{"id":245631,"date":"2021-03-15T21:41:19","date_gmt":"2021-03-15T16:11:19","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=245631"},"modified":"2021-03-15T21:41:19","modified_gmt":"2021-03-15T16:11:19","slug":"itat-whether-amount-deducted-from-the-sale-proceeds-constitute-trading-receipts-in-the-hands-of-the-assessee","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/03\/15\/itat-whether-amount-deducted-from-the-sale-proceeds-constitute-trading-receipts-in-the-hands-of-the-assessee\/","title":{"rendered":"ITAT| Whether amount deducted from the sale proceeds constitute trading receipts in the hands of the Assessee?"},"content":{"rendered":"

Income Tax Appellate Tribunal, Bangalore:<\/strong>\u00a0Dealing with the issue of whether the CIT(A) was justified in confirming the addition of amount representing 15% of the sale proceeds deducted by the Monitory committee from e-auction sale of mineral stock belonging to the Assessee and which was contributed to SPV, as per the direction given by the Supreme Court,\u00a0 the ITAT held 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 Income Tax Act, 1961.<\/p>\n

Over rampant mining in the state Karnataka the Supreme Court in the case of Samaj Parivartana Samudaya v. State of Karnataka, (2019) 17 SCC 753<\/a> imposed a complete ban on mining in the district of Bellary. Further, after application and request the mining work was resumed after categorizing the mines in three segments \u2018A\u2019, \u2018B\u2019 and \u2018C\u2019, depending on various types of violations by Lessee and financial obligation were created on account of damages and loss caused to the forest and environment by contravention of laws<\/p>\n

The Assessee was a partnership firm and is engaged in the business of extraction of iron ore by taking lease of lands from Government. The mines owned by the Assessee herein have been categorised as \u201cB\u201d category mines. Hence 15% of sale, proceeds have been deducted by Monitoring Committee during the years under consideration.<\/p>\n

The Assessee had reduced the above-said amounts from the gross sale proceeds and accordingly declared only net sale proceeds as its income in both the years. Assessment proceedings were initiated whereby the AO held that: –<\/p>\n

    \n
  1. Entire sale proceeds as per E-auction bit sheets\/invoices has to be assessed to tax as trading receipts. Hence it constitutes income in the hands of the Assessee.<\/li>\n
  2. The amount retained by CEC\/MC, as per directions of the Supreme Court on behalf of the Assessee, which is given to the Special Purpose Vehicle (SPV) is on account of damages and loss caused to the forest and environment by contravention of laws. The said amount cannot be allowed as deduction out of sale proceeds even after the accrual of such liability which is being compensation and penal in nature for contravention of laws. The amount so retained for adjusting penalty and other liabilities is nothing but the appropriation of the profit of the Assesse<\/li>\n
  3. SPV established for Social-economic development of the mining area is nothing but relating to Corporate Social responsibility only. Hence it is not allowable u\/s 37(1), as it was not incurred by the Assessee wholly and exclusively for the purpose of business. It was retained to meet the penal and other liabilities for contravention of law and therefore, the said amount cannot be allowed as deduction in view of the specific Explanation to section 37(1) of the Act.<\/li>\n<\/ol>\n

    The CIT(A) confirmed the view taken by the AO. Being aggrieved by the said order, the Assessee preferred an Appeal before the ITAT, whereby ITAT held that:<\/p>\n

    \u201cIt cannot be said that these amounts are penal in nature. The Assessee could not have resumed the mining operations. Therefore, these expenses are incidental to carrying on the business and hence allowable u\/s 37(1) of the Act.\u201d<\/span><\/p>\n

    \u201cIn view of the foregoing discussions and also following the decision rendered by the co-ordinate benches, 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.\u201d<\/span><\/p><\/blockquote>\n

    Thus the Appeal preferred by the Assessee was allowed and the ITAT was pleased to hold 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.<\/p>\n

    \u00a0[M\/s. M. Hanumantha Rao Vs. A.C.I.T I.T.A. No. 3298 % 3299\/Bang\/2018. Decided on 25.02.2021].<\/p>\n

    \n

    \u2020\u00a0Advocate, Supreme Court of India and Delhi High Court\u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

