M/s R Pampathy , Hospet V. Assistant Commissioner of Income TAx Circle-1 , Bellary

ITA 723/BANG/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2113 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-02-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 08-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K SINGH
• Assessee Lawyers: H GURUSWAMY ITP
• Keywords: Business expenditure; Diversion of income; Capital expenditure
• Section: 143(3); 37(1); 201; 43; 13; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NOS.722, 723 & 724/BANG/2018 (ASSESSMENT YEARS : 2012-13 TO 2014-15) M/S. R. PAMPAPATHY, AARPEE IRON ORE MINES, MINE OWNERS, NO.24/151, BELLARY ROAD, HOSPET 583 201 .APPELLANT PAN AACFR 2571B VS. ASSISTANT COMMISSIONER OF INCOME TAX, RESPONDENT. CIRCLE 1, FORT, BELLARY. ASSESSEE BY: SHRI H. GURUSWAMY, ITP. REVENUE BY: SHRI B.K. SINGH, CIT (D.R) DATE OF HEARING : 19.02. 20 2 1 . DATE OF PRONOUNCEMENT : 26 .0 2 . 20 2 1 . O R D E R PER SHRI CHANDRA POOJARI, AM : THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST TH E SEPARATE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), GULBARGA FOR THE ASSESSMENT YEARS 2012- 13 TO 2014-15. SINCE COMMON ISSUE IS INVOLVED IN THESE APPEALS, THEY ARE CLUBBED AND HEARD TOGETHER, CONSOLIDATED ORDER IS PASSED. 2 ITA NOS.722 TO 724/BANG/2018 2. IN ALL THESE THREE APPEALS, THE COMMON ISSUE IS REGARDING NON-GRANTING OF DEDUCTION U/S.37 OF THE INCOME TAX ACT, 1961 (THE A CT) IN RESPECT OF SALE PROCEEDS RETAINED BY THE MONETARY COMMITTEE ON THE DIRECTION OF HONBLE SUPREME COURT BY HOLDING THAT SAME IS IN PENAL NATURE IGNORING THAT IT IS COMPENSATORY IN NATURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE ALLOWABLE U/S.37 OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSE E HAD CLAIMED SPECIAL PURPOSE VEHICLE CHARGES BEING 15% OF SALES DONE THROUGH E-A UCTION. THE SAID SPV CHARGES WAS DEDUCTED BY MONITORING COMMITTEE AND RETAINED B Y CENTRAL EMPOWER COMMITTEE (CEC) AS PER THE DIRECTIONS OF THE SUPREM E COURT FOR THE PURPOSE OF TAKING VARIOUS AMELIORATIVE AND MITIGATIVE MEASURES AS A COMPENSATORY PAYMENT. THE ASSESSING OFFICER HELD THAT THE SAID PAYMENT CA NNOT BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS U/S. 37 OF THE ACT. THE 15% OF SALE PROCEEDS FROM E-AUCTION OF IRON ORE IS TO BE U TILIZED AS PER THE DIRECTIONS OF HON'BLE SUPREME COURT. THIS IS EXCLUSIVELY FOR THE DEVELOPMENT, CONSERVATION OF FOREST, DEVELOPING COMMON FACILITIES FOR TRANSPORTA TION OF IRON ARE BY MAINTAINING AND WIDENING OF ROADS, ETC. THESE EXPENDITURES ARE VERY MUCH REQUIRED IN THE COURSE OF MINING OPERATIONS AND ARE ALL ALLOWABLE E XPENDITURE. HERE, ALL THE 3 ITA NOS.722 TO 724/BANG/2018 EXPENDITURES ARE DIRECTED TO BE HANDLED BY CENTRAL EMPOWERED COMMITTEE (CEC) FORMED BY THE HON'BLE SUPREME COURT AND HENCE DEDUC TED AN EXECUTED THROUGH CEC ON OUR BEHALF. THESE EXPENDITURES ARE ALLOWAB LE U/S. 37(1) OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HAD ST ATED THAT THE AMOUNT RETAINED BY THE CEC/MONITORING COMMITTEE, AS PER THE DIRECTIONS OF THE HON'BLE SUPREME COURT ON BEHALF OF THE ASSESSEE, FOR SPV PURPOSE IS ON ACCOUNT OF DAMAGES AND LOSS CAUSED TO THE ENVIRONMENT BY CONTRAVENTION OF LAWS AND THE SAID AMOUNT CANNOT BE ALLOWED AS DEDUCTION OUT OF SALE PROCEEDS EVEN AFTER ACCRUAL OF SUCH LIABILITY WHICH IS BEING COMPENSATORY AND PENALTY I N NATURE FOR CONTRAVENTION OF LAWS. THE ASSESSEE HAS FURTHER SUBMITTED THAT THE SAID DEDUCTIONS ARE CONSEQUENT TO THE HON'BLE