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TMI Blog2020 (12) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... ure for purposes of earning income? - On perusal of decision in case of Prakash Cotton . [ 1993 (4) TMI 3 - SUPREME COURT] . Hon ble Court was considering determination of real income in case of finance lease that forms part of lease Rentals . Hon ble Karnataka High Court following decision of Hon ble Delhi High Court in case of CIT Vs. Virtual Soft Systems Ltd[ 2012 (2) TMI 120 - DELHI HIGH COURT] held that, only financing charges represents real income, and not capital receipt, though both have been accrued and received. In present facts there is no doubt that sale proceeds from undeclared stock assume character of income in the hands of assessee. Merely because sale proceeds were not parted to assessee, it cannot be considered as probable expenditure u/s 37(1). Whether to be treated as diversion of income by overriding title or Trading Loss? - There is no doubt that, sale proceeds arises out of dump considered by assessee to be not saleable that was generated in course of its regular business. Therefore, such undeclared stock, in principle belongs to assessee and sale proceeds of such undeclared stock assume character of income in the hands of assessee when sale pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure was incurred as compensatory/compounding fee, and paid as commercial expediency to regularise pending issues and by doing so, assessee was allowed to commence its business operations - Assessee claimed it 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.- HELD THAT:- As relying on NMDC Ltd vs ACIT [ 2018 (10) TMI 1120 - ITAT AHMEDABAD] Payment made is compensatory in nature only as these funds are meant to be used for public purposes and the assessee could not have commenced its operations without paying the same, the same is allowable as revenue expenditure. We are therefore of the view that payment made as compensation is not hit by Explanation 1 to Section 37(1) and is an allowable expenditure. Disallowance of probable expenditure for R R retained/deducted by monitoring committee under Category B - assessee has not submitted any details with regard to R R expenditure and its nature and for what purpose the amount was spent - HELD THAT:- Assessee was directed to make such payments in order to resume the mining activity. It is also c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts and Form No.26AS - HELD THAT:- There is no estoppel against law. Hence, if the assessee proves that any transaction does not belong to it, then no addition is called for. Hence acceptance of any addition, which is against law, will not bar the assessee from contesting the same. However, it is the responsibility of the assessee to substantiate its claim. It is also quite possible that some of the companies might have rectified their Statement of TDS in order to correct mistakes, if any. Hence the position available in Form 26AS as on today may depict different picture. Accordingly, we are of the view that the assessee may be provided with an opportunity to reconcile the differences in respect of two companies cited above and also to prove that it did not have transactions with other companies. Accordingly, we set aside the order passed by Ld.CIT(A) on this issue and restore the same to the file of the AO for examining it afresh. - ITA No.1054/Bang/2019 (Assessment Year : 2013–14) - - - Dated:- 8-12-2020 - SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER Appellant by: Shri Chythanya K.K, Advocate Respondent by: Shri Muzaffar Hus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of ₹ 24,64,49,012/-representing the sale proceeds of undeclared stocks confiscated by the MC, when the income on such stocks never accrued to the Appellant in accordance with section 5. 2.2. 1 The lower authorities have failed to appreciate that the impugned sum retained by the MC as per the direction of Hon'ble Supreme Court cannot be construed as income accrued to the Appellant. 2.2.2. The lower authorities have failed to appreciate the undeclared stocks relate to accumulated wastes/debris not recognized by the appellant in its books, and the same were confiscated and sold by the MC but proceeds were retained as relating to undeclared stocks, and therefore, the Appellant never had any right to receive the same. 2.2.3. The lower authorities have failed to appreciate that section 5 manifests that an income can be said to have accrued only when a person has a legal right to receive such income and its recognition is on such accrual which is tempered by section 145 r.w. Accounting Standard 9 of ICAT. 2.2.4.The lower authorities have failed to appreciate that the Appellant has not recognized the revenue attributable to sale proceeds of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the Appellant. 2.3.4.The Learned Commissioner (Appeals) has failed to appreciate that the forfeited sale proceeds were diverted to the Monitoring Committee before it reached the Appellant, as per the directions of the Honourable Supreme Court and hence it is a case of diversion of income by overriding title and not an application of income. 2.3.5.The Learned Commissioner (Appeals) has failed to appreciate that the forfeited sale proceeds never ever reached the Appellant directly or indirectly and therefore, the same did not accrue to the Appellant at all. 2.3.6.Without prejudice to the above, the lower authorities having treated the sale proceeds of confiscated stock by CEC as revenue of the Appellant and such proceeds are utilized by SPy towards reclamation rehabilitation of the mining area as per the direction of Hon'ble Supreme Court, ought to have allowed the same as business loss under Section 28. 2.3.7.The lower authorities are not justified in adding the forfeited sales proceeds by invoking Explanation I to Section 37(1) when the said Explanation applies only to an expenditure and not to a loss. 2.3.8.Without prejudice to the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,48,97,000/- [1,21,94,000+27,03,000] representing probable expenditure, when the substantial amount of ₹ 1,21,94,000/- has been received by the Appellant in the subsequent year and same is charged to tax in the subsequent year. 2.4.1.The lower authorities have failed to appreciate that section 5 manifests that an income can be said to have accrued only when a person has a legal right to receive such income and its recognition is on such accrual which is tempered by section 145 r.w. Accounting Standard 9 of ICAI. 2.4.2.The lower authorities have failed to appreciate that the Appellant has not recognized the revenue attributable to sale proceeds of confiscated stock by MC [which includes the sale proceeds of ₹ 1,48,97,000/- due to uncertainty of its recovery and in accordance with the Accounting Standard 9 issued by ICAI. 2.4.3.The Learned Commissioner (Appeals) has failed to appreciate that Accounting Standard 9 provides for postponement of recognition of revenue in case where there exists an uncertainty regarding ultimate realization. 2.4.4.The Learned Assessing Officer failed to appreciate that the Appellant has received the sale proceeds of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e wrath of the Explanation 1 to section 27 and the cases where the purpose of expenditure is lawful but there is some lapse in complying with the procedural provisions for incurring such expenditure which is outside the scope of Explanation 1 to section 37 and the case of the Appellant is covered by the latter. 3. As regards disallowance of ₹ 31,27,668/- expended towards Corporate Social Responsibility: 3.1. The Learned Commissioner (Appeals) is not justified in sustaining the additions made by the Learned Assessing Officer with respect to the expenditure of ₹ 31,27,668/- incurred towards providing education to the students residing near the mining area as per the statutory direction of the Learned Deputy Commissioner, Bellary and expended as a part of goodwill gesture in order to carry out the mining business. 