2020 (12) TMI 1145

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..... r. Addition of sale proceeds of undeclared stock - what could be considered under section 37, are probable expenditure 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 sa .....

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..... of law under Explanation 1 to section 37 - Assessee contested that, 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 p .....

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..... the difference between books of 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.
SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER Appellant by: Shri Chythanya K.K, Advocate Respondent by: Shri Muzaffar Hussain, CIT ORDER PER BEENA PILLAI, JUDICIAL MEMBER P .....

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..... ed 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 confiscated stock by MC [which includes the sale proceeds of undeclared stocks ₹ 24,64,49,012/-]due to unce .....

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..... erted 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 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 S .....

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..... 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 ₹ 1,21,94,000/- in the subsequent years and the same is charged to tax in the subsequent years, thus taxing the very same sale proceeds in the impugned year leads to double .....

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..... hich 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 Appellant. 3.3. The lower authorities have erred in law in failing to appreciate that the expenditure laid out or expended wholly and exclusively for the purpose of business as a part of corporate social respon .....

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..... rs 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 19 7. Copy of the letter issued by the Monitoring Committee intimating the refund of ₹ 1,21,94,000/-, dated 16.10.2018. 20 8. Copies of Ledger Account for the FY 2018-19 for ₹ 1,21,94,000/-. 21 9. Copies of the letters dated 23.07.2012 and dated 27.11.2012 issued by the Learned Deputy Commissioner, Bellary (sample letter) towards contribution to educational activities. 22 10. Copy of the Assessment order passed under section 143(3), dated 06.05.2014 for FY 2011-12. 23 11. Copies of Original and revised Financials, Original and revised return of income (Ac .....

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..... tion. 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 above, certain documents are reconciliations of total stock sold and sale proceeds received by CEC/MC. Certain documents are VAT returns filed by MC on behalf of assessee in respect of value of goods sold for period 01/04/11 to 31/03/13. Assessee has filed ledger accounts and P&L statement for preceding and subsequent years. We note that, there are certain documents, wherein, MC issued refund to assessee. We note that Annexure R -9 and R-10 gives details of illegal mining pit, illegal dump an area of illegal approached road as per survey conducted by CEC dated 03.12.2012. 2.3.2. Placing reliance on decisions reproduced hereinabove, LD.CIT.DR opposed admission of additional evidence, on the premise that all these documents were available with assessee, at the time of assessment proceedings and not produced before Ld.AO. 2.3.3. We have perused decisions relied by Ld.CIT.DR. We are of opinion that, they cannot be applied to present facts. In case of Kanniappan Mu .....

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..... 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; * Hon'ble Supreme Court by order dated 29/07/2011 passed in GOI vs. Obulapuram Mining Co. Pvt.Ltd., reported in (2011) 12 SCC 491, suspended all mining and transportation activities in area admeasuring approximately 10,868 ha, pertaining to district of Bellary. * Subsequently, by order dated 26/08/2011 passed in Samaj Parivartana Samudaya vs state of Karnataka, reported in (2013) 8 SCC 209, Hon'ble Apex Court extended ban to Tumkur and Chitradurga mines, based upon a report filed by CEC. Hon'ble Apex Court directed Ld.Amicus Curiae to submit quantity which could be released from existing stock of 25,000,000 Ton of iron ore, subject to reclamation and rehabilitation plans being submitted. This was pursuance to plea raised by Association of Steel Industry and other affected parties. Hon'ble Supreme Court therefore constituted a joint team by order dated 06/05/2011 to determine the boundaries of approved mining leases in the areas of Tumkur and Chitradurga districts. * On 23/09/2011 .....

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..... tana 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 the areas under illegal mining pits outside the sanctioned area, as found by the joint team (and as finally held by CEC) at the rate of ₹ 5 crores per hectare, and (b) for the areas under illegal overburden dumps, roads, offices, etc. Outside the sanctioned the lease area, as found by the joint team (as might have been finally held by CEC) at the rate of ₹ 1 crore per hectare. 5.1.1. it is made clear that the payment at the rates aforesaid is the minimum payment and each leaseholders may be liable to pay additional amounts on the basis of the final determination of the national loss caused by the illegal mining and the illegal use of the land for overburden dumps, roads, offices etc. Each leaseholder, besides making payment as directed above, must give an undertaking to CEC for payment of the additional amounts, if held liable on the basis of the final determination. …………. 5.2. Guarantee money for implementation of the R and are planned in the .....

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..... said 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 ready, the leaseholder may take steps for is comprehensive implementation, both within and outside the sanctioned lease area, without any delay." In aforesaid para, Hon'ble Court refers to orders dated 13/04/2012, 20/04/2012 and 04/05/2012 passed in case of State of AP vs Obulapuram Mining Co. Pvt.Ltd., reported in (2013) 8 SCC 213, (2013) 8 SCC 216 and (2013) 8 SCC 217 respectively. 3.5. Hon'ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra) in para 51 at page 194, observed that, IA Nos.74 & 4 of 2012 filed by Federation of Indian Mineral Industries, a body, that claimed membership of vast number of lessees involved in proceedings, unequivocally accepted findings of survey conducted by joint team and recommendations of CEC, insofar as categorisation of lease, and actions suggested for reopening of Categories 'A' and 'B' mines, along with other pr .....

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..... 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 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 lease areas, and/or; (ii) overburden/waste dumps outside the sanctioned lease areas were found up to 15% of lease areas and (b) leases falling on interstate boundary between Karnataka and Andhra Pradesh and for which survey sketches have not been finalised. (c) an estimated cost of R&R plans. For this purpose guarantee money for implementation of R&R plans was to be collected from the lessee's. (d) Compensation under R&R Plan to be borne by lessee for carrying out illegal mining outside sanctioned lease area, at the rate of ₹ 5 crore per hectare of land found by joint team to be under illegal mining pit; and, (e) Compensation under R&R plan for illegal mining by way of overburden dumps road, office etc., outside sanctioned lease area at the rate of Rs,1crore per hectare of land found to be under illegal overburden dumps etc., Category B lessees .....

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..... er revised its return of income on 08/12/2014 by declaring revenue from mining business of ₹ 95,60,74,150/-. The case was selected for scrutiny and notice under section 143(2) on the basis of revised return filed on 08/12/2014 was issued to assessee. Subsequently questionnaire along with notice under section 142(1) was also issued. 5.2. In the original return of income, assessee declared sale of iron ore at ₹ 194,66,44,172/- in the revised return of income, assessee declared net sale of iron note at ₹ 98,37,98,110/-. Difference in the 2 returns is because, assessee in the original return had claimed expenditure of ₹ 77,71,82,153/- the details of which are as under: Particulars Amount Sale proceeds of declared stock received in subsequent assessment years and offered to tax 25,59,99,429/- Sale proceeds of undeclared stock 24,64,49,012/- 10% sale proceeds to the SPV-Category A 13,10,94,826/- 15% sale proceeds to the SPV-Category B 3,18,41,886/- Compensation-category B 9,69,00,000/- Probable expenditure for R&R retained/deducted by monitoring committee-Category B 1,48,97,000/- Total 77,71,82,153/- 5.3. In the revised return filed by assessee, .....

