TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 1232
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order to recount to background facts of the case. The assessee is in mining business, through his proprietary concern, M/s. New Minerals, mining Bauxite at four different places, located at varying (18 kilometers (Tikeriya) to 38 kms. (Amoch) from Niwar railway siding, whereat supplies are made to Hindalco Industrial Ltd. (HIL), producing Almunium). For AYs. 2009-10 and 2010-11, assessments were made u/s. 143(3) at Rs.8.65 lacs (PB pgs. 93 - 96) and Rs.16.73 lacs (PB pgs.97 - 99) respectively, on a turnover of Rs.328.40 lacs and Rs.621.67 lacs (PB pgs. 100 - 105) respectively. The return for AY 2011-12 was not subject to the verification procedure under the Act, i.e., as were the returns for AYs. 2007- 08 and 2008-09 were furnished u/s. 44AF of the Act as 'no account' cases. 2.2 For AY 2012-13, the Assessing Officer (AO) found the assessee to have claimed transportation expenditure at Rs.1054.87 lacs (on a turnover of Rs. 21.11 cr.), of which Rs.389.35 lacs outstood for payment (to 41 parties) as at the yearend (31.3.2012). Confirmations, as well as addresses and Permanent Account Numbers (PAN), were called for from all whose balance exceeded Rs.3 lacs, of which the assessee coul....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... one occasion, produce the books of account. On the basis of the assessed income for AY 2012-13, the profit for the said year worked to 33.05% of the turnover (i.e., Rs. 697.70/2110.83 x 100). The disclosed results for a comparable case, with the turnover in the range of Rs.17-18 crores for AY 2012- 13 and 2013-14, reflected a gross profit and net profit rate of 35% & 32% and 44% and 40% for the said two AYs. respectively. The AO, accordingly, applied the net profit rate of 32%, being the lowest of: a) assessed net profit rate of 33% for AY 2012-13 in the assessee's case; b) disclosed net profit rate of 32% for AY 2012-13 in the comparable case; c) disclosed net profit rate of 40% for AY 2013-14 in the comparable case. This was, however, applied by him only to the bauxite sale (Rs.843.67 lacs), even as the turnover reckoned for working the net profit rate of 33% for AY 2012-13 was with reference to gross receipt, i.e., inclusive of transport receipt. A profit rate of 8% was applied on transport and loading charges, amounting to Rs. 451.38 lacs, i.e., at Rs.36.11 lacs (refer pgs. 1-4 of the assessment order). Income was accordingly, as against a returned income of Rs.23.75 la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngly regarded by him as estimation of income from transportation business, on the turnover of which, comprising transportation and loading charges, at Rs.802.91 lacs and Rs.85.43 lacs, i.e., at a total of Rs.888.34 lacs, a profit rate of 8% was applied. The disallowance of Rs.20.00 lacs for labour expenditure was, in view of non-verifiability thereof, restricted to Rs.2 lacs; it being trite law that no disallowance could follow on the basis that a thumb impression of labour had been obtained on the muster roll, even as held in LeeladharKhodiyar vs. Asst. CIT [2013] 22 ITJ 601 (Jbp). The disallowance of Rs.73,674 on vehicle repair and maintenance expenditure, made at 15% of the expenditure claimed to account for personal user of vehicles, was confirmed, partly allowing the assessee's appeal AY 2012-13 vide order dated 27/9/2016. For AY 2013-14, the ld. CIT(A) proceeded by applying the net profit rate in the assessee's own case for the preceding years. The estimation of mining business income for AY 2012-13, made by the AO at 32% of the mining turnover, was reworked by him on the basis of the income confirmed by him in appeal for that year, i.e., at 1.8%. The net profit for the prec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncurred for transportation of material: (a) from deep mine to surface (mine-head) (b) from mine to railway siding. Further, this was incurred in cash (albeit within the prescribed limit), through local transporters, who deploy tractor, trolly, truck, hywa, dumper, etc., for the purpose. The assessee also stated the cost at Rs.125 PMT (refer para 3/pg. 3 of the assessment order). In appellate proceedings, it was further explained that the expenditure is in fact also for transportation to the plot reserved for storing the stock inasmuch as it could not be so at the railway siding. Also, that transportation cost is also incurred for removal of overburden (waste) from the mine-head to the dumping place. The AO noted that the sum arrived at on the basis of the stated cost was lower by far than the expenditure debited in accounts. This, coupled with the fact that the assessee's balance-sheet (as at the year-end/31.3.2012) disclosed an aggregate outstanding at Rs.3.89 cr. toward transport creditors, on a total expenditure of Rs.10.55 cr. for the year, led him to doubt the veracity thereof, impelling him to make further verification. Confirmations (from the creditors), called for, wer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d (36,322 MT), or 2,18,634 MT, works to Rs.37.2 PMT, amounting to a total cost of Rs.162 PMT. The sample transport bills placed on record disclose a transportation cost of Rs.153 PMT during the year 2011 and at Rs.173 PMT during the period January to March, 2012 (PB pgs. 114 - 118). A pro-rata allocation, i.e., on time basis, works to a cost of Rs.158 PMT. In fact, a transportation chart, adduced by the assessee during hearing, shows the quantity for the first nine months and the last three months of the year (fy 2011-12) at 2,09,865 MT and 40,311 MT respectively (PB pg. 248), yielding a weighted average cost of Rs.156 PMT. 3.3 We may at this stage examine the assessee's claim from the standpoint of the evidences led, i.e., the (sample) bills provided by the assessee for shipping of bauxite from mine/s to rail-siding (PB pgs. 114-118/AY 2012-13). We are conscious that this may not necessary as the transportation cost as allowed in assessment is, as afore-noted, in agreement with the assessee's cost as per the bills produced (see para 3.2). We do so, nevertheless, by way of abundant caution, considering, further, one, the fact that this forms the principal disallowance, with it hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to surface, and from mine to the plot (storage), and for removal of overburden (waste), assuming the same as not included in the base rate, that needs to be established, and which has not been. As afore-noted, an additional cost of Rs.37 PMT has been allowed for the same, magnitude of which can be gauged from