TMI Blog2021 (8) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds from disclosed stock accrued to the assessee during the year under consideration and has to be considered for determining income under the head profits and gains of business for the year under consideration. Tribunal held that the income accrued in the relevant assessment year and the taxability cannot be deferred to the subsequent assessment year. The Tribunal also held that the same income cannot be taxed twice and the assessee if moves an appropriate petition, the A.O. shall consider such an application. Difference in receipts as per 26AS treated as unaccounted receipts. (Asst.Year 2013-2014) - HELD THAT:- We direct the A.O. to consider the assessee s reconciliation statement, provided the assessee moves an application that there is no difference in the income disclosed and receipts as per Form No.26AS. With these directions, we dispose of ground No.4 for assessment year 2013-2014. Contribution to the Deputy Commissioner, Government of Karnataka, for Hampi Utsav (Asst. Year 2015-2016) - Allowable business expenditure - HELD THAT:- This issue we noticed is covered in favour of the assessee in assessee s own case for assessment year 2009-2010 in [ 2020 (5) TMI 667 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining. All the area minted by the assessee was categorized as per the Central Empowering Committee (CEC) / order of the Hon ble Supreme Court in B Category. As per the Supreme Court order, all the mining activities in the State of Karnataka was stopped vide judgment dated 29.07.2011 in WP No.562 of 2009 dated 29.07.2011. Later CEC was constituted under the direction and supervision of the Hon ble Supreme Court, which took control of mining, processing, production and sale of iron ore. The CEC sold the iron ore through e-Auction and retained 10% / 15% of the sale proceeds and remitted to a separate account with the Special Purpose Vehicle (SPV) under the Chairmanship of the Chief Secretary of Government of Karnataka. The CEC released the balance amount of 85% of sale proceeds to the assessee. The amount so withheld and retained was to be used exclusively for socio-economic development of the area / local population, infrastructure development, conservation and protection of forest, etc. The assessee contended that the amount retained by CEC at 15% of the sale proceeds was an allowable expenditure in computing the total income in the manner laid down in the Income-tax Act. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These amounts were directed by Hon ble Supreme Court to be used to implement R R plans, for taking ameliorative and mitigative measures. During the year under consideration, amount deducted from sale proceeds as per Ld.AO was ₹ 16,29,36,712/- and ₹ 17,05,60,822/- as per the assessee. However the fact remains that the amount of ₹ 16,29,36,712/- has been included in aggregate amount of ₹ 77,71,82,153/-, which was claimed as expenditure in the original return of income and excluded from the sales revenue in the revised return of income contending that the same is diversion by overriding title. Hence, what was claimed/excluded in the returns of income and what was assessed by Ld.AO was ₹ 16,29,36,712/- as per the assessment order. 7.2. Ld.AO called for information/detail in respect of the claim of deduction of ₹ 16,29,36,712/-. Assessee vide letter dated 21/01/2016 filed detailed submissions. Ld.AO after considering the submissions held as under: 4.2.b. The assessee s Consolidated submissions on deductions made by the monitoring committee mentioned in above table 3, 4, 5 and 6 in para (4) have been carefully perused and the same are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) mining leases wherein illegal mining by way of (i) mining pits outside the sanctioned lease areas have been found to be up to 10% of the lease areas and/ or (ii) over burden/waste dumps, outside the sanctioned lease areas have been found to be up to 15% of the lease areas and (b) leases falling on interstate boundary between Karnataka and Andhra Pradesh and for which survey sketches have not been finalized. The numbers of such leases in Category-B comes to 72. 30. The Category-C comprises of leases wherein (i) the illegal mining by way of (a) mining pits outside the sanctioned lease area have been found to be more than 10% of the lease area and/or (b) over burden/waste dumps outside the sanctioned lease areas have been found to be more than 15% of the lease areas and/or (ii) the leases found to be involved in flagrant violation of the Forest (Conservation) Act and/or found to be involved in illegal mining in other lease areas. The number of such leases comes to 49. RECOMMENDATIONS (as modified by CEC by its Report dated 13.3.2012. Items 1 to IV of the Report dated 3.2.2012 stood replaced by Items A to I of the Report dated 13.3.2012 which are reproduced below along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be involved insubstantial illegal mining outside the sanctioned lease areas (b) the entire sale proceeds of the existing stock of the iron ore of these leases should be retained by the Monitoring Committee and (c) the implementation of the R R Plan should be at the cost of the lessee; (IX) A Special Purpose Vehicle (SPV) under the Chairmanship of Chief Secretary, Government Karnataka and with the senior officer of the concerned Departments of the State Government as Members may be directed to be set up for the purpose of taking various ameliorative and mitigative measures in Districts Bellary, Chitradurga and Tumkur. The additional resources mobilized by (a) allotment / assignment of the cancelled mining leases as well as the mining leases belonging to MIs. MML, (b) the amount of the penalty/compensation received! receivable from the defaulting lessee, (c) the