Amount Paid For Obtaining Mining Rights In E-Auctions Can't Be Construed As Income; Delhi High Court Quashes Reassessment Order

The Delhi High Court has quashed the reassessment order and held that the amount paid for obtaining mining rights in e-auctions cannot be construed as income.

The bench of Justice Yashwant Varma and Justice Tara Vitasta Ganju has observed that the Department of Mines and Geology had merely provided to the AO the total amount paid by the petitioner for obtaining mining rights in the e-auctions that were conducted. The said amount clearly cannot be counted as the income of the assessee for the relevant year. The income of the assessee would only be that which was garnered from the sale of iron ore and other non-ferrous metals.

The petitioner was originally known as Sesa Goa Limited, whose name was subsequently changed to Sesa Sterlite Limited. It is stated to be a company duly incorporated and engaged in the activity of mining iron ore and non-ferrous metals as well as power generation.

The Supreme Court imposed a ban on mining activities in various districts of Karnataka and also commanded the Central Empowered Committee to devise a methodology for the sale and transportation of stock already mined by various licensees. The duty of selling the entire iron ore or stock mined and generated within Karnataka was thereafter entrusted to a Monitoring Committee, which was to undertake the sale and distribution thereof through the e-auction mode. The methodology was created in terms of an order dated September 23, 2011, passed by the Supreme Court in the aforenoted proceedings.

The petitioner participated in various e-auctions conducted by the Department of Mines and Geology and submitted bid amounts totaling INR 167,75,60,000/- in FY 2011–12.

The petitioner submitted a Return of Income declaring its total income at INR 2248,58,57,710. A scheme of merger thereafter came to be sanctioned by both the High Courts of Bombay and Madras, in terms of which Sterlite Industries (India) Limited, Madras Aluminium Company Limited, and Sterlite Energy Limited amalgamated with the petitioner (at that time known as Sesa Goa Limited) coupled with a demerger of Vedanta Aluminium Limited. The appointed date under the merger scheme was prescribed to be April 1, 2011.

The respondent or department took note of the return of income that was filed by the petitioner or assessee for FY 2012–13 on November 27, 2012. The Assessing Officer appears to have taken note of a letter received from the Department of Mines and Geology of the State of Karnataka, carrying information in respect of iron ore mines e-auctioned during the Financial Year 2011–12. The auctions were settled in favor of the petitioner, and as per the information and reports received by the respondents, the bid money amounting to INR 167,75,60,000 was deposited.

The department, however, took note of the petitioner having disclosed iron ore sales of INR 160,93,69,636. The department formed the opinion that there was a non-disclosure of income amounting to INR 6,81,90,364.

The petitioner/assessee has challenged the reassessment action initiated pursuant to a notice dated March 30, 2019 that pertains to Assessment Year 2012–13.

The petitioner contended that the sum was not the revenue earned by the petitioner-assessee from the sale of iron ore and other non-ferrous metals that may have been mined or extracted but the bid amount that was submitted to the Department of Mines and Geology for the purposes of acquiring the right to mine. The sum of Rs. 160,93,69,639/- correctly represents the sales and revenue generated from mining activity, which had been duly disclosed by the petitioner. The assumption that a sum of INR 6,81,90,364 constitutes undisclosed income is thoroughly misconceived, and the reassessment action is thus liable to be quashed.

The court, while allowing the appeal, noted that the amount clearly cannot be counted as the income of the assessee for the relevant year. The income of the assessee would only be that which was garnered from the sale of iron ore and other non-ferrous metals.

Counsel For Petitioner: Sachit Jolly

Counsel For Respondent: Shlok Chandra

Case Title: Vedanta Limited Versus ACIT

Case No.: W.P.(C) 13030/2019

Click Here To Read The Order