2018-VIL-1670-ITAT-AHM
Income Tax Appellate Tribunal AHMEDABAD
ITA No.1823 and 1824/Hyd/2017, ITA No.1785 And 1786/Hyd/2017
Date: 17.10.2018
NMDC LIMITED
Vs
ACIT, CIRCLE-6 (1) , HYDERABAD
For The Assessee : Sri Lakshminivas Sharma
For The Revenue : Sri J. Siri Kumar, DR
BENCH
SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
JUDGMENT
PER Smt. P. Madhavi Devi, J.M.:
The captioned appeals are the cross appeals by the assessee as well as the Revenue for the Assessment Years 2013-14 and 2014-15 respectively. Since the facts and circumstances in both the years are the same and the grounds raised by the assessee as well as the Revenue in both the years are the same (except for the quantum), these appeals were heard together and are disposed of by this common and consolidated order.
2. Brief facts of the case are that the assessee-company, a Public Sector 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 115JB 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 particularly 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 appropriate charges on the leaseholders. A.O. also observed that the Hon’ble Supreme Court, based 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 areas under illegal mining pits outside the sanctioned 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 direction 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 Hon’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 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 sanctioned / leased area. The A.O. observed that the total of the above payment of Rs. 405.79 Crs was punitive in nature and accordingly sought to disallow the same by issuance of a show-cause notice.
3. The assessee, vide its reply dated 07/03/2016, stated that the above amounts had been accounted for under “sales” and subsequently 10% of the sales booked under ‘contribution to SPV’ in Karnataka is an allowable business expenditure. It was also submitted that the tax has been paid on the amount of Rs. 268.47 Crs which was still receivable at the end of the year and that based on the judgment of the Hon’ble Supreme Court, both the expenses i.e., contribution to SPV and compensation to Statutory Agencies are provided in its books which has already been withheld by Monitoring Committee appointed by the Apex Court and therefore, the disallowance again would amount to double taxation. It was also argued that the payment made by NMDC is ‘compensatory’ in nature and it cannot be construed as ‘punitive’ in nature and hence it is an allowable expenditure.
4. The A.O. however did not accept the assessee’s explanation 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.
5. Further, A.O. also examined the allowability of the payment made by the assessee towards ‘Mine Closure’ and held it to be ‘contingent’ in nature and not a deductible expenditure u/s 37(1) of the Act. He observed that assessee-company has claimed depreciation on intangible assets. Observing that the intangible asset, on which the assessee has claimed depreciation, is land, he held that since the land does not form an intangible asset, depreciation is not allowable. He also examined the allowability of the expenditure claimed by the assessee towards ‘Corporate Social Responsibility’ (CSR) and disallowed the same on the ground that the said activities are not related to the business of the assessee. The A.O. also observed that the assessee claimed weighted deduction of 200% u/s 35(2AB) of the Act. Observing that the assesseecompany has claimed excess deduction to the tune of Rs. 2,44,71,676/- u/s 35(2AB), A.O. disallowed the claim.
6. Aggrieved, assessee preferred an appeal before the CIT(A), who partly allowed the same. Against the confirmation of the disallowance of payments made under the directions of the Hon’ble Supreme Court towards penalty / compensation and also on the disallowance of expenditure made towards Corporate Social Responsibility, the assessee is in appeal before us by raising the following grounds of appeal:-
“1. The order of the CIT(A) is erroneous both on facts and in law to the extent it is the prejudicial to the interest of the assessee.
2. The Ld. CIT(A) erred in confirming the addition made by A.O. of Rs. 405,79,00,000/- by treating the amounts paid by appellant on the order of Supreme Court as penal in nature ignoring that the amount paid is compensatory in nature and paid excessively for the purpose of business.
3. The Ld. CIT(A) erred by stating that “appellant has not furnished any further evidence of proof to counter the findings of Assessing Officer” ignoring that the appellant has given detailed explanation along with the relevant documents in support of its claim.
4. The Ld. CIT(A) erred in confirming the addition of CSR to the extent of capital in nature as interpreted, incurred wholly and exclusively for the purpose of the business and claimed as deduction u/s 37(1) of the I.T. Act. Expenditure incurred is not a capital expenditure for NMDC since it is not capitalized in the books of account.”
