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TMI Blog2020 (11) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax-ACIT (assessing officer) of SPV (Special Purpose Vehicle) Charges of ₹ 8,71,00,614/-, failing to appreciate the fact that SPV Charges is in the nature of Business expenditure and fit into the definition of section 37(1) of Income Tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the addition made by the assessing officer amounting to ₹ 20,22,24,624/-being the net amount received on the sale of carbon credit included under Book Profit for calculation of MAT u/s 115JB, failing to appreciate the fact that Income credited to P L account for Sale of carbon credits is not in accordance with Part II of Schedule VI as the same does not arise out of the working of the company during the period covered by the account and hence in order to compute the correct Book Profit u/s 115JB, the same needs to be excluded. 3. The appellant further prays to allow adding, altering or amending any of the aforesaid grounds of appeal at or before the time of hearing. Grounds for AY 2014-15 1. On the facts and in the circumstances of the case and in law, the Hon'bleCIT(A) erred in confirming the addition made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Subsequently, the assessee filed revised return of income declaring total income as in the original return of income filed on 24/09/2003 with only difference that assessee reduced the book profit to ₹ 35,19,31,337/- under section 115 JB of the Act. 2.1. Ld.AO observed that the total income declared by assessee includes income from mining activity, Trading in iron ore, transportation and hire charges, loading charges, income and sale of wind power. The return was selected for scrutiny and statutory notices were issued to assessee in response to which representative of assessee appeared before Ld. AO and furnished details as called for. 2.2. During the scrutiny assessment proceedings, Ld.AO observed that, assessee reduced a sum of ₹ 8,71,00,614/- towards special purpose vehicle (SPV) from the gross eauction sale of iron ore. Upon calling for details in respect of the same, Ld. AO noted that; Sum of ₹ 1,84,075/- pertained to previous year (assessment year 2012-13) being 5% of the sale value; Sum of ₹ 8,69,16,539/- pertain to year under consideration being 15% of sale value. 2.3. Assessee has thus reflected net sale of iron ore at ₹ 49,23,42,978/- in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same would be recouped from the guarantee paid by assessee. SPV Contribution: In course of hearing of these appeals, arguments were raised by both sides on issues raised by assessee. It is submitted that disallowance of SPV (Special Purpose Vehicle) Charges are common for both years. Ld.AR submitted that, disallowance of SPV (Special Purpose Vehicle) Charges in AY.2013-14 is ₹ 871,00,614/- and for AY:2014-15 is ₹ 8,44,79,372/-. 7.1 . Assessee placed before us annual returns filed with the Indian Bureau of Mines filed for financial year 01/04/2012 to 31/03/2013 in Form H-1. We note that the assessee is lease holder of mine, Iyli Gurunath Iron Ore Mines , having sanctioned lease area of 20.23 ha. It also reveals that assessee declared stock of 2,34,081.710 MT of Iron Ore for the relevant period that includes fines and lumps with the closing stock of 1,08,380.250 MT 7.2. For the period 01/04/2013 to 31/03/2014 in Form H- 1, assessee declared total stock of 3,20,000 MT of iron ore including fines and lumps and the assessee also had an opening stock of 1,08,380.250 MT from previous year. 7.3. Assessee debited sum of ₹ 8,71,00,614/- for assessment year 2013-14 and sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d lease area. He submitted that in the present case, the assessee paid ₹ 229 Lakhs as penalty on the basis of area of pits and overburden/waste dumps outside the lease area and this amount was paid by the assessee in F. Y. 2011 12 relevant to A. Y. 2012 13 and the same is disallowed by assessee itself in the computation of income for that year. Ld.AR filed copy of computation of income for that year showing the disallowance made. The Ld. AR filed written submission detailing all the above arguments advanced before us referring to various observations by Hon ble Supreme Court in case of Samaj Parivartan Samudaya Ors Vs. State of Karnataka Ors. In (Civil) No.562 of 2009 dated 18/04/2013 7.7. Ld. CIT DR supported the orders of the lower authorities. About the decision of Hon ble Hyderabad Tribunal , cited by Ld.AR in the case of NMDC Ltd. Vs. ACIT (Supra) , it was submitted that in that case, the assessee was in A category and therefore, this tribunal decision is not applicable in the present case. He placed reliance on various observations of Hon ble Supreme Court emphasising that the SPV contributions are basically in the nature of penalty which are to be disallowed under expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/08/2011 in case of Samaj Parivartana Samudaya vs State of Karnataka (supra). Thereafter, by order dated 28/09/2012, CEC filed detailed report dated 03/02/2012, categorising mines into A , B and C , depending on various types of violations by mining lessee. 