M/s Zeenath Transport Company , Bellary V. The Assistant Commissioner of Income Tax Circle-1, Bellary

ITA 1780/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7332 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-07-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 24-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Business expenditure; Diversion of income; Competent authority; Commercial expediency; Revenue expenditure; TDS
• Section: 143(3); 234B; 37(1); 80G; 201; 113; 43; 13; 22; 27; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1780 - 1782/BANG/2018 ASSESSMENT YEAR : 2012-13 2014-15 M/S ZEENATH TRANSPORT COMPANY, MINE OWNERS, ZEENATH HOUSE, DOOR NO.24,WARD NO.22, MAIN ROAD, COWL BAZAR, BELLARY-583 102. PAN A AAFZ 0512 E VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1, BELLARY. APPELLANT RESPONDENT ASSESSEE BY : SHRI SIVA PRASAD REDDY, ADVOCATE REVENUE BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 23-07-2021 DATE OF PRONOUNCEMENT : 18-08-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEALS ARE FIELD BY THE ASSESSEE AGAINST O RDERS DATED 22/03/2018 PASSED SEPARATELY BY THE LD.LCIT(A ), GULBARGA FOR ASSESSMENT YEAR 2012-13 TO 2014-15 ON FOLLOWING GROUNDS MENTIONED OF APPEAL. ITA NO.1780/BANG/2018 1. THE IMPUGNED ASSESSMENT ORDER IS OPPOSED TO THE ACTS OF THE CASE AND THE LAW AND THEREFORE, IT IS LIABLE TO BE SET-A SIDE. 10% OF THE SALE PROCEEDS WITHHELD & RETAINED. PAGE 2 OF 41 ITA NOS.1780 - 1782/BANG/2018 2.1. THE LEARNED ASSESSING OFFICER AS WELL AS THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED T HAT THE AMOUNT OF RS.1,22,93,688/-, WITHHELD AND RETAINED BY THE CENT RAL EMPOWERED COMMITTEE (CEC) CONSTITUTED BY THE HON'BLE SUPREME COURT AS A PERCENTAGE (10%) OF SALE PROCEEDS, IS NOT INCOME OF THE ASSESSEE-APPELLANT AS IT NEVER REACHED THE APPELLANT AT ANY POINT OF T IME, AND IT WAS DIVERSION OF INCOME BY OVERRIDING TITLE. 2.2. WITHOUT PREJUDICE TO THE GROUND NO.2.1 ABOVE, THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE EXPENDITURE IN QUESTI ON HAS ACQUIRED THE CHARACTER OF STATUTORY DEDUCTION, SINCE IT IS WITHH ELD AND RETAINED BY THE CEC ON THE DIRECTIONS OF THE HON'BLE SUPREME COURT AND AS SUCH, IT IS ALLOWABLE EXPENDITURE WHOLLY AND EXCLUSIVELY LAID O UT AND EXPENDED FOR THE PURPOSES OF BUSINESS. 2.3. WITHOUT PREJUDICE TO THE GROUND NOS.2.1 & 2.2 ABOVE, THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE EXPENDITURE IN QUESTION IS NOT PROHIBITED BY LAW, AND ON THE CONTRARY, IT IS MANDATED BY LAW, SINCE IT IS WITHHELD AND RETAINED BY THE CEC ON THE DIRECTIONS OF THE HO N'BLE SUPREME COURT, AND AS SUCH, EXPLANATION-1 UNDER SUBSECTION (1) OF SECTION 37 OF THE ACT HAS NO APPLICATION. 2.4. WITHOUT PREJUDICE TO THE GROUNDS IN NOS.2.1, 2.2 & 2.3 ABOVE, THE LEARNED ASSESSING OFFICER AS WELL AS THE LEARNED CO MMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE EXPLANATION-2 IN SECTION 37(1) OF THE ACT IS NOT RETROSPECTIVE IN OP ERATION AND THEREFORE, THE EXPENDITURE BEING CONTRIBUTION TOWARDS SVP COULD NO T BE DISALLOWED APPLYING THE SAID EXPLANATION FOR THE PRESENT ASSES SMENT YEAR, WHICH IS A PRE-AMENDMENT ASSESSMENT YEAR. 2.5. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE/APPELLANT IS A PARTNERSHIP FIRM, AND NOT A COMPANY, AND ACCOR DINGLY THE RESTRICTIVE CLAUSE IN EXPLANATION-2 OF SECTION 37(1) OF THE ACT , RELATING TO EXPENDITURE ON CORPORATE SOCIAL RESPONSIBILITY (CSR) WAS NOT AP PLICABLE TO THE AMOUNT WITHHELD AND RETAINED BY THE CEC. 2.6. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HAT THE AMOUNT IN QUESTION RETAINED BY THE CEC WAS NOT SET APART AS P ER SECTION 135 OF THE COMPANIES ACT, 2013 AND THEREFORE, THE RESTRICTION IN THE SAID EXPLANATION- 2 IS NOT ATTRACTED, EVEN IF THE SAID EXPLANATION IS ULTIMATELY HELD TO BE RETROSPECTIVE IN OPERATION AND AS APPLICABLE TO NON -CORPORATE ASSESSEES ALSO. CONTRIBUTION TOWARDS FLOOD RELIEF. 3.1. THE AUTHORITIES BELOW OUGHT TO HAVE APPRECIATE D THAT THE CONTRIBUTION OF RS.2,40,00,000/- TOWARDS FLOOD RELIEF AS PER THE MOU EXECUTED WITH THE GOVERNMENT OF KARNATAKA IS AN ELIGIBLE EXPENDIT URE OF BUSINESS U/S 37 OF THE ACT, SINCE IT IS EXPENDED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF THE BUSINESS. 3.2. THE LEARNED AO AND THE LEARNED CIT(A) HAVE FAI LED TO APPRECIATE THAT THE AMOUNT OF RS.2,40,00,000/- TOWARDS FLOOD RELIEF WAS CONTRIBUTED UNDER PAGE 3 OF 41 ITA NOS.1780 - 1782/BANG/2018 AN ELEMENT OF COMPULSION, AT THE INSTANCE OF GOVERN MENT OF KARNATAKA, AND ACCORDINGLY, IT IS AN EXPENDITURE INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS, AND ALLOWABLE U/S 37(1 ) OF THE ACT. 3.3. THE AUTHORITIES BELOW OUGHT TO HAVE APPRECIATE D THAT EXPLANATION-2 U/S 37(1) OF THE ACT WAS INSERTED BY THE FINANCE AC T, 2014, W.E.F. 01-04- 2015, CANNOT BE APPLIED RETROSPECTIVELY FOR THE PRE SENT ASSESSMENT YEAR TO DISALLOW, THE EXPENDITURE TOWARDS FLOOD RELIEF. 3.4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE ASSESSEE/APPELLANT IS A PARTNERSHIP FIRM, AND NOT A COMPANY, AND ACCORDIN GLY THE RESTRICTIVE CLAUSE IN EXPLANATION-2 OF SECTION 37(1) OF THE ACT , RELATING TO EXPENDITURE ON CORPORATE SOCIAL RESPONSIBILITY (CSR) WAS NOT AP PLICABLE. 3.5. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE EXPENDITURE IN QUESTION WAS NOT SET APART AS PER SECTION 135 OF TH E COMPANIES ACT, 2013 AND THEREFORE, THE RESTRICTION IN THE SAID EXPLANAT ION-2 IS NOT ATTRACTED, EVEN IF THE SAID EXPLANATION IS ULTIMATELY HELD TO BE RETROSPECTIVE IN OPERATION AND AS APPLICABLE TO NON-CORPORATE ASSESS EES ALSO. CONTRIBUTION TO FIMI TOWARDS LEGAL EXPENSES . 4.1. THE AUTHORITIES BELOW FAILED TO APPRECIATE TH AT PAYMENTS MADE TO FIMI TOWARDS LEGAL EXPENSES AMOUNTING TO RS.20,00,0 00/- ARE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THEREFORE, ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37( 1) OF THE ACT. 4.2. THE AUTHORITIES BELOW OUGHT NOT TO HAVE RESTR ICTED THE PAYMENT OF RS.20,00,000/- TO FIMI TOWARDS LEGAL EXPENSES UNDER SECTION 50G OF THE ACT, FAILING TO APPRECIATE THAT THE ENTIRE EXPENDIT URE IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. TRAVELLING EXPENSES . 5. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T THERE IS NO DEFECT IN CLAIMING THE EXPENDITURE ON FOREIGN TRAVEL AS PE R HIS OWN FINDING AND THEREFORE, ORDERED DELETION OF THE ENTIRE ADDITION OF RS.4,68,259/- CONSISTENT WITH HIS OWN FINDING. 6. THE APPELLANT DENIES THE LIABILITY TO PAY THE IN TEREST U/S 234B AND 234C OF THE ACT. 7. THE GROUNDS OF APPEAL ARE TAKEN WITHOUT PREJUDIC E TO ONE ANOTHER AND THE APPELLANT CRAVES LEAVE TO ADD OR DELETE OR MODIFY OR REVISE ANY GROUND AT THE TIME OF HEARING BEFORE THE HON'BLE IT AT. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, IT IS PRAYED THAT THE HON'BLE ITAT MAY BE PLEASED TO ALLO W THE APPEAL IN THE INTEREST OF THE EQUITY AND JUSTICE. ITA NO.1781 & 1782/BANG/2018 1. THE IMPUGNED ASSESSMENT ORDER IS OPPOSED TO THE ACTS OF THE CASE AND THE LAW AND THEREFORE, IT IS LIABLE TO BE SET-A SIDE. 10% OF THE SALE PROCEEDS WITHHELD & RETAINED. PAGE 4 OF 41 ITA NOS.1780 - 1782/BANG/2018 2.1. THE LEARNED ASSESSING OFFICER AS WELL AS THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED T HAT THE AMOUNT OF RS.1,22,93,688/-, WITHHELD AND RETAINED BY THE CENT RAL EMPOWERED COMMITTEE (CEC) CONSTITUTED BY THE HON'BLE SUPREME COURT AS A PERCENTAGE (10%) OF SALE PROCEEDS, IS NOT INCOME OF THE ASSESSEE-APPELLANT AS IT NEVER REACHED THE APPELLANT AT ANY POINT OF T IME, AND IT WAS DIVERSION OF INCOME BY OVERRIDING TITLE. 2.2. WITHOUT PREJUDICE TO THE GROUND NO.2.1 ABOVE, THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE EXPENDITURE IN QUESTI ON HAS ACQUIRED THE CHARACTER OF STATUTORY DEDUCTION, SINCE IT IS WITHH ELD AND RETAINED BY THE CEC ON THE DIRECTIONS OF THE HON'BLE SUPREME COURT AND AS SUCH, IT IS ALLOWABLE EXPENDITURE WHOLLY AND EXCLUSIVELY LAID O UT AND EXPENDED FOR THE PURPOSES OF BUSINESS. 2.3. WITHOUT PREJUDICE TO THE GROUND NOS.2.1 & 2.2 ABOVE, THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE EXPENDITURE IN QUESTION IS NOT PROHIBITED BY LAW, AND ON THE CONTRARY, IT IS MANDATED BY LAW, SINCE IT IS WITHHELD AND RETAINED BY THE CEC ON THE DIRECTIONS OF THE HO N'BLE SUPREME COURT, AND AS SUCH, EXPLANATION-1 UNDER SUBSECTION (1) OF SECTION 37 OF THE ACT HAS NO APPLICATION. 2.4. WITHOUT PREJUDICE TO THE GROUNDS IN NOS.2.1, 2.2 & 2.3 ABOVE, THE LEARNED ASSESSING OFFICER AS WELL AS THE LEARNED CO MMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE EXPLANATION-2 IN SECTION 37(1) OF THE ACT IS NOT RETROSPECTIVE IN OP ERATION AND THEREFORE, THE EXPENDITURE BEING CONTRIBUTION TOWARDS SVP COULD NO T BE DISALLOWED APPLYING THE SAID EXPLANATION FOR THE PRESENT ASSES SMENT YEAR, WHICH IS A PRE-AMENDMENT ASSESSMENT YEAR. 2.5. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE/APPELLANT IS A PARTNERSHIP FIRM, AND NOT A COMPANY, AND ACCOR DINGLY THE RESTRICTIVE CLAUSE IN EXPLANATION-2 OF SECTION 37(1) OF THE ACT , RELATING TO EXPENDITURE ON CORPORATE SOCIAL RESPONSIBILITY (CSR) WAS NOT AP PLICABLE TO THE AMOUNT WITHHELD AND RETAINED BY THE CEC. 2.6. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HAT THE AMOUNT IN QUESTION RETAINED BY THE CEC WAS NOT SET APART AS P ER SECTION 135 OF THE COMPANIES ACT, 2013 AND THEREFORE, THE RESTRICTION IN THE SAID EXPLANATION- 2 IS NOT ATTRACTED, EVEN IF THE SAID EXPLANATION IS ULTIMATELY HELD TO BE RETROSPECTIVE IN OPERATION AND AS APPLICABLE TO NON -CORPORATE ASSESSEES ALSO. CONTRIBUTION TOWARDS FLOOD RELIEF. 3.1. THE AUTHORITIES BELOW OUGHT TO HAVE APPRECIATE D THAT THE CONTRIBUTION OF RS.2,40,00,000/- TOWARDS FLOOD RELIEF AS PER THE MOU EXECUTED WITH THE GOVERNMENT OF KARNATAKA IS AN ELIGIBLE EXPENDIT URE OF BUSINESS U/S 37 OF THE ACT, SINCE IT IS EXPENDED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF THE BUSINESS. 3.2. THE LEARNED AO AND THE LEARNED CIT(A) HAVE FAI LED TO APPRECIATE THAT THE AMOUNT OF RS.2,40,00,000/- TOWARDS FLOOD RELIEF WAS CONTRIBUTED UNDER PAGE 5 OF 41 ITA NOS.1780 - 1782/BANG/2018 AN ELEMENT OF COMPULSION, AT THE INSTANCE OF GOVERN MENT OF KARNATAKA, AND ACCORDINGLY, IT IS AN EXPENDITURE INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS, AND ALLOWABLE U/S 37(1 ) OF THE ACT. 3.3. THE AUTHORITIES BELOW OUGHT TO HAVE APPRECIATE D THAT EXPLANATION-2 U/S 37(1) OF THE ACT WAS INSERTED BY THE FINANCE AC T, 2014, W.E.F. 01-04- 2015, CANNOT BE APPLIED RETROSPECTIVELY FOR THE PRE SENT ASSESSMENT YEAR TO DISALLOW, THE EXPENDITURE TOWARDS FLOOD RELIEF. 3.4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE ASSESSEEAPPELLANT IS A PARTNERSHIP FIRM, AND NOT A COMPANY, AND ACCORDIN GLY THE RESTRICTIVE CLAUSE IN EXPLANATION-2 OF SECTION 37(1) OF THE ACT , RELATING TO EXPENDITURE ON CORPORATE SOCIAL RESPONSIBILITY (CSR) WAS NOT AP PLICABLE. 3.5. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HAT THE EXPENDITURE IN QUESTION WAS NOT SET APART AS PER SECTION 135 OF TH E COMPANIES ACT, 2013 AND THEREFORE, THE RESTRICTION IN THE SAID EXPLANAT ION-2 IS NOT ATTRACTED, EVEN IF THE SAID EXPLANATION IS ULTIMATELY HELD TO BE RETROSPECTIVE IN OPERATION AND AS APPLICABLE TO NON-CORPORATE ASSESS EES ALSO. 4. THE APPELLANT DENIES THE LIABILITY TO PAY THE IN TEREST U/S 234B AND 234C OF THE ACT. 5. THE GROUNDS OF APPEAL ARE TAKEN WITHOUT PREJUDIC E TO ONE ANOTHER AND THE APPELLANT CRAVES LEAVE TO ADD OR DELETE OR MODI FY OR REVISE ANY GROUND AT THE TIME OF HEARING BEFORE THE HON'BLE ITAT. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, IT IS PRAYED THAT THE HON'BLE ITAT MAY BE PLEASED TO ALLO W THE APPEAL IN THE INTEREST OF THE EQUITY AND JUSTICE. BRIEF FACTS OF THE CASE ARE AS UNDER : 2. THE ASSESSEE IS ENGAGED THE BUSINESS OF MINING, MANUFACTURE AND SALE OF IRON ORE. THE ASSESSEE FIL ED ITS RETURN OF INCOME ON 30.09.2013 DECLARING TOTAL INCOME OF RS.170,44,59,280/-. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE LD.AO OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 28,60,12,206/-UNDER THE HEAD SPECI AL PURPOSE VEHICLE (SPV) CHARGES. THE SAID AMOUNT BEING, 10% & 15% OF SALES VALUE E-AUCTIONED IRON-ORE UNDER CATEGORY-A & CATEGORY-B MINES RESPECTIVELY, DEDUCTED BY MONITORING COMMITT EE (ME) TOWARDS SPV CHARGES. THE SAID AMOUNT WAS RETAINED B Y THE CENTRAL EMPOWER COMMITTEE (CEC) AS PER THE DIRECTIO NS OF THE PAGE 6 OF 41 ITA NOS.1780 - 1782/BANG/2018 HONBLE SUPREME COURT, OUT OF SALE PROCEEDS, FOR THE PURPOSE OF TAKING VARIOUS AMELIORATIVE AND MITIGATIVE MEASURES . LD.AO WAS OF THE OPINION THAT, AS THE SAID RETENTION OF AMOUN T IS IN THE NATURE OF APPROPRIATION OF PROFIT AND COMPENSATORY PAYMENT TOWARDS DAMAGES CAUSED DUE TO THE ENVIRONMENT AND F OREST DUE TO CONTRAVENTION OF LAWS, THE SAID PAYMENT CANNOT B E 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. THE LD.AO THUS SOUGHT FOR EXPLANATION TOWARDS THE D ISALLOWANCE OF THE DEDUCTION CLAIMED BY THE ASSESSEE. 2.3 IN RESPONSE, THE ASSESSEE SUBMITTED THAT, AS PER THE PROCEDURE ADOPTED, BASED ON THE D IRECTIONS ISSUED BY THE HON'BLE SUPREME COURT FROM TIME TO TIME INCLUSIVE O F THE DIRECTIONS GIVEN WHILE DISPOSING THE WRIT PETITION BEARING NO. CIVIL 562 OF 2009 DATED 18.04.2013, FROM SALE PROCEEDS A PERCENTAGE O F 10% IS TO BE DEDUCTED FROM THE E-AUCTION SALE PROCEEDS IN RESPEC T OF 'A' CATEGORY OF MINES AND 15% IN RESPECT OF 'B' CATEGORY AND TO SPE ND THE SAID AMOUNT UNDER 'SPECIAL VEHICLE PURPOSE'. AS STATED IN THE D IRECTIONS, THIS DEDUCTION IS FOR THE PURPOSE MITIGATING THE EFFECTS AS PER 'COMPREHENSIVE ENVIRONMENT PLANS FOR THE MINING IMP ACT ZONE'. HENCE, THIS IS A LEGAL AMOUNT DEDUCTED AS PER THE DIRECTIO NS OF THE HON'BLE SUPREME COURT WHICH IS TOWARDS MITIGATIVE MEASURES. THIS IS NOTHING BUT AN EXPENDITURE AND WHICH SHOULD BE ALLOWED AS S UCH IN OUR HANDS AS WE DO NOT HAVE ANY RIGHT TO CLAIM FROM THE AMOUN T EARMARKED FOR 'SPECIAL PURPOSE VEHICLE' AS PER THE DIRECTIONS OF HON'BLE SUPREME COURT. 2.4 THE LD.AO, HOWEVER DETERMINED ASSESSED INCOME A T RS.203,94,98,140/- BY MAKING FOLLOWING ADDITIONS/ DISALLOWANCES IN THE HANDS OF ASSESSEE; PAGE 7 OF 41 ITA NOS.1780 - 1782/BANG/2018 3. THE LD.CIT(A) UPHELD THE DISALLOWANCE MADE BY TH E LD.AO BY OBSERVING AS UNDER: 5.6 FURTHER IT IS A GENERAL RULE THAT, IF AN ASSES SEE IS PENALISED UNDER ONE ACT, HE CANNOT CLAIM THAT THE AMOUNT TO BE SET OFF AGAINST HIS INCOME UNDER ANOTHER ACT, BECAUSE THAT WILL BE FRUS TRATING/DEFEATING THE ENTIRE OBJECT OF PENALISING 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 AC TIVITIES CANNOT BE ALLOWED TO BE DEDUCTED WHETHER THE BUSINESS IS LAWF UL OR OTHERWISE. EVEN IF THE ENTIRE BUSINESS OF THE ASSESSEE IS ILLE GAL AND INCOME IS SOUGHT TO BE TAXED BY THE ASSESSING OFFICER, THE EX PENDITURE IN THE ILLEGAL ACTIVITIES IS NOT DEDUCTIBLE AFTER THE INSE RTION OF EXPLANATION TO SECTION 37(1) BY THE FINANCE ACT, 1998. IT HAS BEEN CONSISTENTLY HELD BY THE COURTS THAT FINES OR PENALTIES PAYABLE FOR V IOLATION OF LAW OF THE LAND CANNOT BE PERMITTED AS DEDUCTION UNDER THE INC OME-TAX ACT. THAT WILL BE AGAINST PUBLIC POLICY TO ALLOW THE BENEFIT OF DEDUCTION UNDER ONE STATUTE, OF ANY EXPENDITURE INCURRED IN VIOLATION O F THE PROVISIONS OF ANOTHER STATUTE OR ANY PENALTY IMPOSED UNDER ANOTHE R STATUTE [MADDI VENKATARAMAN & CO. (P) LTD VS. CIT (1998) 229 ITR 5 34 (SC)]. EVEN THOUGH THE NEED FOR MAKING SUCH PAYMENTS AROSE OUT OF TRADING OPERATION, THE PAYMENTS WERE NOT WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF THE TRADE. INFRACTION OF THE LAW IS NOT A NORMAL INCIDENT OF B USINESS AND THEREFORE, NO EXPENSE WHICH IS PAID BY WAY OF PENAL TY FOR BREACH OF THE LAW CAN BE SAID TO BE AN AMOUNT WHOLLY AND EXCLUSIV ELY LAID FOR THE PURPOSE OF BUSINESS [HAJI AZIZ & ABDUL SHAKOOR BROS . VS. CIT (1961) 41 ITR 350 (SC)]. A PAYMENT MADE UNDER A STATUTORY OBLIGATION BECAUSE THE ASSESSEE WAS IN DEFAULT COULD NOT CONST ITUTE EXPENDITURE LAID OUT FOR THE PURPOSE OF ASSESSEE'S BUSINESS [IN DIAN ALUMINIUM CO. LTD VS. CIT (SC) 79 ITR 514]. IN THE CASE OF INDIAN ALUMINIUM CO. LTD VS. CIT (SC ) 79 ITR 514 IT WAS HELD BY THE APEX COURT THAT - A PAYMENT MADE UNDER A STATUTORY OBLIGATION BECAUSE THE ASSESSEE WAS IN DE FAULT COULD NOT CONSTITUTE EXPENDITURE LAID OUT FOR THE PURPOSE OF ASSESSEE'S BUSINESS. IT IS NOT OUT OF PLACE TO EMPHASISE ONCE AGAIN THE JUDGEMENT IN THE CASE OF MADDI VENKATARAMAN & CO. (P) LTD VS. CI T (1998) 229 ITR PAGE 8 OF 41 ITA NOS.1780 - 1782/BANG/2018 534 (SC) WHEREIN THE HON'BLE SUPREME COURT HAS HELD THAT - EVEN IF THE ENTIRE BUSINESS OF THE ASSESSEE IS ILLEGAL AND INCO ME IS SOUGHT TO BE TAXED BY THE ASSESSING OFFICER, THE EXPENDITURE IN THE ILLEGAL ACTIVITIES IS NOT DEDUCTIBLE AFTER THE INSERTION OF EXPLANATIO N TO SECTION 37(1) BY THE FINANCE ACT, 1998. IT HAS BEEN CONSISTENTLY HEL D BY THE COURTS THAT FINES OR PENALTIES PAYABLE FOR VIOLATION OF LAW OF THE LAND CANNOT BE PERMITTED AS DEDUCTION UNDER THE INCOME-TAX ACT. TH AT WILL BE AGAINST PUBLIC POLICY TO ALLOW THE BENEFIT OF DEDUCTION UND ER 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 DEDUC TIBLE EXPENDITURE, AS THE ASSESSEE IS EXPECTED TO CARRY ON THE BUSINES S IN ACCORDANCE WITH LAW AND NOT VIOLATION OF LAW. IN THE INSTANT C ASE, THE ASSESSEE HAS VIOLATED THE LAW AND HAS FORMED ILLEGAL MINING PITS AND ILLEGAL DUMPING OF WASTE, WHEREBY, THE HON'BLE APEX COURT O N THE RECOMMENDATION OF CEC HAS DIRECTED TO COLLECT THE A MOUNTS FOR VIOLATION OF SUCH LAW. IN VIEW OF THE ABOVE, THE RELEVANT GROUND OF APPEAL IS DISMISSED. IN THE LIGHT OF THE ABOVE, THE APPELLANT'S CONTENTI ON THAT THE AO IS NOT JUSTIFIED IN MAKING THE IMPUGNED ADDITION OF RS . 28,60,12,206, IS BASELESS AND HAS NO MERITS, STANDS ON A WEAK FOOTIN G AND IS WITHOUT BASIS AND LACKS MERITS. THE AO IS JUSTIFIED AND I D O NOT FIND ANY NEED TO INTERFERE WITH THE ORDER. THEREFORE, THE ADDITIO N MADE IS SUSTAINED. THE RELEVANT GROUND OF APPEAL IS HEREBY DISMISSED. THEREFORE, THE ADDITION OF RS. 28,60,12,206/- MADE BY THE AO IS SUSTAINED. 4. AGGRIEVED BY ORDER OF LD.CIT(A) ASSESSEE IS IN A PPEAL BEFORE US NOW. GROUND NO.2.1 TO 2.6 5. THE LD.AR SUBMITTED THE DETAILS OF MINING LEASES OWNED BY THE ASSESSEE AND ITS CLASSIFICATIONS AS PER THE ORDERS OF THE HON'BLE SUPREME COURT AS UNDER: PAGE 9 OF 41 ITA NOS.1780 - 1782/BANG/2018 SL NO. AREA (IN HECTARES) CATEGORY AS PER THE CEC/ORDER OF THE HON'BLE SC 2547 50.00 A 2239 43.58 B 2309 38.50 B 2488 26.59 B 5.1. THE LD.AR SUBMITTED THAT THE ASSESSEE DEBITED THE ABOVE AMOUNT TO P & L ACCOUNT AS SPV EXPENSES AS, THIS AM OUNT WAS DEDUCTED BY MC AS PER THE DIRECTIONS OF HONBLE SUPREME COURT OUT OF SALE PROCEEDS FOR THE PURPOSE OF TAKING VARI OUS AMELIORATIVE AND MITIGATIVE MEASURES. LD.AR SUBMITT ED THAT, ASSESSEE FILED REPLY BEFORE AUTHORITIES BELOW AND S UBMITTED THAT HONBLE SUPREME COURT IN CATEGORY A MINES, DIRECTED CONTRIBUTION OF 10% OUT OF E AUCTION SALES TOWARDS SPV AND IN CATEGORY B MINES, THE CONTRIBUTION WAS TO THE EXT ENT OF 15% OF E- AUCTION SALES. LD.AR SUBMITTED THAT SPV EXPENSES WERE FOR SOCIO ECONOMIC DEVELOPMENT OF THE MINING AREA. HE F URTHER SUBMITTED THAT LD.AO INVOKED EXPLANATION 1 TO SECTION 37 (1) OF ACT. 5.2. LD.AR RELIED ON DECISION OF HONBLE HYDERABAD TRIBUNAL IN CASE OF NMDC LTD. VS. ACIT REPORTED IN 175 ITD 332 . OUR ATTENTION WAS DRAWN TO PARAS 9 TO 11 OF THE SAID OR DER. THE LD.AR POINTED OUT THAT IN PARA 10 OF ORDER, HONBLE HYDERABAD TRIBUNAL NOTED THAT ASSESSEE THEREIN WAS CLASSIFIED AS A C ATEGORY MINE AND IN PARA 11, IT WAS HELD BY THE TRIBUNAL THAT 10% OF SALE PROCEEDS BEING SPV IN A CATEGORY MINE WAS TO BE C ONTRIBUTED PAGE 10 OF 41 ITA NOS.1780 - 1782/BANG/2018 WITHOUT WHICH, ASSESSEE THEREIN COULD NOT HAVE RESU MED ITS ACTIVITIES AND THEREFORE, IS A BUSINESS EXPENDITUR E AND IS ALLOWABLE U/S 37(1) OF INCOME TAX ACT. HE SUBMITTED THAT THE ONLY DIFFERENCE IS IN PERCENTAGE OF SPV CONTRIBUTION, WH ICH IS 15% OF SALE PROCEEDS IN B CATEGORY AS AGAINST 10% OF SAL E PROCEEDS IN A CATEGORY. LD.AR SUBMITTED THAT IT DOES NOT CHAN GE THE NATURE/CHARACTER OF EXPENDITURE AND THEREFORE, IN T HE PRESENT CASE, DECISION OF HONBLE HYDERABAD TRIBUNAL IS SQU ARELY APPLICABLE. 5.3 THE LD.AR SUBMITTED THAT THE ISSUE OF ALLOWABIL ITY OF 10/15% OF SALE PROCEEDS REMITTED TO SPV HAS BEEN CO NSIDERED AT LENGTH BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN FOLLOWING CASES: (I). M/S. VEERABHADRAPPA SANGAPPA & CO., IN ITA NO.1054/BANG/201 9 ORDER DATED, 08-12-2020. (II). M/S. RAMGAD MINERALS & MINING LTD. IN ITA NOS .1270 & 12711BANG1201 9 ORDER DATED, 04-11-2020). (III). SRI B.RUDRAGOUDA- ITA NOS. 314 & 315/BANG/20 20, DATED, 15-04- 2021 FOR THE ASSESSMENT YEARS, 2015-16 &2016-17. 5.4 ON THE CONTRARY LD.CIT.DR RELIED ON OBSERVATION S BY LD.CIT(A). 5.5 THE LD.AR IN THE WRITTEN SUBMISSION SUBMITTED T HE ISSUES FOR CONSIDERATION FOR YEARS UNDER CONSIDERATION AS UNDER:- ISSUE NO. ISSUE GROUND NOS (FORM NO 36, APPEAL PAPERS) ASSESSMENT YEAR 2012 -13 2013 -14 2014 -15 1. SPV DEDUCTION - 10%/15% 2.1 TO 2.6. YES YES YES PAGE 11 OF 41 ITA NOS.1780 - 1782/BANG/2018 2. CONTRIBUTION TO FLOOD RELIEF RELIEF 3.1 TO 3.5. YES YES YES 3. CONTRIBUTION TO FIMI 4.1 TO 4.2. YES -- -- 4. TRAVELLING EXPENSES 5 YES -- ---- 5.6 HE ALSO SUBMITTED THE ASSESSEE DO NOT WISH TO P RESS GROUND NO.5 FOR AY 2012-13 SINCE THE ISSUE WAS NOT RAISED BEFORE THE LD.CIT(A). ACCORDINGLY GROUND NO.5 STANDS DISMISSED AS NOT PRE SSED. 5.7 AS THE ISSUES RAISED BY ASSESSEE IN ALL YEARS U NDER CONSIDERATION ARE COMMON AND IDENTICAL, THEY ARE DI SPOSED OFF BY WAY OF COMMON ORDER. GROUND NO.2.1-2.6: 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN LIGHT O F RECORDS PLACED BEFORE US. 6.1 THE ALLOWABILITY OF THIS EXPENDITURE FIRST CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAMGAD MINERALS & MINING LTD. IN ITA NOS.1270 & 1271/BANG/2019, ORDER DATED 4.11.2020 FOR THE ASSES SMENT YEARS 2013-14 & 2014-15, WHEREIN IT WAS HELD AS UNDER:- 7.8.12. ON CAREFUL READING OF DECISION OF HONBLE SUPREME COURT DATED 18/04/2013, IT IS CLEAR THAT 15% CONTRIBUTION TO SP V ACCOUNT WAS GUARANTEE PAYMENT FOR IMPLEMENTING OF R & R PLAN, WHICH WOULD BE DEDUCTED FROM SALE PROCEEDS. THIS WAS ONE OF THE CONDITIONS FOR RESUMI NG MINING OPERATIONS UNDER CATEGORY B. WE REFER TO AND RELY ON OBSERVA TIONS BY HONBLE SUPREME COURT IN CASE OF CIT VS SITALDAS TIRATHDAS REPORTED IN (1961) 41 ITR 367. HONBLE SUPREME COURT LAYING DOWN FOLLOWING PRINCIP AL REFERRED TO VARIOUS RULINGS THAT ILLUSTRATED ASPECTS OF DIVERSION OF IN COME BY OVERRIDING TITLE. THESE ARE THE CASES WHICH HAVE CONSIDERED THE PROB LEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE APPLIED THE PRINCIPLE C ORRECTLY AND SOME, NOT. BUT WE DO NOT PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT PAGE 12 OF 41 ITA NOS.1780 - 1782/BANG/2018 OF THE FACTS IN THEM. IN OUR OPINION, THE TRUE TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSE E 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 D IFFERENCE 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 AN OBLIGATION AFTER SUCH INCOME REACHES T HE ASSESSEE THE SAME CONSEQUENCE IN LAW DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WHICH CAN TRULY BE EXCUSED AND NOT THE SECOND. THE SECOND PAY MENT IS MERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONES OWN INCO ME WHICH HAS BEEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A CASE I N WHICH THE INCOME NEVER REACHES THE ASSESSEE, WHO, EVEN IF HE WERE TO COLLE CT IT, DOES SO, NOT AS PART OF HIS INCOME BUT FOR AND ON BEHALF OF THE PERSON TO W HOM IT WAS PAYABLE. EMPHASIS SUPPLIED 7.8.13. IN THE PRESENT CASE, WE NOTE THAT 15% OF SA LE PROCEEDS WAS PAYABLE TO SPV ACCOUNT AFTER IT ACCRUED TO ASSESSEE AND THE FA CT THAT, ASSESSEE WAS OBLIGED TO PART WITH SUCH PORTION OF INCOME, BY VIR TUE OF DIRECTIONS OF HONBLE SUPREME COURT, AS A PRECONDITION TO RESUME MINING O PERATIONS UNDER CATEGORY B. AT THIS JUNCTURE, WE ALSO EMPHASISE T HAT, BUT FOR THE INTERVENTION BY HONBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE C ONTRIBUTED 15% TO SPV ACCOUNT FOR IMPLEMENTATION OF RECLAMATION AND REHAB ILITATION SCHEME ON ITS OWN, AS THERE WAS NO STATUTORY REQUIREMENT TO DO SO UNDER RELEVANT STATUTES THAT REGULATE MINING ACTIVITIES. 