3.2. The lower authorities have erred in law and facts by failing to appreciate that the Appellant has satisfied all the conditions under section 37(1) of IT Act where the amount expended by the Appellant towards the education of the students residing/ studying near the mining area, which directly or indirectly influence the business of the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the aforesaid appeal be allowed. 2. Application for Admitting Additional Evidences : At the outset, Ld.Counsel filed before us Application for Admitting Additional Evidence, which consists following documents: SN No. Particulars Annexure 1. Revised Statement of e-auction details along with bifurcation sheet (Mine Lease wise and year wise) 14 2. Year wise and mine wise details of declared stocks along with summary in respect of leases 2160, 2296 and 2296-SY for FYs 2011-12, 2012-13 and 2013-14. 15 3. Copy of VAT- 140 return for FY 201112 for ML 2160, ML 2296, ML 2296-SY. 16 4. Copy of VAT-140 return for FY 201314for ML 2160, ML 2296, ML 2296-SY. 17 5. Copies of Ledger Account, Journal entry and P L Account for the FY 2014-15. 18 6. Copies of Ledger Account, Journal entry and P L Account for the FY 2015-16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee on receipt basis in subsequent assessment years. 2.2. On the contrary, Ld.CIT.DR vehemently opposed admission of additional evidence. It was submitted that, assessee did not produce most of the documents, though it was in possession during assessment proceedings and even before first Appellate Authority. He thus submitted that, neither Ld.AO nor Ld.CIT(A), had opportunity to verify the same. Reliance was placed on following decisions, opposing admission of additional evidence filed by assessee at this stage: 1. Rishi Sagar vs ITO (2013) 36 Taxmann.com 508 (Chandigarh-Trib) Affirmed by P H High Court- (2017) 88 Taxmann.com 600 2. Jawahar Lal Jain (HUF) vs CIT (2015) 59 Taxmann.com 374 (P H) 3. Kanniappan Murugadoss Vs. ITO (2017) 79 Taxmann.com 244 (Chennai- Trib) Alternatively, it was submitted that, in the event this Tribunal intends to admit additional evidences, the same may be remanded to Ld.AO for examination/verification. 2.3. We have perused arguments advanced by both sides in light of records placed before us. We also refer to decisions relied by Ld.CIT DR. 2.3.1. As can be seen from Index to Additional Evidence reproduced herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not find necessary to remit the appeal back to Ld.AO for consideration. As we analyse these documents, we observe that details emanating there from, would be of assistance in deciding certain grounds before us. We therefore admitted additional evidences filed by assessee. 3. At this stage it is necessary to discuss about the background that led to scrutiny of mining operations carried out by various mine lessees. 3.1. Background: Hereinafter, Monitoring Committee, shall be referred as MC Central Empowered Committee shall be referred as CEC Special Purpose Vehicle shall be referred as SPV, and Reclamation and Rehabilitation Plans shall be referred as R R Plans 3.2. Over exploitation or rampant mining in the state of Karnataka particularly in this district of Bellary, was looked into by state Government from time to time. Not satisfied with the investigation carried in the state of Karnataka, a NGO being M/s. Samaj Parivartana Samudaya instituted a writ petition before the Hon ble Supreme Court, seeking intervention in the matter and prayed for certain reliefs. Hon ble Supreme Court in following decisions on mining activity observed as under; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encroachment in respect of mining pits and overburden dumps determined in terms of percentage qua the total lease area. The Report indicated large-scale encroachment into forest areas by leaseholders and mining operations in such areas without requisite statutory approval and clearances. The report also suggested conditions subject to which reopening of the mines and resuming mining operations could be considered by the court. 3.3. The report by CEC suggested reclamation and rehabilitation plan by each leaseholders by constituting a special purpose vehicle by State of Karnataka, to carry out highly essential comprehensive environment plans for mining impact zone, in order to restore environmental damage, caused in such area due to illegal and reckless mining on a very large scale, and to ensure that environment in such areas may not suffer from any such type of abuse and destruction in future. 3.4. Based on CEC report dated 03/02/2012, Hon ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, reported in (2013) 8 SCC 222 observed in para 5.1 at page 223 as under: 5.1. Compensatory payment: (a) each of the leaseholders must pay compensation for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding 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 an undertaking to make payment of any additional amount as compensatory payment. On submission of such authorisation and undertaking, CEC shall retain the amounts covering the aforesaid 3 heads and pay to the leaseholder concerned the balance amount, if any. It is expected that the balance amount, after making the adjustment as indicated here, would be paid to the leaseholder concerned within one month from the date of submission of authorisation and the undertaking. 5.3.2. In case of any leaseholder, if the money held on his account is not sufficient to cover the aforesaid 3 heads, he must pay the deficit within 2 months from today. 5.4. The R R plans for the aforesaid 63 category B mines may be prepared as early as possible, as directed by orders of this court d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it was held that the e-auctioned shall be conducted by MC/CEC constituted by Hon ble Supreme Court. Hon ble Supreme Court held that the quantity to be put for e-auction, its grade, lot sizes, its base/floor price and the period of delivery will be decided/provided by the respective leaseholders. It was also held that the MC may permit the leaseholders to put up for e-auction the quantities of iron or land to be produced in subsequent months. Hon ble Supreme Court also decided on the financial impact that shall be paid by the concerned leaseholder is from the sale proceeds realised by MC. 4. Finally, Hon ble Apex Court, in order dated 18/04/2013 passed in case of Samaj Parivartana Samudaya vs State of Karnataka, reported in (2013) 8 SCC 154, disposed of the Writ Petition. Hon ble Apex Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra) upheld recommendations of CEC with regard to;- 1. Categorization- CEC categorised the mines into, A , B , C Category A comprised of: (a) working leases wherein no illegality/marginal illegality were found and; (b) non-working leases wherein no/marginal illegality s were found. Category B comprised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lease having been found to be involved in substantial illegal mining outside the sanctioned lease areas. The entire sale proceeds and existing stock of the iron ore of such leases were to be retained by the MC. And; The implementation of R R plans should be at the cost of the lessee s With above understanding of directions by Hon ble Supreme Court, we shall advert to the facts in present case. 5. In the present facts of case assessee holds lease under Category A and B . Ld.Counsel submitted that, assessee holds two mining licenses, in:- 1. Mining Lease no.2296, located at RAMANMALAI IRON ORE MINES, classified under Category A . and; 2. Mining Lease no.2160 located at DHARMAPURI IRON ORE MINES, classified under Category B . Brief facts of the case are as under: 5.1. Assessee is a partnership firm engaged in the business of extraction and trading of iron ore. For year under consideration, assessee filed its return of income on 26/09/2013 declaring total income of ₹ 95,60,74,150/-. Assessee, thereafter revised its return of income on 08/12/2014 by declaring revenue from mining business of ₹ 95,60,74,150/-. The case was selected fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C with write-up on the said expenditure, Ledger account extracts of over loading receipts, copies of partnership deed with return of income of partners, statement of reconciliation of stock during year under consideration. 