the fact that the total expenditure claimed by C.R. Mittal & Co., the comparable case, is at a rate below Rs.35 per MT. The average credit (qua the 30 parties identified by the AO) is at Rs.7.76 lacs each. That is, at Rs.8 lacs approx. How and why would they, we wonder, extend credit in such high sums, representing 2-3 months of work done, to the assessee?, who nowhere explains this phenomena, which is not limited to 1-2 creditors, who may have the financial capacity to do so - which, again, where required, being integral to the aspect of genuineness, would need to be demonstrated, but across the board. The corresponding figure for C.R. Mittal &Co., worked on an aggregate basis (i.e., total credit/total expenditure) works to nil, as against at 4.44 months (Rs.389.35/Rs.1054.87 x 12 months) in the assessee's case. This in fact also explains the extraordinary large number of cr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he payments, being per self (bearer) cheques, having been, rather, made through bank, with it being even not made clear if the same is through the bank located nearest to the assessee's mine/s. If not; the law entitling an adverse inference being drawn in absence of evidence expected to be in possession being adduced, what does that show except of course of a made-up claim and an exaggerated claim. All these are tell tales signs of a bogus claim, even as the absence of any confirmation from the creditors, and the assessee's admitted inability to produce the confirmations, with they being not traceable at the stated addresses, was itself sufficient to rubbish the assessee's claim. It may also be clarified that though the AO states of the identity of the creditors being not proved - surely in order, the disallowance made by him is u/s. 37(1) on the ground of the expenditure, to the extent disallowed, being not proved to have been incurred, i.e., the genuineness of expenditure being not established, of which the identity (of the payee) forms a part, though may obtain despite the identity been proved; genuineness having several aspects to it. 3.4 We may at this stage comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... This becomes more inexplicable as the quantity (volume) for all the three years, as indeed for C.R. Mittal & Co., are comparable. Sure, the assessee has before the first appellate authority also clarified about transfer of stock to plot, where it is stored in view of, as explained before us, space constraint at the siding, and which is understandable. This apparently also explains the increase in cost for AY 2010- 11, with the operating statement for that year also bearing an expense of Rs.10.13 lacs towards 'Siding Plot Rent'. That, however, would not explain a cost increase of Rs.111.13 PMT (Rs.115.91 - Rs.4.78), or even by Rs.81.75 PMT, i.e., adopting a base cost of Rs.34.16 PMT (obtaining for C.R. Mittal & Co.). In fact, inasmuch as the assessee has to incur loading and unloading cost, as well as for rent of plot, he would choose a plot site as close to siding as possible, so as to minimize the transport cost as well as transit time. Why, the nomenclature used, i.e., 'siding plot rent' itself so suggests. The increase, therefore, should, considered whichever way, be nominal, while, as afore-noted, the cost claimed is at a multiple of 12 (414.74/34.16) over the comparable cost ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce hike has been agreed upon w.e.f. the dispatches of 01.05.2011. Present agreement will be valid till 31st March 2012 and these rates will be effective till then. 1. Up to six rakes per month: Parameters Present Rates Revised Rates Remarks 1. Basic Rates 373.00 388.00 Hike of Rs 30 per MT on basic negotiated (hike distributed @ Rs 15 on basic & transportation rates each) 2. Adhoc Royalty 100.00 100.00 3. Quantity Bonus* 31.00 31.00 4. Transportation 164.50 179.50 5. Wagon Loading 25.00 25.00 6. Total loaded into wagon 693.50 723.50 * Quantity bonus will be as per old terms i.e. @ Rs 21 per MT for 4 rakes per month and @ Rs 31 per month on dispatches minimum 6 rakes per month. 2. Rates for 7th Rake: Rs. 735.50 loaded in to wagon inclusive of Rs.100 ad hoc royalty (billing of additional Rs 12.00 per MT will as quantity bonus for 7th rake only) 3. Rates for 8th Rake: Rs. 745.50 loaded in to wagon inclusive of Rs.100 ad hoc royalty (billing of additional Rs 22.00 per MT will as quantity bonus for 8 rake only) 4. Rates for 9th Rake: Rs. 755.50 loaded in to wagon inclusive of Rs.100 ad hoc royalty (billing of additional Rs 32.00 per MT will as quantity b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cipal disallowance in these appeals. 4. We may, next, proceeding year-wise, consider each of the various disallowances/adjustments made in assessment/s by the AO, since modified by the first appellate authority. AY 2012-13 5.1 The Revenue's Grounds are as under: 1. That on the facts and circumstances of the case, the ld. CIT(A) erred in facts and in law : (i) The CIT(A) has erred in allowing relief of Rs.5,83,79,756/- out of total disallowance of transport expenses of Rs.6,54,86,556/-, when particularly, the rejection of books result is upheld and evidences were not admitted. (ii) The CIT(A) has erred in applying net profit rate @8% on transport receipt and loading receipt, when particularly, the AO has made specific disallowance out of transport expenses in absence of documentary evidences as required under the provision of section 37 of IT Act 1961. (iii) The CIT(A) has erred in allowing relief out of transport expenses when particularly, the AO had given finding that a sum of Rs.3,91,45,959/- was paid by self cheque and therefore, provisions of section 40A(3) are clearly applicable for disallowance. (iv) The CIT(A) has erred in allowing relief out of transport expen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....592.87 lacs and Rs.62 lacs, we may add, contain any element of disallowance u/s. 40A(3) or s.40(a) (ia) or any other provision, which is only u/s. 37(1) of the Act, by regarding it as not genuine. Here it may also be relevant to state that when we speak of a non-genuine claim, the same may not necessarily imply non-existence of the transporter/payee. As we shall presently see, while some creditor/s who responded to the AO, stated to have nothing to do with the transport business, others confirmed to be in the said business, though had not undertaken any work for the assessee, or had no dues to be received from him. One may have undertaken the work, but at a different (lower) rate. That is, a false claim could be in different forms and fact settings, with no material