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2022 (3) TMI 608 - AT - Income TaxAddition of amount representing 10% of sale proceeds deducted by the Monitory committee from e-auction sale of mineral stock belonging to the assessee and which was contributed to Special Purpose Vehicle, as per the direction given by Hon'ble Supreme Court - AO was of the view that the amount retained by MC as per the proposal approved by Hon'ble Supreme Court is in the nature of "appropriation of profit" for adjusting it against the penalty and other liabilities - HELD THAT: All the amounts collected from the lessees under different categories are directed to be given to the SPV, which will in turn take various types of ameliorative and mitigative steps 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. 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 [2018 (10) TMI 1120 - ITAT AHMEDABAD] came to the same conclusion by following the decision rendered by Hon'ble Kolkatta High Court in the case of Shyam Sel Ltd [2016 (8) TMI 511 - CALCUTTA HIGH COURT] and State Pollution Control Board vs. Swastik Ispat (P) Ltd .[2014 (1) TMI 1913 - NATIONAL GREEN TRIBUNAL PRINCIPAL BENCH NEW DELHI] 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. Hence, as held by Hyderabad bench of Tribunal in the case of NMDC Ltd (supra), these expenses are allowable as deduction u/s. 37(1) of the Act. The recommendations made by CEC for making these payments have been made for the purpose of resuming the mining operations. The Hon'ble Supreme Court discusses these points at page 171 from paragraph 10 onwards. Hence there is merit in the submission of the Ld. A.R. that, without making these payments, the 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. Thus we hold that the above said amounts deducted from the sale proceeds is allowable as deduction u/s. 37(1) of the Act. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue in both the years under consideration and direct the AO to delete the impugned addition made in both the years. Rejection of claim for deduction being the difference in valuation of stock made by the AO in assessment year 2009-10 - A.O. has disallowed the claim by observing that the assessee should have made the claim only in assessment year 2010-11, i.e., in the year succeeding to AY 2009-10 - HELD THAT:- AO was right in observing that the difference in closing stock determined as on 31.3.2009 cannot straightaway have impact to the opening stock shown as on 1.4.2011, without modifying the closing stock as on 31.3.2010 and 31.3.2011. Further, the assessee has not furnished any material to show that the closing stock added by the A.O. in assessment year 2009-10 was still available with the assessee as on 31.3.2011. The closing stock as at the year end is determined on the basis of physical quantity available. Hence, without showing that the physical quantity which was added as on 31.3.2009 was available with the assessee as on 31.3.2011 over and above the quantity originally shown, it is not possible to increase the opening stock as on 1.4.2011. Accordingly, we confirm the disallowance made by the A.O. on this issue. Addition of difference in closing stock - main contention of Ld. A.R. is that the dump stock does not have market value and hence it is not valued both in the opening stock and closing stock - HELD THAT:- The opening stock quantity is shown at 193559 MT. There is no production during the year and sales during the year is 152360 MT. Accordingly the closing stock quantity is shown at 41,199 MT. The value of opening stock shown by the assessee is ₹ 4,24,98,060/- for the quantity of 193559, which translates to average price of ₹ 219.56 per MT. We notice that the AO has adopted the very same rate for valuing the dump stock, meaning thereby, the assessee has not considered dump stock for opening stock purpose also, though the same was reported to the Department of Mines. Hence it is seen that the assessee is adopting consistent practice of considering the realizable value of dump stock as Nil. In these set of facts, we are of the view that the AO was not justified in valuing the closing stock of dump stock by adopting the price applicable to good stock, when the assessee is consistently considering the realizable value of dump stock at NIL. Further, the very same stock has been brought forward from the prior year, wherein the value of dump stock was taken as NIL. Hence the AO was not justified in changing his stand and valuing the dump stock as on 31.3.2012 alone. Accordingly, we are of the view that the Ld. CIT(A) was not justified in confirming this addition. Accordingly, we set aside the order passed by Ld. CIT(A) and direct the AO to delete this addition made by valuing dump stock.
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