Are sites with mp3 downloads allowed to use Google Adsense?

You shouldn't use Google Adsense on Mp3 download sites because it is illegal to provide a link to songs download, owner of the album ( Music production company ) may file DMCA case on you and your site would be banned completely from using Adsense.

There is an option to do that, create another site and place download links on that site and in this site just forward the users to that site and use Google Adsense on your site. Use other pop-up ad networks on the other sites. Though assurance can't be given by following above method also. Just Google might hit you anywhere soon, so just avoid using Adsense and use other ad networks.

MP3 and File download sites do make use of Google Adsense. However not all of them are able to keep the account for long. The reason being the adsense policies do not allow the ads to be posted on the sites that share the pirated content. As the ads if placed on the MP3 hosting sites illegally then such option violates the adsense policies.

Anything illegal is not in terms with the adsense policies. So I suggest avoiding using the adsense code in such sites. You may find some sites using it but the DMCA if reported against the site. Then in such case the site and the Adsense account both are likely to be reported.

Google also penalizes such sites on SEO grounds these days. The thing is the mixed opinion on this front is because black hat SEO users want to use adsense on such content. And they just change the accounts if they get banned. So in such case always avoid listening to the advice of black hat SEO community.

Yes, one can normally see Google ads on some song downloading websites, those sites are not using own song to download but pirated one. This is the issue for disabling AdSense when they get caught. The second one is, there is no issue in showing Ads in original (or own) song publishing sites (like official website or authorized website with copyright etc.).

Most of the audio and video owners nowadays are releasing and publishing their audio and video via online source only thus there is no issue if those websites are displaying Google Ad as long as the site abide by the terms and condition of the Google, whereas, few sites just releasing / publishing audio / video of other's copyrighted one which is a violation.

Google AdSense Terms Of Service (TOS) prohibit the sites which violate copyright laws to use the AdSense. Since, the MP3 download sites - the free ones at that - do just that and as such are clearly in violation of the TOS. It would not advisable to use the AdSense on this site. You will run the risk of getting your account banned. This will affect your earning from other sites ( if you have any more sites than this one).

You can use some other means for monetising your site. The ones like Chitika or infolinks could be a better option. But, you would not be able to get any handsome income with those ads. You may also consider applying for some affiliate programs from Flipkart or Amazon. Placing proper ads at proper place on your site may be a good idea to generate some decent income.

If you have the copyright for the music files provided by you on your website, you are free to use AdSense. It is not the scenario in your case. So, I would advice you not to opt for the same. Even this thread in Google forum advice you not to use it on such sites.