5.5. Ld.AO verified details filed by assessee, in consonance with materials on record. Ld.AO noted that, assessee followed mercantile system of accounting. Ld.AO noted that, sale proceeds from declared and undeclared stock has been omitted to be offered for taxation during the year. Assessee submitted that since the receipt was highly uncertain, recognition of income was done on receipt basis. Ld.AO, after considering various submissions advanced by assessee, passed assessment order dated 24/02/2016 by making addition of ₹ 77,71,82,153/-. 5.6. Ld.AO also made disallowance of expenditure amounting to ₹ 31,27,668/- incurred towards CSR and treating sum of ₹ 21,62,803/- as unaccounted receipts as per 26 AS. 5.7. Aggrieved by order of Ld.AO, assessee preferred appeal before Ld.CIT (A), who upheld observations and additions made by Ld.AO in the hands of assessee. 5.8. Aggrieved by order of Ld.CIT (A), assessee is in appeal before us now. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. It was submitted that, essential criteria for recognition of revenue is, consideration receivable from sale of goods should be reasonably determined, and since the consideration was not determinable within reasonable limits, recognition of revenue was postponed. Assessee, referred to ICDS-IV notified by Central Government for purpose of computation of income chargeable to Income tax under the head profits and gains of business or profession . It was submitted that, MC had complete control and command over declared stock. It was also submitted that MC had sole discretion to sell the stock. It was submitted that sale proceeds were to be received by MC from the buyers. Assessee submitted that, MC after making necessary deductions would disburse balance sale proceeds to assessee. Assessee submitted before Ld.AO that, it did not have any control over the value and time of receipt of sale proceeds. It was thus contended before Ld.AO that, the amount of ₹ 25,52,89,418/- did not accrue to assessee, and therefore the same was not offered to tax during the year under consideration. 6.3.1. Assessee also submitted before Ld.AO that sum of ₹ 25,52,89,418/- was received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld iron ore of assessee by E auction to the extent of ₹ 50,24,48,441/- during financial year relevant to assessment year under consideration. The Ld.AO noted that, in profit and loss account, assessee claimed sum of ₹ 50,24,48,441/- as expenditure. Ld.AO rejected recognition of revenue on receipt basis, as assessee followed mercantile system of accounting. Ld.AO referred to para 9 of decision of Hon ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra) wherein Hon ble Court directed CEC/MC to pay to concerned leaseholder balance amount after adjusting contributions under various heads towards SPV for implementation of R R plan etc. Ld.AO was of the opinion that, there was no uncertainty and nowhere there was any suspense of receipt of sale proceeds of such E- auction of iron ore from MC. Therefore, as per mercantile system of accounting, right to receive such amount accrued to assessee during the year under consideration which, cannot be diverted to subsequent assessment years. Ld.AO observed that, details of Eauction sale by MC, was in the knowledge of assessee, and assessee was well aware of receipt of sale proceeds, which should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of Uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service even though payments are made by installments. 9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. What has really accrued to the 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 and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing, an income which has accrued cannot be made 'no income' 9) In the case of United Nilagiri Tea Estates Co. v. Dy. CIT [2012] 210 Taxman 62 (Madras), the Honourable Madras High Court has held as under: 8. In the background of the law thus laid down, what is to be looked at to test the real income that might be taken for working out an assessment for an assessee following the mercantile system of account is, the chances or probabilities of realisation in a realistic manner to hold that there was a real accrual of income to the assessee company. 10) In the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee - Here it needs to be clarified that the CEC/Monitoring Committee is holding the sale proceeds of the iron ores of the lease holders, including the 63 leaseholds being the subject of this order. In case, the money held by the CEC/Monitoring Committee on the account of any leaseholder is sufficient to cover the payments under the aforesaid three heads, the leaseholder may, in writing, authorize the CEC to deduct from the sale proceeds on its account the amounts under the aforesaid three heads and an undertaking to make payment of any additional amount as compensatory payment. On submission of such authorization and undertaking, the CEC shall retain the 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. 4.1.d. It is clear from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lifting the material from the mines of concerned Mine Owner. From this, it is evident that the assessee was well aware of the e-auction sales and should have accounted the same in its books of accounts in the year of sale itself without postponing the same till the date of receipt of proceeds. Income may accrue to an assessee without actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later, on its being ascertained - CIT v. Shri Goverdhan Ltd. (1968) 69 ITR 675 (SC) / CIT v. Nandram Hunatram (1976) 103 ITR 433 (On). Receipt is not the only test of chargeability to tax, if income arises or accrues, it may become liable to tax - CIT v. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC) / CIT v. A.B.V Gowda (1986) 157 ITR 697 (Kar). Each year being a self contained unit, taxes of particular year is payable with reference to the income of that year as computed in terms of the Act - CIT Vs. British Paints India Ltd. (SC) 188 ITR 44. Accordingly, a sum equivalent to e-auction sale proceeds accrued / arised to the assessee for the financial year ending 31/03/2013 should be assessed in the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C shall retain the amounts covering the aforesaid 3 heads and pay to the concerned leaseholder the balance amount, if any. It is expected that the balance amount, after making the adjustment as indicated here, would be paid to the concerned leaseholder is within one month from the date of submission of the authorisation and the undertaking. In the case of any leaseholder, if the money held on this account is not sufficient to cover the aforesaid 3 heads, he must pay the deficit within 2 months from today . Thus, as could be seen from the above, no where there is either suspense or uncertainty of receipt of sale proceeds of the said E-auctioned Iron Ore from the Monitoring Committee. As the assessee was maintaining mercantile system of accounting, it is bound to offer the same in the year of a curable. As the same has not been done, the AO was right in making the addition. This ground is thus dismissed. Aggrieved by order of Ld.CIT(A), assessee is in appeal before us now. 6.8. Ld.Counsel before us placed his arguments under 2 categories: A. Recognition of sale proceeds from declared stock, received by assessee in subsequent assessment years; and B. Addition of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition 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 income , assessee should have absolute command, control and right of disposition of such receipts. He submitted that, in the present facts of the case, assessee has no control over the stock and sale proceeds, as sale was carried out by MC through E auction. He submitted that, revenue from sale of declared stock therefore was uncertain. A.4. Ld.Counsel thus co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OI, 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 also submitted that, assessee received following amount in subsequent financial years which has