SUPREME COURT ORDER CHARGED ON THE SALE PROCEEDS. THEREFORE, THE AMOUNT DEDUCTED OUT OF THE SALES PROCEEDS CONSEQUEN T TO THE ORDERS OF THE HON'BLE SUPREME COURT IS NOT LIABLE TO INCOME TAX. THE ON LY LEGAL ISSUE INVOLVED IN THIS CASE IS DISALLOWANCE OF SPV CHARGES. THE SPV CHARG ES ARE DEDUCTED FOR DAMAGE AND LOSS TO THE ENVIRONMENT. IT IS CLEAR THAT THE C HARGES ARE DEDUCTED FROM THE SALE PROCEEDS FOR OVER EXPLOITATION OF MINES THAT MEANS FOR VIOLATION OF LIMITATIONS OVER THE MINE OWNERS. THE MAIN THING FOR DEDUCTING SP V CHARGES IS TO IMPROVE THE TARNISHED ENVIRONMENT DUE TO THE MINING ACTIVITY AN D TO IMPROVE THE CONDITION OF THE EFFECTED PEOPLE IN AND AROUND THE MINES. THIS IS THE CORPORATE RESPONSIBILITY TO CONTRIBUTE FOR IMPROVEMENT OF EFFECTED ENVIRONMENT DUE TO MINING ACTIVITY. THE 4 ITA NOS.722 TO 724/BANG/2018 AMOUNT OF SPV CHARGES DEDUCTED BY THE MONITORING CO MMITTEE BEING IN THE NATURE OF APPROPRIATION OF PROFIT AND COMPENSATORY PAYMENT TOWARDS DAMAGES CAUSED DUE TO THE ENVIRONMENT AND FOREST BY CONTRAVENING OF LA WS, THE SAID PAYMENT CANNOT TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WITHIN THE MEANING OF PROVISIONS OF SECTION 37 OF THE ACT. THE ENQUI RY COMMITTEE OF CENTRAL EMPOWERED COMMITTEE APPOINTED BY HON'BLE SUPREME CO URT SUBMITTED A REPORT AND CLASSIFIED THE ASSESSEE UNDER THE CATEGORY B. THE HON'BLE SUPREME COURT FIXED THE COMPENSATION PAYABLE BY ALL THE MINING OW NERS AS PER THE CATEGORISATIO9N. BUT THE ASSESSEE HAS NOT FILED A NY NECESSARY DETAILS AND EVIDENCES OR STATEMENT OF FACTS OF HIS CASE TO STRENGTHEN THE ARGUMENTS. MOREOVER THE AS MENTIONED THAT THE EXPENSES ARE RELATED TO THE ASSE SSEE'S BUSINESS AND ARE ALLOWABLE U/S. 37 OF THE ACT. UNDER SEC. 37, THE EXPENSES W HICH ARE NOT ALLOWABLE ARE CAPITAL EXPENDITURE & PERSONAL EXPENDITURES. THE EXPLANATION 1 TO SECTION 37(1) OF THE ACT CLEARLY BARS DEDUCTION OF ANY EXPE NDITURE INCURRED WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. THE ASSESSI NG OFFICER STATED THAT THE SAID AMOUNT LIABLE TO BE ASSESSED TO TAX AS TRADING RECE IPTS DURING THE FINANCIAL YEAR OF E-AUCTION AND PARTICULARLY SUCH NATURE OF EXPENDITU RE IS ALSO NOT ALLOWABLE U/S. 37 OF THE ACT. AGGRIEVED BY THE ASSESSEE, FILED AN APP EAL BEFORE THE CIT(A). ON APPEAL, THE CIT(A) OBSERVED THAT THE EXPENDITURE IN CURRED BY THE ASSESSEE HIT BY 5 ITA NOS.722 TO 724/BANG/2018 THE EXPLN. 1 TO SECTION 37 OF THE ACT. AGGRIEVED B Y THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUS ED THE MATERIAL ON RECORD. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF ASHWATHNARAYANA SINGH AND CO. VS. ACIT IN ITA NO.5 22/BANG/2019 FOR THE ASST. YEAR 2013-14 VIDE ORDER DT.1.2.2021 IN PARA 7 .8 OBSERVED AS UNDER : 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 MINERALS & MINING LTD VS. ACIT IN ITA NO. 1270&1271/BANG/2019 BY ORDER D ATED 04/11/2020 AND M/S. VEERABHADRAPPA SANGAPA &CO. VS. ACIT IN ITA NO.1054 /BANG/2019 BY ORDER DATED 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 BEFO RE 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 LOSS UNDER THE HEAD I NCOME FROM BUSINESS AND PROFESSION. OR HE SUBMITTED THAT IT MAY BE TREATED AS AN EXPENDI TURE INCURRED BY ASSESSEE FOR PURPOSES OF BUSINESS. 