Ashwathnarayana Singh and Co , Bellry V. Assistant Commissioner of Income Tax Circle-1, Bellary

ITA 522/BANG/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6390 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 13-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Keywords: Business expenditure; Diversion of income; Question of law; Tax effect; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 115JB; 37(1); 143(2); 43; 48; 13; 22; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.522/BANG/2019 ASSESSMENT YEAR : 2013-14 ASHWATHNARAYANA SINGH AND CO. MINE OWNERS, NO.54, BESIDE SHAKTHI NURSING HOME, 3 RD CROSS, PARVATHI NAGAR, BELLARY-583 103. KARNATAKA PAN AACFA 3735A VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1, BELLARY. APPELLANT RESPONDENT APPELLANT BY : SHRI LAXMINIWAS SHARMA, C.A RESPONDENT BY : SMT. MUZAFFAR HUSSAIN, CIT (DR) DATE OF HEARING : 18-01-2021 DATE OF PRONOUNCEMENT : 01-02-2021 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER: PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST ORD ER PASSED BY LD.CIT(A), GULBARGA DATED 24.01.2019 ON FOLLOWIN G GROUNDS OF APPEAL: PAGE 2 OF 31 ITA NO.522/BANG/2019 GROUND OF APPEAL TAX EFFECT RELATING TO EACH GROUND OF APPEAL 1 THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), GULBARGA [CIT(A)] IS ERRONEOUS BOTH ON F ACTS AND IN LAW TO THE EXTENT IT IS PREJUDICIAL TO THE ASSES SEE. 2 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 2,56,53,662/- (BEING 15% OF SALE PROCEEDS RETAI NED BY MONITORING COMMITTEE ON THE DIRECTIONS OF HON'BLE S UPREME COURT) MADE BY ASSESSING OFFICER BY HOLDING THE SAM E AS PENAL IN NATURE IGNORING THAT IT IS COMPENSATORY IN NATUR E AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE ALLOWABLE AS DEDUCTION U/S 37 OF THE INCOME TAX ACT, 1961. RS. 79,26,982/- 3 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 20,55,00,000/- (BEING COMPENSATORY PAYMENT MADE BY ASSESSEE/RETAINED FROM THE SALE PROCEEDS BY MONITOR ING COMMITTEE ON THE DIRECTIONS OF SUPREME COURT FOR MI NING AND DUMPING OUTSIDE LEASE AREA) MADE BY ASSESSING O FFICER BY HOLDING IT AS PENALTY IGNORING THAT HON'BLE SUPR EME COURT ITSELF HAS TERMED THIS AS 'COMPENSATORY PAYMENT'. R S. 6 , 34 , 99 , 500/- 4 THE LEARNED CIT(A) ERRED IN CONFIRMING THAT THE PAY MENTS ARE MADE FOR VIOLATION OF LAW IGNORING THAT SUCH PA YMENT IS MADE IN ORDER TO FULFIL THE CONDITIONS RECOMMENDED BY CEC AND ACCEPTED BY SUPREME COURT FOR RESUMING AND CONT INUING THE MINING OPERATIONS I.E. BUSINESS OF THE ASSESSE. 5 THE LEARNED CIT(A) ERRED IN IGNORING THAT THE HON'B LE SUPREME COURT HAS HELD THAT 'THERE IS NOTHING IN TH E PRECONDITIONS OR IN THE DETAILS OF THE R&R PLANS SU GGESTED WHICH ARE CONTRARY TO OR IN CONFLICT OR INCONSISTEN T WITH ANY OF THE STATUTORY PROVISIONS OF THE MMDR ACT, EP ACT AND FC ACT' AND SINCE THESE P AYMENTS ARE MADE ONLY TO COMPLY PAGE 3 OF 31 ITA NO.522/BANG/2019 6 THE LEARNED CIT(A) AND AO ERRED IN APPLYING THE CON CEPT OF CORPORATE SOCIAL RESPONSIBILITY, IGNORING THAT APPE LLANT ISA PARTNERSHIP FIRM AND UNDER NO OBLIGATION TO COM PLY WITH THE CORPORATE SOCIAL RESPONSIBILITY PROVISIONS WHIC H ARE APPLICABLE TO COMPANIES AND HAS MADE CONTRIBUTION T O SPV 7 THE LEARNED AO ERRED IN HOLDING THE PROVISION MADE BY ASSESSEE TOWARDS AMOUNTS RETAINED BY MONITORING COM MITTEE ON THE DIRECTIONS OF HON'BLE SUPREME COURT AS CONTI NGENT LIABILITY IGNORING THAT THE AMOUNTS HAVE BEEN CORRE CTLY ESTIMATED AND HENCE IT IS AN ASCERTAINED LIABILITY WHICH WAS ALREADY RETAINED BY MONITORING COMMITTEE. 8 FOR THESE AND ANY OTHER GROUNDS WHICH MAY BE RAISED ON OR BEFORE HEARING OF THE APPEAL. TOTAL TAX EFFECT RS. 7,14,26,482/- BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A PARTNERSHIP FIRM AND IS INTO THE BUS INESS OF EXTRACTION OF IRON ORE PROCESSING AND IRON ORE TR ADING . FOR YEAR UNDER CONSIDERATION ASSESSEE FILED ITS RETURN OF IN COME ON 30/09/2013 DECLARING TOTAL LOSS OF RS.7,60,04,425/- . THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICES UNDE R SECTION 143(2) AND 142(1) WERE ISSUED TO ASSESSEE. IN RESPO NSE TO THE STATUTORY NOTICES, REPRESENTATIVES OF ASSESSEE APPE ARED BEFORE LD.AO AND FILED DETAILS CALLED FOR. 2.1. LD.AO OBSERVED THAT THE TOTAL INCOME DECLARED BY AS SESSEE INCLUDES INCOME FROM MINING ACTIVITY THAT IS TRADIN G IN IRON ORE, TRANSPORTATION AND HIRE CHARGES, LOADING CHARGES, I NCOME AND PAGE 4 OF 31 ITA NO.522/BANG/2019 SALE OF WIND POWER. THE RETURN WAS SELECTED FOR SCR UTINY AND STATUTORY NOTICES WERE ISSUED TO ASSESSEE IN RESPON SE TO WHICH REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD. AO A ND FURNISHED DETAILS AS CALLED FOR. 2.2. DURING THE SCRUTINY PROCEEDINGS, LD.AO OBSERVED THA T, ASSESSEE REDUCED SUM OF RS.2,56,53,662/- TOWARDS SP ECIAL PURPOSE VEHICLE FROM THE GROSS E-AUCTION SALE OF IR ON ORE. UPON CALLING FOR DETAILS IN RESPECT OF THE SAME LD. AO N OTED THAT; SUM OF RS.2,56,53,662/- BEING 15% OF THE SALE VALUE TOWARDS SPV; SUM OF RS.20,55,00,000/- PERTAIN TO COMPENSATION TO WARDS MINING PIT AND WASTE DUMP. 2.3. ASSESSEE REFLECTED GROSS SALE OF IRON ORE AT RS.17,10,24,410/- IN THE PROFIT AND LOSS ACCOUNT. L D.AO NOTED THAT SUM OF RS.2,56,53,662/- WAS DEBITED TO P&L ACC OUNT AS SPV EXPENSES. LD.AO ALSO NOTED THAT THE SAID SUM WAS DE DUCTED BY MONITORING COMMITTEE AND RETAINED BY THE CENTRAL EM POWERED COMMITTEE AS PER THE DIRECTIONS OF HONBLE SUPREME COURT OUT OF SALE PROCEEDS FOR PURPOSE OF TAKING VARIOUS AMELIOR ATIVE AND MITIGATIVE MEASURES AS COMPENSATORY PAYMENT. LD.AO AFTER CALLING FOR VARIOUS EXPLANATIONS/SUBMISSIONS FROM A SSESSEE HELD THE SAID AMOUNT AS NOT ALLOWABLE AS PER EXPLANATION TO SECTION 37 (1) OF THE ACT. 3. SECOND GRIEVANCE OF THE ASSESSEE IS REGARDING DISAL LOWANCE OF COMPENSATION OF RS.20,55,00,000/-. ASSESSEE HAD DEB ITED TO P & PAGE 5 OF 31 ITA NO.522/BANG/2019 L ACCOUNT RS. 20,55,00,000/- UNDER THE HEAD DEDUCTI ONS FROM E- AUCTION ACCOUNT(AS PER SUPREME COURT ORDER). THE SA ID AMOUNT WAS DEDUCTED BY MONITORING COMMITTEE TOWARDS COMPEN SATION FOR VARIOUS IRREGULARITIES FOUND BY CEC IN MINING A REA OF ASSESSEE BEING ILLEGAL PITS(RS.17.15 CRORES) AND ILLEGAL DUM PING WASTE(RS.3.40CRORES). THE SAID AMOUNT WAS RETAINED BY MONITORING COMMITTEE AS PER THE DIRECTIONS OF HONBLE SUPREME COURT OUT OF SALE PROCEEDS. LD.AO DISALLOWED THE SAME BY HOLDING THAT PENALTIES PAID FOR VIOLATING LAWS IN COURSE OF CONDUCTING BUSINESS CANNOT BE REGARDED AS DEDUCTIBLE EXPENDITU RE AS ASSESSEE IS EXPECTED TO CARRY BUSINESS IN ACCORDANC E WITH LAW. 4. AGGRIEVED BY ADDITIONS MADE BY LD.AO ASSESSEE PREFE RRED APPEAL BEFORE LD.CIT(A), WHO UPHELD THE DISALLOWANC ES SO MADE. LD.CIT(A) GAVE SIMILAR OBSERVATIONS AS GIVEN BY LD. AO. HE HELD THAT THE AMOUNT CONTRIBUTED TOWARDS SPV IS HIT BY EXPLANATION TO SECTION 37 (1) OF THE ACT. LD.CIT(A) FOLLOWED DECISIONS OF HONBLE SUPREME COURT RENDERED IN THE CASE OF HAJI AZIZ & ABDUL SHAKOOR BROS. VS. CIT, 41 ITR 350 (SC), INDIAN ALUMINIUM CO. LTD. VS. CIT, 79 ITR 514 (SC) AND MADDI VENKATRAMAN & CO. (P) LTD. VS. CIT, 229 ITR 534 (SC) . 4.1 ON THE SECOND ISSUE LD.CIT(A) , UPHELD HE ADDITION BY LD.AO. LD.AIT(A) HELD THAT, NO WHERE IN THE INCOME TAX ACT, PARTICULARLY SUCH NATURE OF EXPENDITURE IS ALLOWABL E UNDER SECTION 37. THE LD.CIT(A) TAKING RECOURSE UNDER EXP LANATION 1 TO PAGE 6 OF 31 ITA NO.522/BANG/2019 SECTION 37, UPHELD THE DISALLOWANCE BEING PENALTY F OR BREACH OF LAW. 6. AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS IN APPEAL BEFORE US NOW FOR BOTH YEARS UNDER CONSIDERATION. 