M/s M.Hanumantha Rao, Bellary V. Assistant Commissioner of Income Tax Circle-1, Bellary

SA 20/BANG/2019

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6156 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 01-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 17-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R N SIDDAPPAJI BENGALURU
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER SP NOS.20 TO 22/BANG/2019 [IN ITA NO S . 3298 TO 3300 /BANG/2018] ASSESSMENT YEAR S : 2013 - 14 TO 2015 - 16 M/S. M. HANUMANTHA RAO, 37, GROUND FLOOR, NEAR PARK, MAIN ROAD, PATEL NAGAR, BELLARY 593 101. KARNATAKA. PAN: AANFM 1777H VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY. APPLICANT RESPONDENT APPLICANT BY : SHRI LAXMINIWAS SH AR MA, CA RESPONDENT BY : SHRI R.N. SIDDAPPAJI, ADDL. CIT(DR)(ITAT), BENGALUR U. DATE OF HEARING : 15 .02 .201 9 DATE OF PRONOUNCEMENT : 15. 02 .201 9 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THESE ARE STAY PETITIONS FILED BY THE ASSESSEE PR AYING FOR AN ORDER OF STAY OF RECOVERY OF OUTSTANDING DEMAND OF A SUM OF RS.1,48,04,035, RS.71,45,657 & RS.2,84,15,838 ARISING OUT OF ORDERS OF ASSESSMENT WHICH WERE CONFIRMED BY THE CIT(A) RELATING TO ASSESSMENT YEARS 2013-14, 2014-15 AND 2015-16 RESPECTIVELY . SP NOS.20 TO 22/BANG/2019 PAGE 2 OF 6 2. MAJOR PORTION OF THE OUTSTANDING DEMAND ARISES O UT OF DISALLOWANCE OF A SUM OF RS.3,58,87,698, RS.1,48,60,184 AND RS.6 ,08,17,563 IN AY 2013-14, 2014-15 & 2015-16 RESPECTIVELY BEING CONTR IBUTION TO SPECIAL PURPOSE VEHICLE (SPV). THE NATURE OF CONTRIBUTION TO SPV IS THAT, M HANUMANTHA RAO ('ASSESSEE') IS A PARTNERSHIP FIRM E NGAGED IN THE BUSINESS OF MINING OF IRON-ORE AND TRADING OF THE S AME. THE ISSUE OF ILLEGAL MINING IN THE STATES OF KARNATAKA AND ANDHRA PRADES H HAD COME UP BEFORE HON'BLE SUPREME COURT AND THE APEX COURT HAD FORMED A COMMITTEE I.E. CENTRAL EMPOWERED COMMITTEE (CEC) TO EXAMINE AND SU GGEST THE REMEDIAL ACTION. SUPREME COURT VIDE ITS ORDERS DATE D 29 JULY AND 26 AUGUST 2011 HAD IMPOSED A BAN ON MINING ACTIVITIES IN VARIOUS MINES (INCLUDING THAT BELONGING TO ASSESSEE). THEREAFTER CEC SUBMITTED ITS REPORT TERMED AS 'FINAL REPORT' DATED 03.02.2012 BY MAKING TWO SIGNIFICANT RECOMMENDATIONS. THE FIRST WAS FOR CATEGORIZATION O F THE MINES INTO THREE CATEGORIES VIZ., 'A', 'B' AND 'C' ON THE BASIS OF T HE EXTENT OF THE ENCROACHMENT IN RESPECT OF MINING PITS AND OVER BURDEN DUMPS BE YOND SANCTIONED LEASE AREA DETERMINED IN TERMS OF PERCEN TAGE OF THE TOTAL LEASE AREA. (ASSESSEE HAS BEEN CATOGORISED UNDER THE 'B CATEGORY' ). THE HON'BLE SUPREME COURT CONSIDERED THE RECOMMENDATION S OF THE CEC AND VIDE ITS ORDER DATED 28.09.2012 GAVE CERTAIN DIRECT IONS I.E. MAKING OF COMPENSATORY PAYMENT BY THE LEASE HOLDERS, SALE OF STOCK ONLY THROUGH CEC/MONITORING COMMITTEE AND WITHHOLDING O F 15% OF THE SALE PROCEEDS BY MONITORING COMMITTEE. UPON FOLLOWI NG THESE DIRECTIONS, ASSESSEE HAS BEEN ALLOWED TO RESUME IT S MINING OPERATION . 3. DURING THE YEAR UNDER APPEAL, ENTIRE SALES OF AS SESSEE WERE MADE BY MONITORING COMMITTEE AND 15% OF THE SALE PROCEED S HAD BEEN WITHHELD AT SOURCE ITSELF BY THE MONITORING COMMITTEE FOLLOW ING THE DIRECTIONS OF SP NOS.20 TO 22/BANG/2019 PAGE 3 OF 6 HON'BLE SUPREME COURT. SINCE ASSESSEE IS NOT ENTITL ED TO RECEIVE 15% OF SALE PROCEEDS, ASSESSEE CREDITED ONLY THE NET I.E. 85% OF TOTAL SALE PROCEEDS TO THE PROFIT AND LOSS ACCOUNT. ASSESSING OFFICER ADDED BACK THIS 15% TO ASSESSEE'S TOTAL INCOME BY HOLDING THAT 'THE AMOUNT RETAINED IS A PART OF SALE PROCEEDS AND HENCE LIABLE TO BE ASSESS ED ON ACCRUAL BASIS KEEPING IN VIEW MERCANTILE METHOD OF ACCOUNTING FOL LOWED BY