6 ITA NOS.722 TO 724/BANG/2018 7.10.2. ON THE CONTRARY, LD. CI'T DR SUBMITTED THAT IT IS A N APPLICATION OF INCOME AND THEREFORE HAS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. HE SUBMITTED THAT LD.AO IN SUPPORT OF DISALLOWING THE CLAIM OF EXPENDITURE RELIED ON FOLLOWING DECISIONS: CIT VS.KCP LTD. REPORTED IN 245 ITR 42.1(SC) G.PADNABHA CHETTIYAR & SONS VS. CIT REPORTED IN 1 82 ITR 1(MAD) REFORMFLOUR MILLS PVT.LTD VS. CIT REPORTED IN 132 ITR 184,196(CAL) CIT VS.A.KRISHNASWAMY UDALIAR & ORS REPORTED IN 53 ITR 122(SC.) WE NOTE THAT THESE DECISIONS ARE ON THE ACCRUAL OF INCOME, WHICH HAS BEEN CONSIDERED BY US IN FORGOING PARAS. WE HAVE ALREADY HELD THAT ENT IRE 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 HON'BLE SUPREME COURT IN CASE OF SAMAJ PARIVARTANA. SARNUDAYA & ORS. VS. STATE OF KARNATAKA & ORS. (SUPRA), IT IS CLEAR THAT 10%/ 15% CONTRIBUTION TO SPV ACCOUNT WAS GUARANTEE PAYME NT FOR IMPLEMENTING OF R & R PLAN, WHICH WOULD BE DEDUCTED FROM SALE PROCEEDS. THIS W AS ONE OF THE CONDITIONS FOR RESUMING MINING OPERATIONS UNDER CATEGORIES 'A' AND 'B' RESPE CTIVELY. 7.10.4. WITH THIS BACKGROUND, WE ONCE AGAIN REFER TO AND RE LY ON OBSERVATIONS BY HON'BLE SUPREME COURT IN CASE OF CIT VS SITALDAS TIRATH.DAS (SUPRA). HON'BLE 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 CORRECTLY AND SOME, NOT. BUT WE DO NOT PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIG HT OF THE FACTS IN THEM. IN OUR OPINION, THE TRUE TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCT ED, IN TRUTH, NEVER REACHED THE ASSESSEE AS ITS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE IS A D IFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED TO PAY OUT OF HIS INCOME AND AN A MOUNT 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 BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION A FTER 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 M ERELY AN OBLIGATION TO PAY ANOTHER PORTION OF ONE'S OWN INCOME WHICH. HAS BEEN RECEIVE D AND ESSENCE 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 B EHALF OF THE PERSON TO WHOM IT WAS PAYABLE.' 7.10.5. APPLYING, THIN LINE OF DIFFERENCE INTERPRETED BY HO N'BLE SUPREME COURT TO PRESENT FACTS, WE ARE OF THE OPINION THAT, CONTRIBUTION TO SPV ACCOUNT, CANNOT BE CONSIDERED TO BE DIVERSION OF INCOME. THIS IS BECAUSE, WE HAVE ALREA DY HELD WHILE DECIDING GROUND 2.1 AND 7 ITA NOS.722 TO 724/BANG/2018 2.2 HEREINABOVE, THAT ENTIRE SALE PROCEEDS ACCRUED TO ASSESSEE, AND IT IS ONLY DUE TO DIRECTION OF HON'BLE SUPREME COURT THAT SUCH. AMOUN T WAS CONTRIBUTED TO SPV ACCOUNT, FOR WHICH. ASSESSEE WAS TO AUTHORISE CEC/ MC IN RELEVAN T PARAGRAPH 11(111) REFER TO AND RELIED BY LD. CIT DR. 7.10.6. IN THE PRESENT FACTS OF THE CASE, WE NOTE THAT 10%/ 15% OF SALE PROCEEDS WAS PAYABLE TO SPV ACCOUNT, AFTER IT ACCRUED TO ASSESSE E, AND THE FACT TH.AT, ASSESSEE WAS OBLIGED TO PART WITH SUCH PORTION OF INCOME, BY VIR TUE OF DIRECTIONS OF HON'BLE SUPREME COURT IN CASE OF SAMAJ PARIVARTANA SAMUDAYA & ORS. VS. ST ATE OF KARANATAKA & ORS. (SUPRA), AS A PRECONDITION TO RESUME MINING OPERATIONS UNDER CA TEGORY 'A AND '13'. AT THIS JUNCTURE WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HO N'BLE SUPREME COURT, ASSESSEE WOULD NOT HAVE CONTRIBUTED 10%/ 15% TO SPV ACCOUNT FOR IMPLEM ENTATION OF RECLAMATION AND REHABILITATION SCHEME ON ITS OWN, AS THERE WAS NO S TATUTORY REQUIREMENT TO DO SO UNDER RELEVANT STATUTES THAT REGULATE MINING ACTIVITIES. 