TaxTMI 
TaxTMI 
2019 (10) TMI 1190
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.... two days in filing the appeals and admit the appeals for adjudication. 3. Since, the identical facts and issues are involved in these appeals, we proceed to dispose the same vide this common order. 4. For the sake of convenience and clarity the facts relevant to the appeal in ITA No.2280/Chny/2018 for assessment year 2011-12 are stated herein. 5. The brief facts of the case are as under: The Respondent- assessee namely M/s. Thiruveni Engineering Pvt Ltd is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of contractual iron ore mining services, transportation & handling of iron ore and lime stone and quarrying of blue metal boulders and sale of aggregates. The return of income for the AY 2011-12 was filed on 29.09.2011 disclosing total income of Rs. 241,05,04,840/-. Against the said return of income, the assessment was completed by the Assessing Officer vide order dated 28.02.2014 at total income of A242,82,49,494/- and STCG at A2,25,843/-. 6. Subsequently, the Deputy Commissioner of Income Tax, Central Circle XXI, Kolkata informed the Assessing Officer vide his letter dated 18.03.2014 that Respondent- assessee is one ....
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....M/s Thriveni Earth Movers Pvt Ltd was also one of the beneficiary of the a:commodation entries & had claimed bogus expenditure to the tune of Rs. 22,06,000J during 5he previous year relevant to A.Y 2011-12. It is seen that assessment in the case of M/s. Sakshi Trade Link Pvt Ltd was completed by Deputy Commissioner of Income Tax, Central Circle XXI, Kolkata assessing income @ 0.50% of the gross turnover as commission received for providing accommodation entries including the accommodation entries for M/s Thriveni Earth Movers Pvt Ltd mentioned above. Thus it is clear that M/s.Thirveni Earth Mover Pvt Ltd. has not furnished true and accurate particulars of its income necessary for assessment and deliberately concealed income of R-s.22,06,000/- by claiming bogus expenditure. Therefore, I have reasons to believe that income of Rs. 22,06,000/- chargeable to tax has escaped assessment for AX.2011-12 due to the failure on the part of the assessee to disclose and truly all material facts necessary for this assessment''. The assessee on receipt of the reasons for reopening the assessment filed objections for reopening the assessment on 26.10.2015. The objections came to be disposed of....
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....TR 19. He further submitted that sufficiency or correctness of the material is not to be seen at the stage of reopening the assessment. In this connection, he placed reliance on the judgment of Hon'ble Supreme Court in the case of Raymond Wollen Mills Ltd, 236 ITR 34. He also placed reliance on the judgments of Hon'ble Gujarat High Court in the cases of Purviben Snehalbhai Panchhigar , 409 ITR 124 and Atul Ratilal Makadia, 94 taxmann.com 435 and Bombay High Court in the case of Export Credit Guarantee Corporation of India Ltd, 350 ITR 651. 9. Even on merits of the additions, ld. CIT (Departmental Representative) made detailed submissions. Ld. CIT (DR) further contended that ld .Commissioner of Income Tax (Appeals) ought not have granted relief on technicalities on the grounds of reopening as well as merits of the addition. 10. On the other hand, Shri. T. Banusekar, Authorised Representative of the assessee submitted that very initiation of reassessment proceedings is bad in law and the Assessing Officer had initiated reassessment proceeding based on the borrowed satisfaction of the DCIT, Central Circle-XXI, Kolkata without independently applying his mind. Therefore he submitted....
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....otal turnover. It may be illogical to state that an assessee who is having a turnover of Rs. 241 crores would have shown a bogus expenditure to the extent of 0.08% of its total turnover''. As regards to the additions, he submitted that addition made on account of reducing contract receipts, he submitted that reasons for reopening the assessment is only with regards to the disallowance of amount paid to M/s. Sakshi Trade Link Pvt Ltd. In case this Tribunal holds that no addition is warranted in respect of alleged bogus expenditure paid to M/s. Sakshi Trade Link Pvt Ltd, no other addition can be made even in terms of Explanation 3 to Section 147 of the Act reliance in this regard was placed on the decision of Hon'ble Jurisdictional High Court in the case of Martech Peripherals Pvt Ltd vs. DICT & Anr (2017) 394 ITR 733. Without prejudice to this, ld. Authorised Representative submitted that provision towards reducing the amounts from contract receipts were made based on the Government Order No.5905/SM , dated 07.09.2010 issued by the Government of Odisha, Department of Steel and Mines and this provision represents the amount which the mine owners proposed to deduct from assessee and....