7. Against the relief given by the CIT(A), the Revenue is in appeal before the us by raising the following grounds of appeal for the A.Y. 2013-14:-
“1. The CIT(A) erred in directing the A.O. to work out the liability and allow the Mine Closure Obligation expenses of Rs. 8,21,00,000/-, without appreciating the fact that the said liability is not an ascertained liability.
2. The CIT(A) erred in ignoring the fact that Revenue’s appeals on identical issue in assessee’s own case for the AYs 2009-10 and 2010-11 are pending adjudication by the Hon’ble High Court.
3. The CIT(A) erred in allowing the depreciati9on on intangible assets of Rs. 13,85,98,142/-.
4. The CIT(A) erred in ignoring the fact that Revenue’s appeals on identical issue is assessee’s own case for AYs 2008-09, 2009- 10, 2010-11 & 2011-12 are pending adjudication by the Hon’ble High Court.
5. The CIT(A) erred in directing the A.O. to re-calculate and allow Corporate Social Responsibility expenses of Rs. 72,38,00,000/-.
6. The CIT(A) erred in ignoring the fact that the Revenue’s appeals on identical issue in assessee’s own case for AYs 2009-10, 2010-11 & 2011-12 are pending adjudication by the Hon’ble High Court.”
8. As regards the assessee’s appeal, Learned Counsel for the Assessee reiterated the submissions made before the authorities below, while the Learned Departmental Representative supported the orders of the lower authorities (A.O. and the CIT(A)).
9. Having regard to the rival contentions and the material on record, we find that the assessee is a Central Government Public Sector Undertaking and is under the administrative control of the Ministry of Steel, Government of India. It is seen that the assessee has paid Rs. 405.79 Crs towards contribution for the Special Purpose Vehicle (SPV) and compensation for encroachment of the mining area beyond the sanctioned lease area as per the directions of the Hon’ble Supreme Court. The assessee has filed a copy of the order of the Hon’ble Supreme Court, which is placed at pages 8 to 88 of the paper book. We find that the illegal mining activity in the State of Karnataka (in Bellary region) had come up before the Hon’ble Supreme Court of India and the Apex Court had formed a Committee viz., Central Empowered Committee (CEC) to examine and suggest the remedial action. The CEC submitted its report indicating large scale illegal mining at the cost and detriment of the environment due to which by order dated 29.07.2011 a complete ban on mining in the district of Bellary was imposed by the Hon’ble Supreme Court. Further, vide order dated 26.08.2011, the ban was extended to Tumkur and Chitradurga Districts. Thereafter, a Joint Team was constituted by the Apex Court vide its order dated 06.05.2011 to determine the boundaries of initially 117 mining leases which has subsequently extended to 166, by inclusion of Tumkur and Chitradurga Districts. The Joint Team revealed a shocking state of depredation of nature’s bounty by human greed and therefore, the Hon’ble Apex Court vide its order dated 23.09.2011 directed the Special Team to re-examine the issue. Thereafter, the CEC submitted its report termed as ‘Final Report’ dated 03.02.2012 by making two significant recommendations. The first was for categorization of the mines into three categories viz., ‘A’, ‘B’ and ‘C' on the basis of the extent of the encroachment in respect of mining pits and over burden dumps determined in terms of percentage qua the total lease area. The second set of modified recommendations along with set of detailed guidelines for preparation and implementation of Reclamation and Rehabilitation Plans (R & R) were also submitted to the Court by the CEC on 13.03.2012. The Hon’ble Supreme Court therefore considered the recommendations of the CEC dated 03.02.2012 and 13.03.2012 and in its order the Court has reproduced the same. Relevant paras from the judgement dated 18.04.2013 are reproduced hereunder for ready reference:-
“5. We may now proceed to notice the relevant part of the two Reports of the CEC dated 3.2.2012 and 13.3.2012, as referred to hereinabove.
“IV. CLASSIFICATION OF LEASES IN DIFFERENT CATEGORIES ON THE BASIS OF THE LEVEL OF ILLEGALITIES FOUND.
27. The CEC, based on the extent of illegal mining found by the Joint Team and as appropriately modified by the CEC in its Proceeding dated 25th January, 2012 and after considering the other relevant information has classified the mining leases into three categories namely “Category-A”, “Category-B” and “Category-C”.
28. The “Category-A” comprises of (a) working leases wherein no illegality/marginal illegality have been found and (b) non working leases wherein no marginal/illegalities have been found. The number of such leases comes to 21 & 24 respectively.
