Sri. B. Rudragouda, Bellary V. The Assistant Commissioner Of Income Tax, Circle- 1, Bellary

ITA 314/BANG/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3116 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 06-03-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Business expenditure; Diversion of income; Transactions in derivatives; Speculation loss; Wrong claim; Agreed addition; Competent authority; Revised return; Revenue expenditure; Capital expenditure; Futures and options; Capital Gains
• Section: 37; 143(3); 115JB; 37(1); 80G; 43(5); 201; 274; 192; 64; 113; 43; 48; 73; 72; 13; 22; 101; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER IT A NO S . 314 & 315 /BANG/2020 ASSESSMENT YEAR S : 2015 - 16 & 2016 - 17 SHRI B. RUDRAGOUDA, NO.2198, BKG HOUSE, KHB COLONY, SANDUR, BELLARY 583 101. PAN: AFUPG 1386A VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY. APPELLANT RESPONDENT APPELLANT BY : S HRI CHYTHANYA K.K., ADVOCATE RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, C IT (DR)(ITAT ), BENGALURU. DATE OF HEARING : 12 .0 3 .202 1 DATE OF PRONOUNCEMENT : 15 .0 4 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE ARE TWO APPEALS BY THE ASSESSEE AGAINST THE SEPARATE ORDERS, BOTH DATED 30.01.2020 FOR THE ASSESSMENT YEARS 2015 -16 & 2016-17. 2. THE FIRST COMMON GROUND IN THESE APPEALS IS WITH REGARD TO DISALLOWANCE OF RS.43,55,905 AND RS.16,73,153 ON AC COUNT OF COMMUNITY WELFARE EXPENSES INCURRED BY THE ASSESSEE FOR THE A YS 2015-16 & 2016-17 RESPECTIVELY. 3. THE FACTS ARE THAT THE ASSESSEE INCURRED THIS EX PENDITURE ON UPKEEP OF ROAD AS PER THE DIRECTION OF DEPUTY COMMISSIONER , BELLARY. THE AO TREATED THE EXPENDITURE AS CAPITAL EXPENDITURE. TH E ASSESSEE CONTENDED ITA NOS.314 & 315/BANG/2020 PAGE 2 OF 70 THAT EXPENDITURE IS REVENUE IN NATURE ALLOWABLE U/S . 37(1) OF THE ACT. IT WAS THE SUBMISSION OF THE ASSESSEE THAT ASSESSEE WHILE DOING HIS BUSINES UNDERTOOK SOCIAL ACTIVITIES WHICH MAY DIRECTLY OR I NDIRECTLY HELP HIS BUSINESS. THE LD. AR SUBMITTED THAT INCURRING OF T HE EXPENDITURE HAS FACILITATED TO CARRY ON ITS DAY TO DAY BUSINESS ACT IVITY AND SUCH CONTRIBUTION WAS ALLOWED AS EXPENDITURE U/S. 37 OF THE INCOME-TA X ACT, 1961 [THE ACT]. 4. IT WAS SUBMITTED THAT THERE ARE CERTAIN OBLIGATI ONS ON THE MINING COMPANIES TO IMPROVE THE LIVING CONDITIONS OF LOCAL COMMUNITIES IN ORDER TO REDUCE NEGATIVE IMPACTS OF MINING PROJECTS ON THE L OCAL COMMUNITY BY TAKING SUFFICIENT PRECAUTIONARY MEASURES. THE BU SINESS OF THE APPELLANT IS CLOSELY ASSOCIATED WITH THE SOCIETY. AS THE APPELLA NT IS INTO MINING, IT HAS TO ENJOY GOODWILL OF THE PEOPLE IN THE AREA IN WHICH I T OPERATES. IT WAS SUBMITTED THAT AN ASSESSEE WHILE DOING HIS BUSINESS MAY ALSO UNDERTAKE SOME SOCIAL ACTIVITIES WHICH MAY DIRECTLY OR INDIRE CTLY OR EVEN REMOTELY HELP HIS BUSINESS. RELIANCE IS PLACED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN CIT V. KARNATAKA FINANCIAL CORPORATION [2010] 326 I TR 355 (KAR. - HC) . THE RELEVANT EXTRACT READS AS UNDER: '5. THE APPEAL IS ADMITTED TO CONSIDER THE FOLLOWIN G SUBSTANTIAL QUESTIONS OF LAW : '(I) WHETHER THE APPELLATE AUTHORITIES WERE CORREC T IN HOLDING THAT THE ASSESSEE WHICH CARRIES ON THE BUSINESS OF FINANCING INDUSTRIAL UNDERTAKINGS IN KARNATAKA IS UNDER A SOCIAL OBLIGAT ION IN LIEU OF THE DIRECTIONS ISSUED BY THE STATE GOVERNMENT TO MAKE C ONTRIBUTIONS TOWARDS THE DEVELOPMENT OF VARIOUS PROGRAMMES OF TH E STATE GOVERNMENT, WHICH WOULD FACILITATE TO CARRY ON ITS DAY-TO-DAY BUSINESS ACTIVITY AND THUS SUCH CONTRIBUTION WOULD BE AN ALL OWABLE EXPENDITURE UNDER SECTION 37 OF THE ACT? (II) WHETHER THE EXPENDITURE CLAIMED BY THE ASSESS EE TOWARDS CONTRIBUTIONS MADE TO SWASTHI GRAMA YOJANA CAN BE C LAIMED AS EXEMPT FROM TAX ONLY IF IT SATISFIES THE VARIOUS CO NDITIONS STIPULATED ITA NOS.314 & 315/BANG/2020 PAGE 3 OF 70 UNDER THE INCOME TAX PROVISIONS TO GRANT SUCH EXEMP TION, AS THE ACT IS A SELF-CONTAINED CODE AND SINCE SUCH CONTRIBUTION W AS NOT ALLOWABLE AS A DEDUCTION EXEMPT FROM TAX AND THE SAME CANNOT BE ALLOWED AS AN EXPENDITURE ?' 6. WE HAVE HEARD THE LEARNED COUNSEL FOR THE PARTIE S. 7. WE ARE OF THE OPINION THAT THE AMOUNT OF RS. 15 LAKHS SPENT BY THE ASSESSEE HAS TO BE CONSIDERED TOWARDS ITS BUSINESS PROMOTION. SINCE THE ZILLA PANCHAYATH UNDER A SCHEME KNOWN AS 'SWAST HI GRAMA YOJANA' WAS TRYING TO DEVELOP MODEL VILLAGES BY PRO VIDING FACILITIES LIKE DEVELOPING ROADS TO NEW MARKETS, ORGANIZING SE LF-HELP GROUPS, COMMUNITY CENTRES AND DEVELOPMENT OF INFRASTRUCTURA L FACILITIES. ACCORDING TO US, IF THE ASSESSEE HAS SPENT AMOUNT T OWARDS THE DEVELOPMENT OF INFRASTRUCTURAL FACILITIES OF VILLAG ES AND CONSTRUCTION OF A NEW MARKET TO ORGANIZE SELF-HELP GROUPS THAT WOUL D CERTAINLY PROMOTE THE BUSINESS OF THE ASSESSEE AS THE ASSESSE E CAN LEND THE LOAN ONLY IF SUCH ESTABLISHMENTS ARE THERE IN VILLAGES. WE ARE ALSO OF THE OPINION THAT IF THE ASSESSEE CAN SPREAD ITS ACTIVIT IES TO RURAL PARTS OF THE STATE, IT WOULD CATER TO THE NEEDS OF THE PEOPLE AN D WOULD SATISFY THE PURPOSE FOR WHICH IT IS CREATED BY THE STATE. THERE FORE, WE ARE OF THE OPINION THAT THE QUESTIONS OF LAW FRAMED IN THIS AP PEAL HAVE TO BE ANSWERED AGAINST THE REVENUE. 5. THE LD. AR FURTHER SUBMITTED THAT THERE ARE CERT AIN OBLIGATIONS ON THE MINING COMPANIES TO IMPROVE THE LIVING CONDITIONS I .E. ECONOMIC, SOCIAL ENVIRONMENTAL CONDITIONS OF THE LOCAL COMMUNITIES I N ORDER TO REDUCE NEGATIVE IMPACTS OF MINING PROJECTS ON THE LOCAL CO MMUNITIES BY TAKING SUFFICIENT PRECAUTIONARY MEASURES, ETC. THEREFORE, IT WAS NECESSARY FOR THE APPELLANT TO INCUR THE AFORESAID EXPENSES IN ORDER TO GAIN THE GOODWILL OF THE LOCAL COMMUNITY. THE APPELLANT IS ENGAGED IN THE BUSINESS OF MINES ON THE LAND LEASED BY THE GOVERNMENT, CONSUMING ENO RMOUS AMOUNT OF NATURAL RESOURCES IN THE SURROUNDING AREA. ANY SUPP ORT OR CONTRIBUTION GIVEN BY THE APPELLANT FOR THE WELFARE OF THE SAID LOCALITY IS TO BE REGARDED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. THE APPELLANT INCURRED EXPENDITURE AS PA RT OF CORPORATE SOCIAL ITA NOS.314 & 315/BANG/2020 PAGE 4 OF 70 RESPONSIBILITY' IN ORDER TO SUPPORT THE SOCIAL CAUS E BY PROVIDING FINANCIAL ASSISTANCE/ AID TO THE PEOPLE RESIDING AROUND THE A PPELLANT'S MINING AREA. THE ASSESSEE HAS INCURRED THIS EXPENDITURE SO AS TO WIN THE GOODWILL OF THE LOCAL COMMUNITY. THUS, IT WAS SUBMITTED THAT THE SA ID EXPENDITURE IS AN ADMISSIBLE BUSINESS EXPENDITURE UNDER SECTION 37 OF IT ACT. HE RELIED ON THE FOLLOWING CASE LAWS:- (1) SRI VENKATA SATYANARAYANA RICE MILL CONTRACTORS C O. [1997] 223 ITR 101 (SC) (2) CIT V. INFOSYS TECHNOLOGIES LTD. [2014] 360 ITR 7 14 (KAR) (3) MYSORE KIRLOSKAR LTD. V. CIT [1987] 30 TAXMAN 467 (KAR) (4) CIT V. MADRAS REFINERIES LTD. [2004] 266 ITR 170 (MAD) (5) CIT V. CHERAN TRANSPORT CORPN. LTD. [1996] 219 IT R 203 (MAD) (6) CIT V. MADURA COATS LTD. [2009] 24 DTR (MAD) 24 (7) CIT V. VELUMANICKAM LODGE [2009] 317 ITR 338 (MAD ) (8) CIT V. JAYENDRA KUMAR HIRALAL [2010] 327 ITR 147 (GUJ.) (9) MAHINDRA & MAHINDRA LTD. V. CIT [2003] 261 ITR 50 1 (BOM) (10) CIT V. RAJASTHAN SPINNING & WEAVING MILS LTD. [2005 ] 274 ITR 465 (RAJ) (11) CIT (LTU) V. GAIL (INDIA) LTD. 2017-TIOL-1296-HC-DE L-IT (12) MOIL LTD. V. CIT [2017] 396 ITR 244 (BOM) (13) CIT V. DLF UNIVERSAL LTD. [2017] 396 ITR 244 (BOM) (14) KARNATAKA STATE INDUSTRIAL INFRASTRUCTURE DEVELOPME NT CORPORATION LTD. V. DCIT [2017] 54 ITR (TRIB) 425 ( BANG. TRIB) (15) SASSON J. DAVID & CO. P. LTD. V. CIT (1979) 118 ITR 261 (SC) (16) S.A. BUILDERS LTD. V. CIT [2007] 288 ITR 1 (SC) (17) CIT V. WALCHAND AND CO. (P) LTD. [1967] 65 ITR 381 (SC) ITA NOS.314 & 315/BANG/2020 PAGE 5 OF 70 (18) CIT V. PANIPAT WOOLLEN & GENERAL MILLS CO. LTD. [19 76] 103 ITR 66 (SC) (19) MYSORE MINERALS LTD. V. CIT (ITA NO.464/BANG/2014 D TD. 25.1.2019) (20) CIT V. CHANDULAL KESHAVLAL & CO. [1960] 38 ITR 601 (SC) (21) CIT V. DALMIA CEMENT P. LTD. [2002] 254 ITR 377 (DE L) (22) SALGAOCAR MINING INDUSTRIES (P.) LTD. [2019] 108 TA XMANN.COM 116 (BOM) 6. FURTHER IT IS SUBMITTED THAT THE ABOVE EXPENDITU RE INCURRED BY THE ASSESSEE IS FOR WELFARE AND CANNOT BE CONSTRUED AS OPPOSED TO PUBLIC POLICY SO AS TO INVOKE THE EXPLANATION 2 TO SECTION 37 OF THE ACT AND APPLIED TO THE PRESENT ISSUE. IT IS SUBMITTED THAT THE AMO UNT EXPENDED BY THE APPELLANT IS FOR THE WELFARE OF THE SOCIETY AND THE SAID DEED OF THE APPELLANT CANNOT BE CONSTRUED AS OPPOSED TO PUBLIC POLICY. THE AO HAS NOT DOUBTED THE GENUINENESS AS TO THE AMOUNT EXPENDED BY THE AP PELLANT. THE SAID EXPENDITURE INCURRED BY THE APPELLANT IN ITS COMMER CIAL EXPEDIENCY IS FOR THE PURPOSE OF BUSINESS. 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 2014 BARRING THE ALLOWABILITY OF CSR APPLIES ONLY TO THE COMPANIES AND NOT TO OTH ERS. A REFERENCE IS MADE TO EXPLANATION 2 TO SECTION 37(1) INSERTED BY THE FINANCE (NO.2) ACT, 2014. PRIOR TO AMENDMENT BY FINANCE (NO.2) ACT, 2 014 THERE WAS NO RESTRICTION AS TO THE ALLOWABILITY OF CSR EXPENDITU RE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS AS DED UCTION IN COMPUTING THE TAXABLE BUSINESS INCOME. FROM THE ABOVE PROVISION I T IS EVIDENT THAT THE EXPLANATION REFERS TO CSR AS REFERRED IN SECTION 13 5 OF COMPANIES ACT, ITA NOS.314 & 315/BANG/2020 PAGE 6 OF 70 2013. THUS, THE SAID RESTRICTION IS APPLICABLE ONLY TO COMPANIES AND NOT TO OTHERS. THEREFORE, THE APPELLANT BEING AN INDIVIDUA L THE RESTRICTION IMPOSED UNDER EXPLANATION 2 TO SECTION 37 IS NOT APPLICABLE IN THE INSTANT CASE. THEREFORE, IT IS SUBMITTED THAT THE IMPUGNED EXPENS ES INCURRED FOR THE PURPOSE OF BUSINESS ARE AN ADMISSIBLE EXPENDITURE U NDER 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 'SWACHH BHARAT KOSH' (BOTH BY RESIDENT AND NON-RESIDENT) AND CLEAN GANGA FUND (BY RESIDENT) SH ALL BE ELIGIBLE FOR 100 PER CENT DEDUCTION UNDER SECTION 80G OF THE INCOME TAX ACT. AS PER THE CSR PROVISIONS, COMPANIES HAVE BEEN MANDATED TO SPE ND 2 PER CENT OF THEIR THREE-YEAR AVERAGE NET PROFIT ON CSR UNDER TH E COMPANIES ACT, 2013. THE COMPANIES ARE ALSO REQUIRED 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 EIT HER FOR COMPANIES OR FOR ANY OTHER CLASS OF ASSESSEES. THE BUDGET FOR 2014-1 5 HAS CLARIFIED THAT THE EXPENDITURE INCURRED ON CSR ACTIVITIES IS NOT FOR T HE PURPOSE OF BUSINESS AND HENCE CANNOT BE ALLOWED AS DEDUCTION FOR COMPUT ING TAX LIABILITY OF THE COMPANY UNDER THE RESIDUARY PROVISIONS OF SECTION 3 7(1). THE DEDUCTION FOR CSR EXPENDITURE IS ALLOWED IF IT FALLS UNDER SECTIO N 30 TO SECTION 36 OF THE INCOME TAX ACT. ALSO, AS PER THE MEMORANDUM EXPLAIN ING THE PROVISIONS IN THE FINANCE (NO. 2) BILL, 2014, IT IS CLARIFIED THA T THE CSR EXPENDITURE IS AN APPLICATION OF INCOME (WHICH IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF CARRYING ON BUSINESS) AND HENCE THE TAX BENEFIT OF THE SAME WILL NOT BE GIVEN IN COMPUTING THE INCOME AS PER TH E NORMAL PROVISIONS AND ALSO IN COMPUTING BOOK PROFITS OF THE COMPANY FOR M AT PURPOSES. ITA NOS.314 & 315/BANG/2020 PAGE 7 OF 70 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 EXPENDITUR E INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SO CIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT, 20 13 (18 OF 2013) SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED B Y THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. 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.10 00 CRORE OR MORE, OR A NET PROFIT OF RS.5 CRORE OR MORE DURING ANY FI NANCIAL YEAR) ARE REQUIRED TO SPEND CERTAIN PERCENTAGE OF THEIR PROFI T ON ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY (CSR). UNDER THE EXISTING PROVISIONS OF THE ACT EXPENDITURE INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS IS ONLY ALLOWED AS A D EDUCTION FOR COMPUTING TAXABLE BUSINESS INCOME. CSR EXPENDITURE, BEING AN APPLICATION OF INCOME, IS NOT INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSES OF CARRYING ON BUSINESS. AS THE APPLICATIO N OF INCOME IS NOT ALLOWED AS DEDUCTION FOR THE PURPOSES OF COMPUTING TAXABLE INCOME OF A COMPANY, AMOUNT SPENT ON CSR CANNOT BE ALLOWED AS DEDUCTION FOR COMPUTING THE TAXABLE INCOME OF THE COMPANY. MOREOV ER, THE OBJECTIVE OF CSR IS TO SHARE BURDEN OF THE GOVERNME NT IN PROVIDING SOCIAL SERVICES BY COMPANIES HAVING NET WORTH/TURNO VER/PROFIT ABOVE A THRESHOLD. IF SUCH EXPENSES ARE ALLOWED AS TAX DEDU CTION, THIS WOULD ITA NOS.314 & 315/BANG/2020 PAGE 8 OF 70 RESULT IN SUBSIDIZING OF AROUND ONE-THIRD OF SUCH E XPENSES 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 MENTION ED SPECIFICALLY IN SECTION 30 TO SECTION 36 OF THE ACT, SHALL BE ALLOW ED IF THE SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF CARRYING ON BUSINESS OR PROFESSION. AS THE CSR EXPENDITURE (BEI NG AN APPLICATION OF INCOME) IS NOT INCURRED FOR THE PURPOSES OF CARR YING ON BUSINESS, SUCH EXPENDITURES CANNOT BE ALLOWED UNDER THE EXIST ING PROVISIONS OF SECTION 37 OF THE INCOME-TAX ACT. THEREFORE, IN ORD ER TO PROVIDE CERTAINTY ON THIS ISSUE, IT IS PROPOSED TO CLARIFY THAT FOR THE PURPOSES OF SECTION 37(1) ANY EXPENDITURE INCURRED BY AN ASSESS EE ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRE D TO IN SECTION 135 OF THE COMPANIES ACT, 2013 SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND HENCE SHALL NOT BE ALLOWED AS DEDUCTION UNDER SECTION 37. HOWEVER, THE CSR EXPEND ITURE WHICH IS OF THE NATURE DESCRIBED IN SECTION 30 TO SECTION 36 OF THE ACT SHALL BE ALLOWED DEDUCTION UNDER THOSE SECTIONS SUBJECT TO F ULFILMENT 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 CAN NOT 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 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 ITA NOS.314 & 315/BANG/2020 PAGE 9 OF 70 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 DEDUCTION F OR THE PURPOSE OF TAXABLE INCOME OF A COMPANY, THE AMOUNT SPENT ON CSR CANNOT BE ALLOWED AS A DEDUCTION FOR COMPUTING TAXABLE INCOME OF THE COMPA NY. THE OBJECT OF THE CSR EXPENDITURE IS TO SHARE THE BURDEN 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 RES ULT IN SUBSIDIZING THE AMOUNT OF ONE-THIRD OF SUCH EXPENSES BY GOVT. BY WA Y OF TAX EXPENDITURE. THE PROVISIONS OF SECTION 37(1) PROVIDE THAT DEDUCT ION FOR ANY EXPENDITURE WHICH IS NOT MENTIONED SPECIFICALLY IN SECTION 30 T O 36 OF THE ACT, SHALL BE ALLOWED IF THE SAME