TaxTMI 
TaxTMI 
2025 (12) TMI 1172
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther hand, did not oppose the condonation of delay. Considering the reasons cited before us, we are inclined to condone the delay and admit the appeal for hearing. 3. As the facts and circumstances are similar in ITA Nos. 179 & 181/CTK/2020, hence, for brevity we will take ITA No.179/CTK/2020 for A.Y. 2009-10 and decide the issues accordingly. A.Y. 2009-10 ITA No. 179/CTK/2020 4. The first issue raised by the Revenue in ground nos. 1 to 4 is against the quashing of reopening of assessment u/s 147 read with section 148 of the Act by the ld. CIT(A), thereby quashing the assessment framed by the ld. AO. 4.1. The facts in brief are that the assessee is an individual deriving income from business of mining. The assessee filed the return of income on 28.09.2009, declaring total income of Rs. 117,50,44,050/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) scheme and notice u/s 143(2) was issued. The ld. AO framed the assessee vide order dated 28.03.2016, determining the total income at Rs. 126,46,86,020/-, which was reduced by the ld. CIT(A) to Rs. 118,28,11,470/-. Subsequently, the Justice M.B. Shah Commission on illega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the decision of the Supreme Court in the case of Goa Foundation v/s. Union of India & others pronounced on 11/11/2013 in which the apex court cast aspersions on the findings of the Justice M. B. Shah Commission report by observing that the Commission had reached its findings without giving an opportunity to the affected parties to respond and had thus violated the provisions of sections 8B and 8C of the Commissions of Inquiry Act, 1952. In paragraph 11 of the said judgement, the apex court observed as under-: "At the same time, we cannot direct the prosecution of the mining lessees on the basis of the findings in the report of the Justice Shah Commission, if they have not been given the opportunity of being heard and to produce evidence in their defence and not allowed the right to cross examine and the right to be represented by a legal practitioner before the Commission as provide in section 8B & 8c respectively of the Commissions of Inquiry Act, 1952. We will, however, examine the legal and environmental issues raised in the report of the Justice Shah Commission and on the basis of our findings on these issues consider granting the relief prayed for in the writ petiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave carried out an independent verification of the allegation contained in the Shah Commission report. The AD made no attempt whatsoever to tally the production data of the assessee in the tax audit report with the data submitted by the assessee to the Indian Bureau of Mines (IBM) in Form H-1 but hastily jumped to the conclusion that income equalling the sale value of 1,86,000 Metric tonnes of Iron ore had escaped assessment. The AD accepted information from an outside source without subjecting it to a critical scrutiny and her "reason to believe that income had escaped assessment was not based on an independant application of mind. Hence, the re-assessment proceedings, u/s. 147 for AY-2009-10 are clearly null and void (b) As per the proviso to section 147, where an assessment has been made under subsection 3 of section 143 for the relevant assessment year, no action shall be taken under section 147 after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elating to all aspects of the assessee's business including the quantitative details of the items produced by the assessee. The counsel for the assessee appeared before the AO on 29.11.2011 and 09.12.2011 with all books of account and ledger copies relating to production and sale of iron ore. The books of account were duly examined and accepted by the AO. Hence, no material facts relating to the production of iron ore were suppressed by the assessee during the course of the assessment proceedings u/s. 143(3) and the AO was incorrect in initiating re-assessment u/s. 147 by accepting the Justice Shah Commission report without making any independent inquiries regarding the allegations levied therein. Hence, in view of the preceding observations, it is held that the re- assessment proceedings-initiated u/s. 147 of the I.T Act, 1961 for AY.- 2009-10 are null and void. The AO did not have tangible material to form a 'reason to believe' that income for AY.