7.8.14. HONBLE SUPREME COURT HAS BEEN VERY CLEAR R EGARDING THE TYPES OF PAYMENTS THAT NEEDS TO BE RECOVERED FROM LESSEES U NDER CATEGORY B, FROM THE SALE PROCEEDS AS WELL AS OTHERWISE. ALL THE PAY MENTS FORM PART OF R&R PLAN FOR RECOUPING AND REHABILITATING THE ENVIRONME NT. CERTAIN PAYMENTS ARE ONETIME PAYMENT AND SOME OTHERS ARE RECURRING DEPEN DING UPON THE SALE OF IRON ORE SOLD IN THE NAME OF EACH LICENSEE OR DEPEN DING ON THE NEED FOR REHABILITATION. 7.8.15. IN OUR VIEW, CONTRIBUTING 15% TO SPV ACCOUN T ON ACCOUNT OF CATEGORY B, WOULD BE APPLICATION OF INCOME, AND THEREFORE, SHOULD BE CONSIDERED AS EXPENDITURE INCURRED FOR CARRYING OUT ITS BUSINESS ACTIVITY. THIS WE HOLD SO, FOR THE REASON THAT, CONTRIBUTIONS DETERMINED BY HONBL E SUPREME COURT ARE IN THE NATURE OF GUARANTEE PAYMENT NECESSARY FOR RESUM ING MINING ACTIVITY. WE ALSO NOTE THAT, ALLEGED SUM IN THESE GROUNDS ARE FO R IMPLEMENTATION OF R&R PLANS IN RESPECTIVE SANCTIONED LEASE AREAS HELD BY ASSESSEE, WHERE ILLEGAL MINING ACTIVITIES OR WHICH WERE USED FOR ILLEGAL OV ERBURDEN DUMPS, ROADS, OFFICES ETC., BEYOND SANCTIONED LEASE AREA WERE CAR RIED OUT. HERE, WE ALSO NOTE THAT, HONBLE SUPREME COURT DIRECTED CEC TO RE FUND ANY LEFTOVER GUARANTEE MONEY, AFTER COMPLETION OF IMPLEMENTATION OF R& R PLAN, SUBJECT TO PAGE 13 OF 41 ITA NOS.1780 - 1782/BANG/2018 SATISFACTION OF CEC AND APPROVAL BY HONBLE 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 NAT URE. WE, THEREFORE, REJECT OBSERVATIONS OF AUTHORITIES BELOW THAT, SUCH SUM HA VING CONTRIBUTED BY ASSESSEE FALL WITHIN AMBIT OF EXPLANATION 1 TO SECT ION 37 (1) OF THE ACT. ........... BASED ON ABOVE DISCUSSIONS AND ANALYSIS, WE ARE OF OPINION THAT CONTRIBUTION TO SPV BEING 15% OF SALE PROCEEDS, UNDER CATEGORY B , IS AN ALLOWABLE EXPENDITURE FOR YEAR UNDER CONSIDERATION. 7. THIS ISSUE AGAIN CAME UP FOR CONSIDERATION BEFOR E THIS TRIBUNAL IN THE CASE OF VEERABHADRAPPA SANGAPPA & CO. IN ITA NO.1270 & 1271/BANG/2019 FOR AY 2013-14 , WHEREIN THIS TRIBUNAL BY ORDER DATED 4.11.2020 FOLLOWED THE ABOVE VIEW BY OBSERVING AS UNDER :- 7.10.1. LD.COUNSEL AGAIN RAISED 3 PREPOSITIONS BEF ORE US IN RESPECT OF THE CONTRIBUTION MADE TO SPV ACCOUNT FROM THE SA LE PROCEEDS. PRIMARILY HE CONTENDED THAT THERE IS DIVERSION OF INCOME BY OVERRIDING TITLE TO 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 LO SS UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. OR HE SUBMITTED THAT IT MAY BE TREATED AS AN EXPENDI TURE INCURRED BY ASSESSEE FOR PURPOSES OF BUSINESS. 7.10.2. ON THE CONTRARY, LD.CIT DR SUBMITTED THAT I T IS AN APPLICATION OF INCOME AND THEREFORE HAS TO BE DISAL LOWED IN THE HANDS OF ASSESSEE. HE SUBMITTED THAT LD.AO IN SUPPO RT OF DISALLOWING THE CLAIM OF EXPENDITURE RELIED ON FOLL OWING DECISIONS: CIT VS.KCP LTD. REPORTED IN 245 ITR 421(SC) G.PADNABHA CHETTIYAR & SONS VS.CIT REPORTED IN 18 2 ITR 1(MAD) REFORMFLOUR MILLS PVT.LTD VS.CIT REPORTED IN 132 ITR 184,196(CAL) CIT VS.A.KRISHNASWAMY MUDALIAR & 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 HAV E ALREADY HELD PAGE 14 OF 41 ITA NOS.1780 - 1782/BANG/2018 THAT ENTIRE INCOME ACCRUED TO ASSESSEE WHILE DECIDI NG 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 REVENUE IN ANY MANNER. 7.10.3. ON CAREFUL READING OF DECISION OF HONBLE S UPREME COURT IN CASE OF SAMAJ PARIVARTANA SAMUDAYA & ORS. VS. STATE OF KARNATAKA & ORS. (SUPRA), IT IS CLEAR THAT 10%/15% CONTRIBUTION TO SPV ACCOUNT WAS GUARANTEE PAYMENT FOR IMPLEMENTING OF R & R PLAN, WHICH WOULD BE DEDUCTED FROM SALE PROCEEDS. T HIS WAS ONE OF THE CONDITIONS FOR RESUMING MINING OPERATIONS UNDER CATEGORIES A AND B RESPECTIVELY. 7.10.4. WITH THIS BACKGROUND, WE ONCE AGAIN REFER T O AND RELY ON OBSERVATIONS BY HONBLE SUPREME COURT IN CASE OF CI T VS SITALDAS TIRATHDAS (SUPRA). HONBLE SUPREME COURT LAYING DOW N FOLLOWING PRINCIPAL REFERRED TO VARIOUS RULINGS THAT ILLUSTRA TED ASPECTS OF DIVERSION OF INCOME BY OVERRIDING TITLE. THESE ARE THE CASES WHICH HAVE CONSIDERED THE PROB LEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE APPLIED THE PRINCIPLE CORRECTLY AND SOME, NOT. BUT WE DO NOT PROPOSE TO E XAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FA CTS 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 NATUR E OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE IS A DIFFERENCE B ETWEEN 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 SAI D TO BE A PART OF THE INCOME OF THE ASSESSEE. WHEREBY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDU CTIBLE BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE A N OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE THE SAME CONSEQUEN CE IN LAW DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WH ICH CAN TRULY BE EXCUSED AND NOT THE SECOND. THE SECOND PAYMENT IS M ERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONES OWN INCO ME WHICH HAS BEEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A C ASE IN WHICH THE INCOME NEVER REACHES THE ASSESSEE, WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INCOME BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT WAS PAYABLE. EMPHASIS SUPPLIED 7.10.5. APPLYING, THIN LINE OF DIFFERENCE INTERPRET ED BY HONBLE SUPREME COURT TO PRESENT FACTS, WE ARE OF THE OPINI ON THAT, CONTRIBUTION TO SPV ACCOUNT, CANNOT BE CONSIDERED T O BE DIVERSION OF INCOME. THIS IS BECAUSE, WE HAVE ALREADY HELD WHILE DECIDING GROUND 2.1 AND 2.2 HEREINABOVE, THAT ENTIRE SALE PR OCEEDS ACCRUED PAGE 15 OF 41 ITA NOS.1780 - 1782/BANG/2018 TO ASSESSEE, AND IT IS ONLY DUE TO DIRECTION OF HON BLE SUPREME COURT THAT SUCH AMOUNT WAS CONTRIBUTED TO SPV ACCOU NT, FOR WHICH ASSESSEE WAS TO AUTHORISE CEC/MC IN RELEVANT PARAGR APH 11(III) REFER TO AND RELIED BY LD.CIT DR. 7.10.6. IN THE PRESENT FACTS OF THE CASE, WE NOTE T HAT 10%/15% OF SALE PROCEEDS WAS PAYABLE TO SPV ACCOUNT, AFTER IT ACCRUED TO ASSESSEE, AND THE FACT THAT, ASSESSEE WAS OBLIGED T O PART WITH SUCH PORTION OF INCOME, BY VIRTUE OF DIRECTIONS OF HONB LE SUPREME COURT IN CASE OF SAMAJ PARIVARTANA SAMUDAYA & ORS. VS. ST ATE OF KARNATAKA & ORS. (SUPRA), AS A PRECONDITION TO RESU ME MINING OPERATIONS UNDER CATEGORY A AND B. AT THIS JUNCT URE WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HONBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE CONTRIBUTED 10%/15% TO SPV ACCOUNT FOR IMPLEMENTATION OF RECLAMATION AND REHABILITATION SC HEME 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 ACC OUNT ON ACCOUNT OF CATEGORY A/ B RESPECTIVELY, WOULD BE APPLICATION OF INCOME, AND THEREFORE SHOULD BE CONSIDERED AS EXPEN DITURE INCURRED FOR CARRYING OUT ITS BUSINESS ACTIVITY. THIS WE HOL D SO, FOR THE REASON THAT, CONTRIBUTIONS DETERMINED BY HONBLE SUPREME C OURT ARE IN THE NATURE OF GUARANTEE PAYMENT NECESSARY FOR RESUMING MINING ACTIVITY. WE ALSO NOTE THAT, ALLEGED SUM IN THESE G ROUNDS ARE FOR IMPLEMENTATION OF R&R PLANS IN RESPECTIVE SANCTIONE D LEASE AREAS HELD BY ASSESSEE, WHERE ILLEGAL MINING ACTIVITIES O R WHICH WERE USED FOR ILLEGAL OVERBURDEN DUMPS, ROADS, OFFICES E TC., BEYOND SANCTIONED LEASE AREA WERE CARRIED OUT. HERE, WE AL SO NOTE THAT, HONBLE SUPREME COURT DIRECTED CEC TO REFUND ANY LE FTOVER 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 CONTRIBUT ED TOWARDS SPV BEING 10%/15% OF SALE PROCEEDS, UNDER CATEGORY A/B, CANNOT BE TREATED AS PENAL IN NATURE. 7.10.8. WE NOTE THAT CO-ORDINATE HYDRABAD BENCH OF TRIBUNAL IN NMDC (SUPRA) WAS THE CASE OF CATEGORY A WHEREIN I T WAS ALLOWED AS EXPENDITURE BY OBSERVING AS UNDER: 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-C OMPANY, A PUBLIC SECTOR UNDERTAKING, ENGAGED IN THE BUSINESS OF 'MIN ING OF IRON ORE DIAMONDS; AND GENERATION AND SALE OF WIND POWER', F ILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEARS 2013-14 AND 2014-15 BOTH UNDER THE NORMAL PROVISIONS AS WELL AS U/S 115 JB OF THE ACT FOR THE RELEVANT AYS. DURING THE ASSESSMENT PROCEED INGS U/S 143(3) OF THE ACT, THE A.O. OBSERVED THAT THE ASSESSEE-COM PANY IS CARRYING PAGE 16 OF 41 ITA NOS.1780 - 1782/BANG/2018 OUT MINING ACTIVITY IN INDIA AND PARTICULARLY IN KA RNATAKA AND THAT THE HON'BLE SUPREME COURT OF INDIA TOOK NOTE OF THE LARGE SCALE ILLEGAL MINING ACTIVITY CARRIED ON BY VARIOUS COMPA NIES IN KARNATAKA AT THE COST OR DETRIMENT OF ENVIRONMENT A ND DELIVERED THEIR JUDGMENT ON 18.04.2013 LEVYING APPROPRIATE CH ARGES ON THE LEASEHOLDERS. A.O. ALSO OBSERVED THAT THE HON'BLE S UPREME COURT, BASED ON THE EXTENT OF ILLEGAL MINING, CLASSIFIED T HE MINING LEASES INTO THREE CATEGORIES VIZ., CATEGORY 'A', 'B' AND ' C' AND THAT THE ASSESSEE IS FALLING IN CATEGORY-B IN RESPECT OF DON IMALI COMPLEX AND THAT IN THEIR ORDER, THE APEX COURT OBSERVED TH AT BEFORE CONSIDERATION OF ANY RESUMPTION OF MINING OPERATION S BY CATEGORY-B LEASEHOLDERS, EACH OF THE LEASE HOLDER MUST PAY COM PENSATION FOR THE AREAS UNDER ILLEGAL MINING PITS OUTSIDE THE SAN CTIONED AREA AT THE RATE OF RS. 5 CRS PER HECTARE AND FOR ILLEGAL O VERBURDEN FOR AT THE RATE OF RS. 1 CR PER HECTARE. FURTHER, A.O. OBSERVE D THAT THE SAID DIRECTION OF THE APEX COURT WAS SUBJECT TO THE FINA L DETERMINATION OF THE NOTIONAL LOSS CAUSED BY THE ILLEGAL MINING AND ILLEGAL USE OF THE LAND; AND THAT THE HON'BLE SUPREME COURT HAD DIRECT ED THAT EACH OF THE LEASEHOLDER SHOULD PAY A SUM EQUIVALENT TO 15% OF THE SALE PROCEEDS OF ITS IRON ORE SOLD THROUGH THE MONITORIN G COMMITTEE. IN ACCORDANCE WITH THE SAID DIRECTION, THE ASSESSEE MA DE PAYMENT OF RS. 337.13 CRS TOWARDS CONTRIBUTION FOR THE SPECIAL PURPOSE VEHICLE AND THE SUM OF RS. 68.66 CRS TOWARDS PENALTY / COMP ENSATION FOR ENCROACHMENT OF THE MINING AREA BEYOND THE SANCTION ED / LEASED AREA. THE A.O. OBSERVED THAT THE TOTAL OF THE ABOVE PAYMENT OF RS. 405.79 CRS WAS PUNITIVE IN NATURE AND ACCORDINGLY S OUGHT TO DISALLOW THE SAME BY ISSUANCE OF A SHOW-CAUSE NOTIC E. 4. THE A.O. HOWEVER DID NOT ACCEPT THE ASSESSEE'S E XPLANATION AND HELD THAT THE ASSESSEE, BEING A CATEGORY-B LEASEHOL DER, HAS BEEN DIRECTED TO MAKE THE PAYMENT FOR INFRINGEMENT OF MM DR ACT AND OTHER ALLIED LAWS. THEREFORE, HE OBSERVED THAT THE PAYMENT OF RS. 405.79 CRS IS PUNITIVE IN NATURE AND BROUGHT IT TO TAX. .. 