IS INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF CARRYING ON BUSINESS OR PROFESSION. AS CSR EXPEND ITURE BEING APPLICATION OF INCOME IS NOT INCURRED FOR THE PURPOSE OF CARRYI NG ON OF BUSINESS, SUCH EXPENDITURE CANNOT BE ALLOWED UNDER THE PROVISIONS OF SECTION 37 OF THE ACT. THEREFORE, IN ORDER TO PROVIDE CERTAINTY ON T HIS ISSUE, THE SAID SECTION 37 HAS BEEN AMENDED TO CLARIFY THAT FOR THE PURPOSE OF SUB-SECTION (1) OF SECTION 37 ANY EXPENDITURE BY AN ASSESSEE ON THE AC TIVITIES RELATING TO CSR REFERRED TO IN SECTION 135 OF THE COMPANIES AT, 201 3 SHOULD NOT BE ALLOWED AS DEDUCTION UNDER SUB-SECTION 37. HOWEVER, CSR EX PENDITURE WHICH IS OF NATURE DESCRIBED SECTIONS 30 TO 36 OF THE ACT, SHAL L BE ALLOWED AS DEDUCTION UNDER THIS SECTION, SUBJECT TO FULFILLMENT OF CONDI TIONS, IF ANY, 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:- ITA NOS.314 & 315/BANG/2020 PAGE 10 OF 70 EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF SUB-SECTION (1), ANY EXPENDITUR E INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SO CIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT, 20 13 (18 OF 2013) SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED B Y THE ASSESSEE FOR THE 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 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 C RORE OR MORE OR A NET PROFIT OF RUPEES FIVE CRORE OR MORE DURING 3[TH E IMMEDIATELY PRECEDING FINANCIAL YEAR] SHALL CONSTITUTE A CORPOR ATE SOCIAL RESPONSIBILITY 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 SECTI ON 149, IT SHALL HAVE IN ITS CORPORATE SOCIAL RESPONSIBILITY COMMITT EE TWO OR MORE DIRECTORS.] (2) THE BOARD'S REPORT UNDER SUB-SECTION (3) OF SEC TION 134 SHALL DISCLOSE THE COMPOSITION OF THE CORPORATE SOCIAL RE SPONSIBILITY 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, SPE CIFIED IN SCHEDULE VII]; (B) RECOMMEND THE AMOUNT OF EXPENDITURE TO BE INCUR RED ON THE ACTIVITIES REFERRED TO IN CLAUSE (A); AND ITA NOS.314 & 315/BANG/2020 PAGE 11 OF 70 (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 CORPORATE SOCIAL RESPONSIBILITY POLICY FOR THE COMPANY AND DI SCLOSE CONTENTS OF SUCH POLICY IN ITS REPORT AND ALSO PLACE IT ON THE COMPANY'S WEBSITE, 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, AT LEAST TWO PER CENT. OF THE AVERAGE NET PROFITS OF THE COMPANY MADE DURING THE THREE IMMEDIATELY PRECEDING FINANCIAL YEARS [OR WHE RE THE COMPANY HAS NOT COMPLETED THE PERIOD OF THREE FINANCIAL YEA RS SINCE ITS INCORPORATION, DURING SUCH IMMEDIATELY PRECEDING FI NANCIAL YEARS], IN PURSUANCE OF ITS CORPORATE SOCIAL RESPONSIBILITY PO LICY: 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 PR OJECT REFERRED TO IN SUB-SECTION (6), TRANSFER SUCH UNSPENT AMOUNT TO A FUND SPECIFIED IN SCHEDULE VII, WITHIN A PERIOD OF SIX MONTHS OF T HE EXPIRY OF THE FINANCIAL YEAR]. [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 S PEND UNDER THIS SUB-SECTION FOR SUCH NUMBER OF SUCCEEDING FINANCIAL YEARS AND IN SUCH MANNER, AS MAY BE PRESCRIBED.] ITA NOS.314 & 315/BANG/2020 PAGE 12 OF 70 [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 TO A SPECIAL ACCOUNT TO BE OPENED BY THE COMPANY IN THAT BEHALF FOR THAT FINANCIAL YEAR IN ANY SCHEDULED BANK TO BE CALLED THE UNSPENT CORPORATE SOCIAL RESPONSIBILITY ACCOUNT, AND SUCH AMOUNT SHALL BE SP ENT BY THE COMPANY IN PURSUANCE OF ITS OBLIGATION TOWARDS THE CORPORATE SOCIAL RESPONSIBILITY POLICY WITHIN A PERIOD OF THREE FINA NCIAL YEARS FROM THE DATE OF SUCH TRANSFER, FAILING WHICH, THE COMPANY S HALL TRANSFER THE SAME TO A FUND SPECIFIED IN SCHEDULE VII, WITHIN A PERIOD OF THIRTY DAYS FROM THE DATE OF COMPLETION OF THE THIRD FINAN CIAL YEAR. [(7) IF A COMPANY IS IN DEFAULT IN COMPLYING WITH T HE PROVISIONS OF SUB-SECTION (5) OR SUB-SECTION (6), THE COMPANY SHA LL BE LIABLE TO A PENALTY OF TWICE THE AMOUNT REQUIRED TO BE TRANSFER RED BY THE COMPANY TO THE FUND SPECIFIED IN SCHEDULE VII OR TH E UNSPENT CORPORATE SOCIAL RESPONSIBILITY ACCOUNT, AS THE CAS E MAY BE, OR ONE CRORE RUPEES, WHICHEVER IS LESS, AND EVERY OFFICER OF THE COMPANY WHO IS IN DEFAULT SHALL BE LIABLE TO A PENALTY OF ONE-T ENTH OF THE AMOUNT REQUIRED TO BE TRANSFERRED BY THE COMPANY TO SUCH F UND SPECIFIED IN SCHEDULE VII, OR THE UNSPENT CORPORATE SOCIAL RESPO NSIBILITY ACCOUNT, AS THE CASE MAY BE, OR TWO LAKH RUPEES, WH ICHEVER IS LESS.] (8) THE CENTRAL GOVERNMENT MAY GIVE SUCH GENERAL OR SPECIAL DIRECTIONS TO A COMPANY OR CLASS OF COMPANIES AS IT CONSIDERS NECESSARY TO ENSURE COMPLIANCE OF PROVISIONS OF THI S SECTION AND SUCH COMPANY OR CLASS OF COMPANIES SHALL COMPLY WITH SUC H DIRECTIONS.] [(9) WHERE THE AMOUNT TO BE SPENT BY A COMPANY UNDE R SUB-SECTION (5) DOES NOT EXCEED FIFTY LAKH RUPEES, THE REQUIREM ENT UNDER SUB- SECTION (1) FOR CONSTITUTION OF THE CORPORATE SOCIA L RESPONSIBILITY COMMITTEE SHALL NOT BE APPLICABLE AND THE FUNCTIONS OF SUCH COMMITTEE PROVIDED UNDER THIS SECTION SHALL, IN SUC H CASES, BE DISCHARGED BY THE BOARD OF DIRECTORS OF SUCH COMPAN Y.] ITA NOS.314 & 315/BANG/2020 PAGE 13 OF 70 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: [(I) ERADICATING HUNGER, POVERTY AND MALNUTRITION, [PROMOTING HEALTH CARE INCLUDING PREVENTIVE HEALTH CARE] AND SANITA TION [INCLUDING CONTRIBUTION TO THE SWACH BHARAT KOSH SET-UP BY THE CENTRAL GOVERNMENT FOR THE PROMOTION OF SANITATION] AND MAK ING 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 ENHANCEMEN T PROJECTS. (III) PROMOTING GENDER EQUALITY, EMPOWERING WOMEN, SETTING UP HOMES AND HOSTELS FOR WOMEN AND ORPHANS; SETTING UP OLD A GE HOMES, 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, AGRO FORESTRY, CONSERVATION OF NATURAL RESOURCES AND MAINTAINING Q UALITY OF SOIL, AIR AND WATER 4[INCLUDING CONTRIBUTION TO THE CLEAN GAN GA FUND SET-UP BY THE CENTRAL GOVERNMENT FOR REJUVENATION OF RIVER GA NGA]. (V) PROTECTION OF NATIONAL HERITAGE, ART AND CULTUR E INCLUDING RESTORATION OF BUILDINGS AND SITES OF HISTORICAL IMPORTANCE AND WORKS OF ART; SETTING UP PUBLIC LIBRARIES; PROMOTION AND DEVELOPMENT OF T RADITIONAL 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 DEP ENDENTS INCLUDING WIDOWS]; (VII) TRAINING TO PROMOTE RURAL SPORTS, NATIONALLY RECOGNISED SPORTS, PARALYMPIC SPORTS AND OLYMPIC SPORTS ITA NOS.314 & 315/BANG/2020 PAGE 14 OF 70 (VIII) CONTRIBUTION TO THE PRIME MINISTER'S NATIONA L RELIEF FUND 8[OR PRIME MINISTERS CITIZEN ASSISTANCE AND RELIEF IN E MERGENCY SITUATIONS FUND (PM CARES FUND)] OR ANY OTHER FUND SET UP BY THE CENTRAL GOVT. FOR SOCIO ECONOMIC DEVELOPMENT AND RE LIEF 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, ENGIN EERING AND MEDICINE, FUNDED BY THE CENTRAL GOVERNMENT OR STATE GOVERNMEN T OR PUBLIC SECTOR UNDERTAKING OR ANY AGENCY OF THE CENTRAL GOV ERNMENT OR STATE GOVERNMENT; 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 T ECHNOLOGY (DST); DEPARTMENT OF PHARMACEUTICALS; MINISTRY OF A YURVEDA, YOGA AND NATUROPATHY, UNANI, SIDDHA AND HOMOEOPATHY (AYU SH); MINISTRY OF ELECTRONICS AND INFORMATION TECHNOLOGY AND OTHER BODIES, NAMELY DEFENSE RESEARCH AND DEVELOPMENT ORGANISATIO N (DRDO); INDIAN COUNCIL OF AGRICULTURAL RESEARCH (ICAR); IND IAN COUNCIL OF MEDICAL RESEARCH (ICMR) AND COUNCIL OF SCIENTIFIC A ND INDUSTRIAL RESEARCH (CSIR), ENGAGED IN CONDUCTING RESEARCH IN SCIENCE, TECHNOLOGY, ENGINEERING AND MEDICINE AIMED AT PROMO TING SUSTAINABLE DEVELOPMENT GOALS (SDGS).] (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 U NDER ANY 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 ITA NOS.314 & 315/BANG/2020 PAGE 15 OF 70 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 T O S. 37, WHICH ARE ENACTED UNDER BENEFICIAL LEGISLATION, THE BASIC PRINCIPLE THAT HAS TO BE KEPT IN MIND IS THE OBJECT AND INTEN TION 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, W ILL 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 GENERIS 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 INTERPRETATION, ONL Y SERVES, LIKE ALL SUCH RULES, AS AN AID TO DISCOVER THE LEGISLATIVE 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 ITA NOS.314 & 315/BANG/2020 PAGE 16 OF 70 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. 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 SUP PORT FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR. CIT V. GUJARAT NARMADA VALLEY FERTILIZERS & CHEMICALS LTD., 422 ITR 164 (G UJ) . IN THAT CASE, THE FOLLOWING QUESTION WAS BEFORE THE HONBLE HIGH COUR T :- WHETHER IN THE FACTS AND IN CIRCUMSTANCES OF THE C ASE, THE LEARNED ITAT HAS ERRED IN LAW AND ON FACTS IN DELET ING DISALLOWANCE U/S 37(1) OF THE ACT IN RESPECT OF EXP ENSES BEING CONTRIBUTION/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 R ETROSPECTIVE AND THE SAID EXPLANATION IS INSERTED ONLY WITH EFFECT F ROM 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 B Y THE STATUTORY REQUIREMENT WITH REGARD TO DISCHARGING TH E CORPORATE SOCIAL RESPONSIBILITY, IS A DISABLING PROVISION WHI CH PUTS AN ADDITIONAL TAX BURDEN ON THE ASSESSEE IN THE SENSE THAT THE EXPENSES THAT THE ASSESSEE IS REQUIRED TO INCUR, UN DER A STATUTORY OBLIGATION, IN THE COURSE OF HIS BUSINESS ARE NOT A LLOWED DEDUCTION IN THE COMPUTATION OF INCOME. THIS DISALL OWANCE IS RESTRICTED TO THE EXPENSES INCURRED BY THE ASSESSEE UNDER A ITA NOS.314 & 315/BANG/2020 PAGE 17 OF 70 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 DISCHARGING CO RPORATE SOCIAL RESPONSIBILITY UNDER SUCH A STATUTORY OBLIGA TION AND UNDER A VOLUNTARY ASSUMPTION OF RESPONSIBILITY. AS FOR TH E FORMER, THE DISALLOWANCE UNDER EXPLANATION 2 TO SECTION 37(1) C OMES INTO PLAY, BUT, AS FOR LATTER, THERE IS NO SUCH DISABLIN G PROVISION AS LONG AS THE EXPENSES, EVEN IN DISCHARGE OF CORPORAT E SOCIAL RESPONSIBILITY ON VOLUNTARY BASIS, CAN BE SAID TO B E 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS'. THERE IS NO DISPUTE THAT THE EXPENSES IN QUESTION ARE NOT INCURRED UNDE R THE AFORESAID STATUTORY OBLIGATION. FOR THIS REASON ALS O, 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 CASE. 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 DISCHARGIN G CORPORATE SOCIAL RESPONSIBILITY UNDER SUCH A STATUTORY OBLIGATION AN D UNDER A VOLUNTARY ASSUMPTION OF RESPONSIBILITY. AS FOR THE FORMER, T HE DISALLOWANCE UNDER EXPLANATION 2 TO SECTION 37(1) COMES INTO PLAY, BUT AS FOR LATTER, THERE IS NO SUCH DISABLING PROVISION AS LONG AS THE EXPENSES, E VEN IN DISCHARGE OF CORPORATE SOCIAL RESPONSIBILITY ON VOLUNTARY BASIS, CAN BE SAID TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. THE RE IS NO DISPUTE THAT THE EXPENSES IN QUESTION ARE NOT INCURRED UNDER THE AFO RESAID STATUTORY OBLIGATION. IN THE PRESENT CASE, THE SAID EXPENDIT URE IS INCURRED BY THE ASSESSEE ON DISCHARGING SOCIAL RESPONSIBILITY SO A S TO EARN THE GOODWILL OF THE SOCIETY AND IT IS WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF BUSINESS. ITA NOS.314 & 315/BANG/2020 PAGE 18 OF 70 20. THEREFORE, THE PROVISIONS OF EXPLANATION TO SEC TION 37 OF THE ACT CANNOT BE APPLIED. FURTHER, IN THE PRESENT CASE, THE ASSESSEE 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. 21. THE NEXT GROUND IN THESE APPEALS IS WITH REGARD TO ADDITIONS ON ACCOUNT OF WITHHELD AMOUNT BY MC TOWARDS RECLAMATIO N & REHABILITATION OF MINING AREA AS PER THE DIRECTION OF HONBLE SUPREME COURT VIDE ORDER DATED 18.4.2013. 22. THE FACTS ARE THAT THE AO NOTED THAT IN THE P&L ACCOUNT ASSESSEE CLAIMED MAJOR INDIRECT EXPENSES ON AFFORESTATION & ENVIRONMENTAL EXPENSES OF RS.8,87,62,584 WHICH CONTAINED A SUM OF RS.8,34,53,792 & RS. 15,74,62,445 FOR THE AYS 2015-16 & 2016-17 RESP ECTIVELY TOWARDS SPECIAL PURPOSE VEHICLE (SPV) CHARGES BEING 10% O F THE NET SALE OF IRON ORE PAD TO THE MONITORING COMMITTEE APPOINTED BY TH E HONBLE SUPREME COURT. THE SAID AMOUNT WAS PAID TO THE MONITORING COMMITTEE AS PER THE DIRECTIONS OF THE SUPREME COURT OUT OF SALE PROCEED S FOR THE PURPOSE OF TAKING VARIOUS AMELIORATIVE AND MITIGATIVE MEASURES AS A COMPENSATORY PAYMENT TOWARDS DAMAGED CAUSED DUE TO THE ENVIRONME NT AND FOREST DUE TO ILLEGAL IRON ORE MINING ACTIVITIES DONE IN BELLA RY, CHITRADURGA AND TUMKUR DISTRICT. THE AO OBSERVED THAT PRIMA FACIE THE SAI D PAYMENT FOUND TO BE IN THE NATURE OF APPROPRIATION OF PROFIT AND COMPENSAT ORY PAYMENT DUE TO CONTRAVENTION OF LAWS AND HENCE HE WAS OF THE VIEW THAT SUCH PAYMENT ITA NOS.314 & 315/BANG/2020 PAGE 19 OF 70 CANNOT BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS WITHIN THE MEANING OF SECTION 37 OF THE AC T. AFTER CONSIDERING THE EXPLANATION FILED BY THE ASSESSEE, THE AO WAS OF TH E VIEW THAT THE AMOUNT RETAINED BY CEC/MONITORING COMMITTEE AS PER THE DIR ECTIONS OF THE SUPREME COURT FOR THE PURPOSE OF SPV IS ON ACCOUNT OF DAMAGES AND LOSS CAUSED TO THE ENVIRONMENT BY CONTRAVENTION OF LAWS. THE SAID AMOUNT CANNOT BE ALLOWED AS A DEDUCTION OUT OF SALE PROCEE DS EVEN AFTER ACCRUAL OF SUCH LIABILITY WHICH IS COMPENSATION AND PENALTY IN NATURE OF CONTRAVENTION OF LAWS. THEREFORE THE AO DISALLOWED THE SAME AND MADE ADDITION. THE CIT(APPEALS) CONFIRMED THE ADDITION MADE BY THE AO. 23. THE LD. AR SUBMITTED THAT THE SUPREME COURT DI RECTED THE MONITORING COMMITTEE (MC) TO SELL THE STOCK OF IRON ORE THROUG H E-AUCTION BY AN ORDER DATED 18.4.2013. ACCORDINGLY MC SOLD THE STOCK OF I RON ORE THROUGH E- AUCTION. AS PER THE ORDER, IN RESPECT OF MINING LE ASES FALLING UNDER CATEGORY A, 90% OF THE SALE PROCEEDS WERE GIVEN T O THE RESPECTIVE LESSEES AND 10% WAS RETAINED BY MC TOWARDS SPV. TH IS AMOUNT TOWARDS SPV IS UTILIZED FOR THE PURPOSE OF RECLAMATION & RE HABILITATION FOR MINING AREA. THE MINING LICENSE OF ASSESSEE IS CLASSIFIED UNDER CATEGORY A BY THE MC. THE SALE PROCEEDS RETAINED BY MC WOULD CONSTIT UTE DIVERSION OF INCOME OVERRIDING TITLE. AS HELD BY THE SUPREME CO URT IN KAHCHANGANGA SEA FOODS LTD. V. CIT [2010] 325 ITR 540 (SC), TO CONSTITUTE INCOME, THE RECIPIENT MUST HAVE CONTROL OVER IT. HE ALSO RELIE D ON VARIOUS JUDICIAL PRONOUNCEMENTS AS FOLLOWS:- (1) DY. CIT V. DIPESH CHANDAK [2007] 10 TTJ (PAT) 366 (2) CIT V. SITALDAS TIRATHDAS [1961] 41 ITR 367 (SC) (3) CIT V. UNITED BREWERIES LTD. [2010] 321 ITR 547 ( KARN) ITA NOS.314 & 315/BANG/2020 PAGE 20 OF 70 (4) CIT V. PANDAVAPURA SAHAKARA SAKKARE KARKHANE LTD. (1988) 174 ITR 475 (KAR) APPROVED BY SUPREME COURT IN 400 ITR 1 (SC). (5) CIT V. NAGARBAIL SALT OWNERS CO-OP SOCIETY LTD. [ 2017] 390 ITR 415 (KAR) (6) PR. CIT V. GYAN ENTERPRISES PVT. LTD. IN ITA NO.9 40/2016 DT. 17.5.2018 (DELHI HC). SUPREME COURT DISMISSED THE S LP BY DEPARTMENT IN SLP NO.17347/2019 DATED 3.7.2019. (7) MOTI LAL CHHADAMI LAL JAIN V. CIT [1991] 190 ITR 1 (SC) (8) CIT V. SUNIL J. KINARIWALA [2003] 259 ITR 10 (SC) (9) PODDAR PROJECTS LTD. V. CIT, 28 TAXMANN.COM 94 (C AL) (10) CIT V. A. TOSH & SONS (P) LTD. [1987] 166 ITR 867 ( CAL) (11) F.R. SABU P THOMAS V. UOI, 2015-TIOL-514-HC-KERALA- IT (12) CIT V. DTTDC LTD. [2013] 350 ITR 1 (DEL) (13) SHROFF EYE CENTRE V. ACIT IN ITA NO.1560/DEL/2012 (14) DCIT V. SRI T. JAYACHANDRAN [2018] 406 ITR 1 (SC) (15) A F FERGUSON & CO. V. ACIT, MUMBAI 2011-TIOL-604-IT AT- MUM. (16) RSM & CO. V. ACIT, 125 ITD 243 (MUM) 24. THE LD. AR SUBMITTED THAT FROM ALL THE AFORESAI D JUDICIAL PRONOUNCEMENTS THE FOLLOWING PRINCIPLES MAY BE DISC ERNED:- WHERE BY THE OBLIGATION, RECEIPT IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT DOES NOT FORM INCOME OF AN ASSESSEE. WHERE THE RECEIPT IS REQUIRED TO BE APPLIED TO DISC HARGE AN OBLIGATION AFTER IT REACHES THE ASSESSEE, IT FORMS INCOME OF AN ASSESSEE. NATURE OF THE OBLIGATION IS THE CRITERIA TO DETERMI NE THE RECEIPT AS INCOME OR NOT. ITA NOS.314 & 315/BANG/2020 PAGE 21 OF 70 WHEN A THIRD PERSON BECOMES ENTITLED TO RECEIVE THE AMOUNT UNDER AN OBLIGATION OF ASSESSEE EVEN BEFORE HE COULD LAY A C LAIM TO RECEIVE IT AS HIS INCOME, THERE WOULD BE DIVERSION OF INCOME BY O VERRIDING TITLE. WHERE THE OBLIGATION IS SELF IMPOSED OR GRATUITOUS, IT IS ONLY A CASE OF AN APPLICATION OF INCOME. IT IS ONLY SUCH INCOME WHICH DISSIPATES MIDWAY AND WILL NEVER REACH THE ASSESSEE THAT CAN BE CHARACTERIZED AS NOT INCOM E ACCRUING OR ARISING TO AN ASSESSEE AND NOT BECAUSE EVEN THOUGH THE ASSESSEE GETS A RIGHT TO CLAIM THAT, THE AMOUNT IN REALITY DOES NOT REACH THE ASSESSEE FOR ANY REASON. TO CONSTITUTE DIVERSION OF INCOME BY OVERRIDING TIT LE, THE OBLIGATION IMPOSED SHOULD BE ABSOLUTE AND NOT CONDITIONAL. 