29. “Category-B” comprises of (a) mining leases wherein illegal mining by way of (i) mining pits outside the sanctioned lease areas have been found to be up to 10% of the lease areas and/ or (ii) over burden/waste dumps outside the sanctioned lease areas have been found to be up to 15% of the lease areas and (b) leases falling on interstate boundary between Karnataka and Andhra Pradesh and for which survey sketches have not been finalized. For specific reasons as mentioned in the Page 9 9 statement of “Category-B” leases, M/s. S.B. Minerals (ML No. 2515), M/s. Shantalaxmi Jayram (ML No. 2553), M/s. Gavisiddeshwar Enterprises (ML No. 80) and M/s. Vibhutigudda Mines (Pvt.) Ltd. (ML No. 2469) have been assigned in “Category-B”. The numbers of such leases in “Category-B” comes to 72.
30. The “Category-C” comprises of leases wherein (i) the illegal mining by way of (a) mining pits outside the sanctioned lease area have been found to be more than 10% of the lease area and/or (b) over burden/waste dumps outside the sanctioned lease areas have been found to be more than 15% of the lease areas and/or (ii) the leases found to be involved in flagrant violation of the Forest (Conservation) Act and/or found to be involved in illegal mining in other lease areas. The number of such leases comes to 49.
RECOMMENDATIONS (as modified by CEC by its Report dated 13.3.2012. Items 1 to IV of the Report dated 3.2.2012 stood replaced by Items A to I of the Report dated 13.3.2012 which are reproduced below along with Items V to XIV of the initial Report dated 3.2.2012).
(A) the findings of the Joint Team and as modified after careful examination by the CEC may be accepted and directed to be followed by the concerned authorities and the respective leases, notwithstanding anything to the Page 10 10 contrary. The boundaries of the mining leases should accordingly be fixed on the ground.
(B) a ceiling of 25 Million Metric Tonnes (MMT) for total production of iron ore from all the mining leases in District Bellary may be prescribed. A ceiling of 5 MMT for production of iron ore from all the mining leases in Districts Chitradurga and Tumkur together may be prescribed;
(C) the proposed “guidelines for the preparation of the R&R Plans” may be approved by this Hon’ble Court and the prescriptions/provisions of the R&R Plans, prepared as per these guidelines, may be directed to be followed by the respective lessees and the concerned authorities;
(D) the iron ore which becomes available should be used for meeting the iron ore requirement of the steel plants and associated industries located in Karnataka and also of those plants located in the adjoining States which have been using the iron ore from the mining leases located in these Districts. Exports, outside the country, should be permissible only in respect of the material which the steel plants and associated industries are not willing to purchase on or above the average price realized by the Monitoring Committee for the corresponding grades of fines/lumps during the sale of about 25 MMT of the existing stock of iron ore. Similarly, the iron ore produced by the beneficiation plants after Page 11 11 processing should also not be permitted to be exported outside the country;
(E) the sale of the iron ore should continue to be through e-auction and the same should be conducted by the Monitoring Committee constituted by this Hon’ble Court. However, the quantity to be put up for e-auction, its grade, lot size, its base/floor price and the period of delivery will be decided/provided by the respective lease holders. The Monitoring Committee may permit the lease holders to put up for e-auction the quantities of the iron ore planned to be produced in subsequent months. The system of sale through the Monitoring Committee may be reviewed after say two year;
(F) 90% of the sale price (excluding the royalty and the applicable taxes) received during the e-auction may be paid by the buyer directly to the respective lease holders and the balance 10% may be deposited with the Monitoring Committee alongwith the royalty, FDT and other applicable taxes/charges;
(G) The responsibility of the Monitoring Committee will be (a) to monitor the implementation of the various provisions/prescriptions of the R&R Plans, (b) to ensure strict compliance of the conditions on which the environment clearance, the approval under the Forest (Conservation) Act, 1980 and the other statutory approvals/clearances have been accorded, (c) to ensure that the mining is undertaken as per the approved Mining Plan, (d) to ensure Page 12 12 that the ceiling on annual production fixed for the lease does not exceed, (e) to ensure that the safety zone is maintained around the lease area and in respect of the clusters of mining leases around the outer boundary of such cluster of mining leases and (f) to ensure compliance of the other applicable condition/provisions. Any lease found to be operating in violation of the stipulated conditions/provisions should be liable for closure and/or termination of the lease;
(H) the present Members of the Monitoring Committee should continue for a period of next two years; and
(I) in the larger public interest the mining operations in the two leases of M/s. NMDC may be permitted to be continued. However, it will be liable to deposit penalty/compensation as payable for the mining leases falling in “Category-B”
(V) In respect of the mining leases falling in “CATEGORY-B” (details given at Annexure-R10 to this Report) it is recommended that:
i) the R&R Plan, under preparation by the ICFRE, after incorporating the appropriate changes as per the directions of this Hon’ble Court, should be implemented in a time bound manner by the respective lessees at his cost. In the event of his failure to do so or Page 13 13 if the quality and/or the progress of the implementation of the R&R Plan is found to be unsatisfactory by the Monitoring Committee or by the designated officer(s) of the State of Karnataka, the same should be implemented by the State of Karnataka through appropriate agency(ies) and at the cost of the lessee;
ii) for carrying out the illegal mining outside the lease area, exemplary compensation/ penalty may be imposed on the 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. Five 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 compensation/ penalty may be imposed @ Rs. 1.00 crores (Rs. One Crores only) for per ha. of the area found to be under illegal over burden dump etc.