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..... is general in nature and therefore do not require adjudication. 6. Ground No.2 and its sub grounds are regarding disallowance ₹ 77,71,82,151/-. Ld.Counsel submitted that each disallowance has been challenged independently by assessee in Grounds 2.1-2.5 which shall be dealt with independently as under. 6.1.Ground No. 2.1& 2.2 These grounds raised by assessee are against addition of sale proceeds of declared stock amounting to ₹ 25,59,99,429/- and undeclared stock amounting to ₹ 24,64,49,021/-. Ld.AO observed that, sum of ₹ 50,24,48,441/-(₹ 25,59,99,429/- + ₹ 24,64,49,021/-), (being sale proceeds of declared and undeclared stock), was omitted to be offered to tax for year under consideration. Placing reliance on monthly IBM(Indian Bureau of Mines) Return in respect of both Mining placed at pages 184-193 of paper book, Ld.Counsel submitted that MC calculated payment disbursable to assessee, based on stock declared in IBM returns, details of which is placed at page 198-201 of paper book. Sale proceeds of stock as per IBM returns were considered by MC as declared. Sale proceeds of stock not considered in IBM return were treated as undeclared stoc .....

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..... income for assessment years 2014-15 and 2015-16. Ld.AO observed that assessee was maintaining accounts on Mercantile system and hence the above said amount of ₹ 25,52,89,418/-, should have been recognised as income by assessee for year under consideration. The Ld.AO noticed that Hon'ble Supreme Court directed CEC to sell the stock on behalf of assessee and to retain the sale proceeds on account of assessee/leaseholder. CEC was authorised to deduct towards SPV contribution, estimated cost for R&R plans and compensation for illegal mining and illegal dumping and to return the balance sale proceeds to assessee. 6.3.2. Ld.AO accordingly held that, there was no uncertainty of receipt of sale proceeds of the e-auctioned iron ore by the MC. 6.4. Sale of undeclared stock: Ld.AO noticed that MC sold stock to the tune of ₹ 24,64,49,012/- during the year under consideration on behalf of assessee. It was also noticed by Ld.AO that assessee had not declared the same as its income in the original return, and it was claimed as expenditure in the revised return of income. Ld.AO noticed that, the said amount was excluded from the sales revenue itself. It was submitted by assessee th .....

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..... proceeds during the year under consideration, and therefore has to be considered as income for year under consideration. 6.6. Ld.AO thus observed and held as under: "4.1. UNACCOUNTED SALE PROCEEDS OF - i) DECLARED STOCKS - ₹ 25,59,99,429/- & ii) UN-DECLARED STOCKS - ₹ 24,64,49,012/- On going through the above table of this order, at Sl.No.1 & 2 of the said table it is noticed that the assessee firm has debited an amount of ₹ 25,59,99,429/- under the head Sale proceeds of declared stocks received in subsequent assessment years offered to tax and ₹ 24,64,49,012/- under the head Sale proceeds of un-declare stocks - yet to be received. During the course of scrutiny proceedings, the assessee firm was requested to explain as to why the e-auctioned sale proceeds during the year of ₹ 50,24,48,441/- (₹ 25,59,99,429/- + ₹ 24,64,49,012/-) has been omitted to be offered to tax during the year of sale relevant to the Asst. Year under question. 4.1.a In response, the assessee firm had filed the objections at Para No.12 of letter dated: 21/01/2016 filed in this office on the same date, wherein, it has stated under : Relevant portion of the .....

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..... s postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised." 4) A reference may also be made to Income Computation and Disclosure Standards (JCDS) - IV notified by the Central Government for the purposes of computation of income chargeable to income-tax under the head "Profit and gains of business or profession ". The relevant extract of ICDS -IV reads as under: "4. Revenue shall be recognised when there is reasonable certainty of its ultimate collection. 5. Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim for escalation of price and export incentives, revenue recognition in respect of such claim shall be postponed to the extent of uncertainty involved." 5) Thus, from the perusal of Accounting Standard 9 and JCDS - IV, it is submitted that, the revenue has to be recognised when there is a reasonable certainty of its ultimate collection. If the ability to assess the ultimate collection with reasonable certainty is lacking, then the revenue recognition shall be postponed to the extent of uncertainty involved. 6 .....

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..... measurable and that the revenue is collectable without any uncertainty. 11) Without prejudice to the above, it is submitted that amount of ₹ 28,55,04,732/- has been received by the Assessee in the subsequent years and the Assessee has accordingly offered the same to tax in the subsequent assessment years 2014-2015 & 2015-2016. Copy of the return of income and statement of computation of total income of the assessment years 2014-2015 & 2015-2016 is enclosed herewith as Annexure 1. Therefore, the question of taxing the some in impugned assessment year does not arise." 4.1.b. From the above submission it is evident and fact that, the Monitoring Committee has sold the iron ore of the assessee firm through e-auction to the extent of ₹ 50,24,48,441/- during the F.Y-2012-13 relevant to Asst. Year-2013-14, out of which ₹ 25,59,99,429/- is received in the subsequent Asst. Years - 2014-15 & 2015-16 and ₹ 24,64,49,C12/- is yet to be received. Whereas, these E-auctioned sale proceeds of ₹ 50,24,48,441/- have been claimed as expenditure by the assessee firm and debited to P & L Ale. However, the said sales proceeds of ₹ 50,24,48,441/- is to be asse .....

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..... ncertainty of receipt of money, hence, the said cases relied on by the assessee firm cannot be accepted as the facts of cases differ from the instant case. Hence, the assessee's implicit plea that, even though sales had occurred in the relevant years, no income can be said to have accrued to the firm in the relevant year and/or since, the sales proceeds are retained by the CEC and therefore, the said sales proceeds will be offered to tax in the year of realisation also cannot be accepted. As there are only two recognized methods of accounting namely the Cash Method of Accounting and the Mercantile Method of Accounting. In Mercantile method of accounting, entries are posted in the books of account on the date of transaction when the rights accrue or liabilities are incurred, irrespective of the date of payment. / receipt. The right to receive the said retained amount has accrued to the assessee firm and it cannot be diverted on the plea contrary to the accounting practice. Since the assessee firm is following accrual method of accounting, a part of receipt cannot be taken on piecemeal / receipt basis. Hence, the assessee's contention that the said amount is not liable to .....

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..... x. Ld.AO thus added sale proceeds amounting to ₹ 50,24,48,441/in the hands of assessee for year under consideration. Aggrieved by order of Ld.AO, assessee preferred appeal before Ld.CIT(A). 6.7. Ld.CIT(A) observed and held as under: 3.1.) The assessee submitted that though it followed Mercantile system of accounting it did not offer the above amount of ₹ 50,24,48,441/- as receipt of the same was highly uncertain and recognition of income was to be done only on receipt basis and relied on Accounting Standard-9 that is revenue recognition. It was submitted that as per Accounting Standard-9 (A S9) issued by ICAI, where there is an uncertainty about the collection of income/revenue, recognition of such income/revenue is to be postponed to the extent of uncertainty involved, which is also in accordance with the theory of taxing only the real income, which is a settled law as per various judicial proceedings. The AO however did not accept the contention of the assessee that the sale proceeds would be accounted and offered to tax as and when it was realised. "3.2.) I have gone through the facts of the case and the submissions of the appellant. The contention of the ap .....

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..... s, when it was received. He submitted that, Hon'ble Supreme Court in case of Samaj Parivartana Samudaya vs State of Karnataka, (supra) authorised MC to take control of stock, and sell the same through E-auction, depending on demand in the market. Subsequently, sale proceeds received by MC are to be deposited in nationalised bank account, after adjusting towards royalty, taxes and expenditure. Ld.Counsel submitted that, in instant case, right and control over stock was with MC, and till such time MC parts with sale proceeds, assessee had no right to receive the same. He submitted that, sale of stock by MC cannot be regarded as sale of stock by assessee. He submitted that assessee thus accounted the sale proceeds from declared stock in subsequent assessment year, when it was actually received. A.1. Ld.Counsel submitted that, though assessee followed mercantile system of accounting, revenue on sale proceeds of stock by MC, could be recognised and assessed to tax only on actual receipt, as assessee did not possess right to receive such income during the year under consideration. He submitted that, MC could not be considered as agent of assessee as there was no agreement between assess .....