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....ations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness of the loan transaction but, in our opinion, his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Income- tax Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific''. The Hon'ble Supreme Court in the ca....
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....ion that income had escaped assessment for the failure of the assessee to disclose all material facts which are necessary for assessment. Information received from DCIT, Kolkata throws light on the truth fullness or otherwise of transactions with M/s. Sakshi Trade Links Pvt. Ltd. This information enabled the Assessing Officer to form belief that income escaped assessment. As stated by us (supra) at the initial stage of issue of notice u/s.148 of the Act, it is not necessary to go into the sufficing or of otherwise of the new material to make the addition. Therefore the information received from DCIT, Kolkata suggested that payment made to M/s. Sakshi Trade Link P. Ltd is bogus, the Assessing Officer formed belief that income chargeable to tax had escaped assessment and accordingly initiated reassessment proceedings. Therefore we uphold the validity of the reopening of the assessment and accordingly, allow ground No.2 raised by the Revenue. 14. Now, we take up the ground challenging the decision of the ld. CIT(A) deleting the addition of payments made to M/s. Sakshi Trade Link Pvt Ltd of A20,00,000/- 15. During the previous year relevant to assessment year under consideration, a....
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..... ACIT, (2015) 61 taxmann.com 54, Hon'ble Gujarat High Court in the case of CIT vs. Indrajit Singh Suri (2013) 33 taxmann.com 281, Hon'ble Delhi High Court in the case of CIT vs. SMC Share Brokers Ltd, (2007) 159 taxman 306 (Delhi) and Hon'ble Rajasthan High Court in the case of CIT vs. Geetanjali Education Society (2008) 174 taxman 440 (Raj). In the present case, admittedly, there is no corroborative evidence brought by the Assessing Officer in support of the information received from DCIT, Kolkata. In the absence of such corroborative materials addition cannot be sustained, in the backdrop of legal position discussed above. Therefore, grounds of appeal challenging the deletion of addition of payment made to M/s. Sakshi Trade Link Pvt Ltd stands dismissed. 17. Now, we take up other grounds of appeal challenging the decision of the ld. CIT(A) in deleting other items of additions. 18. A preliminary issue was raised when notice for reopening was issued on one of items of additions, and no addition had been made in respect of item for which notice of reopening was issued, whether the Assessing Officer is entitled to make any further additions in respect of items which has come t....
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.... the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under section 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded under section 148(2) . . . Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148. Setting out the reasons, for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No. 2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive....
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....lows:- ''18. We are in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the case of CIT v. Jet Airways (I) Limited [2011] 331 ITR 236 (Bom). We may also note that the heading of section 147 is "income escaping assessment" and that of section 148 "issue of notice where income escaped assessment". Sections 148 is supplementary and complimentary to section 147. Subsection (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute the escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he w....
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..... Even the Jurisdictional High Court in the case of Martech Peripherals Pvt Ltd (supra), wherein it was held as follows:- ''21. To my mind, a careful reading of section 147 of the Act would show that it empowers an Assessing Officer to reopen the assessment, if, he has reason to believe, that any income chargeable to tax has escaped assessment for the relevant year, "and also bring to tax", any other income, which may attract assessment, though, it is brought to his notice, subsequently, albeit, in the course of the reassessment proceedings. 21.1. To put it plainly, the purported income discovered subsequently during the course of reassessment proceedings, can be brought to tax, only, if the escaped income, which caused, in the first instance, the issuance of notice under section 148 of the Act, is assessed to tax. 22. Explanation 3, to my mind, supports this approach, which emerges upon a plain reading of the said provision, along with the main part of section 147 of the Act. The emphasis in this behalf is on the expression "and also bring to tax" appearing in the main part of section 147 in relation to the right of the Revenue to assess taxable income discovered during ....
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....y other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee." (emphasis is mine) 24. This takes me to the last submission made on behalf of the respondents- Revenue, which is that, there is an alternative remedy available to the petitioner and, therefore, the instant writ petition should not be entertained''. And again the Jurisdictional High Court in the case of Tractors and Farm Equipment Ltd vs. ACIT, (2018) 409 ITR 369, wherein it was held as follows:- ''16. The decision in the case of Jet Airways (cited supra) was referred to by the High Court of Delhi in the case of Ranbaxy Laboratories Limited v. CIT [2011] 336 ITR 136 (Delhi), wherein it was held that th....