7. AT THE OUTSET, THE LD.AR SUBMITTED THAT GROUND NO.1 IS GENERAL IN NATURE AND GROUNDS 4-8 ARE IN RELATION T O THE DISALLOWANCE MADE. THE LD.AR SUBMITTED THAT ONLY T WO DISALLOWANCE WERE MADE BY THE LD.AO, PERTAINING TO MINING ACTIVITY CARRIED ON BY ASSESSEE FOR YEAR UNDER CONS IDERATION. ONE IS SPV CONTRIBUTION BY THE MONITORING COMMITTEE OUT OF SALE PROCEEDS AND COMPENSATION PAID AS PER DIRECTION OF HONBLE SUPREME COURT . HE SUBMITTED THAT CONTRIBUTION TO SPV ACCOUNT ARE RECURRING IN NATURE TO ASSESSEE, AND THAT THE ASSESSEE HAS TO CO NTRIBUTE TO SPV AGAINST EVERY SALE AS PER THE SCHEME APPROVED B Y HONBLE SUPREME COURT . LD.AR REGARDING COMPENSATION, IT WAS SUBMITTED THAT SUCH PAYMENTS HAS TO BE MADE BY THE ASSESSEE A S QUANTIFIED BY THE CEC AS DIRECTED BY HONBLE SUPREME COURT. SPV CONTRIBUTION: - GROUND NO.2 IN COURSE OF HEARING OF THIS APPEAL, ARGUMENTS WERE RAISED BY BOTH SIDES ON ISSUES RAISED BY ASSESSEE. LD.AR SUBM ITTED THAT, DISALLOWANCE OF SPV (SPECIAL PURPOSE VEHICLE) CHARG ES FOR YEAR UNDER CONSIDERATION IS RS.2,56,53,662/-. PAGE 7 OF 31 ITA NO.522/BANG/2019 7.1 . WE NOTE THAT, ASSESSEE IS CATEGORY B LEASE HOLD ER OF MINING LEASE NO.2531, HAVING SANCTIONED LEASE AREA OF 50.5 0HA. 7.3. THE LD.AR SUBMITTED THAT ASSESSEE DEBITED THE ABOVE AMOUNT TO P & L ACCOUNT AS SPV EXPENSES AS, THIS AM OUNT WAS DEDUCTED BY MONITORING COMMITTEE AS PER THE DIRECTI ONS OF HONBLE SUPREME COURT, OUT OF THE SALE PROCEEDS FOR THE PURPOSE OF TAKING VARIOUS AMELIORATIVE AND MITIGATIVE MEASU RES. THE LD.AR SUBMITTED THAT, ASSESSEE FILED REPLY BEFORE A UTHORITIES BELOW AND SUBMITTED THAT HONBLE SUPREME COURT IN A CATEGORY MINES, DIRECTED CONTRIBUTION OF 10% OUT OF E AUCTIO N SALES TOWARDS SPV AND IN CATEGORY B MINES THE CONTRIBUT ION WAS TO THE EXTENT OF 15% OF E AUCTION SALES. THE LD.AR SUB MITTED THAT, SPV EXPENSES ARE FOR SOCIO ECONOMIC DEVELOPMENT OF THE MINING AREA. HE FURTHER SUBMITTED THAT THE LD.AO INVOKED EXPLANATION TO SECTION 37 (1) OF ACT. 7.5. THE LD.AR RELIED ON DECISION OF HONBLE HYDRABAD TRIBUNAL IN CASE OF NMDC LTD. VS. ACIT AS REPORTED IN 175 ITD 332. OUR ATTENTION WAS DRAWN TO PARAS 9 TO 11 OF THE TRIBUNALS ORDER . HE POINTED OUT THAT IN PARA 10 OF ORDER, HONBLE HYDRABAD TRIBUNAL NOTED THAT ASSESSEE THEREIN WAS CLASSIFIED AS A C ATEGORY MINE AND IN PARA 11, IT IS HELD BY THE TRIBUNAL THAT 10% OF SALE PROCEEDS BEING SPV IN A CATEGORY MINE IS WAS TO B E CONTRIBUTED WITHOUT WHICH, ASSESSEE THEREIN COULD NOT HAVE RESU MED ITS ACTIVITIES AND THEREFORE IS A BUSINESS EXPENDITURE AND IS ALLOWABLE U/S 37(1) OF INCOME TAX ACT. HE SUBMITTED THAT THE ONLY PAGE 8 OF 31 ITA NO.522/BANG/2019 DIFFERENCE IN PERCENTAGE OF SPV CONTRIBUTION, WHICH IS 15% OF SALE PROCEEDS IN B CATEGORY AS AGAINST 10% OF SALE PRO CEEDS IN A CATEGORY. THE LD.AR SUBMITTED THAT, IT DOES NOT CHA NGE THE NATURE/CHARACTER OF EXPENDITURE AND THEREFORE, IN T HE PRESENT CASE, DECISION OF HONBLE HYDRABAD TRIBUNAL IS SQUARELY APPLICABLE TO THE FACTS OF PRESENT CASE. HE ALSO PL ACED RELIANCE ON DECISIONS OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S.RAMGAD MINERALS & MINING LTD VS.ACIT IN ITA NO.1270&1271/BANG/2019 BY ORDER DSTED 04/11/2020 AN D M/S.VEERABHADRAPPA SANGAPA &CO. VS. ACIT IN ITA NO.1054/BANG/2019 BY ORDER DATED 08/12/2020. 7.7. THE LD.CIT.DR SUPPORTED ORDERS OF THE LOWER AUTHORI TIES. ABOUT THE DECISION OF HONBLE HYDRABAD TRIBUNAL , CITED BY LD.AR IN THE CASE OF NMDC LTD. VS. ACIT (SUPRA) , IT WAS SUBMITTED THAT IN THAT CASE, THE ASSESSEE WAS IN A CATEGORY AND THEREFORE, THE DECISION IS NOT APPLICABLE IN THE PRESENT FACTS OF CASE. HE PLACED RELIANCE ON VARIOUS OBSERVATIONS OF HONBLE SUPREME COURT EMPHASISING THAT THE SPV CONTRIBUTIONS ARE BASICALL Y IN THE NATURE OF PENALTY WHICH ARE TO BE DISALLOWED UNDER EXPLANATION TO SECTION 37 (1) OF THE ACT. 7.8. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE NOTE THAT THIS ISSUE STANDS SQUARELY COVERED BY DECISIONS OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S.RAMGAD PAGE 9 OF 31 ITA NO.522/BANG/2019 MINERALS & MINING LTD VS. ACIT IN ITA NO.1270&1271/ BANG/2019 BY ORDER DATED 04/11/2020 AND M/S.VEERABHADRAPPA SA NGAPA &CO. VS. ACIT IN ITA NO.1054/BANG/2019 BY ORDER DAT ED 08/12/2020. WE REFER TO FOLLOWING OBSERVATION BY THIS TRIBUNAL IN CASE OF M/S.VEERABHADRAPPA SANGAPA &CO. VS. ACIT IN ITA NO.1054/BANG/2019 BY ORDER DATED 08/12/2020. 7.10. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 7.10.1. LD.COUNSEL AGAIN RAISED 3 PREPOSITIONS BEFORE US IN RESPECT OF THE CONTRIBUTION MADE TO SPV ACCOUNT FROM THE SALE PROC EEDS. PRIMARILY HE CONTENDED THAT THERE IS DIVERSION OF I NCOME BY OVERRIDING TITLE TO SPV ACCOUNT, AND THEREFORE SUCH AMOUNT IS NOT LI ABLE TO TAX IN THE HANDS OF ASSESSEE. ALTERNATIVELY HE SUBMITTED THAT THE SAID SUM MAY BE TREATED AS LOSS UNDER SECTION 28 WHILE COMPUTING PROFIT AND LOSS UN DER THE HEAD INCOME FROM BUSINESS AND PROFESSION. OR HE SUBMITTED THAT IT MAY BE TREATED AS AN EXPENDITU RE INCURRED BY ASSESSEE FOR PURPOSES OF BUSINESS. 7.10.2. ON THE CONTRARY, LD.CIT DR SUBMITTED THAT IT IS AN APPLICATION OF INCOME AND THEREFORE HAS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. HE SUBMITTED THAT LD.AO IN SUPPORT OF DISALLOWING THE CLAIM OF EXPEND ITURE RELIED ON FOLLOWING DECISIONS: CIT VS.KCP LTD. REPORTED IN 245 ITR 421(SC) G.PADNABHA CHETTIYAR & SONS VS.CIT REPORTED IN 182 ITR 1(MAD) REFORMFLOUR MILLS PVT.LTD VS.CIT REPORTED IN 132 IT R 184,196(CAL) CIT VS.A.KRISHNASWAMY UDALIAR & ORS REPORTED IN 53 ITR 122(SC) WE NOTE THAT THESE DECISIONS ARE ON THE ACCRUAL OF INCOME, WHICH HAS BEEN CONSIDERED BY US IN FORGOING PARAS. WE HAVE ALREADY HELD THAT ENTIRE INCOME ACCRUED TO ASSESEE WHILE DECIDING GROUNDS 2.1 &2.2. IN THE ISSUE OF CONTRIBUTION TOWARDS SPV, ONE HAS TO CONSIDER ITS CORRECT NATURE . IN OUR OPINION THESE DECISIONS DO NOT ASSIST REVENUE IN ANY MANNER. 7.10.3. ON CAREFUL READING OF DECISION OF HONBLE SUPREME COURT IN CASE OF SAMAJ PARIVARTANA SAMUDAYA & ORS. VS. STATE OF KARA NATAKA & ORS. (SUPRA), IT IS CLEAR THAT 10%/15% CONTRIBUTION TO SPV ACCOUNT W AS GUARANTEE PAYMENT FOR IMPLEMENTING OF R & R PLAN, WHICH WOULD BE DEDUCTED FROM SALE PROCEEDS. THIS PAGE 10 OF 31 ITA NO.522/BANG/2019 WAS ONE OF THE CONDITIONS FOR RESUMING MINING OPERA TIONS UNDER CATEGORIES A AND B RESPECTIVELY. 7.10.4. WITH THIS BACKGROUND, WE ONCE AGAIN REFER TO AND RE LY ON OBSERVATIONS BY HONBLE SUPREME COURT IN CASE OF CIT VS SITALDAS TIRATHDAS (SUPRA). HONBLE SUPREME COURT LAYING DOWN FOLLOWING PRINCIPAL REFER RED 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 APPLIED THE PRINCIPLE C ORRECTLY AND SOME, NOT. BUT WE DO NOT PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FACTS IN THEM. IN OUR OPINION, THE TRUE TEST IS WHE THER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS I TS 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 AMO UNT WHICH A PERSON IS OBLIGED TO PAY OUT OF HIS INCOME AND AN AMOUNT WHIC H 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 BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO D ISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE THE SAME CONSEQUEN CE IN LAW DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WHICH CAN T RULY 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 ESSENC E APPLIED. THE FIRST IS A CASE IN WHICH THE INCOME NEVER REACHES THE ASSESSEE , WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INCOME BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT WAS PAYABLE. EMPHASIS SUPPLIED 7.10.5. APPLYING, THIN LINE OF DIFFERENCE INTERPRETED BY HO NBLE SUPREME COURT TO PRESENT FACTS, WE ARE OF THE OPINION THAT, CONTR IBUTION TO SPV ACCOUNT, CANNOT BE CONSIDERED TO BE DIVERSION OF INCOME. THIS IS BE CAUSE, 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 DIRECTIO N 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) REF ER TO AND RELIED BY LD.CIT DR. 7.10.6. IN THE PRESENT FACTS OF THE CASE, WE NOTE THAT 10%/ 15% OF SALE PROCEEDS WAS PAYABLE TO SPV ACCOUNT, AFTER IT ACCRUED TO ASS ESSEE, AND THE FACT THAT, ASSESSEE WAS OBLIGED TO PART WITH SUCH PORTION OF I NCOME, BY VIRTUE OF DIRECTIONS OF HONBLE SUPREME COURT IN CASE OF SAMAJ PARIVARTA NA SAMUDAYA & ORS. VS. STATE OF KARANATAKA & ORS. (SUPRA), AS A PRECONDITI ON TO RESUME MINING OPERATIONS UNDER CATEGORY A AND B. AT THIS JUNCT URE WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HONBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE CONTRIBUTED 10%/15% TO SPV ACCOUNT FOR IMPLEMENTATI ON OF RECLAMATION AND PAGE 11 OF 31 ITA NO.522/BANG/2019 REHABILITATION SCHEME ON ITS OWN, AS THERE WAS NO S TATUTORY REQUIREMENT TO DO SO UNDER RELEVANT STATUTES THAT REGULATE MINING ACTIVI TIES. 7.10.7. IN OUR VIEW CONTRIBUTING 10%/15% TO SPV ACCOUNT ON ACCOUNT OF CATEGORY A/ B RESPECTIVELY, WOULD BE APPLICATIO N OF INCOME, AND THEREFORE SHOULD BE CONSIDERED AS EXPENDITURE INCURRED FOR CA RRYING OUT ITS BUSINESS ACTIVITY. THIS WE HOLD SO, FOR THE REASON THAT, CON TRIBUTIONS DETERMINED BY HONBLE SUPREME COURT ARE IN THE NATURE OF GUARANTE E PAYMENT NECESSARY FOR RESUMING MINING ACTIVITY. WE ALSO NOTE THAT, ALLEGE D SUM IN THESE GROUNDS ARE FOR IMPLEMENTATION OF R&R PLANS IN RESPECTIVE SANCT IONED 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 SUPRE ME COURT DIRECTED CEC TO REFUND ANY LEFTOVER GUARANTEE MONEY, AFTER COMPLETI ON OF IMPLEMENTATION OF R& R PLAN, SUBJECT TO SATISFACTION OF CEC AND APPROVAL BY HONBLE SUPREME COURT. FOR THIS PECULIAR REASON AMOUNT SO CONTRIBUTED TOWA RDS SPV BEING 10%/15% OF SALE PROCEEDS, UNDER CATEGORY A/B, CANNOT BE TREATE D 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 IT 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 SALE OF WIND POWER', FILED ITS RETUR N OF INCOME FOR THE RELEVANT ASSESSMENT YEARS 2013-14 AND 2014-15 BOTH UNDER THE NORMAL PROVISIONS AS WELL AS U/S 115JB OF THE ACT FOR THE RELEVANT AYS. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A.O. OBSERVE D THAT THE ASSESSEE-COMPANY IS CARRYING OUT MINING ACTIVITY IN INDIA AND PARTIC ULARLY IN KARNATAKA AND THAT THE HON'BLE SUPREME 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 18.04.2 013 LEVYING APPROPRIATE CHARGES ON THE LEASEHOLDERS. A.O. ALSO OBSERVED THA T THE HON'BLE SUPREME COURT, BASED ON THE EXTENT OF ILLEGAL MINING, CLASS IFIED THE MINING LEASES INTO THREE CATEGORIES VIZ., CATEGORY 'A', 'B' AND 'C' AN D 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 RES UMPTION OF MINING OPERATIONS BY CATEGORY-B LEASEHOLDERS, EACH OF THE LEASE HOLDE R MUST PAY COMPENSATION FOR THE AREAS UNDER ILLEGAL MINING PITS OUTSIDE THE SAN CTIONED AREA AT THE RATE OF RS. 5 CRS PER HECTARE AND FOR ILLEGAL OVERBURDEN FOR AT THE RATE OF RS. 1 CR PER HECTARE. FURTHER, A.O. OBSERVED THAT THE SAID DIREC TION OF THE APEX COURT WAS SUBJECT TO THE FINAL DETERMINATION OF THE NOTIONAL LOSS CAUSED BY THE ILLEGAL MINING AND ILLEGAL USE OF THE LAND; AND THAT THE HO N'BLE SUPREME COURT HAD DIRECTED THAT EACH OF THE LEASEHOLDER SHOULD PAY A SUM EQUIVALENT TO 15% OF THE SALE PROCEEDS OF ITS IRON ORE SOLD THROUGH THE MONI TORING COMMITTEE. IN ACCORDANCE WITH THE SAID DIRECTION, THE ASSESSEE MA DE PAYMENT OF RS. 337.13 CRS TOWARDS CONTRIBUTION FOR THE SPECIAL PURPOSE VE HICLE AND THE SUM OF RS. PAGE 12 OF 31 ITA NO.522/BANG/2019 68.66 CRS TOWARDS PENALTY / COMPENSATION FOR ENCROA CHMENT OF THE MINING AREA BEYOND THE SANCTIONED / LEASED AREA. THE A.O. OBSER VED THAT THE TOTAL OF THE ABOVE PAYMENT OF RS. 405.79 CRS WAS PUNITIVE IN NAT URE AND ACCORDINGLY SOUGHT TO DISALLOW THE SAME BY ISSUANCE OF A SHOW-C AUSE NOTICE. 4. THE A.O. HOWEVER DID NOT ACCEPT THE ASSESSEE'S E XPLANATION AND HELD THAT THE ASSESSEE, BEING A CATEGORY-B LEASEHOLDER, HAS BEEN DIRECTED TO MAKE THE PAYMENT FOR INFRINGEMENT OF MMDR ACT AND OTHER ALLIED LAWS. THEREFORE, HE OBSERVED THAT THE PAYMENT OF RS. 405.79 CRS IS PUNI TIVE 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' WHEREAS THE ASS ESSING OFFICER HAS CONSIDERED THE ASSESSEE AS CATEGORY-'B' COMPANY. TH E HON'BLE SUPREME COURT HAS CLEARLY INDICATED THAT CATEGORY-A COMPRIS ES OF (I) 'WORKING LEASES' WHEREIN NO ILLEGALITY / MARGINAL ILLEGALITY HAVE BEEN FOUND AND (II) 'NON-WORKING LEASES' WHEREIN NO MARGINAL / ILLEGALI TIES HAVE BEEN FOUND, WHEREAS CATEGORY-B COMPRISES OF (I) MINING LEASES W HEREIN ILLEGAL MINING IS 10% TO 15% OF THE SANCTIONED LEASE AREAS. HOWEVE R, CEC HAD RECOMMENDED THAT BOTH 'A' AND 'B' CATEGORIES MAY BE ALLOWED TO RESUME THE MINING ACTIVITY SUBJECT TO THE PAYMENT OF PENAL TY / COMPENSATION DECIDED BY THE COURT. THUS, ACCORDING TO THE ASSESS EE, THE SAID EXPENDITURE IS NOTHING BUT A PAYMENT WHICH WAS REQU IRED TO BE MADE WITHOUT WHICH THE ASSESSEE COULD NOT HAVE CARRIED O N THE MINING ACTIVITIES AND THEREFORE, IT IS A 'BUSINESS EXPENDI TURE'. SINCE THE CEC HAD CATEGORISED THE ASSESSEE AS A CATEGORY-A COMPANY AN D THE HON'BLE SUPREME COURT HAS ACCEPTED THE SAID CATEGORIZATION, THERE WOULD HAVE BEEN MARGINAL ILLEGALITIES COMMITTED BY THE AS SESSEE AND THE COMPENSATION / PENALTY AS DIRECTED BY THE HON'BLE S UPREME COURT IS ONLY TO COMPENSATE THE GOVERNMENT FOR THE LOSS OF REVENU E FROM SUCH MINING OR MARGINAL ILLEGALITIES AND NOT AS A PENALTY. THOU GH THE NOMENCLATURE GIVEN IS 'PENALTY' IT IS NOT FOR INFRACTION OR VIOL ATION OF ANY LAW TO HOLD IT TO BE PUNITIVE IN NATURE, AS PRESUMED BY THE ASSESSING OFFICER. LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAW, PARTICULARLY THE DECISION OF THE COORDINATE BENCH O F THE ITAT, KOLKATA 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 DECIS ION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF SHYAMSEL LTD VS. DCIT (72 TAXMANN.COM 105) (CAL.). ON GOING THROUGH THE SAID DECISIONS, WE FIND THAT THE HON'BLE CALCUTTA HIGH COURT HAS CONSIDERED THE CASE OF AN ASSESSEE WHO FAILED TO INSTALL POLLUTION CONTROL DE VICE WITHIN FACTORY PREMISE WITHIN PRESCRIBED TIME AND THAT THE ASSESSE E HAD TO PAY RS. PAGE 13 OF 31 ITA NO.522/BANG/2019 12.50 LAKH FOR COMPENSATING DAMAGE TO ENVIRONMENT A ND THE SAME WAS RECOVERED BY STATE POLLUTION CONTROL BOARD ON THE P RINCIPLE OF 'POLLUTER PAYS' AND THE A.O. HAD TREATED IT AS PENALTY AND DI D NOT ALLOW THE SAME AS BUSINESS EXPENDITURE. THE HON'BLE HIGH COURT HAD TAKEN NOTE OF THE FACT THAT THE ASSESSEE'S BUSINESS WAS NOT ILLEGAL A ND THAT COMPENSATION WAS PAID BECAUSE OF ITS FAILURE TO INSTALL POLLUTIO N CONTROL DEVICE WITHIN PRESCRIBED TIME AND THEREFORE, SUCH PAYMENT WAS UND OUBTEDLY FOR THE PURPOSE OF BUSINESS AND IN CONSEQUENCE OF BUSIN ESS CARRIED ON BY THE ASSESSEE AND WAS THUS COVERED BY SECTION 37 OF THE ACT. FOR COMING TO THIS CONCLUSION, HON'BLE HIGH COURT HAS ALSO CONSID ERED THE JUDGMENT OF THE HON'BLE NATIONAL GREEN TRIBUNAL IN THE CASE OF STATE POLLUTION CONTROL BOARD VS. SWASTIK ISPAT (P .) LTD WHEREIN AT PARA 38 OF THE JUDGMENT THE TRIBUNAL HELD AS UNDER:- 'BEING PUNITIVE IS THE ESSENCE OF 'PENALTY'. IT IS IN CLEAR CONTRADISTINCTION TO 'REMEDIAL' AND / OR 'COMPENSATORY'. 'PENALTY' ESSEN TIALLY HAS TO BE FOR RESULT OF A DEFAULT AND IMPOSED BY WAY OF PUNISHMENT. ON THE CO NTRARY, 'COMPENSATORY' MAY BE RESULTING FROM A DEFAULT FOR THE ADVANTAGE A LREADY TAKEN BY THAT PERSON AND IS INTENDED TO REMEDY OR COMPENSATE THE CONSEQU ENCES 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 O R DISCHARGING SLUDGE, TRADE AFFLUENT OR TRADE WASTE INTO THE RIVER OR ON OPEN L AND CAUSING POLLUTION, WHICH A BOARD HAS TO REMOVE ESSENTIALLY TO CONTROL AND PREV ENT THE POLLUTION, THEN THE AMOUNT SPENT BY THE BOARD, IS THUS, SPENT BY ENCASH ING THE BANK GUARANTEE OR IS ADJUSTED THREAD AND THIS EXERCISE WOULD FALL IN THE REALM OF COMPENSATORY RESTORATION AND NOT A PENAL CONSEQUENCE. IN GATHERI NG 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 ORDER REPROD UCED ABOVE THAT THE CONDITION OF PAYMENT FOR RESUMING THE MINING ACTIVI TY BY CATEGORIES 'A' & 'B' COMPANIES IS TO NOT TO PUNISH THE COMPANIES FOR ANY VIOLATION OF LAW BUT IS TO ENSURE SCIENTIFIC AND PLANNED EXPLOITATIO N OF MINERAL RESOURCES IN INDIA. FURTHER THE HON'BLE SUPREME COURT HAD DIRECT ED 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 'CA TEGORY- A', 10% OF THE SALE PROCEEDS MAY BE TRANSFERRED TO THE SPV WHILE THE BA LANCE 10% OF THE SALE PROCEEDS MAY BE REIMBURSED TO THE RESPECTIVE LESSEE S. IN RESPECT OF THE MINING LEASES FALLING IN 'CATEGORY-B', AFTER DEDUCTING THE PENALTY / COMPENSATION, THE ESTIMATED COST OF THE IMPLEMENTATION OF THE R & R P LAN, AND 10% OF THE SALE PROCEEDS TO BE RETAINED FOR BEING TRANSFERRED TO TH E 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 P AID THE PROPORTIONATE COMPENSATION FOR MINING IN THE AREAS OUTSIDE THE SA NCTIONED AREA ALLOTTED TO IT AND THAT 10% OF SUM IS TO BE TRANSFERRED TO S PV AND THE BALANCE 10% PAGE 14 OF 31 ITA NO.522/BANG/2019 IS TO BE REIMBURSED TO THE RESPECTIVE LESSEES, ACCO RDING TO US, PROVES THAT IT IS A PAYMENT MADE AS 'COMPENSATION' FOR EXTRA MI NING, WITHOUT WHICH THE ASSESSEE COULD NOT HAVE RESUMED ITS ACTIVITIES. THEREFORE, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE T HAT IT IS COMPENSATORY IN NATURE AND IS A 'BUSINESS EXPENDITURE' AND IS AL LOWABLE U/S 37(1) OF THE ACT. THUS, GROUNDS NO.2 AND 3 RAISED BY THE ASS ESSEE ARE ALLOWED. 