The Tax Publishers2021 TaxPub(DT) 0135 (Bang-Trib)

IN THE ITAT, BANGALORE BENCH

B.R. BASKARAN, A.M. & BEENA PILLAI, J.M.

Veerabhadrappa Sangappa & Co. v. Asstt. CIT

I.T.A. No. 1054/Bang/2019

A.Y. 2013-14

8 December, 2020

Appellant by: Chythanya K.K, Advocate

Respondent by: Muzaffar Hussain, CIT

ORDER

Beena Pillai, J.M.

Present appeal has been filed by assessee against Order, dated 22-3-2019 passed by learned Commissioner (Appeals), Kalaburgi for assessment year 2013-14 on following grounds of appeal :--

'1. The Order of the learned Commissioner (Appeals) is not justified in law and on facts and circumstances of the case.

2. As regards disallowance of expenditure of Rs. 77,71,82,151:

2.1. The learned Commissioner (Appeals) is not justified in sustaining the addition of Rs. 25,59,99,429 representing sale proceeds of declared stocks received in the subsequent years and thus charged to tax in the subsequent years.

2.1.1. The lower authorities have failed to appreciate that section 5 manifests that an income can be said to have accrued only when a person has a legal right to receive such income and its recognition is on such accrual which is tempered by section 145 read with Accounting Standard 9 of ICAI.

2.1.2. The lower authorities have failed to appreciate that the Appellant has not recognized the revenue attributable to sale proceeds of confiscated stock by MC [which includes the sale proceeds of declared stocks Rs. 25,59,99,429] due to uncertainty of its recovery and in accordance with the Accounting Standard 9 issued by ICAI.

2.1.3. The learned Commissioner (Appeals) has failed to appreciate that Accounting Standard 9 provides for postponement of recognition of revenue in case where there exists an uncertainty regarding ultimate realization.

2.1.4. The learned assessing officer having noted that the Appellant has received the sale proceeds of declared stocks in subsequent years and the same is charged to tax in the subsequent years, is not justified in taxing the very same sale proceeds in the impugned year leading to double levy.

2.1.5. Without prejudice to the above, the action of the learned assessing officer in taxing the aforesaid sum in the impugned year but not taking any steps to undo the levy of tax in the subsequent year vitiates his former action.

2.1.6. The learned Commissioner (Appeals) has failed to appreciate that as very same income was taxed in the subsequent year, the entire exercise is revenue neutral as the applicable tax rates remained the same in the relevant years.

2.2. The learned Commissioner (Appeals) is not justified in sustaining the addition of Rs. 24,64,49,012 representing the sale proceeds of undeclared stocks confiscated by the MC, when the income on such stocks never accrued to the Appellant in accordance with section 5.

2.2.1. The lower authorities have failed to appreciate that the impugned sum retained by the MC as per the direction of Hon'ble Supreme Court cannot be construed as income accrued to the Appellant.

2.2.2. The lower authorities have failed to appreciate the undeclared stocks relate to accumulated wastes/debris not recognized by the appellant in its books, and the same were confiscated and sold by the MC but proceeds were retained as relating to undeclared stocks, and therefore, the Appellant never had any right to receive the same.

2.2.3. The lower authorities have failed to appreciate that section 5 manifests that an income can be said to have accrued only when a person has a legal right to receive such income and its recognition is on such accrual which is tempered by section 145 read with Accounting Standard 9 of ICAT.

2.2.4. The lower authorities have failed to appreciate that the Appellant has not recognized the revenue attributable to sale proceeds of confiscated stock by MC [which includes the sale proceeds of undeclared stocks Rs. 24,64,49,012] due to uncertainty of its recovery and in accordance with the Accounting Standard 9 issued by ICAI.

2.2.5. The learned Commissioner (Appeals) has failed to appreciate that Accounting Standard 9 provides for postponement of recognition of revenue in case where there exists an uncertainty regarding ultimate realization.