iii) Mining operation may be allowed to be undertaken after (a) the implementation of the R& R Plan is physically undertaken and is found to be satisfactory based on the predetermined parameters (b) penalty/ compensation as decided by this Hon’ble Page 14 14 Court is deposited and (c) the conditions as applicable in respect of “Category-A” leases are fulfilled/followed;
iv) In respect of the seven mining leases located on/nearby the interstate boundary, the mining operation should presently remain suspended. The survey sketches of these leases should be finalized after the interstate boundary is decided and thereafter the individual leases should be dealt with depending upon the level of the illegality found; and
v) Out of the sale proceeds of the existing stock of 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 SPV d) The balance amount, if any, may be allowed to be disbursed to the respective lessees.
……………..
……………..
(ii) Conditions which have been suggested for opening of Category ‘A’ mines and additionally the R& R Plans for Category ‘B’ mines
43. The conditions subject to which Category ‘A’ and ‘B’ mines are to be reopened and the R&R Plans that have been recommended as a precondition for reopening of Category ‘B’ mines are essentially steps to ensure scientific and planned exploitation of the scarce mineral resources of the country. The details of the preconditions and the R&R plans have already been noticed and would not require a repetition. Suffice it would be to say that such recommendations are wholesome and in the interest not only of the environment and ecology but the mining industry as a whole so as to enable the industry to run in a more organized, planned and disciplined manner. FIMI was actively associated in the framing of the guidelines and the preparation of the R&R Plans. There is nothing in the preconditions or in the details of the R&R plans suggested which are contrary to or in conflict or inconsistent with any of the statutory provisions of the MMDR Act, EP Act and FC Act. In such a situation, while accepting the preconditions subject to which the Category ‘A’ and ‘B’ mines are to be reopened and the R&R plans that must be put in place for Category ‘B’ mines, we are of the view that the suggestions made by the CEC for Page 80 80 reopening of Category ‘A’ and ‘B’ mines as well as the details of the R&R plans should be accepted by us, which we accordingly do. This will bring us to the most vital issue of the case, i.e., the future of the Category ‘C’ mines.”