amount received/receivable by the Monitoring Committee from the mining leases falling in Category-A and 'Category-B , (d) amount received! receivable from the sale proceeds of the confiscated material etc., may be directed to be transferred to the SPV and used exclusively for the socio-economic development of the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers were placed in different category based on the illegal or marginal illegal mining done by them. The CEC was established to monitor the e-auction sale of the Iron-ore belonging to the mine-owners. The CEC is authorized to retain the portion of sale proceeds of the Ores collected from successful bidders. Further, the amount retained out of sale proceeds by the CEC has to be adjusted against penalty and compensation for illegal mining depending on Category of the mine owners i.e., 10% or 15% of the amount has to be deposited under Spy for the purpose of taking various ameliorative and mitigative measures in Districts of Bellary, Chitradurga and Tumkur 4.2.e. The amount to be retained out of sale proceeds after e-auction on behalf of the assessee against its penal liabilities is a part of sale proceeds and hence, the said amount is liable to be assessed to tax as trading receipts during the financial year of e-auction in view of the mercantile method of accounting followed by the assessee. In other words, the retention money is a part of the sale. proceeds and it ought to be recognized as a revenue. There are only two recognized methods of accounting namely the cash method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure development, conservation and protection of forest, developing common facilities for transportation of iron ore (such as maintenance and widening of existing road, construction of alternate road, conveyor belt, railway siding and improving communication system, etc.), From this, it is evident that the amount recovered towards SPV is nothing but an appropriation of profits earned by the mine owners and cannot be said to have incurred for the purpose of business or earning the profits. Hence, the assessee's claim of deduction towards SPY Charges cannot be allowed. Accordingly, the entire sale proceeds are assessed as trading receipts on accrual basis keeping in view the mercantile method of accounting followed by the assessee and no deduction is allowed in respect of amount retained for SPV purpose keeping in view the provisions of section 37 of the Act. 4.2.i. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs K.C.P Limited (SC) 245ITR 421 Dated: 0910812000. Wherein, the assessee transferred the excess realization to fund in 1997. It was held that the excess amount was realized in the ordinary course of its business activity as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been found to be upto 15% of the lease areas and (b) leases falling on interstate boundary between Karnataka and Andhra Pradesh and for which survey sketches have not been finalized. 4.5) Further, 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. 4.6) 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 is being maintained by the Government under double entry system of accounting which is duly being monitored by CEC. 4.7) The Hon'ble Supreme Court of India in SLP No. 7366 to 7361/2010 dated 29.07.2011 had banned the activity of mining of Iron Ore in the districts of Bellary, Tumkur and Chitradurga of Karnataka districts. In compliance with the orders of theHon'ble Supreme Court of India, the mining activity had been suspended by the appellant. It may be further sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that the amount recovered towards SPV is nothing but appropriation of profits earned by the mine owners and cannot be said to have incurred for the purpose of business or earning the profits. 4.10) In view of the above, the AO was correct in adding the amount of ₹ 16,29,36,712/- under SPV Charges. Further, the entire sale proceeds are assessed as trading receipts on accrual basis keeping in view the mercantile method of accounting followed by the assessee and no deduction is allowed in respect of the amount retained for SPV for the purpose in view of the provisions of section 37 of the Act. This ground fails. 7.4. Aggrieved by observations of Ld.CIT(A), assessee is in appeal before us now. Before us, Ld.Counsel submitted that, amount retained by CEC/MC towards SPV is nothing but diversion of income by overriding title for following reasons: i. MC to control of existing stock; ii. MC received sale proceeds directly from buyers; iii. MC was responsible for depositing statutory levies like royalty, taxes, fees, e-auction service fee etc on behalf of assessee. 7.5. On the above facts, Ld.Counsel primarily contended that, such sale proceeds since were retai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy (2013)(356 ITR 516)(AP) (f) RamachandarShivnarayan vs. CIT (1978)(111 ITR 263)(SC) (g) Bipinchand K Bhatia vs. DCIT (Tax appeal No.107 of 2004 dated 16.10.2014) (h) BadridasDaga vs. CIT (1958)(34 ITR 10)(SC) (i) Poona Electric Supply Co Ltd vs. CIT (1965)(57 ITR 521)(SC) 7.7.1. Ld.Counsel, thus, submitted that the amount deducted by MC may also be taken as business loss and hence the same is deductible u/s.28 of the Act. Ld.Counsel placed reliance on decision of Hon ble Supreme Court in the case of Dr.T.A.Quereshi vs. CIT (Supra) and also the decision rendered in the case of CIT vs. S C Kothari (1971)(82 ITR 794)(SC). 