TaxTMI 
TaxTMI 
2023 (3) TMI 1546
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....ome Tax, Central Circle 1 (3), Bengaluru. 3. The factual matrix of the case is that the assessee e-filed its return of income for the assessment year 2009-10 declaring an income of Rs.486,38,96,690/-. The case was selected for scrutiny and the assessment was completed under Section 143 (3) read with Section 144C (13) of the Income Tax Act on 31.12.2013, determining total income at Rs. 10,86,34,35,052/- by making various additions, which reads as under: Additional / Issues Rs. Transfer pricing adjustments 112,20,92,081/- Claim of bogus transportation expenses of iron ore 40% attributable towards illegal mining. 86,43,47,335/- Disallowance of expenses claimed under section 37 (1) towards illegal mining. 387,76,69,992/- 4. Aggrieved by the above additions, the assessee preferred an appeal before the Tribunal against the additions made hereinabove, which came to be allowed. 5. It is stated in the appeal that during the assessment proceedings, it was observed that, M/s GLA Trading International Pvt. Ltd, is an 'associated enterprise' (for short 'AE') of the assessee respondent within the meaning of section 92A based on the fact that Sri. Gali Janardh....
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....ctors of the assessee company and of GLATIPL is common, Section 93CA is not applicable. The Tribunal also held that in order to constitute a relationship of an AE, the parameters laid down in both sub-sections (1) and (2) should be fulfilled. As per explanation, amendment carried out in sub-section (2) of section 92A by the Finance Act, 2002 w.e.f., 01.04.2002, mere participation of one or more persons in the management or control or capital of both the enterprises shall not make them AE unless the criteria specified in sub Section (2) is fulfilled and since the parameters laid down in sub Sections (1) and (2) of Section 92A are not fulfilled, there is no relationship of AE between the Assessee Company and GLATIPL and therefore, the provisions of chapter X of the Income Tax Act, are not applicable. 9. It is further stated as regards the issue of claim of bogus transportation expenses of iron ore at Rs. 86,43,47,335/- that during the assessment proceedings, the assessing authority made enquiries with regard to the genuineness of the claim of transportation expenses of Rs. 648,41,29,000/- made by the assessee which was far in excess compared to the immediate previous year. The ass....
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....ch 22,81,141 Mts, was held to be illegal and the illegal production worked out to 40% of the total production. While completing the assessment, for the reasons given in detail, the assessing authority disallowed 40% of the total expenditure claimed towards transportation expenses at Rs. 387,76,69,992/- under Section 37 (1) of the Act. However, the Tribunal granted relief to the Assessee by deleting the additions made on this issue by following its earlier order in the case of assessee for the assessment year 2010-11. The tax effect in the present case is Rs. 273,39,03,77,056/- and fulfills the criteria of monetary limits prescribed by the Board. Aggrieved by the same, the appellant / revenue has filed this appeal by challenging the order dated 20.10.2016 passed by the Income Tax Appellate Tribunal, Bengaluru Bench 'C' in IT (TP) A No.182 (BANG) 2014 and to confirm the order dated 31.12.2013 passed by the Deputy Commissioner of Income Tax Central Circle 1 (3), Bengaluru. 11. Learned standing counsel Sri. Y.V. Raviraj for the appellants/revenue contends that with regard to the issue of transfer pricing adjustment, the Tribunal has grossly erred in not appreciating the categorical ....
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....o have appreciated that the additions have been made in well reasoned order. 16. It is further contended that the Tribunal ought to have appreciated the addition towards disallowance of claim of transportation expenses which has been made by the Assessing Officer relying upon the independent evidence collected from the Transport Department and the banks and not merely on the basis of the transporters from whom statement under Section 131 was recorded and as such the additions made are sustainable even without the reliance on the statements recorded under Section 131. The Tribunal has grossly erred in not considering the judgment of the Hon'ble Apex Court in the case of ITO vs. M. Pirai Choodi (20 Taxmann.com 733 (2012) (SC), wherein it was held that the order of assessment passed without granting an opportunity to the assessee to cross-examine, should have been set aside by the High Court, and consequently the Tribunal should have remanded the matter directing the Assessing Officer to grant an opportunity to the assessee to cross-examine the concerned party and re-do the assessment. 17. However, in the present case, the Tribunal has grossly erred in deleting the additions....