10. THUS, FROM THE TABLE REPRODUCED ABOVE, IT IS SE EN THAT THE ASSESSEE HAS BEEN CLASSIFIED AS CATEGORY-'A' WHEREA S THE ASSESSING OFFICER HAS CONSIDERED THE ASSESSEE AS CA TEGORY-'B' COMPANY. THE HON'BLE SUPREME COURT HAS CLEARLY INDI CATED THAT CATEGORY-A COMPRISES OF (I) 'WORKING LEASES' WHERE IN NO ILLEGALITY / MARGINAL ILLEGALITY HAVE BEEN FOUND AND (II) 'NON-W ORKING LEASES' WHEREIN NO MARGINAL / ILLEGALITIES HAVE BEEN FOUND, WHEREAS CATEGORY-B COMPRISES OF (I) MINING LEASES WHEREIN I LLEGAL MINING IS 10% TO 15% OF THE SANCTIONED LEASE AREAS. HOWEVER, CEC HAD PAGE 17 OF 41 ITA NOS.1780 - 1782/BANG/2018 RECOMMENDED THAT BOTH 'A' AND 'B' CATEGORIES MAY BE ALLOWED TO RESUME THE MINING ACTIVITY SUBJECT TO THE PAYMENT O F PENALTY / COMPENSATION DECIDED BY THE COURT. THUS, ACCORDING TO THE ASSESSEE, THE SAID EXPENDITURE IS NOTHING BUT A PAY MENT WHICH WAS REQUIRED TO BE MADE WITHOUT WHICH THE ASSESSEE COULD NOT HAVE CARRIED ON THE MINING ACTIVITIES AND THEREFORE , IT IS A 'BUSINESS EXPENDITURE'. SINCE THE CEC HAD CATEGORISED THE ASS ESSEE AS A CATEGORY-A COMPANY AND THE HON'BLE SUPREME COURT HA S ACCEPTED THE SAID CATEGORIZATION, THERE WOULD HAVE BEEN MARG INAL ILLEGALITIES COMMITTED BY THE ASSESSEE AND THE COMPENSATION / PE NALTY AS DIRECTED BY THE HON'BLE SUPREME COURT IS ONLY TO CO MPENSATE THE GOVERNMENT FOR THE LOSS OF REVENUE FROM SUCH MINING OR MARGINAL ILLEGALITIES AND NOT AS A PENALTY. THOUGH THE NOMEN CLATURE GIVEN IS 'PENALTY' IT IS NOT FOR INFRACTION OR VIOLATION OF ANY LAW TO HOLD IT TO BE PUNITIVE IN NATURE, AS PRESUMED BY THE ASSESSING OFFICER. LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAW, PARTICULARLY THE DECISION OF THE COORDINATE BE NCH OF THE ITAT, KOLKATA IN THE CASE OF ESSEL MINING & INDUSTRIES LT D VS. ADDL. CIT (ITA NO. 352/KOL/2011 AND OTHERS, DATED 20.05.2016) ; ACIT VS. FREEGADE & CO. LTD (ITA NO.934/KOL/2009, DATED 05.0 8.2011) AND ALSO THE DECISION OF THE HON'BLE CALCUTTA HIGH COUR T IN THE CASE OF SHYAMSEL LTD VS. DCIT (72 TAXMANN.COM 105) (CAL.). ON GOING THROUGH THE SAID DECISIONS, WE FIND THAT THE HON'BL E CALCUTTA HIGH COURT HAS CONSIDERED THE CASE OF AN ASSESSEE WHO FA ILED TO INSTALL POLLUTION CONTROL DEVICE WITHIN FACTORY PREMISE WIT HIN PRESCRIBED TIME AND THAT THE ASSESSEE HAD TO PAY RS. 12.50 LAK H FOR COMPENSATING DAMAGE TO ENVIRONMENT AND THE SAME WAS RECOVERED BY STATE POLLUTION CONTROL BOARD ON THE PRINCIPLE O F '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 ILLEG AL AND THAT COMPENSATION WAS PAID BECAUSE OF ITS FAILURE TO INS TALL 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 CO VERED BY SECTION 37 OF THE ACT. FOR COMING TO THIS CONCLUSIO N, HON'BLE HIGH COURT HAS ALSO CONSIDERED THE JUDGMENT OF THE HON'B LE NATIONAL GREEN TRIBUNAL IN THE CASE OF STATE POLLUTION CONTR OL BOARD VS. SWASTIK ISPAT (P.) LTD WHEREIN AT PARA 38 OF THE JU DGMENT THE TRIBUNAL HELD AS UNDER:- 'BEING PUNITIVE IS THE ESSENCE OF 'PENALTY'. IT IS IN CLEAR CONTRADISTINCTION TO 'REMEDIAL' AND / OR 'COMPENSAT ORY'. 'PENALTY ' ESSENTIALLY HAS TO BE FOR RESULT OF A DEFAULT AND I MPOSED BY WAY OF PUNISHMENT. ON THE CONTRARY, 'COMPENSATORY' MAY BE RESULTING FROM PAGE 18 OF 41 ITA NOS.1780 - 1782/BANG/2018 A DEFAULT FOR THE ADVANTAGE ALREADY TAKEN BY THAT P ERSON AND IS INTENDED TO REMEDY OR COMPENSATE THE CONSEQUENCES O F THE WRONG DONE. FOR INSTANCE, IF A UNIT HAS BEEN GRANTED COND ITIONAL CONSENT AND IS IN DEFAULT OF COMPLIANCE, CAUSES POLLUTION B Y POLLUTING A RIVER OR DISCHARGING SLUDGE, TRADE AFFLUENT OR TRADE WAST E INTO THE RIVER OR ON OPEN LAND CAUSING POLLUTION, WHICH A BOARD HAS T O REMOVE ESSENTIALLY TO CONTROL AND PREVENT THE POLLUTION, T HEN THE AMOUNT SPENT BY THE BOARD, IS THUS, SPENT BY ENCASHING THE BANK GUARANTEE OR IS ADJUSTED THREAD AND THIS EXERCISE WOULD FALL IN THE REALM OF COMPENSATORY RESTORATION AND NOT A PENAL CONSEQUENC E. IN GATHERING THE MEANING OF THE WORD 'PENALTY' IN REFE RENCE TO A LAW, THE CONTEXT IN WHICH IT IS USED IS SIGNIFICANT.' 11. APPLYING THIS RATIO TO THE FACTS OF THE CASE BE FORE US, WE FIND FROM PARA 43 OF THE HON'BLE SUPREME COURT'S ORDER R EPRODUCED ABOVE THAT THE CONDITION OF PAYMENT FOR RESUMING TH E MINING ACTIVITY BY CATEGORIES 'A' & 'B' COMPANIES IS TO NOT TO PUNI SH THE COMPANIES FOR ANY VIOLATION OF LAW BUT IS TO ENSURE SCIENTIFI C AND PLANNED EXPLOITATION OF MINERAL RESOURCES IN INDIA. FURTHER THE HON'BLE SUPREME COURT HAD DIRECTED AS UNDER:- '(X) OUT OF THE 20% OF SALE PROCEEDS RETAINED BY TH E MONITORING COMMITTEE IN RESPECT OF THE CLEARED MINING LEASES F ALLING IN 'CATEGORY- A', 10% OF THE SALE PROCEEDS MAY BE TRAN SFERRED 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/COMPENSAT ION, THE ESTIMATED COST OF THE IMPLEMENTATION OF THE R & R P LAN, AND 10% OF THE SALE PROCEEDS TO BE RETAINED FOR BEING TRANSFER RED TO THE SPV, THE BALANCE AMOUNT, IF ANY MAY BE REIMBURSED TO THE RESPECTIVE LESSEES;' THE FACT THAT THE COMPENSATION IS PROPORTIONATE TO AREA OF ILLEGAL MINING OUTSIDE THE LEASED AREA AND THAT THE ASSESSE E HAS PAID THE PROPORTIONATE COMPENSATION FOR MINING IN THE AREAS OUTSIDE THE SANCTIONED AREA ALLOTTED TO IT AND THAT 10% OF SUM IS TO BE TRANSFERRED TO SPV AND THE BALANCE 10% IS TO BE REI MBURSED TO THE RESPECTIVE LESSEES, ACCORDING TO US, PROVES THAT IT IS A PAYMENT MADE AS 'COMPENSATION' FOR EXTRA MINING, WITHOUT WH ICH THE ASSESSEE COULD NOT HAVE RESUMED ITS ACTIVITIES. THE REFORE, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE T HAT IT IS COMPENSATORY IN NATURE AND IS A 'BUSINESS EXPENDITU RE' 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 BANGAL ORE BENCH OF TRIBUNAL HAS ALSO CONSIDERED IDENTICAL ISSUE IN THE CASE OF RAMGAD PAGE 19 OF 41 ITA NOS.1780 - 1782/BANG/2018 MINERALS & MINING LTD (ITA NO.1270 & 1271/B/2019 DA TED 04-11- 2020) BEING CATEGORY B, AN IDENTICAL ADDITION MAD E BY LD.AO WAS HELD TO BE ALLOWABLE AS EXPENDITURE WITH FOLLOWING OBSERVATIONS:- 7.8.9. IN PRESENT APPEALS, ONLY ISSUE RAISED FOR O UR CONSIDERATION IS IN RESPECT OF 15% CONTRIBUTION MADE TO SPV FOR ASSE SSMENT YEAR 2013-14 AND 2014-15; AND ISSUE IN RESPECT OF R&R EX PENSES 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 TH E SPV EXPENSES IS NOT ALLOWABLE BECAUSE IT IS NOT COMPENS ATION BUT IT IS PENAL IN NATURE FOR CONTRAVENTION OF LAW AS OBSERVE D BY HIM IN PARA 4.3 OF THE ASSESSMENT ORDER FOR AY:2013-14. (B) SECOND OBJECTION OF THE LD.AO IS CONTAINED IN P ARA 4.9 OF THE ASSESSMENT ORDER FOR AY:2013-14 AND AS PER THE SAME, THIS IS THE OBJECTION OF LD.AO THAT THE SAID SPV IS NOTHING BUT CSR EXPENSES ONLY AND THEREFORE NOT ALLOWABLE. (C) THIRD OBJECTION OF LD.AO IS ALSO CONTAINED IN P ARA 4.9 OF THE ASSESSMENT ORDER FOR AY:2013-14 AND AS PER THE SAME , THIS IS THE OBJECTION OF THE LD.AO THAT THE SAID SPV IS NOT ALL OWABLE U/S 37 (1) AS IT WAS NOT INCURRED BY THE ASSESSEE WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS. (D) IN PARA 4.8 OF THE ASSESSMENT ORDER FOR AY:2013 -14, LD.AO IS STATING THIS THAT SPV RATE IS 10% IN CATEGORY A MINES BUT 15% IN CATEGORY B MINES AND THIS EXTRA 5% IN CATEGORY B MINES IS FOR VARIOUS VIOLATIONS AND ILLEGAL MINING AND EVEN AFTE R THIS OBSERVATION, HE FINALLY HELD IN THE SAME PARA THAT WHOLE SPV EXPENSES OF 15% IS NOT ALLOWABLE. 7.8.10. LD.AO OBSERVED THAT, THESE SPV WERE DEDUCTE D PURSUANT TO DIRECTIONS OF HONBLE SUPREME COURT (SUPRA) BY ORDE R DATED 18/04/2013, WHEREIN, IT WAS DIRECTED THAT, SUM SO P AID TOWARDS SPV CHARGES SHOULD BE EXHAUSTIVELY AND EXCLUSIVELY USED TO UNDERTAKE SOCIO ECONOMIC AND INFRASTRUCTURE DEVELOP MENT, AFFORESTATION, SOIL AND BIODIVERSITY CONSERVATION A ND FOR ENSURING INCLUSIVE GROWTH OF THE AREA SURROUNDING MINING LEA SES. 7.8.11. LD.AO FURTHER OBSERVED THAT THESE PAYMENTS ARE NOTHING BUT APPROPRIATION OF PROFITS EARNED BY ASSESSEE THAT CA NNOT BE SAID TO HAVE INCURRED FOR PURPOSE OF BUSINESS OR EARNING PR OFITS. ACCORDINGLY, ENTIRE AMOUNT ADJUSTED TOWARDS SPV WAS DISALLOWED BY LD.AO. LD.AO WAS OF OPINION THAT ENTIRE SALE PRO CEEDS AS PER E AUCTION BID SHEETS/INVOICES WERE TO BE ASSESSED AS TRADING RECEIPTS. THE AMOUNT RETAINED BY CEC/MONITORING COM MITTEE AS PER PAGE 20 OF 41 ITA NOS.1780 - 1782/BANG/2018 DIRECTIONS OF HONBLE SUPREME COURT, ON BEHALF OF A SSESSEE FOR SPV PURPOSES, WAS ON ACCOUNT OF DAMAGES AND LOSS CAUSED TO ENVIRONMENT DUE TO CONTRAVENTION OF LAW, AND THEREF ORE, CANNOT BE ALLOWED AS DEDUCTION OUT OF SALE PROCEEDS, EVEN AFT ER ACCRUAL 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 SAL E PROCEEDS TO THE SPV. 7.8.12. ON CAREFUL READING OF DECISION OF HONBLE S UPREME COURT DATED 18/04/2013, IT IS CLEAR THAT 15% CONTRIBUTION TO SPV ACCOUNT WAS GUARANTEE PAYMENT FOR IMPLEMENTING OF R & R PLA N, WHICH WOULD BE DEDUCTED FROM SALE PROCEEDS. THIS WAS ONE OF THE CONDITIONS FOR RESUMING MINING OPERATIONS UNDER CAT EGORY B. WE REFER TO AND RELY ON OBSERVATIONS BY HONBLE SUP REME COURT IN CASE OF CIT VS SITALDAS TIRATHDAS REPORTED IN(1961) 41 ITR 367.HONBLE SUPREME COURT LAYING DOWN FOLLOWING PRI NCIPAL REFERRED TO VARIOUS RULINGS THAT ILLUSTRATED ASPECT S OF DIVERSION OF INCOME BY OVERRIDING TITLE. THESE ARE THE CASES WHICH HAVE CONSIDERED THE PROB LEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE APPLIED THE PRINCIPLE CORRECTLY AND SOME, NOT. BUT WE DO NOT PROPOSE TO E XAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FA CTS 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 NATUR E OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE IS A DIFFERENCE B ETWEEN 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 SAI D TO BE A PART OF THE INCOME OF THE ASSESSEE. WHEREBY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDU CTIBLE BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE A N OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE THE SAME CONSEQUEN CE IN LAW DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WH ICH CAN TRULY BE EXCUSED AND NOT THE SECOND. THE SECOND PAYMENT IS M ERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONES OWN INCO ME WHICH HAS BEEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A C ASE IN WHICH THE INCOME NEVER REACHES THE ASSESSEE, WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INCOME BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT WAS PAYABLE. EMPHASIS SUPPLIED 7.8.13. IN THE PRESENT CASE, WE NOTE THAT 15% OF SA LE PROCEEDS WAS PAYABLE TO SPV ACCOUNT AFTER IT ACCRUED TO ASSESSEE AND THE FACT THAT, ASSESSEE WAS OBLIGED TO PART WITH SUCH PORTIO N OF INCOME, BY PAGE 21 OF 41 ITA NOS.1780 - 1782/BANG/2018 VIRTUE OF DIRECTIONS OF HONBLE SUPREME COURT, AS A PRECONDITION TO RESUME MINING OPERATIONS UNDER CATEGORY B. AT THI S JUNCTURE, WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HO NBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE CONTRIBUTED 15% TO S PV ACCOUNT FOR IMPLEMENTATION OF RECLAMATION AND REHABILITATION SC HEME ON ITS OWN, AS THERE WAS NO STATUTORY REQUIREMENT TO DO SO UNDER RELEVANT STATUTES THAT REGULATE MINING ACTIVITIES. 7.8.14. HONBLE SUPREME COURT HAS BEEN VERY CLEAR R EGARDING THE TYPES OF PAYMENTS THAT NEEDS TO BE RECOVERED FROM L ESSEES UNDER CATEGORY B, FROM THE SALE PROCEEDS AS WELL AS OTH ERWISE. ALL THE PAYMENTS FORM PART OF R&R PLAN FOR RECOUPING AND RE HABILITATING THE ENVIRONMENT. CERTAIN PAYMENTS ARE ONETIME PAYME NT AND SOME OTHERS ARE RECURRING DEPENDING UPON THE SALE OF IRO N ORE SOLD IN THE NAME OF EACH LICENSEE OR DEPENDING ON THE NEED FOR REHABILITATION. 