The Annexure R-9 which is an extract from the CEC Report dated 03.02.2012 classifying the category ‘A’ mining leases is as under:-
|
1 |
V.N.K. Menon |
Ballary |
A |
13.06.2011 |
2543 |
10.00 |
0.05 |
0.50 |
|
0.00 |
|
0.32 |
0.37 |
|
2 |
Veerabhadrapha Sangappa and Company |
Ballary |
A |
13.06.2011 |
2296 |
51.00 |
|
0.00 |
0.29 |
0.57 |
|
2.12 |
2.41 |
|
3 |
B. Kumara Gowda |
Ballary |
A |
13.06.2011 |
2516 |
54.25 |
0.03 |
0.06 |
0.22 |
0.41 |
1.33 |
6.70 |
8.28 |
|
4 |
Sri Allum Prashanth |
Ballary |
A |
02.07.2011 |
2352 |
69.64 |
|
0.00 |
0.21 |
0.30 |
|
12.17 |
12.38 |
|
5. |
Nadeem Minerals |
Ballary |
A |
02.07.2011 |
2526 |
53.20 |
0.06 |
0.11 |
0.16 |
0.30 |
|
3.09 |
3.09 |
|
6 |
Tiffins Barytes Asbestos and Paints Ltd |
Ballary |
A |
02.07.2011 |
2293 |
191.13 |
|
0.00 |
0.25 |
0.13 |
|
7.43 |
7.68 |
|
7 |
Mysore Minerals (Harishankar) |
Ballary |
A |
28.07.2011 |
1754 |
6.07 |
|
0.00 |
|
0.00 |
|
0.07 |
0.07 |
|
8 |
Lakshmi Minerals |
Ballary |
A |
28.07.2011 |
2551 |
22.26 |
|
0.00 |
0.10 |
0.45 |
|
1.80 |
1.90 |
|
9 |
National Mineral Development Corporation |
Ballary |
A |
08.09.2011 |
1111 |
647.50 |
0.29 |
0.04 |
|
0.00 |
|
10.12 |
10.41 |
|
10 |
P. Balasubbasetty & Sons |
Ballary |
A |
08.09.2011 |
2502 |
44.11 |
0.18 |
0.41 |
0.29 |
0.66 |
|
0.69 |
1.16 |
|
11 |
Mysore Minerals Ltd (Timmappanagudi) |
Ballary |
A |
08.09.2011 |
2805 |
136.97 |
|
0.00 |
1.82 |
1.33 |
|
1.78 |
3.60 |
|
12 |
M. Srinivasulu |
Ballary |
A |
08.09.2011 |
2552 |
134.00 |
|
0.00 |
|
0.00 |
|
0.99 |
0.99 |
|
13 |
Zeenath Transport Co |
Ballary |
A |
08.09.2011 |
2547 |
50.00 |
0.22 |
0.44 |
0.51 |
1.02 |
|
1.59 |
2.32 |
|
14 |
Varalakshmi Mining Co |
Ballary |
A |
08.09.2011 |
2611 |
10.66 |
|
0.00 |
0.16 |
1.50 |
|
0.71 |
0.87 |
|
15 |
HP Manjunath |
Ballary |
A |
08.09.2011 |
699 |
3.03 |
0.07 |
2.31 |
0.00 |
0.00 |
|
0.14 |
0.21 |
|
16 |
National Minieral Development Corporation |
Ballary |
A |
08.09.2011 |
2396 |
608.00 |
1.19 |
0.20 |
1.65 |
0.27 |
|
49.49 |
52.33 |
|
17 |
Sandur Magenese & Iron Ores Ltd |
Ballary |
A |
10.11.2011 |
2580 |
1,863.02 |
3.97 |
0.21 |
0.78 |
0.04 |
|
35.89 |
40.64 |
|
18 |
G J Kumar |
Chitra durga |
A |
13.10.2011 |
2499 |
1.34 |
|
0.00 |
|
0.00 |
|
0.16 |
0.16 |
|
19 |
E. Ramamurthy ( R Praveen Chandra) |
Chitra durga |
A |
13.10.2011 |
2294 |
42.60 |
|
0.00 |
0.32 |
0.75 |
|
2.53 |
2.85 |
|
20 |
Mineral Enterprises Ltd |
Chitra durga |
A |
24.01.2012 |
2348 |
103.81 |
|
|
|
|
|
3.13 |
3.13 |
|
21 |
Karnataka Limpo |
Tumk ur |
A |
10.11.2011 |
2028 |
16.19 |
0.17 |
1.05 |
0.12 |
0.74 |
|
1.02 |
1.31 |
|
|
|
|
|
Total (2 mining leases) |
4,118.78 |
6.23 |
0.15 |
6.88 |
0.17 |
|
141.94 |
155.05 |
|
10. Thus, from the table reproduced above, it is seen that the assessee has been classified as Category-‘A’ whereas the Assessing Officer has considered the assessee as Category-‘B’ company. The Hon’ble Supreme Court has clearly indicated that Category-A comprises of (i) ‘working leases’ wherein no illegality / marginal illegality have been found and (ii) ‘non-working leases’ wherein no marginal / illegalities have been found, whereas Category-B comprises of (i) mining 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 Court. Thus, according to the assessee, the said expenditure is nothing but a payment which was required to be made without which the assessee could not have carried on the mining activities and therefore, it is a ‘business expenditure’. Since the CEC had categorised the assessee as a Category-A company and the Hon’ble Supreme Court has accepted the said categorization, there would have 11 Mysore Minerals Ltd (Timmappanagudi) Ballary A 08.09.2011 2805 136.97 0.00 1.82 1.33 1.78 3.60 12 M. Srinivasulu Ballary A 08.09.2011 2552 134.00 0.00 0.00 0.99 0.99 13 Zeenath Transport Co Ballary A 08.09.2011 2547 50.00 0.22 0.44 0.51 1.02 1.59 2.32 14 Varalakshmi Mining Co Ballary A 08.09.2011 2611 10.66 0.00 0.16 1.50 0.71 0.87 15 HP Manjunath Ballary A 08.09.2011 699 3.03 0.07 2.31 0.00 0.00 0.14 0.21 16 National Minieral Development Corporation Ballary A 08.09.2011 2396 608.00 1.19 0.20 1.65 0.27 49.49 52.33 17 Sandur Magenese & Iron Ores Ltd Ballary A 10.11.2011 2580 1,863.02 3.97 0.21 0.78 0.04 35.89 40.64 18 G J Kumar Chitra durga A 13.10.2011 2499 1.34 0.00 0.00 0.16 0.16 19 E. Ramamurthy ( R Praveen Chandra) Chitra durga A 13.10.2011 2294 42.60 0.00 0.32 0.75 2.53 2.85 20 Mineral Enterprises Ltd Chitra durga A 24.01.2012 2348 103.81 3.13 3.13 21 Karnataka Limpo Tumk ur A 