TaxTMI 
TaxTMI 
2014 (7) TMI 993
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the basis of information obtained through news papers followed by the report of Lokayukta of Karnataka received/obtained by the A.O. and also enquiries made in this regard from the Director's of the Company, assessment was reopened under section 147 of the Act by issuing notice under section 148 and reassessment was completed for A.Y. 2007-08 determining the total income at Rs. 4042,93,38,564/- by making the following additions. a) Suppression of sale value of exports Rs. 506,10,92,507 b) Disallowance u/s.40(a)(ia) Rs. 20,56,93,044 c) Disallowance u/s.40(a) Rs. 19,83,98,000 d) Disallowance of additional depreciation wrongly claimed Rs. 7,46,73,168 e) Disallowance of claim of expenses of earlier year Rs. 22,62,104 f) Loss on sale of assets Rs. 48,335 4. For A.Y. 2010-2011 assessee filed return of income on 24.09.2010 admitting total income at Rs. 5114,44,66,450/- and the assessment was completed under section 143(3) determining total income at Rs. 5522,12,83,862/- inter alia, making various additions. 5. Assessee contested before the Ld. CIT(A) amongst various additions made, the issue of reopening of assessment under section 14....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ma facie evidence for reopening of the assessment and it cannot be said that they do not have any evidentiary value. Even the Hon'ble High Court of Andhra Pradesh, in a recent judgment on a Writ Petition filed by the Hon'ble Minister in a disproportionate assets case, held that there is prima facie evidence in the contents of the petition and ordered for CBI enquiry against a Member of Parliament. Similarly, the reopening of the assessment in the present case basing on the reports of the Newspaper and report of Hon'ble Lokayukta of Karnataka is not bad in law and is correctly justified. As a matter of fact, the scrutiny assessment proceedings in the appellant's case for assessment year 2009-10 have also concluded on 30-12-2011 i.e., prior to completion of the reassessment proceedings, which led to the conclusion that the assessee is resorting to suppression of value of sales towards export of Iron Ore. As such, the fresh set of fact of resorting to suppression of value of sales emerged during the regular assessment for assessment year 2009-10, which has been in the knowledge of the appellant. Hence, the reopening of assessment for assessment year 2007- 08 is not bad....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... WP.No.430 of 2012 dated 20.07.2012 v) Parveen P. Bharucha vs. DCIT WP.No.10437/2011 dt. 27.06.2012 vi) ITO vs. Shiv Shakti Build Home (P) Ltd. (2011) 141 TTJ 123 (ITAT Jodhpur) vii) CIT vs. S.F.I.L. Stock Broking Ltd. (2010) 41 DTR 98 (Del.) viii) VXL Technologies Ltd. vs. ACIT ITA.No.2728/Del/2013 11. After considering the various case law, on the facts of the case we agree with the findings of the Ld. CIT(A). Before reopening the assessment, A.O. has in fact got the reports from the news papers and then A.O. also mentioned in the assessment order the steps taken for obtaining the information from Lokayukta, various enquiries caused including statements recorded from the Officers involved in export of iron ore before reopening assessment. As already pointed out by the Ld. CIT(A), proceedings for A.Y. 2009-10 were also pending at that point of time. Therefore, we are of the opinion that A.O. has prima facie belief to reopen the assessment under section 147. At the stage of reopening the assessment, it is not necessary to examine the quantum of escapement. What is required to be verified is w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve been covered by long term and short term agreements. The long term agreement which normally covers a period of five years essentially contains the produce-wise quantities to be exported every year during the pendency of the long term contract. As far as the price is concerned, there is a specific provision in the long term agreement that prices shall be negotiated mutually each year for supply during the year. With regard to fixation of price, short term agreements, yearly and quarterly are made. The basis for fixation of the price is stated to be the "bench mark price". The 'bench mark price' is stated to be based on the negotiations held between the main importing and exporting countries and this is in the form of percentage increase/decrease over the previous year's price. Further, it is learnt from the statements given by the above officers that NMDC has not adhered to or taken into account the market price for fixation of export price. On further investigations revealed that there is difference between export sales stated by MMTC and sales declared by NMDC. There is huge difference between the sale rate of NMDC and the sale rate of other exporters during the fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f government Officials responsible for fixation of prices but cannot challenge the correctness of the amounts nor the flow of transactions which are entirely transparent and have been upheld to be true and fair by the Government and statutory auditors. Accordingly, the assessee requested to reject the contentions of the Assessing Officer that there is under invoicing of exports. 