman 39 (Kar) K.P. Varghese v. ITO, 7 Taxman 13 (SC) CIT v. Divine Leasing Finance Ltd. 299 ITR 268 (Del) CIT v. Kapsons Associates, 381 ITR 204 (P H) CIT v. Bhartesh Jain, 310 ITR 82 (Del) 58. It was further submitted that the decisions on which the CIT(A) relied in the impugned order to reject the assessee s contentions do not have any relevance to the facts of the instant case. Therefore, the CIT(A) was not justified in rejecting the contentions of the assessee. 59. The ld. AR submitted that in the original return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial contracts whose value derives from an underlying security. The lower authorities having not disputed the genuineness of the transaction in F 0 derivative, the lower authorities are not justified in failing to treat the income/ loss from trading in F 0 derivative as business income/ loss. The AO has treated similar activity for the preceding previous year 2015-16 as trading under similar circumstances. The appellant only continued the aforesaid activity during the impugned previous year. Therefore, it is axiomatic that the activity of the appellant remains trading activity even for the current year. 63. He further referred to the provisions of section 43(5) of the Act. Section 2(ac) of the Securities (Contracts) Regulation Act, 1956 and drew attention to Memorandum to Finance Bill, 2005 and Circular No.3/2006 dated 27.2.2006 and Circular No.14/2006 dated 28.12.2006. He submitted that section 43(5) of the Act was amended by the Finance Act, 2005. Prior to amendment, section 43(5) defined speculative transaction to mean a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is settled otherwise than by the actual delivery o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... casts obligation on the Assessing Officer to assist the assesses in every reasonable way in the matter of claiming any relief and should not take advantage of ignorance of the assessee. In this regard a reference is made to Circular No. 14 (XI-35) of 1955 dated 11.04.1955. He submitted that the Courts have held that there cannot be any estoppel against assessee and claim should be allowed in accordance with the provisions of law and cited the following decisions:- CIT v. Shree Rama Multi Tech Ltd., 403 ITR 426 (SC) CIT v. K. Venkatesh Dutt, 319 ITR 331 (Kar) Alapati Venkataramiah v. CIT, 57 ITR 185 (SC) CIT v. C. Parakh Co. (I) Ltd., 29 ITR 661 (SC) CIT v. Bharat General Reinsurance Co. Ltd., 81 ITR 303 (Del) CIT v. Rewari Central Co-op. Bank Ltd., 263 ITR 598 (P H) CIT v. S.E. Railway Employees Co-op. Credit Society Ltd., 390 ITR 524 (Cal) CIT vs. M.R.P. Firm [1965] 56 ITR 67 (SC); Sanchez Capital Services (P.) Ltd vs ITO 26 Taxmann.com 61 ITO vs Alumeco India Extrusion Ltd. TS-143-ITAT-2013(HYD)TP [Para 16] Shell India Markets (P.) Ltd. v. Assistant Commissioner of Income-tax, LTU [2014] 369 1TR 516 (Born) [Para 10] Vodafone India Services ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laxmi Textile Mills Ltd., 66 ITR 710 (SC) CIT v. Mitesh Impex, 367 ITR 85 (Guj) CIT v. Indian Express (Madurai) P. Ltd., 140 ITR 705 (Mad) CIT v. Grasim Industries Ltd., 2016-TIOL-292-HC-MUM-IT (Bom) 70. Therefore, it was submitted that the lower authorities have erred in wrongly applying the ratio of Goetze case and denying the claim of Appellant. 71. As regards, principles of consistency, the ld. AR submitted that the lower authorities were not justified in taking double in as much as they treated income from derivatives F 0 as business income for the AY 2015-16, and as capital loss for the impugned AY 2016-17. The lower authorities ought to have followed the principles of consistency year on year when there is no change in facts and circumstances. 72. It is submitted that for the AY 2015-16 the Appellant had originally declared the income from F 0 derivative as income from capital gains. During the course of assessment proceeding the AO assessed the income from F 0 derivative as business income and the same was accepted by the Appellant. The AO having treated the profits and gains from F 0 derivative as business income, the said derivatives/ scripts held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Quest Investment Advisors (P) Ltd. 409 ITR 545 (Bom) 74. The ld. AR further submitted that trading in F O derivative being nonspeculative transaction any loss arising from the said trading is entitled for set off against the income from another source under the same head. A reference is made to section 70 which provides set off of loss from one source against income from another source under the same head of income. He reiterated that the income/ loss arising from F O derivative is taxable under the head 'Profit and Gains of Business or Profession'. As submitted earlier, trading in F O derivative is not speculative as per section 43(5). It is submitted that the instant case is covered by section 70 and not by section 73. Therefore, the non speculative loss in F O trading is eligible for set off against other business income in terms of section 70. He relied on the following decisions:- Asian Financial Services Ltd. vs. CIT, [2016] 240 Taxman 192 Magic Share Traders Ltd. v. DCIT, 174 ITD 230 (Ahd. Trib) DCIT v. Paterson Securities (P) Ltd. 127 ITR 386 (Chennai Trib) Uday Gopal Bhaskarwar v. ACIT, 113 taxmann.com 378 (Pune Trib) DCIT v. Aishwarya Co. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. Similar view has been taken by the Hon ble Supreme Court in the case of Radhasoami Satsang v. CIT, 193 ITR 321 (SC) wherein it was held as follows:- 16. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 80. On these reasonings, in the absence of any material change justifying the revenue to take a different view of the matter and if there is no change, it was in support of assessee that the AO is precluded to reopen that issue and take a contrary view of what he has taken in earlier assessment proceedings and taking such a contrary de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. Therefore the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953-54. It could not, therefore, be taxed in the assessment year 1958-59. (ii) The Hon ble Bombay High Court in the case of Nirmala L. Mehta vs. A. Balasubramaniam, C.I.T. (2004) 269 ITR 1 (Bom) held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. (iii) The Hon ble Supreme Court in the case of CIT, Madras vs V. MR. P. Firm, Muar reported in 56 ITR 67(SC) held as under:- If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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