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....ct in deleting the additions of Rs. 86,43,47,335/- made by the Assessing Officer on account of bogus claim of expenditure on transportation made by the assessee, particularly when the Assessing Officer has arrived at the additions based on independent enquiries and evidence collected from the transport department, the banks and not merely on the statements recorded from the transporters? 4. Whether on the facts and circumstances of the case and in law, the Tribunal is correct in deleting the additions of Rs. 86,43,47,335/- made by the Assessing Officer on account of bogus claim of expenditure on transportation made by the assessee by relying on the decisions of the Hon'ble Delhi high Court in the case of CIT VS. SMC Share Brokers Ltd, and in the case of CIT Vs. Pradeep Kumar Gupta, the facts and circumstances of the cases are distinguishable? 5. Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in deleting the additions made by the Assessing Officer u/s 37 (1) on account of illegal mining by disallowing the expenditure of Rs. 387,76,69,992/-, wherein such disallowance has been made by the Assessing Officer on the b....
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....ision is on this basis that Sri G. J. Reddy, a director of the assessee company was appointed as a director of (GLATIPL) on 19.12.2007 and thereafter, on 21.12.2007, the entire share capital of (GLATIPL) being only one share of the value of 1 Singapore Dollar was transferred to GJR Holdings International Ltd. (GJRHIL) registered in the isle of MAN and Shri G. J. Reddy is one of the directors of that co. also i.e. (GJRHIL). Thereafter, it was submitted that the said one share of (GLATIPL) was transferred by GJRHIL to Inter Link Services Group Ltd. (ILSGL) on 22.12.2007 and the necessary evidence in this regard is available on page 169 of the paper book. It was submitted that in the present year i.e. during 01.04.2008 to 31.03.2009, the only one share of GLATIPL was held by ILSGL and neither the assessee company nor its directors are holding any share of that co. i.e. ILSGL and the directors of the assessee company are not a director in that co. i.e. ILSGL and hence, provisions of section 92A are not applicable under these facts and in view of the order rendered by the tribunal in the case of Page Industries Limited vs. DCIT (Supra). As against this, learned DR of the revenue support....
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....of (GLATIPL) holding its entire share capital and the only director of (ILSGL) as per Notarial certificate issued to (ILSGL) on 12.05.2011, the current director of Inter Link Services Group Limited was Arangannal S/o Kathamuthu and he was appointed on 24.04.2001 and the current shareholder on that date was Iyer Corporate Services Pte Ltd. (Formerly known as Crest Services Pte Ltd.). Hence, it is seen that from 22.12.2007 till 12.05.2001 at least, the entire share capital of (GLATIPL) was held by (ILSGL) and with this company, the assessee company or its directors has no relationship. 23. On considering the rival submissions, the ITAT held that since the learned DR of the revenue could not point out any difference in facts, we find no reason to take a contrary view in the present year. Hence in line with the Tribunal order in A.Y. 2010-11 in assessee's own case, ITAT deleted first two disallowances i.e., 1) Disallowance of Transportation charges, and 2) Disallowance of Expenses under Explanation to section 37 (1) and in respect of third issue i.e., addition made on account of sale of Land, the ITAT set-aside the order of CIT (A) on that issue and restored the matter to ....
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....Income Tax Act, wherein it is held that Section 133 (4) has granted a very wide statutory discretion to the Income Tax Appellate Tribunal in disposing of an appeal but the discretion given under this section to the Income Tax Appellate Tribunal is a judicial discretion which must be exercised in accordance with legal principles, and not in an arbitrary or capricious manner. Discretion means when it is said that something is to be done within the discretion of the authorities that something is to be done according to the rules of reason and justice, not according to private opinion. It is to be, not arbitrary, vague and fanciful, but legal and regular. It must be exercised within the limit, to which an honest man competent to the discharge of his office ought to confine himself. 26. Learned counsel Sri. Mayank Jain for the respondent / assessee further placed reliance on a decision in the case of Rajesh Babubhai Damania vs. Commissioner of Income Tax reported in (2001) 251 ITR 541, wherein at para 7 it is held as under: "7. The Tribunal totally overlooked the assessment of evidence done by the Commissioner of Income-tax (Appeals) and dealt with the matter as if it was en....