13. Assessee inter alia made various submissions which can be summarized as under : "Firstly, the appellant has not directly exported the iron ore. It has sold the iron ore to MMTC (another Govt. of India PSU) and MMTC has exported the iron ore to Japan, Korea, China etc. 1. It is squarely covered by case-law : The above issue regarding under invoicing of sales are squarely covered in the case of Mysore Minerals Ltd for four A.Ys 2004-05 to 2007-08, vide ITA No.350,351/Bang/2011 and ITA No.679 & 680 and 733/Bang/2010 for A. Y.2004-05, 2005-06, 2006-07 and ITA No.971/Bang/2011 for AY 2007-08. 2. Real income is taxable but not hypothetical income  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are Brokers Ltd 288 ITR 345 (del) and Kishenchand Chellaram Vs CIT 125 ITR 713 (SC)." 14. Ld. CIT(A) however, did not agree with the assessee's contention and upheld the addition made by the A.O. by finally concluding in para 5.5.6 as under : "5.5.6 In the light of the observations in the preceding paras, it can be concluded that there are inconsistencies in the pricing policy of the appellant with Japan and South Korea and the appellant could not give concrete explanation rather substantiate with proper evidence to the figures reported in the report of Dr U.V.Singh. As such, the appellant failed to bring out a case that the figures in the report of Dr U.v.Singh are incorrect except stating that the report is wrong. Hence, the addition made by the Assessing Officer on this count is upheld and the grounds raised by the appellant are dismissed". 15. Ld. Counsel reiterated the submissions made before the authorities. His main contentions are that (1) there are factual errors in the report as assessee is not a direct exporter but routed the exports only through MMTC (2) that assessee was always exporting by way of long term contracts negotiated through MMTC,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, it is stated that the sales value declared by NMDC is 4,695,565,037, which is not correct. It is amount of sales declared by MMTC. c) For Vizag (Iron ore lumps), at annexure-B, transaction from S.No.1-13 amounting to Rs. 1,934,739,002 & S.No. 16 & 17 amounting to Rs. 37,253,4936 that has not been taken into consideration while computing sales value of export as declared by NMDC in column 3 as per page 90 of appeal paper. (page 36 of assessment order) d) Total sales value of export as per International market is Rs. 9,756,657,544 whereas in the assessment order (at page 81 of appeal paper & 27 of assessment order) it is valued at Rs. 12,201,629,446. The A.O. can only give the explanation how he arrived at this figure. e) Total sales value of export as declared by NMDC is valued at Rs. 4,695,565,037 by the A.O. whereas the actual export sales value of NMDC is Rs. 7,264,000,000. 6. Taking into consideration, the above facts, the export sales made by MMTC works out to Rs. 734,61,80,143 We would like to bring to your notice that in table F.Y. 2006-07 (A.Y. 07-08) - Iron ore s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee always entered into long term contracts through MMTC and honoured those contracts at the price negotiated. A.O. also acknowledges the receipt of the communication from the Under Secretary, Government of India of the various Cabinet notes and the approval of prices including the agreements entered by the parties. These cannot be brushed aside. 20. More over, similar issue was considered by the Coordinate Bench in the case of Mysore Minerals Ltd. vs. ACIT ITA.No.351/Bang./2011 for A.Y. 2005-06. On similar additions made by A.O. therein, the Hon'ble ITAT vide its order dated 2nd November, 2012 held as under : "18.4 We have heard both parties and carefully perused and considered the material on record. We find from the record that the assessee has furnished all the details required by the Assessing Officer. From the details on record in respect of the additions made to the returned income on account of sales to M/s. Kalyani Steels Ltd below market price, we agree with the observations of the Assessing Officer that the price charged for C-ore is below the market price. We also observe that the Assessing Officer has recorded that Karnataka Lok Ayukta in its ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the decision of the learned CIT(Appeals) in deleting the addition of Rs. 15,51,45,117. The grounds at S.Nos.2 and 3 raised by revenue are accordingly dismissed". 21. We agree with the above findings of the Coordinate Bench given in similar circumstances. In fact, assessee's case is much better than the above case as the facts in that case are that assessee entered into agreement with a private company whereas this assessee has entered into long term contract with foreign buyers which were duly negotiated and finally approved by Government of India. We, therefore, find no reason to confirm the addition of the above amount, as the assessee company had furnished all the details required by the A.O. and assessee has accounted for all the amounts it received. There is no iota of information that assessee or any agent received any amount over and above the amounts accounted in the books of accounts. Moreover, I.T. Act does not permit making additions on hypothetical income particularly, as suppression of sales when there is no evidence at all. Additions cannot be made on presumptions and hypothesis. In view of this, we have no hesitation in deleting the addition of the above amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reas in the consolidated P & L account the figures are shown as rounded up to Rs. 2 lakhs. The addition cannot be sustained as there is no mistake in amounts actually incurred by the assessee. Therefore, ground No.5 is also allowed. 