Mining done without environmental clearances or beyond the quantity prescribed in Environment clearance or approved mining plan not illegal mining
In a recent judgment, the Orissa High Court upheld quashing of reassessment holding that mining done without environmental clearances or beyond the quantity prescribed in the Environment clearance or approved mining plan not illegal mining
ABCAUS Case Law Citation:
4785 (2025) (10) abcaus.in HC
In the instant case, the Revenue had challenged the order passed by the ITAT in inter alia deleting the addition of expenditure made in the reassessment, in line with explanation (1) under section 37(1) of Income Tax Act, 1961 (the Act).
The respondent assessee was a Private Limited company which was involved in illegal mining. The mining was called “illegal” because statutory clearances had not been obtained for the activity undertaken.
The case of the assessee was reopened under section 147 based on report of Justice M. B. Shah Commission in regard to illegal mining in the State of Odisha which was placed in the public domain. The reassessment was completed by making disallowance of expenditure inadmissible under section 37(1) of the Act related to illegal mining.
The Tribunal erred in negating this ground of appeal urged before it by revenue, on the assessee having been successful before the first appellate authority against the assessment made by the Assessing Officer (AO). The Tribunal also erred in deleting the addition of expenditure made in the reassessment, in line with explanation (1) under section 37(1).
However, the CIT(A) deleted the disallowance and held that the proceedings u/s 147 were null and void and the Assessing Officer had no tangible material to form a reason to believe that income had escaped assessment. The CIT(A) held that the AO without any independent application of mind, accepted the Commissions finding that the assessee had indulged in illegal mining of iron ore.
Aggrieved, the Revenue approached ITAT and contended that CIT (A) erred in holding that there was no illegal mining without referring to the decision of Hon’ble Supreme Court.
The Tribunal further observed that CIT(A) had categorically given a finding that the AO has made no attempt to reconcile the production data furnished by the assessee in its H-1 report submitted to the Indian Bureau of Mines with the data shown by it in its tax audit report.
The Tribunal also noted that the CIT(A) had further stated that the AO had failed to take the cognizance of the decision of Hon’ble Supreme Court in which the Hon’ble Supreme Court has cast aspersions on the findings of the Hon’ble Justice M. B. Shah Commission report in so far as the report had been made without giving an opportunity to the affected parties to respond.
With regard to illegal expenses, the Tribunal noted that the CIT(A) had taken cognizance of the Explanation 1 to section 37 and categorically held that the disallowance under section 37 would only come into play if the assessee had been penalized under the appropriate sections of the respective statute and if the assessee had claimed this penalty as an expenses in the profit and loss account.
The Tribunal further noted that the CIT(A) had stated that the payments made by the assessee to various parties represented genuine business expenditure for mining activities carried out by these parties like raising of iron ore and transportation of the same. They were neither in the nature of bribes/protection money nor do they suffer from the taint of illegality as no statutory law had been violated by the assessee in the course of incurring this expenditure.
The Tribunal noted that nothing had been produced by the revenue to dislodge these findings of fact by the CIT(A). Consequently, the Tribunal confirmed the findings of the CIT(A) and dismissed the appeal of the Revenue.
Not satisfied, the Revenue challenged the order of the Tribunal before the Hon’ble High Court.
The Hon’ble High Court observed that the AO had relied on report of Justice M. B. Shah Commission, which said, leases operated under deemed extension without statutory clearance under EIA notification dated 27th January, 1994 and amendments therein for environmental clearance was considered as illegal. Action should be initiated to recover value equivalent to market value. The assessee when show caused, came up with its explanation that Central Empowered Committee (CEC) in its report had observed that “the mineral produced without environmental clearances or beyond the quantity prescribed in the Environment clearance or approved mining plan/scheme of Mining does not, for the purpose of Sec. 21(5) of MMDR Act, 1957 fall in the category of illegal mining”.
The Hon’ble High Court further noted that so far as disallowing the expenditure in terms of explanation (1) under section 37(1) is concerned, the Tribunal had given a finding that assessee had not claimed any expenditure on account of penalty imposed and paid.
The Hon’ble High Court opined that Revenue will be able to apply explanation (1) under section 37(1) if, in future, the activity is declared to be illegal, penalty imposed and claimed by assessee as an expenditure in its relevant return. Presently, there was nothing to show the activity stood declared as illegal for the explanation to be invoked.
Accordingly, the Hon’ble High Court dismissed the appeal holding that no substantial question of law arises from impugned order of the Tribunal. Materials on record did not bring forth a finding of illegal mining activity indulged in by the assessee.
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