7.8. Without prejudice to the above arguments, Ld.Counsel proposed that, such proceeds utilised by SPV, should be allowed as expenses under section 37(1) of the Act. Ld.Counsel submitted that amount deducted by MC is meant to be used for socio economic development and hence Explanation 1 to Section 37 will not apply. It was submitted that Explanation 1 to Section 37 would cover only such payments which is an offence or which is prohibited by law. He placed reliance on following decision in support: (a) Jai Surgicals Ltd vs. ACIT (2014)(33 ITR ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), directed assessee to contribute 10%/15% under category A / B towards SPV account. Referring to paragraph 10 for Catagory A and paragraph 11(III) for Category B at page 171-173 of decision by Hon ble Supreme Court (supra), Ld.CIT.DR submitted that, assessee was also directed to give authorisation letter to CEC/MC for contributing such sum of sale proceeds equivalent to 10% and 15% of its iron ore sold through MC, towards SPV account, which would be utilised for rehabilitation and reclamation activities. It was submitted that, subject to such contributions, assessee would be granted permission to resume its business of extracting of iron ore. He thus submitted that, such payment therefore cannot be treated as diversion of income, but has to be taxed in the hands of assessee. Ld.CIT.DR submitted that decision of Hon ble Supreme Court, is clear regarding categorization that is drawn based on percentage of violations carried by mining lessees. It was thus submitted that, payments have been attributed for infraction of law committed by assessee. 7.9.1. Ld.CIT.DR once again emphasised on true nature of obligation attached to the alleged sum, which is the factor, to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 obligation to pay another portion of one s own income which has been received and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7.10.8. We note that co-ordinate Hydrabad bench of Tribunal in NMDC (supra) was the case of Category A wherein it was allowed as expenditure by observing as under: Page 88 of 138 ITA No. 1054/Bang/2019 A.Y:2013-14 2. Brief facts of the case are that the assessee-company, a Public Sector Undertaking, engaged in the business of 'mining of iron ore diamonds; and generation and sale of wind power', filed its return of income for the relevant Assessment Years 2013-14 and 2014-15 both under the normal provisions as well as u/s 115JB of the Act for the relevant AYs. During the assessment proceedings u/s 143(3) of the Act, the A.O. observed that the assessee-company is carrying out mining activity in India and particularly in Karnataka and that the Hon'ble Supreme Court of India took note of the large scale illegal mining activity carried on by various companies in Karnataka at the cost or detriment of environment and delivered their judgment on 18.04.2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sanctioned lease areas. However, CEC had recommended that both A and B categories may be allowed to resume the mining activity subject to the payment of penalty / compensation decided by the Court. Thus, according to the assessee, the said expenditure is nothing but a payment which was required to be made without which the assessee could not have carried on the mining activities and therefore, it is a 'business expenditure'. Since the CEC had categorised the assessee as a Category-A company and the Hon'ble Supreme Court has accepted the said categorization, there would have been marginal illegalities committed by the assessee and the compensation / penalty as directed by the Hon'ble Supreme Court is only to compensate the Government for the loss of revenue from such mining or marginal illegalities and not as a penalty. Though the nomenclature given is penalty it is not for infraction or violation of any law to hold it to be punitive in nature, as presumed by the Assessing Officer. Learned Counsel for the Assessee placed reliance on various case law, particularly the decision of the Coordinate Bench of the ITAT, Kolkata in the case of Essel Mining Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the word 'penalty' in reference to a law, the context in which it is used is significant. 11. Applying this ratio to the facts of the case before us, we find from para 43 of the Hon'ble Supreme Court's order reproduced above that the condition of payment for resuming the mining activity by Categories 'A' 'B' companies is to not to punish the companies for any violation of law but is to ensure scientific and planned exploitation of mineral resources in India. Further the Hon'ble Supreme Court had directed as under:- (X) Out of the 20% of sale proceeds retained by the Monitoring Committee in respect of the cleared mining leases falling in Category- A , 10% of the sale proceeds may be transferred to the SPV while the balance 10% of the sale proceeds may be reimbursed to the respective lessees. In respect of the mining leases falling in Category-B , after deducting the penalty / compensation, the estimated cost of the implementation of the R R Plan, and 10% of the sale proceeds to be retained for being transferred to the SPV, the balance amount, if any may be reimbursed to the respective lessees; The fact that the compensation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y held in the same para that whole SPV Expenses of 15% is not allowable. 7.8.10. Ld.AO observed that, these SPV were deducted pursuant to directions of Hon ble Supreme Court (supra) by order dated 18/04/2013, wherein, it was directed that, sum so paid towards SPV charges should be exhaustively and exclusively used to undertake socio economic and infrastructure development, afforestation, soil and biodiversity conservation and for ensuring inclusive growth of the area surrounding mining leases. 