7.8.2. Report considered 63, Category B mining lessee that includes Assessee s mining lease and suggested compensatory payments by leaseholders for repairing environmental depredation brought by leaseholders to the extent of unplanned illegal mining done in their respective areas. The report 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. Hon ble Apex Court observed in para 5.1 to 5.4 as under: 5.1. Compensatory payment: (a) each of the leaseholders must pay compensation for the areas under illegal mining pits outside the sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing 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 dated 13/04/2012, 20/04/2012 and 04/05/2012, and in case where the R R plan is already prepared and read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of lease, and actions suggested for reopening of Categories A and B mines, along with other pre-conditions stipulated, including, preparation of R R Plans. Hon ble Apex Court noted that, only caveat was in regard to Category C mines. 7.8.7. Hon ble Apex Court categorically expressed its opinion in respect of Category C in para 55 as under: 55. Once the result of the survey undertaken and the boundaries of the leases determined by the joint team has been accepted by the court and the basis of categorisation of the mind has been found to be rational and constitutionally permissible it will be difficult for this court to visualise as to how the Category C mines can be allowed to reopen. There is no room for compassion fervent pleas, for clemency cannot have even a persuasive value. As against the individual interest of the 49 categories see leaseholders, public interest at large would require the court to lean in favour of demonstrative in the efficacy and effectiveness of a long arm of the law. We, therefore, order for the complete closure of the Category C mines and for necessary follow up action in terms of the recommendations of CEC in this regard, details of which have already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exclusively used to undertake socio economic and infrastructure development, afforestation, soil and biodiversity conservation and for ensuring inclusive growth of the area surrounding mining leases. 7.8.11. Ld.AO further observed that these payments are nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rehabilitation scheme on its own, as there was no statutory requirement to do so under relevant statutes that regulate mining activities. 7.8.14. Hon ble Supreme Court has been very clear regarding the types of payments that needs to be recovered from lessee s under Category B , from the sale proceeds as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctioned 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. 7.8.17. At this juncture, we note that, 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. However, we are of the opinion that 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. Hon ble Supreme Court in case of CIT vs Shoorji Vallabhdas Co reported in (1962) 46 ITR 144 held that: . If income does not result at all, there cannot be a tax, even though in bookkeeping, and entries made about a hypothetical income , which does not materialise. Where income has, in fact, been received and subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however the income c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s R R expenses by assessee. This issue has been raised by assessee as revised Ground 2 filed before us. 8.1. In respect of this issue, assessee relied on submissions made in respect of Ground No.1, reproduced herein above, to support its contention to consider contribution towards R R plan as expenditure allowable under section 37 of the Act. 8.2. Ld. CIT DR also placed reliance on the submissions made in respect of Ground No. 1 reproduced hereinabove. 8.3. We have perused submissions advanced by both sides in light of records placed before us. 8.3.1. It is relevant to note the observations of Hon ble Supreme Court in respect of such contribution, to understand its correct nature. Hon ble Supreme Court observed as under: II. Guarantee money for implementation of the R R plan in the respective sanctioned lease areas. The CEC shall make an estimate of the expenses required for the full implementation of the R R plan in each of the 63 category B mines and each of the leaseholders must pay the estimated amount as guarantee for implementation of the R R plans in their respective sanctioned lease areas and in the areas where they carried on illegal mining activities or where used for ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded the amount received on sale of carbon credit under normal provisions of the Act by holding it to be a capital receipt. In support of his findings, the CIT(A) relied on the decision of the Hon'ble Karnataka High Court in the case of CIT v. M/s Subhash Kabini Power reported in 385 ITR 592 . However, he upheld the action of the Assessing Officer in taxing the same while computing Book Profit u/s 115JB of the Act since the assessee had credited the same to the profit and loss account. 9.3. In the order passed by the Ld. CIT (A), it is held that the sale of carbon credit is chargeable u/s 115JB of the Act since the assessee has credited the same in the profit and loss account. He relied on the decision of the Hon'ble Supreme Court in the case of Appollo Tyres v. CIT reported in 255 ITR 273 to support his contention. 9.4. Ld.AR at the outset, submitted that a capital receipt does not fall within the definition of 'income' u/s 2(24) of the Act unless specifically included. A receipt which is not of the character of income, cannot be included for the purpose of computing Book Profit u/s 115JB of the Act even if the same is credited to the profit and loss account. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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