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2020 (11) TMI 174 - AT - Income TaxDisallowance of SPV charges - Business expenditure u/s 37(1) - HELD THAT - In the present situation, contribution towards SPV is a requirement to be incurred to continue its business activities. In our view, these payments in present case do not fall within the category of penalty. Hon ble Supreme Court has quantified rate for the mass tort, that has occasioned due to illegalities committed in the operation of mines separately. We also note that assessee has suo moto disallowed the payments that fall within the category of penalty which has been computed in accordance with directions of Hon ble Supreme Court (being ₹ 5 crore per hectare for area as under illegal mining pits outside sanctioned areas and ₹ 1 crore per hectare for area under illegal overburden dumps, roads, offices exception outside the sanctioned lease area). Based on above discussions and analysis, we are of opinion that contribution to SPV being 15% of sale proceeds, under category B, is an allowable expenditure for year under consideration. Assessee for assessment year 2013-14 has considered 5% expenditure pertaining to previous year. No details pertaining to previous year expenses is made available before us. Assessee has also not placed before us any documents in relation to the same. Matching principal must be followed and Income tax is a levy on income. It takes into account the point of time at which liability to tax is attracted, i.e.; accrual of income or its receipt. See CIT vs Shoorji Vallabhdas Co 1962 (3) TMI 6 - SUPREME COURT - 5% expenditure pertaining to previous year claimed by assessee in A. Y. 2013 14 cannot be considered in assessment year 2013-14. We, therefore, confirm the disallowance of the same being ₹ 184,075/- but delete the balance disallowance of ₹ 869,16,539/- out of total disallowance in that year as SPV ₹ 871,00,614/-. Guarantee money for implementation of the R R plan in the respective sanctioned lease areas - HELD THAT - Assessee could not have ignored the notice and that only upon making good such payments, assessee would have resumed its mining activity. Further it is noted that in the event assessee is not able to make good the full payment towards R R plan as directed by CEC, the guarantee money paid by assessee would be forfeited to that extent. We therefore, cannot concur with the observations of the authorities below that such payment is hit by Explanation 1 to Section 37 (1) . In support of the same, we refer to and rely on our observation and hold that this payment is in the nature of expenditure incurred for purposes of business, and is allowable under section 37 MAT Computation - Amount of carbon credit to be excluded for purpose of computing book profit u/s 115 JB - HELD THAT - CIT (A) has already accepted the contention of the assessee and held that the sale of carbon Credit is a capital receipt and his finding on this aspect has attained finality because no appeal is filed by the revenue against this finding of Ld.CIT (A). Once it is accepted that the receipt in question is a capital receipt, this judgment of Hon ble Calcutta High Court rendered in case of CIT vs. Ankit Metal Power Ltd. 2019 (7) TMI 878 - CALCUTTA HIGH COURT becomes applicable. Hon ble Calcutta High Court has duly considered the judgment of Hon ble Supreme Court rendered in case of Appollo Tyres vs. CIT 2002 (5) TMI 5 - SUPREME COURT and held that where a receipt is not in the nature of income at all, it cannot be included in Book Profit under Section 115JB. Hence, we follow this judgment of Hon ble Calcutta High Court rendered in the case of CIT vs. Ankit Metal Power Ltd. (Supra) and decide this issue also in favour of the assessee in both years.
Issues Involved:
1. Disallowance of Special Purpose Vehicle (SPV) Charges under Section 37(1) of the Income Tax Act, 1961. 2. Addition of net amount received on the sale of carbon credit under Book Profit for calculation of MAT under Section 115JB. 3. Disallowance of Reclamation & Rehabilitation (R&R) Expenses under Section 37(1) of the Income Tax Act, 1961 (specific to AY 2014-15). Detailed Analysis: 1. Disallowance of SPV Charges: - Facts and Contentions: - For AY 2013-14, the assessee claimed SPV Charges of ?8,71,00,614/- as business expenditure under Section 37(1). - For AY 2014-15, the SPV Charges claimed were ?8,44,79,372/-. - The Assessing Officer (AO) disallowed these charges, considering them as penal in nature and not incurred wholly and exclusively for business purposes. - The CIT(A) upheld the AO's decision, citing Explanation 1 to Section 37(1) and various Supreme Court decisions. - Tribunal's Findings: - The Tribunal noted that the SPV contributions were mandated by the Supreme Court for socio-economic development and environmental rehabilitation. - It was observed that these contributions were a precondition for resuming mining operations and were not penal in nature. - The Tribunal relied on the Hyderabad Tribunal's decision in NMDC Ltd. vs. ACIT, which allowed SPV contributions as business expenditure. - The Tribunal concluded that the SPV contributions were necessary for business operations and allowed them as deductible expenses under Section 37(1). - However, for AY 2013-14, the Tribunal disallowed ?1,84,075/- pertaining to the previous year due to lack of details. 2. Addition of Carbon Credit Receipts under MAT: - Facts and Contentions: - For AY 2013-14, the assessee credited ?20,22,24,624/- from the sale of carbon credits to the profit and loss account but claimed it as a capital receipt, not taxable under normal provisions. - For AY 2014-15, the amount was ?6,70,32,794/-. - The AO included these amounts in the Book Profit for MAT calculation under Section 115JB. - The CIT(A) agreed with the AO for MAT purposes but excluded the amounts from normal tax computation, treating them as capital receipts. - Tribunal's Findings: - The Tribunal noted that the CIT(A) had accepted the carbon credit receipts as capital receipts, which was not appealed by the Revenue. - The Tribunal referred to the Calcutta High Court's decision in Ankit Metal & Power Ltd., which held that capital receipts not in the nature of income should not be included in the Book Profit under Section 115JB. - Consequently, the Tribunal excluded the carbon credit receipts from the Book Profit for both AY 2013-14 and AY 2014-15. 3. Disallowance of R&R Expenses (AY 2014-15): - Facts and Contentions: - The assessee claimed ?59,45,711/- as R&R expenses for AY 2014-15, arguing that these were necessary for business operations and should be allowed under Section 37(1). - The AO disallowed these expenses, considering them as not incurred wholly and exclusively for business purposes. - The CIT(A) upheld the AO's decision. - Tribunal's Findings: - The Tribunal referred to the Supreme Court's directions, which mandated these contributions for implementing R&R plans as a precondition for resuming mining operations. - It was observed that these expenses were necessary for business operations and not penal in nature. - The Tribunal allowed the R&R expenses as deductible under Section 37(1). Conclusion: - The appeals for AY 2013-14 were partly allowed, with the Tribunal permitting the SPV charges (except for ?1,84,075/- from the previous year) and excluding carbon credit receipts from the Book Profit. - The appeals for AY 2014-15 were fully allowed, with the Tribunal permitting both SPV and R&R expenses as deductible and excluding carbon credit receipts from the Book Profit.
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