2021 (7) TMI 284 - AT - Income Tax

Revision u/s 263 - SPV contribution by monitoring committee out of the sale proceeds - AO has not done any enquiry in respect of the assessment of 20% of sale proceeds retained by monitoring committee and that assessment order was passed without making proper enquiries and based on incorrect assumption of facts or on incorrect application of law or non application of mind or based on no or insufficient materials - HELD THAT - As assessee has considered the 20%/10% as the case may be in assessment year 2014-15 which is not in accordance with the matching principle is to be followed in Mercantile system of accounting. Admittedly, assessee follows mercantile system of accounting and therefore the entire sale proceeds needs to be accounted for the year under consideration out of which the expenditure has to be claimed in respect of the amount retained by monitoring committee. We place reliance on decision by coordinate bench of this Tribunal in case of Veerbhadrappa Sangappa 2020 (12) TMI 1145 - ITAT BANGALORE . This Tribunal in respect of this issue has observed as under - AR has mentioned that Hon ble Supreme Court has subsequently reduced the SPV contribution to 10% as assessee holds A Category mining lease by virtue of order dated 28/03/2011. Any reimbursements made to assessee in view of the same shall be considered in the relevant year in which such payment have been received in accordance with law. Assessee is directed to place on record relevant details and payment schedules issued by the monitoring committee in support. 20% contribution of sale proceeds retained by monitoring committee towards SPV charges claimed as expenditure - As the facts for these issues are identical with that considered by us for assessment year 2012-13, the observation hereinabove are applied mutatis mutandis. We thus hold that the 20%/10% contribution to SPV as the case may be, out of the sale proceeds is an allowable expenditure for year under consideration.

Issues Involved:
1. Condonation of delay in filing appeals.
2. Validity of the order passed under Section 263 of the Income Tax Act.
3. Disallowance of 20% contribution of sale proceeds retained by the monitoring committee towards SPV charges.
4. Disallowance of sundry expenses and CSR activity expenses.
5. Applicability of the decision in the case of M/s. Ramgad Minerals and Mining Ltd.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The tribunal noted a 4-day delay in filing the appeals by the assessee. The delay was attributed to the preoccupation of the assessee’s counsel. The tribunal condoned the delay, stating that the delay could not be attributed to the assessee and allowed the application for condonation of delay to render substantial justice.

2. Validity of the Order Passed Under Section 263:
The Principal Commissioner of Income Tax (Pr.CIT) issued a show cause notice under Section 263, citing that the Assessing Officer (AO) did not properly verify discrepancies in the sale transactions. The Pr.CIT considered the assessment order erroneous and prejudicial to the revenue interest. Despite the assessee's submissions, the Pr.CIT set aside the file to the AO for passing a fresh assessment order after proper verification. The assessee appealed against this order, but the tribunal did not find the need to adjudicate this appeal as the matter became academic in nature due to considerations on merits.

3. Disallowance of 20% Contribution of Sale Proceeds Retained by Monitoring Committee Towards SPV Charges:
The AO disallowed the 20% contribution of sale proceeds retained by the monitoring committee, which the assessee claimed as an expenditure. The AO considered these contributions as not incurred wholly and exclusively for business purposes and treated them as penal in nature. The tribunal, however, referred to the Supreme Court's directions in the case of Samaj Parivartana Samudaya vs. State of Karnataka, which mandated these contributions for environmental reclamation and rehabilitation. The tribunal concluded that these contributions were necessary for resuming mining operations and were not penal in nature. Thus, the tribunal held that the 20%/10% contribution to SPV out of the sale proceeds is an allowable expenditure for the relevant assessment years.

4. Disallowance of Sundry Expenses and CSR Activity Expenses:
The AO disallowed sundry and CSR activity expenses due to lack of documentary evidence. The tribunal upheld the AO's disallowance of CSR expenses, agreeing that they were not allowable under Section 37 of the Act. However, the tribunal did not provide a specific ruling on the sundry expenses disallowance in this summary.

5. Applicability of the Decision in the Case of M/s. Ramgad Minerals and Mining Ltd.:
The tribunal noted that the issues raised by the assessee were covered by the decision in the case of M/s. Ramgad Minerals and Mining Ltd. The tribunal applied the observations from this case, which clarified that contributions to SPV were necessary for environmental rehabilitation and were thus allowable expenditures. The tribunal consistently applied this precedent across the assessment years under consideration, allowing the assessee's claims for SPV contributions.

Conclusion:
The tribunal allowed the appeals partly, condoning the delay in filing, and held that the contributions to SPV were allowable expenditures. The tribunal dismissed grounds unrelated to the CIT(A)'s order or those not argued by the assessee. The appeals for the assessment years 2012-13, 2013-14, 2014-15, and 2015-16 were thus partly allowed.

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