25. THE LD. AR SUBMITTED THAT THE PROCESS OF SALE O F MINERALS WAS UNDER THE CONTROL OF MC THROUGH E-AUCTION AND ASSESSEE DI D NOT POSSESS ANY RIGHT OVER THE AMOUNT RETAINED BY MC. THE SAID SALE PROCEEDS NEVER REACHED THE ASSESSEE AS THE SAME WAS DIVERTED TO MC TOWARDS SPV FOR THE PURPOSE OF RECLAMATION & REHABILITATION OF MINI NG AREA. THEREFORE 10% OF THE AMOUNT DEDUCTED BY THE MC TOWARDS SPV DOES N OT CONSTITUTE INCOME IN THE HANDS OF THE ASSESSEE. 26. FURTHER IT WAS SUBMITTED THAT THE CONTRIBUTION TO SPV HAS BECOME A NECESSARY INCIDENT OF ASSESSEES PERFECTLY LEGAL BU SINESS. IT IS SUBMITTED THAT THE LOWER AUTHORITIES HAVE FAILED TO APPRECIAT E THAT FOR THE IMPUGNED ASSESSMENT YEAR THERE IS NO RESTRICTION AS REGARDS THE ADMISSIBILITY OF THE AMOUNT EXPENDED TOWARDS CORPORATE SOCIAL RESPONSIBI LITY INCURRED IN THE COURSE OF BUSINESS. THUS, THE AMOUNT EXPENDED TOWA RDS CORPORATE SOCIAL RESPONSIBILITY FOR THE PURPOSE OF BUSINESS IS AN AD MISSIBLE EXPENSE FOR THE IMPUGNED ASSESSMENT YEAR. IT IS SUBMITTED THAT THE AO HAS TAKEN A CONFLICTING POSITION ON THE ISSUE BY TAKING MULTIPL E STANDS. WHILE ON THE ONE ITA NOS.314 & 315/BANG/2020 PAGE 22 OF 70 HAND, HE ALLEGES THAT THE EXPENDITURE IS BY WAY OF CORPORATE SOCIAL RESPONSIBILITY, ON THE OTHER HAND, HE IS TERMING TH E EXPENDITURE AS PENAL. IN THE FOLLOWING DECISIONS THE COURTS HAVE HELD THA T THE DEPARTMENT CANNOT ADOPT DOUBLE STANDARDS:- NEW DELHI TELEVISION LTD VS. DCIT, [2020] 116 TAXMA NN.COM 151 (SC) [PARA 34]; CIT VS. WOODWARD GOVERNOR INDIA (P.) LTD., [2009] 3 12 ITR 254 (SC) [PARA 10]; ACIT VS VIJAY GOPAL JINDAL [2008] 24 SOT 296 (DELHI ) [PARA 25] BALMUKUND ACHARYA VS. DCIT, (2009) 310 ITR 310 (BOM ); BASANT PODDAR VS. CIT (2019) 412 ITR 529 (KAR); GIRISH BANSAL V. UOI (2016) 384 ITR 161 (DELHI); Y. RATHIESH VS. CIT, (2015) 372 ITR 73 (AP); RAJA MALWINDER SINGH VS. CWT [2011] 334 ITR 115 (P 86 HI; AZIMGANJ ESTATES (P.) LTD. VS. CIT, [2015] 372 ITR 243 (CAL)(MAG.); 27. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTE D THAT EXPLANATION 2 TO SECTION 37 INTRODUCED BY FINANCE ACT, 2015 BARRING THE ALLOWABILITY OF CSR APPLIES ONLY TO THE COMPANIES AND NOT TO OTHER ASSE SSEES. IT IS EVIDENT THAT THE EXPLANATION REFERS TO CSR AS REFERRED IN SECTIO N 135 OF COMPANIES ACT, 2013. THUS, THE SAID RESTRICTION IS APPLICABLE ONLY TO COMPANIES AND NOT TO OTHERS. IT IS PERTINENT TO NOTE THAT THE APPELLANT BEING AN INDIVIDUAL THE RESTRICTION IMPOSED UNDER EXPLANATION 2 TO SECTION 37 IS NOT APPLICABLE IN THE INSTANT CASE. THERE IS NO RESTRICTION AS TO TH E ALLOWABILITY OF CSR EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR PUR POSES OF THE BUSINESS AS DEDUCTION UNDER SECTION 37 COMPUTING THE TAXABLE BU SINESS INCOME IN THE HANDS OF AN ASSESSEE OTHER THAN COMPANY. ITA NOS.314 & 315/BANG/2020 PAGE 23 OF 70 28. THUS, IT IS SUBMITTED THAT THE AMOUNT EXPENDED TOWARDS CORPORATE SOCIAL RESPONSIBILITY FOR THE PURPOSE OF BUSINESS I S AN ADMISSIBLE EXPENSE FOR THE IMPUGNED ASSESSMENT YEAR. ACCORDINGLY, 10% OF THE SALE PROCEEDS DEDUCTED BY MC TOWARDS SPV IS ALLOWABLE UNDER SECTI ON 37(1). 29. WITHOUT PREJUDICE TO THE ABOVE, THE AMOUNT DEDU CTED BY MC REPRESENTS BUSINESS LOSS. THE SUM RETAINED BY MC R EPRESENTS A LOSS IN SO FAR AS THE ASSESSEE IS CONCERNED AND IS DEDUCTIBLE UNDER SECTION 28 ITSELF WHILE COMPUTING HIS PROFITS AND GAINS FROM BUSINESS . THERE IS NO DISPUTE WITH RESPECT TO MC REMITTING 90% OF THE TOTAL SALE PROCEEDS FROM THE STOCK TAKEN CONTROL AFTER DEDUCTING 10% AS COMPENSATION F OR REHABILITATION OF MINING AREA. IT IS TO BE NOTED THAT THE ASSESSEE SU FFERED A LOSS OF 10% OF THE STOCK AS A RESULT OF TAKING CONTROL OVER THE PH YSICAL STOCK AND THE SAME IS CLAIMED AS BUSINESS LOSS IN COMPUTING THE BUSINE SS INCOME UNDER SECTION 28 OF THE ACT. EXPLANATION 1 TO SECTION 37 IS APPLICABLE ONLY FOR BUSINESS EXPENDITURE AND NOT FOR BUSINESS LOSS. THE SAID PRINCIPLE HAS BEEN EXPLAINED IN THE BELOW MENTIONED DECISIONS:- DR. T.A. QURESHI V. CIT [2006 287 ITR 547 (SC) CIT V. S.N.A.S.A. ANNAMALAI CHETTIAR [1972] 86 ITR 607 (SC) CIT V. S.C. KOTHARI [1971] 82 ITR 794 (SC) CIT V. PIARA SINGH [1980] 124 ITR 40 (SC) CIT V. T.C. REDDY [2013] 356 ITR 516 (AP) RAMACHANDAR SHIVANARAYAN V. CIT [1978] 111 ITR 263 (SC) BIPINCHANDRA K. BHATIA V. DCIT, TAX APPEAL NO.107 O F 2004 (GUJ) 30. THOUGH THERE IS NO SPECIFIC PROVISION PROVIDING FOR DEDUCTION OF BUSINESS LOSS BY VIRTUE OF PROVISIONS OF THE EXPR ESSION PROFITS & GAINS U/S. 28 OF THE ACT, A BUSINESS LOSS IS TO BE CONSIDERED WHILE ASCERTAINING REAL PROFITS IN A COMMERCIAL SENSE. RELIANCE WAS PLACED ON BADARIDAS DAGA V. ITA NOS.314 & 315/BANG/2020 PAGE 24 OF 70 CIT, 34 ITR 10 (SC), POONA ELECTRIC SUPPLY CO. LTD. V. CIT, 57 ITR 521, DR. T.A. QURESHI V. CIT, 287 ITR 547. 31. THEREFORE, IT IS SUBMITTED THAT, IN THE INSTANT CASE, THE AMOUNT OF COMPENSATION AND COMPULSORY CONTRIBUTION IS TO BE D EDUCTED AS A BUSINESS LOSS WHILE COMPUTING PROFITS AND GAINS UNDER SECTIO N 28 OF THE IT ACT. THE COMPENSATION AND COMPULSORY CONTRIBUTION ARE NOT IN THE NATURE OF EXPENDITURE BUT IN THE NATURE OF BUSINESS LOSS, THE CLAIM FOR DEDUCTION IS TRACED TO SECTION 28 AND NOT TO SECTION 37 (1). WHE N THE CLAIM TO DEDUCTION IS FOUND IN SECTION 28 ITSELF, THERE IS NO SCOPE FO R APPLICATION OF EXPLANATION TO SECTION 37 (1) AS HELD IN THE CASE OF DR. T.A. QUERESHI (SUPRA) . AS HELD IN CIT V. S.C. KOTHARI, 82 ITR 794 (SC) . IT IS SUBMITTED THAT BUSINESS LOSSES SHOULD BE ALLOWABLE ON ORDINARY COMMERCIAL P RINCIPLES IN COMPUTING PROFITS. THE AFORESAID LOSS IS NOT IN THE NATURE O F EXPECTED LOSS BUT ACTUAL LOSS. EVEN THE EXPECTED LOSS WAS ALLOWABLE UPTO AY 2017-18. THE FINANCE BILL 2018 PROPOSES TO RESTRICT DEDUCTION TOWARDS EX PECTED LOSS ONLY AS PER ICDS FROM AY 2018-19 ONWARDS THROUGH PROPOSED SECTI ON 36(1)(XVIII) READ WITH SECTION 40A(13). WHEN THE EXPECTED LOSS ITSELF IS ALLOWABLE, DEDUCTION OF ACTUAL LOSS CANNOT BE DENIED. 32. THE LIABILITY CRYSTALIZES AS SOON AS THE MC WI THHOLDS 10% OF SALE PROCEEDS FOR THE PURPOSE OF TRANSFERRING TO SPV. AC CORDINGLY, THE EXPENDITURE OF RS.15,74,62,445/- CLAIMED TOWARDS RE CLAMATION & REHABILITATION OF MINING AREA AS PER THE DIRECTION OF HON'BLE SUPREME. COURT IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT IS SUBMITTED THAT THE DIRECTION OF HON'BLE SUPREME COURT IS THE LAW OF THE LAND AND IS DEEMED TO STATUTORY DIRECTION. THERE IS NO POSSIBIL ITY TO SELL THE IRON-ORE WITHOUT DEDUCTION OF 10% OF SALE PROCEEDS AS PER TH E DIRECTIONS OF HON'BLE ITA NOS.314 & 315/BANG/2020 PAGE 25 OF 70 SUPREME COURT. THEREFORE, THE DEDUCTION OF 10% OF S ALE PR6CEEDS IS WHOLLY FOR THE PURPOSE OF BUSINESS. 33. IT IS SUBMITTED THAT DEDUCTION MADE BY MC TOWAR DS SPV FOR THE PURPOSE OF RESTORATION OF ENVIRONMENT FROM THE LESS EES IS BASED ON THE PRINCIPLE OF 'POLLUTER PAYS PRINCIPLE' AS HELD IN T HE CASE OF SHYAM SEL LTD VS DCIT [2016] 72 TAXMANN.COM 105 (CALCUTTA) . THEREFORE, THE DEDUCTION OF 10% IS REVENUE EXPENDITURE ENTITLED FOR DEDUCTION U NDER SECTION 37(1) OF THE ACT. 34. AS REGARDS TREATING THE FORFEITED SALE PROCEEDS AS EXPENSES INCURRED TOWARDS INFRACTION OF LAW INVOKING EXPLANATION 1 TO SECTION 37(1) OF RS.15,74,62,445/-, IT WAS SUBMITTED THAT ASSESSEES LEASE WAS PLACED IN THE 'CATEGORY A OF CLEAN LEASE' AND THEREFORE, THER E IS ABSOLUTELY NO ILLEGALITY ASSOCIATED WITH THE APPELLANT'S BUSINESS . THE HON'BLE SUPREME HAS DIRECTED THE CEC TO DEDUCT 10% OF THE SALE PROC EEDS AS A COMPENSATION FOR RECLAMATION & REHABILITATION OF TH E MINING AREA BEING AMELIORATIVE AND MITIGATIVE MEASURES IS ALLOWABLE EXPENDITURE U/S. 37 OF THE ACT. 35. THE EXPLANATION TO THE SECTION 37(1) PROVIDES THAT IF ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE, OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. FROM THE ABO VE IT IS CLEAR THAT WHERE AN ASSESSEE HAS SATISFIED THE CONDITIONS AS LAID DO WN UNDER SECTION 37 OF IT ACT, HE IS ELIGIBLE TO CLAIM THE DEDUCTION IN CO MPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSIN ESS. THUS, AS PER THE AFORESAID SECTION, IF THE EXPENDITURE IS LAID OUT A ND EXPENDED ONLY FOR THE ITA NOS.314 & 315/BANG/2020 PAGE 26 OF 70 PURPOSE OF BUSINESS OR PROFESSION, DEDUCTION IS PER MISSIBLE. HOWEVER, SUCH EXPENDITURE SHOULD NOT BE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE, OR WHICH IS PROHIBITED BY LAW. 36. IT IS SUBMITTED THAT THE AMOUNT TRANSFERRED TO SPV AS COMPENSATION IS TOWARDS CONSERVATION OF ECOLOGY. THE AMOUNT RETAINE D BY THE MC IS TOWARDS THE REHABILITATION OF MINING AREA AS PER TH E DIRECTIONS OF THE HON'BLE SUPREME COURT. IT IS SUBMITTED THAT UNDER N O STRETCH OF IMAGINATION, THE AMOUNT RETAINED BY THE MC IN PURSUANCE TO THE D IRECTIONS OF THE SUPREME COURT CAN BE REGARDED AS TOWARDS INFRACTION OF LAW. THEREFORE, ANY DEDUCTION IN ACCORDANCE WITH THE STATUTORY COMP LIANCE CANNOT BE CONSTRUED AS PENALTY. IN THE INSTANT CASE, NO ILLE GALITY HAS BEEN NOTICED. THEREFORE, THERE IS NO QUESTION OF SPV CONTRIBUTION BEING REGARDED AS INFRACTION OF LAW. EVEN OTHERWISE, IT IS SUBMITTED THAT THE EXPRESSION 'MARGINAL ILLEGALITY' HAS TO BE READ WITH THE EXPRE SSION 'NO ILLEGALITY'. THE FACT THAT 'MARGINAL ILLEGALITY' HAS BEEN CATEGORISED ALO NG WITH `NO ILLEGALITY' SUGGESTS THAT 'MARGINAL ILLEGALITY' IS ALSO A CASE OF `NO ILLEGALITY'. 'MARGINAL ILLEGALITY' IS THUS EQUATED WITH 'NO ILLEGALITY'. H OWEVER, IT IS ONLY ONE-WAV MOVEMENT, IN AS MUCH AS 'NO ILLEGALITY' CANNOT BE E QUATED WITH 'MARGINAL ILLEGALITY'. THE TERM 'COMPENSATION' IS MONETARY RELIEF PAID TOWARDS THE DAMAGES OR LOSS SUFFERED BY A PERSON. 'PENALTY' IS A STATUTORY LIABILITY IMPOSED ON WRONGDOER FOR INFRACTION OF ANY STATUTOR Y PROVISION. 37. THE HON'BLE SUPREME COURT HAS CAUTIOUSLY USED T HE WORD 'COMPENSATION' IN PLACE OF `COMPENSATION/PENALTY' W HICH SUGGESTS THAT THE IMPUGNED PAYMENTS ARE COMPENSATORY IN NATURE. IT I S SUBMITTED THAT THE IMPOSITION OF COMPENSATION IS EMANATING FROM THE OR DER OF THE HON'BLE SUPREME COURT AND THE SAME IS NOT DUE TO INFRACTION OR VIOLATION OF ANY PROVISION OF LAW. IT MAY BE NOTED THAT THE HON'BLE SUPREME COURT IN ITS ITA NOS.314 & 315/BANG/2020 PAGE 27 OF 70 ORDER HAS NOT REFERRED ANY SPECIFIC PROVISION UNDER THE STATUTE FOR IMPOSITION/ DETERMINATION OF QUANTUM OF COMPENSATIO N. THE SAID COMPENSATION IS DETERMINED BASED ON THE RECOMMENDAT ION REPORT OF THE CEC. 38. IT IS SUBMITTED THAT THE COMPENSATION IS CHARGE D IN ORDER TO RECLAMATION AND REHABILITATE THE ECO-SYSTEM DUE TO EXTENSIVE MINING ACTIVITY. THE HON'BLE SUPREME COURT BASED ON THE RE COMMENDATION OF CEC REGARDING THE EXTENT OF DAMAGED CAUSED TO ECO-SYSTE M, FIXED THE QUANTUM OF COMPENSATION TOWARDS R & R PLAN AND THE SAME IS NOT BASED ON VIOLATION OF LAW. 39. IT IS SUBMITTED THAT THE ASSE HAS NOT INDULGED IN ANY OFFENCE WHICH WAS PROHIBITED BY LAW. SUBJECT TO THE PAYMENT OF C OMPENSATION TOWARDS R & R PLAN, THE LEASE HOLDERS ARE ALLOWED TO CARRY OU T THE MINING ACTIVITY. THE ASSESSEE PAID THE COMPENSATION IN ORDER TO SAVE AND PROTECT THE MINING LICENCE AND IN TERMS WITH THE ORDER PASSED BY THE S UPREME COURT, WHICH IS UNDOUBTEDLY INCURRED FOR THE PURPOSE OF BUSINESS AN D SAME IS AN ADMISSIBLE BUSINESS EXPENDITURE UNDER SECTION 37 OF IT ACT. THEREFORE, IT IS SUBMITTED THAT THE IMPUGNED DEDUCTION OF 10% OF SAL E PROCEEDS DOES NOT FALL UNDER EXPLANATION TO SECTION 37(1) OF THE IT A CT, AND HENCE ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 37(1) OF THE IT ACT. 40. THE LD. DR SUBMITTED THAT IN CONNECTION WITH TH E ILLEGAL MINING ACTIVITIES IN KARNATAKA, THE HON'BLE SUPREME COURT HAS ESTABLISHED A MONITORING COMMITTEE CALLED CENTRAL EMPOWERED COMMI TTEE (CEC) TO MONITOR THE E-AUCTION SALES OF THE IRON ORE AND OTH ER RELATED WORK ENTRUSTED TO IT. IN THIS REGARD, THE HON'BLE APEX COURT HAS P ASSED VARIOUS JUDGMENTS IN THE CASE OF SAMAJ PARIVARTANA SAMUDAYA & OTHERS VS. STATE OF ITA NOS.314 & 315/BANG/2020 PAGE 28 OF 70 KARNATAKA & OTHERS , ON VARIOUS DATES IN WRIT PETITION NO. 562 OF 2009 ALONG WITH SLP NO. 7366-7367 . THE HON'BLE SUPREME COURT IN ITS ORDER DATED 18.04.2013 IN THE SAME CASE OF SAMAJ PARIVATHANA SAMUDAYA & OTHERS V/S. STATE OF KARNATAKA & 85 OTHERS HAS PRONOUNCED ITS IMPORTANT JUDGMENT ON ILLEGAL MINING IN THE STATE OF KARNATAK A AND ACCORDINGLY, A CENTRAL EMPOWERED COMMITTEE (CEC) HAS IDENTIFIED TH REE CATEGORY OF MINING CASES, CATEGORY - A, B & C. AS IN THE PRESEN T CASE, THE ASSESSEE FALLS UNDER THE CATEGORY-A MINES, THE ISSUES PERTAI NING TO CATEGORY 'A' MINES IS DISCUSSED. A-CATEGORY MINES COMPRISES (A) WORKING LEASES WHEREIN NO ILLEGALITY/MARGINAL ILLEGALITY HAVE BEEN FOUND AND (B) NONWORKING LEASES WHEREIN NO MARGINAL/ILLEGALITIES HAVE BEEN F OUND. 41. FURTHER, THE LD. DR SUBMITTED THAT THE SALE OF IRON ORE SHOULD BE THROUGH E-AUCTION AND THE SAME SHOULD BE CONDUCTED BY MONITORING COMMITTEE CONSTITUTED BY THE CEC AND THE SALE PROCE EDS ARE TO BE RETAINED / DISBURSED TO MINE OWNER BASED ON CERTAIN CONDITIONS. THE HON'BLE APEX COURT IN ITS ORDER DATED 23.09.2011 HA S DESCRIBED THE MODALITIES FOR THE SALE OF IRON ORE AND HAS CLEARLY MENTIONED THE PROCEDURE TO BE ADOPTED FOR E-AUCTION OF IRON ORE AND PROCEDU RE FOR ACCOUNTING OF SALE PROCEEDS. THE ACCOUNT OF SALE PROCEEDS BEING MAINTA INED BY THE GOVERNMENT UNDER DOUBLE ENTRY SYSTEM OF ACCOUNTING WHICH IS DULY BEING MONITORED BY CEC. 42. ACCORDING TO THE LD. DR, THE HON'BLE SUPREME CO URT INDIA IN SLP NO. 7361/2010 DATED 29.07.2011 HAD BANNED THE ACTIVITY OF MINING OF IN THE DISTRICTS OF BELLARY, TUMKUR AND CHITRADURGA OF KAR NATAKA DISTRICTS. IN COMPLIANCE WITH THE ORDERS OF THE HON'BLE SUPREME C OURT, MINING ACTIVITY HAD BEEN SUSPENDED BY THE ASSESSEE SINCE JANUARY, 2 012. FURTHER, THE IRON ORE HELD IN THE STOCK WAS NOT PERMITTED TO BE SOLD BY THE ASSESSEE. ITA NOS.314 & 315/BANG/2020 PAGE 29 OF 70 HOWEVER, SUBSEQUENTLY ON 03.09.2012, THE HON'BLE SU PREME COURT HAD LIFTED THE BAN AND PERMISSION WAS GIVEN FOR RESUMPT ION OF MINING OPERATION IN MINES. 