7.10.7. IN OUR VIEW CONTRIBUTING 1O%/15% TO SPV ACCOUNT ON ACCOUNT OF CATEGORY `A'/ `B' RESPECTIVELY, 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 HON'BLE SUPREME C OURT ARE IN THE NATURE 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 RESPECTIVE SANCTIONED LEASE AREAS HELD B Y ASSESSEE, WHERE ILLEGAL MINING ACTIVITIES OR WHICH WERE USED FOR ILLEGAL OVERBURDEN DUMPS, ROADS, OFFICES ETC., BEYOND SANCTIONED LEASE AREA W ERE CARRIED OUT. HERE, WE ALSO NOTE THAT, HON'BLE SUPREME COURT DIRECTED CEC TO REFUND ANY LE FTOVER GUARANTEE MONEY, AFTER COMPLETION OF IMPLEMENTATION OF R& R PLAN, SUBJECT TO SATISFACTION OF CEC AND APPROVAL BY HON'BLE SUPREME COURT. FOR THIS PECULIAR REASON AMO UNT SO CONTRIBUTED TOWARDS SPV BEING L0%/15% OF SALE PROCEEDS, UNDER CATEGORY A/B, CANNOT BE TREATED AS PENAL IN NATURE. 7.10.8. WE NOTE THAT CO-ORDINATE HYDERABAD BENCH. OF TRIBUNAL IN NMDC (SUPRA) WAS THE CASE OF CATEGORY `A' WHEREIN IT WAS ALLOWED AS EXPENDITURE B Y OBSERVING AS UNDER: '2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPANY, A PUBLIC SE CTOR UNDERTAKING, ENGAGED IN THE BUSINESS OF 'MINING OF IRON ORE DIAMONDS; AND GENERATION AND SALE OF WIND POWER', FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEARS 2013-14 AND 2014-15 BOTH. UNDER THE NORMAL PROVISIONS AS WELL AS U/S 1 15J OF THE ACT FOR THE RELEVANT AYS. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A.O. OBSERVED THAT THE ASSESSEE-COMPANY IS CARRYING OUT MINING ACTIVITY IN INDIA AND PARTICULA RLY 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 KARNATAKA AT THE COST OR DETRIMENT OF ENVIRONMENT AND DELIVERED THEIR JUDGMENT ON 18.04.2013 LEVYING APPR OPRIATE CHARGES ON THE LEASEHOLDERS. A.O. ALSO OBSERVED THAT THE HON'BLE SUPREME COURT, B ASED ON THE EXTENT OF ILLEGAL MINING, 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 THAT IN THEIR ORDER, THE APEX COURT OBSERVED THAT BEFORE CONSIDERATION OF ANY RESUMPTION OF MINING OPERATIONS BY CATEGORY-B LEASEHOLDERS, EACH. OF THE LEASE HOLDER MUST PAY COMPENSATION FOR THE AREA S UNDER ILLEGAL MINING PITS OUTSIDE THE SANCTIONED AR EA AT THE RATE OF RS. 5 CRS PER HECTARE AND 8 ITA NOS.722 TO 724/BANG/2018 FOR ILLEGAL OVERBURDEN FOR AT THE RATE OF RS. 1 CR PER HECTARE. FURTHER, A.O. OBSERVED THAT THE SAID DIRECTION OF THE APEX COURT WAS SUBJECT TO THE FINAL DETERMINATI ON OF THE NOTIONAL LOSS CAUSED BY THE ILLEGAL MINING AND ILLEGAL USE OF THE LAND; AND THAT THE HON'BLE SUPREME COURT H.AD DIRECTED THAT EACH. OF THE LEASEHOLDER SHOULD PAY A SUM EQUIVALENT TO 15% OF THE SALE PROCEEDS OF ITS IRON ORE SOLD THROUGH. THE MONITORING COMMITTEE . IN ACCORDANCE WITH THE SAID DIRECTION, THE ASSESSEE MADE PAYMENT OF RS. 337.13 CRS TOWARDS CONTRIBUTION FOR THE SPECIAL PURPOSE VEHICLE AND THE SUM OF RS.68.66 CRS TOWARDS PENALTY / COMPENSATION FOR ENCROACHMENT OF THE MINING AREA BEYOND THE SANCTION ED / LEASED AREA. THE A.O. OBSERVED THAT THE TOTAL OF THE ABOVE PAYMENT OF RS. 405.79 CR S WAS PUNITIVE IN NATURE AND ACCORDINGLY SOUGHT TO DISALLOW THE SAME BY ISSUANCE OF A SHOW-CAUSE NOTICE. 4. THE A.O. HOWEVER DID NOT ACCEPT THE ASSESSEE'S EX PLANATION 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 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' WHEREAS THE ASSESSING OFF ICER HAS CONSIDERED THE ASSESSEE AS CATEGORY-'B' COMPANY. THE HON'BLE SUPREME COURT HAS CLEARLY INDICATED THAT CATEGORY-A COMPRISES OF (I) 'WORKING LEASES' WHEREI N NO ILLEGALITY / MARGINAL ILLEGALITY HAVE BEEN FOUND AND (II) 'NON-WORKING LEASES' WHERE IN NO MARGINAL / ILLEGALITIES HAVE BEEN FOUND, WHEREAS CATEGORY-B COMPRISES OF (I) MIN ING LEASES WHEREIN ILLEGAL MINING IS 10% TO 15% OF THE SANCTIONED LEASE AREAS. HOWEVER, CEC HAD RECOMMENDED THAT BOTH 'A' AND 'B' CATEGORIES MAY 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 EXPENDITURE IS NOTHING