difference though, being in pari materia. We may clarify that while the law provides for disallowance u/s. 37(1) even if an expenditure, though incurred, is not wholly and exclusively for the purpose of the assessee's business, the disallowance in the instant case is for the reason of it having not been incurred, i.e., to that extent. We may here also add that a disallowance would be sustainable on the assessee being un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee's business, the same is liable to be applied in estimating the income for another year in his own case, of course, subject to adjustment/s for differences, if any, obtaining between the two years. The fact that the result for the first year stands arrived on making specific disallowances, rather than on estimation of income, is of no consequence. It is for this reason that we clarified earlier that the expenditure disallowed bears no element of any artificial disallowance/s (as u/ss. 40A(3), 40(a)(ia)), and is only in respect of and impinges on the expenditure claimed as incurred. We are in this supported by the decision in Vrajlal Manilal & Co. v. CIT [1973] 92 ITR 287 (MP). The appellate order is thus flawed not for the reason that it regards, incorrectly though, the income for the year (AY 2012-13) being estimated, but for estimating it and, further, on the basis of the income of another (AY 2013-14), which stands itself estimated for non-production of accounts, and for which estimation no basis stands stated. That is, for the manner in which the income for the first year is determined, including the validity of the underlying assumptions. Now, it is one thing to say that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s, and justification sought, or that furnished examined on merits. His order, accordingly, bears no reference to any of the documents referred to herein, or otherwise meets the Revenue's case. That is, proceeds de hors the record, without rebutting the AO's findings challenged before him, merely adopting what stands stated by the assessee. The reason behind the apparently excessive profit of Rs. 488.34 lacs, i.e., on the basis of the cost allowed, even as the same is the gross, and not the net profit assessed, which is at an average rate of 33.05% (para 2.3), is the failure to realise that the assessee has shown a transport receipt of Rs.802.91 lacs on a sold quantity of 2,51,327 PMT (PB pg. 132)- both figures as reflected per the audited accounts, which works to Rs. 320 PMT. Further, in addition thereto, is the loading receipt, at Rs. 85.43 lacs, which, on being unitized, translates to Rs. 34 PMT (85.43/802.91 * 320), i.e., at a gross rate of Rs. 354 PMT. It is this exorbitant rate of realization, as against the claimed rate of Rs. 165 PMT (Rs. 180 PMT), or Rs. 167 PMT, on the basis of the quantities and rates stated at paras 3.2 & 3.5 respectively, that results in a 'higher' pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the quantum of disallowance u/s. 37(1)? As afore-stated, merely because the results as derived stand applied by the AO to another year, a matter subsequent, would not convert it to a case of rejection of accounts and estimation of income, which again is to be made taking into account the entirety of the facts of the case. Needless to add, the disallowance as made has been examined to find it as with reference to and consistent with the facts of the case. 5.5 We decide accordingly (also see para 7). 6. The second disallowance (Gds. 1(vi) & 1(vii)) agitated, on the ld. CIT(A) allowing a relief of Rs.18 lacs, is qua labour expenditure on breaking, sorting, and screening of the ore, claimed at Rs.361.19 lacs. The claim was found wanting by the AO as the same was through self-made vouchers, which were not amenable to verification, with the assessee further failing to produce the labour register. The same, as it appeared to him, was through Mukkadams (petty contractors), which is generally the case, though no tax had been deducted at source (para 6 of the AO's letter dated 19/3/2015/also see pg. 5 of the assessment order). Before the first appellate authority, the assessee sought to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m by the assessee in respect of transport expenditure, stated to be incurred in equal measure qua ore purchased, i.e., justification w.r.t. the past, would make the assessee's claim, as allowed (Rs. 400 lacs), in excess by far. What does that show if not the booking of the impugned expenditure at will and fancy. The expenditure for the immediately preceding year was at Rs.157.15 PMT and, further, only on the quantity produced (mined), and which is, even as claimed by the assessee before the ld. CIT(A), the correct basis. Further, the said expenditure, incurred under the account head 'Mining, excavation and allied charges', in the case of C.R. Mittal & Co. (for the relevant year), is at Rs.267.12 lacs on a mined quantity of 2,32,627 MT, i.e., at Rs.115 PMT. The quantity (scale) is comparable, and the nature of work, same. The disallowance at Rs.20 lacs by the AO works to an allowance of cost at Rs.151.64 PMT, as against at Rs.160.53 PMT claimed by the assessee. It may here be mentioned that the return for AY 2011-12 was not subject to scrutiny, while that for the two preceding years were without any appraisal of evidence/s and, consequently, any finding/s, subject only to token disa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us is deleted in whole or in part in further proceedings, as otherwise it would amount to a double disallowance. We, therefore, while accepting the Revenue's Ground in principle, hold for no separate and further disallowance, unless the disallowance as made u/s. 37(1) is revoked, in whole or in part, in further appeal. Further, Shri Ghai during hearing clarified that the threshold monetary limit u/s. 40A(3) r/wr. 6DD for payments to a transporter is Rs.35,000, and not Rs.20,000. He though made no attempt to quantify the change in the disallowance consequent to this change, which may remain unchanged, as where each single payment is in excess of Rs.35,000. We, accordingly, issue no finding with regard to the quantification, which, both for s. 40A(3) and s.40(ia), would be, where required, subject to determination after hearing the assessee in the matter, so that we may only be regarded as having a approved the disallowances under these provisions in principle. We are conscious that the AO has not referred to s.40(a)(ia). That, however, would be little consequence inasmuch as the issue of disallowance qua transport expenses is open before us and, further, there is no estopple agains....
