TaxTMI 
TaxTMI 
2019 (10) TMI 1190
X X X X Extracts X X X X
X X X X Extracts X X X X
....e circumstances, we condone the delay of 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issioner of Income Tax, Central Circle XXI, Kolkata that 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Hon'ble Supreme Court in the case of case of GKN Driveshafts (India) Ltd 259 ITR 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, Ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee company for the impugned assessment year is Rs. 810 crores and the expenditure of Rs. 20 lakhs which was treated as bogus amounts to 0.02% of the total 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erent from drawing a fresh inference from the same facts and material which were available with the Income-tax Officer at the time of the original assessment proceedings. The two situations 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 ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the borrowed satisfaction of DCIT, Kolkata. From the reasons recorded, it is clear that the Assessing Officer had perused the material which had come to his knowledge and formed an opinion 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nullity as it amounts to violation of principles of natural justice. Further, reliance can be placed on the judgments of Hon'ble Bombay High Court in the case of R.W. Promotions (P) Ltd vs. 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w cease to reflect the correct position in law by virtue of the amendment which has been brought in by the insertion of Explanation 3 to section 147 by the Finance (No. 2) Act of 2009. The effect of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld the field." This decision of Hon'ble Bombay High Court was referred to by the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd vs. CIT, (2011) 336 ITR 136 (Delhi) wherein it was held as follows:- ''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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in the affirmative in favour of the Revenue and the second part of the question against the Revenue''. 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 provis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ('such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gal positions discussed above, other items of addition made by Assessing Officer cannot be sustained. Therefore, it is not necessary for us to go into the merits of additions made in respect of other items of additions. Thus all other grounds of appeal filed by the Revenue stand dismissed. 20. In the result, the appeal 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assessing Officer made the following additions/ disallowances. (i) Disallowance u/s.14 r.w. Rule 8D Rs. 52,94,404 (ii) Disallowance out of CSR expenses Rs. 76,76,946 (iii) Disallowance of interest on TDS Rs. 13,57,431 (iv) Addition to income based on 26AS reconciliation Rs. 3,79,15,937 (v) Disallowance out of sub contract payment Rs. 4,38,09,329 (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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the course of assessment proceedings, Assessing Officer issued notice u/s.133(6) of the Act to said Shri. Zafar Hayat seeking details of work done by him. Shri. Zafar Hayat had not responded to the notice issued u/s.133(6) of the Act, then assessee was asked to prove the genuineness of the expenditure. Assessee had filed explanation stating that subcontractor Shri. Zafar Hayat was engaged to provide subcontract services at Balda Mines. The sub contract charges were paid 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 busine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dition partly. As regards to payment made to subcontractors amounting to Rs. 4,38,09,329/-. Ld. CIT(A) after considering the fact that payments were made through banking channels and TDS was made holding that the mere fact that sub contractors not responded in response to notice issued u/s.133(6) of the Act cannot be reason to disallow the expenditure, he directed the Assessing Officer to delete the addition. As regards to the disallowance of purchases amounting to 70,66,678/- alleged to be bogus, 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g drinking water (iv) Lighting facilities (v) Training the villager particularly the unemployed youth by way of skill development programs and creation of employment opportunities (vi) Training the tribals by setting up security training schools and providing employment to them (vii) Community assisted programmes and events, sports activities (viii) Community welfare expenses and running old aged homes (ix) Providing plantation jobs for the tribal and unskilled people living in the vicinity of the mines 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment proceedings as well as before the ld. Commissioner of Income Tax (Appeals) assessee company had substantiated its claim that no borrowed funds were utilized for making investments which yielded the exempt income by filing financial statements. From the financial statements, it is clear that assessee has own funds of Rs. 55,71,00,000/- against investments of A10,11,90,000/-. It is clear that own funds are more than investments. Therefore presumption should be drawn that own funds were utilized for the purpose of making investments and no disallowance 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he decision of the ld. Commissioner of Income Tax (Appeals) to restrict the CSR disallowance to 10% the expenditure incurred in cash. From the perusal of the assessment order, it is clear that the Assessing Officer had accepted in principle the allowability of the CSR expenditure. The Assessing Officer disallowed the amount only to the extent of Rs. 76,76,946/- as expenditure was incurred in the nature of donation and renovation of college building etc., Admittedly, the expenditure was incurred in the areas where business operations of the assessee company were carried 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oduced before him during the assessment proceedings. This on the ground that payments are not genuine. We are unable to understand on what basis the dis-allowance is made on the total payments, if at all it should have been restricted only to the amounts paid to the 13 persons who are not produced before the Assessing Officer. Be that as it may, we find that the respondent - assessee had done everything to produce necessary evidence, which would indicate that the payments have been made to the parties concerned. The details furnished by the respondent assessee were sufficient 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x 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 in respect of receipts 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order of the ld. CIT(A), the Revenue is in appeal before us in the present appeal. 