been offered to tax as and when they were received: Particulars Amount Offered to tax in FY Payment advice dated 8/02/2014 13,60,77,524/- 2013-14 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, Ld.AO in subsequent year has not undone levy of tax of such sale proceeds. It was also been submitted that entire exercise is revenue neutral as applicable rate of tax remain the same in the relevant year and the subsequent years. A.11. On the contrary, Ld.CIT.DR submitted that, assessee follows mercantile system of accounting. He submitted that as per mercantile system, income accrued to assessee in the year of sale. He s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 book filed before. A.13.1. The issue that arises before us, is in respect of accrual of sale proceeds from declared stock, during the year under consideration. Following is the summary of what has been proposed by Ld.Counsel. A.13.2. Ld.Counsel opposed for treatment of sale proceeds from disclosed stock as income in the hands of assessee for year under consideration on the ground that, it never had the right to accrue , due to unce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 real income is not to be subordinated as to amount virtually to a negation of it when a surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on grounds of commercial expediency, simply because it takes place sometime after the close of an accounting year. In examining any transaction and situation of this nature the court would have more regard to the reality and speciality of the situation rather tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 stocks sold by MC. Therefore, income became due to assessee as on date of sale of stock, and it became due to assessee, when sale proceeds were received by MC. We also note that under VAT, the sales have been recognised for year under consideration by assessee which further strengthens our view. In our opinion, under such circumstances, date of payment does not affect accrual of income. A.13.10. In support, we refer to decision of Hon able Supreme Court in case of CIT vs Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. B. Addition of sale proceeds of undeclared stock Ld.Counsel submitted that, sale proceeds of undeclared stock confiscated by MC cannot be construed as income in the hands of assessee, for the reason that, revenue from sale of such stock never accrued to assessee in accordance with Section 5 of the Act. He also submitted that, these alleged undeclared stock were not recognised by assessee in the books as well as in IBM returns filed. Ld.Counsel referring to payment advice dated 18/02/2014 for mining lease No.2160 at page 198-201 submitted that, total quantity of confiscated was 3,40,000 MTs of minerals/ores, out of which assessee declared 74,061 MTs of ores in IBM return. Thus MC treated 2,65,939 MTs as undeclared stock in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return. Ld.Counsel submitted that, such sale proceeds from sale of Fines/Lumps/Dumps not declared in IBM return of assessee, were wrongly treated as undisclosed income by Ld.AO. Ld.Counsel submitted that, sale proceeds were never transferred to assessee and the same were contributed to SPV for R R plan and therefore such income never accrued to assessee. Ld.Counsel submitted that assessee did not recognize the sales revenue relating to undeclared stock in assessment year 2012-13. Ld.Counsel submitted that return for assessment year 2012-13 was subjected to scrutiny/s.143(3) of the Act. And revenue had accepted the stand of assessee. He thus submitted that principles of consistency should be followed. He placed reliance on decision of Hon ble Supreme Court in case of Radhasomi Satsang vs.CIT reported in (1992) 193 ITR 321. Ld.Counsed thus submitted that merely because sale of undeclared stock was effectuated by MC, the same would not be come income of assessee. B.5. On the above facts, Ld.Counsel primarily contended that, such sale proceeds, since were retained by MC as per directions of Hon ble Supreme Court, ought to have been regarded as having been diverted at source b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of sale proceeds towards R R plan and payment of balance to assessee. Referring to page 177-183 of paper book, Ld.Counsel submitted that, merely because VAT returns mentioned that stock were sold by MC on behalf of assessee as its principal, does not mean that MC acted as agent of assessee. It has been submitted that there has been no agreement, written or oral, entered into between assessee and MC, which could mean that MC acted as an agent of assessee. In support of Ld.Counsel relied on following decisions; Hon ble Allahabad High Court in case of Singhal Electric Works vs. Commissioner of Sales Tax, UP, reported in 1972 STC 112. Morarji Premji Gokuldas vs. Mulji Ranchhod Ved Co. reported in 1923 SCCOnline Bom 52; P.Krishna Bhatta vs.Mundila Ganapathi Bhatta(died) reported in 1954 SCC Online Mad 216; Laxminarayan Ram Gopal Sons Ltd vs.Govt of Hydrabad, reported in (1954) 25 ITR 449(SC); Everest Coal Company(P) Ltd.vs. State of Bihar, reported in (1978) 1 SCC 12; Bhopal Sugar Industries Ltd. vs. STO reported in (1977) 3SCC 147; Extracts of English Case laws in following cases were also relied by Ld.Counsel in support: Fisher v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Mundial Export Import Finance (P) Ltd vs CIT reported in (2016) 238 Taxman 34 and decision of coordinate bench of this Tribunal in case of NMDC Ltd vs ACIT reported in (2019) 175 ITD 332 (HYD-ITAT). B.6. On the contrary, Ld.CIT DR submitted that, sale effected by MC was carried out on behalf of assessee. Admittedly, stock held as undeclared stock in IBM returns by MC has been excavated by assessee from in and around sanctioned lease areas held by it. He submitted that, Hon ble Supreme Court in case of Samaj Parivartana Samudaya (supra) while approving report of CEC dated 15/02/2013, categorically clarified that, CEC/MC will be holding sale proceeds of iron ores on behalf of leaseholders. He submitted that, excess stock held by CEC were such stock from mining lease outside sanctioned area held by assessee. He submitted that, assessee was supposed to disclose Fines and Lumps excavated from mining lease areas in IBM returns. Thus, it is incorrect to say that, assessee necessarily is not required to disclose Lumps and Fine ores. Referring to payment advice dated 18/02/2014 in respect of both mining leases placed at page 198-210 of paper book, Ld.CIT DR submitted that, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly because the sale proceeds were to paid to assessee, does not mean it did not accrue to assessee, for the reason that the salable stock eminated from the overburden dumps in and around sanctioned lease areas of assessee. He thus supported addition of such sale proceeds from undeclared stock for year under consideration, even though the same was not paid to assessee. B.7. We have perused submissions advanced by both sides in light of records placed before us. We also have perused various decisions relied on by Ld.Counsel referred to herein above, as well as in the paper book filed before. Issue before us, is regarding assessment of sale proceeds from undeclared stock, during the year under consideration. Following were the arguments advanced by Ld.Counsel. Ld.Counsel opposed treatment of sale proceeds from undeclared stock as income in the hands of assessee, by virtue of overriding title, as it was transferred to SPV. He submitted that, in the event it is to be treated as income in the hands of assessee, it may be considered either of the following: Alternatively he proposed that, such receipts could be considered as business loss under Section 28 of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Quantity dispatched for which payment has been made/proposed 6,51,894 Quantity declared by IBM 4,90,082 Excess quantity for which payment has been made 1,61,812 Valuation of excess quantity dispatched for which payment has been made in respect of Dumps/ Mineral Rejects: Particulars Dumps/ Mineral Rejects (Mts) Quantity dispatched for which payment has been made/claimed (379972 Mts + 79995) 