TMI Blog2020 (11) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... considered 5% expenditure pertaining to previous year. No details pertaining to previous year expenses is made available before us. Assessee has also not placed before us any documents in relation to the same. Matching principal must be followed and Income tax is a levy on income. It takes into account the point of time at which liability to tax is attracted, i.e.; accrual of income or its receipt. See CIT vs Shoorji Vallabhdas Co [ 1962 (3) TMI 6 - SUPREME COURT ] - 5% expenditure pertaining to previous year claimed by assessee in A. Y. 2013 14 cannot be considered in assessment year 2013-14. We, therefore, confirm the disallowance of the same being ₹ 184,075/- but delete the balance disallowance of ₹ 869,16,539/- out of total disallowance in that year as SPV ₹ 871,00,614/-. Guarantee money for implementation of the R R plan in the respective sanctioned lease areas - HELD THAT:- Assessee could not have ignored the notice and that only upon making good such payments, assessee would have resumed its mining activity. Further it is noted that in the event assessee is not able to make good the full payment towards R R plan as directed by CEC, the guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assistant Commissioner of Income Tax-ACIT (assessing officer) of SPV (Special Purpose Vehicle) Charges of ₹ 8,71,00,614/-, failing to appreciate the fact that SPV Charges is in the nature of Business expenditure and fit into the definition of section 37(1) of Income Tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the addition made by the assessing officer amounting to ₹ 20,22,24,624/-being the net amount received on the sale of carbon credit included under Book Profit for calculation of MAT u/s 115JB, failing to appreciate the fact that Income credited to P L account for Sale of carbon credits is not in accordance with Part II of Schedule VI as the same does not arise out of the working of the company during the period covered by the account and hence in order to compute the correct Book Profit u/s 115JB, the same needs to be excluded. 3. The appellant further prays to allow adding, altering or amending any of the aforesaid grounds of appeal at or before the time of hearing. Grounds for AY 2014-15 1. On the facts and in the circumstances of the case and in law, the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The book profit declared by assessee was ₹ 55,41,55,961/- under section 115 JB of the Act. Subsequently, the assessee filed revised return of income declaring total income as in the original return of income filed on 24/09/2003 with only difference that assessee reduced the book profit to ₹ 35,19,31,337/- under section 115 JB of the Act. 2.1. Ld.AO observed that the total income declared by assessee includes income from mining activity, Trading in iron ore, transportation and hire charges, loading charges, income and sale of wind power. The return was selected for scrutiny and statutory notices were issued to assessee in response to which representative of assessee appeared before Ld. AO and furnished details as called for. 2.2. During the scrutiny assessment proceedings, Ld.AO observed that, assessee reduced a sum of ₹ 8,71,00,614/- towards special purpose vehicle (SPV) from the gross eauction sale of iron ore. Upon calling for details in respect of the same, Ld. AO noted that; Sum of ₹ 1,84,075/- pertained to previous year (assessment year 2012-13) being 5% of the sale value; Sum of ₹ 8,69,16,539/- pertain to year under considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court . Ld.AR regarding R R contribution submitted that such payments has to be made by assessee as quantified by the CEC, and in the event of any shortfall, same would be recouped from the guarantee paid by assessee. SPV Contribution: In course of hearing of these appeals, arguments were raised by both sides on issues raised by assessee. It is submitted that disallowance of SPV (Special Purpose Vehicle) Charges are common for both years. Ld.AR submitted that, disallowance of SPV (Special Purpose Vehicle) Charges in AY.2013-14 is ₹ 871,00,614/- and for AY:2014-15 is ₹ 8,44,79,372/-. 7.1 . Assessee placed before us annual returns filed with the Indian Bureau of Mines filed for financial year 01/04/2012 to 31/03/2013 in Form H-1. We note that the assessee is lease holder of mine, Iyli Gurunath Iron Ore Mines , having sanctioned lease area of 20.23 ha. It also reveals that assessee declared stock of 2,34,081.710 MT of Iron Ore for the relevant period that includes fines and lumps with the closing stock of 1,08,380.250 MT 7.2. For the period 01/04/2013 to 31/03/2014 in Form H- 1, assessee declared total stock of 3,20,000 MT of iron ore inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therefore, is a business expenditure and is allowable u/s 37(1) of Income tax Act. He submitted that the only difference is in percentage of SPV contribution, which is 15% of sale proceeds in B Category as against 10% of sale proceeds in A Category. Ld.AR submitted that it does not change the nature/character of expenditure and therefore, in the present case, decision of Hon ble Hyderabad Tribunal is squarely applicable. 7.6. At the outset, Ld.AR submitted that some penalty was levied in respect of various violation committed by assessee and other mine owners of this category at the rate of ₹ 5 Crore per Hectare for pits beyond Lease Area and ₹ 1 Crore per Hectare for overburden/waste dump beyond lease area. He submitted that in the present case, the assessee paid ₹ 229 Lakhs as penalty on the basis of area of pits and overburden/waste dumps outside the lease area and this amount was paid by the assessee in F. Y. 2011 12 relevant to A. Y. 2012 13 and the same is disallowed by assessee itself in the computation of income for that year. Ld.AR filed copy of computation of income for that year showing the disallowance made. The Ld. AR filed writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and control EAuction, 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 , depending on various types of violations by mining lessee. 