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TMI Blog2021 (3) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... has been filed by assessee against order dated 29/12/2017 passed by learnt CIT (A), Gulbarga for assessment year 2013-14 on following grounds of appeal: 1. The learned Commissioner of Income-tax(Appeals), Gulbarga is not justified in rejecting the claim for expenditure amounting to ₹ 51,20,653/- being contribution to SPV a special fund created at the directions of Apex Court. 2. The learned Commissioner of Income-tax(Appeals), Gulbarga is not justified in treating the expenditure towards contribution to SPV as an expenditure not allowable under explanation 1 to section 37(1) of IT Act 1961. 3. The Commissioner of Income-tax (Appeals), Gulbarga ought to have appreciated the fact that the very purpose of contribution is at the direction of Apex court which is solely and exclusively for the purpose of business carried on by the assessee. 4. The Commissioner of Income-tax (Appeals), Gulbarga ought to have appreciated with the written representations made during the coruse of appeal hearing, wherein a detailed write up made as to how the contribution to SPV qualifies as an expenditure allowable under explanation 1 to section 37(1) of IT Act 1961. 5. The learned Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. K.C.P. Limited (SC) 421. The learned AG also placed relied on the following : (i). C. Padmanabha Chattiyar Sons vs. C1T182 HR 1, 5 (Mad.) (ii). Reform Flour Mills Pvt. Ltd., vs. CIT 132 ITR 184, 196 (Cal) (iii). CIT vs. A Krishnaswamy Mudaliar Others 53 ITR 122 (SC). Observations of the learned CIT(A). 2.1.11. The learned CIT(A) has dismissed the appeal holding that the amount retained was penalty in nature and as such, cannot be allowed as expenditure u/s 37(1). 4. Aggrieved by the order of Ld. AO, assessee preferred appeal before the Ld.CIT (A). 5. Aggrieved by the order of Ld. CIT (A) assessee is in appeal before us now. 6. At the outset the Ld.AR submitted that the issue of 15% of sale proceeds remitted to SPV account a stands covered by following decisions of coordinate bench of this Tribunal: (i) M/s. Veerabhadrappa Sangappa Co., in ITA No.1 054/Bang/2019 order dated, 08-12-2020. (ii) M/s. Ramgad Minerals Mining Ltd. in ITA Nos.1270 1271/Bang/2019 order dated, 04-11-2020) 7. The Ld.AR submitted that a clarification was issued by the Department of mines on 08/03/2019, wherein it has been clarified that transfer of 10% of sale value shall continue to be transferred to SPV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such liability. Ld.AO was of opinion that, even in Category A mines, there was marginal illegality found by CEC, because of which 10% of contribution was attributed out of sale proceeds to the SPV. 13. On careful reading of decision of Hon ble Supreme Court dated 18/04/2013, it is clear that 15% contribution to SPV account was guarantee payment for implementing of R R plan, which would be deducted from sale proceeds. This was one of the conditions for resuming mining operations under Categories B . We refer to and rely on observations by Hon ble Supreme Court in case of CIT vs Sitaldas Tirathdas reported 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for resuming mining activity. We also note that, alleged sum in these grounds are for implementation of R R Plans in respective sanctioned lease area held by assessee, where illegal mining activities or which were used for illegal overburden dumps, roads, offices etc., beyond sanctioned lease area were carried out. Here, we also note that, Hon ble Supreme Court directed CEC to refund any leftover guarantee money, after 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 to section 37 (1) of the Act. 17. The decisions relied upon by Ld. CIT (A) has also been perused by us. We note that those decisions deal with expenses which are in the nature of penalty. In the present situation, contribution towards SPV is a requirement to be incurred to carry continue its business activities. In our view, these payments in present facts do not fall within the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts, we are of the opinion that, contribution to SPV account, cannot be considered to be diversion of income. This is because, we have already held while deciding ground 2.1 and 2.2 hereinabove, that entire 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) refere to and relied by Ld.CIT DR. 8.12.5. 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, 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. 8.12.6. In our view contributing 10%/15% to SPV account on account of Category ..... X X X X Extracts X X X X X X X X Extracts X X X X
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