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..... to assessee. It has been contended by Ld.Counsel that, necessary requirement under Section 5 of the Act, stands unsatisfied for recognising sale proceeds during year under consideration. A.5. In support of his contentions he placed reliance upon following decisions: * ED.Sasoon & CO Ltd vs CIT reported in (1954) 26 ITR 27 (SC) * CIT vs Balbir Singh Maini reported in (2017) 398 ITR 531 (SC) * CIT vs Excel industries Ltd reported in (2013) 358 ITR 295 * Prakashan leasing Ltd vs DCIT reported in (2012) 208 Taxmann 464 (Kar) A.6. Ld.Counsel also relied on CBDT Notification No.9949 (F.NO.132/7/95-TPL)/SO 69(E), Dated 25/01/1996, superseded by Notification No.32/2015 (F.N.134/48/2010-TPL)/S0 892 (E), Dated 31/03/2015, regarding AS-I, relating to disclosure of accounting policies. A.7. Ld.Counsel submitted that, disclosure standards applicable for computation of income chargeable to tax are to be considered for recognition of revenue, arising during relevant year. He submitted that, as per disclosure standards, revenue shall be recognised when there is reasonable uncertainty of its ultimate collection. Referring to AS 9, Ld.Counsel submitted that, recognition of revenue require .....

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..... a 4.1.b.,Ld.Counsel submitted that, Ld.AO himself records that, sum of ₹ 25,59,99,429/- received in subsequent assessment years being assessment years 2014-15 and 2015-16, was offered to tax, during relevant assessment year. He submitted that having noted the fact that revenue received from declared stock has been offered to tax in subsequent years, making addition during the year under consideration would amount to double taxation in the hands of assessee. It has been submitted by Ld.Counsel that, right to receive sale proceeds, accrued to assessee by virtue of directions of Hon'ble Supreme Court by order dated 18/04/2013 (supra), which was in succeeding financial year, relevant to year under consideration, and has also been offered to tax on receipt basis. A.10. Alternatively, Ld.Counsel submitted that, entire exercise is revenue neutral as assessee is assessed at uniform rate of tax over the years. A.10.1 Ld.Counsel submitted that, principle of matching between revenue receipt and expenditure to be incurred is to be applied. Reference was made to decision of Hon'ble Supreme Court in CIT vs. Bilahari Investment (P) Ltd. reported in (2008) 299 ITR 1, wherein referring to c .....

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..... stock was effectuated during the year under consideration, and entire sale proceeds were received by MC during financial year relevant to assessment year under consideration. Ld.CIT.DR submitted that, assessee had given undertaking for deducting Royalty and other expenses payable to MC from such sale proceeds and the net amount that was payable to assessee by MC, which was very well ascertainable during financial year relevant to year under consideration. He thus submitted that, assessee was well within the knowledge of amount that accrued from sale of stock. Ld.CIT.DR thus submitted that, assessee was required to reflect these sales as trading receipts in the books of account in view of mercantile system consistently followed for disclosing income. Referring to observations of Ld.AO in para 4.1.d to 4.1.f, Ld.CIT.DR submitted that, auction of declared stock took place during the year under consideration, and assessee had right to receive 80% 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). Merely because MC disbursed payments in subsequent financial year, would not p .....

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..... t at all, there cannot be a tax, even though in book keeping 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 can be said not to have resulted at all, there is obviously neither accrual nor receipt of the income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." A.13.4. In CIT vs Kerala State Drugs & Pharmaceuticals Ltd., reported in (1991) 192 ITR 1, Hon'ble Kerala High Court observed and held as under: "In order to tax on income, one has to see whether it is the real income or whether the income has materialised. What is necessary to be considered is the true nature of the transaction and whether in fact the transaction has resulted in profit or loss to the assessee. Once accrual takes place and income accrues, the same cannot be defeated. Even under the mercantile system of accounting, it is only the accrual of real income which is chargeable to tax. The income should not be hypothetical .....

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..... essee followed mercantile system of accounting, it had to postponed its accrual to subsequent years, when sale proceed were actually received. It was submitted by assessee that, income did not materialise during the year under consideration. It was contended that in view of uncertainty, assessee need not account for the same even under mercantile system of accounting. It was submitted that sales revenue accrued to assessee only in the year in which payment advice was issued by MC. A.13.7. The present facts of the case, we note that, 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) approved sale of iron ore through e-auction conducted by MC. It is also observed that Hon'ble Court directed that, the quantity to be put for e-auction, its grade, lot sizes, its base/flow price and the period of delivery would be decided/provided by the respective leaseholders. It is also noted that, MC may permit the leaseholders to put up for e-auction the quantities of iron ore planned to be produced in subsequent months. Hence, we cannot agree that, assessee was unaware regarding total qua .....

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..... criterion for determining when to recognise revenue from a transaction involving the sale of goods is that the seller has transferred the property in the goods to the buyer for a consideration. The transfer of property in goods, in most cases, results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. Also as per ICDS-IV relating to revenue recognition, sale is completed when property in the goods transferred from the buyer to the seller for a price and further the seller retains no effective control of the goods so transferred. In present facts, iron ore stood transferred to the buyers as on the date of sale through E auction by MC. We note that assessee was aware about the amount to be received as sale consideration and the details regarding deduction is towards SPV as per the directions of Hon'ble Supreme Court. A.13.11. We therefore do not find any force in the submissions made by Ld.Counsel that there is no necessity to assess the impugned sale proceeds during the year since it has been already offered to tax in subsequent assessment year and the exercise is tax neutral. Under Income tax Act, total income of each year is to be determ .....

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..... ein year wise, and mine wise details are given regarding quantity sold and revenue realised from such undeclared stock. B.3. It has been submitted by Ld.Counsel that, undeclared stocks were accumulated wastes/debris. He submitted that due to shortage iron ore on account of imposing a complete ban on mining activities, Hon'ble Supreme Court permitted sale of such overburden dumps. Ld.Counsel submitted that, such overburden dumps were classified into categories i.e; Fines/Lumps and Dumps by MC based on quantity of Iron(Fe) present in undeclared stock. It was submitted that, high price was sought on sale of Fines/Lumps as compared to dumps, due to presence of Iron(Fe) in high quantity. In support of his contention Ld.Counsel referred to report of CEC dated 15/02/2013, which forms part of decision of Hon'ble Supreme Court in case of Samaj Parivartana Samudaya (supra) in paragraph 11. He submitted that, assessee's lease No.2296 in Category 'A' was visited by CEC to ascertain availability of sub grade iron ore in existing overburden dumps, which could be removed and sold through E auction. The report also recommended sale proceeds of such sub grade iron ore from the area outside sanctio .....

