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TMI Blog2021 (3) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... ution is at the direction of Apex court which is solely and exclusively for the purpose of business carried on by the assessee. 4. The Commissioner of Income-tax (Appeals), Gulbarga ought to have appreciated with the written representations made during the coruse of appeal hearing, wherein a detailed write up made as to how the contribution to SPV qualifies as an expenditure allowable under explanation 1 to section 37(1) of IT Act 1961. 5. The learned Commissioner of Income-tax(Appeals), Gulbarga has failed to appreciate the cases relied on by the Assessing officers was clearly distinguished vide our written submission Dt. 30.12.2017. 6. Any other grounds that may be urged at the time of appeal may kindly be treated as grounds of appeal." Brief facts of the case are as under: 2. The Assessee is a partnership firm engaged in the business of extraction, processing and manufacturing of iron ore for sale. The assessee owns mining lease No. 2339/2151 measuring 36.42 ha classified under category B. It has been stated that the only issue that arises out of the impugned order is disallowance of 15% of sale proceeds of iron ore deducted and retained by the monitoring committee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue of 15% of sale proceeds remitted to SPV account a stands covered by following decisions of coordinate bench of this Tribunal: (i) M/s. Veerabhadrappa Sangappa & Co., in ITA No.1 054/Bang/2019 order dated, 08-12-2020. (ii) M/s. Ramgad Minerals & Mining Ltd. in ITA Nos.1270 & 1271/Bang/2019 order dated, 04-11-2020)" 7. The Ld.AR submitted that a clarification was issued by the Department of mines on 08/03/2019, wherein it has been clarified that transfer of 10% of sale value shall continue to be transferred to SPV even after conducting auction of these leases. He placed reliance on the said clarification placed at page 328- 330 of paper book. It was thus submitted that it is a recurring expenditure incurred by assessee and is allowable as business expenditure. 8. On the contrary the Ld.CIT.DR placed reliance on orders passed by authorities below. 9. We have perused submissions advanced by both sides in light of records placed before us. 10. In present appeal, only issue raised for our consideration is in respect of 15% contribution made to SPV. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 merely an oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to section 37 (1) of the Act. 17. 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 carry continue its business activities. In our view, these payments in present facts do not fall within the category of penalty. 18. We note that identical issue has been considered and decided in the light of observations by Hon'ble Supreme Court in case of referred by the Ld.AR mentioned herein above. For sake of convenience we reproduce the observations of this Tribunal in case of Veerbhadrappa Sangappa (supra) as under: 8.12.3. On careful reading of decision of Hon'ble Supreme Court dated 18/04/2013, it is clear that 10%/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 Categories 'A' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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 'A and 'B'. At this juncture we also emphasise that, but for the intervention by Hon'ble Supreme Court, assessee would not have contributed 10%/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. 8.12.6. In our view contributing 10%/15% to SPV account on account of Category 'A'/ 'B' respectively, would be application of income, and therefore should be considered as expenditure incurred for carrying out its business activity. This we hold so, for the reason that, contributions determined 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. Her ..... X X X X Extracts X X X X X X X X Extracts X X X X
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