7.8.11. Ld.AO further observed that these payments are nothing but appropriation of profits earned by assessee that cannot be said to have incurred for purpose of business or earning profits. Accordingly, entire amount adjusted towards SPV was disallowed by Ld.AO. Ld.AO was of opinion that entire sale proceeds as per E auction bid Sheets/invoices were to be assessed as trading receipts. The amount retained by CEC/monitoring committee as per directions of Hon ble Supreme Court, on behalf of assessee for SPV purposes, was on account of damages and loss caused to environment due to contravention of law, and therefore, cannot be allowed as deduction out of sale proceeds, even after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 environment. Certain payments are onetime payment and some others are recurring depending upon the sale of iron ore sold in the name of each licensee or depending on the need for rehabilitation. 7.8.15. In our view, contributing 15% to SPV account on account of Category B , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y siding and improving communication system, etc.). A detailed scheme in this regard may be directed to be prepared and implemented after obtaining permission of this Hon ble Court; 7.10.11. Hon ble Supreme Court at 176 of its order made following observations with regard to SPV:- By order dated 28-09-2012, this Court had constituted a Special Purpose Vehicle (for short SPV ) on the suggestion of the learned amicus curiae. The purpose of constitution of the SPV, it may be noticed, is for taking of ameliorative and mitigative measures as per the Comprehensive Environment Plans for Mining Impact Zone (CPEMIZ) around mining leases in Bellary, Chitradurga and Tumkur. By order dated 28-09-2012, the Monitoring Committee was to make available the payments received by it under different heads of receivables to the SPV 7.10.12. It is noticed that amounts collected from assessee 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, assessee debited sum of ₹ 9,69,00,000/- under the head, compensation for Category B . It was observed that, the said amount have been deducted by MC towards penalty/compensation for various irregularities found by CEC being illegal mining pit, illegal dumping of waste, illegal encroachment of wrote and other violations by assessee. It was also noted by Ld.AO that, said amount has been retained by CEC as per directions of Hon ble Supreme Court, out of sale proceeds for purpose of taking various ameliorative and mitigate of measures as penal payment. Ld.AO noted that, said retention was towards damages caused to Forest and Environment by contravention of law and cannot be said to have incurred wholly and exclusively for purpose of business within the meaning of provisions of section 37 of the Act as expenditure. 8.1. Ld.AO also noted that, Department of Mines and Geology, Bangalore, vide notice dated 28/02/2013, in obedience to order of Hon ble Supreme Court, directed assessee to make immediate payment of ₹ 5 crore per hectare for illegal mining and ₹ 1 crore per hectare for dumping of waste outside sanctioned lease area for involving illegal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13/04/2012 and 28/09/2012 referred to at Sl.No. (2) above accepted the recommendations of the Central Powered Committee. In the circumstances, you are hereby called upon to pay immediately, by way of penalty, a total amount of ₹ 9.69 Crores for committing various irregularities such as (i) illegal mining pit in 0.46 Hectares (₹ 2.30 Crores), (ii) illegal dumping of waste in 2.50 Hectares (₹ 2.50 Crores), (iii) illegal approached road 4.40 Hectares (₹ 4.40 Crores) and other violations (₹ 0.49 Crores) in proportion to the area encroached by you outside the lease area in contravention of the relevant provisions of the MMDR Act, 1957, MC Rules, 1960 and MCD Rules, 1988 respectively. At the same time, in pursuance of the order dated: 28/09/2012 of the Hon'ble Apex Court, you are also hereby called upon to make a payment of ₹ 148.97 Lakhs towards the probable expenditure indicated by ICFRE for implementation of R R Plan in respect of your mining lease. You are hereby directed to make the above payments immediately failing which action will be initiated to recover the dues from you in accordance with law. 4.3.a. It is evident from the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of said expenditure has been perused and found not acceptable. The various case laws relied on by the assessee firm have no direct nexus to the facts of the instant case, hence, fail to give support the assessee firm's stand that the expenditure incurred is Compensatory/Compounding fee and paid as a Commercial expediency. Further, the assessee's contention that, the said expenses are in nature of Compensatory/ Compounding fee paid to regularise the pending issue and by doing so the Company is allowed to commence its business operations be treated as payment made under commercial expediency cannot be considered and allowed as deduction. 4.3.e. The part of the sale proceeds retained by the CEC / Monitoring Committee are to meet the penal and other liabilities in the form of penal nature for contravention of law, is nothing but assessee firm's personal expenditure, which is not allowable as per the specific Explanation to Section 37(1) of the Act. 4.3.f. It is a General rule that, if an assessee is penalised under one Act, he cannot claim that the amount to be set off against his income under another Act, because that will be frustrating / defeating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .h. Further, probable expenditure for implementation of R R Plan Rs.l,48,97,000/- claimed by the assessee firm is a provisional probable one. Provisions are contingent liabilities which do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting. Further, it is well established fact that the assessee has carried out illegal mining over a period of time and hence, cannot be related and allowed in the year under consideration. Further, allowing such huge deduction though not only belongs to the previous year in question but also for earlier years is