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..... ed that, Income tax Act defines "income" as an inclusive definition of widest import, and therefore it is necessary to understand essential attributes of 'income'. He thus submitted that, the said sum was not entitled to be received by assessee by virtue of, overriding title, created in favor of SPV, and would get diverted at source. He thus submitted that, as alleged sum was diverted to SPV account at the threshold, it did not attain character of 'income' in the hands of assessee, and therefore cannot be taxed. B.5.1. In support of his contention, reliance was placed on following decisions: i. CIT vs Sitaldas Tirathdas reported in (1961) 41 ITR 367 (SC) ii. Poona Electric supply Co. Ltd. vs CIT (1965) 57 ITR 521 (SC). iii. Moti Lal Chhadami Lal Jain vs CIT (1991) 190 ITR 1 (SC). iv. CIT vs Modipon Ltd., (2018) 400 ITR 1 (SC). v. CIT vs TJayavhandran (2018) 406 ITR 1(SC). vi. Pr.CIT vs Gyan Enterprises Pvt. Ltd., SLP (CIVIL) Diary No(s). 17347/2019. vii. Pr.CIT vs Gyan Enterprises Pvt. Ltd., ITA 940/2016(DEL) dated 17/05/2018. viii. CIT vs United Breweries Ltd (2010) 321 ITR 4546 (KARN.). ix. CIT vs Pandavapura Sahakara karkhane Ltd. (1988) 174 ITR 475 (K .....

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..... C by Hon'ble Supreme Court. Ld.Counsel submitted that, question of suppressing any part of production does not arise, and that Ld.AO was not right in treating the same as undisclosed stock. He submitted that as these stock were sold by MC, the entire sale proceeds was transferred to SPV, upon acceptance of recommendation of CEC by Hon'ble Supreme Court. It was contended that there was no accrual of sale proceeds as assessee did not have right to receive it, by virtue of, overriding title. B.5.2. Alternatively, Ld.Counsel submitted that, assessee do not have any say in use of corpus of SPV, which was to be spent as per directions of Hon'ble Supreme Court, and assessee had only two options to account for such contribution towards SPV that is: i. to account for net of contribution of SPV, meaning thereby, to deduct such contribution as business loss while computing profits and gains under section 28 of the Act. In support of this contention, Ld.Counsel relied on decision of Hon'ble Supreme Court in case of Dr.T.A Quereshi vs CIT (supra). OR; ii. To treat it as expenditure in the hands of assessee under section 37 of the Act. It has been submitted by Ld.Counsel that Explanation 2 .....

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..... ssee's undeclared stock in IBM returns, thereby treating such sale proceeds as undisclosed income in the hands of assessee. B.6.1. Further, referring to observations by Hon'ble Supreme Court in case of Samaj Parivartana Samudaya (supra), Ld.CIT.DR submitted that, Hon'ble Court permitted undeclared stock to be within 15% range of declared stock. Ld.CIT.DR submitted that, in present facts of case, quantity of undeclared stock by assessee exceeds by 127% from mining lease No.2160(Category B) and 34.15% of fines/lumps/ROM and 11.61% of dumps/SG, from mining lease No.2296(Category A) of the total declared stock with IBM. He submitted that such quantity of fine /lumps from Category 'B' is due to illegal mining outside the sanctioned area. He submitted that, said percentage has been calculated by monitoring committee in its payment advice dated 18/02/2014 placed at page 198-210, issued in respect of both mining leases held by assessee. Ld.CIT.DR submitted that, concentration of iron ore in the undeclared stock was found to be more that 15%. He also submitted that, Dumps in such undeclared stock was 11%. B.6.2. Ld.CIT.DR submitted that, sale proceeds from such undeclared stock in IBM ret .....

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..... k exceeds 15% allowed by Hon'ble Supreme Court vis-à-vis declared stock. B.7.2. We note that, undeclared stock was computed to be 34.15% of fines/lumps/ROM and 11.61% of dumps/SG, from mining lease No.2160 of total declared stock with IBM. Extract of CEC report, along with category in which mining lease owned by assessee falls, is placed in Additional evidence compilation as Annexure 26 at page314, filed by assessee before us. As per the document, assessee has illegally mined 0.46 ha of pit, illegally dumped on 2.50 ha of land and approach road of 4.40 ha. B.7.3. While the issue was posted for clarification, Ld.Counsel emphasized that, what is considered to be undisclosed, are over burden dumps in Category A &B, sold by MC, subsequent to permission obtained from Hon'ble Supreme Court, based on Report by CEC dated, 15/02/2013. It was submitted by Ld.Counsel that, there is no illegal mining in Category A. Further from Report of CEC dated 15/02/2013, filed by Ld.Counsel at the time of clarification. Ld.Counsel submitted that, what is considered by revenue as undeclared stock in IBM returns, are over burden dumps under Category 'A' &B, that are not considered salable. It was f .....

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..... a A-13 to A13.12. B.7.6. Ld.Counsel raised argument of nonexistence of principal agent relationship between assessee and CEC/MC, and that, CEC/MC was not acting on behalf of assessee. This argument was advanced because of standard format of VAT returns filed by MC, more particularly placed in compilation of additional evidence as Annexure 16-17, at page 266-280. Plethora of decisions was relied on by Ld.Counsel, to support his submission that, necessary circumstances/ ingredients to establish principal-agent relationship between assessee-MC does not exist. In our opinion MC was acting according to directions by Hon'ble Supreme Court, and not on the authority envisaged by assessee. Further, there is no legal relation that is created between assessee and third party purchasers through MC. Even Ld.AO has not made additions in the hands of assessee by holding MC to be assessee's agent. Whether an Expenditure: B.7.7. We cannot agree 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 .....

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..... tails of survey sketch were superimposed on the satellite images to further verify the correctness of the process of survey undertaken. Due to these reasons there is difference in sanctioned lease areas of all mining lessees. We note that as per Annexure 26 at page 314, filed in Additional evidence compilation by assessee is found to illegally mined 0.46 ha of pit, illegally dumped on 2.50 ha of land and approach road of 4.40 ha in Category "B' lease held by it. B.7.8.2. CEC filed a report indicating the categorisation of mines as A, B, C, before Hon'ble Supreme Court, in terms of classification on the basis of level of illegalities found as under: "7. We may now proceed to notice the relevant part of the 2 reports of CEC dated 03/02/2012 and 13/03/2012 as referred to herein above: IV. Classification of pleases in different categories on the basis of level of illegalities found 27. CEC, based on 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 .....

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..... pening of Category "B" mines. Hon'ble Supreme Court took note of paragraph 13 of its order dated 18-04-2013. The said recommendation, inter alia, includes the following:- "IV. SALE OF SUB GRADE IRON ORE AVAILABLE IN THE EXISTING OVERBURDEN DUMPS. ………………………….. RECOMENDATIONS: ……………………………….. (iii) CEC/Monitoring Committee may be authorised to remove and sell through e-auction the sub grade iron ore available in the existing overburden dumps in and around the lease area subject to the condition that such removal and sale is not likely to have significant adverse impact on the existing tree growth/vegetation and and/or stability of the overburden dumps. The Monitoring Committee may be authorised to retain the entire sale proceeds in respect of the dumps located outside the sanctioned and presently valid lease areas for the purpose of transfer to the SPV for the implementation of the Comprehensive Environment Plan for Mining Impact Zone (CEPMIZ). B.7.8.6.The above recommendation of CEC was accepted by Hon'ble Supreme Co .....

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..... id lease areas may be payable to assessee. Viewed from this angle, there is uncertainty about receipt of sale proceeds relating to overburden dumps located inside the sanctioned and valid lease area. Hence it cannot be said that any sale proceeds accrued to assessee on the date of sale. We are of the view that sale proceeds from undeclared stock, if any, is received by assessee, shall be taxable when it is actually received. We note that MC while calculating the sub grade iron from overburden dump has not quantified the stock that fell in and outside the sanctioned lease area separately. It was submitted by Ld.Counsel that relevant information would be available with MC. B.7.8.9. We refer to observation 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 our opi .....