7.10.9. WE ALSO NOTICE THAT THE CO-ORDINATE BANGALORE BENCH OF TRIBUNAL HAS ALSO CONSIDERED IDENTICAL ISSUE IN THE CASE OF RAMGAD MI NERALS & MINING LTD (ITA NO.1270 & 1271/B/2019 DATED 04-11-2020) BEING CATEG ORY B, AN IDENTICAL ADDITION MADE BY LD.AO WAS HELD TO BE ALLOWABLE AS EXPENDITURE WITH FOLLOWING OBSERVATIONS:- 7.8.9. IN PRESENT APPEALS, ONLY ISSUE RAISED FOR OUR CONSI DERATION IS IN RESPECT OF 15% CONTRIBUTION MADE TO SPV FOR ASSESSMENT YEAR 2013-14 AND 2014-15; AND ISSUE IN RESPECT OF R&R EXPENSES INCURRED DURIN G ASSESSMENT YEAR 2013 14. FIRST OF ALL, WE SUMMARISE OBJECTIONS OF LD.AO AS IN RESPECT OF SPV EXPENSES AS UNDER:- (A) THIS IS ONE OF THE OBJECTIONS OF THE AO THAT TH E SPV EXPENSES IS NOT ALLOWABLE BECAUSE IT IS NOT COMPENSATION BUT IT IS PENAL IN N ATURE FOR CONTRAVENTION OF LAW AS OBSERVED BY HIM IN PARA 4.3 OF THE ASSESSMENT OR DER FOR AY:2013-14. (B) SECOND OBJECTION OF THE LD.AO IS CONTAINED IN P ARA 4.9 OF THE ASSESSMENT ORDER FOR AY:2013-14 AND AS PER THE SAME, THIS IS T HE OBJECTION OF LD.AO THAT THE SAID SPV IS NOTHING BUT CSR EXPENSES ONLY AND THERE FORE NOT ALLOWABLE. (C) THIRD OBJECTION OF LD.AO IS ALSO CONTAINED IN P ARA 4.9 OF THE ASSESSMENT ORDER FOR AY:2013-14 AND AS PER THE SAME, THIS IS T HE OBJECTION OF THE LD.AO THAT THE SAID SPV IS NOT ALLOWABLE U/S 37 (1) AS IT WAS NOT INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. (D) IN PARA 4.8 OF THE ASSESSMENT ORDER FOR AY:2013 -14, LD.AO IS STATING THIS THAT SPV RATE IS 10% IN CATEGORY A MINES BUT 15% IN CATEGORY B MINES AND THIS EXTRA 5% IN CATEGORY B MINES IS FOR VARIOUS VIOLATIONS AND ILLEGAL MINING AND EVEN AFTER THIS OBSERVATION, HE FINALLY HELD IN THE SAME PARA THAT WHOLE SPV EXPENSES OF 15% IS NOT ALLOWABLE. 7.8.10. LD.AO OBSERVED THAT, THESE SPV WERE DEDUCTED PURSUA NT TO DIRECTIONS OF HONBLE SUPREME COURT (SUPRA) BY ORDER DATED 18/ 04/2013, WHEREIN, IT WAS DIRECTED THAT, SUM SO PAID TOWARDS SPV CHARGES SHOU LD BE EXHAUSTIVELY AND EXCLUSIVELY USED TO UNDERTAKE SOCIO ECONOMIC AND IN FRASTRUCTURE DEVELOPMENT, AFFORESTATION, SOIL AND BIODIVERSITY CONSERVATION A ND FOR ENSURING INCLUSIVE GROWTH OF THE AREA SURROUNDING MINING LEASES. 7.8.11. LD.AO FURTHER OBSERVED THAT THESE PAYMENTS ARE NOTH ING BUT APPROPRIATION OF PROFITS EARNED BY ASSESSEE THAT CA NNOT BE SAID TO HAVE INCURRED FOR PURPOSE OF BUSINESS OR EARNING PROFITS. ACCORDI NGLY, ENTIRE AMOUNT ADJUSTED TOWARDS SPV WAS DISALLOWED BY LD.AO. LD.AO WAS OF O PINION THAT ENTIRE SALE PAGE 15 OF 31 ITA NO.522/BANG/2019 PROCEEDS AS PER E AUCTION BID SHEETS/INVOICES WERE TO BE ASSESSED AS TRADING RECEIPTS. THE AMOUNT RETAINED BY CEC/MONITORING COM MITTEE AS PER DIRECTIONS OF HONBLE SUPREME COURT, ON BEHALF OF ASSESSEE FOR SP V PURPOSES, WAS ON ACCOUNT OF DAMAGES AND LOSS CAUSED TO ENVIRONMENT D UE TO CONTRAVENTION OF LAW, AND THEREFORE, CANNOT BE ALLOWED AS DEDUCTION OUT OF SALE PROCEEDS, EVEN AFTER ACCRUAL OF SUCH LIABILITY. LD.AO WAS OF OPINI ON THAT, EVEN IN CATEGORY A MINES, THERE WAS MARGINAL ILLEGALITY FOUND BY CEC, BECAUSE OF WHICH 10% OF CONTRIBUTION WAS ATTRIBUTED OUT OF SALE PROCEEDS TO THE SPV. 7.8.12. ON CAREFUL READING OF DECISION OF HONBLE SUPREME C OURT DATED 18/04/2013, IT IS CLEAR THAT 15% CONTRIBUTION TO SP V ACCOUNT WAS GUARANTEE PAYMENT FOR IMPLEMENTING OF R & R PLAN, WHICH WOULD BE DEDUCTED FROM SALE PROCEEDS. THIS WAS ONE OF THE CONDITIONS FOR RESUMI NG MINING OPERATIONS UNDER CATEGORY B. WE REFER TO AND RELY ON OBSERVATIONS BY HONBLE SUP REME COURT IN CASE OF CIT VS SITALDASTIRATHDASREPORTED IN(1961) 41 ITR 367.HONB LE SUPREME COURT LAYING DOWN FOLLOWING PRINCIPAL REFERRED TO VARIOUS RULING S THAT ILLUSTRATED ASPECTS OF DIVERSION OF INCOME BY OVERRIDING TITLE. THESE ARE THE CASES WHICH HAVE CONSIDERED THE PROB LEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE APPLIED THE PRINCIPLE C ORRECTLY AND SOME, NOT. BUT WE DO NOT PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FACTS IN THEM. IN OUR OPINION, THE TRUE TEST IS WHE THER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS I TS 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 AMO UNT WHICH A PERSON IS OBLIGED TO PAY OUT OF HIS INCOME AND AN AMOUNT WHIC H 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 BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO D ISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE THE SAME CONSEQUEN CE IN LAW DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WHICH CAN T RULY 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 ESSENC E APPLIED. THE FIRST IS A CASE IN WHICH THE INCOME NEVER REACHES THE ASSESSEE , WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INCOME BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT WAS PAYABLE. EMPHASIS SUPPLIED 7.8.13. IN THE PRESENT CASE, WE NOTE THAT 15% OF SALE PROCE EDS WAS PAYABLE TO SPV ACCOUNT AFTER IT ACCRUED TO ASSESSEE AND THE FA CT THAT, ASSESSEE WAS OBLIGED TO PART WITH SUCH PORTION OF INCOME, BY VIR TUE OF DIRECTIONS OF HONBLE SUPREME COURT, AS A PRECONDITION TO RESUME MINING O PERATIONS UNDER CATEGORY B. AT THIS JUNCTURE, WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HONBLE SUPREME COURT, ASSESSEE WOULD NOT HAVE CONTRIBUTED 15% TO SPV ACCOUNT FOR IMPLEMENTATION OF RECLAMATION AND REHABILITATION SC HEME ON ITS OWN, AS THERE PAGE 16 OF 31 ITA NO.522/BANG/2019 WAS NO STATUTORY REQUIREMENT TO DO SO UNDER RELEVAN T STATUTES 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 U NDER CATEGORY B, FROM THE SALE PROCEEDS AS WELL AS OTHERWISE. ALL THE PAYMENT S FORM PART OF R&R PLAN FOR RECOUPING AND REHABILITATING THE ENVIRONMENT. CERTA IN PAYMENTS ARE ONETIME PAYMENT AND SOME OTHERS ARE RECURRING DEPENDING UPO N THE SALE OF IRON ORE SOLD IN THE NAME OF EACH LICENSEE OR DEPENDING ON THE NE ED FOR REHABILITATION. 7.8.15. IN OUR VIEW, CONTRIBUTING 15% TO SPV ACCOUNT ON ACC OUNT OF CATEGORY B, WOULD BE APPLICATION OF INCOME, AND THEREFORE, SHOULD BE CONSIDERED AS EXPENDITURE INCURRED FOR CARRYING OUT ITS BUSINESS ACTIVITY. THIS WE HOLD SO, FOR THE REASON THAT, CONTRIBUTIONS DETERMINED BY HONBL E SUPREME COURT ARE IN THE NATURE OF GUARANTEE PAYMENT NECESSARY FOR RESUMING MINING ACTIVITY. WE ALSO NOTE THAT, ALLEGED SUM IN THESE GROUNDS ARE FOR IMP LEMENTATION OF R&R PLANS IN RESPECTIVE SANCTIONED LEASE AREAS HELD BY ASSESSEE, WHERE ILLEGAL MINING ACTIVITIES OR WHICH WERE USED FOR ILLEGAL 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 G UARANTEE MONEY, AFTER COMPLETION OF IMPLEMENTATION OF R& R PLAN, SUBJECT TO SATISFACTION OF CEC AND APPROVAL BY HONBLE SUPREME COURT. FOR THIS PECULIA R REASON, AMOUNT SO CONTRIBUTED TOWARDS SPV BEING 15% OF SALE PROCEEDS, UNDER CATEGORY B, CANNOT BE TREATED AS PENAL IN NATURE. WE, THEREFORE, REJEC T OBSERVATIONS OF AUTHORITIES BELOW THAT, SUCH SUM HAVING CONTRIBUTED BY ASSESSEE FALL WITHIN AMBIT OF EXPLANATION 1 TO SECTION 37 (1) OF THE ACT. 7.10.10. WE NOTE THAT THE CEC, VIDE ITS REPORT DATED 3-2-201 2 AND 13-3-2012 MADE RECOMMENDATIONS WITH REGARD TO SETTING UP OF S PV, TRANSFER OF FUNDS COLLECTED FROM ALL LEASE HOLDERS UNDER VARIOUS HEAD S, MANNER OF UTILISATION OF SAID FUNDS ETC., TO HONBLE SUPREME COURT, WHICH IS INCORPORATED IN PARAGRAPH 7 AT PAGE 164 TO 171 AS UNDER: (IX) A SPECIAL PURPOSE VEHICLE (SPV) UNDER THE CHA IRMANSHIP OF CHIEF SECRETARY, GOVERNMENT KARNATAKA AND WITH THE SENIOR OFFICERS O F THE CONCERNED DEPARTMENTS OF THE STATE GOVERNMENT AS MEMBERS MAY BE DIRECTED TO BE SET UP FOR THE PURPOSE OF TAKING VARIOUS AMELIORATIVE AND MITIGATIVE MEASURES IN DISTRICTS BELLARY, CHITRADURGA AND TUMKUR. THE ADDI TIONAL RESOURCES MOBILIZED BY (A) ALLOTMENT/ ASSIGNMENT OF THE CANCELLED MININ G LEASES AS WELL AS THE MINING LEASES BELONGING TO M/S. MML, (B) THE AMOUNT OF THE PENALTY/ COMPENSATION RECEIVED/ RECEIVABLE FROM THE DEFAULTI NG LESSEE, (C) THE AMOUNT RECEIVED/ RECEIVABLE BY THE MONITORING COMMITTEE FR OM THE MINING LEASES FALLING IN CATEGORY- A AND CATEGORY-B, (D) AMOUNT RECEI VED/ 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 DEVELOPMEN T OF THE AREA/LOCAL POPULATION, INFRASTRUCTURE DEVELOPME NT, CONSERVATION AND PROTECTION OF FOREST, DEVELOPING COMMON FACILITIES FOR TRANSPORTATION OF PAGE 17 OF 31 ITA NO.522/BANG/2019 IRON ORE (SUCH AS MAINTENANCE AND WIDENING OF EXIST ING ROAD, CONSTRUCTION OF ALTERNATE ROAD, CONVEYOR BELT, RAIL WAY SIDING AND IMPROVING COMMUNICATION SYSTEM, ETC.). A DETAILED SCHEME IN THIS REGARD MAY BE DIRECTED TO BE PREPARED AND IMPLEMENTED AFTE R OBTAINING PERMISSION OF THIS HONBLE COURT; 7.10.11. HONBLE SUPREME COURT AT 176 OF ITS ORDER MADE FOLL OWING OBSERVATIONS WITH REGARD TO SPV:- BY ORDER DATED 28-09-2012, THIS COURT HAD CONSTITU TED A SPECIAL PURPOSE VEHICLE (FOR SHORT SPV) ON THE SUGGESTION OF THE LEARNED AMICUS CURIAE. THE PURPOSE OF CONSTITUTION OF