- 2009-10 had escaped assessment. The Assessing Officer accepted the allegation made in the Justice M. B. Shah Commission report against the assessee without any independent application of mind and inspite of the fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the end of the assessment year. 4.4. This issue has also been decided by the coordinate bench of the Tribunal in the case of M/s Tarini Minerals Pvt. Ltd., passed in ITA Nos.268, 270 & 272/CTK/2020 along with other connected appeals, dated 02.05.2022, wherein the Tribunal has upheld the view taken by the ld.CIT(A) in holding that the proceedings u/s.147 of the Act by the Assessing Officer is null and void and quashed the same after observing as under :- 9. Perusal of Ground No.1 shows that the revenue has challenged the order of the Id CIT(A) in respect of quashing of the reopening. We find that at page 5 of 15 of the impugned order, the Id CIT(A) has examined the issue of reopening of assessment and has categorically given finding that the entire reassessment proceedings u/s.147 is based on report of Justice M.B.Shah Commission in regard to illegal mining in the State of Odisha which was placed in the public domain in the months of July, 2013 and October, 2013. Ld CIT(A) further goes on to hold that without any independent application of mind, the AO has accepted the Commissions finding that the assessee had indulged in illegal mining of iron ore. Id CIT(A) has categor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he ground no. 1 to 4 of the Revenue's appeal. 5. The issue raised by the Revenue in ground no.5 & 6 is against the order of CIT(A) deleting the addition of Rs. 93,25,00,000/- on account of illegal mining by holding that there is no difference between production as per Form H vis a vis figure shown in the Audit Report. 5.1. The facts in brief are that the ld. AO during the course of assessment proceedings noted that the assessee has shown lesser than the quantity of production of iron ore as compared to production data given by DMG data including production of iron ore from Unchabali iron ore mines which was not recorded in the books of account of the assessee and consequently the same was treated as production/ sales outside the books of account and amount equivalent to the market price of iron ore, which comes to 93,25,00,000/- was added to the income on account of differential figure of production of 1,86,000 Metric tons. 5.2. In the appellate proceedings, the ld. CIT(A) deleted the addition, which read as under:- "I have perused the facts of the case and the detailed submissions tendered by the assessee. The essentially arbitrary nature of the discrepancy of 1,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith carrying out illegal mining for the period May, 2008 to September 2009. This appeal was filed u/s. 30 of the Mines and Minerals (Development and Regulation) Act, 1957. The Mining tribunal passed an order dt. 16.01.2012 in Revision order no. 25/2012 in the case of Smt. Indrani Patnaik (Revisionist) v/s Government of Odisha (Respondent). In the order the Mining Tribunal dismissed the findings of the State Government as baseless by observing that there was no evidence to support the allegation of illegal mining. The State Government of Odisha appealed to the Odisha High Court against this order of the Mining Tribunal. The Odisha High Court in Writ Petition (c) No. 10219 of 2012 dismissed the appeal of the State Govt and upheld the order of the Mining Tribunal. In light of the preceding comments, the addition of Rs. 93,25,00,000/- made by the AO on account of illegal mining is hereby deleted. (Relief allowed: Rs. 93,25,00,000/-)" 5.3. We have heard the rival contentions and perusing the materials available on record including the appellate order passed by the ld CIT(A). We find that the ld. CIT(A) passed a very detailed and reasoned order while deleting the add....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts is nothing but a matter of expression of opinion by the commissioner. As this Court has explained in the case of Fomento Resources (P.) Ltd. v. Union of India [Writ Petition NO.606 of 2014, decided on 2-7-2019] where this very report of Shah Commission was a matter of direct challenge by the mining lessees and exporters, including the Assessee herein, facts found, as also conclusions drawn, by a Commission of Inquiry are not judicial pronouncements. The report of the Commission neither constitutes a binding judgment nor a definitive pronouncement. The Commission, as held by the Supreme Court in the State of Karnataka v. Union of India [1977] 4 SCC 608, is required to submit its report, which may or may not be accepted by the appointing authority. If it is not accepted, it has no legal consequences. The Commission, in other words, has no power to adjudicate in the sense of passing an order which can be enforced. What the Commission says is merely an expression of its opinion; it lacks both finality and authoritativeness. The differences in export prices of various exporters, so far as iron ore is concerned, maybe matters of fact, which are said to have been derived by Shah Commis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see's prices were lower than other exporters. Even if it is assumed that so far as this fact is concerned, the information contained in the report of Shah Commission by itself can be treated as information available to the Assessing Officer within the meaning of Section 147, the further information, however, that there was therefore under-invoicing of exports by the Assessee does not simply follow from this primary information. There is nothing whatsoever in the impugned notice issued by the Assessing Officer to indicate that he has applied his mind to this aspect of the matter. Learned counsel for the Revenue relies on the case of Calcutta Discount Company Ltd., v. ITO [1961] 41 ITR 191 (SC) to support his contention that it is not only the primary facts but inference to be drawn from such facts which also can form part of the material on which the Assessing Officer may form his belief. Learned counsel is right there. As the Supreme Court has explained in this case, from the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the Assessing Authority has to draw inferences as regards cer....