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..... essee and sale proceeds of such undeclared stock assume character of income in the hands of assessee when sale proceeds are recovered by assessee. Hence in priciple, such income should be considered as accrued to assessee on the date of sale by MC. However we have already observed on the basis of surrounding facts and observation by Hon'ble Supreme Court as under: "7.8.8. ………………………….. Hence it cannot be said that any sale proceeds accrued to assessee on the date of sale. We are of the view that sale proceeds from undeclared stock, if any, is received by assessee, shall be taxable when it is actually received." Accordingly, we are of the view that, even if the receipt is considered as taxable on accrual basis, the same is deductable as trading loss. Accordingly, we allow Ground No. 2.2 to 2.2.7 and dismiss Ground No.2.2.8. 7. Ground No.2.3.1-2.3.9, 2.3.12-2.3.15 have been raised in respect of addition on account of Category A-10% of confiscated sale proceeds utilised towards SPV amounting to ₹ 13,10,94,826/- and addition on account of Category B-15% of confiscated sale proceeds, utilised towards SPV .....

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..... is on account of damages and loss caused to the environment by contravention of loss. The said amount cannot be allowed as deduction out of sale proceeds even after accrual of such liability which is being compensation and penalty in nature for contravention of loss. As observed by the Supreme Court, category "A" mines comprises of mines where there is marginal illegality as found by CEC. 4.2.c. The following observations were made by Honorable Supreme Court in its order dated 18/0412013, in the case of WRIT PETITION (CIVIL) NO. 562 of 2009 Samaj Parivartana Samudaya & Ors .... Petitioner (s) Versus State of Karanataka & Ors. . .. Respondent(s) WITH SLP (C) Nos.7366-7367 of 2010, SLP (C) Nos.32690-32691 of 2010, WP (CrI.) No.66 of 2010, SLP (C) Nos.17064-17065 of 2010, SLP (C) No (CC No.16829 of 2010), SLP (C)No ……(CC No. 16830 of 2010), WP (C) No.411 of 2010, SLP (C) No.353 of 2011 and WP (C) No.76 of 2012: "5. We may now proceed to notice the relevant part of the two Reports of the CEC dated 3.2.2012 and 13.3.2012, as referred to herein above. "IV' CLASSIFICATION OF LEASES IN DIFFERENT CATEGORIES ON THE BASIS OF THE LEVEL OF ILLEGALITIES FOUN .....

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..... in subsequent months. The system of sale through the Monitoring Committee may be reviewed after say two year; (F) 90% of the sale price (excluding the royalty and the applicable taxes received during the e-auction may be paid by the buyer directly to the respective lease holders and the balance 10% may be deposited with the Monitoring Committee along with the royalty, FDT and other applicable Taxes / charges; (V) In respect of the mining leases falling in "CATEGORY-B" (details given at Annexure-R-10 to this Report) it is recommended that: . ii) for carrying out the illegal mining outside the lease area, exemplary compensation/penalty may be imposed on the lessee. It is recommended that: a) For illegal mining by way of mining pits outside the leases area, as found by the Joint Team, the compensation/ penalty may be imposed at the rate of ₹ 5.00 Crore (Rs.FiveCrore only) for per ha. of the area found by the Joint Team to be under illegal mining pit; and b) For illegal mining by way of over burden dump(s) road, office, etc. outside the sanctioned lease area, the compensation/penalty may be imposed @ is. 1.00 crores (Rs. One Crores only) for per ha. of t .....

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..... may be transferred to the SPV while the balance 10% of the sale proceeds may be reimbursed to the respective lessees. In respect of the mining leases falling in "Category-B", after deducting the penalty/compensation, the estimated cost of the implementation of the R&R Plan, and IO% of the sale proceeds to be retained for being transferred to the SPV, the balance amount, if any, may be reimbursed to the respective lessees; (XIII) the confiscated iron ore pertaining to the cancelled stock yards will be sold by the Monitoring Committee and the sale proceeds will be retained by the Monitoring Committee,' ... (XIV) the Monitoring Committee may be authorized to utilize up to 25% of the interest received by it for engaging reputed agencies for the monitoring of the various parameters relating to mining. " ... III. In addition to the above, each leaseholder must pay a sum equivalent to 15% of the sale proceeds of its iron ore sold through the Monitoring Committee as per the earlier orders of this Court. In this regard, it may be stated that though the amicus suggests the payment @ 10% of the sale proceeds, having regard to the overall facts and circumstances of .....

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..... accrual method of accounting, a part of receipt cannot be taken on piecemeal receipt basis. Hence, the assessee's contention that, the said amount do not even constitute the income of the assessee, cannot be accepted. 4.2.f. The part of the sale proceeds to be retained by the CEC / Monitoring Committee for SPV and for adjusting penalty and other liabilities, is nothing but appropriation of the profit of the assessee. As per doubly entry system of accounting, the assessee should have accounted the entire sales consideration in its P & L Account and balance of sale amount should have been shown as receivable from Government. The balance of the sale amount will be reflecting as payable to seller-assessee in the accounts of the Government. 4.2.g. Further, the said SPV is Special Purpose Vehicle for social economic development of the mining area which is nothing but relating to corporate social responsibility only. The deduction claimed towards SPY vis-a-vis against the amount retained by the Monitoring Committee is not allowable under section 37(1) of the Income Tax Act, 1961 as it was not incurred by the assessee wholly and exclusively for the purpose of business. The said p .....

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..... - G. Padmanabha Chattiyar & Sons Vs CIT 182 ITR 1,5 (Mad.), - Reform Flour Mills Pvt. Ltd., Vs CIT 132 ITR 184, 196 (Cal), - CIT Vs A Krishnaswamy Mudaliar & Others 53 ITR 122 (SC). 4.2.k. In view of above facts brought on record, the amount of ₹ 16,29,36,712/-(₹ 13,10,94,826+₹ 3,18,41,886) claimed as expenditure under SPY Charges and debited to P & L A/c is disallowed and added back to the returned income and brought to tax. Aggrieved by addition made by Ld.AO, assessee preferred appeal before Ld.CIT (A). 7.3. Ld.CIT(A) observed and held as under: "4.4) The facts of the case, submissions made by the assessee and the assessment order passed by the AO has been carefully considered. In connection with the illegal mining activities in Karnataka, the Hon'ble Supreme Court has established a Monitoring Committee called Central Empowered Committee (CEC) to monitor the e-auction sales of the iron ore and other related work entrusted to it. In this regard, the Hon'ble Apex Court has passed various judgments in the case of Samaj Parivarthana Samudaya &others Vs. State of Karnataka & Others, on various dates in Writ Petition No. 562 of 2009 along with .....

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..... n/ penalty has to be imposed on the lessee and accordingly it was observed by the court as under : "(V) In respect of the mining leases falling in "CATEGORY-B" (details given at Annexure R-10 to this Report) it is recommended that : ..........(ii) for carrying out the illegal mines out the lease area, exemplary compensation/penalty may be imposed on the lessee. It is recommended that: a) For illegal mining by way of mining pits outside the leases area, as found by Joint Team, the compensation/penalty may be imposed at the rate of ₹ 5.00 Crore (Rs. Five Crore only) for per ha. Of the area found by the Joint Team to be under illegal mining pit; and b) For illegal mining by way of over burden dump(s) road, office, etc. outside the sanctioned lease area, the compensation/penalty may be imposed @₹ 1.00 crores (Rs. One Crore 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 retain .....