THE SPV, IT MAY BE NOTIC ED, IS FOR TAKING OF AMELIORATIVE AND MITIGATIVE MEASURES AS PER THE COMPREHENSIVE E NVIRONMENT 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 DIFFERE NT 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 T YPES OF AMELIORATIVE AND MITIGATIVE STEPS IN THE INTEREST NOT ONLY OF THE EN VIRONMENT AND ECOLOGY BUT THE MINING INDUSTRY AS A WHOLE SO AS TO ENABLE THE INDU STRY TO RUN IN A MORE ORGANIZED, PLANNED AND DISCIPLINED MANNER. UNDER TH ESE SET OF FACTS, IT CANNOT BE SAID THAT THESE AMOUNTS ARE PENAL IN NATURE. WE NOTICE THAT THE HYDERABAD BENCH OF TRIBUNAL IN THE CASE OF NMDC LTD (SUPRA) A ND CO-ORDINATE BENCH OF BANGALORE TRIBUNAL IN RAMGAD MINERALS (SUPRA) CAME TO THE SAME CONCLUSION. WE NOTE THAT IN NMDC CASE (SUPRA), HONBLE HYDRABAD TRIBUNAL FOLLOWED DECISION OF HON'BLE KOLKATTA HIGH COURT IN THE CASE OF SHYAMSEL LTD (SUPRA) AND STATE POLLUTION CONTROL BOARD VS. SWASTIK ISPAT (P) LTD (SUPRA), WHEREIN IDENTICAL TYPES OF PAYMENTS MADE TO REMEDY THE RIVER POLLUTIO N CAUSED BY THE PARTIES WERE HELD TO BE COMPENSATORY IN NATURE. HENCE THE PROVISIONS OF EXPLANATION 1 TO SEC.37 WILL NOT APPLY TO THESE PAYMENTS. WE ALS O NOTE THAT HONBLE SUPREME COURT AT PAGE 171 OBSERVED THAT, THESE PAYMENTS ARE NECESSARY TO BE MADE BY THE MINING LEASE HOLDERS. HENCE THERE IS MERIT IN T HE SUBMISSION OF LD.COUNSEL THAT, WITHOUT MAKING THESE PAYMENTS, ASSESSEE COULD NOT HAVE RESUMED THE MINING OPERATIONS. HENCE, THESE EXPENSES ARE INCIDE NTAL TO CARRYING ON THE BUSINESS AND HENCE ALLOWABLE U/S 37(1) OF THE ACT. BASED ON ABOVE DISCUSSIONS AND ANALYSIS, WE ARE OF OPINION THAT CONTRIBUTION TO SPV BEING 15% OF SALE PROCEEDS, UND ER CATEGORY B, IS TO BE ALLOWABLE EXPENDITURE FOR YEAR UNDER CO NSIDERATION. ACCORDINGLY GROUND NO. 2 RAISED BY ASSESSEE STANDS ALLOWED. PAGE 18 OF 31 ITA NO.522/BANG/2019 8. GROUND NO.3 IS IN RESPECT OF DISALLOWANCE OF RS.20,55,00,000/- BY HOLD TO BE PENAL IN NATURE . BEFORE US, THE LD.AR REFERRED TO BREAKUP OF RS.20,5 5,00,000/- AT PAGE 109 OF PAPER BOOK: COMPENSATION (MINING PIT) 3.43HA RS.17, 15,00,000 COMPENSATION (DUMP, RECEIVED ETC, 3.43 HA) RS.3,40, 00,000 ADDITIONAL OTHER AREA(4.96 HA) RS.4,96,00,000 OTHER CATEGORY (1.51 HA) RS.1,51,00,000 8.1. THE LD.AR SUBMITTED THAT, PAYMENT ADVISES ISSUED BY DEPARTMENT OF MINES AND GEOLOGY, CLEARLY MENTIONS T HAT, ABOVE AMOUNTS RETAINED BY THE MC ARE TOWARDS R&R PLAN AS COMPENSATION, AND THAT, NO WHERE IN THE PAYMENT ADV ISE, THE TERM, PENALTY IS USED. THE LD.AR, THEREFORE, EMPH ASISED THAT, LOWER AUTHORITIES ERRED IN TREATING SAID COMPENSATI ON AS PENALTY. HE THUS SUBMITTED THAT THE SAID AMOUNT OUGHT TO HAV E BEEN ALLOWED AS EXPENDITURE IN THE HANDS OF ASSESSEE INC URRED FOR THE PURPOSE OF BUSINESS. 8.2. IN RESPECT OF THIS ISSUE, ASSESSEE RELIED ON DECISI ON OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S.VEERABHADRAPPA SANGAPA &CO. VS. ACIT IN ITA NO.1054/BANG/2019 BY O RDER DATED 08/12/2020, WHEREIN ON IDENTICAL FACTS IT HAS BEEN HELD AS EXPENDITURE ALLOWABLE UNDER SECTION 37 OF THE ACT. PAGE 19 OF 31 ITA NO.522/BANG/2019 8.3 ON THE CONTRARY THE LD.CIT(DR) RELIED OBSERVATIONS OF HONBLE SUPREME COURT (SUPRA) AND ORDERS PASSED BY THE LD.AO/CIT(A). 8.4 ON THIS ISSUE THIS TRIBUNAL OBSERVED AND HELD AS UNDER: 8.12 . WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDE S, IN LIGHT OF RECORDS PLACED BEFORE US. 8.12.1. LD.AO TOOK THE VIEW THAT THESE PAYMENTS ARE PENAL I N NATURE AS THEY HAVE BEEN LEVIED FOR CONTRAVENTION OF LAWS BY WAY O F DAMAGES CAUSED TO FOREST AND ENVIRONMENT. LD.AO REFERRED TO THE LETT ER F.NO.DMG/R & R/NOTICE/2012-13/11 DATED 28-02-2013 ISSUED BY DEPA RTMENT OF MINES AND GEOLOGY, BANGALORE DEMANDING THE PAYMENT FROM THE A SSESSEE. IT IS PERTINENT TO NOTE THAT THE ABOVE SAID LETTER USES THE EXPRESS ION PENALTY FOR THESE PAYMENTS. ACCORDINGLY, THE AO TOOK THE VIEW THAT T HESE PAYMENTS ARE IN THE NATURE OF PENALTY FOR VARIOUS IRREGULARITIES COMMIT TED BY THE ASSESSEE IN THE MINING AREA LIKE ILLEGAL MINING, ILLEGAL DUMPING OF WASTE AND OTHER VIOLATIONS LIKE ENCROACHMENT ETC. LD.AO RELIED UPON FOLLOWING CASE LAWS TO BUTTRESS HIS VIEW THAT THE PENALTY IS NOT ALLOWABLE AS DEDUCTION :- (A) MADDI VENKATARAMANA& CO (P) LTD VS. C IT (1998)(229 ITR 534)(SC) (B) HAJI AZIS& ABDUL SHAKOOR BROS. VS. CIT (1961)( 41 ITR 350)(SC) (C) INDIAN ALUMINIUM CO. LTD VS. CIT (79 ITR 514) (SC) 8.12.2. ASSESSEE CLAIMED RS.9,69,00,000/- AS EXPENDITURE IN THE ORIGINAL RETURN OF INCOME AND EXCLUDED THE SAME FROM SALES R EVENUE IN THE REVISED RETURN OF INCOME CONTENDING THAT THE SAME IS DIVERS ION BY OVERRIDING TITLE. 8.12.3. LD.CIT.D.R PLACED HIS RELIANCE ON CERTAIN OBSERVATI ONS MADE BY HON'BLE SUPREME COURT IN M/S SAMAJ PARIVARTANA SAMU DAYA AND OTH. VS.STATE OF KARNATAKA & OTH.(SUPRA). FIRST OF ALL, THERE SHOULD NOT BE ANY DISPUTE THAT THE WRIT PETITION FILED BY M/S SAMAJ P ARIVARTANA SAMUDAYA AND OTHERS WAS ADMITTED BY HON'BLE SUPREME COURT UNDER ARTICLE 32 OF THE ACT. HENCE THE LESSEES, INTER ALIA, CHALLENGED BEFORE HO N'BLE SUPREME COURT, THE NECESSITY TO INVOKE ARTICLE 32 AND ARTICLE 142 OF T HE ACT. 8.12.4. IN THE CEC REPORT DATED 3/02/2012 AND 13/03/2012, F OLLOWING RECOMMENDATIONS WERE PROVIDED IN RESPECT OF CATEGOR Y B LEASE HOLDERS. HONBLE SUPREME COURT EXTRACTED THE SAME AT PAGE 16 6 OF ITS ORDER WHICH IS AS UNDER: PAGE 20 OF 31 ITA NO.522/BANG/2019 (V) IN RESPECT OF THE MINING LEASES FALLING IN CATEGOR Y- B (DETAILS GIVEN AT ANNEXURE-R-10 TO THIS REPORT) IT IS RECOMMENDED THAT: I) THE R&R PLAN, UNDER PREPARATION BY THE ICFRE, AF TER INCORPORATING THE APPROPRIATE CHANGES AS PER THE DI RECTIONS OF THIS HONBLE COURT, SHOULD BE IMPLEMENTED IN A TIME BOUN D MANNER BY THE RESPECTIVE LESSEES AT HIS COST. IN THE EVENT OF HIS FAILURE TO DO SO OR IF THE QUALITY AND/OR THE PROGRESS OF THE IMP LEMENTATION OF THE R&R PLAN IS FOUND TO BE UNSATISFACTORY BY THE M ONITORING COMMITTEE OR BY THE DESIGNATED OFFICER(S) OF THE ST ATE OF KARNATAKA, THE SAME SHOULD BE IMPLEMENTED BY THE ST ATE OF KARNATAKA THROUGH APPROPRIATE AGENCY(IES) AND AT TH E COST OF THE LESSEE; II) FOR CARRYING OUT THE ILLEGAL MINING OUTSIDE THE LEASE AREA, EXEMPLARY COMPENSATION/ PENALTY MAY BE IMPOSED ON T HE LESSEE. IT IS RECOMMENDED THAT: A) FOR ILLEGAL MINING BY WAY OF MINING PITS OUTSIDE THE LEASES AREA, AS FOUND BY THE JOINT TEAM, THE COMPENSATION/ PENALTY MAY BE IMPOSED AT THE RATE OF RS. 5.00 CRORE (RS. F IVE CRORE ONLY) FOR PER HA. OF THE AREA FOUND BY THE JOINT TEAM TO BE UNDER ILLEGAL MINING PIT; AND B) FOR ILLEGAL MINING BY WAY OF OVER BURDEN DUMP(S) ROAD, OFFICE, ETC. OUTSIDE THE SANCTIONED LEASE AREA, THE COMPENS ATION/ PENALTY MAY BE IMPOSED @ RS. 1.00 CRORES (RS. ONE CRORES ON LY) FOR PER HA. OF THE AREA FOUND TO BE UNDER ILLEGAL OVER BURD EN DUMP ETC. III) MINING OPERATION MAY BE ALLOWED TO BE UNDERTAK EN AFTER (A) THE IMPLEMENTATION OF THE R& R PLAN IS PHYSICALLY U NDERTAKEN AND IS FOUND TO BE SATISFACTORY BASED ON THE PRE-DE TERMINED PARAMETERS, (B) PENALTY/ COMPENSATION AS DECIDED BY THIS HONBLE COURT IS DEPOSITED AND (C) THE CONDITIONS A S APPLICABLE IN RESPECT OF CATEGORY-A LEASES ARE FULFILLED/FOLLOW ED; IV) IN RESPECT OF THE SEVEN MINING LEASES LOCATED O N/NEARBY THE INTERSTATE BOUNDARY, THE MINING OPERATION SHOULD PR ESENTLY REMAIN SUSPENDED. THE SURVEY SKETCHES OF THESE LEAS ES SHOULD BE FINALIZED AFTER THE INTERSTATE BOUNDARY IS DECID ED AND THEREAFTER THE INDIVIDUAL LEASES SHOULD BE DEALT WI TH DEPENDING UPON THE LEVEL OF THE ILLEGALITY FOUND; AND V) OUT OF THE SALE PROCEEDS OF THE EXISTING STOCK O F THE MINING LEASES, AFTER DEDUCTING : A) THE PENALTY/COMPENSATION PAYABLE; B) ESTIMATED COST OF THE IMPLEMENTATION OF THE R& R PLAN; AND C) 10% OF THE SALE PROCEEDS TO BE RETAINED BY THE MONITORING COMMITTEE FOR BEING TRANSFERRED TO THE S PV PAGE 21 OF 31 ITA NO.522/BANG/2019 D) THE BALANCE AMOUNT, IF ANY, MAY BE ALLOWED TO BE DISBURSED TO THE RESPECTIVE LESSEES. 