TaxTMI 
TaxTMI 
2013 (10) TMI 364
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....gs the Assessing Officer by his letter dated 30.11.2009 required the assessee to file objections to treat the transaction of purchase of iron ore from Natco Pharma Ltd. as sham transaction. 4. In response to the said letter the assessee filed its objections vide letter dated 15.12.2009 which are as under : The assessee purchased 35,000 MT of iron ore @ 1,673 per MT from Natco Pharma Limlted on 31.03.2006 vide invoice 001/05- 06 dated 31.03.2006 for a total consideration of Rs.6,09,00,000 including VAT of Rs.23,42,308 @ 4%. The iron ore was extracted by Natco Pharma Limited during the period May, 2005 to July, 2005 and transported to Krishnapatnam Port Company Limited and kept in the port. As per the Test Report obtained by NATCO Pharma Limited from SGS India Private Limited, the content of Iron (FE) was 60.63% and Silica (S102) was 5.12% in December, 2005. In the VAT return for the month of March 2006, filed by the Assessee on 10.4.2006 with the Commercial Taxes Department the purchase of iron ore was disclosed and input credit was claimed for the VAT paid and adjusted against VAT payable by it. It was submitted that the entire payment for purchase is made by 31.03.2006 as can be....
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.... be said that the transaction is entered into with an intention to help the associate Company to earn profits at the cost of the Assessee Company. There was no physical movement of iron ore since iron ore was already in port and is to be exported. It was submitted that the transaction is not a sham transaction. 5. With regard to disallowance under section 14A the assessee submits that it had neither incurred any interest nor expenditure in earning dividend income since advances received are interest free and all the dividends were directly credited to the assessee's account by ECS clearing. Therefore disallowing Rs.4,11,413/- U/s 14A is not proper and justified since no expenditure was incurred for earning exempt income. 6. The Assessing Officer has treated the cost of iron ore of Rs.5,85,57,695/- purchased from Natco Pharma Ltd., as bogus purchase and disallowed Rs.3,10,49,752/- as loss incurred by the Assessee on sale of such iron ore while computing the income of the Assessee. 7. Aggrieved, assessee preferred appeal before the CIT(A) and submitted that the Assessing Officer failed to see that the transaction of purchase of iron ore from Natco Pharma Limited by the assessee is....
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....e legal position has to be considered ultimately in the light of the decisions in Hukumchand Mills Ltd.'s case (1967) 63 ITR 232 (SC) and Mahalakshmi Textile Mills Ltd.'s case (1967) 66 ITR 710 (SC). First it must be found out what is the subject matter of the appeal and that can be determined only by finding out what the Appellate Assistant Commissioner expressly or implied decided. We must emphasize again that by implied decision, we mean that though a point might have been raised before the Appellate Assistant Commissioner, in his final order the Appellate Assistant Commissioner might not have dealt with that point and thereby impliedly rejected it." 11. The learned Counsel also relied on the decision in the case of CIT vs. Late Begum Noor Banu Alladin (1993) 204 ITR 166. On the merits of the case the learned Counsel submitted that the purchases were in the year 2006-2007 while the same has taken place in the assessment year 2007-08 and the VAT return filed by the assessee with the Commercial Taxes Department for the month of March, 2006, the purchase price was disclosed and claim has been made for the VAT paid. The return was filed on 10.4.2006 i.e., before the due date. The e....
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....ax is the same for both the companies and hence there is no revenue loss to the department. 14. The learned A.R. further submitted that it has been held by the Hon'ble Supreme Court in the case of CIT vs. Walchand & Co. (P) Ltd. (1967) 65 ITR 381 (SC) which reads as follows : "In applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue." 14.1. The learned A.R. therefore, stated that as a prudent businessman the assessee sold the iron ore at the price to cut his losses short. 15. The learned D.R. on the other hand, prayed to the Bench that the matter shall be referred back to the CIT(A) with respect to withdrawal of the appeal. The learned D.R. pointed out that the assessee is a pharmaceutical company and NATCO is not in the business of trading in iron ore. Further, it was pointed out by the DR that the entire transaction is colourable and not supported by written contract. The learned A.R. in his rejoinder relied on in the case of Dhakeswari Cotton Mills Ltd. vs. CIT (1....
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....r MT and the highest price was Rs.2956 per MT for FE content of 65%. Also, it can be seen from the data of exports of iron ore from Chennai that 48,714 MT of iron ore with FE content of 62-61% has been sold at Rs.1748.96 per MT by Trimex Industries to Noble Resources, Hongkong which is very close to the FE content of iron ore at 60.63% purchased by the assessee for 1673/- per MT. Hence, we are of the opinion that the price paid is reasonable and comparable to the prices at which exports have been made by others during the relevant period and no excessive price has been paid to benefit NATCO Pharma Ltd. 19. Further, we find that the assessee has sold 28.213.75 MTs to Trademin International Private Limited. Cuddapah on 17.01.2007 @ Rs.975 per MT which was exported by then to China in the same month. It is to be noted here that due to time gap between dates of purchase and sale and rains, the FE content of iron ore dropped to 56% and Silicon content increased to 13% which drastically reduced the market value of the ore. To compound the problem. prices of iron ore declined during that period. It is to be noted that the parties to whom the material is sold are outsiders and are not con....
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....a reasonable disallowance. We also point out the same ratio has been adopted by the Madras High Court in Simpson & Co. (TC(A) No. 2621 of 2006 dated 15.10.2012). We, therefore, direct the A.O. to disallow 2% of the assessee's exempt income under section 14A. 23. For the assessment year 2008-2009 (ITA.No.338/Hyd/2012) the facts are mutandis mutandis to that of assessment year 2007-2008 bearing ITA.No.767/Hyd/2011 and the conclusions drawn in ITA.No.767/Hyd/2011 shall hold good for this year also on the issue of disallowance of loss. 24. Regarding disallowance under section 14A the learned CIT(A) held as follows : "I have carefully considered such submissions of the learned A.R. However, on due consideration of the facts of the case, I do not agree with such contention of the learned A.R. Admittedly, the appellant has incurred expenditure of Rs.34,36,286/- during the previous year. The said amount is claimed as interenst on loan, shown under 'finance charges'. Such amount is shown under schedule-15 to the P & L account. It may be mentioned here that, the appellant has claimed similar interest for the A.Y. 2007-08. For that assessment year, the Assessing Officer has made disallowan....
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....diture by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of subsection (2) of section 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method. 43. Thus, the fact that we have held that sub-sections (2) & (3) of section 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort (supra) to the following effect :- "The theory of apportionment of expenditure between taxable and non- taxable has, in principle, been n....
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....ion upon ourselves and by exercising jurisdiction in the light of latest judgment of Hon'ble Jurisdictional High Court in T.C.(A.) No. 2621 of 2006 titled as M/s. Simpson and Co. Ltd. vs. DCIT decided on 15.10.2012, wherein it has been held as under: "This Tax Case (Appeal), filed at the instance of the assessee as against the order of the Income Tax Appellate Tribunal for the assessment year 2001-02, was admitted on the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the estimated disallowance of 2% of the expenditure, as being incidental to earning dividend income, under section 14-A of the Act although no actual expenditure was incurred? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in not appreciating that as per Section 14-A only that actual expenditure incurred in relation o income which does not form part of total income shall be disallowed?" 2. Learned counsel appearing for the assessee as well as learned standing counsel appearing for Revenue submits that the issue involved in this Tax Case (Appeal) is covered by a decision of this C....