10.11.2011 2028 16.19 0.17 1.05 0.12 0.74 1.02 1.31 Total (2 mining leases) 4,118.78 6.23 0.15 6.88 0.17 141.94 155.0 5 been marginal illegalities committed by the assessee and the compensation / penalty as directed by the Hon’ble Supreme Court is only to compensate the Government for the loss of revenue from such mining or marginal illegalities and not as a penalty. Though the nomenclature given is “penalty” it is not for infraction or violation 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 of 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 decision of the Hon’ble Calcutta High Court in the case of Shyam Sel 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 Device within factory premise within prescribed time and that the assessee had to pay Rs. 12.50 lakh for compensating damage to environment and the same was recovered by State Pollution Control Board on the principle of ‘polluter pays’ and the A.O. had treated it as penalty and did 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 consequence 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 remedy or compensate the consequences of the wrong done. For instance, if a unit has been granted conditional consent and is in default of compliance, causes pollution by polluting a river or discharging sludge, trade affluent or trade waste into the river or on open land causing pollution, 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 consequence. In gathering the meaning of the word ‘penalty’ in reference to a law, the context in which 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 planned exploitation of mineral resources in India. Further the Hon’ble Supreme 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 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 paid the proportionate compensation for mining in the areas 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 reimbursed 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 inclined 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) of the Act. Thus, Grounds No.2 and 3 raised by the assessee are allowed.
12. As regards the Ground no.4, against the disallowance of expenditure incurred towards Corporate Social Responsibility (CSR), we find that the Assessing Officer has disallowed the same observing that the expenditure claimed by the assessee is in the nature of ‘donations’ and therefore held that it is not a ‘business expenditure’ and is not allowable as a deduction u/s 37(1) of the Act. The CIT(A) considered the direction of the ITAT for the A.Y. 2009-10 and A.O. was directed to examine the nature of expenditure and recalculate the allowability of expenditure incurred by the assessee towards CSR and to disallow the expenditure which are in the nature of capital expenditure which was debited to the CSR. Therefore, the assessee is in appeal before us.
13. Learned Counsel for the assessee sought similar directions as given by the ITAT in the earlier years 2005-06 to 2011012.
14. Learned Departmental Representative supported the orders of the authorities below.
15. Having regard to the rival contentions and the material on record, we find that the direction of the ITAT in the earlier Assessment Years holds good for the relevant assessment years under consideration. Therefore, respectfully following the decision of the coordinate Bench on similar set of facts, we direct the A.O. to recalculate the expenses allowable under CSR after disallowing the sum of capital expenses. Accordingly, Ground No.4 is treated as allowed for statistical purposes.
16. Ground No.5 is general in nature and therefore needs no adjudication.
17. In the result, appeal of the assessee is partly allowed for statistical purposes.
18. As far as the Revenue’s appeal (ITA No.1785/H/2017, A.Y. 2013- 14) is concerned, we find that all the issues raised by the Revenue before us are covered by the decision of ITAT in the assessee’s own case for the earlier assessment years and the Revenue is in appeal before the High Court on the said orders of the Tribunal. We find that the CIT(A) has followed the decision of the Tribunal for granting relief to the assessee and it has not been brought to our notice that the orders of the ITAT are suspended or set-aside by the Hon’ble High Court. In view of the same, we see no reason to interfere with the orders of the CIT(A) on the issues, who has followed the orders of the ITAT on the same issues. Accordingly, the Revenue’s appeal for the A.Y. 2013-14 is dismissed.