8.12.5. HONBLE SUPREME COURT IN PARA 11 AT PAGE 172 ACCEPT ED THE RECOMMENDATION OF CEC BY OBSERVING AS UNDER: 11 . THE ORDER OF THE COURT DATED 28.9.2012, LAYING DO WN CERTAIN CONDITIONS AS THE ABSOLUTE FIRST STEP BEFORE CONSI DERATION OF ANY RESUMPTION OF MINING OPERATIONS BY CATEGORYB LEA SEHOLDERS WOULD ALSO BE REQUIRED TO BE SPECIFICALLY NOTICED A T THIS STAGE. I. COMPENSATORY PAYMENT A) EACH OF THE LEASEHOLDERS MUST PAY COMPENSATION F OR THE AREAS UNDER ILLEGAL MINING PITS OUTSIDE THE SANCTIONED AR EA, AS FOUND BY THE JOINT TEAM (AND AS FINALLY HELD BY THE CEC) AT THE RATE OF RS.5 CRORES PER HECTARE, AND (B) FOR THE AREAS UNDER ILLEGAL OVERBURDEN DUMPS, R OADS, OFFICES, ETC. OUTSIDE THE SANCTIONED LEASE AREA, AS FOUND BY THE JOINT TEAM (AS MIGHT HAVE BEEN FINALLY HELD BY THE CEC) AT THE RATE OF RS.1 CRORE PER HECTARE. IT IS MADE CLEAR THAT THE PAYMENT AT THE RATES AFOR ESAID IS THE MINIMUM PAYMENT AND EACH LEASEHOLDER MAY BE LIABLE TO PAY ADDITIONAL AMOUNTS ON THE BASIS OF THE FINAL DETERM INATION OF THE NATIONAL LOSS CAUSED BY THE ILLEGAL MINING AND THE ILLEGAL USE OF THE LAND FOR OVERBURDEN DUMPS, ROADS, OFFICES, ETC. EAC H LEASEHOLDER, BESIDES MAKING PAYMENT AS DIRECTED ABOVE, MUST ALSO GIVE AN UNDERTAKING TO THE CEC FOR PAYMENT OF THE ADDITIONA L AMOUNTS, IF HELD LIABLE ON THE BASIS OF THE FINAL DETERMINATION . AT THE SAME TIME, WE DIRECT FOR THE CONSTITUTION OF A COMMITTEE TO DETERMINE THE AMOUNT OF COMPENSATORY PAYMENT TO BE MADE BY EACH OF THE LEASEHOLDERS HAVING REGARD TO THE VALUE OF THE ORE ILLEGALLY EXTRACTED FROM FOREST/NON-FOREST LAND FAL LING WITHIN OR OUTSIDE THE SANCTIONED LEASE AREA AND THE PROFIT MA DE FROM SUCH ILLEGAL EXTRACTION AND THE RESULTANT DAMAGE CAUSED TO THE ENVIRONMENT AND THE ECOLOGY OF THE AREA. THE COMMITTEE SHALL CONSIST OF EXPERTS/OFFICERS NOM INATED EACH BY THE MINISTRY OF MINES AND THE MINISTRY OF ENVIRONME NT AND FORESTS. THE CONVENER OF THE COMMITTEE WILL BE THE MEMBER SECRETARY OF THE CEC. THE TWO MEMBERS NOMINATED BY THE MINISTRY OF MINES AND THE MINISTRY OF ENVIRONMENT AND FOREST S ALONG WITH THE MEMBER SECRETARY, CEC SHALL CO-OPT TWO OR THREE OFFICERS FROM THE STATE GOVERNMENT. THE COMMITTEE SHALL SUBMIT IT S REPORT ON THE AFORESAID ISSUE THROUGH THE CEC TO THIS COURT W ITHIN THREE MONTHS FROM TODAY. THE FINAL DETERMINATION SO MADE, ON BEING APPROVED BY THE COURT, SHALL BE PAYABLE BY EACH OF THE LEASEHOLDERS. PAGE 22 OF 31 ITA NO.522/BANG/2019 8.12.6. HONBLE SUPREME COURT FURTHER DIRECTED AS UNDER( PA GE 173 CLAUSE): III. . IN ADDITION TO THE ABOVE, EACH LEASEHOLDER MUST P AY A SUM EQUIVALENT TO 15% OF THE SALE PROCEEDS OF ITS IRON ORE SOLD THROUGH THE MONITORING COMMITTEE AS PER THE EARLIER ORDERS OF THIS COURT. IN THIS REGARD, IT MAY BE STATED THAT THOUGH THE AM ICUS SUGGESTS THE PAYMENT @ 10% OF THE SALE PROCEEDS, HAVING REGA RD TO THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE HAV E ENHANCED THIS PAYMENT TO 15% OF THE SALE PROCEEDS. HERE IT NEEDS TO BE CLARIFIED THAT THE CEC/MONITOR ING COMMITTEE IS HOLDING THE SALE PROCEEDS OF THE IRON ORES OF TH E LEASEHOLDERS, INCLUDING THE 63 LEASEHOLDS BEING THE SUBJECT OF TH IS ORDER. IN CASE, THE MONEY HELD BY THE CEC/MONITORING COMMITTE E ON THE ACCOUNT OF ANY LEASEHOLDER IS SUFFICIENT TO COVER T HE PAYMENTS UNDER THE AFORESAID THREE HEADS, THE LEASEHOLDER MA Y, IN WRITING, AUTHORIZE THE CEC TO DEDUCT FROM THE SALE PROCEEDS ON ITS ACCOUNT THE AMOUNTS UNDER THE AFORESAID THREE HEADS AND AN UNDERTAKING TO MAKE PAYMENT OF ANY ADDITIONAL AMOUNT AS COMPENS ATORY PAYMENT. ON SUBMISSION OF SUCH AUTHORIZATION AND UN DERTAKING, THE CEC SHALL RETAIN THE AMOUNTS COVERING THE AFORE SAID THREE HEADS AND PAY TO THE CONCERNED LEASEHOLDER THE BALA NCE AMOUNT, IF ANY. IT IS EXPECTED THAT THE BALANCE AMOUNT, AFT ER MAKING THE ADJUSTMENTS AS INDICATED HERE, WOULD BE PAID TO THE CONCERNED LEASEHOLDER WITHIN ONE MONTH FROM THE DATE OF SUBMI SSION OF THE AUTHORIZATION AND THE UNDERTAKING. IN THE CASE OF ANY LEASEHOLDER, IF THE MONEY HELD O N HIS ACCOUNT IS NOT SUFFICIENT TO COVER THE AFORESAID THREE HEADS, HE MUST PAY THE DEFICIT WITHIN TWO MONTHS FROM TODAY. 8.12.7. THE CONTENTIONS OF THE LESSEES HAVE BEEN SUCCINCTLY STATED AS UNDER BY HON'BLE SUPREME COURT IN PARAGRAPH 20 OF THE ORD ER, WHICH IS EXTRACTED BELOW:- TO RESOLVE THE SAID ISSUES IT IS THE STATUTORY SCH EME THAT SHOULD BE DIRECTED TO BE FOLLOWED AND RESORT TO THE POWERS OF THIS COURT UNDER ARTICLE 32 READ WITH ARTICLE 142 OF THE CONSTITUTION, WHEN A STATUTORY SCHEME IS IN EXISTENCE, WOULD BE WHOLLY UNCALLED FOR. 8.12.8. THIS CONTENTION WAS DISCUSSED IN DETAIL AS ISSUE 2 IN PARAGRAPHS 27 TO 37 (PAGES180 TO 187) HONBLE SUPREME COURT. FOLL OWING ARE THE OBSERVATIONS OF HONBLE SUPREME COURT: 27. ON THE ABOVE ISSUE THE SHORT AND PRECISE ARGUME NT ON BEHALF OF THE LEASEHOLDERS IS THAT THE PROVISIONS OF EACH OF THE STATUTORY ENACTMENTS, I.E., THE MMDR ACT , FC ACT AND EP ACT PRESCRIBE A DISTINCT STATUTORY PAGE 23 OF 31 ITA NO.522/BANG/2019 SCHEME FOR REGULATION OF MINING ACTIVITIES AND THE CORRECTIVE AS WELL AS PUNITIVE STEPS THAT MAY BE TAKEN IN THE EVENT MININ G ACTIVITIES ARE CARRIED OUT IN A MANNER CONTRARY TO THE TERMS OF THE LEASE OR THE PROVISIONS OF ANY OF THE STATUTES, AS MAY BE. THE ARGUMENT ADVANCED I S THAT AS THE STATUTES IN QUESTION CONTEMPLATE A PARTICULAR SCHEM E TO DEAL WITH INSTANCES OF ILLEGAL MINING OR CARRYING ON MINING O PERATIONS WHICH IS HAZARDOUS TO THE ENVIRONMENT, THE CEC COULD NOT HAV E RECOMMENDED THE TAKING OF ANY STEP OR MEASURE BEYOND WHAT IS CONTEM PLATED BY THE STATUTORY SCHEME(S) IN FORCE. IN OTHER WORDS, WHAT IS SOUGHT TO BE ADVANCED ON BEHALF OF THE LEASEHOLDERS IS THAT NO S TEP SHOULD BE TAKEN OR DIRECTION ISSUED BY THIS COURT WHICH WILL BE CONTRA RY TO OR IN CONFLICT WITH THE PROVISIONS OF THE RELEVANT STATUTES. SEVERAL J UDGMENTS OF THIS COURT, WHICH ARE PERCEIVED TO BE PRECEDENTS IN SUPPORT OF THE PROPOSITION ADVANCED, HAVE BEEN CITED IN THE COURSE OF ARGUMENT S MADE. 29. ACCORDING TO SHRI DIVAN (AMICUS CURIAE), THE PR ESENT IS A CASE OF MASS TORT RESULTING IN THE ABRIDGMENT OF THE FUNDAM ENTAL RIGHTS OF A LARGE NUMBER OF CITIZENS FOR ENFORCEMENT OF WHICH THE WRI T PETITION HAS BEEN FILED UNDER ARTICLE 32. SHRI DIVAN HAS SUBMITTED, B Y RELYING ON SEVERAL DECISIONS OF THIS COURT, THAT IN A SITUATION WHERE THE COURT IS CALLED UPON TO ENFORCE THE FUNDAMENTAL RIGHTS AND THAT TOO OF A N INDETERMINATE NUMBER OF CITIZENS THERE CAN BE NO LIMITATIONS ON T HE POWER OF COURT. IT IS THE SATISFACTION OF THE COURT THAT ALONE WOULD BE M ATERIAL. ONCE SUCH SATISFACTION IS REACHED, THE COURT WILL BE FREE TO DEVISE ITS OWN PROCEDURE AND ISSUE WHATEVER DIRECTIONS ARE CONSIDERED NECESS ARY TO EFFECTUATE THE FUNDAMENTAL RIGHTS. THE ONLY RESTRICTION THAT THE C OURT WILL BEAR IN MIND IS THAT ITS ORDERS OR DIRECTIONS WILL NOT BE IN CON FLICT WITH THE PROVISIONS OF ANY STATUTE. HOWEVER, IF THE STATUTE DOES NOT FORBI D A PARTICULAR COURSE OF ACTION IT WILL BE CERTAINLY OPEN FOR THE COURT UNDE R ARTICLE 32 TO ISSUE APPROPRIATE DIRECTIONS.. 31. THE QUESTION THAT HAS BEEN RAISED ON BEHALF O F THE LEASEHOLDERS IS WHETHER THE AFORESAID PROVISIONS UNDER THE DIFFEREN T STATUTES SHOULD BE RESORTED TO AND THE RECOMMENDATIONS MADE BY THE CEC INCLUDING CLOSURE OF CATEGORY- C MINES SHOULD NOT COMMEND FOR ACCEP TANCE OF THIS COURT. 32. IN BANDHUA MUKTI MORCHA VS. UNION OF INDIA &ORS . (1984) 3 SCC 161, THIS COURT HAD THE OCCASION TO CONSIDER THE NA TURE OF A PROCEEDING UNDER ARTICLE 32 OF THE CONSTITUTION WHICH IS IN TH E FOLLOWING TERMS :- 32. REMEDIES FOR ENFORCEMENT OF RIGHTS CONFERRED B Y THIS PART. (1) THE RIGHT TO MOVE THE SUPREME COURT BY APPROPRI ATE PROCEEDINGS FOR THE ENFORCEMENT OF THE RIGHTS CONFERRED BY THIS PART IS GUARANTEED. (2) THE SUPREME COURT SHALL HAVE POWER TO ISSUE DIR ECTIONS OR ORDERS OR WRITS, INCLUDING WRITS IN THE NATURE OF HABEAS C ORPUS, MANDAMUS, PAGE 24 OF 31 ITA NO.522/BANG/2019 PROHIBITION, QUO WARRANTO AND CERTIORARI, WHICHEVER MAY BE APPROPRIATE, FOR THE ENFORCEMENT OF ANY OF THE RIGH TS CONFERRED BY THIS PART. (3) WITHOUT PREJUDICE TO THE POWERS CONFERRED ON TH E SUPREME COURT BY CLAUSE ( 1 ) AND ( 2 ), PARLIAMENT MAY BY LAW EM POWER ANY OTHER COURT TO EXERCISE WITHIN THE LOCAL LIMITS OF ITS JU RISDICTION ALL OR ANY OF THE POWERS EXERCISABLE BY THE SUPREME COURT UNDER C LAUSE (2). (4)THE RIGHT GUARANTEED BY THIS ARTICLE SHALL NOT B E SUSPENDED EXCEPT AS OTHERWISE PROVIDED FOR BY THIS CONSTITUTI ON. 33. IN M.C. MEHTA VS. UNION OF INDIA &ORS. (1987) 1 SCC 395, THIS COURT NOT ONLY REITERATED THE VIEW ADOPTED IN BANDH UA MUKTI MORCHA (SUPRA) BUT ALSO HELD THAT THE POWER UNDER A RTICLE 32 WOULD BE BOTH INJUNCTIVE AS WELL AS REMEDIAL AND THE POWER TO GRANT REMEDIAL RELIEF, NATURALLY, WOULD EXTEND TO A WIDE RANGE OF SITUATIONS AND CANNOT BE PUT IN A STRAIGHT JACKET F ORMULA. 