43. THE LD. DR SUBMITTED THAT IT IS A GENERAL RULE THAT, IF AN ASSESSEE IS PENALIZED UNDER ONE ACT, HE CANNOT CLAIM THAT THE A MOUNT TO BE SET OFF AGAINST HIS INCOME UNDER ANOTHER ACT, BECAUSE THAT WILL BE FRUSTRATING/DEFEATING THE ENTIRE OBJECT OF PENALIZI NG 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 U NLAWFUL ACTIVITIES CANNOT BE ALLOWED TO BE DEDUCTED WHETHER THE BUSINESS IS L AWFUL OR OTHERWISE. EVEN IF THE ENTIRE BUSINESS OF THE ASSESSEE IS ILLE GAL AND INCOME IS SOUGHT TO BE TAXED BY THE ASSESSING THE EXPENDITURE IN THE ILLEGAL ACTIVITIES IS NOT DEDUCTIBLE AFTER THE EXPLANATION TO SECTION 37(1) B Y THE FINANCE ACT, 1998. 44. THE LD. DR SUBMITTED THAT IT HAS BEEN CONSISTEN TLY HELD BY THE COURTS THAT FINES OR PENALTIES PAYABLE FOR VIOLATION OF L AW OF THE LAND CANNOT BE PERMITTED AS DEDUCTION UNDER THE ACT. THAT WILL BE AGAINST PUBLIC POLICY TO ALLOW THE BENEFIT OF DEDUCTION UNDER ONE STATUTE, O F ANY EXPENDITURE INCURRED IN VIOLATION OF THE PROVISIONS OF ANOTHER STATUTE OR ANY PENALTY IMPOSED UNDER ANOTHER STATUTE [ MADDI VENKATARAMAN & CO. (P) LTD VS. CIT (1998) 229 ITR 534 (SC) ]. EVEN THOUGH THE NEED FOR MAKING SUCH PAYMENTS AROSE OUT OF TRADING OPERATION, THE PAYMEN TS WERE NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE TRADE. INFRACTIO N OF THE LAW IS NOT A NORMAL INCIDENT OF BUSINESS AND THEREFORE, NO EXPENSE WHIC H IS PAID BY WAY OF PENALTY FOR BREACH OF THE LAW CAN HE SAID TO BE AN AMOUNT WHOLLY AND EXCLUSIVELY 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 COUL D NOT CONSTITUTE ITA NOS.314 & 315/BANG/2020 PAGE 30 OF 70 EXPENDITURE LAID OUT FOR THE PURPOSE OF ASSESSEE'S BUSINESS [INDIAN ALUMINIUM CO. LTD VS. CIT (SC) 79 ITR 514] . 45. HE RELIED ON THE JUDGMENT IN THE CASE OF INDIAN ALUMINIUM CO. LTD VS. CIT (SC) 79 1TR 514 IT WAS HELD BY THE APEX COURT THAT - A PAYMENT MAD E UNDER A STATUTORY OBLIGATION BECAUSE THE ASSESSEE W AS IN DEFAULT COULD NOT CONSTITUTE EXPENDITURE LAID OUT FOR THE PURPOSE OF ASSESSEE'S BUSINESS. HE EMPHASIZED ONCE AGAIN THE JUDGEMENT IN THE CASE OF MADDI VENKATARAMAN & CO. (P) LTD VS. CIT (1998) 229 ITR 534 (SC) . THE FINES/PENALTIES PAID FOR VIOLATING THE LAW IN THE COURSE OF THE CONDUCT OF B USINESS CANNOT BE REGARDED AS DEDUCTIBLE EXPENDITURE, AS THE ASSESSEE IS EXPECTED TO CARRY ON THE BUSINESS IN ACCORDANCE WITH LAW AND NOT VIOL ATION OF LAW. IN THE INSTANT CASE, THE ASSESSEE HAS VIOLATED THE LAW AND HAS FORMED ILLEGAL MINING PITS AND ILLEGAL DUMPING OF WASTE, WHEREBY, THE HON'BLE. APEX COURT ON THE RECOMMENDATION OF CEC HAS DIRECTED TO COLLECT THE AMOUNTS FOR VIOLATION OF SUCH LAW. THE LD. DR SUPPORTED TH E ORDERS OF LOWER AUTHORITIES. 46. ACCORDING TO THE LD. DR, EXPLANATION (2) TO SEC TION 37 IS APPLICABLE TO ALL THE ASSESSES INCLUDING INDIVIDUAL ASSESSES AN D SINCE EXPLANATION 2 STATES THAT ANY EXPENDITURE INCURRED BY AN ASSESSE E ON THE ACTIVITIES RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRE D TO IN SECTION 135 OF THE COMPANIES ACT, 2013, SHALL NOT BE DEEMED TO BE AN E XPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS OR PROF ESSION. ACCORDING TO THE LD. DR, THE WORDS MENTIONED IN EXPLANATION 2 IS THE ASSESSEE INCLUDING INDIVIDUAL OR COMPANY. 47. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ALLOWABILITY OF THIS IMPUGNED EXPENDITURE CAME UP FOR CONSIDERATION ITA NOS.314 & 315/BANG/2020 PAGE 31 OF 70 BEFORE THE COORDINATE BENCH IN THE CASE OF RAMGAD MINERALS & MINING LTD. IN ITA NOS.1270 & 1271/BANG/2019, ORDER DATED 4.11. 2020 FOR THE ASSESSMENT YEARS 2013-14 & 2014-15 WHEREIN IT WAS H ELD 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 SPV ACCOUNT WAS GUARANTEE PAYMENT FOR IMPLEMENTING OF R & R PLAN, W HICH WOULD BE DEDUCTED FROM SALE PROCEEDS. THIS WAS ONE OF THE CO NDITIONS FOR RESUMING MINING OPERATIONS UNDER CATEGORY B. WE R EFER TO AND RELY ON OBSERVATIONS BY HONBLE SUPREME COURT IN CASE OF CIT VS SITALDAS TIRATHDAS REPORTED IN (1961) 41 ITR 367. HONBLE SU PREME COURT LAYING DOWN FOLLOWING PRINCIPAL REFERRED TO VARIOUS RULINGS THAT ILLUSTRATED ASPECTS OF DIVERSION OF INCOME BY OVERR IDING TITLE. THESE ARE THE CASES WHICH HAVE CONSIDERED THE PROB LEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE AP PLIED THE PRINCIPLE CORRECTLY AND SOME, NOT. BUT WE DO NO T PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FACTS IN THEM. IN OUR OPINION, THE TRU E TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS ITS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF TH E 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 INCOM E OF THE ASSESSEE. WHEREBY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE BU T WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE A N OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE T HE 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 PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONES OWN INCOME WHICH HAS B EEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A CASE I N WHICH THE INCOME NEVER REACHES THE ASSESSEE, WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INC OME BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT WAS PAYABLE. EMPHASIS SUPPLIED ITA NOS.314 & 315/BANG/2020 PAGE 32 OF 70 7.8.13. IN THE PRESENT CASE, WE NOTE THAT 15% OF SA LE PROCEEDS WAS PAYABLE TO SPV ACCOUNT AFTER IT ACCRUE D TO ASSESSEE AND THE FACT THAT, ASSESSEE WAS OBLIGED TO PART WITH SUCH PORTION OF INCOME, BY VIRTUE OF DIRECTION S OF HONBLE SUPREME COURT, AS A PRECONDITION TO RESUME MINING OPERATIONS UNDER CATEGORY B. AT THIS JUNCT URE, WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HO NBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE CONTRIBUTED 15% TO SPV ACCOUNT FOR IMPLEMENTATION OF RECLAMATION AN D REHABILITATION SCHEME ON ITS OWN, AS THERE WAS NO STATUTORY REQUIREMENT TO DO SO UNDER RELEVANT STATU TES THAT REGULATE MINING ACTIVITIES. 7.8.14. HONBLE SUPREME COURT HAS BEEN VERY CLEAR REGARDING THE TYPES OF PAYMENTS THAT NEEDS TO BE RECOVERED FROM LESSEES UNDER CATEGORY B, FROM TH E SALE PROCEEDS AS WELL AS OTHERWISE. ALL THE PAYMENTS FOR M PART OF R&R PLAN FOR RECOUPING AND REHABILITATING THE ENVIRONMENT. CERTAIN PAYMENTS ARE ONETIME PAYMENT A ND SOME OTHERS ARE RECURRING DEPENDING UPON THE SALE O F IRON 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 IN COME, AND THEREFORE, SHOULD BE CONSIDERED AS EXPENDITURE INCURRED FOR CARRYING OUT ITS BUSINESS ACTIVITY. TH IS WE HOLD SO, FOR THE REASON THAT, CONTRIBUTIONS DETERMI NED BY HONBLE SUPREME COURT ARE IN THE NATURE OF GUARANTE E PAYMENT NECESSARY FOR RESUMING MINING ACTIVITY. WE ALSO NOTE THAT, ALLEGED SUM IN THESE GROUNDS ARE FOR IMPLEMENTATION OF R&R PLANS IN RESPECTIVE SANCTIONE D LEASE AREAS HELD BY ASSESSEE, WHERE ILLEGAL MINING ACTIVITIES OR WHICH WERE USED FOR ILLEGAL OVERBURDE N DUMPS, ROADS, OFFICES ETC., BEYOND SANCTIONED LEASE AREA WERE CARRIED OUT. HERE, WE ALSO NOTE THAT, HONBLE SUPREME COURT DIRECTED CEC TO REFUND ANY LEFTOVER GUARANTEE MONEY, AFTER COMPLETION OF IMPLEMENTATION OF R& R PLAN, SUBJECT TO SATISFACTION OF CEC AND APPRO VAL BY HONBLE SUPREME COURT. FOR THIS PECULIAR REASON, AM OUNT SO CONTRIBUTED TOWARDS SPV BEING 15% OF SALE PROCEE DS, UNDER CATEGORY B, CANNOT BE TREATED AS PENAL IN NAT URE. WE, THEREFORE, REJECT OBSERVATIONS OF AUTHORITIES B ELOW ITA NOS.314 & 315/BANG/2020 PAGE 33 OF 70 THAT, SUCH SUM HAVING CONTRIBUTED BY ASSESSEE FALL WITHIN AMBIT OF EXPLANATION 1 TO SECTION 37 (1) OF THE ACT . 7.8.16. THE DECISIONS RELIED UPON BY LD. CIT (A) HA S ALSO BEEN PERUSED BY US. WE NOTE THAT THOSE DECISIONS DE AL WITH EXPENSES WHICH ARE IN THE NATURE OF PENALTY. I N THE PRESENT SITUATION, CONTRIBUTION TOWARDS SPV IS A REQUIREMENT TO BE INCURRED TO CONTINUE ITS BUSINESS ACTIVITIES. IN OUR VIEW, THESE PAYMENTS IN PRESENT CASE DO NOT FALL WITHIN THE CATEGORY OF PENALTY. HONBLE SU PREME COURT HAS QUANTIFIED RATE FOR THE MASS TORT, THAT H AS OCCASIONED DUE TO ILLEGALITIES COMMITTED IN THE OPE RATION OF MINES SEPARATELY. WE ALSO NOTE THAT ASSESSEE HAS SUO MOTO DISALLOWED THE PAYMENTS THAT FALL WITHIN THE CATEGORY OF PENALTY WHICH HAS BEEN COMPUTED IN ACCORDANCE WITH DIRECTIONS OF HONBLE SUPREME COURT (BEING RS.5 CRORE PER HECTARE FOR AREA AS UNDER ILL EGAL MINING PITS OUTSIDE SANCTIONED AREAS AND RS.1 CRORE PER HECTARE FOR AREA UNDER ILLEGAL OVERBURDEN DUMPS, RO ADS, OFFICES EXCEPTION OUTSIDE THE SANCTIONED LEASE AREA ). BASED ON ABOVE DISCUSSIONS AND ANALYSIS, WE ARE OF OPINION THAT CONTRIBUTION TO SPV BEING 15% OF SALE PROCEEDS, UNDER CATEGORY B, IS AN ALLOWABLE EXPENDI TURE FOR YEAR UNDER CONSIDERATION. 48. THIS ISSUE ALSO CAME UP FOR CONSIDERATION IN EA RLIER YEAR BEFORE THE TRIBUNAL IN THE CASE OF VEERABHADRAPPA SANGAPPA & CO. IN ITA NO.1270 & 1271/BANG/2019 FOR THE AY 2013-14, ORDER DATED 4.11 .2020 WHEREIN THE ABOVE DECISION WAS FOLLOWED BY TRIBUNAL:- 7.10.1. LD.COUNSEL AGAIN RAISED 3 PREPOSITIONS BEF ORE US IN RESPECT OF THE CONTRIBUTION MADE TO SPV ACCOUNT FROM THE SALE 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 ITA NOS.314 & 315/BANG/2020 PAGE 34 OF 70 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 DISALLOWED IN THE HANDS OF ASSESSEE. HE SUBMITTED THAT LD.AO IN SUPPORT OF DISALLOWING T HE CLAIM OF EXPENDITURE RELIED ON FOLLOWING DECISIONS: CIT VS.KCP LTD. REPORTED IN 245 ITR 421(SC) G.PADNABHA CHETTIYAR & SONS VS.CIT REPORTED IN 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 HAVE AL READY HELD THAT ENTIRE INCOME ACCRUED TO ASSESSEE WHILE DECIDING GR OUNDS 2.1 &2.2. IN THE ISSUE OF CONTRIBUTION TOWARDS SPV, ONE HAS T O CONSIDER ITS CORRECT NATURE. IN OUR OPINION THESE DECISIONS DO N OT 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 PLA N, WHICH WOULD BE DEDUCTED FROM SALE PROCEEDS. THIS WAS ONE OF THE CONDITIONS FOR RESUMING MINING OPERATIONS UNDER CAT EGORIES 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 AP PLIED THE PRINCIPLE CORRECTLY AND SOME, NOT. BUT WE DO NO T ITA NOS.314 & 315/BANG/2020 PAGE 35 OF 70 PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FACTS IN THEM. IN OUR OPINION, THE TRU E TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS ITS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF TH E 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 INCOM E OF THE ASSESSEE. WHEREBY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE BU T WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE A N OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE T HE 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 PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONES OWN INCOME WHICH HAS B EEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A CASE I N WHICH THE INCOME NEVER REACHES THE ASSESSEE, WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INC OME 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 PROCEEDS ACCRUED TO ASSESSEE, AND IT IS ONLY DUE TO DIRECTION OF HONBLE SUPREME COURT THAT SUCH AMOUNT WAS CONTRIBUTED TO SPV ACCOUNT, FOR WHICH AS SESSEE WAS TO AUTHORISE CEC/MC IN RELEVANT PARAGRAPH 11(III) REFE R 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 ACCRU ED TO ASSESSEE, AND THE FACT THAT, ASSESSEE WAS OBLIGED TO PART WIT H SUCH PORTION OF INCOME, BY VIRTUE OF DIRECTIONS OF HONBLE SUPREME COURT IN CASE OF SAMAJ PARIVARTANA SAMUDAYA & ORS. VS. STATE OF KARN ATAKA & ORS. (SUPRA), AS A PRECONDITION TO RESUME MINING OPERATI ONS UNDER CATEGORY A AND B. AT THIS JUNCTURE WE ALSO EMPHA SISE THAT, BUT FOR THE INTERVENTION BY HONBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE ITA NOS.314 & 315/BANG/2020 PAGE 36 OF 70 CONTRIBUTED 10%/15% TO SPV ACCOUNT FOR IMPLEMENTATI ON OF RECLAMATION AND REHABILITATION SCHEME ON ITS OWN, A S THERE WAS NO STATUTORY REQUIREMENT TO DO SO UNDER RELEVANT STATU TES 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 APPLICA TION OF INCOME, AND THEREFORE SHOULD BE CONSIDERED AS EXPENDITURE I NCURRED FOR CARRYING OUT ITS BUSINESS ACTIVITY. THIS WE HOLD SO , FOR THE REASON THAT, CONTRIBUTIONS DETERMINED BY HONBLE SUPREME COURT A RE IN THE NATURE OF GUARANTEE PAYMENT NECESSARY FOR RESUMING 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 OVERBURDEN DUMPS, ROADS, OFFICES ETC., BEYOND SANCT IONED LEASE AREA WERE CARRIED OUT. HERE, WE ALSO NOTE THAT, HONBLE 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 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 'MINING OF IRON ORE DIAMONDS; AND GENERATION AND SA LE OF WIND POWER', FILED ITS RETURN OF INCOME FOR THE REL EVANT ASSESSMENT YEARS 2013-14 AND 2014-15 BOTH UNDER THE NORMAL PROVISIONS AS WELL AS U/S 115JB OF THE ACT F OR THE RELEVANT AYS. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A.O. OBSERVED THAT THE ASSES SEE- COMPANY IS CARRYING OUT MINING ACTIVITY IN INDIA AN D PARTICULARLY IN KARNATAKA AND THAT THE HON'BLE SUPR EME COURT OF INDIA TOOK NOTE OF THE LARGE SCALE ILLEGAL MINING ACTIVITY CARRIED ON BY VARIOUS COMPANIES IN KARNATA KA AT THE COST OR DETRIMENT OF ENVIRONMENT AND DELIVERED THEIR JUDGMENT ON 18.04.2013 LEVYING APPROPRIATE CHARGES ON THE LEASEHOLDERS. A.O. ALSO OBSERVED THAT THE HON'B LE SUPREME COURT, BASED ON THE EXTENT OF ILLEGAL MININ G, ITA NOS.314 & 315/BANG/2020 PAGE 37 OF 70 CLASSIFIED THE MINING LEASES INTO THREE CATEGORIES VIZ., CATEGORY 'A', 'B' AND 'C' AND THAT THE ASSESSEE IS FALLING IN CATEGORY-B IN RESPECT OF DONIMALI COMPLEX AND TH AT IN THEIR ORDER, THE APEX COURT OBSERVED THAT BEFORE CONSIDERATION OF ANY RESUMPTION OF MINING OPERATION S BY CATEGORY-B LEASEHOLDERS, EACH OF THE LEASE HOLDER M UST PAY COMPENSATION FOR THE AREAS UNDER ILLEGAL MINING PITS OUTSIDE THE SANCTIONED AREA AT THE RATE OF RS. 5 CR S PER HECTARE AND FOR ILLEGAL OVERBURDEN FOR AT THE RATE OF RS. 1 CR PER HECTARE. FURTHER, A.O. OBSERVED THAT THE SAI D DIRECTION OF THE APEX COURT WAS SUBJECT TO THE FINA L DETERMINATION OF THE NOTIONAL LOSS CAUSED BY THE IL LEGAL MINING AND ILLEGAL USE OF THE LAND; AND THAT THE HO N'BLE SUPREME COURT HAD DIRECTED THAT EACH OF THE LEASEHO LDER SHOULD PAY A SUM EQUIVALENT TO 15% OF THE SALE PROC EEDS OF ITS IRON ORE SOLD THROUGH THE MONITORING 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 CR S TOWARDS PENALTY / COMPENSATION FOR ENCROACHMENT OF THE MINING AREA BEYOND THE SANCTIONED / LEASED AREA. TH E A.O. OBSERVED THAT THE TOTAL OF THE ABOVE PAYMENT OF RS. 405.79 CRS WAS PUNITIVE IN NATURE AND ACCORDINGLY SOUGHT T O DISALLOW THE SAME BY ISSUANCE OF A SHOW-CAUSE NOTIC E. 4. THE A.O. HOWEVER DID NOT ACCEPT THE ASSESSEE'S EXPLANATION AND HELD THAT THE ASSESSEE, BEING A CAT EGORY-B LEASEHOLDER, HAS BEEN DIRECTED TO MAKE THE PAYMENT FOR INFRINGEMENT OF MMDR 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' WH EREAS THE ASSESSING OFFICER HAS CONSIDERED THE ASSESSEE A S CATEGORY-'B' COMPANY. THE HON'BLE SUPREME COURT HAS CLEARLY INDICATED THAT CATEGORY-A COMPRISES OF (I) 'WORKING LEASES' WHEREIN NO ILLEGALITY / MARGINAL ILLEGALITY HAVE BEEN FOUND AND (II) 'NON-WORKING LEASES' WHERE IN NO MARGINAL / ILLEGALITIES HAVE BEEN FOUND, WHEREAS CA TEGORY- B COMPRISES OF (I) MINING LEASES WHEREIN ILLEGAL MI NING IS ITA NOS.314 & 315/BANG/2020 PAGE 38 OF 70 10% TO 15% OF THE SANCTIONED LEASE AREAS. HOWEVER, CEC HAD RECOMMENDED THAT BOTH 'A' AND 'B' CATEGORIES MA Y BE ALLOWED TO RESUME THE MINING ACTIVITY SUBJECT TO THE PAYMENT OF PENALTY / COMPENSATION DECIDED BY THE CO URT. THUS, ACCORDING TO THE ASSESSEE, THE SAID EXPENDITU RE IS NOTHING BUT A PAYMENT WHICH WAS REQUIRED TO BE MADE WITHOUT WHICH THE ASSESSEE COULD NOT HAVE CARRIED O N 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 COU RT HAS ACCEPTED THE SAID CATEGORIZATION, THERE WOULD H AVE BEEN MARGINAL ILLEGALITIES COMMITTED BY THE ASSESSE E AND THE COMPENSATION / PENALTY AS DIRECTED BY THE HON'B LE SUPREME COURT IS ONLY TO COMPENSATE 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 VIOL ATION OF ANY LAW TO HOLD IT TO BE PUNITIVE IN NATURE, AS PRESUME D BY THE ASSESSING OFFICER. LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAW, PARTICULARLY T HE DECISION OF THE COORDINATE BENCH OF THE ITAT, KOLKA TA IN THE CASE OF ESSEL MINING & INDUSTRIES LTD 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 05.08.2011) AND ALSO THE DECISION OF THE HON' BLE CALCUTTA HIGH COURT IN THE CASE OF SHYAMSEL LTD VS . DCIT (72 TAXMANN.COM 105) (CAL.). ON GOING THROUGH THE S AID DECISIONS, WE FIND THAT THE HON'BLE CALCUTTA HIGH C OURT HAS CONSIDERED THE CASE OF AN ASSESSEE WHO FAILED T O INSTALL POLLUTION CONTROL DEVICE WITHIN FACTORY PREMISE WIT HIN PRESCRIBED TIME AND THAT THE ASSESSEE HAD TO PAY RS . 12.50 LAKH FOR COMPENSATING DAMAGE TO ENVIRONMENT AND THE SAME WAS RECOVERED BY STATE POLLUTION CONTROL BOARD ON THE PRINCIPLE OF 'POLLUTER PAYS' AND THE A.O. HAD T REATED 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 T O INSTALL POLLUTION CONTROL DEVICE WITHIN PRESCRIBED TIME AND THEREFORE, SUCH PAYMENT WAS UNDOUBTEDLY FOR THE PUR POSE OF BUSINESS AND IN CONSEQUENCE OF BUSINESS CARRIED ON BY THE ASSESSEE AND WAS THUS COVERED BY SECTION 37 OF THE ACT. FOR COMING TO THIS CONCLUSION, HON'BLE HIGH COURT H AS ITA NOS.314 & 315/BANG/2020 PAGE 39 OF 70 ALSO CONSIDERED THE JUDGMENT OF THE HON'BLE NATIONA L GREEN TRIBUNAL IN THE CASE OF STATE POLLUTION CONTR OL BOARD VS. SWASTIK ISPAT (P.) LTD WHEREIN AT PARA 38 OF THE JUDGMENT THE TRIBUNAL HELD AS UNDER:- 'BEING PUNITIVE IS THE ESSENCE OF 'PENALTY'. IT IS IN CLEAR CONTRADISTINCTION TO 'REMEDIAL' AND / OR 'COMPENSATORY'. 'PENALTY ' ESSENTIALLY HAS TO BE FO R RESULT OF A DEFAULT AND IMPOSED BY WAY OF PUNISHMENT. ON THE CONTRARY, 'COMPENSATORY' MAY BE RESULTING FROM A DEFAULT FOR THE ADVANTAGE ALREA DY TAKEN BY THAT PERSON AND IS INTENDED TO REMEDY OR COMPENSATE THE CONSEQUENCES OF THE WRONG DONE. FOR INSTANCE, IF A UNIT HAS BEEN GRANTED CONDITIONA L CONSENT AND IS IN DEFAULT OF COMPLIANCE, CAUSES POLLUTION BY POLLUTING A RIVER OR DISCHARGING SLUDG E, TRADE AFFLUENT OR TRADE WASTE INTO THE RIVER OR ON OPEN LAND CAUSING POLLUTION, WHICH A BOARD HAS TO REMOVE ESSENTIALLY TO CONTROL AND PREVENT THE POLLUTION, THEN 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 CONSEQUENCE. IN GATHERING THE MEANING OF THE WORD 'PENALTY' IN REFERENCE TO A LAW, THE CONTEXT IN WHI CH 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 OR DER REPRODUCED ABOVE THAT THE CONDITION OF PAYMENT FOR RESUMING THE MINING ACTIVITY BY CATEGORIES 'A' & 'B ' COMPANIES IS TO NOT TO PUNISH THE COMPANIES FOR ANY VIOLATION OF LAW BUT IS TO ENSURE SCIENTIFIC AND PL ANNED 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 FALLING IN 'CATEGORY- A', 10% OF THE SALE PROCEEDS MAY BE TRANSFERRED TO THE SPV WHILE THE BALANCE 10% OF THE SALE PROCEEDS MAY BE REIMBURSED TO THE RESPECTIVE LESSEES. IN RESPECT OF THE MINING ITA NOS.314 & 315/BANG/2020 PAGE 40 OF 70 LEASES FALLING IN 'CATEGORY-B', AFTER DEDUCTING THE PENALTY / COMPENSATION, THE ESTIMATED COST OF THE IMPLEMENTATION OF THE R & R PLAN, AND 10% OF THE SALE PROCEEDS TO BE RETAINED FOR BEING TRANSFERRED TO THE SPV, THE BALANCE AMOUNT, IF ANY MAY BE REIMBURSED TO THE RESPECTIVE LESSEES;' THE FACT THAT THE COMPENSATION IS PROPORTIONATE TO AREA OF ILLEGAL MINING OUTSIDE THE LEASED AREA AND THAT THE ASSESSEE HAS PAID THE PROPORTIONATE COMPENSATION FO R MINING IN THE AREAS OUTSIDE THE SANCTIONED AREA ALL OTTED TO IT AND THAT 10% OF SUM IS TO BE TRANSFERRED TO SPV AND THE BALANCE 10% IS TO BE REIMBURSED TO THE RESPECTIVE L ESSEES, ACCORDING TO US, PROVES THAT IT IS A PAYMENT MADE A S 'COMPENSATION' FOR EXTRA MINING, WITHOUT WHICH THE ASSESSEE COULD NOT HAVE RESUMED ITS ACTIVITIES. THE REFORE, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASS ESSEE THAT IT IS COMPENSATORY IN NATURE AND IS A 'BUSINES S EXPENDITURE' AND IS ALLOWABLE U/S 37(1) OF THE ACT. THUS, GROUNDS NO.2 AND 3 RAISED BY THE ASSESSEE ARE ALLOW ED. 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 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 MAD E TO SPV FOR ASSESSMENT YEAR 2013-14 AND 2014-15; AND IS SUE IN RESPECT OF R&R EXPENSES INCURRED DURING ASSESSME NT YEAR 2013 14. FIRST OF ALL, WE SUMMARISE OBJECTIO NS 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 COMPENSATION BUT IT IS PENAL IN NATURE FOR CONTRAVENTION OF LAW AS OBSERVED BY HIM IN PARA 4.3 OF THE ASSESSMENT ORDER FOR AY:2013-14. (B) SECOND OBJECTION OF THE LD.AO IS CONTAINED IN PARA 4.9 OF THE ASSESSMENT ORDER FOR AY:2013-14 AND AS PER THE SAME, THIS IS THE OBJECTION OF LD.AO THA T ITA NOS.314 & 315/BANG/2020 PAGE 41 OF 70 THE SAID SPV IS NOTHING BUT CSR EXPENSES ONLY AND THEREFORE NOT ALLOWABLE. (C) THIRD OBJECTION OF LD.AO IS ALSO CONTAINED IN PARA 4.9 OF THE ASSESSMENT ORDER FOR AY:2013-14 AND AS PER THE SAME, THIS IS THE OBJECTION OF THE LD.AO THAT THE SAID SPV IS NOT ALLOWABLE U/S 37 (1) AS IT WAS NOT INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. (D) IN PARA 4.8 OF THE ASSESSMENT ORDER FOR AY:2013-14, LD.AO IS STATING THIS THAT SPV RATE IS 10% IN CATEGORY A MINES BUT 15% IN CATEGORY B MINES AND THIS EXTRA 5% IN CATEGORY B MINES IS FOR VARI OUS VIOLATIONS AND ILLEGAL MINING AND EVEN AFTER THIS OBSERVATION, HE FINALLY HELD IN THE SAME PARA THAT WHOLE SPV EXPENSES OF 15% IS NOT ALLOWABLE. 7.8.10. LD.AO OBSERVED THAT, THESE SPV WERE 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 DEVELOPMENT, AFFO RESTATION, SOIL AND BIODIVERSITY CONSERVATION AND FOR ENSURING INCL USIVE GROWTH OF THE AREA SURROUNDING MINING LEASES. 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 PROFITS . ACCORDINGLY, ENTIRE AMOUNT ADJUSTED TOWARDS SPV WAS DISALLOWED B Y LD.AO. LD.AO WAS OF OPINION THAT ENTIRE SALE PROCEEDS AS P ER E AUCTION BID SHEETS/INVOICES WERE TO BE ASSESSED AS TRADING RECE IPTS. THE AMOUNT RETAINED BY CEC/MONITORING COMMITTEE AS PER DIRECTI ONS OF HONBLE SUPREME COURT, ON BEHALF OF ASSESSEE FOR SPV PURPOS ES, WAS ON ACCOUNT OF DAMAGES AND LOSS CAUSED TO ENVIRONMENT D UE TO CONTRAVENTION OF LAW, AND THEREFORE, CANNOT BE ALLO WED AS DEDUCTION ITA NOS.314 & 315/BANG/2020 PAGE 42 OF 70 OUT OF SALE PROCEEDS, EVEN AFTER ACCRUAL OF SUCH LI ABILITY. LD.AO WAS OF OPINION THAT, EVEN IN CATEGORY A MINES, THERE WAS MARGINAL ILLEGALITY FOUND BY CEC, BECAUSE OF WHICH 10% OF CO NTRIBUTION WAS ATTRIBUTED OUT OF SALE 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 ASPECTS OF DIVE RSION OF INCOME BY OVERRIDING TITLE. THESE ARE THE CASES WHICH HAVE CONSIDERED THE PROB LEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE AP PLIED THE PRINCIPLE CORRECTLY AND SOME, NOT. BUT WE DO NO T PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FACTS IN THEM. IN OUR OPINION, THE TRU E TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS ITS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF TH E 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 INCOM E OF THE ASSESSEE. WHEREBY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE BU T WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE A N OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE T HE 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 PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONES OWN INCOME WHICH HAS B EEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A CASE I N WHICH ITA NOS.314 & 315/BANG/2020 PAGE 43 OF 70 THE INCOME NEVER REACHES THE ASSESSEE, WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INC OME 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 PORTION OF I NCOME, BY VIRTUE OF DIRECTIONS OF HONBLE SUPREME COURT, AS A PRECONDIT ION TO RESUME MINING OPERATIONS UNDER CATEGORY B. AT THIS JUNCT URE, WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HONBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE CONTRIBUTED 15% TO SPV ACCO UNT FOR IMPLEMENTATION OF RECLAMATION AND REHABILITATION SC HEME ON ITS OWN, AS THERE WAS NO STATUTORY REQUIREMENT TO DO SO UNDE R 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 PAYMENT A ND SOME OTHERS ARE RECURRING DEPENDING UPON THE SALE OF IRON ORE S OLD IN THE NAME OF EACH LICENSEE OR DEPENDING ON THE NEED FOR REHABILI TATION. 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 ACTIVITY. WE ALSO NOTE THAT, ALLEGED SUM IN THESE GROUNDS ARE FOR IMPLEMENTATION OF R&R PLANS IN ITA NOS.314 & 315/BANG/2020 PAGE 44 OF 70 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 W ERE CARRIED OUT. HERE, WE ALSO NOTE THAT, HONBLE SUPREME COURT DIRE CTED CEC TO REFUND ANY LEFTOVER GUARANTEE MONEY, AFTER COMPLETI ON OF IMPLEMENTATION OF R& R PLAN, SUBJECT TO SATISFACTIO N OF CEC AND APPROVAL BY HONBLE SUPREME COURT. FOR THIS PECULIA R REASON, AMOUNT SO CONTRIBUTED TOWARDS SPV BEING 15% OF SALE PROCEE DS, UNDER CATEGORY B, CANNOT BE TREATED AS PENAL IN NATURE. W E, THEREFORE, REJECT OBSERVATIONS OF AUTHORITIES BELOW THAT, SUCH SUM HA VING CONTRIBUTED BY ASSESSEE FALL WITHIN AMBIT OF EXPLANATION 1 TO S ECTION 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 SETTING UP OF SPV, TRANSFER OF FUNDS COLLECTED FROM ALL LEASE HOLDERS UNDER VAR IOUS HEADS, MANNER OF UTILISATION OF SAID FUNDS ETC., TO HONBLE SUPREME COURT, WHICH IS INCORPORATED IN PARAGRAPH 7 AT PAGE 164 TO 171 AS U NDER: (IX) A SPECIAL PURPOSE VEHICLE (SPV) UNDER THE CHAIRMANSHIP OF CHIEF SECRETARY, GOVERNMENT KARNATA KA AND WITH THE SENIOR OFFICERS OF THE CONCERNED DEPAR TMENTS OF THE STATE GOVERNMENT AS MEMBERS MAY BE DIRECTED TO BE SET UP FOR THE PURPOSE OF TAKING VARIOUS AMELIOR ATIVE AND MITIGATIVE MEASURES IN DISTRICTS BELLARY, CHITR ADURGA AND TUMKUR. THE ADDITIONAL RESOURCES MOBILIZED 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/ RECEI VABLE FROM THE DEFAULTING LESSEE, (C) THE AMOUNT RECEIVED / ITA NOS.314 & 315/BANG/2020 PAGE 45 OF 70 RECEIVABLE BY THE MONITORING COMMITTEE FROM THE MIN ING LEASES FALLING IN CATEGORY- A AND CATEGORY-B, ( D) AMOUNT RECEIVED/ RECEIVABLE FROM THE SALE PROCEEDS OF THE CONFISCATED MATERIAL ETC., MAY BE DIRECTED TO BE TRANSFERRED TO THE SPV AND USED EXCLUSIVELY FOR THE SOCIO- ECONOMIC DEVELOPMENT OF THE AREA/LOCAL POPULATION, INFRASTRUCTURE DEVELOPMENT, CONSERVATION AND PROTEC TION OF FOREST, DEVELOPING COMMON FACILITIES FOR TRANSPO RTATION OF IRON ORE (SUCH AS MAINTENANCE AND WIDENING OF EX ISTING ROAD, CONSTRUCTION OF ALTERNATE ROAD, CONVEYOR BELT , RAILWAY SIDING AND IMPROVING COMMUNICATION SYSTEM, ETC.). A DETAILED SCHEME IN THIS REGARD MAY BE DIRE CTED TO BE PREPARED AND IMPLEMENTED AFTER OBTAINING PERMISS ION 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 PURPOS E OF CONSTITUTION OF THE SPV, IT MAY BE NOTICED, IS FOR TAKING OF AMELIORATIVE AND MITIGATIVE MEASURES AS PER THE COMPREHENSIVE ENVIRONMENT PLANS FOR MINING IMPACT ZONE (CPEMIZ) AROUND MINING LEASES IN BELLARY, CHITRADURGA AND TUMKUR. BY ORDER DATED 28-09-2012, THE MONITORING COMMITTEE 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 INTERES T NOT ONLY OF THE