7.8.15. IN OUR VIEW, CONTRIBUTING 15% TO SPV ACCOUN T ON ACCOUNT OF CATEGORY B, WOULD BE APPLICATION OF INCOME, AND T HEREFORE, SHOULD BE CONSIDERED AS EXPENDITURE INCURRED FOR CARRYING OUT ITS BUSINESS ACTIVITY. THIS WE HOLD SO, FOR THE REASON THAT, CON TRIBUTIONS DETERMINED BY HONBLE SUPREME COURT ARE IN THE NATU RE OF GUARANTEE PAYMENT NECESSARY FOR RESUMING MINING ACT IVITY. WE ALSO NOTE THAT, ALLEGED SUM IN THESE GROUNDS ARE FOR IMP LEMENTATION OF R&R PLANS IN RESPECTIVE SANCTIONED LEASE AREAS HELD BY ASSESSEE, WHERE ILLEGAL MINING ACTIVITIES OR WHICH WERE USED FOR ILLEGAL OVERBURDEN DUMPS, ROADS, OFFICES ETC., BEYOND SANCT IONED 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 HONBLE SUPREME COURT. FOR THIS PECULIAR REASON, AMOUNT SO CONTRIBUTED TOWARDS SPV BEING 15% OF SALE PROCEEDS, UNDER CATEGORY B, CANNOT BE TREATED AS PE NAL IN NATURE. WE, THEREFORE, REJECT OBSERVATIONS OF AUTHORITIES B ELOW THAT, SUCH SUM HAVING CONTRIBUTED BY ASSESSEE FALL WITHIN AMBI T OF EXPLANATION 1 TO SECTION 37 (1) OF THE ACT. 7.10.10. WE NOTE THAT THE CEC, VIDE ITS REPORT DATE D 3-2-2012 AND 13-3-2012 MADE RECOMMENDATIONS WITH REGARD TO SETTI NG UP OF SPV, TRANSFER OF FUNDS COLLECTED FROM ALL LEASE HOLDERS UNDER VARIOUS HEADS, MANNER OF UTILISATION OF SAID FUNDS ETC., TO HONBLE SUPREME COURT, WHICH IS INCORPORATED IN PARAGRAPH 7 AT PAGE 164 TO 171 AS UNDER: (IX) A SPECIAL PURPOSE VEHICLE (SPV) UNDER THE CHA IRMANSHIP OF CHIEF SECRETARY, GOVERNMENT KARNATAKA AND WITH THE SENIOR OFFICERS OF THE CONCERNED DEPARTMENTS OF THE STATE GOVERNMEN T AS MEMBERS MAY BE DIRECTED TO BE SET UP FOR THE PURPOSE OF TAK ING VARIOUS PAGE 22 OF 41 ITA NOS.1780 - 1782/BANG/2018 AMELIORATIVE AND MITIGATIVE MEASURES IN DISTRICTS B ELLARY, CHITRADURGA AND TUMKUR. THE ADDITIONAL RESOURCES MO BILIZED BY (A) ALLOTMENT/ ASSIGNMENT OF THE CANCELLED MINING LEASE S AS WELL AS THE MINING LEASES BELONGING TO M/S. MML, (B) THE AMOUNT OF THE PENALTY/ COMPENSATION RECEIVED/ RECEIVABLE FROM THE DEFAULTING LESSEE, (C) THE AMOUNT RECEIVED/ RECEIVABLE BY THE MONITORING COMMITTEE FROM THE MINING LEASES FALLING IN CATEGO RY- A AND CATEGORY-B, (D) AMOUNT RECEIVED/ RECEIVABLE FROM THE SALE PROCEEDS OF THE CONFISCATED MATERIAL ETC., MAY BE D IRECTED TO BE TRANSFERRED TO THE SPV AND USED EXCLUSIVELY FOR THE SOCIO- ECONOMIC DEVELOPMENT OF THE AREA/LOCAL POPULATION, INFRASTRU CTURE DEVELOPMENT, CONSERVATION AND PROTECTION OF FOREST, DEVELOPING COMMON FACILITIES FOR TRANSPORTATION OF IRON ORE (S UCH AS MAINTENANCE AND WIDENING OF EXISTING ROAD, CONSTRUC TION OF ALTERNATE ROAD, CONVEYOR BELT, RAILWAY SIDING AND I MPROVING COMMUNICATION SYSTEM, ETC.). A DETAILED SCHEME IN T HIS REGARD MAY BE DIRECTED TO BE PREPARED AND IMPLEMENTED AFTER OB TAINING PERMISSION OF THIS HONBLE COURT; 7.10.11. HONBLE SUPREME COURT AT 176 OF ITS ORDER MADE FOLLOWING OBSERVATIONS WITH REGARD TO SPV:- BY ORDER DATED 28-09-2012, THIS COURT HAD CONSTITU TED A SPECIAL PURPOSE VEHICLE (FOR SHORT SPV) ON THE SUGGESTION OF THE LEARNED AMICUS CURIAE. THE PURPOSE OF CONSTITUTION OF THE S PV, IT MAY BE NOTICED, IS FOR TAKING OF AMELIORATIVE AND MITIGATI VE MEASURES AS PER THE COMPREHENSIVE ENVIRONMENT PLANS FOR MINING IMP ACT ZONE (CPEMIZ) AROUND MINING LEASES IN BELLARY, CHITRADUR GA AND TUMKUR. BY ORDER DATED 28-09-2012, THE MONITORING C OMMITTEE WAS TO MAKE AVAILABLE THE PAYMENTS RECEIVED BY IT UNDER DIFFERENT HEADS OF RECEIVABLES TO THE SPV 7.10.12. IT IS NOTICED THAT AMOUNTS COLLECTED FROM ASSESSEE ARE DIRECTED TO BE GIVEN TO THE SPV, WHICH WILL IN TURN TAKE VARIOUS TYPES OF AMELIORATIVE AND MITIGATIVE STEPS IN THE I NTEREST 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 ORGANIZE D, PLANNED AND DISCIPLINED MANNER. UNDER THESE SET OF FACTS, IT CA NNOT BE SAID THAT THESE AMOUNTS ARE PENAL IN NATURE. WE NOTICE THAT T HE HYDERABAD BENCH OF TRIBUNAL IN THE CASE OF NMDC LTD (SUPRA) A ND CO-ORDINATE BENCH OF BANGALORE TRIBUNAL IN RAMGAD MINERALS (SUP RA) CAME TO THE SAME CONCLUSION. WE NOTE THAT IN NMDC CASE (SUP RA), HONBLE HYDRABAD TRIBUNAL FOLLOWED DECISION OF HON'BLE KOLK ATTA HIGH COURT IN THE CASE OF SHYAMSEL LTD (SUPRA) AND STATE POLLUTION CONTROL BOARD VS. SWASTIK ISPAT (P) LTD (SUPRA), WH EREIN IDENTICAL TYPES OF PAYMENTS MADE TO REMEDY THE RIVER POLLUTIO N CAUSED BY THE PARTIES WERE HELD TO BE COMPENSATORY IN NATURE. HEN CE THE PAGE 23 OF 41 ITA NOS.1780 - 1782/BANG/2018 PROVISIONS OF EXPLANATION 1 TO SEC.37 WILL NOT APPL Y TO THESE PAYMENTS. WE ALSO NOTE THAT HONBLE SUPREME COURT A T PAGE 171 OBSERVED THAT, THESE PAYMENTS ARE NECESSARY TO BE M ADE BY THE MINING LEASE HOLDERS. HENCE THERE IS MERIT IN THE S UBMISSION OF LD.COUNSEL THAT, WITHOUT MAKING THESE PAYMENTS, ASS ESSEE COULD NOT HAVE RESUMED THE MINING OPERATIONS. HENCE, THES E EXPENSES ARE INCIDENTAL TO CARRYING ON THE BUSINESS AND HENCE AL LOWABLE U/S 37(1) OF THE ACT. 7.10.13. BASED ON ABOVE DISCUSSIONS AND ANALYSIS, W E ARE OF OPINION THAT CONTRIBUTION TO SPV BEING 10%/15% OF S ALE PROCEEDS, UNDER CATEGORY A/B, IS TO BE ALLOWABLE AS EXPENDITU RE 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 CONSIDERE D TO BE LOSS IN THE HANDS OF A SSESSEE. 8.2 ADMITTEDLY THE FACTS CONSIDERED BY COORDINATE B ENCH IN ABOVE CASES AND THE FACTS BEFORE US IN THE PRESENT CASE ARE IDENTICAL AND DISALLOWANCES ARE MADE ON SIMILAR REA SONING FOR ASST. YEAR 2012-13 & 2013-14. ASST. YEAR 2014-15 9. FOR ASSESSMENT YEAR 2014-15 IDENTICAL CONTRIBUTI ON TOWARDS SPV UNDER BOTH THE CATEGORY MINES WAS DISALLOWED BY THE LD.AO BY APPLYING EXPLANATION 2 TO SECTION 37 (1) OF THE ACT. THIS ISSUE HAS BEEN ANALYSED ON IDENTICAL FACTS BY COORDINATE BENCH OF THIS TRIBUNAL IN THE FOLLOWING CASE OF B.RUDRAGOUDA VS.ACIT IN ITA NO.314&315/BANG/2020 , BY ORDER DATED 15/04/2021 FOR ASSESSMENT YEARS 2015-16 & 2016-17 AS UNDER: 7. WITHOUT PREJUDICE TO ABOVE, THE LD. AR SUBMITTED THAT THE LOWER AUTHORITIES HAVE ERRED IN LAW BY FAILING TO APPRECI ATE THAT THE EXPLANATION 2 TO SECTION 37 INTRODUCED BY FINANCE (NO.2) ACT 20 14 BARRING THE ALLOWABILITY OF CSR APPLIES ONLY TO THE COMPANIES A ND NOT TO OTHERS. A REFERENCE IS MADE TO EXPLANATION 2 TO SECTION 37(1) INSERTED BY THE FINANCE (NO.2) ACT, 2014. PRIOR TO AMENDMENT BY F INANCE (NO.2) ACT, 2014 THERE WAS NO RESTRICTION AS TO THE ALLOWABILIT Y OF CSR EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS AS PAGE 24 OF 41 ITA NOS.1780 - 1782/BANG/2018 DEDUCTION IN COMPUTING THE TAXABLE BUSINESS INCOME. FROM THE ABOVE PROVISION IT IS EVIDENT THAT THE EXPLANATION REFERS TO CSR AS REFERRED IN SECTION 135 OF COMPANIES ACT, 2013. THUS, THE SAID RESTRICTION IS APPLICABLE ONLY TO COMPANIES AND NOT TO OTHERS. THE REFORE, THE APPELLANT BEING AN INDIVIDUAL THE RESTRICTION IMPOSED UNDER E XPLANATION 2 TO SECTION 37 IS NOT APPLICABLE IN THE INSTANT CASE. THEREFO RE, IT IS SUBMITTED THAT THE IMPUGNED EXPENSES INCURRED FOR THE PURPOSE OF B USINESS ARE AN ADMISSIBLE EXPENDITURE UNDER SECTION 37. 8. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE FINANCE MINISTER HAS ANNOUNCED SOME TAX INCENTIVES IN THE BUDGET TO ENCO URAGE COMPANIES TO PARTICIPATE IN 'SWACHH BHARAT ABHIYAN' AND 'CLEAN G ANGA CAMPAIGN'. IT IS ANNOUNCED THAT THE DONATIONS (OTHER THAN THE CORPOR ATE SOCIAL RESPONSIBILITY OR CSR CONTRIBUTIONS) MADE TO 'SWACH H BHARAT KOSH' (BOTH BY RESIDENT AND NON-RESIDENT) AND CLEAN GANGA FUND (BY RESIDENT) SHALL BE ELIGIBLE FOR 100 PER CENT DEDUCTION UNDER SECTIO N 80G OF THE INCOME TAX ACT. AS PER THE CSR PROVISIONS, COMPANIES HAVE BEEN MANDATED TO SPEND 2 PER CENT OF THEIR THREE-YEAR AVERAGE NET PR OFIT ON CSR UNDER THE COMPANIES ACT, 2013. THE COMPANIES ARE ALSO REQUIRE D TO DISCLOSE THE CSR ACTIVITIES AND THE AMOUNT SPENT ON IT IN THEIR ANNUAL REPORTS. BUT THE INCOME TAX ACT DOES NOT PROVIDE FOR ANY INCENTIVES FOR SUCH EXPENDITURE EITHER FOR COMPANIES OR FOR ANY OTHER CLASS OF ASSE SSEES. THE BUDGET FOR 2014-15 HAS CLARIFIED THAT THE EXPENDITURE INCURRED ON CSR ACTIVITIES IS NOT FOR THE PURPOSE OF BUSINESS AND HENCE CANNOT BE ALLOWED AS DEDUCTION FOR COMPUTING TAX LIABILITY OF THE COMPANY UNDER TH E RESIDUARY PROVISIONS OF SECTION 37(1). THE DEDUCTION FOR CSR EXPENDITURE IS ALLOWED IF IT FALLS UNDER SECTION 30 TO SECTION 36 OF THE INCOME TAX AC T. ALSO, AS PER THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE (NO. 2) BILL, 2014, IT IS CLARIFIED THAT THE CSR EXPENDITURE IS AN APPLICA TION OF INCOME (WHICH IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE S OF CARRYING ON BUSINESS) AND HENCE THE TAX BENEFIT OF THE SAME WIL L NOT BE GIVEN IN COMPUTING THE INCOME AS PER THE NORMAL PROVISIONS A ND ALSO IN COMPUTING BOOK PROFITS OF THE COMPANY FOR MAT PURPOSES. 9. WE HAVE HEARD BOTH THE PARTIES. FOR THIS ASSESS MENT YEAR, THE ASSESSEE INCURRED THE ABOVE EXPENDITURE FOR THE PUR POSE OF UPKEEP OF ROADS AS PER THE DIRECTIONS OF DEPUTY COMMISSIONER, BELLARY. THE LOWER AUTHORITIES INVOKED THE PROVISIONS OF EXPLANATION 2 TO SECTION 37 OF THE ACT WHICH EXPLANATION 2 TO SECTION 37 OF THE ACT WAS IN TRODUCED BY THE FINANCE (NO.2) ACT, 2014 W.E.F. 1.4.2015 AS FOLLOWS :- EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF SUB-SECTION (1), ANY EXPENDITURE IN CURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESP ONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT, 2013 (18 OF 2013) SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE FOR T HE PURPOSES OF THE BUSINESS OR PROFESSION. PAGE 25 OF 41 ITA NOS.1780 - 1782/BANG/2018 10. THE MEMORANDUM TO FINANCE (NO. 2) BILL, 2014 EX PLAINING PROVISIONS RELATING TO DIRECT TAXES ON CORPORATE SOCIAL RESPON SIBILITY IS EXTRACTED BELOW:- CORPORATE SOCIAL RESPONSIBILITY (CSR) UNDER THE COMPANIES ACT, 2013 CERTAIN COMPANIES (WH ICH HAVE NET WORTH OF RS.500 CRORE OR MORE, OR TURNOVER OF RS.1000 CRO RE OR MORE, OR A NET PROFIT OF RS.5 CRORE OR MORE DURING ANY FINANCIAL Y EAR) ARE REQUIRED TO SPEND CERTAIN PERCENTAGE OF THEIR PROFIT ON ACTIVIT IES RELATING TO CORPORATE SOCIAL RESPONSIBILITY (CSR). UNDER THE EXISTING PRO VISIONS OF THE ACT EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS IS ONLY ALLOWED AS A DEDUCTION FOR COMPUTI NG TAXABLE BUSINESS INCOME. CSR EXPENDITURE, BEING AN APPLICATION OF IN COME, IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF CARRYING ON BUSINESS. AS THE APPLICATION OF INCOME IS NOT ALLOWED AS DEDUCTION F OR THE PURPOSES OF COMPUTING TAXABLE INCOME OF A COMPANY, AMOUNT SPENT ON CSR CANNOT BE ALLOWED AS DEDUCTION FOR COMPUTING THE TAXABLE INCO ME OF THE COMPANY. MOREOVER, THE OBJECTIVE OF CSR IS TO SHARE BURDEN O F THE GOVERNMENT IN PROVIDING SOCIAL SERVICES BY COMPANIES HAVING NET W ORTH/TURNOVER/PROFIT ABOVE A THRESHOLD. IF SUCH EXPENSES ARE ALLOWED AS TAX DEDUCTION, THIS WOULD RESULT IN SUBSIDIZING OF AROUND ONE-THIRD OF SUCH EXPENSES BY THE GOVERNMENT BY WAY OF TAX EXPENDITURE. THE EXISTING PROVISIONS OF SECTION 37(1) OF THE ACT PROVIDE THAT DEDUCTION FOR ANY EXPENDITURE, WHICH IS NOT MENTIONED SPECIFI CALLY IN SECTION 30 TO SECTION 36 OF THE ACT, SHALL BE ALLOWED IF THE SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF CARRYING ON BUSINES S OR PROFESSION. AS THE CSR EXPENDITURE (BEING AN APPLICATION OF INCOME) IS NOT INCURRED FOR THE PURPOSES OF CARRYING ON BUSINESS, SUCH EXPENDITURES CANNOT BE ALLOWED UNDER THE EXISTING PROVISIONS OF SECTION 37 OF THE INCOME-TAX ACT. THEREFORE, IN ORDER TO PROVIDE CERTAINTY ON THIS IS SUE, IT IS PROPOSED TO CLARIFY THAT FOR THE PURPOSES OF SECTION 37(1) ANY EXPENDITURE INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT, 20 13 SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS A ND HENCE SHALL NOT BE ALLOWED AS DEDUCTION UNDER SECTION 37. HOWEVER, THE CSR EXPENDITURE WHICH IS OF THE NATURE DESCRIBED IN SECTION 30 TO S ECTION 36 OF THE ACT SHALL BE ALLOWED DEDUCTION UNDER THOSE SECTIONS SUBJECT T O FULFILMENT OF CONDITIONS, IF ANY, SPECIFIED THEREIN. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 201 5 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2015-16 AND SUBSEQUENT YEARS. 