24. In the result, ITA.No.1794/Hyd/2013 of the assessee is partly allowed. ITA.No.1792/Hyd/2013 - A.Y. 2007-08 (Revenue Appeal) : 25. This is Revenue appeal for the same A.Y. 2007-08. The Revenue has raised the following three grounds which are material for deciding appeal : "2. The CIT(A) ought to have appreciated the fact that the disallowance u/s.40(a)(ia) for non-deduction of tax on commission paid to M/s. MMTC @ 2.8% is as per law. 3. The CIT(A) ought to have appreciated the fact that the disallowance u/s.40(a) which are mentioned in Col.No.17(1) of Form No. 3CD are as per law. 4. The CIT(A) erred in accepting the assessee's claim of prior period expenses which is not acceptable one as per law." 26. Ground No.2 pertains to the issue of disallowance under section 40(a)(ia) for non-deduction of tax and commission paid to MMTC at Rs. 2.8%. The A.O. made the addition on the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opinion, the said modalities of payment are not the deciding factor to determine the nature of transaction. In view of the foregoing, we set aside the orders of the Ld. CIT(A) as well as that of the Assessing Officer. Since we have decide d the first issue in favour of the assessee, the second issue urged by the assessee becomes infructuous." 28. It was further submitted that miscellaneous application filed by the department against the above orders were also dismissed by the ITAT. Following the decision of the ITAT, the Ld. CIT(A) deleted the addition. Hence, Revenue is aggrieved. 29. On considering the rival contentions, we do not see any reason to interfere with the order of the CIT(A). Respectfully following the afore cited decisions in assessee's own case, we hold that since the assessee is not entitled to export directly and export by the MMTC was on principalprincipal basis, there can be no commission payment to MMTC, as such the question of sustaining the order of the Assessing Officer in estimating the commission and disallowing the same under S.40(a)(ia) does not arise. In fact there is no claim of commission by assessee. So question of deduction of tax does not ari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d determine the year of crystalisation/accrual and then accordingly allow the expenditure either in this year or any other year by modifying the relevant orders, if required. Therefore, we do not see any grievance of the Revenue since the matter is directed to be examined and allow according to the facts of the case. Therefore, Ground No.4 of the Revenue is rejected. 33. In the result, ITA.No.1792/Hyd/2013 of the Revenue is dismissed. ITA.No.1795/Hyd/2013 - A.Y. 2010-2011 (Assessee appeal) 34. This is assessee's appeal for the A.Y. 2010-2011. The assessee has raised 7 grounds in this appeal, Ground No.1 and 7 are general in nature and therefore, does not require any adjudication. 35. Ground No.2 pertains to the issue of suppression of sales added by the A.O. and confirmed by the CIT(A) at Rs. 255.03 crores. As stated in A.Y. 2007-08, based on the news paper reports of the Lokayukta, A.O. made enquiries and then made the addition of so-called suppression of sales. The arguments of the assessee are similar in this A.Y. also. As noticed by us in A.Y. 2007-08, this year also there are variations in the amounts adopted by the A.O. As per the report of Dr. U.V. Singh which wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al, Ld. CIT(A) following his predecessor order for A.Y. 2008-09 confirmed the disallowance. At the outset it was submitted that the issue in A.Y. 2008-09 was decided in favour of the assessee in assessee's own case by order of the ITAT 'B' Bench in ITA.No.714 & 885/Hyd/2012 dated 28.02.2014 wherein the claim was allowed by holding as under : "22. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. Similar came up for consideration before the coordinate bench of ITAT, Cuttack in case East India Minerals Ltd. Vs. JCIT in ITA No. 224/CTK/2012, vide its order dated 25/06/2012, on which reliance placed by the assessee, wherein it has been held as follows: "7. We have heard the rival contentions of the parties and perused the material available on record. Considering the facts and circumstances of the case, we uphold the contention of the learned Counsel for the assessee for the simple reason that the denial of claim of depreciation has been made on misinterpretation of law and the applicability thereof. Explanation to Section 32(1)(ii) leans....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the revenue authorities as well as the decisions cited. This issue is squarely covered by the Hon'ble Bombay High Court in the case of CIT Vs. Cinceita (P) Ltd. (supra), wherein the Hon'ble Court held as follows: "Although the period of the lease was for 20 years and there was option for renewal the expenditure was the only expenditure required for drawing up of effective deed of lease namely, the expenditure in respect of stamp duty, registration charges and professional fees paid to the solicitors, who prepared and got registered the deed of lease. Further there was no element of premium in the amount claimed as expenditure and the expenditure would have been the same even if the lease had been of a shorter duration provided the period of lease was more than one year. Hence, the period of the lease could not be regarded as decisive of the circumstances as to whether the asset or advantage secured is of an enduring nature. Hence the expenditure on registration fee, solicitors fee and stamp duty incurred for registering lease deed was a revenue expenditure allowable under s. 37(1). 