The Income Tax Appellate Tribunal (ITAT), Bangalore Bench deleted the addition of an amount representing 15% of sale proceeds deducted by the Monetary committee from e-auction sale of mineral stock.
The solitary issue by the assessee, M/s. M. Hanumantha Rao whether the CIT(A) was justified in confirming the addition of amount representing 15% of sale proceeds deducted by the Monetary 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.
The assessee is a partnership firm and is engaged in the business of extraction of iron ore by taking lease of lands from the Government.
Over exploitation or rampant mining in the State of Karnataka, particularly in the district of Bellary, was engaging the attention of the State Government from time to time. Not satisfied with the investigation carried in the State of Karnataka, a NGO named M/s Samaj Parivartana Samudaya had instituted a writ petition before Supreme Court under Article 32 of the Constitution complaining of little or no coercive action on the part of the State, seeking Supreme Court’s intervention in the matter and specifically praying for certain reliefs.
The writ petition was entertained and a Committee called “Central Empowered Committee” (CEC) was formed and it was asked to submit a report on the allegations of illegal mining in the Bellary region of the State of Karnataka. The initial reports submitted by CEC indicated large scale illegal mining at the cost and to the detriment of the environment.
The assessee had reduced the above said amounts from the gross sale proceeds and accordingly declared only net sale proceeds as its income in both the years. However, the AO was of the view that the amount retained by MC as per the proposal approved by Supreme Court is in the nature of “appropriation of profit” and “penal/compensatory payment” towards damages caused to environment and forest by contravention of laws.
Accordingly, the AO took the view that the said payment cannot be said to be incurred wholly and exclusively for the purpose of business within the meaning of provisions of section 37 of the Act. Hence the AO proposed to disallow the above said claim of the assessee in both the years.
However, the assessee contended that the amounts have not been received by it and hence the same should not be considered in its hands.
The coram headed by Vice President N.V. Vasudevan noted that notice is that the recommendations made by CEC for making these payments have been made for the purpose of resuming the mining operations. Hence there is merit in the submission of the assessee 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 under section 37(1) of the Act.
The ITAT held that the amount deducted at the rate of 15% from the sale proceeds constitute trading receipts in the hands of the assessee, but at the same time it is allowable as deduction under section 37(1) of the Act.
Therefore, the Tribunal set aside the order passed by CIT(A) on this issue in both the years under consideration and directed the AO to delete the impugned addition in both the years.
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