11. THE AMENDMENT INTRODUCED W.E.F. 1.4.2015 CANN OT BE CONSTRUED AS DISADVANTAGEOUS TO THE ASSESSEE AND IT CANNOT COVER THE IMPUGNED EXPENDITURE INCURRED BY THE ASSESSEE IN THESE TWO A SSESSMENT YEARS. WE HAVE GONE THROUGH THE AMENDED PROVISIONS INCLUDING NOTE ON CLAUSES AND PAGE 26 OF 41 ITA NOS.1780 - 1782/BANG/2018 EXPLANATORY NOTES AND NOTE THAT AS PER THE COMPANIE S ACT, 2013, CERTAIN COMPANIES (WHICH HAVE NET WORTH OF RS.500 CRORES OR MORE, OR TURNOVER OF 1000 CRORE OR MORE OR NET PROFIT OF 5 CRORES OR MOR E DURING ANY FINANCIAL YEAR) ARE REQUIRED TO SPEND CERTAIN PERCENTAGE OF T HEIR PROFIT ON ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY (CSR). UNDER THE EXISTING PROVISIONS OF THE ACT, EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS ONLY ALLOWED AS DEDUCTION FO R COMPUTING TAXABLE BUSINESS INCOME. CSR EXPENDITURE BEING AN APPLICAT ION OF INCOME IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON BUSINESS. AS APPLICATION OF INCOME IS NOT ALLOWED AS DEDUCTIO N FOR THE PURPOSE OF TAXABLE INCOME OF A COMPANY, THE AMOUNT SPENT ON CS R CANNOT BE ALLOWED AS A DEDUCTION FOR COMPUTING TAXABLE INCOME OF THE COMPANY. THE OBJECT OF THE CSR EXPENDITURE IS TO SHARE THE B URDEN OF THE GOVT. IN PROVIDING SOCIAL SERVICE BY COMPANIES HAVING IMPORT /TURNOVER/PROFIT ABOVE A THRESHOLD. IF SUCH EXPENSES ARE ALLOWED AS DEDUCTION, IT WILL RESULT IN SUBSIDIZING THE AMOUNT OF ONE-THIRD OF SU CH EXPENSES BY GOVT. BY WAY OF TAX EXPENDITURE. THE PROVISIONS OF SECTION 37(1) PROVIDE THAT DEDUCTION FOR ANY EXPENDITURE WHICH IS NOT MENTIONE D SPECIFICALLY IN SECTION 30 TO 36 OF THE ACT, SHALL BE ALLOWED IF TH E SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON BUSI NESS OR PROFESSION. AS CSR EXPENDITURE BEING APPLICATION OF INCOME IS NOT INCURRED FOR THE PURPOSE OF CARRYING ON OF BUSINESS, SUCH EXPENDITUR E CANNOT BE ALLOWED UNDER THE PROVISIONS OF SECTION 37 OF THE ACT. THE REFORE, IN ORDER TO PROVIDE CERTAINTY ON THIS ISSUE, THE SAID SECTION 3 7 HAS BEEN AMENDED TO CLARIFY THAT FOR THE PURPOSE OF SUB-SECTION (1) OF SECTION 37 ANY EXPENDITURE BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CSR RE FERRED TO IN SECTION 135 OF THE COMPANIES AT, 2013 SHOULD NOT BE ALLOWED AS DEDUCTION UNDER SUB- SECTION 37. HOWEVER, CSR EXPENDITURE WHICH IS OF N ATURE DESCRIBED SECTIONS 30 TO 36 OF THE ACT, SHALL BE ALLOWED AS D EDUCTION UNDER THIS SECTION, SUBJECT TO FULFILLMENT OF CONDITIONS, IF A NY, SPECIFIED THEREIN. BUT THIS AMENDMENT TAKES EFFECT FROM 1.4.2015 AND WILL BE APPLICABLE IN RELATION TO AY 2015-16 AND SUBSEQUENT YEARS. 12. NOW THE ISSUE BEFORE US IS WHETHER THE DEPARTME NT IS JUSTIFIED IN INVOKING THIS EXPLANATION 2 TO SECTION 37 TO DISALL OW ABOVE EXPENDITURE INCURRED BY THE ASSESSEE. EXPLANATION (2) TO SECTI ON 37 READS AS FOLLOWS:- EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF SUB-SECTION (1), ANY EXPENDITURE IN CURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESP ONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT, 2013 (18 OF 2013) SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE FOR T HE PURPOSES OF THE BUSINESS OR PROFESSION. 13. A READING OF THE ABOVE EXPLANATION MAKES IT CLE AR THAT IT ONLY REFERS TO CORPORATE SOCIAL RESPONSIBILITY AS REFERRED IN SECT ION 135 OF THE COMPANIES ACT, 2013. CORPORATE SOCIAL RESPONSIBILITY WHICH IS MENTIONED IN SECTION PAGE 27 OF 41 ITA NOS.1780 - 1782/BANG/2018 135 OF THE COMPANIES ACT, 2013 IS APPLICABLE TO COM PANY ONLY, WHICH IS AS FOLLOWS:- [135. (1) EVERY COMPANY HAVING NET WORTH OF RUPEES FIVE HUNDRED CRORE OR MORE, OR TURNOVER OF RUPEES ONE THOUSAND CRORE OR M ORE OR A NET PROFIT OF RUPEES FIVE CRORE OR MORE DURING 3[THE IMMEDIATELY PRECEDING FINANCIAL YEAR] SHALL CONSTITUTE A CORPORATE SOCIAL RESPONSIB ILITY COMMITTEE OF THE BOARD CONSISTING OF THREE OR MORE DIRECTORS, OUT OF WHICH AT LEAST ONE DIRECTOR SHALL BE AN INDEPENDENT DIRECTOR. [PROVIDED THAT WHERE A COMPANY IS NOT REQUIRED TO A PPOINT AN INDEPENDENT DIRECTOR UNDER SUB-SECTION (4) OF SECTION 149, IT S HALL HAVE IN ITS CORPORATE SOCIAL RESPONSIBILITY COMMITTEE TWO OR MORE DIRECTO RS.] (2) THE BOARD'S REPORT UNDER SUB-SECTION (3) OF SEC TION 134 SHALL DISCLOSE THE COMPOSITION OF THE CORPORATE SOCIAL RESPONSIBIL ITY COMMITTEE. (3) THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE S HALL, (A) FORMULATE AND RECOMMEND TO THE BOARD, A CORPORA TE SOCIAL RESPONSIBILITY POLICY WHICH SHALL INDICATE THE ACTI VITIES TO BE UNDERTAKEN BY THE COMPANY [IN AREAS OR SUBJECT, SPECIFIED IN SCHEDULE VII]; (B) RECOMMEND THE AMOUNT OF EXPENDITURE TO BE INCUR RED ON THE ACTIVITIES REFERRED TO IN CLAUSE (A); AND (C) MONITOR THE CORPORATE SOCIAL RESPONSIBILITY POL ICY OF THE COMPANY FROM TIME TO TIME. (4) THE BOARD OF EVERY COMPANY REFERRED TO IN SUB-S ECTION (1) SHALL, (A) AFTER TAKING INTO ACCOUNT THE RECOMMENDATIONS M ADE BY THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE, APPROVE THE CORPOR ATE SOCIAL RESPONSIBILITY POLICY FOR THE COMPANY AND DISCLOSE CONTENTS OF SUCH POLICY IN ITS REPORT AND ALSO PLACE IT ON THE COMPANY'S WE BSITE, IF ANY, IN SUCH MANNER AS MAY BE PRESCRIBED; AND (B) ENSURE THAT THE ACTIVITIES AS ARE INCLUDED IN C ORPORATE SOCIAL RESPONSIBILITY POLICY OF THE COMPANY ARE UNDERTAKEN BY THE COMPANY. (5) THE BOARD OF EVERY COMPANY REFERRED TO IN SUB-S ECTION (1), SHALL ENSURE THAT THE COMPANY SPENDS, IN EVERY FINANCIAL YEAR, A T LEAST TWO PER CENT. OF THE AVERAGE NET PROFITS OF THE COMPANY MADE DURING THE THREE IMMEDIATELY PRECEDING FINANCIAL YEARS [OR WHERE THE COMPANY HAS NOT COMPLETED THE PERIOD OF THREE FINANCIAL YEARS SINCE ITS INCORPORA TION, DURING SUCH IMMEDIATELY PRECEDING FINANCIAL YEARS], IN PURSUANC E OF ITS CORPORATE SOCIAL RESPONSIBILITY POLICY: PROVIDED THAT THE COMPANY SHALL GIVE PREFERENCE TO THE LOCAL AREA AND AREAS AROUND IT WHERE IT OPERATES, FOR SPENDING THE AMOUNT EARMARKED FOR CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES: PROVIDED FURTHER THAT IF THE COMPANY FAILS TO SPEND SUCH AMOUNT, THE BOARD SHALL, IN ITS REPORT MADE UNDER CLAUSE (O) OF SUB-SECTION (3) OF SECTION 134, SPECIFY THE REASONS FOR NOT SPENDING T HE AMOUNT [AND, UNLESS THE UNSPENT AMOUNT RELATES TO ANY ONGOING PROJECT R EFERRED TO IN SUB- SECTION (6), TRANSFER SUCH UNSPENT AMOUNT TO A FUND SPECIFIED IN SCHEDULE VII, WITHIN A PERIOD OF SIX MONTHS OF THE EXPIRY OF THE FINANCIAL YEAR]. PAGE 28 OF 41 ITA NOS.1780 - 1782/BANG/2018 [PROVIDED ALSO THAT IF THE COMPANY SPENDS AN AMOUNT IN EXCESS OF THE REQUIREMENTS PROVIDED UNDER THIS SUB-SECTION, SUCH COMPANY MAY SET OFF SUCH EXCESS AMOUNT AGAINST THE REQUIREMENT TO SPEND UNDER THIS SUB- SECTION FOR SUCH NUMBER OF SUCCEEDING FINANCIAL YEA RS AND IN SUCH MANNER, AS MAY BE PRESCRIBED.] [EXPLANATION.FOR THE PURPOSES OF THIS SECTION 'NET PROFIT' SHALL NOT INCLUDE SUCH SUMS AS MAY BE PRESCRIBED, AND SHALL B E CALCULATED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 198.] [6) ANY AMOUNT REMAINING UNSPENT UNDER SUB-SECTION (5), PURSUANT TO ANY ONGOING PROJECT, FULFILLING SUCH CONDITIONS AS MAY BE PRESCRIBED, UNDERTAKEN BY A COMPANY IN PURSUANCE OF ITS CORPORA TE SOCIAL RESPONSIBILITY POLICY, SHALL BE TRANSFERRED BY THE COMPANY WITHIN A PERIOD OF THIRTY DAYS FROM THE END OF THE FINANCIAL YEAR T O A SPECIAL ACCOUNT TO BE OPENED BY THE COMPANY IN THAT BEHALF FOR THAT FINAN CIAL YEAR IN ANY SCHEDULED BANK TO BE CALLED THE UNSPENT CORPORATE S OCIAL RESPONSIBILITY ACCOUNT, AND SUCH AMOUNT SHALL BE SPENT BY THE COMP ANY IN PURSUANCE OF ITS OBLIGATION TOWARDS THE CORPORATE SOCIAL RESPONS IBILITY POLICY WITHIN A PERIOD OF THREE FINANCIAL YEARS FROM THE DATE OF SU CH TRANSFER, FAILING WHICH, THE COMPANY SHALL TRANSFER THE SAME TO A FUN D SPECIFIED IN SCHEDULE VII, WITHIN A PERIOD OF THIRTY DAYS FROM T HE DATE OF COMPLETION OF THE THIRD FINANCIAL YEAR. [(7) IF A COMPANY IS IN DEFAULT IN COMPLYING WITH T HE PROVISIONS OF SUB- SECTION (5) OR SUB-SECTION (6), THE COMPANY SHALL B E LIABLE TO A PENALTY OF TWICE THE AMOUNT REQUIRED TO BE TRANSFERRED BY THE COMPANY TO THE FUND SPECIFIED IN SCHEDULE VII OR THE UNSPENT CORPORATE SOCIAL RESPONSIBILITY ACCOUNT, AS THE CASE MAY BE, OR ONE CRORE RUPEES, W HICHEVER IS LESS, AND EVERY OFFICER OF THE COMPANY WHO IS IN DEFAULT SHAL L BE LIABLE TO A PENALTY OF ONE-TENTH OF THE AMOUNT REQUIRED TO BE TRANSFERR ED BY THE COMPANY TO SUCH FUND SPECIFIED IN SCHEDULE VII, OR THE UNSPENT CORPORATE SOCIAL RESPONSIBILITY ACCOUNT, AS THE CASE MAY BE, OR TWO LAKH RUPEES, WHICHEVER IS LESS.] (8) THE CENTRAL GOVERNMENT MAY GIVE SUCH GENERAL OR SPECIAL DIRECTIONS TO A COMPANY OR CLASS OF COMPANIES AS IT CONSIDERS NEC ESSARY TO ENSURE COMPLIANCE OF PROVISIONS OF THIS SECTION AND SUCH C OMPANY OR CLASS OF COMPANIES SHALL COMPLY WITH SUCH DIRECTIONS.] [(9) WHERE THE AMOUNT TO BE SPENT BY A COMPANY UNDE R SUB-SECTION (5) DOES NOT EXCEED FIFTY LAKH RUPEES, THE REQUIREMENT UNDER SUB-SECTION (1) FOR CONSTITUTION OF THE CORPORATE SOCIAL RESPONSIBI LITY COMMITTEE SHALL NOT BE APPLICABLE AND THE FUNCTIONS OF SUCH COMMITTEE P ROVIDED UNDER THIS SECTION SHALL, IN SUCH CASES, BE DISCHARGED BY THE BOARD OF DIRECTORS OF SUCH COMPANY.] 14. SCHEDULE VII TO THE COMPANIES ACT, 2013 IS EXTR ACTED HEREUNDER:- SCHEDULE VII (SEE SECTION 135) ACTIVITIES WHICH MAY BE INCLUDED BY COMPANIES IN TH EIR CORPORATE SOCIAL RESPONSIBILITY POLICIES ACTIVITIES RELATING TO: PAGE 29 OF 41 ITA NOS.1780 - 1782/BANG/2018 [(I) ERADICATING HUNGER, POVERTY AND MALNUTRITION, [PROMOTING HEALTH CARE INCLUDING PREVENTIVE HEALTH CARE] AND SANITATION [INCLUDING CONTRIBUTION TO THE SWACH BHARAT KOSH SET-UP BY THE CENTRAL GOVERNM ENT FOR THE PROMOTION OF SANITATION] AND MAKING AVAILABLE SAFE DRINKING WATER. (II) PROMOTING EDUCATION, INCLUDING SPECIAL EDUCATI ON AND EMPLOYMENT ENHANCING VOCATION SKILLS ESPECIALLY AMONG CHILDREN , WOMEN, ELDERLY AND THE DIFFERENTLY ABLED AND LIVELIHOOD ENHANCEMENT PR OJECTS. (III) PROMOTING GENDER EQUALITY, EMPOWERING WOMEN, SETTING UP HOMES AND HOSTELS FOR WOMEN AND ORPHANS; SETTING UP OLD AGE H OMES, DAY CARE CENTRES AND SUCH OTHER FACILITIES FOR SENIOR CITIZE NS AND MEASURES FOR REDUCING INEQUALITIES FACED BY SOCIALLY AND ECONOMI CALLY BACKWARD GROUPS. (IV) ENSURING ENVIRONMENTAL SUSTAINABILITY, ECOLOGI CAL BALANCE, PROTECTION OF FLORA AND FAUNA, ANIMAL WELFARE, AGROFORESTRY, CONS ERVATION OF NATURAL RESOURCES AND MAINTAINING QUALITY OF SOIL, AIR AND WATER 4[INCLUDING CONTRIBUTION TO THE CLEAN GANGA FUND SET-UP BY THE CENTRAL GOVERNMENT FOR REJUVENATION OF RIVER GANGA]. (V) PROTECTION OF NATIONAL HERITAGE, ART AND CULTUR E INCLUDING RESTORATION OF BUILDINGS AND SITES OF HISTORICAL IMPORTANCE AND WO RKS OF ART; SETTING UP PUBLIC LIBRARIES; PROMOTION AND DEVELOPMENT OF TRAD ITIONAL ART AND HANDICRAFTS; (VI) MEASURES FOR THE BENEFIT OF ARMED FORCES VETER ANS, WAR WIDOWS AND THEIR DEPENDENTS, 9[ CENTRAL ARMED POLICE FORCES (C APF) AND CENTRAL PARA MILITARY FORCES (CPMF) VETERANS, AND THEIR DEPENDEN TS INCLUDING WIDOWS]; (VII) TRAINING TO PROMOTE RURAL SPORTS, NATIONALLY RECOGNISED SPORTS, PARALYMPIC SPORTS AND OLYMPIC SPORTS (VIII) CONTRIBUTION TO THE PRIME MINISTER'S NATIONA L RELIEF FUND 8[OR PRIME MINISTERS CITIZEN ASSISTANCE AND RELIEF IN EMERGEN CY SITUATIONS FUND (PM CARES FUND)] OR ANY OTHER FUND SET UP BY THE CE NTRAL GOVT. FOR SOCIO ECONOMIC DEVELOPMENT AND RELIEF AND WELFARE OF THE SCHEDULE CASTE, TRIBES, OTHER BACKWARD CLASSES, MINORITIES AND WOMEN; [(IX) (A) CONTRIBUTION TO INCUBATORS OR RESEARCH AN D DEVELOPMENT PROJECTS IN THE FIELD OF SCIENCE, TECHNOLOGY, ENGINEERING AND M EDICINE, FUNDED BY THE CENTRAL GOVERNMENT OR STATE GOVERNMENT OR PUBLIC SE CTOR UNDERTAKING OR ANY AGENCY OF THE CENTRAL GOVERNMENT OR STATE GOVER NMENT; AND (B) CONTRIBUTIONS TO PUBLIC FUNDED UNIVERSITIES; IN DIAN INSTITUTE OF TECHNOLOGY (IITS); NATIONAL LABORATORIES AND AUTONO MOUS BODIES ESTABLISHED UNDER DEPARTMENT OF ATOMIC ENERGY (DAE) ; DEPARTMENT OF BIOTECHNOLOGY (DBT); DEPARTMENT OF SCIENCE AND TECH NOLOGY (DST); DEPARTMENT OF PHARMACEUTICALS; MINISTRY OF AYURVEDA , YOGA AND NATUROPATHY, UNANI, SIDDHA AND HOMOEOPATHY (AYUSH); MINISTRY OF ELECTRONICS AND INFORMATION TECHNOLOGY AND OTHER BO DIES, NAMELY DEFENSE RESEARCH AND DEVELOPMENT ORGANISATION (DRDO); INDIA N COUNCIL OF AGRICULTURAL RESEARCH (ICAR); INDIAN COUNCIL OF MED ICAL RESEARCH (ICMR) AND COUNCIL OF SCIENTIFIC AND INDUSTRIAL RESEARCH ( CSIR), ENGAGED IN PAGE 30 OF 41 ITA NOS.1780 - 1782/BANG/2018 CONDUCTING RESEARCH IN SCIENCE, TECHNOLOGY, ENGINEE RING AND MEDICINE AIMED AT PROMOTING SUSTAINABLE DEVELOPMENT GOALS (S DGS).] (X) RURAL DEVELOPMENT PROJECTS] [(XI) SLUM AREA DEVELOPMENT. EXPLANATION.- FOR THE PURPOSES OF THIS ITEM, THE TE RM `SLUM AREA' SHALL MEAN ANY AREA DECLARED AS SUCH BY THE CENTRAL GOVER NMENT OR ANY STATE GOVERNMENT OR ANY OTHER COMPETENT AUTHORITY UNDER A NY LAW FOR THE TIME BEING IN FORCE.] [(XII) DISASTER MANAGEMENT, INCLUDING RELIEF, REHAB ILITATION AND RECONSTRUCTION ACTIVITIES.] 15. BY GOING THROUGH THE PROVISIONS OF EXPLANATION 2 TO SECTION 37, IT IS EVIDENT THAT THE SAID EXPLANATION REFERS TO CSR EXP ENDITURE AS REFERRED IN SECTION 135 OF THE COMPANIES ACT, 2013. THUS SAID RESTRICTION IS APPLICABLE ONLY TO THE COMPANIES, NOT OTHERS. 