8.12.9. IN THE CASE OF M C MEHTA VS. UNION OF INDIA (2009) (6 SCC), IT WAS CONTENDED THAT HON'BLE SUPREME COURT CANNOT EXERCIS E POWERS UNDER ARTICLE 142 OF THE CONSTITUTION WHEN SPECIFIC PROVISIONS AR E MADE UNDER VARIOUS FOREST AND ENVIRONMENTAL LAWS DEALING WITH THE MANNER AND PROCEDURE FOR CANCELLATION/DETERMINATION OF MINING LEASES. THIS ARGUMENT WAS REJECTED BY HON'BLE SUPREME COURT WITH THE FOLLOWING OBSERVATIO NS:- 44. WE FIND NO MERIT IN THE ABOVE ARGUMENTS. AS ST ATED ABOVE, IN THE PAST WHEN MINING LEASES WERE GRANTED, REQUISITE CLE ARANCES FOR CARRYING OUT MINING OPERATIONS WERE NOT OBTAINED WHICH HAVE RESULTED IN LAND AND ENVIRONMENTAL DEGRADATION. DESPITE SUCH BREACHE S, APPROVALS HAD BEEN GRANTED FOR SUBSEQUENT SLOTS BECAUSE IN THE PA ST THE AUTHORITIES HAVE NOT TAKEN INTO ACCOUNT THE MACRO EFFECT OF SUC H WIDE-SCALE LAND AND ENVIRONMENTAL DEGRADATION CAUSED BY THE ABSENCE OF REMEDIAL MEASURES (INCLUDING REHABILITATION PLAN). TIME HAS NOW COME, THEREFORE, TO SUSPEND MINING IN THE ABOVE AREA TILL STATUTORY PROVISIONS FOR RESTORATION AND RECLAMATION ARE DULY COMPLIED WITH, PARTICULARLY IN CASES WHERE PITS/QUARRIES HAVE BEEN LEFT ABANDONED. 45. ENVIRONMENT AND ECOLOGY ARE NATIONAL ASSETS. THEY A RE SUBJECT TO INTERGENERATIONAL EQUITY. TIME HAS NOW COME TO SUSPEND ALL MINING IN THE ABOVE AREA ON SUSTAINABLE DEVELOP MENT PRINCIPLE WHICH IS PART OF ARTICLES 21, 48-A AND 51-A(G) OF THE CON STITUTION OF INDIA. IN FACT, THESE ARTICLES HAVE BEEN EXTENSIVELY DISCUSSE D IN THE JUDGMENT IN [M.C. MEHTA CASE (2004) 12 SCC 118] WHICH KEEPS THE OPTION OF IMPOSING A BAN IN FUTURE OPEN. 8.12.10. AFTER CONSIDERING ALL THESE JUDGMENTS RENDERED BY E ARLIER BENCH, HONBLE SUPREME COURT, OBSERVED AS UNDER:- PAGE 25 OF 31 ITA NO.522/BANG/2019 35.THE ISSUE IS NOT ONE OF APPLICATION OF THE ABOV E PRINCIPLES TO A CASE OF CANCELLATION AS DISTINGUISHED FROM ONE OF SUSPEN SION. THE ISSUE IS MORE FUNDAMENTAL, NAMELY, THE WISDOM OF THE EXERCISE OF THE POWERS UNDER ARTICLE 32 READ WITH ARTICLE 142 TO PR EVENT ENVIRONMENTAL DEGRADATION AND THEREBY EFFECTUATE TH E FUNDAMENTAL RIGHTS UNDER ARTICLE 21. 36. WE MAY NOW TAKE UP THE DECISIONS CITED ON BEHAL F OF THE LEASEHOLDERS TO CONTEND THAT THE POWER UNDER ARTICL ES 32 AND 142 OUGHT NOT TO BE EXERCISED IN THE PRESENT CASE AND INSTEAD REMEDIES SHOULD BE SOUGHT WITHIN THE RELEVANT STATUTES. THE SHEET ANCH OR IS THE CASE OF SUPREME COURT BAR ASSOCIATION VS. UNION OF INDIA AN D ANOTHER REPORTED IN (1998) 4 SCC 409. WE DO NOT SEE HOW OR WHY WE SH OULD LIE ENTRAPPED WITHIN THE CONFINES OF ANY OF THE RELEVANT STATUTES ON THE STRENGTH OF THE VIEWS EXPRESSED IN SUPREME COURT BAR ASSOCIATION (S UPRA). THE OBSERVATIONS MADE IN PARA 48 OF THE JUDGMENT AND TH E USE OF WORDS ORDINARILY AND ARE DIRECTLY IN CONFLICT AS APPE ARING IN THE SAID PARAGRAPH (UNDERLINED BY US) DIRECTLY MILITATES AGA INST THE VIEW THAT THE LEASE HOLDERS WOULD LIKE US TO ADOPT IN THE PRESENT CASE. 48. THE SUPREME COURT IN EXERCISE OF ITS J URISDICTION UNDER ARTICLE 142 HAS THE POWER TO MAKE SUCH ORDER AS IS NECESSARY F OR DOING COMPLETE JUSTICE BETWEEN THE PARTIES IN ANY CAUSE OR MATTER PENDING BEFORE IT. THE VERY NATURE OF THE POWER MUST LEAD THE COURT TO SET LIMITS FOR ITSELF WITHIN WHICH TO EXERCISE THOSE PO WERS AND ORDINARILY IT CANNOT DISREGARD A STATUTORY PROVISION GOVERNING A SUBJECT, EXCEPT PERHAPS TO BALANCE THE EQUITIES BETWEEN THE CONFLIC TING CLAIMS OF THE LITIGATING PARTIES BY IRONING OUT THE CREASES IN A CAUSE OR MATTER BEFORE IT. INDEED THIS COURT IS NOT A COURT OF REST RICTED JURISDICTION OF ONLY DISPUTE-SETTLING. IT IS WELL RECOGNISED AND ES TABLISHED THAT THIS COURT HAS ALWAYS BEEN A LAW-MAKER AND ITS ROLE TRAV ELS BEYOND MERELY DISPUTE-SETTLING. IT IS A PROBLEM-SOLVER IN THE NEBULOUS AREAS [SEE K. VEERASWAMI V. UNION OF INDIA (1991) 3 SCC 55)] BUT THE SUBSTANTIVE STATUTORY PROVISIONS DEALING WITH THE S UBJECT-MATTER OF A GIVEN CASE CANNOT BE ALTOGETHER IGNORED BY THIS COU RT, WHILE MAKING AN ORDER UNDER ARTICLE 142. INDEED, THESE CONSTITUTIONAL POWERS CANNOT, IN ANY WAY, BE CONTROLLED BY ANY STATUTORY PROVISIONS BUT AT THE SAME TIME THESE POWERS ARE NOT MEANT TO BE EXER CISED WHEN THEIR EXERCISE MAY COME DIRECTLY IN CONFLICT WITH WHAT HA S BEEN EXPRESSLY PROVIDED FOR IN A STATUTE DEALING EXPRESSLY WITH TH E SUBJECT. (EMPHASIS SUPPLIED) 37. EVEN IF THE ABOVE OBSERVATIONS IS UNDERSTOOD TO BE LAYING DOWN A NOTE OF CAUTION, THE SAME WOULD BE A QUALIFIED ONE AND CAN HAVE NO APPLICATION IN A CASE OF MASS TORT AS HAS BEEN OCCASIONED IN THE PRE SENT CASE. THE MECHANISM PROVIDED BY ANY OF THE STATUTES IN QUESTION WOULD N EITHER BE EFFECTIVE NOR PAGE 26 OF 31 ITA NO.522/BANG/2019 EFFICACIOUS TO DEAL WITH THE EXTRAORDINARY SITUATIO N THAT HAS ARISEN ON ACCOUNT OF THE LARGE SCALE ILLEGALITIES COMMITTED IN THE OP ERATION OF THE MINES IN QUESTION RESULTING IN GRAVE AND IRREPARABLE LOSS TO THE FOREST WEALTH OF THE COUNTRY BESIDES THE COLOSSAL LOSS CAUSED TO THE NAT IONAL EXCHEQUER. THE SITUATION BEING EXTRAORDINARY THE REMEDY, INDEED, M UST ALSO BE EXTRAORDINARY. CONSIDERED AGAINST THE BACKDROP OF THE STATUTORY SC HEMES IN QUESTION, WE DO NOT SEE HOW ANY OF THE RECOMMENDATIONS OF THE CEC, IF ACCEPTED, WOULD COME INTO CONFLICT WITH ANY LAW ENACTED BY THE LEGISLATU RE. IT IS ONLY IN THE ABOVE SITUATION THAT THE COURT MAY CONSIDER THE NECESSITY OF PLACING THE RECOMMENDATIONS MADE BY THE CEC ON A FINER BALANCIN G SCALE BEFORE ACCEPTING THE SAME. WE, THEREFORE, FEEL UNINHIBITED TO PROCEED TO EXERCISE OUR CONSTITUTIONAL JURISDICTION TO REMEDY THE ENORMOUS WRONG THAT HAS HAPPENED AND TO PROVIDE ADEQUATE PROTECTION FOR THE FUTURE, AS MAY BE REQUIRED. 8.12.11. LD.COUNSEL, DURING HIS ARGUMENTS, POINTED OUT THAT THE CEC USED THE EXPRESSION COMPENSATION/PENALTY IN ITS RECOMM ENDATIONS. BUT HONBLE SUPREME COURT, WHILE ACCEPTING SUCH RECOMMENDATIONS USED THE EXPRESSION COMPENSATION FOR SUCH PAYMENTS. FROM THE OBSERVA TIONS REPRODUCED HEREIN ABOVE, IT CAN BE NOTICED THAT HONBLE SUPREME COURT EXERCISED ITS POWER UNDER ARTICLE 32 AND ARTICLE 142 TO PROTECT FUNDAMENTAL R IGHTS OF PUBLIC IN ORDER TO PREVENT ENVIRONMENTAL DEGRADATION, I.E., THE COST I MPOSED ON LEASEHOLDERS TO REMEDY THE ENORMOUS WRONG THAT HAS HAPPENED AND TO PROVIDE ADEQUATE PROTECTION FOR THE FUTURE. 8.12.12. WE NOTE THAT HYDERABAD BENCH OF TRIBUNAL IN CASE OF NMDC HELD THAT THE ABOVE PAYMENT IS NOT PENAL IN NATURE, BUT A PAYMENT MADE FOR COMPENSATION. FOR THE SAKE OF CONVENIENCE, WE EXTR ACT BELOW THE FINAL DECISION RENDERED BY HYDERABAD BENCH OF TRIBUNAL:- THE FACT THAT THE COMPENSATION IS PROPORTIONATE TO AREA OF ILLEGA L MINING OUTSIDE THE LEASED AREA AND THAT THE ASSESSE E HAS PAID THE PROPORTIONATE COMPENSATION FOR MINING IN THE AR EAS OUTSIDE THE SANCTIONED AREA ALLOTTED TO IT AND THAT 10% OF SUM IS TO BE TRANSFERRED TO SPV AND THE BALANCE 10% IS TO BE REI MBURSED TO THE RESPECTIVE LESSEES, ACCORDING TO US, PROVES THAT IT IS A PAYMENT MADE AS 'COMPENSATION' FOR EXTRA MINING, WITHOUT WHICH THE ASSESSEE COULD NOT HAVE RESUMED ITS ACTIVITIES. THEREFORE, WE ARE INCL INED TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT IT IS COMPENSATORY IN NATURE AND IS A 'BUSINESS EXPENDITURE' AND IS ALLOWABLE U/S 37(1) O F THE ACT. THUS, GROUNDS NO.2 AND 3 RAISED BY THE ASSESSEE ARE ALLOW ED. 8.12.13. WE NOTICE THAT, HYDERABAD BENCH HELD THE COMPENSATI ON PAID @ RS.5 CRORES AND RS.1.00 CRORES FOR ILLEGAL MINING A ND ILLEGAL OVERBURDEN DUMPS TO BE IN CONSTRUED IN THE NATURE OF COMPENSATION. T HE LD.CIT.DR PLACED RELIANCE ON THE LETTER ISSUED BY DEPARTMENT OF MINE S AND GEOLOGY, WHEREIN THESE PAYMENTS HAVE BEEN REFERRED TO AS PENALTY. HOWEVER GOING BY THE OBSERVATIONS OF HONBLE SUPREME COURT, THESE WERE P AYMENTS FORMIMG PART OF SPV TO BE USED FOR DEVELOPING ECOLOGY IN THE MINING AFFECTED AREAS. PAGE 27 OF 31 ITA NO.522/BANG/2019 8.12.14. WE NOTE THAT HONBLE SUPREME COURT DIRECTED THAT TH E FUNDS SO COLLECTED TO BE TRANSFERRED TO SPV. THESE FUNDS WER E TO BE USED FOR R & R PLANS, WHICH INTER ALIA, WOULD INCLUDE FOLLOWING ME ASURES:- (PAGE 171 OF HONBLE SUPREME COURTS ORDER) E) SOIL AND MOISTURE CONSERVATIONS, AFFORESTATION AND OTHER MEASURES 26. THE R&R PLAN WOULD INTER ALIA PROVIDE FOR: I) BROAD DESIGN/SPECIFICATION FOR: B) RETAINING WALLS C) CHECK DAMS D) GULLY PLUGS AND/OR CULVERTS (IF REQUI RED) E) GEO TEXTILE/GEO MATTING OF DUMPS