38. We heard the rival submissions and perused the material on record. The grounds of appeal No.1 & 6 are general in nature therefore does not require any adjudication. 39. The Ground of appeal No.2, challenges the decision of the ld. Commissioner of Income Tax (Appeals) in deleting the addition u/s.14A of the Act. Identical issue has arisen in the preceding year in ITA No.2281/CHNY/2018 for assessment year 2012-13, wherein we had upheld the deletion of addition under clause (ii) of Rule 8D. However, in respect of addition made under clause (iii) of Rule 8D, we 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 de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave already deleted the disallowance in para 26 above. Accordingly, we delete the ground No.5 raised by the Revenue. 43. In the result, the appeal filed by the Revenue in ITA No.2282/CHNY/2018 for assessment year 2013-14 is partly allowed for statistical purpose. 44. Now, we take up appeal No.2283/CHNY/2018 for assessment year 2014-2015 for adjudication. 45. The Revenue 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 order of the ld.CIT(A) is not considered acceptable as the Assessing Officer had given a clear finding that the payment 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 explan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....normal provisions and book profit of Rs. 193,27,18,841/- under the provisions of Section 115JB of the Act. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Central Circle Salem (hereinafter called as ''Assessing Officer'') vide order dated 29.12.2016 passed u/s. 143(3) of the Income Tax Act, 1961 (for short 'the Act') at total income of Rs. 248,97,78,690/-, while doing so, the Assessing Officer made the following additions/ disallowances. (i) Disallowance on quality allowance 44,54,80,402 (ii) Disallowance out of CSR expenses 3,90,49,461 (iii) Disallowance u/s.37(1) 10,77,65,497 (iv) Disallowance of legal expenses 1,06,60,000 (v) Disallowance 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e liability arising out of the claim from buyer on quality issue. After mutual discussion, it was decided that liability of claims from buyer should be borne and settled by the raising contractor i.e. assessee. Considering the submissions, the Assessing Officer held that payments made to M/s. Shyam Sel & Power Ltd and M/s. Shyam mettallics & energy ltd are not justified by giving following reasons. '1) Bearing any loss due to quality assurance is not a clause in the contract agreement or work order with the mine owner. 2) When the benefit on sales are more for the mine owner, why the claims on quality should be borne by the contractor alone. 3) Loss on quality allowance is not passed on to the sub contractors also. 4) The assessee company being a 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 pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... factory in UP. The assessee paid a contribution towards meeting the cost of construction of roads in the area around it's factory under a sugarcane development scheme. The court held that, although the advantage secured was of longer duration, it was not an advantage in the capital field because no tangible or intangible asset was acquired by the assessee, nor was there any addition to or expansion of the profit making apparatus of the assessee. The amount was contributed for the purpose of facilitating the business of the assessee and making it more efficient and profitable. It was therefore, Revenue expenditure''. Considering the submissions of the assessee, the Assessing Officer concluded that the claim of the assessee company for 100% depreciation on temporary structure cannot be accepted as the road is classified 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 to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the present appeal. Ld. Departmental Representative submitted that with regard to quality allowances and claims in the absence of clause in the agreement between the assessee and the mine owners there is no liability on the part of the assessee company to pay claims arising on account of the quality of iron ores. He further submitted that once the iron ore is dispatched from the mine, ore is considered to be in proper and good quality and there is no possibility of raising any issue as to the quality of the ore and there is no necessity of paying any damages on account of quality issues of the buyers of the mines. He finally submitted that it was not expenditure incurred wholly and exclusively for the purpose of business and ld. CIT(A) ought not have allowed the claim as deduction. As regards to the CSR expenditure, 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 accoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Mine owners only do sampling of Ore at crushing and screening plant as well as at the point of dispatch. Assessee company being contractor may have to further process any produce if desired by the mine owners for the purpose of improving the quality of the mines ores. Admittedly, there is no clause in the agreement between assessee company and mine owners regarding who has to bear the liability of the claims from the buyers of the ore on account of low grade ore etc., There is no proximate connection between assessee company and the buyers of the ore. The reasons as to why liability of the claim is borne by the assessee company is explained before the Assessing Officer as under:- the following are the four major payments which relate to the iron ore mining operation. The other payments mainly relate to coal trading and aggregate 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 providin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... On all material dispatched are of Hood quality only: With regard to AO 's observation that f the ore mined by assessee company is of low grade, it has to be only reprocessed for improving the quality and once, ore is dispatched from mines, it is considered of good quality, we beg to differ. We submit that mine owners representative does only sampling of the ore for