4,59,967 Quantity declared to IBM 4,21,253 Excess quantity for which payment has been made/claimed 38,724 Valuation of excess Fine/Lumps/Dumps in Category B(ML no.2160): Particulars Fines/Lumps/ ROM (Qty.) Dumps/SG (Qty.) Total (Qty.) Allotted quantity (MTs.) 1,68,000 1,72,000 3,40,000 Quantity declared to IBM (MTs.) 74,061 Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee with proposition of treating such receipts from sale proceeds of such undeclared stock to be expenditure under section 37 (1) in the hands of assessee, as the said sum was contributed to SPV for R R Plans. Ld.Counsel placed reliance on decision of Hon ble Karnataka High Court in case of Prakash Leasing Ltd., Vs. DCIT reported in (2012) 208 Taxman 464, in support his contention. B.7.7.1. In our view, what could be considered under section 37, are probable expenditure for purposes of earning income. On perusal of decision in case of Prakash Cotton (Supra), Hon ble Court was considering determination of real income in case of finance lease that forms part of lease Rentals . Hon ble Karnataka High Court following decision of Hon ble Delhi High Court in case of CIT Vs. Virtual Soft Systems Ltd., reported in (2012) 205 Taxman 257, held that, only financing charges represents real income, and not capital receipt, though both have been accrued and received. B.7.7.2. In present facts there is no doubt that sale proceeds from undeclared stock assume character of income in the hands of assessee. Merely because sale proceeds were not parted to assessee, it cannot be considered as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of illegal mining found by the joint team and is appropriately modified by CEC in its preceding dated 25/01/2012 and after considering the relevant information and has classified the mining leases into 3 categories namely Category A , Category B and Category C . 28. Category A comprises of (a) nonworking leases wherein no marginal/illegalities have been found. The number of such leases come to 21 and 24 respectively. 29. Category B comprises of: (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) overburden/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 finalised. . 30. Category C comprises of leases wherein: (i) 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) overburden/waste dumps outside the sanctioned lease areas have been found to be more than 15% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehensive Environment Plan for Mining Impact Zone (CEPMIZ). B.7.8.6.The above recommendation of CEC was accepted by Hon ble Supreme Court in paragraph 17 of its order with the following observations:- 17 It would also be convenient to take note of the fact that as per the CEC s report dated 15-2-2013 sale of almost the entire quantity of illegally extracted iron ore has been effected through the Monitoring Committee and the sub grade iron ore lying in dumps in and round several lease areas may not have adequate commercial potential. Besides removal thereof for sale, in many cases, may also give rise to environmental problems in as much as removal of such dumps may constitute a hazard to the stability of the dumps which have been in existence for many years. Permission for sale of sub grade iron ore, only when the same is commercially viable and removal thereof from the dumps is an environmentally safe exercise, has been sought by CEC in its last report dated 15.2.2013. We do not find any impediment in accepting the recommendations of CEC in the report dated 15.2.2013 in respect of removal and sale of sub grade iron ore. Similarly, we do not find any difficulty in continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition on account of Category B-15% of confiscated sale proceeds, utilised towards SPV, amounting to ₹ 3,18,41,886/-. Assessee debited ₹ 16,29,36,712/- to profit and loss account, under the head SPV charges. Facts relating to this issue are as under: 7.1. Hon ble Supreme Court in case of Samaj Parivartana Samudaya Ors. Vs. State of Karanataka Ors. (supra), approved the recommendation of CEC for deducting and retaining part of sale proceeds for purpose of taking various ameliorative and mitigative measures. CEC recommended retaining of 10% of sale proceeds. Hon ble Supreme Court accepted 10% for Category A mines and increased deduction to 15% for Category B mines. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OF LEASES IN DIFFERENT CATEGORIES ON THE BASIS OF THE LEVEL OF ILLEGALITIES FOUND. 27. The CEC, based on the extent of illegal mining found by the Joint Team and as appropriately modified by the CEC in its Proceeding dated 25th January, 2012 and after considering the other relevant information has classified the mining leases into three categories namely Category-A , Category-B and Category-C . 28. The Category-A comprises of (a) working leases wherein no illegality/marginal illegality have been found and (b) nonworking leases wherein no marginal/illegalities have been found. The number of such leases comes to 21 24 respectively. 29. Category-B comprises of (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 compris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (Rs. One Crores only) for per ha. of the area found to be under illegal over burden dump etc. v) Out of the sale proceeds of the existing stock of the mining leases, after deducting: a) The penalty/compensation payable; b) Estimated cost of the implementation of the R R Plan; and c) 10% of the sale proceeds to be retained by the Monitoring Committee for being transferred to the SPV d) The balance amount, if any, may be allowed to be disbursed to the respective lessees. (VI) In respect of the mining leases falling in CATEGORY-C (details are given at annexure-R-11 to this Report) it is recommended that (a) such leases should be directed to be cancelled / determined on account of these leases having been found 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 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the overall facts and circumstances of the case, we have enhanced this payment to 15% of the sale proceeds. Here it needs to be clarified that the CEC/Monitoring Committee is holding the sale proceeds of the iron ores of the lease holders, including the 63 leaseholds' being the subject of this order. In case, the money held by the CEC/Monitoring Committee on the account of any leaseholder is sufficient to cover the payments under the aforesaid three heads, the leaseholder may, in writing, authorize. the CEC to deduct from the sale proceeds on its account the amounts under the aforesaid three heads and an undertaking to make payment of any additional amount as compensatory payment. 4.2.d. As could be seen from the above observations of the Hon'ble Supreme Court the mine owners 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 penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the purpose of business. The said part of the proceeds are retained to meet the penal and other liabilities for contravention of law and therefore, the said amount retained by the CEC/Monitoring Committee cannot be allowed as deduction in view of the specific Explanation to section 37(1) of the Act. 4.2.h. The Hon'ble Supreme Court thought on the lines of 'Corporate Social Responsibility' much before its actual introduction in the Act and wanted to improve the lives of people environment affected by the mining activities. On this line of thought, the Apex Court wanted the CEC/MC to collect certain amount of profit from the beneficiaries of mining lease and use the same exclusively for the socio-economic development of the area / local population, infrastructure 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n various dates in Writ Petition No. 562 of 2009 along with SLP No. 7366-7367. The Hon'ble Supreme Court in its order dated 18.04.2013 in the same case of Samaj Parivarthana Samudaya Others V/s. State of Karnataka Others has pronounced its important judgment on illegal mining in the state of Karnataka and accordingly, a Central Empowered Committee (CEC)has identified three category of mining cases, Category - A, B C. The assessee falls under the Category-B mines, the issues pertaining to category 'B' mines is discussed. B-Category mines comprises (a) mining leases wherein illegal mining by way of (i) mining pits outside the sanctioned lease areas have been found to be upto 10% of the lease areas and/or (ii) over burden/waste dumps outside the sanctioned lease areas have 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 ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he R R Plan; and c) 10% of the sale proceeds to be retained by the Monitoring Committee for being transferred to the SPV d) The balance amount, if any, may be allowed to be disburses to the respective lessees. 