BUT A PAY MENT WHICH WAS REQUIRED TO BE MADE WITHOUT WHICH THE ASSESSEE COULD NOT HAVE CARR IED ON THE MINING ACTIVITIES AND THEREFORE, IT IS A 'BUSINESS EXPENDITURE'. SINCE TH E CEC HAD CATEGORISED THE ASSESSEE AS A CATEGORY-A COMPANY AND THE HON'BLE SUPREME COURT HAS ACCEPTED THE SAID CATEGORIZATION, THERE WOULD HAVE BEEN MARGINAL ILLE GALITIES COMMITTED BY THE ASSESSEE AND THE COMPENSATION / PENALTY AS DIRECTED BY THE H ON'BLE SUPREME COURT IS ONLY TO COMPENSATE THE GOVERNMENT FOR THE LOSS OF REVENUE F ROM SUCH MINING OR MARGINAL ILLEGALITIES AND NOT AS A PENALTY. THOUGH THE NOMEN CLATURE GIVEN IS 'PENALTY' IT IS NOT FOR INFRACTION OR VIOLATION OF ANY LAW TO HOLD IT TO BE PUNITIVE IN NATURE, AS PRESUME D BY THE ASSESSING OFFICER. LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAW, PARTICULARLY THE DECISION OF THE COORDINATE BE NCH OF THE ITA T, KOLKATA IN THE CASE OF ESSEL MINING & INDUSTRIES LTD VS. ADDL. CIT (ITA NO. 352/ KOL/ 2011 AND OTHERS, DATED 20.05.2016); ACI7' VS. PREEGADE86 CO. LTD (IT'A NO.934/ KOL/ 2009, DATED 05.08.2011) AND ALSO THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF SHUAMSEL LTD VS. DCI7' (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 DEVICE WITHIN FACTORY PRE MISE WITHIN PRESCRIBED TIME AND THAT THE ASSESSEE HAD TO PAY RS.12.50 LAKH FOR COMPENSAT ING DAMAGE TO ENVIRONMENT AND 9 ITA NOS.722 TO 724/BANG/2018 THE SAME WAS RECOVERED BY STATE POLLUTION CONTROL B OARD ON THE PRINCIPLE 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 AND THAT COMPENSATION WAS PAID BECAUSE OF ITS FAILURE TO INSTALL POLLUTION CONTROL DEVICE WITHIN PRESCRIBED TIME AND THEREFORE, SUCH PAYMENT WAS UNDOUBTEDLY FOR THE PURPOSE OF BUSINESS AND IN CONS EQUENCE OF BUSINESS CARRIED ON BY THE ASSESSEE AND WAS THUS COVERED BY SECTION 37 OF THE ACT. FOR COMING TO THIS CONCLUSION, HON'BLE HIGH COURT HAS ALSO CONSIDERED THE JUDGMENT OF THE HON'BLE NATIONAL GREEN TRIBUNAL IN THE CASE OF STATE POLLUTION CONTROL BOARD VS. SWASTIK ISPAT (P.) LTD WHEREIN AT PARA 38 OF THE JUDGMENT THE TRIBUNAL HELD AS UNDER:- 'BEING PUNITIVE IS THE ESSENCE OF 'PENALTY'. IT IS IN CLEAR CONTRADISTINCTION TO 'REMEDIAL' AND / OR 'COMPENSATORY'. 'PENALTY' ESSENTIALLY HAS TO BE FOR RESULT OF A DEFAULT AND IMPOSED BY WAY OF PUNISHMENT. ON THE CONTRARY, 'COMPENSATORY' MAY BE RESULTING FROM A DEFAULT FOR THE ADVANTAGE ALREADY TAKEN BY THAT PERSON AND IS INTENDED TO REM EDY OR COMPENSATE THE CONSEQUENCES OF THE WRONG DONE. FOR INSTANCE, IF A UNIT HAS BEEN GRANTE D CONDITIONAL 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 LAND CAUSING POLLUT ION, 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 CONSEQUENC E. IN GATHERING THE MEANING OF THE WORD PENALTY' IN REFERENCE TO A LAW, THE CONTEXT IN WHIC H IT IS USED IS SIGNIFICANT.' 11. APPLYING THIS RATIO TO THE FACTS OF THE CASE BEFORE US, WE FIND FROM PARA 43 OF THE HON'BLE SUPREME COURT'S ORDER 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 SUP REME COURT HAD DIRECTED AS UNDER:- '(X) OUT OF THE 20% OF SALE PROCEEDS RETAINED BY THE 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 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 BALA NCE 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 PROPORTIONA TE COMPENSATION FOR MINING IN THE AREAS OUTSIDE THE SANCTIONED AREA ALLOTTED TO IT AN D THAT 10% OF SUM IS TO BE TRANSFERRED TO SPV AND THE BALANCE 10% IS TO BE REIMBURSED TO THE RESPECTIVE LESSEES, ACCO RDING TO US, PROVES THAT IT IS A PAYMENT MADE AS 'COMPENSATI ON' FOR