ENVIRONMENT AND ECOLOGY BUT THE MINING INDUSTRY AS A WHOLE SO AS TO ENABLE THE INDUSTRY TO RUN IN A MORE ORGANIZED, PLA NNED AND DISCIPLINED MANNER. UNDER THESE SET OF FACTS, IT CA NNOT BE SAID THAT ITA NOS.314 & 315/BANG/2020 PAGE 46 OF 70 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 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, THESE EX PENSES 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 SALE PROC EEDS, UNDER CATEGORY A/B, IS TO BE ALLOWABLE AS EXPENDITURE FOR YEAR UNDER CONSIDERATION. THUS, ALTERNATIVE PLEA RAISED BY ASS ESSEE IN GROUND 2.3.6 AND 2.3.7 DOES NOT ARISE. IN ANY EVENT, SUCH PAYMENT CANNOT BE CONSIDERED TO BE LOSS IN THE HANDS OF ASSESSEE. ACCORDINGLY WE ALLOW GROUNDS 2.3.8-2.3.9 AND DISMIS S GROUNDS 2.3.1-2.3.7. ITA NOS.314 & 315/BANG/2020 PAGE 47 OF 70 49. THE ABOVE TWO DECISIONS OF THE TRIBUNAL WERE FO LLOWED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MUNEER ENTERPRISES IN ITA NO.696/BANG/2018 DATED 9.3.2021 FOR THE AY 2013-14 WHEREIN IT WAS HELD AS FOLLOWS:- 13. ON CAREFUL READING OF DECISION OF HONBLE SUP REME 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 EGORIES 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 PRINCIP AL REFERRED TO VARIOUS RULINGS THAT ILLUSTRATED ASPECTS OF DIVE RSION OF INCOME BY OVERRIDING TITLE. THESE ARE THE CASES WHICH HAVE CONSIDERED THE PROB LEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE AP PLIED THE PRINCIPLE CORRECTLY AND SOME, NOT. BUT WE DO NO T PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FACTS IN THEM. IN OUR OPINION, THE TRU E TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS ITS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF TH E 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 INCOM E OF THE ASSESSEE. WHEREBY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE BU T WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE A N OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE T HE 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 PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONES OWN INCOME WHICH HAS B EEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A CASE I N WHICH THE INCOME NEVER REACHES THE ASSESSEE, WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INC OME BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT WAS PAYABLE. ITA NOS.314 & 315/BANG/2020 PAGE 48 OF 70 EMPHASIS SUPPLIED 14. IN THE PRESENT FACTS OF THE CASE, WE NOTE THAT 15% OF SALE PROCEEDS WAS PAYABLE TO SPV ACCOUNT, AFTER IT ACCRUED TO ASS ESSEE, AND THE FACT THAT, ASSESSEE WAS OBLIGED TO PART WITH SUCH PORTIO N OF INCOME, BY 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 HONBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE CONTRIBUTED 15% TO SPV ACCO UNT FOR IMPLEMENTATION OF RECLAMATION AND REHABILITATION SC HEME ON ITS OWN, AS THERE WAS NO STATUTORY REQUIREMENT TO DO SO UNDE R RELEVANT STATUTES THAT REGULATE MINING ACTIVITIES. 15. HONBLE SUPREME COURT HAS BEEN VERY CLEAR REGAR DING THE TYPES OF PAYMENTS THAT NEEDS TO BE RECOVERED FROM LESSEES U NDER CATAGORY B, FROM THE SALE PROCEEDS AS WELL AS OTHERWISE. ALL TH E PAYMENTS FORMS PART OF R&R PLAN FOR RECOUPING AND REHABILITATING T HE ENVIRONMENT. CERTAIN PAYMENTS ARE ONE TIME PAYMENT AND SOME OTHE RS ARE RECURRING DEPENDING UPON THE SALE OF IRON ORE SOLD IN THE NAM E OF EACH LICENSEE OR DEPENDING ON THE NEED FOR REHABILITATION. 16. IN OUR VIEW CONTRIBUTING 15% TO SPV ACCOUNT 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 NATURE OF GUARA NTEE PAYMENT NECESSARY FOR RESUMING MINING ACTIVITY. WE ALSO NOT E THAT, ALLEGED SUM IN THESE GROUNDS ARE FOR IMPLEMENTATION OF R&R PLAN S IN RESPECTIVE SANCTIONED LEASE AREA HELD BY ASSESSEE, WHERE ILLEG AL MINING ACTIVITIES OR WHICH WERE USED FOR ILLEGAL OVERBURDEN DUMPS, RO ADS, OFFICES ETC., BEYOND SANCTIONED LEASE AREA WERE CARRIED OUT. HERE , WE ALSO NOTE THAT, HONBLE SUPREME COURT DIRECTED CEC TO REFUND ANY LE FTOVER GUARANTEE MONEY, AFTER COMPLETION OF IMPLEMENTATION OF R& R P LAN, SUBJECT TO SATISFACTION OF CEC AND APPROVAL BY HONBLE SUPREME COURT. FOR THIS PECULIAR REASON AMOUNT SO CONTRIBUTED TOWARDS SPV B EING 15% OF SALE PROCEEDS, UNDER CATEGORY B, CANNOT BE TREATED AS PE NAL IN NATURE. WE, THEREFORE, REJECT OBSERVATIONS OF AUTHORITIES BELOW THAT, SUCH SUM HAVING CONTRIBUTED BY ASSESSEE FALL WITHIN AMBIT OF EXPLANATION TO SECTION 37 (1) OF THE ACT. ITA NOS.314 & 315/BANG/2020 PAGE 49 OF 70 17. THE DECISIONS RELIED UPON BY LD. CIT (A) HAS AL SO BEEN PERUSED BY US. WE NOTE THAT THOSE DECISIONS DEAL WITH EXPENSES WHICH ARE IN THE NATURE OF PENALTY. IN THE PRESENT SITUATION, CONTRI BUTION TOWARDS SPV IS A REQUIREMENT TO BE INCURRED TO CARRY CONTINUE ITS BUSINESS ACTIVITIES. IN OUR VIEW, THESE PAYMENTS IN PRESENT FACTS DO NOT FA LL WITHIN THE CATEGORY OF PENALTY. 18. WE NOTE THAT IDENTICAL ISSUE HAS BEEN CONSIDERE D AND DECIDED IN THE LIGHT OF OBSERVATIONS BY HONBLE SUPREME COURT IN C ASE OF REFERRED BY THE LD.AR MENTIONED HEREIN ABOVE. FOR SAKE OF CONVE NIENCE WE REPRODUCE THE OBSERVATIONS OF THIS TRIBUNAL IN CASE OF VEERBHADRAPPA SANGAPPA (SUPRA) AS UNDER: 8.12.3. ON CAREFUL READING OF DECISION OF HONBLE SUPREME COURT DATED 18/04/2013, 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. THIS WAS ONE OF THE CONDITIONS FOR RESUMING MINING OPERATIONS UNDER CATEGORIES A AND B RESPECTIVELY. IN THIS BACKGROUND, WE ONCE AGAIN REFER TO AND RELY ON OBSERVATIONS BY HONBLE SUPREME COURT IN CASE OF CI T VS SITALDAS TIRATHDAS (SUPRA). HONBLE SUPREME COURT L AYING DOWN FOLLOWING PRINCIPAL REFERRED TO VARIOUS RULING S THAT ILLUSTRATED ASPECTS OF DIVERSION OF INCOME BY OVERR IDING TITLE. THESE ARE THE CASES WHICH HAVE CONSIDERED THE PROBLEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE APPLIED THE PRINCIPLE CORRECTLY AND SOME, NOT. BUT WE DO NOT PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE 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 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 SAI D TO BE A PART OF THE INCOME OF THE ASSESSEE. WHEREBY ITA NOS.314 & 315/BANG/2020 PAGE 50 OF 70 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 THE 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 PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONES OWN INCOME WHICH HAS BEEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A CASE IN WHICH THE INCOME NE VER 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 WHOM IT WAS PAYABLE. EMPHASIS SUPPLIED 8.12.4. APPLYING, THIN LINE OF DIFFERENCE INTERPRET ED BY HONBLE SUPREME COURT TO PRESENT FACTS, WE ARE OF T HE OPINION THAT, CONTRIBUTION TO SPV ACCOUNT, CANNOT B E CONSIDERED TO BE DIVERSION OF INCOME. THIS IS BECAU SE, WE HAVE ALREADY HELD WHILE DECIDING GROUND 2.1 AND 2.2 HEREINABOVE, THAT ENTIRE SALE PROCEEDS ACCRUED TO A SSESSEE, AND IT IS ONLY DUE TO DIRECTION OF HONBLE SUPREME COURT THAT SUCH AMOUNT WAS CONTRIBUTED TO SPV ACCOUNT, FO R WHICH ASSESSEE WAS TO AUTHORISE CEC/MC IN RELEVANT PARAGRAPH 11(III) REFERRED TO AND RELIED BY LD.CIT DR. 8.12.5. 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, AS SESSEE WAS OBLIGED TO PART WITH SUCH PORTION OF INCOME, BY VIR TUE OF DIRECTIONS OF HONBLE SUPREME COURT, AS A PRECONDIT ION TO RESUME MINING OPERATIONS UNDER CATEGORY A AND B. AT THIS JUNCTURE WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HONBLE SUPREME COURT, ASSESSEE WOU LD 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 T O DO SO UNDER RELEVANT STATUTES THAT REGULATE MINING ACTIVI TIES. 8.12.6. 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 CONS IDERED AS EXPENDITURE INCURRED FOR CARRYING OUT ITS BUSINE SS ITA NOS.314 & 315/BANG/2020 PAGE 51 OF 70 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 ACTIVITY. WE ALSO NOTE THAT, ALLEGED SUM IN THESE G ROUNDS ARE FOR IMPLEMENTATION OF R&R PLANS IN RESPECTIVE SANCTIONED LEASE AREAS HELD BY ASSESSEE, WHERE ILLE GAL 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 THA T, HONBLE SUPREME COURT DIRECTED CEC TO REFUND ANY LEFTOVER GUARANTEE MONEY, AFTER COMPLETION OF IMPLEMENTATION OF R& R PLAN, SUBJECT TO SATISFACTIO N OF CEC AND APPROVAL BY HONBLE SUPREME COURT. FOR THIS PECULIAR REASON AMOUNT SO CONTRIBUTED TOWARDS SPV B EING 10%/15% OF SALE PROCEEDS, UNDER CATEGORY A/B, CANNO T BE TREATED AS PENAL IN NATURE. WE, THEREFORE, REJECT OBSERVATIONS OF AUTHORITIES BELOW THAT, SUCH SUM HA VING CONTRIBUTED BY ASSESSEE DO NOT FALL WITHIN AMBIT OF EXPLANATION TO SECTION 37 (1) OF THE ACT. 8.12.7. BASED ON ABOVE DISCUSSIONS AND ANALYSIS, WE ARE OF OPINION THAT CONTRIBUTION TO SPV BEING 10%/15% OF S ALE PROCEEDS, UNDER CATEGORY A/B, IS TO BE ALLOWABLE EXPENDITURE FOR YEAR UNDER CONSIDERATION. 19. FACTS LEADING TO THE DISALLOWANCE IS IN THE PRE SENT CASE IS SIMILAR AND IDENTICAL TO THE FACTS IN THE CASE OF V EERBHADRAPPA SANGAPPA & CO. (SUPRA), WE NOTE THAT SAME IS THE VI EW TAKEN BY CO-ORDINATE BENCH IN CASE OF M/S RAMGAD MINERALS & MINING LTD. (SUPRA). 20. RESPECTFULLY FOLLOWING THE VIEW TAKEN IN ABOVE DECISIONS AND BASED ON THE ABOVE DISCUSSIONS AND ANALYSIS, WE ARE OF THE OPINION THAT 15% CONTRIBUTION TO SPV RETAINED BY TH E MONITORING COMMITTEE ON BEHALF OF ASSESSEE DESERVES TO BE TREA TED AS BUSINESS EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY GROUNDS RAISED BY ASSESSEE STANDS ALLOW ED. 50. MOREOVER, CSR EXPENSES HAVE BEEN INCURRED BY TH E ASSESSEE ON THE DIRECTION OF THE GOVERNMENT OF INDIA AND IDE NTICAL ISSUE HAS BEEN ITA NOS.314 & 315/BANG/2020 PAGE 52 OF 70 DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF M/S. HLL LIFECARE LTD. VS. ACIT IN ITA NO.123/COCH/2017 FOR AY 2012-13 ORDER DATED 11.06.2018 WITH THE FOLLOWING FINDINGS :- 9.5 THE CSR EXPENSES HAS BEEN INCURRED AS PER THE DIRECTIONS OF GOVERNMENT OF INDIA. THE HON'BLE KERALA HIGH COURT IN THE CASE OF TRAVANCORE TITANIUM PRODUCTS LTD. (SUPRA) HAD HELD THAT A GOVERNMENT UNDERTAKING IS DUTY BOUND TO COMPLY WITH GOVERNMENTAL ORDERS. THE RELEVANT FINDINGS OF THE HON'BLE JURISD ICTIONAL HIGH COURT READS AS FOLLOWS :- 'BEING A COMPANY UNDER THE CONTROL OF THE GOVERNMEN T, IT IS BOUND TO COMPLY WITH ALL THE GOVERNMENT ORDERS A ND THE BOARD OF DIRECTORS ITSELF IS CONSTITUTED WITH T HE GOVERNMENT SECRETARIES AND OTHER NOMINEES AS MEMBER S. THEREFORE, THE CLAIM OF DEDUCTION HAS TO BE CONSIDE RED WITH REFERENCE TO THE PECULIAR CIRCUMSTANCES OF THE COMPANY WHICH HAS NO DISCRETION IN REGARD TO THE PAYMENT OF THE SERVICE CHARGES TO THE GOVERNMENT AS IT IS BOUND TO COMPLY WITH THE GOVERNMENT ORDERS. SO MUCH SO, WE ARE OF THE VIEW THAT THE PARAMETERS APPLICABLE I N THE CASE OF A PRIVATE COMPANY THAT TOO WITH RESPECT TO THE CLAIM FOR BUSINESS EXPENDITURE, ARE EXACTLY NOT APP LICABLE IN THE CASE OF PUBLIC SECTOR COMPANY WHETHER IT IS UNDER THE CONTROL OF THE STATE GOVERNMENT OR CENTRAL GOVERNMENT. IN FACT, MANY PUBLIC SECTOR COMPANIES ARE NOT FORME D JUST TO MAKE PROFIT ALONE BUT ARE SUPPOSED TO ACHIEVE LA RGER OBJECTIVES FOR THE SOCIETY AND THE STATE. BY MAKING PAYMENT OF SERVICE CHARGE, THE RESPONDENT COMPANY HAS DISCHARGED ONLY THE OBLIGATION UNDER GOVERNMENT ORDERS. IT CANNOT CARRYON BUSINESS BY VIOLATING GOVERNMENT ORDERS AND REMAIN AS A DEFAULT ER TO THE GOVERNMENT. 9.6 THE ITAT MUMBAI BENCH IN THE CASE OF HINDUSTAN PETROLEUM CORPORATION LTD. (96 ITD 186) HAD HELD CSR EXPENDITURE INCURRED BY GOVERNMENT UNDERTAKING IS AN ALLOWABLE DEDUCTION. T HE RELEVANT FINDING OF THE ITAT MUMBAI BENCHES READS AS FOLLOWS :- ITA NOS.314 & 315/BANG/2020 PAGE 53 OF 70 'EXPENDITURE INCURRED BY ASSESSEE, A COMPANY OWNED BY THE GOVERNMENT OF INDIA AND WORKING UNDER ITS CONTR OL AND DIRECTIONS, TOWARDS IMPLEMENTATION OF 20 POINT PROGRAMME AS PER SPECIFIC DIRECTIONS OF THE GOVERNM ENT THOUGH VOLUNTARY IN NATURE AND NOT FORCED BY ANY STATUTORY OBLIGATION, IS ALLOWABLE AS BUSINESS EXPE NDITURE. MERELY BECAUSE AN EXPENDITURE IS IN THE NATURE OF DONATION, IT DOES NOT CEASE TO BE AN EXPENDITURE DEDUCTIBLE UNDER S. 37(1).' 9.7 THE COMMISSIONER OF INCOME TAX HAD MENTIONED IN HIS ORDER THAT 'THE APEX COURT (313 ITR 334 SC) CIT VS MADRAS REFI NERIES LTD., WHILE HEARING THE ALLOWABILITY OF CSR EXPENSES OBSE RVED THAT NEITHER THE HIGH COURT NOR THE TRIBUNAL CONCERNED HAD GIVEN SPECIFIC FINDING TO THE EFFECT THAT THE SAID CSR EXPENDITURE IS ALLO WABLE AS BUSINESS EXPENDITURE '. IN THE ABOVE MENTIONED CASE, THE APE X COURT HAS NOT GIVEN ANY DECISION ON MERITS OF THE CASE. IT HAD ON LY GIVEN AN OBSERVATION AND REMITTED THE ISSUE BACK TO THE TRIB UNAL TO GIVE SPECIFIC FINDING TO THE EFFECT THAT THE SAID CSR EXPENDITURE IS ALLOWABLE AS BUSINESS EXPENDITURE. 