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..... (c) CIT vs. Sunil J Kinariwala (2003)(259 ITR 10)(SC) (d) CIT vs. Karnataka State Agricultural Produce Processing & Export Corporation Ltd (2015)(377 ITR 496)(Kar) (e) CIT vs. United Breweries Ltd (2010)(321 ITR 546)(Kar) (f) CIT vs. A Tosh & Sons (P) Ltd (1987)(166 ITR 867)(Kol) (g) Shroff Eye Centre vs. ACIT (h) Sri T Jayachandran vs. DCIT (2012-TIOL-977-HC-MAD-IT) (i) FR Sabu P Thomas vs. UOI (2015-TIOL-514-HC-Kerala-IT) (j) A F Ferguson & Co vs. ACIT (2011-TIOL-604-ITAT-Mum) (k) CIT vs. PandavapuraSahakaraSakkareKarkhane Ltd (1988)(174 ITR 475)(Kar) (l) CIT vs. PandavapuraSahakaraSakkareKarkhane Ltd (198 ITR 690 (Kar)) 7.6. Ld.Councel submitted that the amount retained by MC for contribution to SPV is not taxable in the hands of the assessee, as the same has been diverted at source by overriding title as per the orders of Hon'ble Supreme Court. He submitted that there is no principal and agent relationship between the assessee and MC. Hence it cannot be said that the MC was acting on behalf of the assessee. In fact, the MC is acting as per the directions given by Hon'ble Supreme Court. It was submitted that assessee did not have absolute command .....

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..... IT vs. Essel Mining &Inds. Ltd (2016-TIOL-371-ITAT-Kol) (b) NMDC Limited vs. ACIT (ITA No.1823 and 182/Hyd/2017) (c) Obulapuram Mining Company (P) Ltd (160 ITD 224)(Bang) 7.8.2. He submitted that deduction made by MC towards contribution to SPV for the purpose of restoration of environment is based on the principle, "Polluter pays principle" held by Hon'ble Clacutta High Court in the case of Shyam Sel Ltd vs. DCIT reported in (2016) 72 taxmann.com 105. Ld.Counsel submitted that, Ld.AO was not justified in invoking Explanation 1 to sec. 37(1), which relates to the expenses incurred towards infraction of law. He submitted that the deduction was made by MC as per the directions of Hon'ble Supreme Court and the same cannot be equated with infraction of law. He submitted that MC deducted 10% of sale proceeds from Category "A" mine (Lease No.2296), where no illegality was found. He submitted that, the amount so deducted was contributed to the SPV for taking ameliorative measures and hence it is in the 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 .....

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..... SPV account, and therefore such amount is not liable to tax in the hands of assessee. * Alternatively he submitted that the said sum may be treated as loss under section 28 while computing profit and loss under the head income from business and profession. Or * He submitted that it may be treated as an expenditure incurred by assessee for purposes of business. 7.10.2. On the contrary, Ld.CIT DR submitted that it is an application of income and therefore has to be disallowed in the hands of assessee. He submitted that Ld.AO in support of disallowing the claim of expenditure relied on following decisions: * CIT vs.KCP Ltd. reported in 245 ITR 421(SC) * G.Padnabha Chettiyar & Sons vs.CIT reported in 182 ITR 1(Mad) * ReformFlour Mills Pvt.Ltd Vs.CIT reported in 132 ITR 184,196(Cal) * CIT vs.A.Krishnaswamy udaliar & Ors reported in 53 ITR 122(SC) We note that these decisions are on the accrual of income, which has been considered by us in forgoing paras. We have already 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 re .....

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..... ntire sale proceeds accrued to assessee, and it is only due to direction of Hon'ble Supreme Court that such amount was contributed to SPV account, for which assessee was to authorise CEC/MC in relevant paragraph 11(III) refer to and relied by Ld.CIT DR. 7.10.6. In the present facts of the case, we note that 10%/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 in case of Samaj Parivartana Samudaya & Ors. Vs. State of Karanataka & Ors. (supra), as a precondition to resume mining operations under Category 'A and 'B'. At this juncture we also emphasise that, but for the intervention by Hon'ble Supreme Court, assessee would not have contributed 10%/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. 7.10.7. 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 fo .....

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..... 8377; 5 Crs per hectare and for illegal overburden for at the rate of ₹ 1 Cr per hectare. Further, A.O. observed that the said direction of the Apex Court was subject to the final determination of the notional loss caused by the illegal mining and illegal use of the land; and that the Hon'ble Supreme Court had directed that each of the leaseholder should pay a sum equivalent to 15% of the sale proceeds of its iron ore sold through the Monitoring Committee. In accordance with the said direction, the assessee made payment of ₹ 337.13 Crs towards contribution for the Special Purpose Vehicle and the sum of ₹ 68.66 Crs towards penalty / compensation for encroachment of the mining area beyond the sanctioned / leased area. The A.O. observed that the total of the above payment of ₹ 405.79 Crs was punitive in nature and accordingly sought to disallow the same by issuance of a show-cause notice. …… 4. The A.O. however did not accept the assessee's explanation 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 pa .....

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..... had to pay ₹ 12.50 lakh for compensating damage to environment and the same was recovered by State Pollution Control Board on the principle of 'polluter pays' and the A.O. had treated it as penalty and did not allow the same as business expenditure. The Hon'ble High Court had taken note of the fact that the assessee's business was not illegal and that compensation was paid because of its failure to install pollution control device within prescribed time and therefore, such payment was undoubtedly for the purpose of business and in consequence of business carried on by the assessee and was thus covered by section 37 of the Act. For coming to this conclusion, Hon'ble High Court has also considered the judgment of the Hon'ble National Green Tribunal in the case of State Pollution Control Board vs. Swastik Ispat (P.) Ltd wherein at para 38 of the judgment the Tribunal held as under:- "Being punitive is the essence of 'penalty'. It is in clear contradistinction to 'remedial' and / or 'compensatory'. 'penalty' essentially has to be for result of a default and imposed by way of punishment. On the contrary, 'compens .....

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..... 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. Thus, Grounds No.2 and 3 raised by the assessee are allowed." 7.10.9.We also notice that the co-ordinate Bangalore bench of Tribunal has also considered identical issue in the case of Ramgad Minerals & Mining Ltd (ITA No.1270 & 1271/B/2019 dated 04-11- 2020) being Category 'B', an identical addition made by Ld.AO was held to be allowable as expenditure with following observations:- "7.8.9. In present appeals, only issue raised for our consideration is in respect of 15% contribution made to SPV for assessment year 2013-14 and 2014-15; and issue in respect of R&R expenses incurred during assessment year 2013 - 14. First of all, we summarise objections of Ld.AO as in respect of SPV expenses as under:- (a) This is one of the objections of the AO that the SPV Expenses is not allowable because it is not compensation but it is penal in nature for contravention of law 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 par .....

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..... of the conditions for resuming mining operations under Category 'B'. We refer to and rely on observations by Hon'ble Supreme Court in case of CIT vs SitaldasTirathdasreported in(1961) 41 ITR 367.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 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 a .....

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..... fter 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 15% of sale proceeds, under Category B, cannot be treated as penal in nature. We, therefore, reject observations of authorities below that, such sum having contributed by assessee fall within ambit of explanation 1 to section 37 (1) of the Act." 7.10.10. We note that the CEC, vide its report dated 3-2-2012 and 13-3-2012 made recommendations with regard to setting up of SPV, transfer of funds collected from all lease holders under various heads, manner of utilisation of said funds etc., to Hon'ble Supreme Court, which is incorporated in Paragraph 7 at Page 164 to 171 as under: "(IX) A Special Purpose Vehicle (SPV) under the Chairmanship of Chief Secretary, Government Karnataka and with the senior officers of the concerned Departments of the State Government as Members may be directed to be set up for the purpose of taking various ameliorative and mitigative measures in Districts Bellary, Chitradurga and Tumkur. The additional resources mobilized by (a) allotment/ assignment of the cancelled mining .....