28.1 The Hon'ble Court concluded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ible for depreciation. Ground No.4 of the assessee is partly allowed. 40. Ground No.5 pertain to claim of Rs. 71,20,08,354/- on corporate social responsibility stated to have been incurred wholly and exclusively for the purpose of business. Assessee has incurred the above amount only to operate mines in remote places. It was submitted that the expenditure was necessary for the smooth conduct of the business such as installing traffic signals at circle near the vicinity of the Office, flood relief etc., and following the Union Government's CSR policy, NMDC has to create budget mandatorily at Rs. 104 crores (2% of PBT) whereas, company has spent only Rs. 71.20 crores. The A.O. however, held that the amount is not related to the business of the assessee and they are in the nature of donations which cannot be allowed under section 37(1). Ld. CIT(A) confirmed the same. 41. At the outset, it was submitted that similar issue was allowed by the ITAT in earlier years and the latest being ITA.No.714 & 885/Hyd/2012 dated 28.02.2014 wherein this issue was examined and allowed vide para 35 as under : 35. We have considered rival submissions and perused the record. We....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cation of the employees' children. This would certainly be a welfare measure on the part of the assessee for carrying out the business in an effective and efficient manner. Therefore, in our opinion, the contribution of Rs. 5,00,00,000 has to be treated as revenue expenditure for the purpose of the business. Therefore, we do not find any justification in disallowing the sum. Accordingly, we set aside the orders of the lower authorities and delete the entire addition." 36. Since the issue under consideration is identical to that of AY 2005-06, we delete the additions made under the heads from (i) to vii). 36.1 However, we make it clear that the expenditure incurred at Rs. 3,48,04,548/- shown as miscellaneous expenses cannot be allowed as the assessee has not furnished the details of expenditure, therefore, in the absence of requisite information the said expenditure cannot be allowed. Accordingly, this ground is partly allowed. 42. AO is directed to examine the expenditure in this year also and allow accordingly. Ground No.5 is considered allowed. 43. Ground No.6 pertains to allowance of additional depreciation claimed by the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sively on a higher side and absolutely no realistic or rational basis for such calculation. 12. The CIT is not correct in invoking the provisions of section 263 as we find that the issue is debatable and when two views are possible the AO has taken one view. The Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 as well as CIT Vs. Max India Ltd. reported in 295 ITR 282 has held that when there are two views possible and the AO has taken one view, the order of the AO cannot be considered as erroneous and hence the CIT cannot exercise revisional power u/s 263. As pointed out above, the provisions for an accrued existing liability, even though, the actual expenditure may take place at a later date, is an allowable deduction and the CIT erred in treating it as an unascertained liability. Therefore, we set aside the order of the CIT passed u/s 263 and the order of the AO is restored." 9.1 The above decision relied upon by the AR of the assessee, though, it was delivered in assessee's own case for AY 2006-07 cannot be applied to the facts of the case as that order was delivered by the Tribunal in connection wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2007-08 vide para No. 26 to 29. For the reasons stated therein, we affirm the order of the CIT(A) and reject the ground No.4 of the Revenue. 50. Ground No.5 is with respect to levy of interest under section 115P on the reason of remitting dividend distribution tax with a delay of 4 months. It was the A.O's contention that assessee has declared dividend on adhoc basis in the year and tax was paid with a delay of 4 months and therefore, interest under section 115P amounting to Rs. 2.69 crores was levied. It was contended that the Board of Directors has power to recommend the amount of dividends to be declared or distributed in the annual general body meeting and the amounts are provided on the basis of the proposed dividends whereas, shareholders/members of the company are empowered to declare such dividend fully through AGM only vide Section 166 and 205 of the Companies Act. Therefore, unless the amount was approved by the AGM, question of payment of tax on that distributed dividend does not arise. If calculated from the date of declaration, there is no delay and provisions of section 115P are not applicable. 51. Ld. CIT(A) held that the identical issue has been decided by hi....