9.8 SINCE, THE ASSESSEE HAD INCURRED CSR EXPENSES T O COMPLY WITH THE DIRECTIONS OF GOVT. OF INDIA, FOLLOWING THE ABOVE O BSERVATIONS MADE BY HIGH COURT OF KERALA AND ITAT, MUMBAI BENCH, THE EX PENDITURE INCURRED IS INCIDENTAL TO THE ASSESSEE'S BUSINESS A ND OUGHT TO BE ALLOWED AS DEDUCTION U/S 37 OF THE I.T. ACT. 51. IDENTICAL ISSUE HAS ALSO BEEN DECIDED BY THE CO ORDINATE BENCH OF THE TRIBUNAL IN HINDUSTAN PETROLEUM CORPORATION LTD. VS . DCIT (2005) 96 ITD 186 (MUM.) WHEREIN IT WAS OBSERVED AS UNDER:- IT HAD BEEN HELD BY THE KARNATAKA HIGH COURT IN TH E CASE OF MYSORE KIRLOSKAR LTD. V. CIT [1987J 166 ITR 836/ 30 TAXMAN 467. THAT WHILE 'THE BASIC REQUIREMENTS FOR INVOKING SECTIONS 37(/) AND 80G ARE QUITE DIFFERENT', BUT NONETHELESS THE TWO SECTIONS ARE NO T MUTUALLY EXCLUSIVE. THUS, THERE ARE OVERLAPPING AREAS BETWEEN THE DONAT IONS GIVEN BY THE ASSESSEE AND THE BUSINESS EXPENDITURE INCURRED BY T HE ASSESSEE. IN OTHER WORDS, THERE CAN BE CERTAIN AMOUNTS. THOUGH I N THE NATURE OF DONATIONS, AND NONETHELESS, THESE AMOUNTS MAY BE DE DUCTIBLE UNDER SECTION 37(1) AS WELL. THEREFORE, MERELY BECAUSE TH E EXPENDITURE IN ITA NOS.314 & 315/BANG/2020 PAGE 54 OF 70 QUESTION WAS IN THE NATURE OF DONATION, OR, AS PER THE WORDS OF THE COMMISSIONER (APPEALS), 'PROMPTED BY ALTRUISTIC MOT IVES', IT DID NOT CEASE TO BE AN EXPENDITURE DEDUCTIBLE UNDER SECTION 37(1). IN THE CASE OF MYSORE KIRLOSKAR LTD. (SUPRA), THE HIGH COURT HA D OBSERVED THAT EVEN IF THE CONTRIBUTION BY THE ASSESSEE IS IN THE FORM OF DONATIONS, BUT IF IT COULD BE TERMED AS EXPENDITURE OF THE CATEGOR Y FALLING IN SECTION 37(/), THEN THE RIGHT OF THE ASSESSEE TO CLAIM THE WHOLE OF IT AS A DEDUCTION UNDER SECTION 37(1) CANNOT BE DECLINED. W HAT IS MATERIAL IN THIS CONTEXT IS WHETHER THE EXPENDITURE IN QUESTION WAS NECESSITATED BY BUSINESS CONSIDERATIONS OR NOT. ONCE IT IS FOUND TH AT THE EXPENDITURE WAS DICTATED BY COMMERCIAL EXPEDIENCIES, THE DEDUCT ION UNDER SECTION 37(1) CANNOT BE DECLINED. [PARA 7] IN THE INSTANT CASE, THE EXPENDITURE ON 20-POINT PR OGRAMME WAS INCURRED IN VIEW OF SPECIFIC DIRECTIONS OF THE GOVE RNMENT OF INDIA. IT COULD NOT BUT BE IN THE BUSINESS INTEREST OF THE ASSESSEE TO ABIDE BY THE DIRECTIONS OF THE GOVERNMENT OF IND IA WHICH ALSO OWNED THE ASSESSEE. FURTHER, THE EXPENDITURE INCURRED FOR THE IMPLEMENTATION OF 20-POINT PROGRAMME WAS SOLELY FOR THE WELFARE OF THE OPPRESSED CLASSES OF SOCIETY, FOR WH ICH EVEN THE CONSTITUTION OF INDIA SANCTIONS POSITIVE DISCRIMINA TION AND FOR CONTRIBUTION TO ALL AROUND DEVELOPMENT OF VILLAGES, WHICH HAS ALWAYS BEEN THE CENTRAL THEME OF GOVERNMENT'S DEVEL OPMENT INITIATIVES. AN EXPENDITURE OF SUCH A NATURE CANNOT BUT BE, 'A CONCRETE EXPRESSION OF CARE AND CONCERN FOR THE SOC IETY AT LARGE AND AN EXPENDITURE TO DISCHARGE THE RESPONSIBILITIE S OF A 'GOOD CORPORATE CITIZEN WHICH BRINGS GOODWILL OF WITH THE REGULATORY AGENCIES AND SOCIETY AT LARGE, THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE AID OF SUCH GOODWILL'. [PARA 9] JUST BECAUSE THE EXPENDITURE WAS VOLUNTARY IN NATUR E AND WAS NOT FORCED ON THE ASSESSEE BY A STATUTORY OBLIGATION, I T COULD NOT CEASE TO BE A BUSINESS EXPENDITURE. THEREFORE, THE AUTHORITI ES BELOW INDEED ERRED IN LAW IN DECLINING DEDUCTION OF THE EXPENDIT URE INCURRED ON 20- POINT PROGRAMME WHICH WAS, BEYOND DISPUTE OR CONTRO VERSY, AT THE INSTANCE OF THE GOVERNMENT, AND WAS TO DISCHARGE TH E ASSESSEE S OBLIGATIONS TOWARDS SOCIETY AS A RESPONSIBLE CORPOR ATE CITIZEN. [PARA 10] ITA NOS.314 & 315/BANG/2020 PAGE 55 OF 70 52. NOW THE APPLICABILITY OF EXPLANATION 1 TO SECTI ON 37 IS ALREADY COVERED BY THE ABOVE DECISIONS AS IT WAS HELD THAT THE EXPE NDITURE IS ALLOWABLE AS BUSINESS EXPENDITURE. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE AO CANNOT DISALLOW EXPENDITURE BY INVOKING EXPLANATION 1 TO SECTION 37 OF THE ACT. 53. FURTHER AS DISCUSSED IN PARAS 9 TO 20 OF THIS O RDER, WE TAKE SUPPORT FROM THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT V. GUJARAT NARMADA FERTILIZERS & CHEMICALS LTD. (SUPRA ) WHEREIN IT WAS HELD THAT THERE IS NO OBLIGATION TO THIS ASSESSEE U/S. 135 OF THE COMPANIES ACT, 2013 TO INCUR THIS KIND OF EXPENDITURE AND THE ASSE SSEE INCURRED THIS EXPENDITURE WITHOUT ANY STATUTORY OBLIGATION UNDER THE COMPANIES ACT AND IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF BUSINESS. 54. BEING SO, IN OUR OPINION, THE ASSESSEE BEING AN INDIVIDUAL AND NOT A COMPANY, IT IS NOT GOVERNED BY SECTION 135 OF THE C OMPANIES ACT, 2013 AND THE IMPUGNED EXPENDITURE INCURRED BY THE ASSESS EE IS NOT IN THE NATURE OF CSR EXPENDITURE AS MENTIONED IN THAT SECTION AND IT CANNOT BE DISALLOWED BY INVOKING THE PROVISIONS OF EXPLANATIO N 2 TO SECTION 37 OF THE I.T. ACT. ACCORDINGLY, WE ALLOW THIS GROUND OF APP EALS OF THE ASSESSEE. 55. THE NEXT GROUND IN ITA NO.315/BANG/2020 IS WITH REGARD TO TREATING LOSS FROM DERIVATIVES F&O OF RS.9,43,60,600 AS AS SESSABLE UNDER THE HEAD CAPITAL GAINS INSTEAD OF BUSINESS LOSS THERE BY NOT ALLOWING SET OFF OF THE SAME. 56. THE LD. AR SUBMITTED THAT THE LOWER AUTHORITIES WERE OF THE VIEW THAT ASSESSEE HAS AGREED TO THE ADDITIONS MADE BY THE AO DURING ASSESSMENT PROCEEDINGS, WHEN NO SUCH ACCEPTANCE/ CONSENT HAS B EEN GIVEN BY THE ASSESSEE. RELYING ON APEX COURT JUDGMENT IN M/ S GOETZE (INDIA) LTD. V. ITA NOS.314 & 315/BANG/2020 PAGE 56 OF 70 CIT 284 ITR 323 (SC) , THE LOWER AUTHORITIES OBSERVED THAT THE ASSESSEE CANNOT MAKE ADDITIONAL CLAIM DURING ASSESSMENT PROC EEDINGS OTHER THAN THE CLAIM MADE IN THE RETURN OF INCOME UNDER SECTIO N 139; AND THAT THE ASSESSEE HIMSELF HAS DECLARED THE PROFIT AND GAIN O N SALE OF F & 0 UNDER THE HEAD CAPITAL GAINS. SINCE, LOSS ON TRADING IN F & 0 IS NOT DISCLOSED AS TURNOVER ARISING FROM BUSINESS LOSS, THUS CLAIM NOT MADE IN RETURN OF INCOME CANNOT BE ALLOWED OTHERWISE THAN REVISED RET URN OF INCOME. 57. THUS, THE LD. AR SUBMITTED THAT, THE BASIS OF T HE IMPUGNED ADDITION IS THAT THE ASSESSEE'S NEW CLAIM CANNOT BE ENTERTAINED BY THE AO. HOWEVER, THERE IS NO WHISPER IN THE IMPUGNED ORDER AS REGARD S IT BEING AN AGREED ADDITION. ON THE CONTRARY, IT IS A CASE OF OUTRIGHT 'REJECTION OF A SPECIFIC CLAIM MADE BY THE ASSESSEE. THE ASSESSEE CONTENDED BEFORE THE LOWER AUTHORITIES TO TREAT THE LOSS ON F&0 DERIVATIVE UND ER THE HEAD BUSINESS INCOME AND ALLOW SET OFF OF LOSSES FROM F&0 DERIVAT IVE AGAINST BUSINESS INCOME OF MINING; AND THERE CANNOT BE ESTOPPEL AGAI NST ASSESSEE AND THE CLAIM SHOULD BE ALLOWED IN ACCORDANCE WITH LAW, WHI CH WAS REJECTED BY THE LOWER AUTHORITIES. HE SUBMITTED THAT THE CIT(APPEA LS) ON THE ERRONEOUS PREMISE THAT THE APPELLANT HAS ACCEPTED/AGREED THE ADDITIONS MADE BY THE AO DURING THE ASSESSMENT PROCEEDING. THE CIT(A)S V IEW THAT THE ASSESSEE HAS NOT MADE OUT A CASE THAT THE ADDITION WAS NOT MADE ON AGREED BASIS IS PERVERSE AS THERE IS NO WHISPER IN THE IMPUGNED ASSESSMENT ORDER AS REGARDS THE AGREED ADDITION. TH E APPELLANT CANNOT BE EXPECTED TO PROVE THE NEGATIVE. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS WHICH HAVE HELD THAT AN ASSESSEE CANNOT B E EXPECTED TO PROVE THE NEGATIVE:- CIT V. T. AHOBALA RAO, 221 TAXMAN 39 (KAR) K.P. VARGHESE V. ITO, 7 TAXMAN 13 (SC) ITA NOS.314 & 315/BANG/2020 PAGE 57 OF 70 CIT V. DIVINE LEASING & FINANCE LTD. 299 ITR 268 (D EL) CIT V. KAPSONS ASSOCIATES, 381 ITR 204 (P&H) CIT V. BHARTESH JAIN, 310 ITR 82 (DEL) 58. IT WAS FURTHER SUBMITTED THAT THE DECISIONS ON WHICH THE CIT(A) RELIED IN THE IMPUGNED ORDER TO REJECT THE ASSESSEES CONT ENTIONS DO NOT HAVE ANY RELEVANCE TO THE FACTS OF THE INSTANT CASE. THEREF ORE, THE CIT(A) WAS NOT JUSTIFIED IN REJECTING THE CONTENTIONS OF THE ASSES SEE. 59. THE LD. AR SUBMITTED THAT IN THE ORIGINAL RETUR N OF INCOME FILED ON 15.10.2016 ASSESSEE HAD DECLARED SHORT TERM CAPITAL LOSS OF RS.13,98,32,906 AS FOLLOWS:- P A R TI CULAR S AMOUN T LOSS FROM FUTURE & O PTIONS (F&O) 9,43,60,600 SHORT TERM C A PITAL LOSS 4,54,72,306 TOTAL 13,98,32,906 60. THE ASSESSEE INADVERTENTLY DECLARED THE LOSS OF F&O TRANSACTION AS CAPITAL LOSS IN HIS RETURN. HAVING REALIZED THE MI STAKE, THE ASSESSEE MADE A CLAIM DURING THE ASSESSMENT PROCEEDINGS TO TREAT THE LOSS FROM F&O TRANSACTION AS BUSINESS LOSS. IN THIS REGARD, IT WAS SUBMITTED THAT ASSESSEE IS TRADING IN F&O DERIVATIVE THROUGH KARVY STOCK BROKING LTD. AND BOOKED A LOSS OF RS. 9,43,60,600 DURING THE YEAR. TRADING IN F&O DERIVATIVES BEING NON-SPECULATIVE, ANY PROFITS OR G AINS ARISING THEREFROM HAS TO BE TAXED UNDER THE HEAD BUSINESS INCOME. HE REFERRED TO SECTION 28 OF THE ACT AND SUBMITTED THAT IN ORDER TO CONSTR UE THAT AN INCOME UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION OR CAPITAL GAINS, THE INTENTION OF THE PARTIES AND THE SYSTEMATIC WAY OF DEALING IN ORDER TO MAKE ITA NOS.314 & 315/BANG/2020 PAGE 58 OF 70 PROFIT ARE TO BE SEEN. IN THIS REGARD, RELIANCE W AS PLACED ON THE FOLLOWING DECISIONS:- RAJA BAHADUR KAMAKHYA NARAIN SINGH V. CIT, 77 ITR 2 53 (SC) JANAB ABUBUCKER SALT V. CIT, 45 ITR 37 STATE OF GUJARAT V. RAIPUR MFG. CO. LTD., 19 STC 1 (SC) TASH INVESTMENT (P.) LTD. V. ACIT 106 TAXMANN.COM 1 90 (AHD.TRIB) MAANRAJ TRADING (P) LTD. V. DCIT, 23 TAXMANN.COM 45 8 (MUM.TRIB) CIT V. SMT. MINAL RAMESHCHANDRA, 167 ITR 507 (GUJ) CIRCULAR NO.6/2016 DATED 29.2.2016 PRESS RELEASE DATED 24.8.2019 61. THUS IT WAS SUBMITTED THAT IN THE INSTANT CASE, TRADING IN F & 0 DERIVATIVE HAS TO BE TREATED AS BUSINESS INCOME FOR THE FOLLOWING REASONS:- - THE INTENTION OF THE APPELLANT IS CLEAR TO TRADE IN F & 0 TO MAKE PROFITS WITH A SHORTER HOLDING PERIOD; - THE RISK INVOLVED IN TRADING F & 0 IS HIGHER AND TH ERE IS UNCERTAINTY OF MAKING PROFITS WHICH IS USUALLY ASSO CIATED WITH TRADING; - APPELLANT IS DOING SYSTEMATIC BUSINESS BY ENGAGING THE SERVICES OF PROFESSIONALS; 62. THE LD. AR FURTHER SUBMITTED THAT DERIVATIVE IS A KIND OF TRADING INSTRUMENT. FUTURES AND OPTIONS (F&0) ARE TYPES OF DERIVATIVES AVAILABLE FOR THE TRADING IN INDIA IN RECOGNIZED STOCK EXCHANGE. THEY ARE SPECIAL CONTRACTS WHOSE VALUE DERIVES FROM AN UNDERLYING SE CURITY. THE LOWER AUTHORITIES HAVING NOT DISPUTED THE GENUINENESS OF THE TRANSACTION IN F & 0 DERIVATIVE, THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN FAILING TO TREAT THE INCOME/ LOSS FROM TRADING IN F & 0 DERIVATIVE AS BU SINESS INCOME/ LOSS. THE ITA NOS.314 & 315/BANG/2020 PAGE 59 OF 70 AO HAS TREATED SIMILAR ACTIVITY FOR THE PRECEDING P REVIOUS YEAR 2015-16 AS TRADING UNDER SIMILAR CIRCUMSTANCES. THE APPELLANT ONLY CONTINUED THE AFORESAID ACTIVITY DURING THE IMPUGNED PREVIOUS YEA R. THEREFORE, IT IS AXIOMATIC THAT THE ACTIVITY OF THE APPELLANT REMAIN S TRADING ACTIVITY EVEN FOR THE CURRENT YEAR. 63. HE FURTHER REFERRED TO THE PROVISIONS OF SECTIO N 43(5) OF THE ACT. SECTION 2(AC) OF THE SECURITIES (CONTRACTS) REGULAT ION ACT, 1956 AND DREW ATTENTION TO MEMORANDUM TO FINANCE BILL, 2005 AND C IRCULAR NO.3/2006 DATED 27.2.2006 AND CIRCULAR NO.14/2006 DATED 28.12 .2006. HE SUBMITTED THAT SECTION 43(5) OF THE ACT WAS AMENDED BY THE FI NANCE ACT, 2005. PRIOR TO AMENDMENT, SECTION 43(5) DEFINED SPECULATIVE TR ANSACTION TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES IS SETTLED OTHERWISE TH AN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. THE IMPACT OF THE AMENDMENT BY THE FINANCE ACT, 2005 WAS THAT AN ELIGIBLE TRANSACT ION ON A RECOGNIZED STOCK EXCHANGE IN RESPECT OF TRADING IN DERIVATIVES WAS DEEMED NOT TO BE A SPECULATIVE TRANSACTION. THUS, W.E.F. 1 ST APRIL, 2006, TRADING IN DERIVATIVE OF F&O IS NOT REGARDED AS A SPECULATIVE TRANSACTION WH ICH IT IS CARRIED OUT ON A RECOGNIZED STOCK EXCHANGE. IT WAS SUBMITTED THAT F&0 TRANSACTION BEING NON-SPECULATIVE TRANSACTION IS TO BE TREATED AS NOR MAL BUSINESS TRANSACTION. IN THIS REGARD RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS, WHEREIN THE COURTS HAVE CONSIDERED THE F & 0 TRANSACTIONS IN DE RIVATIVES AS REGULAR BUSINESS TRANSACTIONS AND NOT SPECULATIVE TRANSACTI ONS:- SNOWTEX INVESTMENT LTD. V. CIT, 414 ITR 227 (SC). DEEPAK SOGANI VS. DCIT, [2016] 68 TAXMANN.COM 332 ( MUM) [PARA 6, 10]; DCIT VS. AISHWARYA & CO. (P.) LTD., [2015] 60 TAXMA NN.COM 258 (CHENNAI) [PARA 7 & 8]; ITA NOS.314 & 315/BANG/2020 PAGE 60 OF 70 ASIAN FINANCIAL SERVICES LTD. VS. CIT, [2016] 240 T AXMAN 192 (CAL) [PARA 11]; DCIT VS. PATERSON SECURITIES (P.) LTD. [2010] 127 I TD 386 (CHENNAI) [PARA 3,4]; R.B.K. SECURITIES (P.) LTD. VS. ITO [2008] 118 TTJ 465 (MUM) [PARA 4 & 5]; DCIT VS. MADANLAL LTD. [2012] 51 SOT 188/21 TAXMANN .COM 444 (KO1.)(URO) [PARA 4, 5] CIT VS. SSKI INVESTORS SERVICES (P.) LTD. [2008] 11 3 TTJ 511 (MUMBAI) [PARA 3]; RIKEEN P. DALAL VS. DCIT, [2014] 62 SOT 49 (MUM)(UR O.) [PARA 2 & 6]; 64. THEREFORE, IT WAS SUBMITTED THAT TRADING IN F & 0 DERIVATIVE IS TAXABLE UNDER SECTION 28(I). THE SAME IS NOT A SPECULATIVE TRANSACTION UNDER SECTION 43(5) OF IT ACT. 65. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSMEN T HAS TO BE COMPLETED IN ACCORDANCE WITH THE PROVISIONS OF THE IT ACT, AS PER CIRCULAR NO. 14 (XI- 35) OF 1955, DATED 11.04.1955 AND THERE IS NO ESTOP PEL AGAINST THE APPELLANT TO MAKE CORRECT CLAIM IN ACCORDANCE WITH THE LAW. IT IS SUBMITTED THAT MERELY BECAUSE THE APPELLANT HAD DECLARED THE LOSS FROM F & 0 DERIVATIVE AS STCL IN THE ORIGINAL RETURN OF INCOME THERE IS NO ESTOPPEL AGAINST THE APPELLANT IN MAKING THE CORRECT CLAIM I N ACCORDANCE WITH PROVISIONS OF LAW. IT WAS REITERATED THAT THE APPE LLANT INADVERTENTLY DECLARED THE LOSS ON F & 0 TRANSACTION AS CAPITAL L OSS. HAVING REALISED THE MISTAKE HE MADE A CLAIM DURING THE ASSESSMENT PROCE EDINGS WITH A PLEA TO TREAT THE LOSS FROM F & 0 TRANSACTION AS BUSINESS L OSS. 66. THE CBDT CIRCULAR CASTS OBLIGATION ON THE ASSES SING OFFICER TO ASSIST THE ASSESSES IN EVERY REASONABLE WAY IN THE MATTER OF CLAIMING ANY RELIEF ITA NOS.314 & 315/BANG/2020 PAGE 61 OF 70 AND SHOULD NOT TAKE ADVANTAGE OF IGNORANCE OF THE A SSESSEE. IN THIS REGARD A REFERENCE IS MADE TO CIRCULAR NO. 14 (XI-35) OF 1 955 DATED 11.04.1955. HE SUBMITTED THAT THE COURTS HAVE HELD THAT THERE C ANNOT BE ANY ESTOPPEL AGAINST ASSESSEE AND CLAIM SHOULD BE ALLOWED IN ACC ORDANCE WITH THE PROVISIONS OF LAW AND CITED THE FOLLOWING DECISIONS :- CIT V. SHREE RAMA MULTI TECH LTD., 403 ITR 426 (SC) CIT V. K. VENKATESH DUTT, 319 ITR 331 (KAR) ALAPATI VENKATARAMIAH V. CIT, 57 ITR 185 (SC) CIT V. C. PARAKH & CO. (I) LTD., 29 ITR 661 (SC) CIT V. BHARAT GENERAL REINSURANCE CO. LTD., 81 ITR 303 (DEL) CIT V. REWARI CENTRAL CO-OP. BANK LTD., 263 ITR 598 (P&H) CIT V. S.E. RAILWAY EMPLOYEES CO-OP. CREDIT SOCIETY LTD., 390 ITR 524 (CAL) CIT VS. M.R.P. FIRM [1965] 56 ITR 67 (SC); SANCHEZ CAPITAL SERVICES (P.) LTD VS ITO 26 TAXMANN .COM 61 ITO VS ALUMECO INDIA EXTRUSION LTD. TS-143-ITAT-201 3(HYD)- TP [PARA 16] SHELL INDIA MARKETS (P.) LTD. V. ASSISTANT COMMISSI ONER OF INCOME-TAX, LTU [2014] 369 1TR 516 (BORN) [PARA 10] VODAFONE INDIA SERVICES (P.) LTD. V. UOI AND OTHERS [2014] 361 ITR 531 (BOM.-HC) [PARA 40 AND 45] VODAFONE INDIA SERVICES (P.) LTD. V. UOI AND OTHERS [2014] 368 ITR 1 (BORN.