X X X X Extracts X X X X
X X X X Extracts X X X X
....35/- to Rs.21,68,240/- by estimating the net profit of the assessee @2.57% of sale of bauxite Rs.8,43,67,299/-. (ii) The ld. CIT(A) has erred in not considering the finding of the AO about bogus creditors. These are shown as outstanding due to inflated expenses debited to P&L Account under the head transportation and labour expenses. (iii) The ld. CIT(A) has erred in not appreciating the facts that the addition was made because the assessee could not furnish detailed evidences during the course of assessment. (iv) That the appellant reserves the right to amend/alter any of the grounds of appeal/add other grounds of appeal at the time of hearing. 2. That the appellant reserves the right to amend/alter any of the grounds of appeal/add other grounds of appeal at the time of hearing. 11.1 We observe no difference in the approach of the ld. CIT(A), who agrees in principle with the AO, applying the derived results, i.e., as obtaining upon effecting disallowances for the preceding year (AY 2012-13), as confirmed by him. Apart from the differences in the (amount of the) said disallowances, which shall stand substituted by that as modified by this order, or as may be further modifi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... less, so that it was immaterial as to if the increase was not in proportion to the increase under the two heads of receipt. In fact, the presentation thereto qua increased costs was also not category-wise. So much for the same being a separate business! Why, the assessee himself seeks to justify the increase in transport cost for AY 2012-13 (vis-à-vis the preceding years) on the basis of it being also incurred on the transfer of ore from deep mine to surface, and from mine head to storage site, as well as for removal of overburden, all costs of the mining business, which have nothing to do with the delivery, which would be either from the storage site or the mine head to the railway siding. The argument though is without merit, as these costs would have also been incurred in the past. Neither the assessee's return for the year under reference nor for the preceding years, nor the assessments for any of those years, the results of which stand relied upon, state so, or even remotely so suggest, i.e., of an independent business. In fact, there is nothing on record to support the contention, much less corroborate it and, on the contrary, is inconsistent therewith. The idea of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....two years, none though stand specified. This, then, is a second deficiency observed by us. Continuing further, no basis for the adoption of the profit rate of 8% is stated. Sure, there could be more than one income stream for a particular business, each subject to a different rate of income. No attempt has however been made to segregate the transportation costs relatable to the mining (part of the) business, as against that for the transport part, even if one were to define the latter (i.e., for the sake of argument) with reference to the transportation of ore from the storage site to the railway siding. That is, even the contours of the transport business, i.e., the set of activities which stand to be included therein, remain unspecified, much less the related costs ascertained. As afore-noted, no such attempt, i.e., toward segregating cost, has been made at any time for the preceding years as well. Where, then, is the profit for the base year/s, or the normative profit, which may then be applied for the year for which the book results are found unacceptable, defeating the very purpose and objective of the undertaking the estimation. Even this elementary exercise, which follows in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng and compensating variation in the profit rate of the other activity. That apart, we have found the transport activity to also yield the same profit rate (para 3.5) and, in fact, clarified that there is no basis for regarding it as a separate, independent business. In sum, the second deficiency is the absence of any no justification for applying a separate profit rate for transport activity, or any basis for the adopted rate of 8%. The ld. CIT(A) goes a step ahead. He not only confirms the presumed profit rate of 8% for the transport activity, of course without stating any basis therefor, he applies the same for the first year, i.e., AY 2012-13, for which we observe no legal or factual basis (also see para 5.3). Sure, he states of no factual difference observed in the facts for the two years (para 6.3 of his order), but that would rather suggest applying the rate for that year (AY 2012-13), as factually determined, to the current year. This is precisely what led us to state that he, rather than correcting, compounds the error of the AO. As explained in Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC), an appellate authority has the jurisdiction, as well as the duty, to correct ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....activities, could not therefore be applied in the manner done. The fifth deficiency observed is in his not considering the results of the comparable case, i.e., C.R. Mittal & Co. This he does, not on merits, as where he finds it as not comparable, stating the reason/s therefor, but as the same were not confronted to the assessee, relying for the purpose on the decision in Joseph Thomas (supra). He appears to have not read the said decision, wherein the Hon'ble Court draws an exception for s.142(3), which specifically provides for giving opportunity to the assessee for being heard on the material gathered by the AO and, thus, observing the principles of natural justice, except where the assessment is, as in the instant case, made u/s. 144; the assessment in that case being u/s. 143(3). The AO, rather than not following, as the ld. CIT(A) presumes, has in fact followed the dictum of s.142(3), which provision again has not been read by him, and which also explains our observing of he having, without application of mind, merely repeated what the assessee states before him. 11.2 We may next review the judicial precedents with regard to two (or more) activities, i.e., the mining an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d during hearing, it was, considering its importance, only deemed proper that a clarification be sought thereon. The case was accordingly re-fixed for hearing the parties in the matter. The same however did not bear any further insight in the matter. Sh. Ghai would, on behalf of the assessee, reiterate the bald claim of a separate business, without supporting it with even a single reason as to why transport activity, income of which stands itself returned throughout as part of the mining business, is to be regarded as a separate, independent business of the assessee. The same, as it obtains, would rather cease to exist in the absence of mining; the transport being admittedly sourced from outside to comply with the terms of delivery of the mining business. The Revenue, on the other hand, would again reiterate the basic facts of the case i.e., the transportation being confined only to the ore (bauxite) mined by the assessee and sold to its customer/s, so that the matter did not admit of two views. The interlacing and intertwining of the two activities, as indeed of the same management, has not been denied and, rather, is undeniable. This exercise, as afore-noted, was done only by way....