4.9) A perusal of the directions of the Supreme Court shows that the part proceeds are retained to meet the penal and other liabilities for contravention of law and therefore the said amount was retained by the CEC/Monitoring Committee. The Hon'ble Supreme Court wanted the CEC/MC to collect certain amount of profit from the beneficiaries of mining lease and use the same exclusively for the socio-economic development of the area / local population, infrastructure development, conservation and protection of forest, developing common facilities for transportation of iron ore etc. Hence, it is evident 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting as per the directions given by Hon ble Supreme Court. It was submitted that assessee did not have absolute command, control and right of disposition of this receipt. Ld.Counsel thus submitted that this receipt has been diverted at source and cannot constitute income of the assessee. 7.7. Alternatively , he also proposed that, such receipts could be considered as business loss under Section 28 of the Act, since such proceeds were utilised by SPV towards reclamation and rehabilitation of mining areas, as per direction of Hon ble Supreme Court. Ld.Counsel placed reliance on following decisions in support: (a) Dr. T.A. Quereshi vs. CIT (2006)(287 ITR 547)(SC) (b) CIT vs. S.N.A.S.A. Annamalai Chettiar (1972)(86 ITR 607)(SC) (c) CIT vs. S.C.Kothari (1971)(82 ITR 794)(SC) (d) CIT vs. Piara Singh (1980)(124 ITR 40)(SC) (e) CIT vs. T.C. Reddy (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.Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of compensation and not penal in nature. Further Explanation 1 shall apply only if the purpose of expenditure is for an offence or prohibited by law. Hence, Explanation 1 to sec.37 is not applicable to this payment. Ld.Counsel relied on following decisions in this regard:- (a) ITO vs. Reliance Share and Stock Brokers Ltd (ITA No.274/Mum/2013) (b) CIT vs. Ajanta Pharma Ltd (2017)(85 taxmann.com 252)(Bom) (c) CIT vs. Regalia Apparels (P) Ltd (2013)(352 ITR 71)(Bom) (d) CIT vs. Vikas Chemicals (2015)(53 taxmann.com 171)(Delhi) 7.8.3. He submitted that Hon ble Hyderabad Tribunal examined identical issue in the case of NMDC Ltd (supra) and the deductions made by MC have been allowed as business expenditure. 7.9. Ld.CIT.DR supported orders passed by authorities below. According to Ld.CIT DR, Hon ble Supreme Court in case of Samaj Parivartana Samudaya Ors. Vs. State of Karanataka Ors. (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, asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady held that entire income accrued to assesee while deciding grounds 2.1 2.2. In the issue of contribution towards SPV, one has to consider its correct nature. In our opinion these decisions do not assist revenue in any manner. 7.10.3. On careful reading of decision of Hon ble Supreme Court in case of Samaj Parivartana Samudaya Ors. Vs. State of Karanataka Ors. (supra), 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 and B respectively. 7.10.4. With this background, we once again refer to and rely on observations by Hon ble Supreme Court in case of CIT vs Sitaldas Tirathdas (supra). Hon ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at regulate mining activities. 7.10.7. 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. Here, we also note that, Hon ble Supreme Court directed CEC to refund any leftover guarantee money, after completion of implementation of R R plan, subject to 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation and held that the assessee, being a Category-B leaseholder, has been directed to make the payment for infringement of MMDR Act and other allied laws. Therefore, he observed that the payment of ₹ 405.79 Crs is punitive in nature and brought it to tax. . 10. Thus, from the table reproduced above, it is seen that the assessee has been classified as Category-'A' whereas the Assessing Officer has considered the assessee as Category-'B' company. The Hon'ble Supreme Court has clearly indicated that Category-A comprises of (i) 'working leases' wherein no illegality / marginal illegality have been found and (ii) 'non-working leases' wherein no marginal / illegalities have been found, whereas Category-B comprises of (i) mining leases wherein illegal mining is 10% to 15% of 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;compensatory'. 'penalty' essentially has to be for result of a default and imposed by way of punishment. On the contrary, 'compensatory' may be resulting from a default for the advantage already taken by that person and is intended to remedy or compensate the consequences of the wrong done. For instance, if a unit has been granted conditional consent and is in default of compliance, causes pollution by polluting a river or discharging sludge, trade affluent or trade waste into the river or on open land causing pollution, which a Board has to remove essentially to control and prevent the pollution, then the amount spent by the Board, is thus, spent by encashing the bank guarantee or is adjusted thread and this exercise would fall in the realm of compensatory restoration and not a penal consequence. In gathering the 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' &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw 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 in para 4.9 of the assessment order for AY:2013-14 and as per the same, this is the objection of the Ld.AO that the said SPV is not allowable u/s 37 (1) as it was not incurred by the assessee wholly and exclusively for the purpose of business. (d) In para 4.8 of the assessment order for AY:2013-14, Ld.AO is stating this that SPV rate is 10% in category A Mines but 15% in Category B Mines and this extra 5% in Category B Mines is for various violations and illegal mining and even after this observation, he finally 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 excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 essence applied . The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable. Emphasis Supplied 7.8.13. In the present case, we note that 15% of sale proceeds was payable to SPV account after it accrued to assessee and the fact that, assessee 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 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 rehabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us 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 M/s. 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 area/local population, infrastructure 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.). 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:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3.8-2.3.9 and dismiss grounds 2.3.1-2.3.7. 8. Ground No.2.5 has been raised against the disallowance of ₹ 9,69,00,000/-, by treating it as penalty. Ld.AO observed that, for year under 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, dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hectare for illegal mining and Rs.l Crore per hectare for dumping the waste outside the lease area on you for involving yourself in the above illegal act. The Hon'ble Supreme Court in its Orders dated: 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 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- and probable expenditure for implementation of R R Plan Rs.l,48,97,000/- respectively, during the previous year in question. 