16. THE LD. DR SUBMITTED THAT EXPLANATION TO S. 37 IS APPLICABLE TO ASSESSES INCLUDING INDIVIDUAL ASSESSES LIKE THE PRE SENT ASSESSEE. WE ARE NOT IN AGREEMENT WITH THE ABOVE CONTENTION OF THE L D. DR. WHILE INTERPRETING THE WORD IN THE SECTION, PARTICULARLY IN THE EXPLANATION 2 TO S. 37, WHICH ARE ENACTED UNDER BENEFICIAL LEGISLATION, THE BASIC PRINCIPLE THAT HAS TO BE KEPT IN MIND IS THE OBJECT AND INTENTION OF THE LEGISLATURE FOR ENACTMENT OF THE ACT. IF THAT IS KEPT IN MIND, THEN STRICT TECHNICAL INTERPRETATION OF THE TERMS USED IN THE SECTION, DE TRIMENTAL TO THE MAIN OBJECT, CAN EASILY BE AVOIDED. FURTHER IF A HARMONI OUS INTERPRETATION IS GIVEN TO ALL THE PROVISIONS, KEEPING IN VIEW THE OB JECT, THEN THE INTENTION OF THE LEGISLATURE FOR ENACTING THIS LEGISLATION, WILL BE FULFILLED AND THE ECONOMIC AND SOCIAL JUSTICE AIMED BY THE LEGISLATUR E WILL BE REACHED TO ONE AND ALL. WHEN IN A STATUTE THERE ARE GENERAL W ORDS FOLLOWING PARTICULAR AND 'SPECIFIED WORDS', THE GENERAL WORDS ARE SOME TIMES CONSTRUED AS LIMITED TO THINGS OF THE SAME KIND AS THOSE SPECIFIED. THIS RULE OF INTERPRETATION GENERALLY KNOWN AS EJUSDEM G ENERIS RULE HAS BEEN PRESSED INTO SERVICE ON BEHALF OF THE ASSESSEE. THI S RULE REFLECTS AN ATTEMPT TO RECONCILE INCOMPATIBILITY BETWEEN THE SP ECIFIED AND GENERAL WORDS, IN VIEW OF THE OTHER RULES OF INTERPRETATION , THAT ALL WORDS IN A STATUTE ARE GIVEN EFFECT IF POSSIBLE, THAT A STATUT E IS TO BE CONSTRUED AS A WHOLE AND THAT NO WORDS IN A STATUTE ARE PRESUMED T O BE SUPERFLUOUS. EJUSDEM GENERIS RULE BEING ONE OF THE RULES OF INTE RPRETATION, ONLY SERVES, LIKE ALL SUCH RULES, AS AN AID TO DISCOVER THE LEGI SLATIVE INTENT; IT IS NEITHER FINAL NOR CONCLUSIVE AND IS ATTRACTED ONLY WHEN THE SPECIFIC WORDS ENUMERATED, CONSTITUTE A CLASS, WHICH IS NOT EXHAUS TED AND ARE FOLLOWED BY GENERAL WORDS AND WHEN THERE IS NO MANIFESTATION OF INTENT TO GIVE BROADER MEANING TO THE GENERAL WORDS. BEING SO, TH E WORD ASSESSEE USED IN THIS EXPLANATION 2 TO S. 37 (1) IS WITH REG ARD TO THE COMPANIES FOR WHICH SECTION 135 OF THE COMPANIES ACT IS APPLICABL E, NOT TO OTHER ASSESSES WHICH IS NOT COVERED BY THE COMPANIES ACT. PAGE 31 OF 41 ITA NOS.1780 - 1782/BANG/2018 17. IN THE PRESENT CASE, THE ASSESSEE BEING AN INDI VIDUAL, THE RESTRICTION IMPOSED UNDER EXPLANATION (2) TO SECTION 37 IS NOT APPLICABLE TO ASSESSEES CASE. AT THIS STAGE, IT IS APPROPRIATE TO DRAW SUPPORT FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR. CIT V. GUJARAT NARMADA VALLEY FERTILIZERS & CHEMICALS LTD., 422 IT R 164 (GUJ). IN THAT CASE, THE FOLLOWING QUESTION WAS BEFORE THE HONBLE HIGH COURT :- WHETHER IN THE FACTS AND IN CIRCUMSTANCES OF THE C ASE, THE LEARNED ITAT HAS ERRED IN LAW AND ON FACTS IN DELETING DISA LLOWANCE U/S 37(1) OF THE ACT IN RESPECT OF EXPENSES BEING CONTR IBUTION/DONATION TO EDUCATIONAL INSTITUTIONS, TRUST, LOCAL BODIES? 18. THE HONBLE GUJARAT HIGH COURT HELD AS UNDER:- 8.10 WE HAVE ALSO NOTED THAT THE AMENDMENT IN THE SCHEME OF SECTION 37(1) IS NOT SPECIFICALLY STATED TO BE RETR OSPECTIVE AND THE SAID EXPLANATION IS INSERTED ONLY WITH EFFECT FROM 1ST APRIL 2015. IN THIS VIEW OF THE MATTER ALSO, THERE IS NO REASON TO HOLD THIS PROVISION TO BE RETROSPECTIVE IN APPLICATION. AS A MATTER OF FACT, THE AMENDMENT IN LAW, WHICH WAS ACCOMPANIED BY THE STATUTORY REQU IREMENT WITH REGARD TO DISCHARGING THE CORPORATE SOCIAL RESPONSI BILITY, IS A DISABLING PROVISION WHICH PUTS AN ADDITIONAL TAX BU RDEN ON THE ASSESSEE IN THE SENSE THAT THE EXPENSES THAT THE AS SESSEE IS REQUIRED TO INCUR, UNDER A STATUTORY OBLIGATION, IN THE COURSE OF HIS BUSINESS ARE NOT ALLOWED DEDUCTION IN THE COMPUTATI ON OF INCOME. THIS DISALLOWANCE IS RESTRICTED TO THE EXPENSES INC URRED BY THE ASSESSEE UNDER A STATUTORY OBLIGATION UNDER SECTION 135 OF COMPANIES ACT 2013, AND THERE IS THUS NOW A LINE OF DEMARCATION BETWEEN THE EXPENSES INCURRED BY THE ASSESSEE ON DI SCHARGING CORPORATE SOCIAL RESPONSIBILITY UNDER SUCH A STATUT ORY OBLIGATION AND UNDER A VOLUNTARY ASSUMPTION OF RESPONSIBILITY. AS FOR THE FORMER, THE DISALLOWANCE UNDER EXPLANATION 2 TO SECTION 37(1) C OMES INTO PLAY, BUT, AS FOR LATTER, THERE IS NO SUCH DISABLING PROV ISION AS LONG AS THE EXPENSES, EVEN IN DISCHARGE OF CORPORATE SOCIAL RES PONSIBILITY ON VOLUNTARY BASIS, CAN BE SAID TO BE 'WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF BUSINESS'. THERE IS NO DISPUTE THAT THE EXPENSES IN QUESTION ARE NOT INCURRED UNDER THE AFORESAID STATU TORY OBLIGATION. FOR THIS REASON ALSO, AS ALSO FOR THE BASIC REASON THAT THE EXPLANATION 2 TO SECTION 37(1) COMES INTO PLAY WITH EFFECT FROM 1ST APRIL 2015, WE HOLD THAT THE DISABLING PROVISION OF EXPLANATION 2 TO SECTION 37(1) DOES NOT APPLY ON THE FACTS OF THIS C ASE. 19. THUS, IT IS EVIDENT THAT THE DISALLOWANCE IS R ESTRICTED TO THE EXPENSES INCURRED BY THE ASSESSEE UNDER A STATUTORY OBLIGATI ON U/S. 135 OF THE COMPANIES ACT, 2013 AND THERE IS THUS NOW A LINE OF DEMARCATION BETWEEN THE EXPENSES INCURRED BY THE ASSESSEE ON DI SCHARGING CORPORATE SOCIAL RESPONSIBILITY UNDER SUCH A STATUTORY OBLIGA TION AND UNDER A VOLUNTARY ASSUMPTION OF RESPONSIBILITY. AS FOR THE FORMER, THE DISALLOWANCE UNDER EXPLANATION 2 TO SECTION 37(1) C OMES INTO PLAY, BUT AS PAGE 32 OF 41 ITA NOS.1780 - 1782/BANG/2018 FOR LATTER, THERE IS NO SUCH DISABLING PROVISION AS LONG AS THE EXPENSES, EVEN IN DISCHARGE OF CORPORATE SOCIAL RESPONSIBILIT Y ON VOLUNTARY BASIS, CAN BE SAID TO BE WHOLLY AND EXCLUSIVELY FOR THE P URPOSES OF BUSINESS. THERE IS NO DISPUTE THAT THE EXPENSES IN QUESTION A RE NOT INCURRED UNDER THE AFORESAID STATUTORY OBLIGATION. IN THE PRESENT CASE, THE SAID EXPENDITURE IS INCURRED BY THE ASSESSEE ON DISCHAR GING SOCIAL RESPONSIBILITY SO AS TO EARN THE GOODWILL OF THE SO CIETY AND IT IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 20. THEREFORE, THE PROVISIONS OF EXPLANATION TO SEC TION 37 OF THE ACT CANNOT BE APPLIED. FURTHER, IN THE PRESENT CASE, THE ASS ESSEE BEING AN INDIVIDUAL, AND NOT A CORPORATION UNDER THE COMPANI ES ACT, 2013, EXPLANATION 2 TO SECTION 37 CANNOT BE APPLIED SO AS TO DENY THE VOLUNTARY EXPENDITURE INCURRED BY ASSESSEE TOWARDS COMMUNITY WELFARE. ACCORDINGLY, WE ARE OF THE OPINION THAT THE EXPENDI TURE INCURRED IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF ASSE SSEE AND HAS TO BE ALLOWED AS BUSINESS EXPENDITURE. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 9.1 RESPECTFULLY FOLLOWING THE VIEW TAKEN BY COORDI NATE BENCH IN THE DECISION REFERRED TO HEREIN ABOVE, WE ALLOW GRO UNDS 2.1 TO 2.6 RAISED BY ASSESSEE FOR ASST. YEAR 2012-13. THE SAME VIEW IS APPLIED FOR GROUNDS 2.1 TO 2.6 MUTATIS MUTANDIS F OR ASST. YEAR 2013-14 AND 2014-15 RESPECTIVELY. GROUND NO.3.1 TO 3.5 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED THAT SUM OF RS.2.4 CRORES WAS CONTRIBUTED TOWARDS FLOOD RELIEF WORKS IN PURSUANT TO MOU DATED 2/7/201 0 ENTERED WITH LOCAL DY.COMMISSIONER FOR ASST. YEAR 2012-13. HE SUBMITTED THAT, THE AMOUNT WAS SPENT FOR SOCIAL CAU SE AND THAT TO AT THE INSTANCE OF GOVT. OF KARNATAKA. THE LD.A O AFTER CONSIDERING VARIOUS SUBMISSIONS BY ASSESSEE MADE AD DITION OF PAGE 33 OF 41 ITA NOS.1780 - 1782/BANG/2018 SUCH AMOUNT BY HOLDING THAT ASSESSEE DID NOT OBTAIN EXEMPTION CERTIFICATE U/S 80G OF THE ACT. 10.1 AGGRIEVED BY THE ORDER OF AO, THE ASSESEE PREF ERRED AN APPEAL BEFORE THE LD.CIT(A). 10.2 THE LD.CIT(A) ON VERIFYING THE ASST. ORDER AN D SUBMISSIONS FILED BY ASSESSEE, OBSERVED THAT, AS PER THE MOU EN TERED BY ASSESSEE WITH GOVT. OF KARNATAKA THE DONATIONS WERE GIVEN TO CHIEF MINISTERS RELIEF FUND AND WAS ELIGIBLE FOR E XEMPTION U/S 80G OF THE ACT. HE OBSERVED THAT, THE LD.AO DENIED THE CLAIM OF ASSESSEE AS IT DID NOT COMPLY WITH ALL THE CONDITIO NS OF THE MOU. THE LD.CIT(A) ALSO OBSERVED THAT ASSESSEE HAS NOT B ROUGHT OUT ANY MATERIAL EVIDENCE ON RECORD TO ESTABLISH THE N EXUS BETWEEN THE EXPENSES INCURRED AND THE BUSINESS OF ASSESSEE. HE THUS HELD THAT THE CONTRIBUTION MADE CANNOT BE ALLOWED A S AN EXPENDITURE U/S 37(1) OF THE ACT. 10.3 AGGRIEVED BY THE ORDER OF LD.CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US NOW. 10.4 THE LD.AR SUBMITTED THAT ASSESSEE MADE FOLLOWI NG CONTRIBUTIONS TOWARDS FLOOD RELIEF AS PER THE MOU W ITH GOVT. OF KARNATAKA. AY NATURE OF EXPENDITURE AMOUNT (IN RS.) 2012 - 13 CONTRIBUTION TOWARDS FLOOD RELIEF AS PER THE MOU WITH GOVERNMENT OF KARNATAKA 2,40,00,000/ - 2013 - 14 -- DO -- 1,40,14,000/ - 2014 - 15 -- DO -- 8,78,704/ - PAGE 34 OF 41 ITA NOS.1780 - 1782/BANG/2018 10.5 HE SUBMITTED THAT THE ABOVE PAYMENTS WERE MADE BY ASSESSEE IN ACCORDANCE WITH THE MOU DATED 2/7/2010 WHICH IS PLACED AT PAGE 383 OF PAPER BOOK. IT IS SUBMITTED THAT THE MOU IS ALSO ALLOWING DONATIONS TO BE CLAIMED AS EXEMPT ION U/S 80G OF THE ACT AS SAME WERE GIVEN TO THE CHIEF MINISTERS RELIEF FUND (CALAMITY). HE ALSO PLACED RELIANCE ON THE DECISIO N OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S KANHAIYALAL DUDHERIA [2020] 113 TAXMANN.COM 217. 10.6 ON THE CONTRARY THE LD.CIT.DR SUBMITTED THAT T HE MOU CLEARLY STATES THAT ASSESSEE IS ELIGIBLE TO CLAIM E XEMPTION U/S 80G OF THE ACT. SHE SUBMITTED THAT THE DECISION RELIED BY THE LD.AR IS IN RESPECT OF CERTAIN CONSTRUCTION CARRIED OUT BY A SSESSEE ON BEHALF OF THE GOVT. OF KARNATAKA WHICH WAS CLAIMED AS AN EXPENDITURE U/S 37 OF THE ACT. SHE THUS PLACED REL IANCE ON THE ORDERS PASSED BY THE AUTHORITIES BELOW. 10.7 WE HAVE PERUSED THE SUBMISSIONS ADVANCED FOR B OTH SIDES AND THE RECORDS PLACED BEFORE US. 10.8 ADMITTEDLY, IN THE INSTANT CASE, THE EXPENDITU RE INCURRED TOWARDS FLOOD RELIEF WORK IS NOT IN DISPUTE BY THE AUTHORITIES BELOW. THE CLAUSE GRANTING RELIEF TO THE ASSESSEE U/S 80G IN THE MOU DATED 02/07/2010 READS AS UNDER:- H) THE DONATIONS GIVEN TO THE CHIEF MINISTERS RELI EF FUND (CALAMITY) ARE ELIGIBLE FOR EXEMPTION UNDER SECTION 80 (G) OF THE INCOME TAX ACT. THOSE DESIROUS OF SEEKING EXEMPTION MAY MAKE THEIR DONATI ONS IN THE FIRST STAGE TO CHIEF MINISTER'S RELIEF FUND (CALAMITY) AN D OBTAIN INCOME TAX EXEMPTION CERTIFICATE. THEN, IN THE SECOND STAGE, T HIS MONEY WILL BE PAGE 35 OF 41 ITA NOS.1780 - 1782/BANG/2018 DEPOSITED IN A JOINT ACCOUNT IN THE NAME OF THE DON OR AND DESIGNATED OFFICER WHO TOGETHER SHALL SPEND IT ON THE SPECIFIE D RESETTLEMENT WORK. 10.9. THE ONLY REASON FOR NOT GRANTING RELIEF U/S.8 0G IS THAT ASSESSEE DID NOT OBTAIN THE EXEMPTION CERTIFICATE U NDER THE RELEVANT PROVISIONS OF THE ACT. IT IS NOT THE CASE OF THE REVENUE THAT SAID EXPENDITURE HAS NOT BEEN INCURRED FOR THE PURPOSE AS ENTERED INTO GOVT. OF KARNATAKA. THE ABOVE REPRODU CED CLAUSE CLEARLY STATES THAT ASSESSEE IS ELIGIBLE FOR EXEMPT ION U/S 80G OF THE ACT. 10.10. WE NOTE THAT AUTHORITIES BELOW EVEN AFTER AD MITTING THESE FACTS HAVE NOT GRANTED RELIEF TO THE ASSESSEE AS PE R THE PROVISIONS OF SEC.80G OF THE ACT. WE THUS REMAND THIS ISSUE T O THE LD.AO FOR COMPUTING THE DEDUCTION ELIGIBLE TO ASSESSEE UN DER 80G OF THE ACT FOR THE DONATIONS GIVEN TO THE CHIEF MINISTERS RELIEF FUND (CALAMITY). ACCORDINGLY THE GROUNDS RAISED BY ASSESSEE FOR YEAR UNDER CONSIDERATION STANDS ALLOWED FOR STATISTICAL PURPOS ES FOR ALL YEARS UNDER CONSIDERATION . GROUND NO.4.1 TO 4.2: 11. THIS ISSUE IS ONLY RELEVANT TO ASST. YEAR 2012- 13. THE ASSESSEE DURING THE YEAR MADE PAYMENT OF RS.10 LAKHS AND 20 LAKHS TOWARDS MEMBERSHIP FEE AND LEGAL FUND RESP ECTIVELY TO FEDERATION OF INDIAN MINERAL INDUSTRIES. THE FEDER ATION OF INDIAN MINERAL INDUSTRIES IS AN ASSOCIATION OF INDUSTRIES I.E ENGAGED IN THE BUSINESS OF MINERALS AND IS A NON PROFIT CORPOR ATE BODY REGISTERED UNDER THE COMPANIES ACT 1956 TO PROMOTE THE INTEREST PAGE 36 OF 41 ITA NOS.1780 - 1782/BANG/2018 OF THE MINING AND MINERAL PROCESSING, METAL MAKING AND OTHER MINERAL BASED INDUSTRIES AND TO ATTEND TO THE PROBL EMS FACED BY THEM IN LEASE GRANTS, TENURE, PRODUCTION, TAXATIO N, TRADE EXPORT LABOUR ETC. THE LD.AO RESTRICTED THE CLAIM TO 50% O F EXPENDITURE INCURRED ON ACCOUNT OF LEGAL FEES U/S 80G OF THE AC T. 11.1 AGGRIEVED BY THE ORDER OF THE LD.AO, ASSESSEE PREFERRED APPEAL BEFORE THE LD.CIT(A). 