    by Akshat Malpani\u2020 <\/p>\n","protected":false},"author":67011,"featured_media":170804,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[31242,2592,30953,30457,45457],"class_list":["post-245631","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-assessee","tag-Income_Tax","tag-itat","tag-sale","tag-trading-receipts"],"yoast_head":"\nITAT| Whether amount deducted from the sale proceeds constitute trading receipts in the hands of the Assessee? | SCC Times<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2021\/03\/15\/itat-whether-amount-deducted-from-the-sale-proceeds-constitute-trading-receipts-in-the-hands-of-the-assessee\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"ITAT| Whether amount deducted from the sale proceeds constitute trading receipts in the hands of the Assessee?\" \/>\n<meta property=\"og:description\" content=\"by Akshat Malpani\u2020\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.scconline.com\/blog\/post\/2021\/03\/15\/itat-whether-amount-deducted-from-the-sale-proceeds-constitute-trading-receipts-in-the-hands-of-the-assessee\/\" \/>\n<meta property=\"og:site_name\" content=\"SCC Times\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/scc.online\/\" \/>\n<meta property=\"article:published_time\" content=\"2021-03-15T16:11:19+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1330\" \/>\n\t<meta property=\"og:image:height\" content=\"887\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Editor\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Editor\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.scconline.com\/blog\/post\/2021\/03\/15\/itat-whether-amount-deducted-from-the-sale-proceeds-constitute-trading-receipts-in-the-hands-of-the-assessee\/\",\"url\":\"https:\/\/www.scconline.com\/blog\/post\/2021\/03\/15\/itat-whether-amount-deducted-from-the-sale-proceeds-constitute-trading-receipts-in-the-hands-of-the-assessee\/\",\"name\":\"ITAT| Whether amount deducted from the sale proceeds constitute trading receipts in the hands of the Assessee? 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The coram of Kuldip Singh (Judicial Member) and Gagan Goyal\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Income Tax Appellate Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":295622,"url":"https:\/\/www.scconline.com\/blog\/post\/2023\/06\/29\/factors-considering-transaction-stock-in-trade-sale-of-capital-assets-itat-sc\/","url_meta":{"origin":245631,"position":1},"title":"Transaction doesn\u2019t become stock in trade merely based on recording of inventory in books of accounts; SC asks ITAT to consider relevant factors afresh","author":"Apoorva","date":"June 29, 2023","format":false,"excerpt":"Supreme Court reiterated that to examine whether a particular transaction is sale of capital assets or business expense, multiple factors like frequency of trade and volume of trade, nature of transaction over the years etc., are required to be examined.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"sale of capital assets","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/06\/sale-of-capital-assets.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/06\/sale-of-capital-assets.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/06\/sale-of-capital-assets.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/06\/sale-of-capital-assets.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":205931,"url":"https:\/\/www.scconline.com\/blog\/post\/2018\/11\/29\/compensation-received-in-lieu-of-a-claim-for-sexual-harassment-not-taxable-itat\/","url_meta":{"origin":245631,"position":2},"title":"Compensation received in lieu of a claim for sexual harassment not taxable: ITAT","author":"Bhumika Indulia","date":"November 29, 2018","format":false,"excerpt":"Income Tax Appellate Tribunal, Mumbai (ITAT): A Bench comprising Saktijit Dey (JM) and Manoj Kumar Aggarwal (AM), allowed actor Sushmita Sen\u2019s appeal against the order of Commissioner of Income Tax (Appeals), holding that the amount received in lieu of sexual harassment claim is not taxable. The assessee who had received\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Income Tax Appellate Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":360158,"url":"https:\/\/www.scconline.com\/blog\/post\/2025\/09\/15\/itat-on-clubbing-assessees-income-with-minor-daughters-share\/","url_meta":{"origin":245631,"position":3},"title":"Assessee\u2019s income for tax assessment cannot be clubbed with minor daughter\u2019s share of sale proceeds, deposited as per Court\u2019s order: ITAT","author":"Ekta","date":"September 15, 2025","format":false,"excerpt":"The assessee deposited 50% minor daughter\u2019s share in the nationalized bank. Further, the assessee accounted his 50% share and offered the same as capital gain with the deduction of claim under Section 54 of the Income Tax Act, 1961.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"clubbing assessee's income with minor daughter's share","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/09\/clubbing-assessees-income-with-minor-daughters-share.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/09\/clubbing-assessees-income-with-minor-daughters-share.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/09\/clubbing-assessees-income-with-minor-daughters-share.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/09\/clubbing-assessees-income-with-minor-daughters-share.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":289377,"url":"https:\/\/www.scconline.com\/blog\/post\/2023\/04\/13\/income-tax-act-duty-drawback-receipts-or-duty-entitlement-passbook-benefits-do-not-form-part-of-the-net-profits-of-eligible-industrial-undertakings-supreme-court-legal-news-legal-research-updates\/","url_meta":{"origin":245631,"position":4},"title":"Assessee not entitled to deduction u\/s 80-IB of Income Tax Act on Duty drawback \/ DEPB Schemes profit: Supreme Court","author":"Editor","date":"April 13, 2023","format":false,"excerpt":"The Supreme Court affirmed the order passed by the High Court stating that the respondent assessee was neither entitled to the deductions nor profit earned under Section 80-IB on the amount of DEPB as well as Duty Drawback Scheme.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Duty Drawback DEPB Schemes","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/04\/MicrosoftTeams-image-1116.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/04\/MicrosoftTeams-image-1116.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/04\/MicrosoftTeams-image-1116.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/04\/MicrosoftTeams-image-1116.jpg?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":270293,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/07\/18\/itat-can-incorrect-entries-hybrid-system-of-account-lead-to-rejection-of-books-of-accounts-labor-charges\/","url_meta":{"origin":245631,"position":5},"title":"ITAT| Can incorrect entries; hybrid system of account lead to rejection of books of Accounts & Labor Charges?","author":"Editor","date":"July 18, 2022","format":false,"excerpt":"\u00a0 \u00a0 Income Tax Appellate Tribunal, Mumbai: Dealing with the issue pertaining to rejection of books of accounts, sustainability of disallowance of labour charges, and disallowance of outstanding labour charges, the Gagan Goyal, Accountant Member has held that CIT(A) was correct and justified in rejecting the books of account by\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Income Tax Appellate Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/245631","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67011"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=245631"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/245631\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/170804"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=245631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=245631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=245631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}