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....ppeal filed by the Revenue in ITA No.2280/CHNY/2018 for assessment year 2011-12 is partly allowed. ITA No.2281/Chny/2018 for Assessment Year 2012-13: 21. Now, we take up appeal of the Revenue in ITA No.2281/CHNY/2018, for assessment year 2012-2013. The Revenue company raised the following grounds of appeal: ''1. The order of the ld.CIT(A) is contrary to the provisions of the Income Tax Act, Rules and facts of the case. 2. The ld.CIT(A)'s decision on the disallowances made u/s 14A is not accepted, since the Assessing Officer had only made the disallowances as per provisions of Rule 8D of Income Tax Rules as per the CBDT Circular No.5/20 14, dated 11.02.2014. 3. The view of the ld.CIT(A) is not correct in as much as the CSR expenses have not been proved to have been incurred wholly and exclusively for the purpose of the business of the assessee. 4. The order of the ld.CIT(A) is not considered acceptable on the deletion of addition made to income based on difference between the figures as per income credited to P&L account and as per form 26AS, further appeal to the ITAT is recommended since the assessee has not properly given in any acceptable explanations as to why ....
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....,329 (vi) Disallowance our of purchases Rs. 70,66,678 During the course of assessment proceedings, the Assessing Officer noted that Respondent - assessee had earned dividend income of A4,03,78,555/- for which no disallowance was made by the assessee. The Respondent - assessee was required to explain as to why the expenditure should not be disallowed, invoking the provisions of s. 14A of the Act. The Respondent - assessee submitted that no borrowed funds were utilized for making investments which yielded exempt income. In support of this, Respondent - assessee submitted that interest free funds were available with the assessee as on 31.12.2012 is A55,71,00,000/- and investments made are only A10,11,90,000/-. As regards to the other disallowance of administrative expenses, it is submitted that maximum expenditure that can be disallowed is only A6,00,000/- per annum, however the Assessing Officer computed the amount of disallowance under the provisions of Rule 8D arrived at the disallowance of A52,94,404/-. The Assessing Officer also disallowed a sum of A76,76,946/- out of the Corporate Social Responsibility (in short ''CSR'') expenditure by holding that expenditure was in the fo....
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....id for drilling, run of mines (ROM), excavation & loading work, hiring of dumpers and supply of heavy earth moving equipment for working at the crusher plant. It is further stated that all the payments were made out of account payee cheques or through banking channels and expenditure was incurred wholly and exclusively for the purpose of business. On consideration of the explanation of the Respondent - assessee, the Assessing Officer concluded that payment by cheque or banking channels and deduction of tax at source does not establish the genuineness of the transaction as the sub-contractor had not responded to notice issued u/s.133(6) of the Act, the Assessing Officer concluded that payments were not made for business purpose and accordingly disallowed the sum of A4,38,09,329/-. The Assessing Officer further disallowed a sum of Rs. 70,66,678/-out of purchases. The Assessing Officer disallowed purchases of A70,66,678/- made from the following three persons. Sl.No Name of the concern Address of the concern Amount paid 1 Maruti Enterprises 58/H/5, Kailash bose street, Kolkatta 27,51,570 2 N.K. Steel Traders 58/H/5, Kailash bose street, Kolkatta 26,77,543 3 Bengal U....
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.... the ld. CIT(A) directed the Assessing Officer to delete the addition considering the fact that payments were made through banking channels and by observing that the Assessing Officer cannot step into the shoes of the assessee as to how assessee should conduct the business. 24. Being aggrieved by the above decision of the CIT(A), the Revenue is in appeal before us challenging the correctness of the order of the CIT(A). Ld. Departmental Representative submitted that ld. Commissioner of Income Tax (Appeals) ought not have allowed CSR expenses of Rs. 76,76,946/- being amount spent on the development of local area of mines. He further submitted that ld. Commissioner of Income Tax (Appeals) ought not have restricted disallowance of 10% of cash expenditure alone. As regards to the issue of addition to income based on 26AS reconciliation, ld. Departmental Representative submitted that ld. Commissioner of Income Tax (Appeals) has misdirected himself in directing to delete the addition of Rs. 2,80,75,405/- on account of provision made for reduction in mining receipts accepting the explanation of the assessee that same was offered to tax in the succeeding assessment year ignoring the princ....