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ercise has not been undertaken. That is, are prima facie not applicable. These differences could only be explained by the assessee, who in fact pleads for the comparability and, thus, the applicability of their results, so that as per him there are no distinguishable features for these years vis-à-vis the current year (refer Para-III of written submission before ld. CIT(A)/PB pgs. 1-92). However, as apparent, the difference (in the net profit rate) has arisen primarily due to the disallowance/s made on examination in assessment for AY 2012-13, glossed over by the ld. CIT(A), and confirmed by us, which would therefore make us wary of applying the results for these years; rather, retrograde and contradictory. AY 2009-10, the operating statement for which does not contain any transport receipt, is even otherwise beyond 3 years, so that it would not fall for consideration. We have already (at para 11) noted the fallacy in applying the presumed transport rate at nil, itself without any basis, in determining the profit rate for mining activity for AY 2012-13, for the purpose of applying it to the current year, i.e., the reverse application, making a travesty of the estimation proc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vary and even otherwise not furnish readily imposable data. For example, the assessee has incurred, and been allowed, interest expenditure at Rs.14.23 lacs and Rs.9.02 lacs for AYs. 2012-13 and 2013-14 respectively, while there is none such in C.R. Mittal & Co. The objection has no basis in law or facts. It is before us then said that the said case is not comparable inasmuch as, as against the average sale rate of Rs.486.59 PMT (AY 2012-13) (Rs.1222.49 lacs/251327 MT) the average sale rate in that case is Rs.634.94 PMT, i.e., at Rs.148.35 PMT more. Surely, it is argued, that would give rise to a higher profit in that concern. The argument is misconceived. This is as it is nobody's case that the bauxite is not supplied at the siding in C.R. Mittal & Co., but is ex mine. Further, the rate applied by the AO is lower than the derived result of 33.05% (for AY 2012-13) in the assessee's own case. The comparison has thus resulted in a lower rate of 32% being applied, so that the assessee, rather than suffers, benefits on account of the said comparison, stated to be detrimental/prejudicial to him! In fact, the said firm has no separate transport receipt, which perhaps results in a lower g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arked decline w.r.t. immediately preceding year in the assessee's case, found valid by us, and, further, stands adopted by the Revenue authorities sans any basis or finding/s in its respect. 12.3 There is, thus, a case for retention of profit rate at 33% on the mining receipt, and revision thereof to 8% for the transport (and loading) receipt. We are conscious that decline in the transport receipt by Rs. 75 PMT (Rs. 354 - Rs. 279) is compensated to some extent by the increase of Rs. 36 PMT in ore sale realisation, so that there has been a net decline by only Rs. 39 PMT. We, however, are inclined to regard the two receipts, though arising from and forming part of the same business, separately for the purpose of estimation of profit incident thereon. This is as, as already noted, the cost dynamics of the two are different and which perhaps has led to the two being billed separately to the buyer. Two, and equally important, we had found the profit rate on the transport receipt for AY 2012-13 as largely on account of exorbitant rate of Rs. 320 PMT. It is, this, that led to our finding of the profit rate thereon as matching the profit rate on the ore sale and, thus, corroborating the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... estimated. The two issues being interrelated, the foregoing adjudication would thus cover the said Ground as well. In other words, our adjudication of the Revenue's appeal would govern the assessee's CO as well. We cannot help here recording our appreciation for the discretion and circumspection exercised by the AO in determining and applying the estimates. Rather, as apparent from the foregoing, but for the sharp, though unexplained decline in the transport receipt, i.e., by 25% thereof; the two issues being interrelated, we might as well have restored the matter back to the AO for consideration on the lines suggested inasmuch as the Tribunal is to decide on the basis of findings of fact, based on material on record. The assessee's CO is accordingly held as without merit. We decide accordingly. 14. In the result, the Revenue's appeal is allowed and the assessee's CO is dismissed. AY 2014-15 15. We shall take up the principal addition in the Revenue's appeal first; being qua bogus creditors, for Rs.189.62 lacs. The assessee's balance-sheet as at 31.3.2014 reflects as many as 49 (i.e., at an increase of 20% over that for AY 2012-13) trade creditors, aggregating to Rs.695.28 lacs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e excess claim, as against a price hike of Rs. 83 PMT (437 - 354), the additional expenditure booked is at Rs. 428 PMT (842 - 414). A profit margin of 8% implies a cost of 92% of the receipt. The additional receipt of Rs. 83 PMT, thus, entails an expenditure of Rs. 76 PMT, representing an increase of 47% of the cost allowed at Rs. 162 PMT on the quantity mined for AY 2012-13; the purchases for the year, in contradistinction to AY 2012-13, being very marginal. The assessee has, accordingly, booked an additional expenditure of Rs. 352 PMT (428 - 76), or, at Rs. 355.84 lacs, on the current year volume of 101090 MT. A moderate hike in transportation cost, as for receipt, would result in a cost of ~ Rs. 500 PMT, yielding an excess cost by ~ Rs. 342 PMT. That apart, the claim of Rs. 414 PMT for AY 2012-13, the base year, was found to be in excess by far, i.e., ~ 60%, booked essentially to 'contain' the increased profit due to a higher transport yield. The expenditure claimed thus far exceeds the actual expenditure, lower by far than the assumed cost of 92%, so that the profit margin of 8% becomes, in view of the peculiar circumstances, valid for AY 2013-14 only. Coming to the specific e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... thereafter. There is no question of his filing retraction statements of the creditors upon being supplied copies of their statements, which clearly shows him to have contacted them. Both Shri Hetram Kol and Shri Dujiya Kol clearly state to be working as labourers in the mines of the assessee (Shri Hetram Kol) and Shri Ashok Vishwakarma, the assessee's brother (Shri Dhujiya Kol). That they had done no transport work for the assessee, and nothing was therefore due to them from him. That they had no vehicle and, in fact, did not file any income-tax return. Both stated to be having a single bank account, i.e., with Canara Bank, Katni. They are, clearly, poor, illiterate or semi- literate workers, who could not write, subscribing their thumb impressions on the depositions, working in the mines of the assessee and his brother for a living. The assessee himself does not file any counter affidavit, averring the said statements to be false or incorrect in any material respect. He does not seek cross-examination to rebut the charges made by them per their sworn statements. The facts stated therein thus remain undisputed. He does not even state any substantive fact, viz. the additional need ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the statements were not read out, or that the deponents had only placed their thumb impression thereon without understanding their contents, with in fact oath being administered at the start of the statement itself. The retractions are only managed statements, obtained by the assessee after over a year of the original statements, being only from his own workers. No credence could be placed thereon. The retraction is thus not valid, and the retraction statement not admissible evidence in law, i.e., on merits. We, next, consider the addition for the balance Rs.158.13 lacs qua the remaining 8 creditors. To begin with, we observe that no payment, as to the two creditors afore-discussed, has been made, and the entire amount billed outstands as at the year-end, for 6 creditors aggregating to Rs.97.94 lacs. For the other 2, the position is as under, and shall be considered separately: (Amt. in Rs.) s.no Name of the persons Opening balance as on 01.04.2013 Bills raised during year Payment made Outstanding as on 31.03.2014 1. K.K.Earth Movers 8,85,800/- 37,11,704/- 15,00,000/- 30,97,504/- 2. S.C. Consilmation 8,38,963/- 30,82,511/- 10,00,000/- 29,21,474/- The confirmat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... supported by the fact that none of them admittedly has any vehicle, confirmed by the two who deposed. In fact, this has cost implications for the assessee, who would rather obtain services direct from the market, saving additional cost, being a primary concern, as indeed for any reasonable person, even as seen from the minutes of the meeting with HIL, exhibiting the price increase being subject to a thorough and informed deliberation. Again, there is no deduction of tax at source on the bills raised on him. Continuing further, none of them is an assessee, inasmuch as the AO also required them to file the tax return for AYs 2013-14 to 2015-16, as well as the balance-sheet for those years. The copy of the assessee's accounts are in english, even as all of them, including the two who deposed, have, save one, signed in hindi or by putting their thumb impression. Rather, we amusingly observe, even the name of the concern is a fancy name in english. In all cases, the bills on the assessee, not produced (before the AO), are raised with a periodicity of one month, and are the only bills raised by the creditor concerned. No payment is made by the assessee even as the bills are raised month....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rials (CIT v. R. Venkataswamy Naidu [1956] 29 ITR 529 (SC)), and which remains completely undischarged. None of creditors, except the two who deposed, could be served the notices u/s. 133(6), being not found at the stated addresses. The confirmations obtained from them and furnished to the AO have been by the assessee, making it his evidence, as against that of the Revenue, as where the confirmations/statements had been given directly to it in response to the said notices. Even the copy of account furnished along with is not from their accounts, as called for, but from the assessee's accounts, and on which 'their' signature/thumb impression had been obtained. Why were they not produced, so that they could be examined? There is, further, nothing to show of them maintaining accounts? Why? How, and on what basis, then, did they validate the account statements presented before them, even as the same was only much later in time? Further, what value, then, their confirmations, i.e., in the absence of accounts? It is their accounts which would exhibit the persons from whom they, in turn, hired the vehicles, as also as to how the operations were financed. No tax at source, clearly, stands ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly well-established, provide credit for 3 months, the non-regular ones, with no credentials, do so for, on an average, six times the same! We are conscious that the impugned trade credits (other than where part-payment is made) stand sourced January, 2014 onwards, so that a linear assumption qua credit period would not apply. The information/ comparison is no less significant. With no trade relations to back on, and in fact no resources, the normal behaviour would be one of circumspection, treading carefully, with, rather, being only mediators, themselves out-sourcing, they would be operating on very thin margins, further disallowing them any room for extending credit and, thus, entail financial risk. While here we find them to, as afore-said, continue to provide services with abandon, without a care in the world for being paid; the two who stand paid during the year, having been in fact not paid for year/s. The bizarre average credit period of 18 months, under the circumstances, suggests non-payment to some for years. What more indicting of the assessee's claim? In fact, this period would stand to increase further inasmuch as it is nobody's case that there are no genuine creditors....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of non-deduction of tax at source, which is otherwise attracted, leading to a disallowance u/s. 40(a)(ia), also becomes irrelevant, a non sequitur, in-as-much as the expenditure itself is found as bogus. The same shall though become liable to be invoked where the expenditure is, reversing our finding, held as genuine, in whole or in part. The AO's action in bringing only the amount outstanding to tax is thus inconsistent with his finding of the same being not genuine. It is, rather, self-defeating, as it could be construed to imply that the expenditure is, to the extent paid, genuine! Why, for that matter, even that outstanding as at the year-end, would get discharged at some later point in time (in the assessee's accounts), lending it credibility as it were. That is, an expenditure found not genuine, becomes liable to be regarded as genuine on account of its payment subsequently, a contradiction in terms inasmuch as an outstanding itself implies an obligation to be discharged. On the contrary, the very fact of it remaining unpaid for long, with no explanation therefor, and 'paid' only much later, raises serious doubts as to it being a genuine credit in the first place. The part....