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..... , wherein identical types of payments made to remedy the river pollution caused by the parties were held to be compensatory in nature. Hence the provisions of Explanation 1 to sec.37 will not apply to these payments. We also note that Hon'ble Supreme Court at page 171 observed that, these payments are necessary to be made by the mining lease holders. Hence there is merit in the submission of Ld.Counsel that, without making these payments, assessee could not have resumed the mining operations. Hence, these expenses are incidental to carrying on the business and hence allowable u/s 37(1) of the Act. 7.10.13. Based on above discussions and analysis, we are of opinion that contribution to SPV being 10%/15% of sale proceeds, under category A/B, is to be allowable as expenditure for year under consideration. Thus, alternative plea raised by assessee in ground 2.3.6 and 2.3.7 does not arise. In any event, such payment cannot be considered to be loss in the hands of assessee. Accordingly we allow grounds 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 yea .....

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..... nd environment by contravention of laws. The said payment cannot be said to be incurred wholly and exclusively for the purpose of business within the meaning of the provisions of section 37 of the IT Act as the expenditure is penal in nature. Further, the Dept., of Mines and Geology, Bangalore vide its Lr.F.No.DMGIR& RlNotice/2012-13/11 Dated: 28/02/2013 in obedience to the Order of Hon'ble Supreme Court has issued notice to the assessee firm as under: The relevant portion of the letter is extracted below: "The Central Empowered Committee had noticed during the Survey by Joint Team that you, holder of Mining Lease No.2160 in PMB range, Sandur taluk, Bellary, have illegally conducted mining operations and / or illegally dumped the waste outside the lease area and committed certain other illegalities. Accordingly, in the reports dated: 03/02/2012 and 13/03/2012 submitted to the Hon'ble Supreme Court, the Central Empowered Committee had recommended imposing a penalty of ₹ 5 Crores per 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 Co .....

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..... to the said proposition the assessee firm filed consolidated objections in its letter dated 21/01/2016, which have already been enumerated above in para No.(4.1.a) of this order. 4.3.c. As already discussed above as per the Order of the Hon'ble Apex Court, the mine owners were placed in different category based on the illegal or marginal illegal mining done by them. The CEC had noticed during the Survey by Joint Team that the assessee holding a Mining Lease No.2160 in PMB Range, Sandur Taluk, Bellary have illegally conducted mining operations and illegally dumped the waste outside the lease area and committed certain other illegalities. In view of this, the DM&G has imposed certain penaltyX on the assessee firm as per the recommendations of the Apex Court and further has called upon the assessee firm to made payment towards the probable expenditure by ICFRE for implementation of R & R Plan. Out of this, the assessee has claimed a deduction towards penalty imposed at Rs. ₹ 9,69,00,000/- 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 .....

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..... ions as per the MMDR Act, 1957, MC Rules, 1960 and MCD Rules, 1988 respectively will become meaningless. It has also to be borne in mind that evasion of law cannot be trade pursuit. The penalties paid for violating the law in the course of the conduct of business cannot be regarded as deductible expenditure, as the assessee is expected to carry on the business in accordance with law and not in violation of law. In the instant case, the assessee has violated the law and has formed Illegal Mining Pits and Illegal Dumping of waste, whereby, the Hon'ble Apex Court on the recommendation of the CEC has directed to collect the amounts as penalty for violation of such law. 4.3.g. Infraction of the law is not a normal incident of business and, therefore, no expense which is paid by way of penalty for breach of the law can be said to be an amount wholly and exclusively laid for the purpose of business [Haji Aziz & Abdul Shakoor Bros. Vs. CIT (1961) 41 CTR 350 (SC)J. A payment made under 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 .....

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..... nd hence the payment could not be said to be incurred wholly and exclusively for the purpose of business within the meaning of the provisions of section 37 of the Act, as the expenditure is penal in nature. 5.1) The assessee contested that the expenditure was incurred as compensatory/ compounding fee and paid as a commercial expediency to regularize the pending issue and by doing so the company was allowed to commence its business operations. As such the payment made under commercial expediency be considered for allowing the same as deduction. 5.2) I have gone through the facts of the case and the submissions of the appellant. As per the directions of the Supreme Court part proceeds are to be retained by the CEC/Monitoring Committee to meet the penal and other liabilities for contravention of law. Further, if an assessee is penalized under one Act, he cannot claim that the amount to be set off against his income under another Act, because that will be frustrating/ defeating 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 .....

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..... one statute, of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statute. The fines/penalties paid for violating the law in the course of the conduct of business cannot be regarded as deductible expenditure, as the assessee is expected to carry on the business in accordance with law and not violation of law. In the instant case, the assessee has violated the law and has formed Illegal Mining Pits and Illegal Dumping of waste, whereby, the Hon'ble Apex Court on the recommendation of CEC has directed to collect the amounts for violation of such law. In view of the above, the said deduction cannot be allowed which is being compensation and penalty in nature for contravention of laws. This ground is dismissed." Aggrieved by order of Ld.CIT(A), assessee is in appeal before us now. 8.4. Before us, Ld.Counsel referred to breakup of ₹ 9,69,00,000/- at page 201 of paper book: Compensation (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 submitt .....

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..... regard, several earlier opinions of this Court, details of which will be noticed in the discussions that follow, had been cited at the bar to persuade us to take the view that we should desist from exercising our powers under the Constitution and instead relegate the parties to the remedies provided by the statute. 8.9. Ld.CIT.DR submitted that, Hon'ble Supreme Court summarised arguments advanced by leaseholders as under: 27. On the above issue the short and precise argument on behalf of the leaseholders is that the provisions of each of the statutory enactments, i.e., the MMDR Act, FC Act and EP Act prescribe a distinct statutory scheme for regulation of mining activities and the corrective as well as punitive steps that may be taken in the event mining activities are carried out in a manner contrary to 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 .....

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..... bmitted that, sum of ₹ 9,69,00,000/- should be treated as penalty for infraction of law. He thus supported order passed by authority below. 8.12 . We have perused submissions advanced by both sides, in light of records placed before us. 8.12.1. Ld.AO took the view that these payments are penal in nature as they have been levied for contravention of laws by way of damages caused to forest and environment. Ld.AO referred to the letter F.No.DMG/R & R/Notice/2012-13/11 dated 28-02-2013 issued by Department of Mines and Geology, Bangalore demanding the payment from the assessee. It is pertinent to note that the above said letter uses the expression "penalty" for these payments. Accordingly, the AO took the view that these payments are in the nature of penalty for various irregularities committed 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 Alum .....

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..... dump etc. iii) Mining operation may be allowed to be undertaken after (a) the implementation of the R& R Plan is physically undertaken and is found to be satisfactory based on the pre-determined parameters, (b) penalty/ compensation as decided by this Hon'ble Court is deposited and (c) the conditions as applicable in respect of "Category-A" leases are fulfilled/followed; iv) In respect of the seven mining leases located on/nearby the interstate boundary, the mining operation should presently remain suspended. The survey sketches of these leases should be finalized after the interstate boundary is decided and thereafter the individual leases should be dealt with depending upon the level of the illegality found; and 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". 8.12.5. Hon'ble Supreme Court in para 11 at page 172 accepted the reco .....