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....ines area''. It is submitted that assessee company is engaged in mining services at various mines located in Keonjihar Dist. Odisha State. The mines are located in remote and tribal areas of Kenojhar Dist. The villages lack adequate drinking water, medical facilities, school for children and proper road facilities. Most of the villagers in this region are indentified as living below the poverty line and this expenditure was incurred in order to buy goodwill and ensure smooth business operations in the locality and therefore expenditure was incurred only out of the business expediency. Thus, he submitted that no interference in the order of the ld. Commissioner of Income Tax (Appeals) is required. As regards to the additions to income based on 26AS reconciliation, the ld. Authorised Representative submitted that assessee had filed explanation reconciling the discrepancy between the amount shown in the Profit and Loss account and reflected in the form 26AS. The Assessing Officer had made additions without appreciating the nature of the items and no fresh evidence in violation of Rule 46A (3) was filed before the ld. Commissioner of Income Tax (Appeals) and therefore it is submitted....
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....wance of interest should be made. This proposition of law has been upheld by the Hon'ble Supreme Court in the case of CIT v. Reliance Industries Ltd. [2019] 410 ITR 466 (SC) affirm the decision of the Hon'ble High Court in the case of CIT v. Reliance Industries Ltd. [2017] 86 taxmann.com 24 (Bom.), wherein it was held as follows: 33. We do not see how when the Assessing Officer's views are that in cases of the interest free loans and interest given by the assessee to its subsidiary companies are in the above sums, still, the principle laid down by this Court that if there are funds available to them interest free and overdraft or loans taken, would not apply. This view of the Assessing Officer is ex facie contrary to the settled principle that a presumption would arise that the investment would be out of the interest free funds generated or available with the company. Then, the borrowed capital in hand in that case and interest expenditure was deductible under Section 36(1)(iii) of the I.T. Act, 1961. The Tribunal held that the interest free fund available to the assessee is sufficient to meet its investment. It can be presumed that investments were made from interest free f....
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....rried out in order to promote social economic condition of the local community living and in order to win the goodwill of the local people. The Hon'ble Jurisdictional High Court in the cases of Madras Refineries Ltd (supra), Velumanickam Lodge (supra) as well as Cholan Roadways Corporation Ltd (supra) had held that the expenditure incurred on promoting social welfare of the local community and providing drinking water facilities, educational facilities cannot be regarded as expenditure wholly incurred outside the ambit of business of the assessee and allowed business deduction. Having regard to the ratio of the decisions, we are of the considered opinion that the decision of the ld. Commissioner of Income Tax (Appeals) is based on proper appreciation of facts and we do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals). Ground No.3 filed by the Revenue is dismissed. 30. Ground No.4 challenges the decision of the ld. CIT(A) in partly granting relief in respect of addition on account of discrepancy between the amount of receipt reflected in form 26AS and credited to P & L account. Apparently there is discrepancy between the amount ....
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....ient for the Assessing Officer to take further steps if he still doubted the genuineness of the payments to examine whether or not the payment was genuine. The Assessing Officer on receipt of further information did not carry out the necessary enquiries on the basis of the PAN numbers, which were available with him to find out the genuineness of the parties. The CIT(A) as well as the Tribunal have correctly held that it is not possible for the assessee to compel the appearance of the parties before the Assessing Officer." Furthermore, there is no evidence to show that the amount paid to subcontractor is recycled back to the assessee and there is not even an allegation by the Assessing Officer to this effect. Nevertheless, the receipts from this contract was offered to tax and it is not the case of the Assessing Officer that assessee had incurred expenditure in executing the contract apart from the subcontract expenses. In the circumstances, we are unable to uphold the disallowance made by the Assessing Officer and accordingly do not find any reason to interfere with the order of the ld. CIT(A). Ground No.5 filed by the Revenue stands dismissed. The Ground of appeal No.6 challen....