7.8.2. Report considered 63, Category B mining lessee that includes Assessee s mining lease and suggested co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old 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 clarified that CEC/monitoring committee is holding the sale proceeds of the iron ores of the leaseholders, including the 63 leasehold being the subject of this order. In case, the money held by CEC/monitoring committee on the account of any leaseholder is sufficient to cover the payments under the aforesaid 3 heads, the lease holder may, in writing, authorize CEC to deduct from the sale proceeds on its account the amounts under the aforesaid 3 heads and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentions made to be wholly untenable. 7.8.5. In aforestated para, Hon ble Apex Court refers to order dated 14/12/2016 passed in case of TN Godavarman Thirmulpad vs Union of India reported in (2013) 8 SCC 204 . Hon ble Apex Court dealt with acceptability of recommendations of CEC with regard to;- 1. Categorization; 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 ; and 5. Future course of action in respect of Category C mines, if closure thereof is to be ordered by the court. 7.8.6. Hon ble Apex Court in para 51 of its order, observed that, IA Nos. 74 and 4 of 2012 filed by Federation of Indian Mineral Industries, a body, that claimed membership of vast number of lessees involved in proceedings, unequivocally accepted findings of survey conducted by joint team and recommendations of CEC, insofar as categorisation of lease, and actions suggested for reopening of Categories A and B mines, along with other pre-conditions stipulated, including, preparation of R R Plans. Hon ble Apex Court noted that, only caveat was in regard to C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint team to be under illegal mining pit; and, Compensation for illegal mining by way of overburden dumps road, office etc., outside sanctioned lease area at the rate of Rs,1crore per hectare of land found to be under illegal overburden dumps etc., Hon ble Apex Court directed balance amount, if any, to be reimbursed to respective lessee. 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 contained i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 second payment is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing 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. 7.8.16. The decisions relied upon by Ld. CIT (A) has also been perused by us. We note that those decisions deal with expenses which are in the nature of penalty. In the present situation, contribution towards SPV is a requirement to be incurred to continue its business activities. In our view, these payments in present case do not fall within the category of penalty. Hon ble Supreme Court has quantified rate for the mass tort, that has occasioned due to illegalities committed in the operation of mines separately. We also note that assessee has suo moto disallowed the payments that fall within the category of penalty which has been computed in accordance with directions of Hon ble Supreme Court (being ₹ 5 crore per hectare for area as under illegal mining pits outside sanctioned areas and ₹ 1 crore per hectare for area under illegal overburden dumps, roads, offices exception outside the sanctioned lease area). B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disk regarding statutory language. Therefore, in our opinion, the 5% expenditure pertaining to previous year claimed by assessee in A. Y. 2013 14 cannot be considered in assessment year 2013-14. We, therefore, confirm the disallowance of the same being ₹ 184,075/- but delete the balance disallowance of ₹ 869,16,539/- out of total disallowance in that year as SPV ₹ 871,00,614/-. Accordingly ground No. 1 raised by assessee in A. Y. 2013 14 stands partly allowed. Admittedly the disallowance made by Ld.AO for assessment year 2014-15 are on identical facts except this difference that there is no previous year expenses in A. Y. 2014 15. Applying the same observations made hereinabove mutatis mutandis, we hold that the contribution made by assessee towards SPV in A. Y. 2014 15 is an allowable expenditure in the hands of assessee. Accordingly, Ground No.1 raised for assessment year 2014-15 is allowed as indicated hereinabove. 8. There is one more issue for assessment year 2014-15, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations of the authorities below that such payment is hit by Explanation 1 to Section 37 (1) . In support of the same, we refer to and rely on our observation in paragraph7.8.1 to 7.8.17 and hold that this payment is in the nature of expenditure incurred for purposes of business, and is allowable under section 37 of the Act. Accordingly, this Ground no. 2 raised by assessee for assessment year 2014-15 stands allowed. 9. Ground No 2in A. Y. 2013 14 : Amount of carbon credit to be excluded for purpose of computing book profit u/s 115 JB of the Act During the relevant previous year, the assessee credited ₹ 20,22,24,624/- on account of carbon credit to the profit and loss account. The assessee claimed the same to be capital receipt and did not offer it to tax in the normal computation of income. However, the same was offered to tax while computing Book Profit u/s 115JB of the Act. Subsequently, the assessee revised its return of income and excluded the same while computing Book Profit u/s 115JB of the Act. 9.1. The Assessing Officer did not agree with the contention of the assessee and added the amount received on sale of carbon credit under normal pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be included in book profit for the purpose of computation under Section 115JB of the Act. It is submitted that Ld.CIT(A) accepted the contention of assessee and held that the sale of carbon credit is a capital receipt. In view of the above, it is humbly prayed that the amount received on sale of carbon credit should be excluded while computing Book Profit under Section 115 JB of the Act. Learned DR supported the order of CIT (A). 9.6. We have considered the rival submissions in the light of records placed before us. 9.6.1. We find force in the submissions of Ld.AR. We note that Ld.CIT (A) has already accepted the contention of the assessee and held that the sale of carbon Credit is a capital receipt and his finding on this aspect has attained finality because no appeal is filed by the revenue against this finding of Ld.CIT (A). Once it is accepted that the receipt in question is a capital receipt, this judgment of Hon ble Calcutta High Court rendered in case of CIT vs. Ankit Metal Power Ltd. (Supra) becomes applicable. We note that, Hon ble Calcutta High Court has duly considered the judgment of Hon ble Supreme Court rendered in case of Appollo Tyres vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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