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2018 (10) TMI 1120 - AT - Income TaxAllowable busniss expenditure u/s 37(1)- payment for resuming the mining activity by Categories A & B companies - Held that - The fact that the compensation is proportionate to area of illegal mining outside the leased area and that the assessee has paid the proportionate compensation for mining in the areas outside the sanctioned area allotted to it and that 10% of sum is to be transferred to SPV and the balance 10% is to be reimbursed to the respective lessees according to us proves that it is a payment made as compensation for extra mining without which the assessee could not have resumed its activities. Therefore we are inclined to accept the contention of the assessee that it is compensatory in nature and is a business expenditure and is allowable u/s 37(1) of the Act. Disallowance of expenditure incurred towards Corporate Social Responsibility (CSR) - Held that - Having regard to the rival contentions and the material on record we find that the direction of the ITAT in the earlier Assessment Years holds good for the relevant assessment years under consideration. Therefore respectfully following the decision of the coordinate Bench on similar set of facts we direct the A.O. to recalculate the expenses allowable under CSR after disallowing the sum of capital expenses. Accordingly Ground No.4 is treated as allowed for statistical purposes.
Issues Involved:
1. Nature of Payment towards Special Purpose Vehicle (SPV) and Compensation for Illegal Mining. 2. Allowability of Mine Closure Obligation Expenses. 3. Depreciation on Intangible Assets. 4. Allowability of Corporate Social Responsibility (CSR) Expenses. 5. Addition of Interest on Income Tax. Detailed Analysis: 1. Nature of Payment towards Special Purpose Vehicle (SPV) and Compensation for Illegal Mining: The assessee, a Public Sector Undertaking engaged in mining and wind power generation, filed returns for AYs 2013-14 and 2014-15. During assessment, the A.O. noted the Supreme Court's judgment on illegal mining in Karnataka, categorizing mining leases into A, B, and C. The assessee, categorized under Category-B, paid ?405.79 Crs towards SPV and compensation for encroachment. The A.O. treated this payment as punitive and disallowed it. The assessee argued it was compensatory and necessary for business. The Tribunal found that the Supreme Court's directions aimed at ensuring scientific exploitation of resources, not punishing. Thus, the payment was compensatory and allowable under section 37(1) of the Act. The Tribunal allowed the assessee's appeal on this ground. 2. Allowability of Mine Closure Obligation Expenses: The A.O. disallowed the payment towards 'Mine Closure' as contingent and not deductible under section 37(1). The CIT(A) directed the A.O. to work out the liability and allow the expenses. The Tribunal noted that similar issues were pending before the High Court for earlier years. Following the CIT(A)'s decision, the Tribunal saw no reason to interfere and dismissed the Revenue's appeal on this issue. 3. Depreciation on Intangible Assets: The A.O. disallowed depreciation on land, considering it not an intangible asset. The CIT(A) allowed depreciation on intangible assets. The Tribunal upheld the CIT(A)'s decision, noting the Revenue's appeals on identical issues were pending before the High Court without any suspension or set-aside orders. The Tribunal dismissed the Revenue's appeal on this ground. 4. Allowability of Corporate Social Responsibility (CSR) Expenses: The A.O. disallowed CSR expenses, treating them as donations and not business expenditure. The CIT(A) directed the A.O. to examine the nature of expenses and disallow capital expenses. The Tribunal directed the A.O. to recalculate allowable CSR expenses after disallowing capital expenses, following the ITAT's earlier directions. The Tribunal allowed the assessee's appeal for statistical purposes on this ground. 5. Addition of Interest on Income Tax: The assessee contested the addition of ?1.85 Crs towards interest on income tax, arguing it was not crystallized during the assessment year. The Tribunal noted the assessee did not wish to press this ground, and it was rejected as not pressed. Conclusion: The Tribunal partly allowed the assessee's appeals for statistical purposes and dismissed the Revenue's appeals for both AYs 2013-14 and 2014-15, following precedents and decisions from earlier years.
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