EXTRA MINING, WITHOUT WHICH THE ASSESSEE COULD NOT HAVE RESUMED ITS ACTIVITIES. THEREFORE, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT IT IS COMPENSAT ORY IN NATURE AND IS A 'BUSINESS EXPENDITURE' AND IS ALLOWABLE U/S 37(7) OF THE ACT. THUS, GROUNDS NO.2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED.' 10 ITA NOS.722 TO 724/BANG/2018 7.10.9.WE ALSO NOTICE THAT THE CO-ORDINATE BANGALOR E BENCH. OF TRIBUNAL HAS ALSO CONSIDERED IDENTICAL ISSUE IN THE CASE OF RAMGAD MINERALS & MIN ING LTD (ITA NO.1270 & 127.1/B/2019 DATED 04-71-2020) BEING CATEGORY AN IDENTICAL ADDIT ION MADE BY LD.AO WAS HELD TO BE ALLOWABLE AS EXPENDITURE WITH FOLLOWING OBSERVATION S:- '7.8.9. IN PRESENT APPEALS, ONLY ISSUE RAISED FOR O UR CONSIDERATION IS IN RESPECT OF 15% CONTRIBUTION MADE TO SPV FOR ASSESSMENT YEAR 2013-1 4 AND 2014-15; AND ISSUE IN RESPECT OF R&R EXPENSES INCURRED DURING ASSESSMENT YEAR 2013 -14 . FIRST OF ALL, WE SUMMARISE OBJECTIONS OF LD.AO AS IN RESPECT OF SPV EXPENSES AS UNDER:- (A) THIS IS ONE OF THE OBJECTIONS OF THE AO THAT THE SPV EXPENSES IS NOT ALLOWABLE BECAUSE IT IS NOT COMPENSATION BUT IT IS PENAL IN NATURE FOR CONT RAVENTION 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 THAT 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 TH E LD.AO THAT THE SAID SPV IS NOT ALLOWABLE U/S 37 (1) AS IT WAS NOT INCURRED BY THE ASSESSEE WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. (D) IN PARA. 4.8 OF THE ASSESSMENT ORDER FOR AY:20.13-14 , LD.AO IS STATING THIS THAT SPV RATE IS 10% IN CATEGORY 'A' MINES BUT 15% IN CATEGORY 'EL' M INES AND THIS EXTRA 5% IN CATEGORY 'B' MINES IS FOR VARIOUS VIOLATIONS AND ILLEGAL MINING AND EV EN AFTER THIS OBSERVATION, HE FINALLY HELD IN THE SAME PARA THAT WHOLE SPV EXPENSES OF 15% IS NOT ALL OWABLE. 7.8.10. LD.AO OBSERVED THAT, THESE SPV WERE DEDUCTED PURSUAN T TO DIRECTIONS OF HON'BLE SUPREME COURT (SUPRA) BY ORDER DATED 18/ 04/2013, W HEREIN, IT WAS DIRECTED THAT, SUM SO PAID TOWARDS SPV CHARGES SHOULD BE EXHAUSTIVELY AND EXCL USIVELY USED TO UNDERTAKE SOCIO ECONOMIC AND INFRASTRUCTURE DEVELOPMENT, AFFORESTATION, SOIL AND BIODIVERSITY CONSERVATION AND 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 CANNOT BE SAID TO HAVE INCU RRED FOR PURPOSE OF BUSINESS OR EARNING PROFITS. ACCORDINGLY, ENTIRE AMOUNT ADJUSTED TOWARDS SPV WAS DISALLOWED BY LD.AO. LD.AO WAS OF OPINION THAT ENTIRE SALE PROCEEDS AS PER E AUCT ION BID SHEETS/INVOICES WERE TO BE ASSESSED AS TRADING RECEIPTS. THE AMOUNT RETAINED BY CEC/ MONIT ORING COMMITTEE AS PER DIRECTIONS OF HON'BLE SUPREME COURT, ON BEHALF OF ASSESSEE FOR SPV PURPOSES, WAS ON ACCOUNT OF DAMAGES AND LOSS CAUSED TO ENVIRONMENT DUE 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 OPINION THAT, EVEN IN CATEGORY `A' MINES, THERE WAS MARGINAL ILLEG ALITY 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 HON'BLE SUPREME COURT DATED 18/04/2013, IT IS CLEAR THAT 15% CONTRIBUTION TO SPV ACCOUNT WAS GUARANTEE PAYMENT FOR IMPLEMENTING OF R & R PLAN, WHICH. WOULD BE DEDUCTED FROM SALE PROCEEDS. THIS W AS ONE OF THE CONDITIONS FOR RESUMING MINING OPERATIONS UNDER CATEGORY 'B'. WE REFER TO AND RELY ON OBSERVATIONS BY HON'BLE SUP REME COURT IN CASE OF CI'T VS SITALDAS7'I.RATH.DASREPORTED IN(1967) 41 ITR 367.HON 'BLE SUPREME COURT LAYING DOWN FOLLOWING 11 ITA NOS.722 TO 724/BANG/2018 PRINCIPAL REFERRED TO VARIOUS RULINGS THAT ILLUSTRA TED ASPECTS OF DIVERSION OF INCOME BY OVERRIDING TITLE. 