against the Principle of Consistency which disturbs uniform earning capacity of the firm. 4.3.i. In view: of above facts brought on record, the amount of Rs.ll,17,97,000/- (₹ 9,69,00,000/- + Rs.l,48,97,000/-) being penalty for breach of law provisions but claimed as expenditure under the head Reclamation Rehabilitation and debited to P L A/c is disallowed and added back to the returned income and brought to tax. 8.2. Aggrieved by observations of Ld.AO, assessee preferred appeal before Ld.CIT(A). Assessee contested that, expenditure was incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cannot be allowed to be deducted whether the business is lawful or otherwise. Even if the entire business of the assessee is illegal and income is sought to be taxed by the Assessing Officer, the expenditure in the illegal activities is not deductible after the insertion of Explanation to Section 37(1) by the Finance Act, 1998. It has been consistently held by the Courts that fines or penalties payable for Violation of law of the land cannot be permitted as deduction under the Income-tax Act. That will be against public policy to allow the benefit of deduction under one statute, of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statute[Maddi Venkataramana Co. (F) Ltd vs. CIT (1998) 229 ITR 534 (SC)]. Even though the need for making such payments arose out of trading operation, the payments were not wholly and exclusively for the purpose of the trade. 5.3) Infraction of the law is not a normal incident of business and therefore, no expense which is paid by way of penalty for breach of the law can be said to be an amount wholly and exclusively laid for the purpose of business [Haji Aziz Abdul Shakoor Bros. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000 8.5. Ld.Counsel submitted that payment advises issued by Department of Mines and Geology, clearly mentions that, above amounts retained by MC are towards R R plan as compensation, and that, no where in the payment advise, the term, penalty is used. Ld.Counsel, therefore, emphasised that, lower authorities erred in treating said compensation as penalty. He thus submitted that the said amount ought to have been allowed as expenditure in the hands of assessee incurred for the purpose of business. 8.6. Alternatively, Ld.Counsel submitted that, since said amount has been diverted to SPV account by direction of Hon ble Supreme Court, the said sum must be treated as having diverted at source by overriding title. 8.7. It was also submitted that failing the above two submissions, the said sum may be treated as business loss under section 28 as the amount retained by MC has rightly forwarded to SPV for reclamation and rehabilitation of mining area as per directions of Hon ble Supreme Court. 8.8. On the contrary, Ld.CIT.DR submitted referred to para 20, 32- 33 of the decision of Hon ble Supreme Court, which are reproduced hereunder: 20. Relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended the taking of any step or measure beyond what is contemplated by the statutory scheme(s) in force. It is argued that it will not be proper for this Court to act under Article 32 and to accept any of the said recommendations which are beyond the scheme(s) contemplated by the Statute(s). In other words, what is sought to be advanced on behalf of the leaseholders is that no step should be taken or direction issued by this Court which will be contrary to or in conflict with the provisions of the relevant statutes. Several judgments of this Court, which are perceived to be precedents in support of the proposition advanced, have been cited in the course of the arguments made. 8.10. Ld.CIT.DR referring to paragraph 37 of the order, submitted that Hon ble Supreme Court after considering arguments advanced by both sides observed as under: 37. Even if the above observations is understood to be laying down a note of caution, the same would be a qualified one and can have no application in a case of mass tort as has been occasioned in the present case. The mechanism provided by any of the Statutes in question would neither be effective nor efficacious to deal with the extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 ITR 534)(SC) (b) Haji Azis Abdul Shakoor Bros. Vs. CIT (1961)(41 ITR 350)(SC) (c) Indian Aluminium Co. Ltd vs. CIT (79 ITR 514)(SC) 8.12.2. Assessee claimed ₹ 9,69,00,000/- as expenditure in the original return of income and excluded the same from Sales revenue in the revised return of income contending that the same is diversion by overriding title. 8.12.3. Ld.CIT.D.R placed his reliance on certain observations made by Hon'ble Supreme Court in M/s Samaj Parivartana Samudaya and Oth. Vs.State of Karnataka Oth.(supra). First of all, there should not be any dispute that the writ petition filed by M/s Samaj Parivartana Samudaya and Others was admitted by Hon'ble Supreme Court under Article 32 of the Act. Hence the lessees, inter alia, challenged before Hon'ble Supreme Court, the necessity to invoke Article 32 and Article 142 of the Act. 8.12.4. In the CEC report dated 3/02/2012 and 13/03/2012, following recommendations were provided in respect of Category B lease holders. Hon ble Supreme Court extracted the same at page 166 of its order which is as under: (V) In respect of the mining leases falling in CATEGORY-B (details given at Annexure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees . 8.12.5. Hon ble Supreme Court in para 11 at page 172 accepted the recommendation of CEC by observing as under: 11. The order of the Court dated 28.9.2012, laying down certain conditions as the absolute first step before consideration of any resumption of mining operations by Category B leaseholders would also be required to be specifically noticed at this stage. I. Compensatory Payment a) Each of the leaseholders must pay compensation for the areas under illegal mining pits outside the sanctioned area, as found by the Joint Team (and as finally held by the CEC) at the rate of ₹ 5 crores per hectare, and (b) for the areas under illegal overburden dumps, roads, offices, etc. outside the sanctioned lease area, as found by the Joint Team (as might have been finally held by the CEC) at the rate of ₹ 1 crore per hectare. It is made clear that the payment at the rates aforesaid is the minimum payment and each leaseholder may be liable to pay additional amounts on the basis of the final determination of the national loss caused by the illegal mining and the illegal use of the land for overburden dumps, roads, offices, etc. Each leaseholder, besides mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts covering the aforesaid three heads and pay to the concerned leaseholder the balance amount, if any. It is expected that the balance amount, after making the adjustments as indicated here, would be paid to the concerned leaseholder within one month from the date of submission of the authorization and the undertaking. In the case of any leaseholder, if the money held on his account is not sufficient to cover the aforesaid three heads, he must pay the deficit within two months from today. 8.12.7. The contentions of the lessees have been succinctly stated as under by Hon'ble Supreme Court in paragraph 20 of the order, which is extracted below:- To resolve the said issues it is the statutory scheme that should be directed to be followed and resort to the powers of this Court under Article 32 read with Article 142 of the Constitution, when a statutory scheme is in existence, would be wholly uncalled for. 8.12.8. This contention was discussed in detail as Issue 2 in paragraphs 27 to 37 (pages180 to 187) Hon ble Supreme Court. Following are the observations of Hon ble Supreme Court: 27. On the above issue the short and precise argument on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegory- C mines should not commend for acceptance of this Court. 32. In Bandhua Mukti Morcha Vs. Union of India Ors. (1984) 3 SCC 161, this Court had the occasion to consider the nature of a proceeding under Article 32 of the Constitution which is in the following terms :- 32. Remedies for enforcement of rights conferred by this Part. (1) The right to move the Supreme Court by appropriate proceedings for the enforcement of the rights conferred by this Part is guaranteed. (2) The Supreme Court shall have power to issue directions or orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, whichever may be appropriate, for the enforcement of any of the rights conferred by this Part. (3) Without prejudice to the powers conferred on the Supreme Court by clause ( 1 ) and ( 2 ), Parliament may by law empower any other court to exercise within the local limits of its jurisdiction all or any of the powers exercisable by the Supreme Court under clause (2). (4)The right guaranteed by this article shall not be suspended except as otherwise provided for by this Constitution. 33. In M.C. Mehta Vs. Union of India Ors. (1987) 1 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts under Article 21. 36. We may now take up the decisions cited on behalf of the leaseholders to contend that the power under Articles 32 and 142 ought not to be exercised in the present case and instead remedies should be sought within the relevant statutes. The sheet anchor is the case of Supreme Court Bar Association Vs. Union of India and Another reported in (1998) 4 SCC 409. We do not see how or why we should lie entrapped within the confines of any of the relevant Statutes on the strength of the views expressed in Supreme Court Bar Association (supra). The observations made in para 48 of the judgment and the use of words ordinarily and are directly in conflict as appearing in the said paragraph (underlined by us) directly militates against the view that the lease holders would like us to adopt in the present case. 48. The Supreme Court in exercise of its jurisdiction under Article 142 has the power to make such order as is necessary for doing complete justice between the parties in any cause or matter pending before it . The very nature of the power must lead the Court to set limits for itself within which to exercise those powers and ordinarily it cannot disreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression Compensation/penalty in its recommendations. But Hon ble Supreme Court, while accepting such recommendations used the expression Compensation for such payments. From the observations reproduced herein above, it can be noticed that Hon ble Supreme Court exercised its power under Article 32 and Article 142 to protect fundamental rights of public in order to prevent environmental degradation, i.e., the cost imposed on leaseholders to remedy the enormous wrong that has happened and to provide adequate protection for the future. 8.12.12. We note that Hyderabad bench of Tribunal in case of NMDC held that the above payment is not penal in nature, but a payment made for compensation. For the sake of convenience, we extract below the final decision rendered by Hyderabad bench of Tribunal:- 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was liable to pay to Compensatory afforestation fund equal to net present value for diversion of forest land for non-forest purposes. The assessee paid a sum of ₹ 5,02,59,000/- to the fund and claimed the same as expenditure. The question that arose before the Tribunal was whether the amount so paid by the assessee is deductible as expenses are not? Tribunal therein noticed that an identical issue was examined in case of M/s Ramgad Minerals Mining P Ltd (ITA No.1012/Bang/08 dated 9.4.2009) and was decided in favour of the assessee. Accordingly, the Tribunal decided this issue, with the following observations, in favour of the assessee:- 5.4 We have heard both parties and carefully perused the material on record and the judicial decisions cited and placed reliance upon. We have perused the decision of the co- ordinate bench of this Tribunal in the case of Ramgad Minerals Mining Pvt Ltd Vs.ACIT in ITA No.1012/Bang/08 dt.9.4.2009 and find that in the cited case too a similar / identical issue was considered on the payments made towards contribution for compensatory afforestation as per the direction of the Hon'ble Apex Court when the mines are expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr.A.Shankar, learned counsel for the respondent-assessee. 