AI Drafter 
TaxTMI 
TaxTMI 
2017 (12) TMI 1407
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....he interest of revenue and as such the CIT would not exercise any power under section 263 of the Act. The CIT erred in holding that the order of assessment is erroneous and prejudicial to the interest of revenue. 3. For that the CIT erred in setting aside the order of assessment on the ground of disallowance of additional operational and incidental expenses as against various expenses disallowed in the assessment order in as much as the allowance of operational and incidental expenses was gone into in detail in the assessment order and after a detailed enquiry the A.O. disallowed various expenses out of the total operational and incidental expenses. 4. For that full and complete enquiry was made in respect of the allowance/disallowance of operational and incidental expenses and as such the CIT was precluded from setting aside the assessment on this ground in view of the judgement of the Hon'ble Supreme Court of India reported in the case of Malabar Industries Co. Ltd. vs CIT reported in 243 ITR 83. 5. For that the CIT erred in not considering the submission of the appellant in respect of not adopting the sale price of ROM as per M.B. Shah Commission Repor....
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....the following errors in the order of the A.O. passed under section 143(3) which according to him, were prejudicial to the interest of the revenue: "The total sale of Iron Ore by your company consists of 6589740/- MT of Iron Ore (ROM) & 40315 MT of Dump. The total sales value as per note 16 has been calculated at Rs. 1070,54,67,000/-. Considering the sale price of dump as negligible, the sale price per MT of Iron Ore comes to Rs. 1625 MT (Rs. 1070,54,67,000/6589740 MT) The average sale price per MT of Iron Ore as per the Hon'ble M.B. Shah Commission Report (page no 103) for the F.Y. 2011-12 has been assigned at Rs. 8561.07. As such, the total undervaluation of sale comes to Rs. 6936 per MT (8561.07 - 1625). Therefore, the total undervaluation of sales comes to nearly Rs. 4612 crores, resulting in substantial loss of revenue. From the above Commission report, it was noted that you appear to have a hidden understanding between itself and Ms. Jindal Steel & Power Lt. (JSPL). You were selling all run of mines to JSPL who have established two big plants in its area. All other supporting infrastructure like employees' colony, working pets and others, were create....
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....oints No.28 to 32 are in relation to expenses under various heads. Another notice was issued by the AO on 15.10.2014 where in Sl. No.11 details of various expenses such as operational expenses were asked for. Our client in course of the assessment proceedings by various letters furnished numerous details as requested by AO. The letters are dated 10.11.2014, item no.6 and 7, letter dated 21.1.2015 item no.2 and 3, letter dated 9.3.2015 item nos. 9 and 11. It is therefore, clear that various details were asked for and enquiry was made by the AO in course of assessment proceedings which were duly replied. After going through the details of the expenses filed by our client above named and after consideration of all the aspects of the matter including the alleged understanding with Jindal Steel & Powers Ltd. (JSPL) as also alleged in the notice under reply, the AO disallowed various expenditure claimed by our client as can be found at pages 5 to 8 of the assessment order. Accordingly, the AO has applied his mind fully i n respect of allowability of the operational and incidental expense and it cannot be, said that the order of assessment in so far as it relates to the disallowance of ex....
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.... under reply. The proposed disallowance of the additional expenditure in addition to the amounts already disallowed in the assessment is based on certain alleged nexus and/or understanding between our client and JSPL though none has been furnished or explained in the notice under reply. In this connection, reliance is placed on the judgement of the Guahati High Court in the case of (IT vs. George Williamson (Assam) Ltd. reported in 250 ITR 747 in which it has been held that there must be some material either intrinsic in the order of assessment itself or otherwise before the CIT to order reassessment or enquiry into the matter. The Commissioner of Income Tax must have some material on the file which may compel him to pass an order under section 263 of the Act that the matter needs to be further enquired into. For this reasons it was held by the Gauhati High Court that the order passed by the Commissioner of Income Tax nowhere mentioned as to what was the material with him to order enquiry into the matter by the Assessing Authority and as such the quashing of 263 order by the Tribunal was justified. A copy of the above judgement is annexed hereto and marked as Annexure - 4. ....
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....being done by our client: (a)The mines were earlier run by SLML Sarda Association of Persons (AOP) which was subsequently transferred to Sarda Mines Pvt Ltd. (our client) in June 2006 as per process and permission of the State Govt. of Odisha. The SLML Sarda AOP was in the business of excavation of Iron Ore ROM (Run of Mines) and'. in the busi ness of crushing the aforesaid iron ore to make calibrated Lumps which is sold in the market. The aforesaid crushing was earlier done on a job-work basis by JSPL. Because SLML Sarda AOP did not have appropriate capital and expertise to run the business and a lot of mining lease area was being occupied by accumulated fines which at that time had limited market, they decided to se" ROM and. lumpy Iron ore (which is not calibrated and is in the raw state) to JSPL at a fixed price to minimise the business risk. By doing this SLML Sarda AOP reduced its operating expenses by cutting down on marketing costs and considerably reduced their market risk by having an assured buyer, Also, the fact that, iron ore fines could be utilised by JSPL in its integrated steel plant, led to movement of the stored fines thus giving more area fo....