4.3.d. The explanation offered by the assessee firm for claiming deduction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der a statutory obligation, because the assessee was in default could not constitute expenditure laid out for the purpose of assessee s business [Indian Aluminium Co. Ltd. Vs CIT (SC) 79 ITR 514]. 4.3.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 disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire object of penalizing under the other Act. If the assessee resorts to unlawful means to augment his profits or reduce his loss, then the expenditure incurred for these unlawful activities 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining pit) 0.4 6Ha ₹ 2,30,00,000 Compensation (dump, received etc, 2.50 HA) ₹ 2,50,00,000 Encroachment of road (4.40 HA) ₹ 4,40,00,000 Other category (0.49 HA) ₹ 49,00,000 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms of the lease or the provisions of any of the statutes, as may be. The argument advanced is that as the statutes in question contemplate a particular scheme to deal with instances of illegal mining or carrying on mining operations which is hazardous to the environment, the CEC could not have recommended 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in the mining area like illegal mining, illegal dumping of waste and other violations like encroachment etc. Ld.AO relied upon following case laws to buttress his view that the penalty is not allowable as deduction:- (a) Maddi Venkataramana Co (P) Ltd vs. CIT (1998)(229 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 CE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting stock of the mining leases, after deducting : a) The penalty/compensation payable; b) Estimated cost of the implementation of the R R Plan; and c) 10% of the sale proceeds to be retained by the Monitoring Committee for being transferred to the SPV d) The balance amount, if any, may be allowed to be disbursed to the respective lessees . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leaseholder is sufficient to cover the payments under the aforesaid three heads, the leaseholder may, in writing, authorize the CEC to deduct from the sale proceeds on its account the amounts under the aforesaid three heads and an undertaking to make payment of any additional amount as compensatory payment. On submission of such authorization and undertaking, the CEC shall retain the 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Statute. However, if the statute does not forbid a particular course of action it will be certainly open for the Court under Article 32 to issue appropriate directions .. 31. The question that has been raised on behalf of the leaseholders is whether the aforesaid provisions under the different statutes should be resorted to and the recommendations made by the CEC including closure of Category- 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 prejudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering all these judgments rendered by earlier bench, Hon ble Supreme Court, observed as under:- 35. The issue is not one of application of the above principles to a case of cancellation as distinguished from one of suspension. The issue is more fundamental, namely, the wisdom of the exercise of the powers under Article 32 read with Article 142 to prevent environmental degradation and thereby effectuate the Fundamental Rights 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Court may consider the necessity of placing the recommendations made by the CEC on a finer balancing scale before accepting the same. We, therefore, feel uninhibited to proceed to exercise our constitutional jurisdiction to remedy the enormous wrong that has happened and to provide adequate protection for the future, as may be required. 8.12.11. Ld.Counsel, during his arguments, pointed out that the CEC used the expression 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of personnel involved in the mining and environmental management viii) rain water harvesting 8.12.15. We note that co-ordinate bench of Tribunal considered an identical issue in the case of Mysore Minerals Ltd vs. ACIT (ITA No.679/Bang/2010 dated 2.11.2012). In this case, the assessee was engaged in the business of mining of iron ore, other minerals and granite. In consequence to the order passed by Hon'ble Supreme Court in the case of T.N Godavarman Tirumalpad vs. UOI, the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court in CIT vs. M/s Mysore Minerals Ltd in ITA No.144/2013 dated 08/03/2017 is as undere:- 2. As such, in our view, the only question of law which may arise is, whether the payment made by way of compensation of ₹ 5,02,59,000/- by the assessee as per the direction of the Apex Court for mining lease to the Forest Department can be said as a revenue expenditure or a capital expenditure? 3. We have heard Mr.Sanmathi, learned counsel for the appellant-revenue and 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 afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable as revenue expenditure. We are therefore of the view that payment made as compensation is not hit by Explanation 1 to Section 37(1) and is an allowable expenditure. Accordingly this ground raised by assessee stands allowed. 9. Ground 2.4 is in respect of addition on account of probable expenditure for R R plan amounting to ₹ 1,48,97,000/-. 9.1. Ld.AO observed that assessee has debited sum of ₹ 1,48,97,000/-under the head, probable expenditure for R R retained/deducted by monitoring committee under Category B . It was observed that assessee had charged the said sum to the profit and loss account for year under consideration. Ld.AO referred to notice dated 28/02/2013 issued by Department of Mines and Geology, wherein, assessee was called upon to make payment for further sum of ₹ 1,48,97,000/-. Relevant observations of Ld.AO on this issue has been extracted in para 8.3 herein above. 9.1.1. Ld.AO thus disallowed provisions were holding that, these are contingent liabilities and cannot be subject matter of deduction. 9.2. On an appeal before Ld.CIT(A), said sum was disallowed by holding that, assessee has not submitted any details with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court of Karnataka has held that any expenditure incurred which is not a business expenditure or which is not of commercial expediency, cannot be allowed as business expenditure u/s 37 of the I.T.Act. Hence, the appellants contribution towards payment of school fees and school books cannot be considered as allowable expenditure and the same is disallowed u/s 37(1) of the Act. This ground is rejected. 9.2.2. Ld.CIT(A) thus, in absence of details, dismissed the plea of assessee. Aggrevied by order of Ld.CIT(A) assessee is in appeal before us now. 9.3. Before us, Ld.Counsel submitted that, assessee has not recognised the revenue attributable to sale proceeds of confiscated stock by MC of ₹ 1,48,97,000/- due to uncertainty of its recovery in accordance with accounting standard 9 read with section 145. 9.3.1. Ld.Counsel submitted that assessee does not have any control over the sale of iron-ore, the deductions made there from etc. It is the MC, which has made the sales and also deducted the above said amount from the sale proceeds. Since the above said amount has been deducted by MC in the payment advice dated 18.02.2014 and since the said payment advice was rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies and not to partnership firms like that of assessee. Ld.Counsel placed reliance upon decision of coordinate bench of this Tribunal in case of ACIT vs Essel Mining Industries Ltd reported in (2016)-TIOL-371-ITATKOL, Shyam Sel Ltd vs DCIT reported in (2016)-TIOL-1592-HC-KOLIT, decision of Hon ble Calcutta High Court in case of Mundial Export Import Finance (P) Ltd vs CIT reported in (2016) 238 Taxman 34 and decision of coordinate bench of this Tribunal in case of NMDC Ltd vs ACIT reported in (2019) 175 ITD 332 (HYD-ITAT). 9.4. On the contrary, Ld.CIT.DR submitted that the provision made for Probable expenditure cannot be allowed as deduction, as the same is contingent in nature. Further, the assessee is not aware of details of R R expenditure. Further, it is in the nature of penalty for causing damage to the environment. 