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..... under( page 173 clause): "III.. In addition to the above, each leaseholder must pay a sum equivalent to 15% of the sale proceeds of its iron ore sold through the Monitoring Committee as per the earlier orders of this Court. In this regard, it may be stated that though the amicus suggests the payment @ 10% of the sale proceeds, having regard to 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 leaseholders, 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 .....

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..... orcement of which the writ petition has been filed under Article 32. Shri Divan has submitted, by relying on several decisions of this Court, that in a situation where the Court is called upon to enforce the fundamental rights and that too of an indeterminate number of citizens there can be no limitations on the power of Court. It is the satisfaction of the Court that alone would be material. Once such satisfaction is reached, the Court will be free to devise its own procedure and issue whatever directions are considered necessary to effectuate the Fundamental Rights. The only restriction that the Court will bear in mind is that its orders or directions will not be in conflict with the provisions of any 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 Muk .....

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..... on plan). Time has now come, therefore, to suspend mining in the above area till statutory provisions for restoration and reclamation are duly complied with, particularly in cases where pits/quarries have been left abandoned. 45. Environment and ecology are national assets. They are subject to intergenerational equity. Time has now come to suspend all mining in the above area on sustainable development principle which is part of Articles 21, 48-A and 51-A(g) of the Constitution of India. In fact, these articles have been extensively discussed in the judgment in [M.C. Mehta case (2004) 12 SCC 118] which keeps the option of imposing a ban in future open." 8.12.10. After considering 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 .....

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..... utes in question would neither be effective nor efficacious to deal with the extraordinary situation that has arisen on account of the large scale illegalities committed in the operation of the mines in question resulting in grave and irreparable loss to the forest wealth of the country besides the colossal loss caused to the national exchequer. The situation being extraordinary the remedy, indeed, must also be extraordinary. Considered against the backdrop of the Statutory schemes in question, we do not see how any of the recommendations of the CEC, if accepted, would come into conflict with any law enacted by the legislature. It is only in the above situation 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 s .....

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..... walls c) check dams d) gully plugs and/or culverts (if required) e) geo textile/geo matting of dumps f) afforestation in the safety zones g) afforestation in peripheral area, road side, over burden dumps and other areas ii) dust suppression measures at/for loading, unloading and transfer points, internal roads, mineral stacks etc. iii) covered conveyor belts (if feasible) - such as down hill conveyor, pipe conveyor etc. iv) specification of internal roads, v) details of existing transport system and proposed improvements vi) railways siding (if feasible) vii) capacity building 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 d .....

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..... een incurred." Respectfully following the decision of the co-ordinate bench of the Bangalore Tribunal, in the case of Ramgad Minerals & Mining P. Ltd. (supra), we hold that the entire expenditure of ₹ 5,02,59,000 incurred by the assessee of net present value to CAMPA in the relevant period are to be allowed as revenue expenditure for Assessment Year 2004-05." 8.12.16. Above decision of this Tribunal in case of M/s.Mysore Minerals(supra) was upheld by Hon'ble Karnataka High Court in the appeal filed by revenue against order of this Tribunal. Relevant extract of the view taken by Hon'ble 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 .....

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..... e considered as payment for the purposes, which is an offence or which is prohibited by law. Hence Explanation 1 to section 37 is not applicable to these payments. 8.12.19. Respectfully following Hyderabad bench of Tribunal in case of NMDC Ltd (supra) and Bangalore Tribunal M/s Mysore Minerals Ltd (supra) which has been upheld by Hon'ble Karnataka High Court, the payment of ₹ 9,69,00,000/- 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. 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 .....

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..... as of personal expenditure and not a capital and accordingly denied the deduction to be allowable u/s 37(1) of the Act. 7.2) I have gone through the facts of the case and the submissions of the appellant including judicial decisions on the issue. Placing reliance on the Hon'ble Supreme Court's decision in the case of 'Indian Molasses Co (P) Ltd Vs CIT 37 ITR 66 (SC), the appellant's claim for deduction u/s 37(1) cannot be considered. Reliance is also placed in the case of CIT Vs Infosys Technologies Ltd 2013-TIOL-507 (HC)(Karn), wherein, the Hon'ble High 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 recognis .....

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..... He thus submitted that, as alleged sum was diverted to SPV account at the threshold, it did not attain character of 'income' in the hands of assessee, and therefore cannot be taxed. 9.3.5. Alternatively it was submitted that the amount may be treated as expenditure in the hands of assessee under section 37 of the Act. It has been submitted by Ld.Counsel that Explanation 2 to section 37 is not applicable, as the same is introduced by Finance Act 2014, which is prospective in nature. It is also been submitted that Explanation 2 is applicable to Companies 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 .....

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..... of the present case. II. BROAD OBJECTIVES/PARAMETERS OF R&R PLANS 8. The broad objectives/parameters of the R&R Plans would be: i) to carry out time bound reclamation and rehabilitation of the areas found to be under illegal mining by way of mining pits, over burden/waste dumps etc. outside the sanctioned areas; ii) to ensure scientific and sustainable mining after taking into consideration the mining reserves assessed to be available within the lease area; iii) to ensure environmental friendly mining and 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, explor .....

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..... ning of Category 'B' mines are essentially steps to ensure scientific and planned exploitation of the scarce mineral resources of the country. The details of the preconditions and the R&R plans have already been noticed and would not require a repetition. Suffice it would be to say that such recommendations are wholesome and in the interest not only of the environment and ecology but the mining industry as a whole so as to enable the industry to run in a more organized, planned and disciplined 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 .....

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..... book, wherein, Deputy Commissioner, Bellary, directed assessee to contribute towards education of students residing/studying in schools around mining area. It has been submitted that assessee is engaged in business of mines on the land leased by government, activity consumes enormous amount of natural resources in surrounding area, and that, such amount was paid to support welfare of the locality. He also submitted that Explanation 2 to Section 37 of the Act, is introduced 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 .....

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..... ness or profession". These two expressions namely, "wholly" and "exclusively" being adverb, has reference to the object or motive of the act behind the expenditure. If the expenditure so incurred is for promoting the business, it would pass the test for qualifying to be claimed as an expenditure under Section 37 of the Act. What is to be seen in such circumstances is, what is the motive and object in the mind of the two individuals namely, the person who spend and the person who receives 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 EAS .....

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..... f spending or paying out or away. It is something which is gone irretrievably, but should not be in respect of an unascertained liability of the future. Expenditure in this sense is equal to disbursement which, to use a homely phrase means something which comes out of the traders pocket." ……………. 23. In the matter of SRI VENKATASATYANARAYANARICE MILL CONTRACTORSCOMPANY vs CIT reported in (1997) 223 ITR 101 (SC), question arose as to whether contribution made to District Welfare Fund maintained by the District Collector would be against public 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 .....

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..... when made to a Chief Ministers Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business cannot be regarded as payment opposed to public policy. It came to be further held making of a donation for charitable or public cause or in the public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under Section 37(1) of the Act, when such payment has been made for the purposes of assessee's business. In fact, it can be noticed 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 a .....

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..... ermits, licenses. Hence it is a prudent decision of the assessee to oblige to the appeal made by the local administration and incurred the expenses for public purposes. Hence the assessee has incurred expenses not only on account of social responsibility, but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit. Hence this expenditure would be in the realm of "business expenditure". Accordingly, we hold this expenditure is allowable as deduction. Accordingly, we set aside the order passed by Ld.CIT(A) on this issue and direct the AO to delete this disallowance. 11. Ground No.4 is regarding 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 .....

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