TaxTMI 
TaxTMI 
2014 (8) TMI 105
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....for A.Y. 2008-09 on 28-09-2008 declaring the total income of Rs. 2,03,55,300/-. During the course of assessment, the Assessing Officer observed that the Mining division of the assessee sold iron ore to its group concern viz. M/s. Ramcanta Velingkar Minerals (100% EOU). The Assessing Officer observed that as per the description on the invoices, the assessee has sold Iron Ore Fines/Lumpy to the said Ramcanta Velingkar Minerals having around 54-54% iron content. The assessee was asked to provide the grade-wise list of purchase and sales data which is reproduce in Assessment Order as under: PURCHASE DATA: PURCHASE OF ORE-MINING DIVISION: S. No. Name of the party (SELLER) Quantity(MT) Grade Unit Rate (Rs./MT) Total Cost (Rs.) 1 Mr. M.S. Rege 20,871.300 47.60 480 10,41,985 2 Mr. M.S. Rege 17,062.400 47.90 480 8,51,755 3 Mr. M.S. Rege 3011 48.30 510 1,59,703 4 Mr. M.S. Rege 22,537.500 47.80 480 11,25,072 5 Mr. M.S. Rege 3,946 48 510 2,09,296 6 Mr. M.S. Rege 22,731 47.50 480 11,34,771.45 7 Mr. M.S. Rege 4,011 48.20 510 2,12,743.45 Purchase....
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....Value (in Rupees) 1 Sundial Metals And Minerals Ltd. Flat/RM A 15/F Hillier Common Bldg 65-67 Bonham Strand East Sheung Wan, Hongkong 41,800.000 58.07 PCT US $ 36.10 56137529.00 5,61,37,529.00 At this point of time it is crucial to discuss one another important provision of S.10B of the IT Act, under which the sister concern of the assessee, M/s Ramacants Velingkar Minerals has started to claim the deduction. It was found that as mentioned in the above quoted provisions there existed a relating and close connection between the assessee and one of the buyer M/s Ramacanta Velingkar Minerals as presented below: M/s Velingkar Brothers Assessee firm S. No. Partner's name Profit sharing ratio(%) 1. Atchuta V.S. Velingkar 10 2. Ramacanta V.S. Velingkar 10 3. Vishnum N.S. Velingkar 15 4. Anilkumar N.S. Velingkar 15 5. Prafulla N.S. Velingkar 7.5 6. Dinesh N.S. Velingkar 15 7. Vasudeva A.S. Velingkar 10 8. Dattararaj Velingkar 10 9. Gaurav P.S. Velingkar 7.5 M/s Ramacanta Ve....
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....imated based on industry information and similar purchase-sales transactions are presented below: S. No. Grade (Fe%) Description Estimated Rate (Rs./MT) 1. 52% Iron ore fines 800/- 2. 53% Iron ore fines 900/- 3. 54% Iron ore fines 1000/- 4. 54% Iron ore lumpy 900/- 5. 52% ROM Ore 300/- The assessee has mentioned that the basis on which the estimates were made was not provided. The detailed tabulation, based on which the prices of the different types of ore were estimated, was provided to the assessee on 27.12.2010. In the fourth paragraph, the assessee had mentioned that the provisions of the IT Act based on which the additions were proposed to be made were unknown. The same is not correct as the details were given on 20.12.2010 and placed on record. In the third paragraph of the reply produced by the assessee, notice has been brought on Chapter X which enumerates on the Sections 92 to 94 dealing with Transfer pricing. Transfer pricing is applicable only to, international transactions and not to domestic transaction. By mentioning about the Transfer pricing provisions, the assessee is only trying to deviate ....
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.... of seven invoices rather than the name of the seller-firm, only the name of the partner i.e. Mr. Ramacanta V.S. Velingkar, is quoted. Only in one of the invoices, dated 21.02.2008, the name of the seller-firm was mentioned on it. To sum up, in almost all the invoices- the name of the seller party or grade of the ore or the description - the three most important factors have all been quoted wrongly or not quoted at all. In all the invoices, the name of the buyer, the quantity, amount etc were typed correctly. The assessee was not able to explain why there was mistake only in the description of the ore. Going by all the above it is decided that the assessee firm has indeed made a convenient arrangement with a related/closely connected firm/party by which while the profits of the seller-unit that is not eligible for any tax deductions, the buyer-firm that is eligible for deduction u/s10B of the IT Act, is able to make more than ordinary profits. This is a classic case of an assessee working through the system in such a way that even the benign provisions of the IT Act offering tax deductions and exemptions are exploited and in fact abused to a significant extent resulting in a hug....