X X X X Extracts X X X X
X X X X Extracts X X X X
....osed to be in its possession, would raise the presumption as to adverse inference (Union of India v. Rai Deb Singh Bist [1973] 88 ITR 200 (SC); CIT v. Krishnaveni Ammal [1986] 158 ITR 826 (Mad)). We may though clarify that, in the conspectus of the case, the same provides yet another ground for regarding the impugned credits as not genuine, even as a comparison, to the extent possible under the circumstances, stands made by us. Coming to the quantum, suffice to state that the claim, as against at Rs.414 PMT for AY 2012-13, disallowed to the extent of Rs.257 PMT, has been made at Rs.842 PMT. The disallowance (Rs.189.62 lacs), implies Rs.188 PMT; the assessee's claim being at Rs.851.30 lacs and thus an allowance of Rs.654 PMT, as against Rs.162 PMT for AY 2012-13, i.e., is much higher than that would arise if the assessee's income was to be computed on an estimate basis, taking an overall view of the net profit or gross profit. Our appellate jurisdiction being confined to the subject matter of appeal, it is, in case of specific disallowances, not the correct assessment of income, but the correct addition/disallowance, in the facts and circumstances of the case. The comparison is thus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of the assessment proceedings, and subject only the limiting terms of the statute (CIT v. Reham Foundation [2019] 418 ITR 205 (All) (FB)). The Tribunal being final fact finding authority, is to decide all questions that arise out of the subject matter of appeal, which itself is to be broadly construed (CIT v. Edward Keventer (Successors) P. Ltd. [1980] 123 ITR 200, 212 (Del)) and, further, in the light of the evidence and consistent with the justice of the case (CIT v. Walchand & Co. (P) Ltd. [1967] 65 ITR 381 (SC)). It may be noted it is the subject matter of appeal that constrains us to restrict the scope of the adjustment to the correct amount of disallowance/ addition. The Tribunal is in fact required to decide all questions of fact or law raised or arising in appeal (Esthuri Aswathiah v. CIT [1967] 66 ITR 478 (SC)). We have already noted at para 7, with reference to the judicial precedents, that it is the correct view that is relevant, and would hold, and not that which the parties may take of their rights in the matter. The view of the appellate Court may not, thus, necessarily agree with that of either side before it (CIT v. Dalmia Investment Company Ltd. [1964] 52 ITR....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../2018 by Shri Rajesh Tipa, is admitted (PB pg. 192). It states of he (and his wife) having undertaken transport work for Shri Shankarlal Vishwakarma in the past, against which dues were outstanding in the stated sum/s from him. The said business had though been since closed due to losses. We are, again, unable to fathom the assessee's non-requisition for cross examining the said creditor/s and, instead, approaching them and procuring an affidavit from him. The affidavit does not state any reason for giving a false/wrong statement earlier. The 'reason' stated is of the deposition being in the absence of any record inasmuch as he just happened to visit the Tax Department for some other purpose on that date. Now, this is as farcical at it can get. Rather, whether he had any other work in the Department on that date, unstated though, is wholly irrelevant. What matters, and is of consequence, is his responding to the summons u/s. 131, statement whereunder has evidentiary value under law. Two, the retraction, per the subsequent affidavit, is completely unsubstantiated. Where, one may ask, is the question of any record, when he (and his wife) had not undertaken any work for the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing mention at Sr. Nos.22 & 26 of the list of 30 creditors, as under, arises out of the bills raised during the previous year relevant to that year: s.no Name of creditors Credit balance as on 31.3.2012/2014 (Rs.) Total of bills raised during the year (Rs.) Total payments received (Rs.) 1. Mandal Constn. Goshalpur 7,23,005/- 16,23,005/- 9,00,000/- 2. Mangalam Engg Works, Satna 8,58,650/- 17,58,650/- 9,00,000/- If anything, the continuing outstanding, despite they being in losses, validates our inference of the same being bogus, and therefore its disallowance (forming part of Rs.654.87 lacs disallowed) for that year, since confirmed by us. The creditor, despite being not paid for over a year, does not insist on liquidation of his old dues, nor for non-extension of any credit for future. The inference is unmistakable, with the credit balance as on 31/3/2014 being the same as on 31/3/2012! The same only implies that balance does not represent an actual trade liability of the assessee. How could we wonder the same be then added on account of remission of a liability, which necessarily implies existence of a liability in the first place, found non-existent. This in fact ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ission of the liability in favour of the assessee. That the assessee has not though chosen to record this fact in his accounts is a different matter, not determinative thereof. It is trite law that the passing or, as the case may be, non-passing of accounting entries is by itself not determinative of the matter (refer Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC); Kedarnath Jute Mfg. Co. Ltd. (supra)). The decision in Bhogilal Ramjibhai Atara (supra) becomes distinguishable on facts. The other inference, equally valid, is the creditor having been paid outside books, which fact therefore is not recorded in his accounts, though would attract s.69A/C. The assessee admitting his liability to the creditor/s as on 31.3.2012 and 31.3.2013, it is only for the relevant year that, on the basis of the evidence in the possession of the Revenue, no liability is found existing as at the year-end (31.3.2014), leading to the inference of its discharge during the current year. As regards s.68, sure, the credit does not arise during the year, which is also the basis of the decision in Parmeshwar Bohra (supra). The applicability of s. 41(1) or s.69C, which would be in alternative, it shall be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s.68, the provision makes no such distinction, though this question does not normally arise where the genuineness of a purchase is not in doubt. The purchase of goods/services, it may be appreciated, is only an explanation of the nature of the credit. That would not though oust it from its source being required to be satisfactorily explained, particularly where circumstances, as we have found to exist, raise genuine doubts in its respect. Reference, in this context, may, with profit, be made to the decisions in Vijay Kumar Talwar v. CIT [2011] 330 ITR 1 (SC); V.I.S.P. (P.) Ltd. (supra); Indian Woollen Carpet Factory (supra). 