INCOME TAX ACT, 1961

Section 37(1), Expln. 1

Business expenditure - SPV expenses incurred by mining company pursuant to Supreme Court directions - Applicability of Expln. to section 37(1) -

Assessee firm was into the business of extraction of iron ore processing and iron ore trading. It claimed deduction of SPV expenses incurred by it. AO noticed that amount paid as SPV expenses was deducted by monitoring committee and retained by Central empowered committee as per directions of Supreme Court out of sale proceeds for purpose of taking various ameliorative and mitigative measure as compensatory payment. Accordingly, AO invoked Explanation to section 37(1) and disallowed deduction. Assessee submitted that Supreme Court in 'A' Category Mines, directed contribution of 10% out of e auction sales towards SPV and in Category 'B' mines the contribution was to the extent of 15% of e auction sales. SPV expenses are for socio-economic development of mining area. Held: Condition of payment for resuming mining activity by Categories 'A' and 'B' companies was to not to punish the companies for any violation of law but was to ensure scientific and planned exploitation of mineral resources in India. But for the intervention by Supreme Court, assessee would not have contributed 15% to SPV account for implementation of reclamation and rehabilitation scheme on its own, as there was no statutory requirement to do so under relevant statutes that regulate mining activities. Accordingly, contributing 10%/15% to SPV account on account of Category 'A/B' respectively, would be application of income, and therefore, was to be considered as expenditure incurred for carrying out its business activity not hit by Explanation to section 37(1).

Relied:NMDC Ltd. v. Asstt. CIT (2018) 175 ITD 332 (Hyd-Trib) : 2018 TaxPub(DT) 8040 (Hyd-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Section 37(2), Expln. 1

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