'THESE ARE THE CASES WHICH. HAVE CONSIDERED THE PRO BLEM FROM VARIOUS ANGLES. SOME OF THEM APPEAR TO HAVE APPLIED THE PRINCIPLE CORRECTLY AND SOME, NOT. BUT WE DO NOT PROPOSE TO EXAMINE THE CORRECTNESS OF THE DECISIONS IN THE LIGHT OF THE FACTS IN THEM. IN OUR OPINION, THE TRUE TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS ITS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE IS A DIFFERENCE BETWEEN AN AMO UNT WHICH A PERSON IS OBLIGED TO PAY OUT OF HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF THE OBLIGATION CANNOT BE SAID TO BE A PART OF THE INCOME OF THE ASSESSEE. WHEREBY THE OBLIGATION INCOME IS DIVE RTED 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 T HE SOME CONSEQUENCE IN LAW DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WHICH. CAN TRULY BE EXCUSED AND NOT THE SEC OND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER PORT ION OF ONE'S OWN INCOME WHICH. HAS BEEN RECEIVED AND ESSENCE APPLIED. THE FIRST IS A CASE I N WHICH THE INCOME NEVER REACHES THE ASSESSEE, WHO, EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INCOME BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT WAS PAYABLE. ' 7.8.13. IN THE PRESENT CASE, WE NOTE THAT 15% OF SALE PROCEEDS WAS PAYABLE TO SPV ACCOUNT AFTER IT ACCRUED TO ASSESSEE AND THE FACT THAT, ASS ESSEE WAS OBLIGED TO PART WITH. SUCH PORTION OF INCOME, BY VIRTUE OF DIRECTIONS OF HON'BLE SUPREME COURT, AS A PRECONDITION TO RESUME MINING OPERATIONS UNDER CATEGORY `B'. AT THIS JUNCTURE, WE ALSO EMPHASISE THAT, BUT FOR THE INTERVENTION BY HON'BLE SUPREME COURT, ASSESSEE WOULD NOT HAVE C ONTRIBUTED 15% TO SPV ACCOUNT FOR IMPLEMENTATION OF RECLAMATION AND REHABILITATION SCHEME ON ITS OWN, A S THERE WAS NO STATUTORY REQUIREMENT TO DO SO UNDER RELEVANT STATUTES THAT R EGULATE MINING ACTIVITIES. 7.8.14. HON'BLE SUPREME COURT HAS BEEN VERY CLEAR REGARDING THE TYPES OF PAYMENTS THAT NEEDS TO BE RECOVERED FROM LESSEE'S UNDER CATEGORY `E3', FROM THE SALE PROCEEDS AS WELL AS OTHERWISE. ALL THE PAYMENTS FORM PART OF R&R PLAN FOR RECOUPING AND REHABILITATING THE ENVIRONMENT. CERTAIN PAYMENTS ARE ONETIME PAYMENT AND SOME OTHERS ARE RE CURRING DEPENDING UPON THE SALE OF 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 ACCOUNT ON ACC OUNT OF CATEGORY `B', WOULD BE APPLICATION OF INCOME, AND THEREFORE, SHOULD BE CON SIDERED AS EXPENDITURE INCURRED FOR CARRYING OUT ITS BUSINESS ACTIVITY. THIS WE HOLD SO, FOR THE REASON THAT, CONTRIBUTIONS DETERMINED BY HON'BLE SUPREME COURT ARE IN THE NATURE OF GUARANTEE PAYMEN T NECESSARY FOR RESUMING MINING ACTIVITY. WE ALSO NOTE THAT, ALLEGED SUM IN THESE GROUNDS ARE FOR 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, OFFI CES ETC., BEYOND SANCTIONED LEASE AREA WERE CARRIED OUT. HERE, WE ALSO NOTE THAT, HON'BLE SUPRE ME COURT DIRECTED CEC TO REFUND ANY LEFTOVER GUARANTEE MONEY, AFTER COMPLETION OF IMPLEMENTATION OF R& R PLAN, SUBJECT TO SATISFACTION OF CEC AND APPROVAL BY HON'BLE SUPREME COURT. FOR THIS PEC ULIAR REASON, AMOUNT SO CONTRIBUTED TOWARDS SPV BEING 15% OF SALE PROCEEDS, UNDER CATEGORY B, C ANNOT BE TREATED AS PENAL IN NATURE. WE, 12 ITA NOS.722 TO 724/BANG/2018 THEREFORE, REJECT OBSERVATIONS OF AUTHORITIES BELOW THAT, SUCH. SUM HAVING CONTRIBUTED BY ASSESSEE FALL WITHIN AMBIT OF EXPLANATION 1 TO SECTION 37 (1 ) OF THE ACT.' 7.10.10. WE NOTE THAT THE CEC, VIDE ITS REPORT DATED 3-2-201 2 AND 13-3-2072 MADE RECOMMENDATIONS WITH. REGARD TO SETTING UP OF SPV, TRANSFER OF FUNDS COLLECTED FROM ALL LEASE HOLDERS UNDER VARIOUS HEADS, MANNER OF UTILISATION OF SAID