-HC) [PARA 27] 67. THEREFORE, IT IS SUBMITTED THAT THE APPELLANT C ANNOT BE TIED DOWN TO AN INADVISABLY MADE WRONG CLAIM WITHOUT APPRECIATING T HE ACTUAL FACTS AND PROPOSITION OF LAW. 68. FURTHER, THE LD. DR SUBMITTED THAT THE CIT(APPE ALS) WAS NOT JUSTIFIED IN FAILING TO APPRECIATE THAT THE APPELLANT IS PERM ITTED TO MAKE A NEW OR ITA NOS.314 & 315/BANG/2020 PAGE 62 OF 70 FRESH CLAIM DURING THE APPELLATE PROCEEDING AND THE SAME IS NOT BARRED BY THE DECISION OF THE HON'BLE SUPREME COURT IN GOETZE (INDIA) LTD., VS. CIT [2006] 284 ITR 323 (SC). IT IS NOT THE CASE OF THE ASSESSEE THAT HE HAD NOT DECLARED THE LOSS ARISING FROM TRADING OF F&O DERIV ATIVE IN THE ORIGINAL RETURN OF INCOME. THE SAID LOSS WAS DECLARED IN TH E ORIGINAL RETURN UNDER THE HEAD CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE DECISION OF THE HONBLE SUPREME COURT IN GOETZE (INDIA) LTD. (SUPRA) IS NOT APPLICABLE TO THE INSTANT CASE FOR THE REASON THAT IN THE SAID CA SE THE ASSESSEE HAD NOT CLAIMED THE DEDUCTION IN ORIGINAL RETURN OR REVISED RETURN TO CLAIM DEDUCTION. BUT IN THE INSTANT CASE IT IS NOT SO, THE ASSESSEE HAD DECLARED THE INCOME/LOSS FROM F&O DERIVATIVES AS CAPITAL GAIN IN STEAD OF BUSINESS INCOME. THUS IT IS A CASE OF CLAIM UNDER WRONG HEA D OF INCOME. FOR THIS PROPOSITION, THE ASSESSEE ALSO PLACED RELIANCE ON T HE FOLLOWING DECISIONS:- RAGHAVAN NAIR V. ACIT, 402 ITR 400 (KER) WIPRO LTD. V. DCIT IN ITA NO.879/2008 DATED 25.3.20 15 KARNATAKA HIGH COURT CIT V. MALAYALA MANORAMA CO. LTD., 409 ITR 358 (KER ) SATISH S. PRABHU V. ACIT 114 TAXMANN.COM 88 (MUM. T RIB) CIT V. SAM GLOBAL SECURITIES LTD., 360 ITR 682 (DEL ) EBR ENTERPRISES V. UOI, 415 ITR 139 (BOM) CIT V. NASHIK ROAD DEOLALI VYAPAARI SAH. BANK LTD., 76 TAXMANN.COM 78 (BOM) DCIT V. CMS SECURITIES LTD. 82 TAXMANN.COM 319 (MUM ) 69. THE LD. AR SUBMITTED THAT THERE IS NO BAR UNDER THE STATUE TO MAKE FRESH CLAIM BEFORE THE APPELLATE AUTHORITY. IN FACT , GOETZE'S CASE MAKES IT CLEAR THAT IT ONLY DEALT WITH THE POWER OF THE ASSE SSING OFFICER AND NOT THE APPELLATE AUTHORITY. FOR THE PROPOSITION THAT THE A SSESSEE CAN RAISE FRESH ITA NOS.314 & 315/BANG/2020 PAGE 63 OF 70 CLAIM BEFORE THE APPELLATE AUTHORITIES, RELIANCE WA S PLACED ON THE FOLLOWING DECISIONS:- BHANDARI METALS V. STATE OF KARNATAKA, 2004 SCC ON LINE KAR 142 (KAR) CIT V. MAHALAXMI TEXTILE MILLS LTD., 66 ITR 710 (SC ) CIT V. MITESH IMPEX, 367 ITR 85 (GUJ) CIT V. INDIAN EXPRESS (MADURAI) P. LTD., 140 ITR 70 5 (MAD) CIT V. GRASIM INDUSTRIES LTD., 2016-TIOL-292-HC-MUM -IT (BOM) 70. THEREFORE, IT WAS SUBMITTED THAT THE LOWER AUTH ORITIES HAVE ERRED IN WRONGLY APPLYING THE RATIO OF GOETZE CASE AND DENYI NG THE CLAIM OF APPELLANT. 71. AS REGARDS, PRINCIPLES OF CONSISTENCY, THE LD. AR SUBMITTED THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN TAKING DOUB LE IN AS MUCH AS THEY TREATED INCOME FROM DERIVATIVES F&0 AS BUSINESS I NCOME FOR THE AY 2015-16, AND AS CAPITAL LOSS FOR THE IMPUGNED AY 20 16-17. THE LOWER AUTHORITIES OUGHT TO HAVE FOLLOWED THE PRINCIPLES O F CONSISTENCY YEAR ON YEAR WHEN THERE IS NO CHANGE IN FACTS AND CIRCUMSTA NCES. 72. IT IS SUBMITTED THAT FOR THE AY 2015-16 THE APP ELLANT HAD ORIGINALLY DECLARED THE INCOME FROM F & 0 DERIVATIVE AS INCOME FROM CAPITAL GAINS. DURING THE COURSE OF ASSESSMENT PROCEEDING THE AO A SSESSED THE INCOME FROM F&0 DERIVATIVE AS BUSINESS INCOME AND THE SAME WAS ACCEPTED BY THE APPELLANT. THE AO HAVING TREATED THE PROFITS A ND GAINS FROM F&0 DERIVATIVE AS BUSINESS INCOME, THE SAID DERIVATIVES / SCRIPTS HELD BY THE APPELLANT SHALL BE TREATED AS STOCK IN TRADE. THE C LOSING STOCK AS ON 31.03.2015 WOULD BE OPENING STOCK AS ON 01.04.2015. IT IS EVIDENT FROM KARVY STATEMENT THAT THE VALUE OF OPENING STOCK OF F&0 IS RS.7,69,35,461/-. ITA NOS.314 & 315/BANG/2020 PAGE 64 OF 70 WHEN THE FACTS REMAIN UNCHANGED, THE NATURE OF ASSE T AS ON 31.03.2015 WOULD NOT CHANGE ON 01.04.2015. WHAT WAS STOCK ON 3 1.03.2015 CANNOT BE REGARDED AS CAPITAL ASSET AS ON 01.04.2015. IT HAS BEEN HELD THAT THE TREATMENT WHETHER THE CAPITAL ASSET OR STOCK IN TRA DE CANNOT BE VARIED FROM ONE YEAR TO ANOTHER YEAR WITHOUT CHANGE IN FACTS IN THE FOLLOWING DECISIONS:- VENKATESH SATYARAJ V. DCIT, 88 TAXMANN.COM 915 (MUM TRIB.) PR.CIT V. RAMNIWAS RAMJIVAN KASAT, 410 ITR 540 (GUJ ) DR. JAYKUMAR CHHAGANLAL SHAH V. DCIT, 2016-TIOL-150 7-ITAT- AHM SMT. SUJATHA KAPADIA V. CIT V. JCIT, 55 TAXMANN.COM 474 MADHURAJ FOUNDATION, 175 TTJ 25 (CHD. TRIB) SHIBANI S. BHOJWANI V. DCIT, 35 TAXMANN.COM 35 (MUM TRIB) ACIT V. HARBILAS COLD STORAGE & FOOD PRODUCTS, 12 T AXMANN.COM 36 (LUCKNOW) 73. THE LD. AR SUBMITTED THAT THE THERE IS NO CHANG E IN FACTS AND CIRCUMSTANCES WITH RESPECT TO TRADING IN F & 0 DERI VATIVE. THE AO HAS NOT BROUGHT ANY MATERIAL TO SHOW CHANGE IN CIRCUMSTANCE IN THE IMPUGNED YEAR. THE INCONSISTENT APPROACH OF THE AO IN ASSE SSING INCOME FROM F & 0 DERIVATIVE AS BUSINESS INCOME IN THE AY 2015-16 A ND AS CAPITAL LOSS IN AY 2016-17 IS NOT PERMISSIBLE WHEN THERE IS NO CHAN GE IN FACT AND CIRCUMSTANCE OF THE CASE. THE SAID ACTION OF THE AO IS AGAINST THE PRINCIPLES OF CONSISTENCY AND THE AO IS NOT PERMITT ED TO BLOW HOT AND COLD AT THE SAME TIME. RELIANCE WAS PLACED ON THE FOLLO WING DECISIONS:- CIT VS. WOODWARD GOVERNOR INDIA (P.) LTD. [2009] 31 2 ITR 254 (SC) NEW DELHI TELEVISION LTD VS. DCIT, [2020] 116 TAXMA NN.COM 151 (SC) ITA NOS.314 & 315/BANG/2020 PAGE 65 OF 70 ACIT V. VIJAY GOPAL JINDAL, 24 SOT 296 (DEL( BALMUKUND ACHARYA V. DCIT, 310 ITR 310 (BOM) BASANT PODDAR V. CIT, 412 ITR 529 (KAR) GIRISH BANSAL V. UOI, 384 ITR 161 (DEL) Y. RATHIESH V. CIT, 372 ITR 73 (AP) RAJA MALWINDER SINGH V. CWT, 334 ITR 115 (P&H) AZIMGANJ ESTATE (P) LTD. V. CIT, 372 ITR 243 (CAL) CIT V. SRIDEV ENTERPRISES, 192 ITR 165 (KAR) CIT V. EXCEL INDUSTRIES, 358 ITR 295 (SC) CIT V. PLAZA HOTELS (P) LTD. 107 TAXMANN.COM 287 (B OM) BSNL V. UOI, 3 SCC 1 CIT V. PUNJAB AGRO INDUSTRIES CORPORATION LTD. (P&H ) CIT V. JPS ASSOCIATES, 228 TAXMAN 367 PR. CIT V. QUEST INVESTMENT ADVISORS (P) LTD. 409 I TR 545 (BOM) 74. THE LD. AR FURTHER SUBMITTED THAT TRADING IN F& O DERIVATIVE BEING NON- SPECULATIVE TRANSACTION ANY LOSS ARISING FROM THE S AID TRADING IS ENTITLED FOR SET OFF AGAINST THE INCOME FROM ANOTHER SOURCE UNDE R THE SAME HEAD. A REFERENCE IS MADE TO SECTION 70 WHICH PROVIDES SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. HE REITERATED THAT THE INCOME/ LOSS ARISIN G FROM F&O DERIVATIVE IS TAXABLE UNDER THE HEAD 'PROFIT AND GAINS OF BUSINES S OR PROFESSION'. AS SUBMITTED EARLIER, TRADING IN F&O DERIVATIVE IS NOT SPECULATIVE AS PER SECTION 43(5). IT IS SUBMITTED THAT THE INSTANT CASE IS CO VERED BY SECTION 70 AND NOT BY SECTION 73. THEREFORE, THE NON SPECULATIVE LOSS IN F&O TRADING IS ELIGIBLE FOR SET OFF AGAINST OTHER BUSINESS INCOME IN TERMS OF SECTION 70. HE RELIED ON THE FOLLOWING DECISIONS:- ITA NOS.314 & 315/BANG/2020 PAGE 66 OF 70 ASIAN FINANCIAL SERVICES LTD. VS. CIT, [2016] 240 T AXMAN 192 MAGIC SHARE TRADERS LTD. V. DCIT, 174 ITD 230 (AHD. TRIB) DCIT V. PATERSON SECURITIES (P) LTD. 127 ITR 386 (C HENNAI TRIB) UDAY GOPAL BHASKARWAR V. ACIT, 113 TAXMANN.COM 378 (PUNE TRIB) DCIT V. AISHWARYA & CO. P. LTD. 60 TAXMANN.COM 258 (CHENNAI TRIB) 75. IN VIEW OF THE ABOVE, THE LD. AR SUBMITTED THAT THE LOSS FROM F&O DERIVATIVE BEING NON-SPECULATIVE TRANSACTION HAS TO BE SET OFF AGAINST THE INCOME OF MINING BUSINESS UNDER SECTION 70(1) OF IT ACT. 76. THE LD. DR SUPPORTED THE ORDER OF THE CIT(APPEA LS). 77. WE HAVE HEARD BOTH THE PARTIES. THE CONTENTION OF THE LD. AR IS THAT ASSESSEE INADVERTENTLY DECLARED THE LOSS OF F&O DER IVATIVE AS CAPITAL LOSS IN HIS RETURN. THE ASSESSEE HAVING REALIZED THE MI STAKE MADE A CLAIM DURING THE ASSESSMENT PROCEEDINGS TO TREAT THE LOSS ON F&O DERIVATIVE AS BUSINESS LOSS. THE ASSESSEE ESTABLISHED THAT ASSES SEE IS ENGAGED IN TRADING OF F&O ON A SYSTEMATIC BASIS AND IT BEING N ON-SPECULATIVE, ANY PROFIT AND GAIN ARISING FROM THE SAID TRANSACTION T O BE TREATED UNDER THE HEAD BUSINESS INCOME. MORE SO, SIMILAR ACTIVITY WA S CARRIED OUT IN THE PREVIOUS AY 2015-16 WHICH WAS TREATED AS BUSINESS I NCOME OF ASSESSEE AND THE SAME ACTIVITY HAS BEEN CONTINUED DURING THE PRESENT ASSESSMENT YEAR. THEREFORE, THE ACTIVITIES REMAINED TRADING AC TIVITY EVEN IN THE CURRENT ASSESSMENT YEAR TO BE CONSIDERED AS BUSINESS ACTIVI TY OF ASSESSEE AND LOSS ON SUCH ACTIVITY TO BE CONSIDERED AS BUSINESS LOSS TO BE SET OFF. 78. WE HAVE CAREFULLY GONE THROUGH THE ASSESSMENT O RDER DATED 20.12.2017 FOR THE AY 2015-16. IN THAT ASSESSMENT YEAR AS PER DISCUSSION IN PARA 7, 7.1, 7.2 & 7.3 OF THE ASSESSMENT ORDER, THE INCOME FROM F&O ITA NOS.314 & 315/BANG/2020 PAGE 67 OF 70 DERIVATIVES TRANSACTION TREATED AS BUSINESS PROFIT AT RS.28,43,021. WHEN THE AO HAD ACCEPTED THE INCOME FROM TRADING IN F&O DERIVATIVES AS BUSINESS INCOME IN EARLIER YEAR, SPECIFICALLY IN TH E IMMEDIATE PRECEDING AY 2015-16, THE REVENUE CANNOT BE ALLOWED TO CHANGE IT S VIEW WITH REGARD TO FUNDAMENTAL ASPECT OF A TRANSACTION TAKEN IN EARLIE R YEAR, UNLESS IT IS ABLE TO DEMONSTRATE CHANGE IN CIRCUMSTANCES IN THE SUBSEQU ENT ASSESSMENT YEAR. 79. IN THE CASE OF CIT V. ESCORTS LTD., 330 ITR 435 (DEL), IT WAS HELD THAT THE PRINCIPLE OF RES JUDICATA DID NOT APPLY TO INCOME TAX PROCEEDINGS, THE REVENUE CANNOT BE ALLOWED TO CHANGE ITS VIEW WITH R EGARD TO FUNDAMENTAL ASPECT OF A TRANSACTION TAKEN IN EARLIER ASSESSMENT YEAR, UNLESS IT IS ABLE TO DEMONSTRATE ANY CHANGE IN THE CIRCUMSTANCES IN THE SUBSEQUENT ASSESSMENT YEAR. IT WAS HELD THAT AS A FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND A S A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. SIMILAR VIEW H AS BEEN TAKEN BY THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT , 193 ITR 321 (SC) WHEREIN IT WAS HELD AS FOLLOWS:- 16. WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKIN G RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, E ACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ON E YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS H AS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALL OWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORD ER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE C HANGED IN A SUBSEQUENT YEAR . 80. ON THESE REASONINGS, IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER AND IF THERE IS NO CHANGE, ITA NOS.314 & 315/BANG/2020 PAGE 68 OF 70 IT WAS IN SUPPORT OF ASSESSEE THAT THE AO IS PRECLU DED TO REOPEN THAT ISSUE AND TAKE A CONTRARY VIEW OF WHAT HE HAS TAKEN IN EA RLIER ASSESSMENT PROCEEDINGS AND TAKING SUCH A CONTRARY DECISION SHO ULD BE HAVE BEEN AVOIDED. 81. THE OTHER GROUND BEFORE US IS WHETHER THE ASSESSEE IS PREVENTED TO MAKE SUCH A CLAIM WITHOUT FILING REVISED RETURN. A T THIS STAGE, IT IS PERTINENT TO MENTION T HE CBDT CIRCULAR NO. 14(XL-35) OF 1955, DATED 11.4. 1955 AS PER WHICH THE LOWER AUTHORITIES SHOULD HAVE GUIDED THE ASSESSEE AS TO THE CORRECT PROPOSITION OF THE LAW REGARDING TAXABILITY OF CAPITAL GAIN. FOR CLARITY, WE REPRODUCE THE CONTENTS OF THE SAID CIRCULAR:- ' OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAG E OF IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THEIR DU TIES TO ASSIST A TAX PAYER IN EVERY REASONABLE WAY, PARTICULARLY IN THE MATTER OF CLAIMING AND SECURING RELIEFS AND IN THIS REGARD THE OFFICER S SHOULD TAKE THE INITIATIVE IN GUIDING A TAX PAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICATE THAT SOME REFUND O R RELIEF IS DUE TO HIM. THIS ATTITUDE WOULD, IN THE LONG RUN, BENEFIT THE DEPARTMENT, FOR IT WOULD INSPIRE CONFIDENCE IN HIM THAT HE MAY BE S URE OF GETTING A SQUARE DEAL FROM THE DEPARTMENT. ALTHOUGH, THEREFOR E, THE RESPONSIBILITY FOR CLAIMING REFUNDS AND RELIEFS RES TS WITH THE ASSESSES ON WHOM IT IS IMPOSED BY LAW, OFFICERS SHOULD (A) DRAW THEIR ATTENTION TO ANY REFUNDS OR RELIEFS TO W HICH THEY APPEAR TO BE CLEARLY ENTITLED BUT WHICH THEY HAVE O MITTED TO CLAIM FOR SOME REASON OR OTHER; (B) FREELY ADVISE THEM WHEN APPROACHED BY THEM AS TO T HEIR RIGHTS AND LIABILITIES AND AS TO THE PROCEDURE TO B E ADOPTED FOR CLAIMING REFUNDS AND RELIEFS'. 82. IT IS PERTINENT TO MENTION THE RATIO LAID DOWN BY THE VARIOUS COURTS WHICH ARE AS UNDER:- ITA NOS.314 & 315/BANG/2020 PAGE 69 OF 70 (I) THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. BHARAT GENERAL REINSURANCE CO. LTD., 83 ITR 303 (DE L) HELD AS FOLLOWS:- IT WAS TRUE THAT THE ASSESSEE ITSELF HAD INCLUDED THAT DIVIDEND INCOME IN ITS RETURN FOR THE YEAR IN QUEST ION, BUT THERE WAS NO ESTOPPEL IN THE INCOME-TAX ACT AND THE ASSESSEE HAVING ITSELF CHALLENGED THE VALIDITY OF T AXING THE DIVIDEND DURING THE YEAR OF ASSESSMENT IN QUESTION, IT MUST BE TAKEN THAT IT HAD RESILED FROM THE POSITION WHICH IT HAD WRONGLY TAKEN WHILE FILING THE RETURN. QUIT APA RT FROM IT, IT WAS INCUMBENT ON THE INCOME-TAX DEPARTMENT T O FIND OUT WHETHER A PARTICULAR INCOME WAS ASSESSABLE IN T HE PARTICULAR YEAR OR NOT. MERELY BECAUSE THE ASSESSEE WRONGLY INCLUDED THE INCOME IN ITS RETURN FOR A PAR TICULAR YEAR, IT COULD NOT CONFER JURISDICTION ON THE DEPAR TMENT TO TAX THAT INCOME IN THAT YEAR EVEN THOUGH LEGALLY SU CH INCOME DID NOT PERTAIN TO THAT YEAR. THEREFORE THE INCOME FROM DIVIDEND WAS NOT ASSESSABLE DURING THE ASSESSM ENT YEAR 1958-59, BUT IT WAS ASSESSABLE IN THE ASSESSME NT YEAR 1953-54. IT COULD NOT, THEREFORE, BE TAXED IN THE ASSESSMENT YEAR 1958-59. (II) THE HONBLE BOMBAY HIGH COURT IN THE CASE OF NIRMALA L. MEHTA VS. A. BALASUBRAMANIAM, C.I.T. (2004) 269 ITR 1 (BOM) HELD THAT THERE CANNOT BE ANY ESTOPPEL AGAINST THE STATU TE. ARTICLE 265 OF THE CONSTITUTION OF INDIA IN UNMISTAKABLE TERMS PRO VIDES THAT NO TAX SHALL BE LEVIED OR COLLECTED EXCEPT BY AUTHORITY OF LAW. ACQUIESCENCE CANNOT TAKE AWAY FROM A PARTY THE RELIEF THAT HE IS ENTITLED TO WHERE THE TAX IS LEVIED OR COLLECTED WITHOUT AUTHORITY OF LAW. (III) THE HONBLE SUPREME COURT IN THE CASE OF CIT, MADRAS VS V. MR. P. FIRM, MUAR REPORTED IN 56 ITR 67(SC) HELD AS UNDER:- 'IF A PARTICULAR INCOME IS NOT TAXABLE UNDER THE IN COME-TAX ACT, IT CANNOT BE TAXED ON THE BASIS OF ESTOPPEL OR ANY OTHER EQUITABLE DOCTRINE. EQUITY IS OUT OF PLACE IN TAX L AW; A ITA NOS.314 & 315/BANG/2020 PAGE 70 OF 70 PARTICULAR INCOME IS EITHER EXIGIBLE TO TAX UNDER T HE TAXING STATUTE OR IT IS NOT. IF IT IS NOT, THE INCOME-TAX OFFICER HAS NO POWER TO IMPOSE TAX ON THE SAID INCOME.' 83. REGARDING THE ADDITIONAL CLAIM MADE DURING THE ASSESSMENT PROCEEDINGS OTHER THAN THE CLAIM MADE IN THE RETURN OF INCOME U/S. 139, IN OUR OPINION, THE ASSESSEE CANNOT MAKE ADDITIONAL CL AIM BEFORE THE AO WITHOUT REVISED RETURN. HOWEVER, AS HELD BY THE HO NBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) , THE APPELLATE AUTHORITIES ARE NOT PRECLUDED IN ENTERTAINING SUCH CLAIM WITHOUT ANY RE VISED RETURN. BEING SO, WE DO NOT FIND ANY INFIRMITY IN MAKING SUCH CLAIM B Y THE ASSESSEE BEFORE THE CIT(APPEALS) WITH REGARD TO TREATMENT OF LOSS F ROM F&O TRANSACTION AS BUSINESS LOSS. THEREFORE, THIS GROUND OF APPEAL IS ALLOWED. 84. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF APRIL, 2021. SD/- SD/- ( GEORGE GEORGE K. ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 15 TH APRIL, 2021. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.