11.2 THE LD.CIT(A) UPHELD THE DISALLOWANCE BY OBSE RVING AS UNDER:- 7.2. HOWEVER, THE PLEA FOR ALLOWING CONTRIBUTION M ADE TO FIMI U/S 80G OF THE IT ACT CAN BE CONSIDERED. THE AG ALSO HAS NO T DENIED THE FACT AND AO HIMSELF HAS MENTIONED IN ASSESSMENT ORDER THAT T HE AMOUNT CONTRIBUTED IS NOT ALLOWABLE U/S 37(1) OF THE IT AC T BUT ELIGIBLE FOR DEDUCTION RESTRICTED TO THE LIMIT IMPOSED BY SECTIO N 80G OF THE IT ACT. IN THIS REGARD, DURING THE APPEAL PROCEEDINGS, THE ASS ESSEE WAS ASKED TO SUBMIT THE RECOGNITION/RENEWAL CERTIFICATE GRANTING RECOGNITION U/S 80G OF THE IT ACT TO FIMI BY THE COMPETENT AUTHORITY AS A DOCUMENTARY EVIDENCE FOR CLAIMING THE DEDUCTION. IN RESPONSE, T HE AR OF THE ASSESSEE HAS APPEARED AND EXPLAINED THE SAME. ON PERUSAL IT IS SEEN THAT THE FIMI IS RECOGNIZED U/S 80G FOR ACCEPTING DONATION. HENCE, CONTRIBUTION MADE BY THE ASSESSEE IS ALSO ELIGIBLE FOR DEDUCTION U/S 80G SUBJECT TO 50% OF THE TOTAL CONTRIBUTION. THE AR DID NOT DISPU TE THE SAME. AS THE CONTRIBUTION MADE IS ELIGIBLE FOR DEDUCTION TO THE EXTENT OF 50% ONLY THE DISALLOWANCE MADE BY THE AO IS UPHELD AND RELEVANT GROUND IS DISMISSED. 11.3 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSE SSEE IS IN APPEAL BEFORE US. 11.4 THE LD.AR DURING THE COURSE OF ARGUMENT RELIE D ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S VIBHUTIGUDDA MINES PVT. LTD ., FOR ASST. YEAR 2012-13 , IN ITA NO. 2843/BANG/2018, WHEREIN IDENTICAL ISSUE WAS CONSIDERED VIDE ORDER D ATED PAGE 37 OF 41 ITA NOS.1780 - 1782/BANG/2018 03/07/2019 BY THE COORDINATE BENCH IN THE ABOVE CASE IS AS UNDER:- 3.4.2 AFTER HAVING HEARD THE PARTIES AND CONSIDERI NG THE FACTS ON RECORD, WE ARE OF THE VIEW THAT THE IDENTICAL ISSUE OF THE ASSESSEES CLAIM FOR BEING ALLOWED DEDUCTION OF ITS CONTRIBUTION TO FIMI AS REVENUE EXPENDITURE, WAS CONSIDERED AND ALLOWED BY THE ITAT DELHI BENCH IN THE CASE OF RIO TINTO INDIA PVT. LTD., VS. ACIT, WHEREIN ITS ORDER IN ITA NO.363/DEL/2012 DATED 22.06.2012, AT PARAS 13 TO 17 THEREOF, IT WAS HELD AS UNDER:- 13. GROUND NO.4 IN THE APPEAL RELATES TO DISALLOWA NCE OF AN AMOUNT OF RS.50 LACS ON ACCOUNT OF CONTRIBUTION TOWARDS FEDER ATION OF INDIAN MINING INDUSTRIES BUILDING FUND. TO A QUERY BY THE AO DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE REPLIED THAT F EDERATION OF INDIAN MINING INDUSTRIES WAS ENGAGED IN LIAISONING WITH VA RIOUS GOVERNMENT BODIES ON MINING RELATED ISSUES AND SINCE IT PROVID ES SUPPORT TO MINING INDUSTRIES AND THE ASSESSEE IS RENDERING SERVICES T O THE MINING INDUSTRIES, THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. HOWEVER, THE AO DID NOT ACCEPT THE SUBMIS SIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THAT EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. INTER ALIA, THE AO RELIED UPON DECISION IN CIT VS. CHANDULAL KESHAV LAL & CO. (1960) 38 ITR 601 (SC) AND DISTINGUISHED THE DECISION RELIED UPON BY THE ASSESSEE IN CIT VS. KAMAL AND CO. 203 ITR 1038(RAJ.). 14. ON APPEAL, THE ID. CIT(A) UPHELD THE DISALLOWAN CE, HOLDING AS UNDER:- '6.1 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSION MADE BY THE LEARNED AR. THE PAYMENTS OF '5.0 LACS I S TOWARDS THE BUILDING FUND OF FIMI I.E. FEDERATION OF INDIAN MINERAL INDU STRIES. THE PAYMENT CANNOT BE SAID TO BE FOR THE PURPOSE OF BUSINESS AN D REVENUE IN NATURE. THE APPELLANT'S PLEA THAT THE PAYMENT HAS BEEN MADE TO FIMI AS IT PROVIDES SUPPORT TO THE MINING INDUSTRIES AND THERE FORE SHOULD BE ALLOWED AS REVENUE EXPENSE IS NOT ACCEPTABLE. THE EXPENSE I S IN THE NATURE OF DONATION AND IS CAPITAL IN NATURE CANNOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS REQUIRED UNDER THE PROVISIONS OF SECTION 37(1) OF THE ACT. THE SAME IS , THEREFORE, REJECTED. ' 15. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAIN ST THE AFORESAID FINDINGS OF THE ID. CIT(A). THE ID. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE DECISION IN CHEMICALS & PLASTICS INDIA LTD. 292 ITR 115 (MAD): CIT VS. COOPERATIVE SUGARS LTD., 304 ITR 259(KERALA); ACIT VS. RAJASTHAN SPINNING AND WEAVING MILLS LTD.,274 ITR 463(RAJASTH AN) WHILE CONTENDING THAT SINCE ACTIVITIES OF THE FIMI ARE CLOSELY LINKE D WITH THE WELFARE OF MINING INDUSTRY, THE EXPENDITURE IS ADMISSIBLE AS R EVENUE . 16. ON THE OTHER HAND, THE ID. DR SUPPORTED THE FIN DINGS OF THE ID. CIT(A) ON THE GROUND THAT THE AMOUNT CONFERRED ENDURING BE NEFIT TO THE ASSESSEE, PAGE 38 OF 41 ITA NOS.1780 - 1782/BANG/2018 SPREAD OVER A NUMBER OF YEARS AND THUS, COULD NOT B E ALLOWED AS REVENUE EXPENDITURE. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS RELIED UPON BY THE ID. AR.. AS IS APPARENT FROM THE AFORESAID FACTS, AN AMOUNT OF RS.50,00,000 /- HAS BEEN CONTRIBUTED TOWARDS BUILDING FUND OF FEDERATION OF INDIAN MINERAL INDUSTRIES, THE ASSESSEE BEING ONE OF THE MEMBERS O F THE SAID FEDERATION. THE ID. CIT(A) TREATED THE AMOUNT IN THE NATURE OF DONATION AND CAPITAL IN NATURE. WHETHER THE AMOUNT IS REVENUE OR CAPITAL IN NATURE, HONBLE APEX COURT IN K. T. M. T. M. ABDUL KAYOOM V. CIT.44 ITR 689 (SC) HELD THAT EACH CASE DEPENDS ON ITS OWN FACTS AND CLOSE SIMILARITY BETWEEN ONE CASE AND ANOTHER IS NOT ENOUGH. EVEN A SIGNIFICANT DETAIL MA Y ALTER THE ENTIRE ASPECT. IT WAS OBSERVED THAT WHAT IS DECISIVE IS THE NATURE OF BUSINESS, THE NATURE OF THE EXPENDITURE, THE NATURE OF THE RIGHT ACQUIRE D, AND THEIR RELATION INTER SE, AND THIS IS THE ONLY KEY TO RESOLVE THE ISSUE I N THE LIGHT OF THE GENERAL PRINCIPLES, WHICH ARE FOLLOWED IN SUCH CASES. IN SR I VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO. V. CIT,223 ITR 101(SC),HONBLE APEX COURT HELD THAT THE CORRECT TEST IS THAT OF CO MMERCIAL EXPEDIENCY. IN CHEMICALS & PLASTICS INDIA LTD.(SUPRA), HONBLE MAD RAS HIGH COURT WHILE ADJUDICATING AS TO WHETHER OR NOT THE AMOUNT OF RS. 1.5 LAKHS PAID TOWARDS THE CONSTRUCTION OF BUILDING OF THE MADRAS CHAMBER OF COMMERCE WAS ALLOWABLE AS BUSINESS EXPENDITURE, HELD THAT SI NCE THE CONTRIBUTION MADE BY THE COMPANY IS FOR THE CHAMBER OF COMMERCE, WHOSE ACTIVITIES ARE CLOSELY LINKED WITH THE WELFARE OF THE CORPORAT E ENTITIES. WHO ARE MEMBERS THEREIN AND WHOSE INTEREST ARE TAKEN CARE O F BY THE CHAMBER OF COMMERCE. IRRESPECTIVE OF WHETHER THE EXPENSE INCUR RED IS COMPULSORY OR OTHERWISE., IT SATISFIES THE COMMERCIAL EXPEDIENCY TEST . IN CIT VS. T. V. SUNDARAM LYENGAR AND SONS PVT. LIMITED.,186 ITR 276 (SC), HONBLE APEX COURT UPHELD THE FINDINGS OF THE ITAT THAT THE AMOU NT ADVANCED BY THE ASSESSEE-EMPLOYER FOR CONSTRUCTION OF HOUSES UNDER 'SUBSIDISED INDUSTRIAL SCHEME' FOR ITS EMPLOYEES WOULD BE IN THE NATURE OF A REVENUE EXPENDITURE AND THE FACT THAT THE SCHEME WAS NOT FOR ANY TEMPOR ARY OR PARTICULAR DURATION MAKES LITTLE DIFFERENCE TO THE NATURE OF T HE EXPENDITURE. IN RAJASTHAN SPINNING AND WEAVING MILLS LTD(SUPRA) CON TRIBUTION TO THE EXPORT PROMOTION FUND MADE BY THE ASSESSEE FOR PROM OTING ITS BUSINESS INTEREST BY AUGMENTING EXPORTS WAS HELD TO BE INCUR RED AND LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSES SEE'S BUSINESS. IN L.H. SUGAR FACTORY AND OIL MILLS P. LTD. V. CIT [1980] 1 25 ITR 293(SC) THE HONBLE SUPREME COURT ALLOWED THE CONTRIBUTION MADE BY A SUGARCANE FACTORY FOR CONSTRUCTION OF A ROAD, AT THE REQUEST OF THE DISTRICT COLLECTOR. FOLLOWING THIS DECISION, HON'BLE KERALA HIGH COURT IN CO-OPERATIVE SUGARS LTD.(SUPRA) HELD THAT THE CONTRIBUTION MADE BY THE COMPANY AT THE SUGGESTION OF THE STATE MINISTER CONCERNED, FOR SHA RING OF COST INCURRED FOR CEMENT LINING OF AN IRRIGATION CANAL SERVING SUGARC ANE CULTIVATORS WAS PAGE 39 OF 41 ITA NOS.1780 - 1782/BANG/2018 ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 37(1 ) OF THE ACT, AS IT WENT TO THE ADVANTAGE OF THE COMPANY IN THE FORM OF BETT ER SUPPLY OF SUGARCANE. 17.1 IN THE INSTANT CASE, THE ASSESSEE, RENDERING S ERVICES TO MINING INDUSTRY, CONTRIBUTED TOWARDS BUILDING FUND OF FEDE RATION OF INDIAN MINERAL INDUSTRIES , OF WHICH THE ASSESSEE IS A MEM BER . INDISPUTABLY, THE ASSESSEE IS RENDERING SERVICES TO THE MINING INDUST RY THE SAID FEDERATION HAS OVER 44 YEARS OF EXPERIENCE IN MINING TECHNOLOG Y SOLUTIONS FOR THE MINERAL INDUSTRY. IN 1966, THE INDIVIDUAL MINE OPER ATORS AND ASSOCIATIONS ESTABLISHED AN ALL-INDIA FEDERATION, A NON-PROFIT C ORPORATE BODY UNDER THE COMPANIES ACT, 1956 TO PROMOTE THE INTERESTS OF MIN ING, MINERAL PROCESSING, METAL MAKING AND OTHER MINERAL-BASED IN DUSTRIES AND TO ATTEND TO THE PROBLEMS FACED BY THEM IN LEASE GRANT S, RENEWALS, TENURES, PRODUCTION, TAXATION, TRADE, EXPORTS, LABOUR, ETC. THE FEDERATION ENVELOPES IN ITS FOLD MINING, MINERAL PROCESSING, METAL MAKIN G, CEMENT AND OTHER MINERAL-DERIVED INDUSTRIES AS WELL AS GRANITE, STON E, MARBLE AND SLATE INDUSTRIES PRIVATE, JOINT AND PUBLIC SECTORS OF THE COUNTRY. IT REPRESENTS THE ENTIRE NON-FUEL MINING AND MINERAL PROCESSING ACTIV ITIES OF THE NATION. APPARENTLY, THE EXPENDITURE INCURRED BY THE ASSESSE E BY WAY OF CONTRIBUTION TOWARDS BUILDING FUND OF THE SAID FEDE RATION, IS FOR COMMERCIAL CONSIDERATION AND IT IS NOT INCURRED FOR THE PURPOS E OF SECURING ANY CAPITAL ASSETS. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS, WE ARE OF THE OPINION THAT CONTRIBUTION TOWARDS BUILDING FUND OF FEDERATION OF INDIAN MINERAL INDUSTRIES, OF WHICH THE ASSESSEE IS A MEMB ER, HAS BEEN INCURRED WITH A VIEW TO OBTAINING A COMMERCIAL ADVANTAGE AND IS ALLOWABLE AS REVENUE EXPENDITURE. IN VIEW THEREOF, GROUND NO. 4 IN THE APPEAL IS ALLOWED. 3.4.2 RESPECTFULLY FOLLOWING THE ABOVE CITED DECISI ON OF THE ITAT DELHI BENCH IN THE CASE OF RIO TINTO INDIA PVT. LTD., VS. ACIT (SUPRA), WE UPHOLD THE ASSESSEES CLAIM FOR THE EXPENSE OF RS.25 LAKHS PAID AS CONTRIBUTION TO FIMI TO BE ALLOWED AS REVENUE EXPENDITURE INCURRED IN THE COURSE AND FOR THE PURPOSES OF THE ASSESSEES BUSINESS AND CONSEQU ENTLY DELETE THE DISALLOWANCE MADE BY THE AO IN THIS REGARD. WE HOLD AND DIRECT ACCORDINGLY. 11.5 WE NOTE THAT THE LEGAL PAYMENT INCURRED BY ASS ESSEE IS TOWARDS REPRESENTING CASE FILED OF FIMI AGAINST WHI CH TDS HAS BEEN DEDUCTED AS OBSERVED BY THE LD.CIT(A). IT IS A LSO AN ADMITTED FACT THAT THIS ORGANIZATION HAS BEEN FORME D TO SAFEGUARD THE RIGHTS OF MINE OWNERS AND TO PROTECT INTEREST O F INDUSTRIES, PRESENT IN THIS SPEAR OF MINERAL EXPLORATION AND PR ODUCTION. IN PAGE 40 OF 41 ITA NOS.1780 - 1782/BANG/2018 OUR OPINION THE SAID AMOUNT DOES NOT QUALIFY TO BE CONSIDERED AS DONATION. IT IS AN EXPENDITURE INCURRED TO SAFE-GUA RD ASSESSEE'S BUSINESS INTERESTS AND HAS TO BE CONSIDERED UNDER T HE PROVISIONS OF SEC.37(1) OF THE ACT. IN OUR VIEW THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL REPRODUCED HEREIN ABOVE SQUARELY COVERS THE ISSUE UNDER CONSIDERATION. ACCORDINGLY THE GROUND RAISED BY THE ASSESSEE STAND S ALLOWED FOR ASSESSMENT YEAR 2012-13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH AUGUST, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE, DATED, THE 18 TH AUG, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 41 OF 41 ITA NOS.1780 - 1782/BANG/2018 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -8-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -8-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -8-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -8-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -8-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -8-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -8-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS