For tax purposes, mining without environmental clearance not illegal: Orissa HC
The HC ruled that the I-T department cannot disallow expenses under Income Tax Act unless illegal activity is conclusively proven.
The Orissa high court has ruled that mining without environmental clearance does not automatically constitute illegal mining for taxation related purposes.
Disposing a petition of the Income Tax department, which challenged an order of the Income Tax Appellate Tribunal (ITAT) on the matter, the HC ruled that the I-T department cannot disallow expenses under Income Tax Act unless illegal activity is conclusively proven.
Relying on the findings of Centrally Empowered Committee (CEC) of the Supreme Court, which held that mining without environmental clearance is not illegal mining, the HC division bench led by acting chief justice Arindam Sinha and justice MS Sahoo ruled that a tax disallowance cannot be made solely based on allegations of non-compliance unless a violation is conclusively established.
“The report filed by the CEC pursuant to Justice MB Shah Commission has said that mining operations without clearance does not constitute illegal mining. There is nothing to show the activity stood declared as illegal,” the HC said.
The principal commissioner of income tax (central) had challenged an ITAT ruling, which favoured Tarini Minerals regarding tax assessments for the financial years 2008-2009 to 2010-2011.
The I-T department reopened the assessment under Section 147 of the Act, alleging that Tarini Minerals engaged in illegal mining by operating without environmental clearance and had suppressed production figures. Based on this, the department attempted to disallow certain expenses under explanation (1) to Section 37 (1), which prohibits deductions for expenditures related to unlawful activities.
The company argued that its mining activities were not illegal and that it had properly reported to the Indian Bureau of Mines, with production figures matching those in its audit report. It cited the CEC report, which clarified that mining without environmental clearance does not fall under the definition of “illegal mining” under Section 21(5) of the Mines and Minerals (Development and Regulation) Act, 1957. The ITAT then ruled in favor of the company, but the Principal Commissioner of Income Tax (Central) challenged the order in HC.
The HC, however, upheld the tax tribunal’s decision, stating that the tax department failed to prove illegal activity. The court explained that expenses can only be disallowed under Section 37(1) if a penalty is imposed and claimed as a deduction, which was not the case.