2.2.6. Without prejudice to the above, the lower authorities having treated the sale proceeds of undeclared stock as revenue of the Appellant and having not disputed that the same were retained by MC as per direction of Hon'ble Supreme Court, ought to have allowed the same as business loss under section 28.

2.2.7. Without prejudice to the above, the lower authorities having not disputed that the aforesaid sum was retained by MC as per direction of Hon'ble Supreme Court, ought to have regarded the same as having been diverted at source by overriding title.

2.2.8. Without prejudice to the above, the lower authorities ought to have allowed the above sum under section 37(1) of the Income Tax Act.

2.3. As regards taxing the amounts retained towards contribution to SPV:

2.3.1. The learned Commissioner (Appeals) is not justified in upholding the additions made by the learned assessing officer of Rs. 13,10,94,826 without appreciating that the Appellant's Mining case No. 2296 is placed under 'Category A' and as per the Hon'ble Supreme Court's direction 10% of sale proceeds of confiscated stocks is to be treated as compensation towards reclamation & rehabilitation of the mining area.

2.3.2. The learned Commissioner (Appeals) is not justified in upholding the additions made by the learned assessing officer of Rs. 3,18,41,886 without appreciating that the Appellant's Mining Lease No. 2160 is placed under 'Category B' and as per the Hon'ble Supreme Court's direction 15% of sale proceeds of confiscated stocks is to be treated as compensation towards reclamation & rehabilitation of the mining area.

2.3.3. The learned Commissioner (Appeals) has failed to appreciate that the amount deducted by MC of Rs. 13,10,94,826 and Rs. 3,18,41,886 [totaling to Rs. 16,29,36,712] is nothing but diversion of income by overriding title and cannot be regarded as income of the Appellant.

2.3.4. The learned Commissioner (Appeals) has failed to appreciate that the forfeited sale proceeds were diverted to the Monitoring Committee before it reached the Appellant, as per the directions of the Hon'ble Supreme Court and hence it is a case of diversion of income by overriding title and not an application of income.

2.3.5. The learned Commissioner (Appeals) has failed to appreciate that the forfeited sale proceeds never ever reached the Appellant directly or indirectly and therefore, the same did not accrue to the Appellant at all.

2.3.6. Without prejudice to the above, the lower authorities having treated the sale proceeds of confiscated stock by CEC as revenue of the Appellant and such proceeds are utilized by SPy towards reclamation & rehabilitation of the mining area as per the direction of Hon'ble Supreme Court, ought to have allowed the same as business loss under section 28.

2.3.7. The lower authorities are not justified in adding the forfeited sales proceeds by invoking Explanation I to section 37(1) when the said Explanation applies only to an expenditure and not to a loss.

2.3.8. Without prejudice to the above, the lower authorities having treated the sale proceeds of confiscated stock by CEC as revenue of the Appellant and such proceeds are utilized by SPV towards reclamation & rehabilitation of the mining area as per the direction of Hon'ble Supreme Court, ought to have been allowed as expenditure under section 37.

2.3.9. The lower authorities have failed to appreciate that the Hon'ble Supreme has directed the MC to deduct 10% or 15% of the sale proceeds of the stock in possession of MC as a compensation for reclamation & rehabilitation of the mining area, which, being 'ameliorative and mitigative measures', is allowable expenditure under section 37 of Income Tax Act.

2.3.10. The lower authorities are not justified in treating the aforesaid sum as being in the nature of penalty as they have failed to appreciate that the aforesaid sum does not relate to any infraction of law but towards rehabilitation more particularly in the light of the observations in para (IX) of page no. 16 of the order of the Apex Court, dated 18-4-2013 in WP (C) No. 562/2009.

2.3.1 1. Without prejudice to the above, the Explanation to section 37(1) is not at all applicable as in the instant case, no illegality whatsoever was noticed in the case of Appellant in respect of lease No. 2296 which is classified as Category A.

2.3.12.The learned assessing officer is not justified in taking contradictory position by first calling the impugned sum is towards corporate social responsibility not relating to business and next calling it as expenditure on illegality associated with the business.

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