4. As such, the Tribunal in the impugned order has relied upon its earlier decision in case of M/s.Ramgad Minerals and Mining Pvt.Ltd., vs. ACIT in ITA 1012(BNG)/2008 dated 9.4.2009. It has been brought to our notice by the learned counsel for respondent-assessee that the very decision of the Tribunal in case of Ramgad Minerals (supra) was carried before this Court in ITA 5021/09 and this Court has dismissed the appeal of the Revenue and it has been further stated that SLP was preferred against the aforesaid decision of this Court in case of Ramgad supra and the said SLP has also been dismissed. 5. We may record that in view of aforesaid decision as such, no substantial questions of law would arise for consideration. But even if it is to be examined, in view of the aforesaid decision that the decision of the Tribunal has been not interfered with by this Court and SLP is dismissed, the question has to be answered against the Revenue and in favour of Assessee. 8.12.17. In the present fact of case, Hon ble Supreme Court observed large scale encroachment in forest areas and illegal mining. Hon ble Court d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3 In the result, ground Nos.3.1 to 3.3 for assessment years 2013-2014 and 2014-2015 are allowed. 5. Sales accounted in Asst.Year 2014-2015, but added as income of the year. 5.1 The learned AR fairly submitted that the above issue is decided against the assessee by the Tribunal in the case of M/s.Veerabhadrappa Sangappa Co. (supra), wherein it was held that income in respect of sales did accrue in the subject assessment year itself, and therefore, the recognition of income cannot be deferred to the subsequent assessment year. However, the learned AR submitted that the Tribunal was pleased to direct to the authorities below to exclude the sale proceeds in the subsequent assessment year, wherein it is offered to tax. 5.2 The learned Departmental Representative present was duly heard. 5.3 We have heard rival submissions and perused the material on record. The Tribunal in the case of M/s.Veerabhadrappa Sangappa Co. (supra), had decided that the sale proceeds from disclosed stock accrued to the assessee during the year under consideration and has to be considered for determining income under the head profits and gains of business for the year under considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.2. Ld.Counsel argued that, revenue from declared stock was not recognised during the year under consideration due to existence of uncertainty in realisation of said amount. It has been submitted that, Section 5 of the Act, manifests that, an income can be said to have accrued, only when a person has legal right to receive such income, and its recognition is on such accrual, which is tempered by section 145 read with AS-9 of ICAI. Ld.Counsel submitted that, in order to charge an income to tax, it is necessary that such income should fall within the scope of total income, as defined under section 2(45) of the Act, and that, such income shall be charged to tax under section 5, if such income shall be received or deemed to have been received or accrue or arises or deemed to accrue or arise to a person in India, during the previous year. Ld.Counsel, thus submitted that, assessee had not derived any legal right to receive sale proceeds during previous year relevant to assessment year under consideration, and therefore, the sale proceeds cannot be construed as income in the hands of assessee for year under consideration. A.3. Ld.Counsel submitted that, to constitute an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be made. He referred to decision of Hon ble Supreme Court in case of CIT vs Woodward Governor India Pvt.Ltd., reported in (2009) 312 ITR 254, wherein, Hon ble Court held that, profits and gains of previous year are required to be computed in accordance with relevant accounting standard. Referring to decision of Hon ble Supreme Court in case of JK industries Ltd vs UOI, reported in (2008) 297 ITR 176, Ld.Counsel submitted that, rules by which inventories are to be valued are laid down in accounting standards , and are to be followed in determination of accounting income mandatorily. He submitted that Hon ble Court also held that; 8. Finally, adoption of accounting standards and of accounting income as taxable income would avoid distortion of accounting income which is the real income. A.8. He thus submitted that it is therefore appropriate to recognise revenue only when there is a reasonable certainty, that, ultimate realisation will be made. Ld.Counsel submitted that, there is no denial by authorities below that sale proceeds were received by assessee in subsequent financial years i.e; financial year 2013-14 to 2015-16, has been offered to tax by assessee. Ld.Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scertain the profit made by the business during a period, it is necessary that revenues of the period should be matched with the costs (expenses) of that period. In other words, income made by the business during a period can be measured only with the revenue earned during a period is compared with the expenditure incurred for earning that revenue. However, in cases of mergers and acquisitions, companies sometimes undertake to defer revenue expenditure over future years which brings in the concept of Deferred Tax Accounting. Therefore, today it cannot be said that the concept of accrual is limited to one year. 83. It is a principle of recognizing costs (expenses) against revenues or against the relevant time period in order to determine the periodic income. This principle is an important component of accrual basis of accounting. As stated above, the object of AS 22 is to reconcile the matching principle with the Fair Valuation Principles. It may be noted that recognition, measurement and disclosure of various items of income, expenses, assets and liabilities is done only by Accounting Standards and not by provisions of the Companies Act. A.10.2 Ld.Counsel submitted that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thetical. Ld.CIT.DR submitted that, accrual of income must be judged on Principle of real income theory , and that, what is necessary to be considered is the true nature of transaction. Ld.CIT.DR submitted that, what has really accrued to assessee has to be found out and what has accrued must be considered from the point of view of real income, taking the probability or improbability of realisation in a realistic manner. He also submitted that, merely because receipt takes place of such accrued income by conduct of parties in subsequent year, income which has accrued for year under consideration, cannot be made as no income . A.12. Ld.CIT.DR emphasised that, admittedly, in subsequent years, assessee received 80% of total sale proceeds from E auction carried out by MC. It has been contended that income has arisen/accrued to assessee during the year under consideration, and therefore has been rightly taxed in the hands of assessee for year under consideration. A.13. We have perused submissions advanced by both sides in light of records placed before us. We also have perused various decisions relied upon by Ld.Counsel referred to herein above, as well as in the paper b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently given up it remains the income of the recipient and taxes payable. When income is not resulted at all, there is neither accrual nor receipt of income even if there is an entry to that effect in the books of account. Mere postponing of an entry in the account books would not always supply conclusive evidence on the question whether the disputed amount has accrued to the assessee or not. Mere effort on the part of the assessee to realise the amount by sending a bill or making a claim or filing a suit for recovery would not in law make it an income which has accrued in the year in question. The transfer of the amount to the profit and loss account is bereft of any significance. A.13.5. We also refer to decision by Hon ble Bombay High Court on concept of real income, emphasised in case of Kashiparekh and Co Ltd (HM) vs. CIT, reported in (1960) 39 ITR 706. Hon ble Court held that, surrender of income even after closure of accounting year may make no difference to the concept of real income. Hon ble Bombay High Court, relied on view expressed by Hon ble Supreme Court in case of CIT vs Birla Gwalior (P) Ltd reported in (1973) 89 ITR 266 as under: The principle of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on record, we are of the view that, assessee was aware of total quantity of iron ore sold and dispatched, total sale proceeds received towards total quantity sold during the year and value of stock that was not considered for release. This is evident from page 178, 180-181 of paper book, wherein, date of sale, for both mining leases and amount realised are placed. Under such circumstances, assessee cannot escape from incident of accrual of such income during financial year relevant to assessment year under consideration. A.13.9. There is no dispute with regard to the fact that, declared stock belongs to assessee and assessee has to recognise revenue arising on sale of such stock. We have already noted that the role of MC was to carry out the e-auction of the stock and sell the stock on behalf of assessee as per the directions of total sale proceeds as on the date of sale by virtue of directions of Hon ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra). Therefore, the risk in such stock stood transferred from assessee to the buyer as on the date of sale. Further, assessee was vested with legal right to receive sale proceeds from st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case, we are of the view that, sale proceeds of assessee s stock accrued to assessee during financial year relevant to assessment year under consideration. Based on above discussions and observations, in our view, we are of opinion that, sale proceeds from disclosed stock accrued to assessee during the year under consideration and has to be considered for determining income under the head profits and gains from business for year under consideration. We have already noted that assessee has offered the above sale consideration on subsequent assessment years, and income tax act does not permit to assess same income twice. Hence in our view assessee may move appropriate petition before the authorities below for exclusion of above sale proceeds from declared stock in the relevant assessment year. Ld.AO is directed to consider such application liberally by granting proper opportunity of being heard to assessee. 5.4 In view of the above order of the Co-ordinate Bench of the Tribunal, we dispose of the above issue with similar directions. 5.5 In the result, ground No.3 raised by the assessee for assessment year 2013-2014 is rejected. 6. Difference in rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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