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....der of the Tribunal (Hyderabad) dated 14.12.2012 wherein it set aside both the orders of the assessment and appellate Commissioner. 28. It is further contended that under the Old Income Tax Act, 1922, provisional / protective assessments were provided for u/s. 23-B of the IT Act, 1922. This provisional assessment was a prelude to an advance tax or to regular assessments. In other words, if an Assessing Officer desires to pass a provisional assessment he had to do it u/s. 23-B of the IT Act, 1922. The Hon'ble Supreme Court had an occasion to deal with this provision in two judgments which are as under: a. Lalji Haridas Vs. ITO & Ors., (1961) 43 ITR 387 (SC) b. ITO Vs. Bachu Lal Kapoor (1966) 60 ITR 74 (SC) "15. Some argument was advanced on the question of the validity of what are called protective or precautional assessments" Reference was made to Jagannath Hanumanbux us TO (1957) 31 ITR 603 (Cal) and to the decision of this Court in Lals Haridas us. ITO (1961) 43 ITR 387 (SC) In the former, the validity of protective assessment was approved and in the latter, this Court though the question of assessment was raised, did not express its final opinio....
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.....74 lakhs odd an amount of Rs.103 lakhs odd was liable to be rejected. 30. Learned counsel for the respondent / assessee contended that therefore, the provisional / protective assessment order passed by the Assessing Officer (Ananthpur), which was confirmed by the Appellate Commissioner is without jurisdiction and has no legs to stand on and cannot be enforced. It is without "authority of law" as contemplated under Article 265 of the Constitution of India. Hence, the order of the Assessing Officer (Ananthpur), Appellate Commissioner's order (Karnool), Tribunal's order (Hyderabad) is without jurisdiction and cannot be looked into. 31. Learned counsel for the respondent / assessee facilitated the assessment order dated 31.12.2009 for the assessment year 2008-09 and contended that the assessee has filed e-return of income for the assessment year 2008-09 under Section 139 on 30.09.2008 under ack. No.44479161300908 with digital signature declaring income of Rs. 764,53,84,970/-. The financial year 2007-08 is the year of search in the case of the assessee. Consequent to the material gathered in the case of the assessee searched, action under Section 153A of the Act was initiated in ....
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....hart above, it is very clear that there is gross under-invoicing in respect of sales/exports made by the assessee company to the associate company (GLA Trading International PTE Ltd). 33. The assessee company was issued with a showcause notice requesting them to explain why the difference in price/rate representing under invoiced portion should not be added to the income of the assessee company for the Asst. Year 2008-09 under the provisions of Income Tax Act. 34. It is further contended that in view of non-reference by the assessing officer to the TPO for determining Arm's Length Price (ALP) is erroneous and also prejudicial to the interest of revenue inasmuch as the matter could not be examined by the TPO as per the Instructions of the CBDT in Instruction No 3, as mentioned above, having regard to the fact that the international transaction was more than the specified amount. 35. However, the submissions made by the assessee company before the Commissioner of Income Tax were as under: (a) In this case, the assessment has been completed under section 143 (3) of the Act on 31/12/2009 by the Deputy Commissioner of Income Tax, Central Circle-1 (3), Bangalore. Du....
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....ction 92B of the Act. Sub-section (1) section 92B eads as under" for the purpose of this Act and section 92, 92C, 92D and 92E, International transaction" means a transaction between two or more associated enterprises, either or both of whom are non residents. The term associated enterprises have been defined in section 92A of this Act. The A.R. in his submissions has reproduced Sec. 92A and contends that in the assessee's case Sri G. Janardhan Reddy is the director of the Assessee Company and GLA Trading International Private Ltd. The assessing officer has NOT established that Assessee Company is in the management or control or capital of the other enterprise. The assessing officer has not proved that G. Janardhan Reddy owns more than 25% of voting power in the other company. All these things show that the GLA Trading International Private Ltd is not an associated enterprise of the Assessee Company. (e) Without prejudice to the above, the contracts with G LA Trading International Private Ltd were entered into on 4/12/2007, whereas Sri G. Janardhan Reddy became director of the other company only on 19/12/2007. As on the date of contract, GLA Trading International Privat....
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....he assessing officer, it is only when an order is erroneous that the section will be attracted. incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The Apex Court further held that when the Assessing Officer adopted one of the courses permissible under law and it has resulted in loss of revenue, or where views are possible and where AO has taken one of the views with which the Commissioner of income tax does not agree, it cannot be treated as the erroneous order prejudicial to the interest of revenue, unless the view taken by the AO is unsustainable in law. (h) In the case of CIT Vs. Smt. Minalben S Parikh 215 ITR 81, Honourable Gujarat High Court held that, Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue, for example, when an income tax officer adopted one of the coerces permissible in law and it has resulted in loss of revenue; or where two views are possible and the income tax o....