ITA No.1823/H/2017 (A.Y.: 2014-15)
(By Assessee)
19. In this appeal, assessee has raised the following grounds of appeal:-
“1. The order of the CIT(A) is erroneous both on facts and in law to the extent it is the prejudicial to the interest of the assessee.
2. The Ld. CIT(A) erred in confirming the addition made by A.O. of Rs. 285,46,00,000/- by treating the amounts paid by appellant on the order of Supreme Court as penal in nature ignoring that the amount paid is compensatory in nature and paid excessively for the purpose of business.
3. The Ld. CIT(A) erred by stating that “appellant has not furnished any further evidence of proof to counter the findings of Assessing Officer” ignoring that the appellant has given detailed explanation along with the relevant documents in support of its claim.
4. The Ld. CIT(A) erred in confirming the addition of CSR to the extent of capital in nature as interpreted, incurred wholly and exclusively for the purpose of the business and claimed as deduction u/s 37(1) of the I.T. Act. Expenditure incurred is not a capital expenditure for NMDC since it is not capitalized in the books of account.
5. the Ld. CIT(A) erred in confirming the addition of Rs. 1,85,00,000/- towards interest on income tax on the basis that the same has not been crystallised during this assessment year.”
20. From the above grounds of appeal, we find that Grounds No.2 and 3 are similar to that of the Grounds No. 2 and 3 raised by the assessee for the A.Y. 2013-14, which are adjudicated in the above paras of this order. For the detailed reasons given above, the Grounds No.2 and 3 raised by the assessee for the A.Y. 2014-15 are allowed.
21. Further, we find that Ground no.4 raised by the assessee in the A.Y. 2014-15 is similar to that of the Ground No.4 raised in the A.Y. 2013-14 and for the detailed reasons given therein, the Ground No.4 raised by the assessee for the A.Y. 2014-15 is allowed for statistical purposes.
22. At the time of hearing Learned Counsel for the Assessee submitted that the assessee does not wish to press the Ground no.5 and accordingly, the same is rejected as not pressed.
23. In the result, assessee’s appeal is partly allowed for statistical purposes.
ITA No.1786/H/2017 (A.Y.: 2014-15)
(By Revenue)
24. In this appeal, Revenue raised the following grounds of appeal:-
“1. The CIT(A) erred in directing the A.O. to work out the liability and allow the Mine Closure Obligation expenses of Rs. 8,35,00,000/-, without appreciating the fact that the said liability is not an ascertained liability.
2. The CIT(A) erred in ignoring the fact that Revenue’s appeals on identical issue in assessee’s own case for the AYs 2009-10 and 2010-11 are pending adjudication by the Hon’ble High Court.
3. The CIT(A) erred in allowing the depreciati9on on intangible assets of Rs. 11,33,00,000/-.
4. The CIT(A) erred in ignoring the fact that Revenue’s appeals on identical issue is assessee’s own case for AYs 2008-09, 2009- 10, 2010-11 & 2011-12 are pending adjudication by the Hon’ble High Court.
5. The CIT(A) erred in directing the A.O. to re-calculate and allow Corporate Social Responsibility expenses of Rs. 152,85,00,000/-.
6. The CIT(A) erred in ignoring the fact that the Revenue’s appeals on identical issue in assessee’s own case for AYs 2009-10, 2010-11 & 2011-12 are pending adjudication by the Hon’ble High Court.”
25. From the above grounds, we find that except for the quantum, the grounds raised in the A.Y. 2014-15 are similar to that of the grounds raised in the A.Y. 2013-14. Therefore, for the reasons given therein in the A.Y. 2013-14, the grounds of appeal raised by the Revenue for the A.Y. 2014-15 are also rejected and the Revenue’s appeal is accordingly dismissed.
26. In the result, assessee’s appeals for the AYs 2013-14 and 2014-15 are partly allowed for statistical purposes and the Revenue’s appeals for the AYs 2013-14 and 2014-15 are dismissed.
Pronounced in the open Court on 17th October, 2018.
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