The Income Tax Appellate Tribunal (ITAT) Bangalore, has ruled that amount 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, is allowed for deduction under section 37(1) of the Income Tax act, 1961.
The Supreme Court India had approved the sale of iron-ore through e-auction and it was further held that the e-auction shall be conducted by the Monitoring Committee (MC) constituted by the Hon’ble Supreme Court. However, the quantity to be put up for e-auction, its grade, lot sizes, its base/floor price, and the period of delivery will be decided/provided by the respective leaseholders. It was also held that the Monitoring Committee may permit the leaseholders to put up for e-auction the quantities of iron ore planned to be produced in subsequent months. From the sale proceeds realized by MC on the sale of iron-ore, it was ruled that 15% of sale proceeds to be transferred to Special Purpose Vehicle (SPV).
The assessee is a partnership firm and is engaged in the business of extraction of iron ore by taking a lease of lands from the Government. They had reduced the above-said amounts from the gross sale proceeds and accordingly declared only net sale proceeds as its income. However, the Assessing Officer (AO) was of the view that the amount retained by MC as per the proposal approved by Hon’ble Supreme Court is in the nature of “appropriation of profit” and “penal/compensatory payment” towards damages caused to the environment and forest by contravention of laws. Accordingly, the AO took the view that the said payment cannot be said to be incurred wholly and exclusively for the purpose of business within the meaning of provisions of sec.37 of the Act.
Vice President N.V. Vasudevan and Accountant Member B.R. Baskaran allowed the appeal of the assessee and held, “In view of the foregoing discussions and also following the decision rendered by the co-ordinate benches referred above, we hold that the amount deducted @ 15% from the sale proceeds constitute trading receipts in the hands of the assessee, but at the same time it is allowable as deduction u/s 37(1) of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and direct the AO to delete the impugned addition in both the years.”
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