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.... human activity. 36. It is further contended that the assessee filed the return of income on 30.09.2008. The Assessing Officer passed an order of assessment on 31.12.2009 u/s 143 (3) of the IT Act. He had computed the transfer pricing difference in respect of all the international transactions without referring the matter to the transfer pricing officer. Therefore, the Commissioner exercised jurisdiction u/s 263 of the IT Act and directed the Assessing Officer to transfer the file to the transfer pricing officer in accordance with law. This order of the Commissioner was challenged before the Income Tax Appellate Tribunal. The Tribunal proceeded to hold that section 92CA (4) of the IT Act which came into effect from 01.06.2007 would be applicable only for Assessment Year 2009-10 and not for the current Assessment Year 2008-09 by relying on a number of judgments. Hence, the Tribunal by order dated:29.07.2016 held that exercise of jurisdiction u/s 263 of the IT Act was erroneous and allowed the appeal of the assessee. 37. In the meantime, based on the order of the Commissioner, proceedings were initiated by the Assessing Officer by referring the matter to the Transfer Pricing Of....
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....,690/- as income of the assessee. Assessee during the year claimed firstly income declared on sale of iron ore abroad, secondly expenses claimed towards transportation of iron ore from assessee's stock yard to port and thirdly expenses claimed towards excavation of iron ore, processing iron ore and royalty paid to the Government for transportation. On 13.07.2010 notice was issued u/s. 143 (2) of the IT Act for scrutiny of the return of income to the assessee. On 28.10.2010 Section 92CA (1) of the IT Act, first Reference made by Assessing Officer to TPO-2, Bangalore to compute arms length price in respect of export sale of iron ore to M/s. GLA Trading International P. Ltd., worth Rs. 205,07,08,959/- on the ground that M/s. GLA Trading International P. Ltd., and assessee had common Director. On 23.05.2012, Section 92CA(2A) of the IT Act, the second reference made by Assessing Officer relating to helicopter hiring charges paid to M/s OSS Air Management Pvt. Ltd., New Delhi and M/s Heligo Charter Pvt. Ltd, Mumbai of Rs.3,99,41,330/- on the ground that it amounted to international transaction. On 03.11.2010 Section 92CA(2B) of the IT Act Transfer Pricing Officer, proceeded to issue ....
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.... is as under: "92A.(1) For the purposes of this section and Sections 92, 92B, 92C, 92D, 92E and 92F, "associated enterprise", in relation to another enterprise, means an enterprise - (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. (2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or (c) a loan adv....
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....sons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed.' 44. Keeping in view the aforesaid provision of the IT Act, 1961, and even taking into consideration the objections of the A.O., assessee's explanations and relevant facts in this regard, the objections of the A.O. as reproduced above are that Shri Gali Janardhan Reddy, one of the directors of the assessee company was appointed a director of (GLATIPL) also on 19.12.2007 and on 21.12.2007, the entire share capital of (GLATIPL) being one equity share was transferred to (GJRHIL) in which, Shri Gali Janardhan Reddy is one of the directors. As per the objections of the A.O., the entire share capital of (GLATIPL) is held by (GJRHIL) on 21.12.2007 and on that date, Shri Gali Janardhan Reddy, one of the directors of the assessee company is director of (GJRHIL) also being a company holding entire share capital of (GLATIPL). Therefore, looking into the result, whether these facts make (GLATIPL) an AE of the assessee....
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....meters of sub-section (1) of sec. 92A of the Act. In this background, we are called upon to adjudicate whether both the entities are AEs within the meaning of sec. 92A of the Act. The definition of the term 'AE is divided into two sub-sections (1) and (2). Sub-sec. (1) contains (definition of AE is parameters of management control or capital of that enterprise. Sub-sec. (2) contains a deeming provision and also enumerates circumstances when the enterprise can be deemed to be AE. The opening words of sub-sec. (2) are amended by Finance Act, 2002 w.e.f. 1/4/2002. The amendment was explained as follows by the Memorandum of Finance Bill 2002: (means) "It is proposed to amend sub-sec. (2) of the said section to clarify that the mere fact of participation of one enterprise in the management or control or capital of the other enterprise or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprise unless the criteria specified in sub-sec (2) are fulfilled."" The resultant of the amendment is thus explained that unless the requirements of sub-sec. (2) are fulfilled, the sub- sectio....
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....fulfilled and even as per the learned DR of the revenue, clause (j) of sub section (2) of section 92A is attracted but this claim is also devoid of merit because he could only point out that one director of the assessee company and of GLATIPL is common but this fact alone does not establish that the said common director is controlling GLATIPL when the said company is a subsidiary of ILSGL and the assessee company or its directors are not having any relationship with ILSGL or director of ILSGL. Hence, by respectfully following the Tribunal's order, that since the parameters laid down in sub section (1) and (2) of section 92A are not fulfilled, there is no relationship of AE between the Assessee Company and GLATIPL and therefore, the provisions of Chapter X of the I.T. Act has no application. 48. The grounds relating to Corporate Tax issue as per Grounds No. 6, 9 and 10, the learned AR of the assessee submitted that three issues are involved in this ground i.e. 1) Disallowance of Transportation charges, 2) Disallowance of Expenses under Explanation to section 37 (1) and 3) Addition made on account of sale of Land. He submitted that all these three issues are covered in favor of th....
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....i High Court, ITAT held that in the facts of the present case, these disallowance out of transportation allowance is not sustainable. Ground 0.2 of the assessee is allowed. 14. In the present case, we are not concerned as to whether he assessee is engaged in illegal mining or not but in the present case, because this is not the case of the AO that any deduction has been claimed by the assessee for facilitating to carry out the illegal mining alleged by the AO or for any penalty in respect of such illegal mining because the disallowance has been made by the AO to the extent of 40% of the total mining expenses and since 60% of the expenses are allowed by the AO, the remaining 40% of the same expenses cannot be considered as expenses for the purpose of offense or unlawful purposes. Hence, this disallowance is not justified. 15. Now we examine the applicability of various judgments cited by the Id. AR of the assessee. The first judgment cited by him is of the Hon'ble Apex Court rendered in the case of CIT Vs Piara Singh (Supra). In this case, it was held that loss arising from confiscation by Customs authorities is deductible from the income derived from smuggling....
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.... (1) and in respect of third issue i.e. Addition made on account of sale of Land, we set aside the order of CIT (A) on that issue and restore the matter to A.O. for a fresh decision with the same directions as were given by the tribunal in A. Y. 2010-11. Ground No. 6 is allowed in this manner and held that the grounds raised by the assessee do not require any separate adjudication and the appeal of the assessee was allowed. The same has been challenged in this appeal by urging various grounds and also raising substantial questions of law. 51. It is relevant to refer to the assessment order dated 31.12.2013 under Section 143 (3) read with Section 144C (13) of the IT Act, for the assessment year 2009-10, wherein the export sale to GLA trading international Pte Ltd., claim of bogus transportation expenses of iron ore, illegal mining, personal expenses of directors of the assessee company, sale of land, bogus of accommodation entry has been taken for consideration and the Central Bureau of Investigation, Hyderabad, has conducted investigations into the illegal mining activity of the assessee Company and has filed a charge sheet in RC 17(A)/2009. It was found during investigations th....
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....l transactions without referring the matter to the Transfer Pricing Officer. Therefore, the Commissioner exercised jurisdiction under Section 265 of the I.T. Act and directed the assessing officer to transfer the file to the transfer pricing officer in accordance with law. This order of the commissioner was challenged by the Tribunal and the Tribunal proceeded to hold that Section 92 (c) (a) (4) of the I.T. act, which came into effect on 01.06.2007 would be applicable only for the assessment year 2009-10 and not for the current assessment year 2008-09 by relying several judgments and an order dated 29.07.2006 and held that the exercise of jurisdiction under Section 263 of the I.T. Act was erroneous. On this premise, allowed the appeal of the assessee. 54. The subject matter of this appeal is that the assessing officer was bound to refer the matter to the Transfer Pricing Officer. Therefore, the order passed by the Commissioner was upheld. Consequently, both the orders of the Tribunal were set aside. Further, the subject of this appeal for the assessment year 2008-09 is whether the assessing officer can suo motu decide the issue regarding transfer pricing that the matter has to b....
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....cumstances of the case. Therefore, it is said that the various contentions made by the counsel for the appellant / Revenue do not hold any substance to question the impugned order passed by the Income Tax Appellate Tribunal. 58. At a cursory glance of the impugned order passed by the ITAT, it is seen that the assessee's authorized representative, during the course of hearing on 27.02.2013 has stated that the land is kept as stock in trade and that the assessee's share of the sale proceeds has been kept as advance. The balance sheet as at the end of the year when the sale transaction has been completed by way of registration of sale deed that the assessee's action treating the sale proceeds as advance as incorrect. Therefore the sale proceeds amounting to Rs.3,09,74,266/- is brought to tax as the assessee's business income. As per the golden rule of interpretation two views are possible and the view favorable to the assessee has to be adopted. Tax can be imposed only if a case falls within the words of the statute and it does not avail to said that it comes within the spirit of statutes Intention of the legislature to be found in the words of the statute and any omission cannot b....