FUNDS ETC., TO HON'BLE SUPREME COURT, WHICH IS INCORPORATED IN PARAGRAPH 7 AT PAGE 164 TO 171 AS UNDER: '(DC) A SPECIAL PURPOSE VEHICLE (SPV) UNDER THE CHAI RMANSHIP OF CHIEF SECRETARY, GOVERNMENT KARNATAKA AND WITH THE SENIOR OFFICERS OF THE CONCE RNED DEPARTMENTS OF THE STATE GOVERNMENT AS MEMBERS MAY BE DIRECTED TO BE SET UP FOR THE PURPOS E OF TAKING VARIOUS AMELIORATIVE AND MITIGATIVE MEASURES IN DISTRICTS BELLARY, CHITRADUR GA AND TUMKUR. THE ADDITIONAL RESOURCES MOBILIZED BY (A) ALLOTMENT/ ASSIGNMENT OF THE CANCE LLED MINING LEASES AS WELL AS THE MINING LEASES BELONGING TO M/ S. MML, (B) THE AMOUNT OF TH E PENALTY/ COMPENSATION RECEIVED/ RECEIVABLE FROM THE DEFAULTING LESSEE, (C) THE AMOUNT RECEIVED / RECEIVABLE BY THE MONITORING COMMITTEE FROM THE MINING LEASES FALLING IN 'CATEGORY- A' AND 'CATE GORY-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 TRANSPORTATION OF IRON ORE (SUCH AS MAINTENANCE AND WIDENING OF EXISTING ROAD, CONSTRUCTION OF ALTERNATE ROAD, CONVEYOR BELT , RAILWAY SIDING AND IMPROVING COMMUNICATION SYSTEM, ETC.). A DETAILED SCHEME IN THIS REGARD MAY BE DIRECTED TO BE PREPARED AND IMPLEMENTED AFTER OBTAINING PERMISSION OF THIS HON'BLE COURT;' 7.10.11. HON'BLE SUPREME COURT AT .176 OF ITS ORDER MADE FOL LOWING 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 CURI AE. THE PURPOSE OF CONSTITUTION OF THE SPV, IT MAY BE NOTICED, IS FOR TAKING OF AMELIORATI VE 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 U NDER 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 AMELI ORATIVE AND MITIGATIVE STEPS IN THE INTEREST NOT ONLY OF THE ENVIRONMENT AND ECOLOGY BUT THE MINING INDUS TRY 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 CANNOT BE SAID THAT THESE AM OUNTS ARE PENAL IN NATURE. WE NOTICE THAT THE HYDERABAD BENCH. OF TRIBUNAL IN THE CASE OF NMD C LTD (SUPRA) AND CO-ORDINATE BENCH. OF BANGALORE TRIBUNAL IN RAIN.GAD MINERALS (SUPRA) CAME TO THE SAME CONCLUSION. WE NOTE THAT IN NMDC CASE (SUPRA), HON'BLE HYDERABAD TRIBUN AL FOLLOWED DECISION OF HON'BLE KOLKATTA HIGH. COURT IN THE CASE OF SHYAMSEL LTD (S UPRA) AND STATE POLLUTION CONTROL BOARD VS. SWASTIK ISPAT (P) LTD (SUPRA), WHEREIN IDENTICA L TYPES OF PAYMENTS MADE TO REMEDY THE RIVER POLLUTION CAUSED BY THE PARTIES WERE HELD TO BE COMPENSATORY IN NATURE. HENCE THE PROVISIONS OF EXPLANATION 1 TO SEC.37 WILL NOT APPL Y TO THESE PAYMENTS. WE ALSO NOTE THAT HON'BLE SUPREME COURT AT PAGE 171 OBSERVED THAT, TH ESE PAYMENTS ARE NECESSARY TO BE MADE BY THE MINING LEASE HOLDERS. HENCE THERE IS ME RIT IN THE SUBMISSION OF LD. COUNSEL THAT, WITHOUT MAKING THESE PAYMENTS, ASSESSEE COULD NOT HAVE RESUMED THE MINING 13 ITA NOS.722 TO 724/BANG/2018 OPERATIONS. HENCE, THESE EXPENSES ARE INCIDENTAL 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, UNDER CATEGORY B, IS TO BE ALLOWABLE EXPENDITURE FOR YEAR UNDER CONSIDERATION. ACCORDINGLY GROUND NO. 2 RAISED BY ASSESSEE STANDS ALLOWED. BEING SO, TAKING A CONSISTENT VIEW ON THIS ISSUE, W E DIRECT THE ASSESSING OFFICER, THE CONTRIBUTION TO SPV BEING 15% OF SALE PROCEEDS UNDER THE CATEGORY B IS TO BE ALLOWED AS EXPENDITURE IN THE ASSESSMENT YEARS UNDE R CONSIDERATION. 5. IN THE RESULT, ALL THE ASSEESSEES APPEALS ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE 26 TH DAY OF FEBRUARY, 2021. SD/- SD/- (GEORGE GEORGE K) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBE R BANGALORE, DATED: 26 TH FEBRUARY, 2021. *REDDY GP / / DESAI S MURTHY / COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.