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....pts from Electrical Engineer, Rural Works II, Keonjhar, since the assessee maintains accounts in Mercantile system basis and hence the income should be recognized in the year in which the work was done and necessary bill raised. Hence, second appeal. 5. The ld.CIT(A) 's deletion of the additions made towards payment made to sub contractors, is not accepted, since the very fact that there has been no details of work order filed in relation to the work stated to have been executed by the above party and also considering that, the said party has not filed any return of income for the said year at all and also since no confirmation of details have been furnished to prove the genuineness of said claim of expenses incurred. Hence, second appeal. 6. In view of the facts and circumstances, since monetary limit i.e. Rs. 1,15,61,200/- exceeds the prescribed limit as per the Board's Circular No.3/20 18 in F No.279/Misc. 142/ 2007-ITJ (Pt.), second appeal is suggested on the above issues''. 35. The brief facts of the case are as under: The return of income for the AY 2013-14 was filed electronically on 29.09.2013 disclosing total income of Rs. 215,23,95,950/- under normal provisions ....
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....e restored the matter back to the file of the Assessing Officer to compute the amount of disallowance by considering only value of investments which yielded exempt income. Accordingly, ground No.2 filed by the Revenue is partly allowed for statistical purpose. 40. The Ground of appeal No.3 challenges the decision of the ld. Commissioner of Income Tax (Appeals) to restrict the CSR disallowance to 10%. This ground is similar to the ground No. 3 raised by the Revenue for assessment year 2012-13 in ITA No.2281/CHNY/2018. We have already deleted the disallowance in para 29 above in the ground of appeal involving identical facts and issue. For the parity of reasons mentioned therein, we dismiss this ground of appeal also filed by the Revenue. 41. The Ground of appeal No.4 challenges the decision of the ld. CIT(A) in deleting the addition made on account of accrued interest in respect of work done for Electrical Engineer, Rural Works II, Keonjhar. On perusal of the assessment order, it is clear that the Assessing Officer brought to tax sum of A45,27,491/- received from Electrical Engineer, Rural Works II, Keonjhar and same was offered to tax by the assessee in succeeding assessment ye....
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....ayment made to the concerned parties are not justified in view of the following reasons (a) Bearing any loss due to quality assurance is not a clause in the contract agreement. (b) When the benefit on sales are more for the mine owner, why the claims on quality need to be borne by the contractor alone. (c) Loss on quality allowance not passed to sub-contractors. (d) Foregoing almost the same rate received as a contractor as an expenditure on quality allowance is not a believable explanation. (e) It is seen that most of the payments made were as advance to a party who has no direct business dealings with the assessee and huge amounts are kept outstanding in those cases. The ld.CIT(A) has also taken a view that similar expenditure claimed in earlier years were accepted by the Department which is not true, since the Principal CIT has. already set aside the assessment order passed in respect of the AY 2013-14 u/s 263 of the IT Act to the AO in order to consider the genuineness of such payments made. In view of the above, further appeal. 3. The view of the ld.CIT(A) is not correct in as much as the CSR expenses have not' been proved to have been incurred wholly and ....
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....ce u/s.14A r.w.rule 8D 7,51,000 47. The factual background of the additions made are as under:- The Respondent - assessee made claim for deduction of quality allowance and claims of A44,91,60,000/-. This expenditure represents rebate/discount claimed by the parties who purchased iron ore, if the quality of ore is not up to the grade. Assessee also furnished copies of debit notes raised by the parties i.e. M/s. Shyam Sel & Power Ltd and M/s.Shyam mettallics & energy ltd. On verification of the debit notes, the Assessing Officer found that the claims were made against assessee company against purchase of ores from M/s.Sirajuddhin & Co and Indrani Patnaik. The Assessing Officer taking note of the fact that Respondent - assessee is only raising contractor and doing mining for the mine owners who had taken the mines on lease and the works was awarded by mine workers in terms of written agreement entered between both parties. Considering the scope of work given in the agreement, the Assessing Officer concluded that in the absence of any specific clause in the agreement between assessee company and licensee, there is no liability on the part of the assessee company to pay any penalty ....