quality, at the crushing or screening plant at the mines and with large quantities of ore being processed and dispatched, it would not be possible to ensure entire material sent confirms to specifications. Subsequently after the material is dispatched, the buyer if not satisfied with the quality of the processed iron ore, is entitled to raise the same. The quality allowance! claim is made by the buyer after the receipt of the material at his place. It would not be possible to transport such material back to the mines for reprocessing. Such move 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in a open tender (copy enclosed- Annexure 3) for supply of iron ore fines for 3.53 lakh MT by MMTC Ltd. to the integrated steel plant at Nelachal Isptat Nigam Ltd. Under the arrangement, if the BLPL is awarded the contract for iron ore fines supply, it shall flfl the fines material that is accumulated and held at the Serajuddin &Co. Balda mines. Our company had entered with such an arrangement with BLPL to ensure that fines stock of Serajuddin &Co. is disposed and in the process stand to benefit from getting it's raising contract charges for fines material dispatched. Under the MOU, our company agreed to pay Rs. 50 lakh for the arrangement and services rendered by BLPL. Our company agreed to bear differential price between the purchase price of BLPL and the tender awarded rate. Besides, TEMPL agreed to bear any punitive charges, terminal charges, dead freight and demurrage charges levied by MIvITL on the said supply of iron ore fines.Pursuant to the tender, MMTC Ltd. issued an order 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 p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and higher revenue from the contract compared to the market rates etc., Submissions made by the assessee company remain uncontroverted by the Assessing Officer. The Assessing Officer had also not questioned the genuineness of the expenditure but disallowance was made by the Assessing Officer questioning the necessity of the expenditure. Now, it is settled position of law that it is not for the Assessing Officer to dictate the assessee as to how the assessee should conduct his business and it is not for him to tell the assessee on what expenditure assessee can incur. The Hon'ble Supreme Court in the case of Eastern Investments Ltd vs. CIT, 20 ITR 1 held that it is not necessary to show expenditure was profitable or in fact any profit was earned. The relevant para is as under:- '(4) that the transaction was more in the interest of the shareholder Scott than that of the company. The decision of this appeal rests on the true construction of Section 12(2). In our opinion, the law on this point has been correctly summarised in the judgment of the High Court. The following principles are relevant:- (a) though the question must be decided on the facts of eac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of section 37 of the Income-tax Act, 1961 which corresponds to section 10(2)(xv) of the Act. An attempt was made in the Income-tax Bill of 1961 to lay down the "necessity" of the expenditure as a condition for claiming deduction under section 37. Section 37(1) in the Bill read "any expenditure. . . . laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed" The introduction of the word "necessarily" in the above section resulted in public protest. Consequently when section 37 was finally enacted into law, the word "necessarily" came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as incurred on grounds of commercial expediency. The Hon'ble SC in the case Gordon Woodrofee Leather Mfg vs. CIT, 44 ITR 551 (SC) held that any expenditure expended on the ground of commercial expediency in order to indirectly facilitate the carrying on the business is allowable as deduction. Therefore the claim falls within the purview of the provisions of Section37(1) of the Act. In the circumstances, the order of the ld. CIT(A) is based on proper appreciation of facts and legal principles governing the issue on hand. Therefore we do not find any reason to interfere with the order of the ld. CIT(A). Thus the ground of appeal No. 2 raised by the Revenue is dismissed. 56. Ground 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. 57. Ground No.4 challenges the decision of ld....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r was incurred for maintaining the business of the company. If it is the former it is the capital expenditure; if it is the latter, it is the revenue expenditure." (b) In Dalmia Jain, this Court relied upon Shree Meenakshi Mills and held that "Deductibility of expenditure incurred in prosecuting a civil proceeding depends upon the nature and purpose of the legal proceeding in relation to the assessee's business and the same cannot be affected by the final outcome of that proceeding. However wrong-headed, ill advised, unduly optimistic or overconfident in his conviction the assessee might appear in the light of the ultimate decision; expenditure in starting and prosecuting a civil proceeding cannot be denied as a permissible deduction in computing the taxable income merely because the proceeding had failed, if otherwise the expenditure was laid out for the purpose of the business wholly and exclusively, that is, reasonably and honestly incurred to promote the interest of the business. Persistence of the assessee in launching the proceeding and carrying it from Court to Court and incurring expenditure is not a ground for disallowing the claim." (c) In B. Jaganmo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to defend its right to carry on business of a hotel and therefore, the expenses are revenue in nature and it is purely a finding of fact and does not involve any question of law. (f) Similarly, in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC), it has been held that the question as to whether any expenditure is capital or revenue in nature has all along been considered to be a question of fact to be determined by the Income-tax Authorities on an application of the broad principles laid down and the courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles. It has also been held in the said decision that the aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. 14. In B. Jaganmohan Rao, facts were that payment of money made by the assessee therein was in order to perfect his title to the capital asset. It was a lump sum payment for acquisition of a capital asset and therefore, the Hon'ble Supreme Cour....