F) AFFORESTATION IN THE SAFETY ZONES G) AFFORESTATION IN PERIPHERAL AREA, ROAD SIDE, OV ER BURDEN DUMPS AND OTHER AREAS II) DUST SUPPRESSION MEASURES AT/FOR LOADING, UNLO ADING AND TRANSFER POINTS, INTERNAL ROADS, MINERAL STACKS ETC . III) COVERED CONVEYOR BELTS (IF FEASIBLE) SUCH AS DOWN HILL CONVEYOR, PIPE CONVEYOR ETC. IV) SPECIFICATION OF INTERNAL ROADS, V) DETAILS OF EXISTING TRANSPORT SYSTEM AND PROPOSE D IMPROVEMENTS VI) RAILWAYS SIDING (IF FEASIBLE) VII) CAPACITY BUILDING OF PERSONNEL INVOLVED IN THE MINING AND ENVIRONMENTAL MANAGEMENT VIII) RAIN WATER HARVESTING 8.12.15. WE NOTE THAT CO-ORDINATE BENCH OF TRIBUNAL CONSIDER ED AN IDENTICAL ISSUE IN THE CASE OF MYSORE MINERALS LTD VS. ACIT ( ITA NO.679/BANG/2010 DATED 2.11.2012). IN THIS CASE, THE ASSESSEE WAS E NGAGED IN THE BUSINESS OF MINING OF IRON ORE, OTHER MINERALS AND GRANITE. IN CONSEQUENCE TO THE ORDER PASSED BY HON'BLE SUPREME COURT IN THE CASE OF T.N GODAVARMAN TIRUMALPAD VS. UOI, THE ASSESSEE WAS LIABLE TO PAY TO COMPENSA TORY AFFORESTATION FUND EQUAL TO NET PRESENT VALUE FOR DIVERSION OF FOREST LAND FOR NON-FOREST PURPOSES. THE ASSESSEE PAID A SUM OF RS.5,02,59,000/- TO THE FUND AND CLAIMED THE SAME AS EXPENDITURE. THE QUESTION THAT AROSE BEFOR E THE TRIBUNAL WAS WHETHER THE AMOUNT SO PAID BY THE ASSESSEE IS DEDUC TIBLE AS EXPENSES ARE NOT? TRIBUNAL THEREIN NOTICED THAT AN IDENTICAL IS SUE WAS EXAMINED IN CASE OF M/S RAMGAD MINERALS & MINING P LTD (ITA NO.1012/BAN G/08 DATED 9.4.2009) AND WAS DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDI NGLY, THE TRIBUNAL DECIDED THIS ISSUE, WITH THE FOLLOWING OBSERVATIONS, IN FAV OUR OF THE ASSESSEE:- 5.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED THE MATERIAL ON RECORD AND THE JUDICIAL DECISIONS CITED AND PLACED RELIANCE UPON. WE HAVE PERUSED THE DECISION OF THE CO- ORDINATE BENCH OF T HIS TRIBUNAL IN THE CASE OF RAMGAD MINERALS & MINING PVT LTD VS.ACIT IN ITA NO. 1012/BANG/08 DT.9.4.2009 AND FIND THAT IN THE CITED CASE TOO A S IMILAR / IDENTICAL ISSUE WAS PAGE 28 OF 31 ITA NO.522/BANG/2019 CONSIDERED ON THE PAYMENTS MADE TOWARDS CONTRIBUTIO N FOR COMPENSATORY AFFORESTATION AS PER THE DIRECTION OF THE HON'BLE A PEX COURT WHEN THE MINES ARE EXPLOITED ON FOREST LAND. THE HON'BLE TRIBUNAL IN PARA 5 OF ITS ORDER HELD THAT THE AMOUNT EXPENDED ON THIS COUNT WAS INCURRED AS A REVENUE EXPENDITURE AND WAS DIRECTED TO BE ALLOWED IN THE Y EAR IN WHICH IT WAS INCURRED. THE OPERATIVE PART OF THE ORDER IN PARA 5 AT PAGES 7 AND 8 IS EXTRACTED AND REPRODUCED HERE UNDER : ' WE FIND FORCE IN THE SUBMISSION OF THE LEARNED CO UNSEL THAT PAYMENTS TO THE GOVERNMENT ARE TO BE PAID ONCE THE MINING LEASE IS OBTAINED AND SUCH PAYMENTS ARE GOVERNED BY VARIOUS ACTS ALONG WITH TH E APEX COURT MAKING A RULING FOR STATE GOVERNMENTS TO PARTICIPATE IN THE GRANTING OF MINING LEASE BY RECOVERING COMPENSATION WHEN THEIR FORESTS ARE UPRO OTED. THEREFORE FOR THIS PURPOSE, THE FUNDS ARE USED FOR A NATURAL REGENERAT ION WHICH THE ASSESSEE PARTICIPATES INDIRECTLY. THEREFORE AT NO POINT OF T IME COULD IT BE SAID THAT THE ASSESSEE HAD INCURRED A CAPITAL EXPENDITURE GIVING THE ASSESSEE A BENEFIT OF ENDURING NATURE FOR THE PURPOSE OF EARNING SEGMENTE D INCOME TO RENDER THE SAME TO INCOME TAX. IN OTHER WORDS, THE AUTHORITIES BELOW HAVE NOT POINTED OUT THE INCOME GENERATED AGAINST THE PURPORTED DEFERRED REVENUE EXPENDITURE SO PROPOSED BY THEM IN THEIR IMPUGNED ORDERS. THE AMOU NT WAS INCURRED AS A REVENUE EXPENDITURE AND IS DIRECTED TOBE ALLOWED IN THE YEAR IT HAS BEEN INCURRED.' RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THE BANGALORE TRIBUNAL, IN THE CASE OF RAMGAD MINERALS & MINING P . LTD. (SUPRA), WE HOLD THAT THE ENTIRE EXPENDITURE OF RS.5,02,59,000 INCUR RED BY THE ASSESSEE OF NET PRESENT VALUE TO CAMPA IN THE RELEVANT PERIOD ARE T O BE ALLOWED AS REVENUE EXPENDITURE FOR ASSESSMENT YEAR 2004-05. 8.12.16. ABOVE DECISION OF THIS TRIBUNAL IN CASE OF M/S.MYSO RE MINERALS(SUPRA) WAS UPHELD BY HONBLE KARNATAKA HIG H COURT IN THE APPEAL FILED BY REVENUE AGAINST ORDER OF THIS TRIBUNAL. R ELEVANT EXTRACT OF THE VIEW TAKEN BY HONBLE HIGH COURT IN CIT VS. M/S MYSORE M INERALS LTD IN ITA NO.144/2013 DATED 08/03/2017 IS AS UNDERE:- 2. AS SUCH, IN OUR VIEW, THE ONLY QUESTION OF LAW WHICH MAY ARISE IS, WHETHER THE PAYMENT MADE BY WAY OF COMPENSATION OF RS.5,02,59,000/- BY THE ASSESSEE AS PER THE DIRECTI ON OF THE APEX COURT FOR MINING LEASE TO THE FOREST DEPARTMENT CAN BE SAID AS A REVENUE EXPENDITURE OR A CAPITAL EXPENDITURE? 3. WE HAVE HEARD MR.SANMATHI, LEARNED COUNSEL FOR T HE APPELLANT- REVENUE AND MR.A.SHANKAR, LEARNED COUNSEL FOR THE R ESPONDENT- ASSESSEE. 4. AS SUCH, THE TRIBUNAL IN THE IMPUGNED ORDER HAS RELIED UPON ITS EARLIER DECISION IN CASE OF M/S.RAMGAD MINERALS AND MINING PVT.LTD., VS. ACIT IN ITA 1012(BNG)/2008 DATED 9.4. 2009. IT HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL F OR RESPONDENT- PAGE 29 OF 31 ITA NO.522/BANG/2019 ASSESSEE THAT THE VERY DECISION OF THE TRIBUNAL IN CASE OF RAMGAD MINERALS (SUPRA) WAS CARRIED BEFORE THIS COURT IN I TA 5021/09 AND THIS COURT HAS DISMISSED THE APPEAL OF THE REVENUE AND IT HAS BEEN FURTHER STATED THAT SLP WAS PREFERRED AGAINST THE AFORESAID DECISION OF THIS COURT IN CASE OF RAMGAD SUPRA AND THE SAID SLP HAS ALSO BEEN DISMISSED. 5. WE MAY RECORD THAT IN VIEW OF AFORESAID DECISION AS SUCH, NO SUBSTANTIAL QUESTIONS OF LAW WOULD ARISE FOR CONSID ERATION. BUT EVEN IF IT IS TO BE EXAMINED, IN VIEW OF THE AFORES AID DECISION THAT THE DECISION OF THE TRIBUNAL HAS BEEN NOT INTERFERE D WITH BY THIS COURT AND SLP IS DISMISSED, THE QUESTION HAS TO BE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF ASSESSEE. 8.12.17. IN THE PRESENT FACT OF CASE, HONBLE SUPREME COURT OBSERVED LARGE SCALE ENCROACHMENT IN FOREST AREAS AND ILLEGA L MINING. HONBLE COURT DIRECTED COLLECTION OF SUCH AMOUNT TO BE USED FOR PUBLIC PURPOSES LISTED ABOVE, WHICH INCLUDES AFFORESTATION ETC. FUR THER WE NOTE THAT THESE AMOUNTS HAVE NOT BEEN COLLECTED FOR VIOLATION UNDER ANY SPECIFIC ACTS APPLICABLE TO MINING. IT FOR THESE REASONS THA T HONBLE SUPREME COURT USED THE TERM COMPENSATION AS AGAINST THE T ERM PENALTIES RECOMMENDED BY CEC. HOWEVER IT IS ALSO NOTICED THAT SUBSEQUENT TO THE ORDER PASSED BY HONBLE SUPREME COURT, STATE ACT, C ONTROLLING MINING ACTIVITY WERE AMENDED. WE FURTHER NOTICE THAT ASSESSEE COULD NOT HAVE COMM ENCED ITS OPERATIONS WITHOUT PAYING THESE AMOUNTS. HENCE THE RE IS COMMERCIAL EXPEDIENCY IN INCURRING THESE EXPENSES. 8.12.18. LD.AO INVOKED EXPLANATION-1 U/S 37(1) OF THE ACT IN SUPPORT OF THE DISALLOWANCE MADE HIM. AS PER THE PROVISIONS OF EXPLANATION 1 TO SEC.37(1) REFERS TO ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR ANY PURPOSES WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUS INESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESP ECT OF SUCH EXPENDITURE. A CAREFUL PERUSAL OF THE ABOVE SAID P ROVISION WOULD SHOW THAT THE PURPOSE OF EXPENDITURE SHOULD BE AN OFFE NCE OR PROHIBITED BY LAW. IN THE INSTANT CASES, THE PURPOSE OF PAYMENTS IS FOR R & R PLANS AND THE SAME CANNOT BE CONSIDERED AS PAYMENT FOR TH E PURPOSES, WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. HENCE EXPLANATION 1 TO SECTION 37 IS NOT APPLICABLE TO THESE PAYMENTS. 8.12.19. RESPECTFULLY FOLLOWING HYDERABAD BENCH OF TRIBUNAL IN CASE OF NMDC LTD (SUPRA) AND BANGALORE TRIBUNAL M/S MYSORE MINERALS LTD (SUPRA) WHICH HAS BEEN UPHELD BY HON'BLE KARNATAKA HIGH COU RT, THE PAYMENT OF RS.9,69,00,000/- IS COMPENSATORY IN NATURE ONLY AS THESE FUNDS ARE MEANT TO BE USED FOR PUBLIC PURPOSES AND THE ASSESSEE COULD NOT HAVE COMMENCED ITS OPERATIONS WITHOUT PAYING THE SAME, THE SAME IS ALL OWABLE AS REVENUE EXPENDITURE. WE ARE THEREFORE OF THE VIEW THAT PAYM ENT MADE AS PAGE 30 OF 31 ITA NO.522/BANG/2019 COMPENSATION IS NOT HIT BY EXPLANATION 1 TO SECTION 37(1) AND IS AN ALLOWABLE EXPENDITURE. BASED ON ABOVE DISCUSSIONS AND ANALYSIS, WE ARE OF OPINION THAT PAYMENT MADE AS COMPENSATION IS ALLOWABLE EXPENDITU RE FOR YEAR UNDER CONSIDERATION. ACCORDINGLY GROUND NO.3 RAISED BY ASSESSEE STANDS A LLOWED. IN THE RESULT APPEAL IS FILED BY ASSESSEE FOR YEAR UNDER CONSIDERATION STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST FEBRUARY, 2021 (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 1 ST FEBRUARY, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE