TaxTMI 
TaxTMI 
2023 (1) TMI 1232
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommon, consolidated order. 2.1 It would in 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not, despite being required to, and on more than 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 ord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble. The disallowance of the transportation expenses (at Rs.654.87 lacs) for AY 2012-13 was accordingly 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 bas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so the base year, i.e., AY 2012- 13. The said expenditure, as explained during assessment proceedings, is incurred 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er sum of Rs.81.30 lacs. This amount, when reckoned with respect to the quantity mined shipped, i.e., excluding that purchased (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, nevert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n statement, including on bauxite purchased. It is therefore the additional cost, being on internal transfers, i.e., from deep mine 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 4.4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er explanation advanced by Shri Ghai, i.e., of the place being not serviced by bank, again, only needs to be stated to be rejected; the 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) for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the ld. CIT(A). Considering AY 2009-10 as the base year, the transportation cost jumps over 24 times for the next year, and by over 86 times for the year next to that following. 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 sug....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... enormous hike in minimum wages, additional liaison charges with railways & other departments, filling of Niwar siding, blending costly high-grade material to maintain good quality and market competition, following price 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. 7....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s qua the concomitant liability; the manner of payment; the cost data furnished to the assessee's principal buyer; the cost incurred in the past (which the assessee itself pleaded for applicability); and that incurred in a comparable case. 3.7 The foregoing marks our basic discussion on the principal 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O found the assessee as having not satisfied the burden of proof cast on him u/s. 37(1), i.e., qua transport expenditure, claimed at Rs.10.54 cr., and effected a disallowance thereunder, which we have endorsed, finding the estimate of expenditure actually incurred and, thus, allowed by him, as reasonable. Neither of the two components of the disallowance made by him, i.e., Rs.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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eed is, while the assessee would insist on it being a case of estimation of income, as presumed by the ld. CIT(A), we are not persuaded to see that as of any moment, or as a controversy arising in the instant case. Estimation is integral to assessment. Once, therefore, the income arrived at on effecting a disallowance/s is considered as the normative operative result of the assessee'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) b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eipt having been assessed @ 81.56% is, thus, wholly wrong and misleading, accepted by him without any inquiry. There has been clearly no examination of even the primary facts by him. The extent of an expenditure claimed could, for example, be gauged only with reference to the volume (quantity) in relation to which it is incurred and, further, on being compared across years or units, reveal its implication/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. F....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., no substantial question of law arises for it to express its opinion thereon u/s. 260A. Further, the decision in T.O. Abraham (supra), relied upon by the assessee before the ld. CIT(A), is not applicable. This is for the reason that the same is in respect of estimation of income upon rejection of accounts consequent to non-production thereof. How, one wonder, is the same applicable in deciding the validity or 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 sel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction (2,25,000 MT) alone, be at Rs.438.75 lacs (as against Rs.361.19 lacs, as claimed), to no proper clarification by the assessee, who merely states - whatever that may mean, of there being no discrepancy. The question is not of discrepancy, but of the correct base with reference to which it is to be reckoned and, two, as to how it compares with the preceding year. This aspect is also relevant as a similar claim 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 (sca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....only in pursuance to a contract, which could as well be oral, borne out by the conduct of the parties, with regular shipments spread over period of time, for a single (defined) rate (consideration), with, further, the transporters not declaring their PANs to the assessee. The said provisions (ss. 40A(3), 40(a)(ia)) would, however, stand to be invoked only where the disallowance as made in assessment and confirmed by 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al purposes, while the assessee's CO is dismissed. AY 2013-14 10. The Revenue per it's three separate Grounds, as under, raises a single issue, i.e., the validity of the modification to the assessed profit in first appeal: 1. That on the facts and circumstances of the case, the ld. CIT(A) erred in facts and in law : (i) The ld. CIT(A) has erred in fact and law in reducing the net profit by Rs.2,48,29,295/- from 2,69,97,535/- 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... That is, is integral thereto, and for which one may only, if at all required, refer to the minutes of the meeting dtd.18/6/2011 (see para 3.5), wherein the increase of Rs.30 PMT w.e.f. 01/5/2011 was spread by HIL, the buyer, (equally) over transportation charges and commodity price, even as, as also noted at para 3.5, there was no reference to an increase in transport cost. For the buyer, it was only compensating the supplier for his increased costs, nothing more and nothing 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....disputed before him, would furnish the real income of the business and, thus, a valid basis for being applied to the following year (AY 2013-14), business results for which year are to be estimated in view of the book-results for that year being found not acceptable. This would be so even if the transport activity is, for the sake of argument, regarded as a separate business. The rate of 33.05% would sure be liable to be modified to factor in any observed variation between the 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 includ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....buyer (HIL). That is, much less a separate business, there is no case of the transport activity constituting a separate profit centre of the mining business. There is thus no factual or logical basis for determining the profit of the transport activity separately and, besides, in view of the two activities having their genesis in the same core activity, i.e., the ore delivered at the siding, to no consequence as a different profit rate for one activity would imply a corresponding 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 pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re, a mockery and, as afore-stated, a hash of the entire process. This, then, is the third deficiency. The fourth deficiency is that though he states of taking as the basis the declared results for the preceding 3 years, the ld. CIT(A) omits, as it appears to us, in his zeal to accept the figures furnished before him, that for AY 2011-12 which, along with AYs. 2010-11 and 2012-13, constitute the said 3 years. Further, the results for these years, also combined, i.e., for both the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ascertain if the transport activity constitutes a separate, independent business of the assessee, to find it as not, both forming part of one indivisible business, and which discussion also includes the manner of application of the derived results to the year of estimation (AY 2013-14). There is, as afore-explained, nothing on record to show that the transport activity is not integral part of the mining business. We mention here that this aspect of the matter having not been specifically argued 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 outsi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the very fact that the net profit for these years, returned at 2% and 3.9% respectively (which would stand to be enhanced marginally to 2.6% and 4.1% respectively after the nominal disallowances made in assessment), is at gross variance with that finally determined for AY 2012-13, the immediately preceding year, i.e., at a huge difference, itself suggests differences in the basic cost (or revenue) parameters, which would therefore have to be examined before deciding on their applicability, which exercise 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, re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be applied for the following (current year), being qua transportation and labour expenditure, i.e., the direct cost of operations, impacting the gross profit rate. Why, in Vrajlal Mani Lal & Co. (supra), the rate applied was the gross profit rate, implying allowance of the indirect expenditure in full, as also in CIT v. Pilliah (K.Y.) [1967] 63 ITR 411 (SC). Each firm has a different management structure, etc., with a separate set of expenses applicable thereto, and, accordingly, the expenditure would 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 PMT, or at an increase by Rs. 20 PMT (or nearly 8.5%) over that for the earlier year, i.e., Rs. 237 PMT (on a gross receipt of Rs. 354 PMT). The increase of 8.5% is understandable considering the increase of 17+% in the loading charges receipt, which also agrees with the general perception of the labour receipt bearing a gross margin of 40% to 50%. This, it may be appreciated, is only toward evaluation of the reasonability of the assessed profit rate of 8%, particularly considering that the same is at a marked 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 busin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Y 2012-13. As apparent, this forms the subject matter of the Revenue's appeal, discussed in detail at paras 11 & 12 of this order. Rather, inasmuch as the profit rate of the preceding year was also in reckoning, being subject to disallowance/s, paras 3 to 6 of the order are equally relevant. Our adjudication thereof would thus cover the assessee's said ground as well. Likewise, for Gd. 2, which contests the application of profit rate of 8% on the transport and loading charges receipt, found by us as very reasonably 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... exhibits, inexplicably, a much higher increase, i.e., w.r.t. AY 2012-13, for which year the assessee was found to have incurred an excess cost by Rs.654.87 lacs. The creditor balance, correspondingly, increases to Rs. 6.95 cr., representing an average credit of almost 10 months. What does, one may ask, all this exhibit? Unless suitably explained with evidences and cogent reasons, having its basis in economic reality, the same unmistakingly points to an inexplicable and highly exaggerated claim. To have a broad idea of the 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 rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the appeal - and even though the said request could be made independent of it, was fixed on 18.1.2017. The request was made by him a year later, on 15.1.2018, and promptly complied with. Sure, it was not correct for the AO to have relied on the said statements without confronting them to the assessee, but then that is precisely the irregularity that was required to be addressed/met. It was incumbent on the assessee, preferring an appeal, which he does on 13.01.2017, to have sought cross-examination along with or immediately 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, ill....
X X X X Extracts X X X X
X X X X Extracts X X X X
....larity intervened (viz. Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC); Suptd. CE v. Pratap Rai [198] 114 ITR 231 (SC)). The issue, after all, is to be decided on the basis of evidence, and not affidavits and counter affidavits. The statements are categorical. Also, none of the facts, some of which are personal in nature, viz. number of family members, bank account/s, no transportation work performed; working as labourers in the mines, etc., stated therein, is claimed in the retraction as incorrect. How could it be then said that 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 tw....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a moron would do that. And that is what we are in effect being thus urged to accept. And which cannot be. In the commercial world, even assuming capacity constraint, the assessee's brothers, being in the trade, would themselves source from the market. No wonder, the claim is wholly unsubstantiated. Hiring by the creditors, which would in any case be required to be shown, has both financial and TDS implications, again not demonstrated. No evidence toward the same has been brought on record. There is in fact nothing to show that they are in this trade, which is also 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 fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fact and in the knowledge of heavy disallowance on this account having been made in assessment for AY 2012-13, and results estimated for AY 2013-14, for which year books were not produced in assessment. It may be said that the deficiency, where so, and these questions ought to be rather directed toward the creditors, and not the assessee. This is again misplaced; the primary onus to prove his return as well as the claims preferred thereby, is on the assessee (CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC)), and which can further only be on the basis of proper materials (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' sign....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; (Amt. in Rs.) Name of the Creditor Bills Balance o/s as on 31/3/2014 Ganesh P. Vishwakarma 2,09,27,174 56,17,905 Shakti Industries 1,06,28,195 19,690 Ashok Vishwakarma 1,53,42,284 63,55,284 4,68,97,653 1,19,92,879 The average credit period, on excluding the three creditors afore-stated, increases from 10 months to 18 months, as under (i.e., 575.35/382.32 x 12M): (Rs. in lacs) Total expenditure 851.30 695.28 Excluded Creditors 468.98 119.93 Net 382.32 575.35 That is, quixotically, while the regular creditors, presumably 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-sourci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....annot form part of the disallowance. In other words, irrespective of the quantum of balance outstanding as at the year-end, which would depend on the payment made in relation to that outstanding at its start as well as that credited during the year, would have no bearing on the expense liable to be disallowed as not genuine. Why, the year-end balance may well be at a higher sum, as where no payment is made, or is in a sum lower than the opening balance. That is, neither the opening balance nor the stated payment shall impact the amount of disallowance, which is u/s. 37(1), finding the expenditure as not genuine. The question 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee, could not be said to be in compliance the said notice. There is no appraisal of the material on record by him. There is in fact nothing to show of the transactions being genuine. In fact, the transportation work being sourced from 3 related parties, being the assessee's brothers, none of which has been assailed for its genuineness, a comparison of their antecedents vis-a-vis the creditors under reference, would, where comparable, have provided a ground for regarding them as genuine. It is settled law that a failure to adduce evidence and, rather, the best evidence that a party can furnish, being that which is supposed 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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... here to the decision in CIT v. S. Nelliappan [1969] 66 ITR 722 (SC) is apposite. We may finally consider another aspect of the matter, i.e., remittance to the AO for considering the addition for Rs. 7.76 lacs which may be construed as an enhancement and, therefore, not permissible. With reference to the decision in Kapurchand Srimal (supra), it stands clarified (para 11.1) that an appellate authority is within its jurisdiction and, rather, duty bound to correct all the errors of fact or law made by the authorities whose order/s is under challenge before it. Appellate proceedings, it needs to be borne in mind, are only a continuation 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 m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ajesh Tipa, attended, and in his statement on oath, recorded on 30/12/2016, stated on behalf of himself and his wife, of though being in transportation business, had not undertaken any transport or other related work for M/s. New Minerals. No amount was therefore due from the assessee. This forms the basis of the addition in the impugned sum of Rs.15.82 lacs. The ld. CIT(A) did not admit additional evidence even as, without doubt, the said statement was not confronted during assessment to the assessee, i.e., without a valid reason, as in the case of the other 2 transport creditors (see para 15). The same, being an affidavit dtd.30/1/2018 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taining a copy/s of his statement over a year later. The affidavit is no more than a managed statement, procured by the assessee, inadmissible in evidence, i.e., on merits. Reference in this context be made to the decision in Gunwantibai Ratilal (supra). As also afore-noted, furnishing of the affidavit by the assessee, makes it as his evidence, even as his only right in law is to be supplied a copy of the statement relied upon in assessment, and opportunity to cross examine the deponent, not sought. The opening balance in both the cases, as evident from the details listed in the assessment order (para 2, page 2) for AY 2012-13, finding 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enuine transaction and, thus, as not representing an actual liability. The question of its remission therefore does not arise. In case, however, the same is found as genuine expenditure - a matter of fact (Ratanchand Darbarilal v. CIT [1985] 155 ITR 720 (SC)), we, for the reason/s afore-stated, have found it as liable for addition. And which could be u/s. 41(1)(b) or s.69, or even u/s.68. As regards s.41(1)(b), the same becomes applicable in the face of definite statement on facts, unrebutted, of no amount being due to him (and his wife) as on 31.3.2014, so that the inference that consequently arises, in wake of the expenditure found as genuinely incurred, is of remission 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t for the current year. Juxtapose this with the fact that there is nothing on record to exhibit the capacity of the creditor, viz. his balance-sheet, capital account, income-tax return etc., with he (and his wife) not being even shown to be assessees on the record of the Revenue. While therefore the nature of the credits stand reasonably explained, i.e., as purchase of services, the source thereof is rendered in serious doubt, at least as on 31.3.2014, if perhaps also earlier, as on 31.3.2012 and 31.3.2013. That is, the amount is for that reason liable to be included as income u/s. 68 for any of the years. Lest it be said that a trade liability cannot be subject to 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 Kum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ges register available, nor identity of the labour proved. Disallowance at 5% in all cases, toward inflation of expenditure, was effected by the AO. None of this finding has been met or rebutted at any stage, including before us. The ld. CIT(A) has allowed relief on the legal premise of disallowance u/s. 37(1) being un-permissible as an ad hoc disallowance, relying on the decision by the Tribunal in Ganesh Pratap Singh (Supra). 20. We have heard the parties, and perused the material on record. Section 37(1) reads as under: "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d penalty being at Rs.3,800, and the pleading for restoring the matter to the AO is an admission of same. The tax audit report u/s. 44AB for the relevant year (PB pgs. 32-43) reports the penalty at Rs.5808 (vide para 21 (a)(vi)). Under the circumstances, we consider it appropriate to rely thereon and, accordingly, confirm the disallowance at Rs.5,808, so that the balance Rs. 6800 is to be allowed. We decide accordingly. 22. Next, we may consider the assessee's CO. All its grounds are supportive of the impugned order and, therefore, warrant no separate adjudication, i.e., except Ground 2, which agitates the confirmation of an addition for Rs.4,30,000 u/s. 56(2)(vii) of the Act. 23. The brief facts in relation thereto 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... apparently compensated by its Principal in that regard. No such claim, i.e., toward such expenditure, has however been made by the assessee in its accounts or even otherwise per his returns of income. The adjudication by the Tribunal, the final fact finding authority, is to be necessarily based on the material on record, and not on the basis of assumptions and presumptions, case law on which is legion, even as we may cite some, viz. CIT v. Radha Kishan Nandlal [1975] 99 ITR 143 (SC) Udhavdas Kewalram v. CIT [1967] 66 ITR 462 (SC) Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) Dhiraj Lal Girdharilal v. CIT [1954] 26 ITR 736 (SC) True, the income liable to be assessed is the real income, but the same is again subject to the provisions 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 Ve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in CIT vs. Calcutta Export Co. [2018] 404 ITR 654 (SC) and Sagar Tobacco Industries v. Asst. CIT (in ITA No. 48/Jab/2017, dated 13.9.2022). The decision in Shree Choudhary Transport Co. (supra) would apply both on facts, qua at least two other aspects. That is, the provision being applicable to the part of the expenditure paid during the year. And, further, of the amendment w.r.t. the disallowance being restricted to a fraction thereof (thirty percent) by Finance (No. 2) Act, 2014, w.e.f. 1/4/2015, being prospective. Further, we are conscious that while the disallowance for Rs.592.87 lacs (out of disallowance of Rs.654.87 lacs for AY 2012-13) is a total disallowance, that for balance of Rs.62 lacs is itself at a fraction (of Rs.291.81 lacs). As such, it would not be possible to 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,....