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....) Platy (vi) Fibrous (vii) Powdery etc. These are unprocessed or uncrushed ore, which cannot be used directly for steel making. It requires further crushing & processing to convert it to calibrated lump ore (CLO) and fines to be used in the steel industry which involves substantial capital input. This terminology of Iron Ore Lump (type of ROM) has also been recognised in the Mineral Year Book being published by IBM every year, wherein grade wise reserves/resources of Iron Ore (Hematite) in India is, estimated. (iii) Calibrated Lump Ore (CLO) This category of lump ore is obtained after processing /crushing of RoM iron ore into crusher plant and ranges in size from 5 mm to 40 mm, which has commercial value and is the raw material for ORI plant for Steel making. (iv) Fines Fines are produced during drilling and blasting operations and are a part of ROM. Further fines are produced when ROM is processed to produce CLO by the process of crushing and screening (together termed as processing). Fines serve as raw material for Sinter plant or pellet plant used for steel making . (d) Your attention is also invite....
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....n by our client is not what is sold in the market which is produced by JSPL. The price given in the M B Shah Commission Report is of the finished product /processed ore and not the product which is mined by our client and which undergoes a series of processes before the same can be brought to the stage in which it is sold. For using the said ROM produced by our client JSPL must make substantial value addition and suffer production loss in converting the ROM to the saleable product. In Orissa ROM processing yields only about 30-35% lumps and balance is fines of various quality based on level of impurities. Accordingly, there cannot be any basis for increasing the sale price as has been proposed in as much as the figure taken by the Shah Commission report is entirely of different material altogether which is neither produced by our client nor sold. Accordingly, there is a basic mistake in adopting the said figure given in the M B Shah Commission report. Further it is submitted that the addition based on average rates of Orissa without any finding that our client has received anything more than what has been disclosed is illegal, perverse and arbitrary. There cannot be one rate for al....
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....transporting of CLO and fines. (iv) Benfication plant: this is washing of fines to upgrade the Fe content and making it commercially viable. For the purpose, our client requires various machineries, equipment and infrastructure in addition to skilled manpower labour and other materials. A detailed procedure involved in extraction of ROM is annexed hereto as Annexure - 9 for your ready reference. (ii) A perusal of the said process involved in extraction of ROM from earth will show that huge infrastructure and use of machines and equipment in addition to labour are required for doing the same by our client. Details of all the operational and other expenses were filed in course of the assessment proceeding with the AO and he has gone through the same. The factor of excavation of ROM is not denied by AO or by any other authorities such as CEC or Shah Commission or even by you in the notice under reply. It is submitted that it is inconceivable to excavate such huge quantity of ROIV without incurring any cost at all. Further the fact that the mine was being operated by our client and all the activities except crushing was done by them has also been taken note o....
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....also submitted that the assessee is selling the Run of Mines (ROM) only and the value addition of crushing, sizing the same and other process to make it into a calibrated lumps ore is done by JSPL. lt was submitted that substantial expenditure has to be incurred by JSP'L for the value addition and only 30 to 35% of ROM yields in calibrated Lump ore and as such the price indicated by M.B. Shah Commission report cannot be applied. It was also submitted that the product sold by assessee is different than the product for which indicated sale price is given in the report and that the same was given in a:different context. It was argued that there is no allegation in the notice also that the assessee has received anything more than disclosed in the accounts. I have considered the submissions and the written objections filed in my view the Assessing Officer failed to consider various aspects as well as M.B. Shah Commission report and accepted the price disclosed by the assessee without any enquiry. Thus, the assessment order is erroneous & prejudice to the interest of revenue in this respect. Next point is regarding the disallowance of the operational and incidental ....
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.... with law on the aforesaid two points." 7. The Principal CIT accordingly set aside the order passed by the A.O. under section 143(3) dated 30.03.2015 on the issues raised by him in the notice under section 263 and directed the A.O. to pass a fresh order of assessment on the said issues in accordance with law after making appropriate enquiries and after giving adequate opportunity of hearing to the assessee. Aggrieved by the order of the Ld. Principal CIT passed under section 263, the assessee has preferred this appeal before the Tribunal. 8. The learned counsel for the assessee at the outset invited our attention to the copy of show cause notice issued by the Ld. Principal CIT placed at page no 1 and 2 of his Paper Book and submitted that there was no allegation made by the Principal CIT that there was any failure on the part of the Assessing Officer to make proper and sufficient enquiries on the points raised by him while completing the assessment. He submitted that the order of assessment passed by the A.O. was alleged to be erroneous of the Ld. Principal CIT on merit of the said issues and accordingly a detailed submission was filed by the assessee in response to the notic....
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....011-12 as given in the report and submitted that the same were summarised in the Shah Commission report while considering the issue of corporate social responsibility of the mining companies. He submitted that the said details given approximately in the report thus were in different context and no conclusion as regards the under charging of sales price can be drawn on the basis of the same. 10. The Ld. Counsel for the assessee contended that the average sale price of Rs. 8501/- per ton given in the report for the entire State of Orissa was in respect of iron ore while the product sold by the assessee to JSPL was mother earth of iron ore called as "Runs Of Mines" (ROM) which is materially different from the iron ore. In this regard, he relied on the decision of Orissa High Court rendered in the case of the assessee in the context of value added tax [W.P. (C) No. 24421 of 2012 dated 26.04.2017] to submit that ROM which is otherwise called as mother earth of iron ore consisting of raw unprocessed ores in its natural state is obtained after blasting or digging was excavated and handed over to M/s. JSPL. He submitted that the same consisting of large boulders, fragments and fines alo....
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.... 263. 12. The Ld. CIT DR, on the other hand, submitted that the order of assessment was passed by the A.O. without making enquiries or verification which should have been made by him as found by the Ld. Principal CIT on examination of the relevant assessment records and the Ld. Principal CIT, therefore, was fully justified in the revising the said order by exercising the powers under section 263. He contended that the order of assessment passed by the A.O. thus was found by the Principal CIT to be erroneous as well as prejudicial to the interest of the revenue on this specific ground calling for revision under section 263. In this regard, he relied on Explanation 2 to Section 263 inserted by the Finance Act 2015 with effect from 01.06.2015 which provides that for the purposes of Section 263, an order passed by the A.O. shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the same, in the opinion of the Principal CIT or CIT, is passed without making enquiries or verifications which should have been made. 13. The Ld. CIT DR also contended that although the Shah Commission report was apparently available with the Assessing Officer when....
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....rused the relevant material available on record including the case laws and relevant statutory provisions referred to and relied upon by both the sides in support of their arguments. In the present case, the order of assessment was passed by the A.O. under section 143(3) of the Act. On examination of the relevant assessment records, the Ld. Principal CIT however found the same to be erroneous on merits and accordingly a notice under section 263 was issued by him to the assessee pointing out the errors in the order of the A.O. The errors so pointed out by the Ld. Principal CIT in the notice issued under section 263 are already extracted by us in paragraph no 3 of this order and a perusal of the same shows that the order of assessment passed by the A.O. was found to be erroneous by the Ld. Principal CIT on merit and in the reply filed to the notice issued under section 263, a detailed submission was made by the assessee to show that there were no such errors in the order of the reassessment made by the A.O. on merits. Although the Ld. Principal CIT in his impugned order passed under section 263 summarised the submissions made by the assessee in brief, he did not give any finding or c....
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....3 is passed. It was held that the CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. It was further held that in some cases, the CIT can also show and establish that the facts on record or inferences drawn from the facts on record per se justified and mandated further enquiry or investigation, but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable and the matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries. It was held that in such matters, to remand the matter/issue to the Assessing Officer would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide this aspect/question. In the case of Infinity Infotech Park Ltd. vs DCIT 58 ITR (Trib) 486 cited by the learned counsel for the assessee, there was no allegation in the show cause notice issued under section 263, as it is in the present case, that there was failure on the part of the Assessing Officer to make proper and adequate enquiries before completing the ....
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....to be quashed. 18. At the time of hearing before us, the CIT DR in this context has relied on Explanation 2 to Section 263 inserted in the statute by the Finance Act, 2015 with effect from 01.06.2015 in support of the revenue's case. As per the said explanation, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as prejudicial to the interest of the revenue for the purpose of section 263 if in the opinion of the Principal CIT or CIT the same is passed without making enquiries or verification which should have been made. The learned counsel for the assessee however has contended that there being no allegation made by the Ld. Principal CIT in the notice issued under section 263 about lack of enquiry by the A.O., Explanation 2 to Section 263 is not applicable in this case. It is observed that in the case of Sterling Biotech Ltd. vs Principal CIT (ITA No. 2750/M/2015 dated 29.06.2016), Mumbai Bench of this Tribunal has already considered the effect of Explanation 2 to Section 263. In the said case, the contention raised on behalf of the assessee was that the Ld. Principal CIT, before holding an order to be erroneous, should have conducted necessary en....