M/s. M. Hanumantha Rao Vs ACIT (ITAT Bangalore)
Deduction @ 15% from sale proceeds by monetary committee from e-auction sale of mineral stock constituted trading receipts and allowable u/s 37(1)
Conclusion: Addition of amount representing 15% of sale proceeds deducted by the Monetary committee from e-auction sale of mineral stock belonging to assessee and which was contributed to Special Purpose Vehicle, as per the direction given by Hon’ble Supreme Court was justified as the same constituted trading receipts in the hands of assessee, but at the same time it was allowable as deduction u/s 37(1).
Held: Assessee was a partnership firm and was engaged in the business of extraction of iron ore by taking lease of lands from Government. The solitary issue was whether CIT(A) was justified in confirming the addition of amount representing 15% of sale proceeds deducted by the Monitory committee from e-auction sale of mineral stock belonging to assessee and which was contributed to Special Purpose Vehicle, as per the direction given by Hon’ble Supreme Court. Over exploitation or rampant mining in the State of Karnataka, particularly in the district of Bellary, was engaging the attention of the State Government from time to time. Not satisfied with the investigation carried in the State of Karnataka, a NGO named M/s S had instituted a writ petition before Hon’ble Supreme Court under Article 32 of the Constitution complaining of little or no coercive action on the part of the State; seeking Hon’ble Supreme Court’s intervention in the matter and specifically praying for certain reliefs. The writ petition was entertained and a Committee called “Central Empowered Committee” (CEC) was formed and it was asked to submit a report on the allegations of illegal mining in the Bellary region of the State of Karnataka. The initial reports submitted by CEC indicated large scale illegal mining at the cost and to the detriment of the environment. Hence, the Hon’ble Supreme Court imposed complete ban on mining in the district of Bellary. Assessee had reduced the above said amounts from the gross sale proceeds and accordingly declared only net sale proceeds as its income in both the years. However, AO was of the view that the amount retained by MC as per the proposal approved by Supreme Court was in the nature of “appropriation of profit” and “penal/compensatory payment” towards damages caused to environment and forest by contravention of laws. Accordingly, AO took the view that the said payment could not be said to be incurred wholly and exclusively for the purpose of business within the meaning of provisions of section 37. Hence, AO proposed to disallow the above said claim of assessee in both the years. However, assessee contended that the amounts had not been received by it and hence the same should not be considered in its hands. It was held that without making these payments, assessee could not have resumed the mining operations. Hence, these expenses were incidental to carrying on the business and hence allowable u/s 37(1). Thus, the amount deducted @ 15% from the sale proceeds constitute trading receipts in the hands of the assessee, but at the same time it was allowable as deduction u/s 37(1) of the Act.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Both the appeals of the assessee are directed against the orders passed by Ld CIT(A), Kalaburagi and they relate to the assessment years 2013-14 and 2014-15. Since common is urged in these two appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
2. The solitary issue urged in both the appeals is whether the Ld CIT(A) was justified in confirming the addition of amount representing 15% of sale proceeds deducted by the Monitory committee from e-auction sale of mineral stock belonging to the assessee and which was contributed to Special Purpose Vehicle, as per the direction given by Hon’ble Supreme Court.
3. The facts relating to the case/issue are discussed in brief. The assessee is a partnership firm and is engaged in the business of extraction of iron ore by taking lease of lands from Government.
3.1 Before proceeding to the specific issue urged before us, it is necessary to discuss about the back ground that led to scrutiny of mining operations carried out by various lessees of mines. These details have been culled out from the order dated 18-04-2013 passed by Hon’ble Supreme Court in the same of Samaj Parivartana Samudaya & Ors vs. State of Karnataka (Writ Petition (Civil) No.562 of 2009). The decision rendered by Hon’ble Supreme Court in this case has resulted in making certain additions by the Assessing officer. Hence, it is imperative to understand and appraise the decision rendered by Hon’ble Supreme Court.
3.2 Over exploitation or rampant mining in the State of Karnataka, particularly in the district of Bellary, was engaging the attention of the State Government from time to time. Not satisfied with the investigation carried in the State of Karnataka, a NGO named M/s Samaj Parivartana Samudaya had instituted a writ petition before Hon’ble Supreme Court under Article 32 of the Constitution complaining of little or no coercive action on the part of the State; seeking Hon’ble Supreme Court’s intervention in the matter and specifically praying for certain reliefs. The writ petition was entertained and a Committee called “Central Empowered Committee” (CEC) was formed and it was asked to submit a report on the allegations of illegal mining in the Bellary region of the State of Karnataka. The initial reports submitted by CEC indicated large scale illegal mining at the cost and to the detriment of the environment. Hence, vide its order dated 29-7-2011, the Hon’ble Supreme Court imposed complete ban on mining in the district of Bellary.
3.3 The details of various orders passed by Hon’ble Supreme Court in this regard are given below:-