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.... working out the purchase price of the sister concern. Even otherwise, the A.O. should not have made on the basis of assumptions and presumptions for the following reasons: There is no doubt about the fact that both the parties are sister concerns but there are many different partners in both the varied percentage of shares The A.O. has not been able to prove that any money has come back to the appellant and that the book results of the appellant was incorrect or unreliable. iii) The A.O. has not been able to establish that the assessee has earned more income than declared in its books of accounts. iv) The assumed price cannot replace the real price. Apart from the above, to support its contention, the appellant has placed reliance on many judicial pronouncements. Among, these, worth mentioning is the order of the Hon'ble Apex Court in the case of CIT V/s. A. Raman and Co. (1968) 67 ITR 11 (SC) wherein it was held that ITO cannot have reason to believe that income had escaped assessment for purpos....
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....ls (RVM) owns a 100% Export Oriented Unit (EOU), and owns a plant to process the ROM to convert the same into marketable iron ore concentrate fines. RVM is 100% entitled for exemption U/s.10B. The assessee firm has indeed made a convenient arrangement with a related/closely connected firm/party by which while the profits of the seller unit that is not eligible for deduction u/s 10B of the IT Act, is able to make more than ordinary profits. The AO was of the view that the assessee has sold the goods of iron ore fines and iron ore lumpy. The Assessing Officer held that the assessee case is covered by section 80IA (8) or 80IA (10) but the assessee has not claimed deduction under 10B(7) of the Act. Therefore provision of section 80IA(8)/80IA(10) is not applicable. The assessee has sold ROM which is crude ore extracted from the mine on 'as is where is basis'. The said ROM included many impurities such as mud, silica, stones sulfur, boulders, etc. The Assessing Officer has applied the rates of processed fine ore. The Sale price of ROM cannot be applied equated with that of finished goods. Therefore, AO is not justified in his action. The price of ROM varies between Rs. 360 to Rs.....
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.... the Hon'ble Supreme Court held that when one trader transfers his goods to another trader at a price less than the market price, the taxing authority cannot take into consideration the market price of these goods, ignoring the real price fetch. In the case of Marghbhai K. Patel & Co. Vs. CIT (1977) 108 ITR 54 (Guj) wherein Gujrat High Court held that the taxing authorities has no right to substitute the market price or average price in place of agreed price. Unless it has been shown that the transaction in question was a sham one or unless the value shown was not the value in the books of account or unless it was not the value in the books of account or unless it was not bona fide transaction, it is not open to the taxing authorities to disregard the figures of the transactions shown in the books of account and disallow a part of price paid to partners in respect of purchases made by them. We respectfully following the same, we are of the view that CIT(A) is justified in his action and our interference is not required. In the result, appeal of the revenue is dismissed on this ground. 3. Ground No.2- During the course of assessment proceeding assessee has claimed expendit....
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....ee. However, the ld CIT, Panaji, disallowed these expenses as being capital in nature in an order passed u/s 263. On appeal, Hon'ble ITAT decided the issue in favour of the appellant and held that the order passed by the A.O. was neither erroneous nor prejudicial to the interest of revenue. 5.5 In view of the above facts, in my opinion, the A.O. was not justified in disallowing NPV payments treating them being capital in nature and there addition amounting to Rs. 1,09,66,899/- is hereby deleted and this ground of appeal of the appellant is allowed accordingly." 3.2. We have heard the rival contention of both the parties. Looking to the facts and circumstances of the case, we find that the assessee has paid the 'compensation' for use of forest area for mining. Forest area/land used by assessee is a capital asset and anything paid for acquiring a capital asset is capital expenditure and not a revenue expenditure. But in this case the assessee has not acquired any capital asset but assessee has paid the amount of compensation for carrying out mining activities and the assessee has paid compensation as charges for degrading the forest land and the e....