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.... mere contractor was getting fixed rates of about Rs. 1300/- to 1500/- for lumps and Rs. 200/- to Rs. 350/- for fines. Forgoing almost the same rate as quality allowance by the contractor issomething unbelievable. 5) Nature of transactions as discussed in the above cases and as noticed in their ledger copies doesn't seems to be like "quality allowance" as claimed by the assessee as most of the payments were made in advance to a party who has no direct business transaction with the assessee and huge amounts were kept outstanding also in those cases''. and accordingly disallowed the sum of A44,54,80,402/-. 48. Addition on account of 100% depreciable asset. During the previous year relevant to assessment year under consideration, assessee company made claim for reduction of 100% depreciation on the mines internal road for A10,77,65,497/-. Work for laying road was given to one contractor M/s. Simplex Project Ltd, Kolkata, who stated in response to notice issued u/s.133(6) of the Act that road works was done in earlier years and capitalized. The Assessing Officer based on this information concluded that it is not temporary structure and has got an enduring life. Since contract e....
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....lassified as building for depreciation purpose the Assessing Officer also held that the same cannot be allowed as revenue expenditure for a reason that the benefit of the expenditure is for mining owners and not assessee company. Accordingly disallowed the claim of the assessee. As regards CSR expenditure, the Assessing Officer disallowed sum of A3,90,49,461/- out of the total CSR expenditure of A7,59,10,000/-. The purpose of incurring expenditure was explained by the assessee company before the Assessing Officer which is set out by the Assessing Officer vide page 13 of the assessment order. Out of the above expenditure a sum of A3,90,49,461/- was disallowed by the Assessing Officer on analysis of the expenditure, it is found that specifically in the form of donations to various organization which is eligible for deduction u/s.80G of the Act. 49. The Assessing Officer also disallowed legal expenses of A.1,06,60,000/-. During the course of assessment proceedings, the Assessing Officer found that sum of A1,06,60,000/- was incurred towards legal fees for engaging legal advocates to appear before Hon'ble Supreme Court on behalf of assessee in PIL filed against illegal mining in O....
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....he submitted that CIT(Appeals) ought not have directed the Assessing Officer to restrict 10% of expenditure, incurred on cash. As regards to the disallowance of legal fees, he submitted that there is no necessity of incurring of expenditure since the cases were filed against mine owners. 53. Per contra, ld. Authorised Representative submitted that liability on account of quality allowances and claim from the buyers are borne by the assessee company in the business interest of the assessee company in order to continue business relationship with mine owners and to continuity of mine contracts. He further submitted that assessee company incurred heavy raising cost and lot of working capital is locked up in the business. Unless and otherwise ore raised is sold immediately, assessee company could not be in a position to claim the bills from the mine owners. He further submitted that the Assessing Officer had not questioned the genuineness of the transaction and the payments were made wholly and exclusively for the purpose of business and the same should be allowed as deduction on the ground of commercial expediency. He placed reliance on the decisions of Hon'ble Supreme Court in t....
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....te division. Sl.No Name of the party to whom paid Amount 1 SHYAMMETALICSAND ENERGYLTD 16,54,50,411 2 SHYAMSEL&POWERLTD 17,61,51,327 3 BAITLOGITECH PVT. LTD 3,16,10,248 4 BHUSHAN POWER &STEEL LTD 7,22,68,416 TOTAL 44,54,80,402 Our company is a contractor engaged mainly in providing iron ore mines development and operation services to the private mine owners. In this regard, we had submitted the work orders issued by the various mine owners. Though the work orders issued by the mine owners did not have any specific clause on Quality allowance, subsequently after mutual discussion the mine owners have orally stated that any claims from the buyers arising out of quality issues shall be borne/settled by raising contractor. The contract revenue for our company as mutually agreed with the mine owners is either affixed percentage of the sale price of the ore or fixed rate per Metric Ton as specified in the work order. Such revenue rates awarded to our company are comparatively higher and result in much better realization per MT as compared to rates awarded by other entities namely Odisha Mining Corporation, a state Govt. undertaking. The rates are agre....
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....would negate any cost advantage of the price of the ore. * The clause on reprocessing of ore would occur and be applicable only where the material remains at the mines or mine stock yard and not when dispatch has occurred to the buyer. Further, in respect of the work order issued by our company to sub contractors engaged by us, the clause in the contract "sub contractor shall not be entitled for payment if low grade ore raised or accumulated and remain unsold, "we submit that this clause is applicable only when the low grade material remains unsold. Whereas in the case of quality allowance claimed by us, the material has been dispatched to the buyer who has in turn raised debit notes on our company. * On rebate charged being equivalent to rate paid for ore: The mine owner sells the processed iron ore 5-18, 10-30 and fines material to the buyer at mutually agreed market rates as per the purchase order issued by the buyer. As already stated, owing to the nature of operation and services rendered by the contractor, it has been agreed that any quality issues or claim or allowance relating to the processed ore shall be borne and settled by the contractor. As far as the buyer is....