9.5. We have perused submissions advanced by both sides in light of records placed before us. 9.5.1. We note that, Hon ble Supreme Court directed lease holders to give undertaking to make any additional payment. In present issue, we note that assessee was called upon to make such payment, as is evident from notice issued by Department of Mines an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d related activities and complying with the standards stipulated under the various environmental/mining statutes e.g. air quality (SPM, RPM), noise/vibration level, water quality (surface as well as ground water), scientific over burden/waste dumping, stabilization of slopes and benches, proper stacking and preservation of top soil, sub grade mineral and saleable minerals, proper quality of internal roads, adequate protective measures such as dust suppression/control measures for screening and crushing plants, beneficiation plants, provision for retention walls, garland drains, check dams, siltation ponds, afforestation, safety zones, proper covering of truck, exploring possibility of back filling of part of over burden/waste dumps in the mining pits, sale/beneficiation of sub grade iron ore, water harvesting, etc. iv) for achieving (ii) and (iii) above, fixation of permissible annual production; and v) regular and effective monitoring and evaluation. 9.5.4. Hon'ble Supreme Court in para 14 recorded lease wise R R Plans in continuation of the above said observations. We note that a written undertaking was directed to be given by lease holder by observing as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner. FIMI was actively associated in the framing of the guidelines and the preparation of the R R Plans. There is nothing in the preconditions or in the details of the R R plans suggested which are contrary to or in conflict or inconsistent with any of the statutory provisions of the MMDR Act, EP Act and FC Act. In such a situation, while accepting the preconditions subject to which the Category A and B mines are to be reopened and the R R plans that must be put in place for Category B mines, we are of the view that the suggestions made by the CEC for reopening of Category A and B mines as well as the details of the R R plans should be accepted by us, which we accordingly do. 9.5.7. From the above it is clear that assessee was directed to make such payments in order to resume the mining activity. It is also clear that payment intimations may be issued as and when found necessary by the Department of Mining. Assessee cannot ignore such intimations for its smooth functioning of business. We therefore are of the opinion that these are expenditure incurred by assessee in lieu of business. We therefore reject the argument of revenue that such payment is hit by Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Finance Act 2014, which is in relation to CSR contributed by companies, whereas, assessee is a partnership firm. 10.4.2. Ld.Counsel submitted that commercial expediency should be judged in the context of prevailing social economic condition and that business undertaking is a product of combined effort s of all. He submitted that such expenditure incurred by assessee satisfies the requirement of commercial expediency in the present scenario. He placed reliance on order dated 31/07/2019 by Hon ble Karnataka High Court, Dharwad Bench, in case of Kanhaiyalal Dudheria vs JCIT in ITA NO. 100016/2018 c/w. ITA NO. 100017/2018. He submitted that mining activity in the lease areas causes ecological disbalances thereby hampering inhabitation in the nearby villages. Assessee incurred expenses towards reestablishing various facilities to support livelihood of people living in nearby villages. 10.4.3. On the contrary, Ld.CIT.DR placed reliance on observations of authorities below. 10.5. We have perused submissions advanced by both sides, in light of records placed before us. 10.5.1. We heard rival contentions and perused the record. We notice that an identical issue was examined b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves the said amount. Thus, the purpose and intent must be the sole purpose of expending the amount as a business expenditure. If the activity be undertaken with the object both of promoting business and also with some other purpose, such expenditure so incurred would not be disqualified from being claimed as a business expenditure, solely on the ground that the activity involved for such expenditure is not directly connected to the business activity. In other words, the issue of commercial expediency would also arise. 20. In fact, the Hon'ble Apex Court approving the observation of ATHERTON's case - 1926 AC 205 in the matter of EASTERN INVESTMENT LIMITED vs COMMISSIONER OF INCOME TAX reported in (1951) 20 ITR 1, held: ..a sum of money expended, none of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade , can be adopted as the best interpretation of the crucial words of Section 10(2)(xv). The imprudence of the expenditure and its d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic policy or is an expenditure allowable under Section 37(1) of the Act and it came to be held that such contribution is not against public policy and would be allowable under Section 37(1) of the Act. It was also held 'any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on the assessee's business or which results in the benefit of the assessee's business has to be regarded as an allowable deduction under Section 37(1)'. In the facts obtained in the said case, it was noticed that assessee was doing business of export of rice and contributing 50 paise per quintal to the district welfare fund maintained by the District Collector, without which contribution, he would not get permit and as such, it came to be held that expenditure so incurred by way of contribution is directly connected with the assessee's carrying on the business. It is further held: 10. From the abovesaid discussion it follows that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in the benefit to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticed under the MOU in question which came to be entered into by the assessee with Government of Karnataka was on account of the clarion call given by the then Chief Minister of Karnataka in the hour of crisis to all the Philanthropist, industrial and commercial enterprises to extended their whole hearted support and the entire logistic support has been extended by the Government of Karnataka namely, providing land and design of the house to be constructed, approval of layout and to take care of all local problems. In fact, the State Government had also agreed to exempt such of those persons who undertake to execute the work from the purview of sale tax, royalty, entry tax and other related State taxes and is said to have extended to the appellant also. In this background it cannot be construed that MOU entered into between the assessee and the Government of Karnataka is opposed to public policy. 29. In the facts on hand, it requires to be noticed that assessee is carrying of business of iron ore and also trading in iron ore. Thus, day in and day out the assessee would be approaching the appropriate Government and its authorities for grant of permits, licenses and as such th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding addition of unaccounted receipts of ₹ 21,62,803/- being the difference between books of accounts and Form No.26AS 11.1. Ld.AO added the difference cited above and it is noticed that AR of assessee who appeared before Ld.AO did not object to the said addition. Assessee challenged the same in an appeal filed before Ld.CIT(A), but the Ld.CIT(A) also confirmed the same. 11.2. We heard the parties on this issue. The difference noticed by Ld.AO has been tabulated by him as under:- Sl. No. Name of the Company/Deductor Receipts as per Books Receipts as per 26AS/ TRACES Difference in Receipts 1 M/s Kinesis Films Pvt., Ltd., 0 451,391 451,391 2 M/s Neptune Developers Ltd., 0 70,903 70,903 3 M/s Oceanus Dwellings Pvt., Ltd., 0 16,215 16,215 4 M/s Orris Infrastructure Pvt., Ltd., 1,946,531 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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