ASSESSEE.' ALTERNATIVELY, ASSESSEE SUBMITTED THAT IF THE AMOUN T RETAINED IS TREATED AS INCOME THEN ASSESSEE IS ELIGIBLE FOR DEDUCTION OF C ONTRIBUTION TO SPECIAL PURPOSE VEHICLE WHICH IS MADE ONLY ON THE DIRECTION OF HON'BLE SUPREME COURT FOR THE PURPOSE OF CONTINUING MINING OPERATIONS I.E . BUSINESS OF THE ASSESSEE . ASSESSING OFFICER DISALLOWED THIS DEDUCTION BY HO LDING THAT THE AMOUNT PAID BY ASSESSEE (RETAINED BY MONITORING COMMITTEE) TOWARDS CONTRIBUTION TO SPECIAL PURPOSE VEHICLE ON THE DIRE CTION OF HON'BLE SUPREME COURT IS NOTHING BUT RELATING TO CORPORATE SOCIAL RESPONSIBI LITY ONLY AND TO MEET PENAL AND OTHER LIABILITIES FOR CONTRAV ENTION OF LAW . 4. AGGRIEVED BY THE ADDITION/DISALLOWANCE MADE BY T HE AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS) AND THE CIT(A) VIDE ORDER DATED 30.10.2018 UPHELD THE ORDER OF AO HOLDING THA T '15% OF SALE PROCEEDS RETAINED BY CEC ARE TO MEET PENAL AND OTHE R LIABILITIES FOR CONTRAVENTION OF LAW AND THEREFORE THE SAID AMOUNT CANNOT BE ALLOWED AS DEDUCTION'. 5. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE HAS F ILED APPEALS BEFORE THIS TRIBUNAL. 6. THE LEARNED COUNSEL SUBMITTED BEFORE US A CHART SHOWING THE OUTSTANDING DEMAND AND THE PAYMENTS MADE BY THE ASS ESSEE SO FAR TOWARDS RECOVERY OF OUTSTANDING DEMAND. THE SAME I S GIVEN AS ANNEXURE-I TO THIS ORDER . SP NOS.20 TO 22/BANG/2019 PAGE 4 OF 6 7. HE BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAS A LREADY PAID 41.80% OF THE OUTSTANDING DEMAND OF TAXES. HE BROUGHT TO OUR NOTICE A DECISION OF THE HONBLE ITAT HYDERABAD BENCH IN THE CASE OF NMDC LTD. VS. ACIT ITA NO.1823 & 1824/HYD/2017 ORDER DATED 17.10.2018 WHEREIN ON IDENTICAL CONTRIBUTION TO SPV, THE HYDERABAD BENCH HELD THAT THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. HE ALSO DREW OUR ATTENTIO N TO THE FACT THAT THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPROACH OF THE REVENUE AUTHORITIES WERE IDENTICAL IN THE CASE DECIDED BY I TAT HYDERABAD BENCH AND THE PRESENT APPEALS. HE PRAYED FOR AN ORDER OF STAY OF RECOVERY OF OUTSTANDING DEMAND CITING FINANCIAL HARDSHIP BY FIL ING BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2018. 8. THE LEARNED DR OPPOSED THE PRAYER FOR GRANT OF S TAY AND SUBMITTED THAT IF THE TRIBUNAL IS INCLINED TO GRANT STAY THEN THE ASSESSEE SHOULD BE ASKED TO PAY SUBSTANTIAL SUM TOWARDS OUTSTANDING DE MAND AS A CONDITION FOR GRANT OF STAY. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. TAKING INTO CONSIDERATION THE EXISTENCE OF PRIMA FACIE CASE, VI Z., IDENTICAL ISSUE OF DISALLOWANCE OF CONTRIBUTION TO SPV HAS ALREADY BEE N DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT HYDERABAD BENCH, BALANCE O F CONVENIENCE, RELATIVE HARDSHIP, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO GRANT AN ORDER OF STAY OF RECOVERY OF OUTSTANDING D EMAND FOR A PERIOD OF 6 MONTHS FROM TODAY OR TILL DISPOSAL OF THE APPEALS O F THE ASSESSEE, WHICHEVER IS EARLIER. THE ASSESSEE IS DIRECTED TO PAY A SUM OF RS.25 LACS ON OR BEFORE 15.3.2019. THE ABOVE PAYMENT WOULD CO VER ABOUT 50% OF THE OUTSTANDING DEMAND OF TAXES (EXCLUDING INTEREST). THE APPEALS ARE DIRECTED TO BE FIXED OUT OF TURN FOR HEARING ON 7.5 .2019. NOTICE OF HEARING SHOULD BE SENT TO THE PARTIES. SP NOS.20 TO 22/BANG/2019 PAGE 5 OF 6 10. IN THE RESULT, THE STAY PETITIONS ARE ALLOWED A S INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF FEBRUARY, 2019. SD/- SD/- ( B.R. BASKARAN ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VI CE PR ESIDENT BANGALORE, DATED, THE 15 TH FEBRUARY, 2019. / D ESAI S MURTHY / COPY TO: 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE. SP NOS.20 TO 22/BANG/2019 PAGE 6 OF 6 ANNEXURE-I TO THE ORDER