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....rder for supply of iron ore fines to BLPL for 176160 MT Under this business arrangement, BLPL purchased iron ore fines of 176160 MT from Serajuddin & Co and supplied to NINL over a period of three months plus April to July,2013. On completion of the supplies,BLPL raised following debit notes ( )for the differential price as listed below: Sl. No. Debit Note No. Debit note Date Description Oty in MT Amount 1 2 31.01.2014 Differential 176160 1,46,01,886 2 3 28.02.2014 Price on 1,07,97,962 3 4 31.03.2014 Purchase and sales 62,10,400 Total 3,16,10,248 * Our company had accounted the above loss under the head Quality allowances & claims. The price differential per MT works out to around 180/- per MT. On the other hand our company had realized its share of revenue for raising work offines at around Rs. 780/- to 820/- per MT We submit the quality allowance expenditure has a direct nexus with the business carried on by the assessee and being revenue in nature rightly allowable under section 3 7(1) of the Income Tax Act for the following reasons: a) It is directly rel....
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....vant:- (a) though the question must be decided on the facts of each case the final conclusion is one of law: Indian Radio & Cable Communi cation Ltd. v. The Commissioner of Income-tax, Bombay [1937] 5 ITR 270 PC, and Tata Hydro- Electric Agencies Ltd. v. The Commissioner of Income-tax, Bombay [1937] 5 ITR 202 PC; (b) it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned : Moore v. Stewarts and Lloyds [1906] 6 Tax Cas. 501and Usher's case [1915] AC 433; (c) it is enough to show that the money was expended "not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business". 13 British Insulated and Helsby Cables Ltd. v. Athertonh [1926] AC 205; and (d) beyond that no hard and fast rule can be laid down to explain what is meant by the word "solely ". Further, subsequently the Hon'ble Supreme Court in the case of CIT vs. Walchand and Co. Pvt Ltd, 65 ITR 381 had held that while applying the test of commercial expediency whether the expenditure was wholly and exclusiv....
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....otherwise the tests laid down by law. This view is in accord with the following observations made by this Court in CIT v. Chandulal Keshavlal & Co. [1960] 3 SCR 38 at page 48 : "Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party-Usher's Wiltshire Brewerv v. Bruce 6 TC 399 (HL). Another test is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business ; and it is immaterial that a third party also benefits thereby - [Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 (SC)]. But i....
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....enges the decision of ld. CIT(A) in allowing legal expenses to the tune of A1,06,60,000/-. The Assessing Officer disallowed legal charges in connection with the case of T.N. Godavarman Thirumalpad vs. UOI, a PIL filed against illegal mining in Odisha. It is the case of the Assessing Officer that assessee is being a contractor for mine owners and he had no locus standi in litigation before Hon'ble Supreme Court. Therefore the Assessing Officer was of the opinion that legal expenditure was not allowable as deduction. The assessee company submitted that it is a member of FIMI, which is also impleaded before the Hon'ble Supreme Court in the PIL and the association had allotted its expenditure among members. Apparently, business of the assessee is directly connected with mining and expenditure was incurred only to protect the business interest of the assessee company and the same is allowable as legal expenditure in the light of the decisions of Hon'ble Supreme Court in the case of Dalmial Jain and Co Ltd vs CIT, 81 ITR 754 (SC) and Sree Meenkshi Mills Ltd vs. CIT, 63 ITR 207 (SC). The Hon'ble Karnataka High Court in the case of DCIT vs. B.Kumara Gowda, 396 ITR 386 after referri....
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....o, it has been held, it is well established that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be capital payment and not revenue payment. What is essential to be seen is whether the amount was paid for bringing into existence a right or an asset of an enduring nature. In other words, if the asset which is acquired is in its character a capital asset, then any sum paid to acquire it must surely be capital outlay. Money paid in consideration of the acquisition of a source of profit of income is capital expenditure. In the aforesaid judgment, reliance has been placed on Atherton v. British Insulated and Helsby Cables Ltd. [1926] A.C. 205 (HL), wherein, Viscount Cave has said as under:- But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as property attributable not to revenue but to capital. 7. In Commissioner of Taxes v. N....