18.3 We decide accordingly. 19. Next, we may take up grounds 1(i), 1(iii) and 1(iv) of the Revenue's appeal disallowing following expenditure, at 5% thereof: a. Breaking, Sorting and Screening expenses, at Rs.6,69,529/- b. Poclain expenses, at Rs.6,23,577/- c. Loader expenses, at Rs.5,02,130/- These are taken together as the facts and circumstances of the same are similar, as are the basic reasons for the disallowance, as indeed for the deletion. Qua these expenses, the AO, upon examination of books of account and the supporting document produced befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Clearly, as the language of the provision itself states, both the conditions of 'wholly' and 'exclusively' are to be satisfied for an expenditure to be allowed as deduction as a business expense u/s. 37(1). As is well-settled, the word 'wholly' refers to the quantum of expenditure, and the word 'exclusively' refers to the motive, the objective or purpose of the expenditure. We have already noted that the burden of proving the necessary facts in respect of satisfaction of the test of 37(1), i.e., that the expenditure has been incurred wholly and exclusively for the purpose of his business, is on the assessee (Calcutta Agency Ltd. (supra); Lakshmiratan Cotton Mills Co. Ltd. v. CIT [1969] 73 ITR 634 (SC)). To be a permissible deduction, thus, there has to be a direct and intimate connection between the expenditure and the character of the assessee as a trader. That is, it must be incidental to his business and justified by commercial expediency (Travancore Titanium Prod....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... are that the assessee purchased an immovable property at Katni for Rs.9.17 lacs on, as stated, 10.3.2013, the market price of which as on the date of purchase was Rs.14.21 lacs. The assessee objecting, on being show caused for an addition for the difference of Rs.5.03 lacs, the matter was referred by the AO to the District Valuation Officer, Jabalpur, who valued the property at Rs.13.47 lacs. Reducing the difference in valuation to Rs.4.30 lacs, which was brought to tax u/s. 56(2)(vii). The same was confirmed in appeal for the same reason/s. The primary facts, as indeed the valuation, are not in dispute, and s.56(2)(vii)(b) is clearly attracted in principle in the instant case. The said provision, however, stands coopted on the statue-book w.e.f. 01.4.2014, i.e., AY 2014-15 onwards, so that it shall apply to a transaction during the relevant previous year, i.e., fy 2013-14. The transaction was in the instant case completed on 10.3.2013 and, therefore, the difference cannot be assessed u/s. 56(2)(vii) for AY 2014-15; the genuineness of the purchase transaction having not been doubted. Doubts were during hearing raised as to of there has been a typing mistake in the recording the pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act (Poona Electric Supply Co. Ltd. (supra); Southern Technologies Ltd. (supra)). In fact, even if the assessee had so claimed, the same would not be a permissible deduction in view of Explanation to s.37(1) barring all expenditure prohibited by law. In fact, even prior thereto, the same being against public policy, stood regularly struck down by the Hon'ble Courts as not a legitimate claim (Maddi Venkataraman & Co. (P) Ltd. v. CIT) [1998] 229 ITR 534 (SC)). The matter admits of no two views, and the case law in the matter is legion, even as we may cite some (Apex Laboratories v. Dy. CIT (SLP ( C) No. 23207 of 2019, dated 22/2/2022); Gwalior Road Lines v. CIT [1998] 234 ITR 230 (MP); CIT v. Jamiyatrai Rajpal [1998] 232 ITR 437 (MP); CIT v. Rajdev Kirana Stores [1990] 181 ITR 285 (MP). B. Secondly, the disallowances of transportation expenses, effected in the sum of Rs.654.87 lacs and Rs.189.62 lacs for AYs. 2012-13 and 2014-15 respectively by the AO, and confirmed by us, is only u/s. 37(1). The same, as afore-stated, bears no element of any artificial disallowance, as u/s. 40A(3) (r.w.s. 40A(3A)) or s. 40(a)(ia), even as the same has been found to be applicable in principle....
X X X X Extracts X X X X
X X X X Extracts X X X X
....identify as to which amounts out of the total sum of Rs.291.81 lacs stands disallowed and, thus, upon reversal, in whole or impart, allowed. The exercise for identifying the payment in violation of s. 40A(3) or, as the case may be, s.40A(3A), as indeed u/s. 40(a)(ia), would thus extend to the entire sum of Rs.291.81 lacs. Finally, we here also clarify that the disallowance u/s. 40A(3A), would, where so, stand to be made only in respect of the sums allowed u/s. 37(1) for AYs 2012-13 and 2014-15, and cannot extend to sums already allowed for preceding year, but liable to be disallowed in assessment for any of the three years under reference inasmuch as the same do not qualify as the subject matter of appeal. 26. In the result, the appeals by the Revenue and the COs by the assessee are decided on the afore-said terms. Order pronounced in open Court on January 27, 2023 CORRIGENDUM PER BENCH 28-02-2023 Order under section 254(1) of the Income Tax Act, 1961 ('the Act') in the captioned Appeals & Cos. was passed on 27/01/2023. It is, however, found that there have occurred certain omissions in the said order, which are, therefore, hereby sought to be rectified through this corrigend....