Case Law Details
PCIT (Central) Vs Tarini Minerals Pvt. Ltd. (Orissa High Court)
Orissa High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax (Central) against Tarini Minerals Pvt. Ltd., pertaining to assessment years 2008-2009 to 2010-2011. The revenue had appealed an order by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench, which had ruled in favor of the assessee. The core of the dispute revolved around allegations of illegal mining by Tarini Minerals due to the absence of statutory clearances and the subsequent reopening of assessments under Section 147 of the Income Tax Act, 1961.
The revenue’s primary contention was that the ITAT erred in upholding the first appellate authority’s decision, which had gone against the Assessing Officer’s (AO) reassessment. The revenue argued that the assessee had suppressed production details related to its mining activities, which were deemed illegal due to the lack of necessary statutory clearances. Furthermore, the revenue challenged the ITAT’s decision to delete the addition of expenditure made during the reassessment, citing Explanation (1) under Section 37(1) of the Income Tax Act, which disallows expenses incurred for illegal purposes.
However, the High Court sided with the ITAT’s findings. The tribunal had noted that the first appellate authority had meticulously examined Form H-1, submitted by the assessee to the Indian Bureau of Mines regarding iron ore production. This examination revealed that the same production figures were reported by the assessee in its audit report in Form 3CD. Based on this, the ITAT concluded that there was a concurrent finding of fact, free from any perversity, indicating no suppression of production. The High Court concurred with this view, stating that no substantial question of law arose from such a concurrent factual finding.
Regarding the disallowance of expenditure under Section 37(1), the High Court again upheld the ITAT’s decision. The tribunal had agreed with the first appellate authority that the assessee had not claimed any expenditure related to penalties imposed for alleged statutory violations. The assessee had relied on a report by the Central Empowered Committee (CEC), formed pursuant to the Justice M.B. Shah Commission’s report on illegal mining. The CEC’s report, specifically on page 29, contained an observation that mineral produced without environmental clearances or beyond prescribed limits does not automatically fall under the category of “illegal mining” for the purpose of Section 21(5) of the Mines and Minerals (Development and Regulation) Act, 1957. The High Court noted that the revenue could invoke Explanation (1) under Section 37(1) in the future if the mining activity is definitively declared illegal, a penalty is imposed, and the assessee claims it as an expenditure. However, based on the current records, there was no conclusive evidence that the activity stood declared illegal. Consequently, the Orissa High Court found no substantial question of law arising from the ITAT’s order and dismissed the revenue’s appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
1. Mohanty, learned advocate, Senior Standing Counsel appears on behalf of revenue. He submits, the appeal be admitted on substantial questions of law suggested in the memo arisen from order dated 2nd May, 2022 passed by the Income Tax Appellate Tribunal, Cuttack Bench in ITA nos. 268, 270 and 272/CTK/2020 and ITA nos. 269, 271 and 273/CTK/2020 pertaining to assessment years 2008-2009 to 2010-2011.
2. Respondent-assessee was involved in illegal mining. Illegal because statutory clearances had not been obtained for the activity undertaken. The assessee suppressed production particulars. There was information had and the assessment reopened under section 147 in Income Tax Act, 1961. The Tribunal erred in negating this ground of appeal urged before it by revenue, on the assessee having been successful before the first appellate authority against the assessment made by the Assessing Officer (AO). The Tribunal also erred in deleting the addition of expenditure made in the reassessment, in line with explanation (1) under section 37(1).
3. Mr. Sahoo, learned senior advocate appears on behalf of respondent-assessee and points out from paragraph 11 of impugned order that the Tribunal found on facts. The appellate authority had examined Form H-1 submitted to Indian Bureau of Mines in regard to production of iron ore to find that very same figure had been reported by the assessee in its audit report in Form 3CD. The Tribunal thus concurrently found. There is no perversity in the concurrent finding of fact. No question of law, let alone a substantial question can arise from such concurrent finding on fact.
4. So far as illegal activity attracting rigor of explanation (1) under section 37(1) is concerned Mr. Sahoo submits, the Tribunal again concurred with the first appellate authority to say, no penalty imposed on alleged statutory violation had been claimed by the assessee for there being disallowance on expenditure. The deletion was correctly made.
5. On query we have been shown and perused assessment order dated 29th March, 2016. It appears, the AO relied on report of Justice M.B. Shah Commission, which said, leases operated under deemed extension without statutory clearance under EIA notification dated 27th January, 1994 and amendments therein for environmental clearance is considered as illegal. Action should be initiated to recover value equivalent to market value. The assessee when show caused, came up with its explanation that Central Empowered Committee (CEC) in page 29 of its report observed as is reproduced below.
“However, the mineral produced without environmental clearances or beyond the quantity prescribed in the Environment clearance or approved mining plan/scheme of Mining does not, for the purpose of Sec. 21(5) of MMDR Act, 1957 fall in the category of illegal mining.”
(emphasis supplied)
6. We have not been able to find there arises a substantial question of law on the concurrent finding of fact. So far as disallowing the expenditure in terms of explanation (1) under section 37(1) is concerned, the Tribunal said that the assessee had not claimed any expenditure on account of penalty imposed and paid. Reliance by the assessee was on report filed by the CEC pursuant to Justice M.B. Shah Commission. It was on page 29 in the report containing opinion that, inter alia, mining operations without clearance does not constitute illegal mining. Revenue will be able to apply explanation (1) under section 37(1) if, in future, the activity is declared to be illegal, penalty imposed and claimed by assessee as an expenditure in its relevant return. Presently, there is nothing to show the activity stood declared as illegal for the explanation to be invoked.
7. No substantial question of law arises from impugned order of the Tribunal. Materials on record do not bring forth a finding of illegal mining activity indulged in by the assessee.
8. The appeal is dismissed.
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