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... export contract is a function of various parameters as claimed by the Assessee, and as indicated whilst noting the Assessee's objections to the reopening notice. But, these are matters of merit and need not engage us today, except the fact that the Commission's conclusion that any particular price was the market price was itself a matter of conjecture and hardly a primary fact. For our purposes, even if we assume that the Assessee's export prices were in fact so less, there is nothing to indicate that any particular income has accrued to anyone as a result of such difference in prices. There is, thus, no direct nexus or live link between the difference in prices and escapement of income. There is, in other words, no way the Assessing Officer could have formed a belief that any income has escaped assessment simply on the basis of the differences in the export prices of the Assessee when compared to others. 19. Learned Counsel for the revenue places strong reliance on the case of Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 59 Taxman 17/191 ITR 662 (SC). Relying on this case, it is submitted that based on export prices showing a systematic lesser value....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the reopening notice. These facts are entirely distinguishable. In our case, there is no systematic undervaluation of export prices. In fact, as pointed out by Mr. Pardiwala, there have been cases where the export prices of the petitioner are taken to be market prices and on the basis of those prices, under-invoicing has been claimed vis-a-vis other exporters. So much for systematic under-valuation. There is no finding by a court of law or a statutory authority as a matter of fact that there was any under-invoicing. The so-called finding is by a commission of inquiry; that commission has itself made it clear in its very opening statement that it was not in a position to finalize illegalities or irregularities with regard to the export of iron ore by individual lessees or their representatives or traders comprehensively due to time constraints. It is at best a tentative opinion expressed by a Commission of inquiry without affording any opportunity to the concerned exporters to explain the material used against them. Besides, there is no case of related parties to whom such exports were made. At least, the reopening notice and the reasons indicated by the Assessing Officer do not ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ra), belief does not mean a purely subjective satisfaction on the part of the Income Tax Officer. It must be held in good faith; it cannot be merely a pretence. It is open to the Court to examine whether the reason has a rational connection with or relevant bearing on the formation of the belief; it must not be extraneous or irrelevant for the purpose. In the present case, as we have noted above, the reason has no such bearing or rational connection with the formation of the belief. It is purely speculative on the part of the Assessing Officer to form a belief of escapement of income from taxation simply on the basis of lesser export prices charged by the Assessee. There is no material or even suggestion that any income corresponding to the so-called under-invoicing of exports was in fact received by any party or by the Assessee through any backdoor method. In the premises, there is no legitimate reason to believe which can sustain the impugned notice issued by the Assessing Officer. 21. The other main objection of the Assessee is that there was no belief on the part of the Assessing Officer that escapement of income had arisen by reason of any failure on the part of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd to the legality or otherwise of the activity. It is submitted on behalf of the revenue at the Bar that the mining activity itself being an illegal activity, expenditure incurred by the Assessee for it is not deductible. There is no such ground alleged in the reopening notice or the reasons indicated in support of the notice. For the first time, a faint suggestion to this effect was made in the order passed by the Assessing Officer on the objections communicated by the Assessee. As our Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 (Bom.) has made it clear, the reasons, with a view to assess their reasonableness, are required to be read as they are recorded by the Assessing Officer; no substitution or deletion is permissible; no addition can be made to those reasons; and no inference can be allowed to be drawn based on these reasons which is not recorded. It is for the Assessing Officer to form an opinion as to whether there was escapement of income from assessment and whether such escapement occurred from failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng that this new conclusion was impermissible, being based on the same material which was available at the time of the original assessment, the Court held that there was nothing on record to show that the Petitioner had received any undisclosed sums beyond the record and which were suppressed during the self-assessment/audit assessment proceedings or had concealed any turnover. This latter part of the reasoning of the Orissa High Court does support the Petitioner's case even in these matters. Learned Counsel appearing in WP No. 120 of 2016 refers to the case of Hemant Traders v. ITO [2015] 59 taxmann.com 234/375 ITR 167 (Bom.). In that case, reassessment was initiated by issuance of a notice under Section 148(2) in pursuance of a survey action under Section 133A of the Act. The Court held that neither the survey report nor any other material indicated that any income chargeable to tax has escaped the assessment in the relevant assessment year. It was submitted by the Revenue that even if that was so, the writ jurisdiction of the Court should not be exercised to interfere with a notice at the threshold. The Court negatived this contention, observing inter alia that once the Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is that there is no allegation in these cases that there was any income derived from illegal activities, which needs to be assessed as income from other sources. The reopening notices in these cases are solely on the ground of under-invoicing of exports. This aspect of the controversy has already been dealt with above in connection with Writ Petition No.329 of 2015, and these petitions also deserve to be allowed on that basis. Mr. Chaitanya, learned Counsel appearing for the Petitioners in Writ Petition No.866 of 2016 makes a few additional submissions. It is, firstly, submitted that though the re-opening notice is issued four years after the end of the relevant assessment year, there is not even an averment in the reasons stated for issuance of the notice that there was any non-disclosure on the part of the Petitioners. Learned Counsel relies on the cases of Hubtown Ltd. v. Dy. CIT [2016] 74 taxmann.com 18 (Bom.) and Akshar Developers v. Asstt. CIT [2019] 103 taxmann.com 162/411 ITR 602 (Bom.) in support of his case. The notice in the present case is indeed deficient and cannot sustain reassessment in accordance with the law stated in these cases. Learned Counsel also relies on th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....[2020] 119 taxmann.com 454 (Gujarat), the Hon'ble High Court had categorically held that section 8B of the Commissions of Inquiry Act, 1952 provides that if a person is likely to be prejudicially affected by the inquiry, the Commission shall give to that person a reasonable opportunity of being heard and to produce evidence in his defence. It has been admitted that the said Shah Commission Report in which prejudice has been caused to the assessee has been passed without giving an opportunity to the assessee. The Hon'ble Gujarat High Court had upheld the decision of the ITAT in that case of deletion of the addition on account of under-invoicing in respect of the export of Iron Ore. Admittedly, the decision of the Hon'ble Gujarat High Court was the subject matter of the SLP before the Hon'ble Supreme Court by the revenue and the same has also been dismissed. The relevant observations of the Hon'ble Gujarat High Court in the case of Rawmin Mining and Industries (P.) ltd. (supra), in para 8 onwards had held as under:- 8. Being dissatisfied, the assessee carried the matter further in appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal, af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en it would reveal that the Ld. AO has nowhere expressed his inability to deduce true income from the books of the assessee. He has not rejected the book results for determining the suppressed sales. The next contention raised by the Ld. counsel for the assessee was that in order to substantiate genuineness of its transaction, it has submitted the following documents: I. Copy of Sales Purchase contract of iron ore no. IOF-2010-01 Dated: 4-01-2010. II. Copy of Letter of Credit No. M16AR1001RS00203 Dtd. 07/01/2010. III. Copy of Shipping bill & Custom Duty Challan no. 6404 Dtd.21/01/2010. IV. Copy of Bill of Lading No. GOA/RMIPL/101 DTD.23/01/2010. V. Copy of Certificate of Analysis by SGS India Private Limited Dtd. 25-01-2-2010. VI. Copy of Invoice No. RMIPL/IOF/2009-10/01 & 02 Dated: 27/01/2010 & 29/03/2010 respectively. VII. Copy of Bank Realisation Credit Advise dtd. 28/01/2010 & 29/03/2010. VIII. Copy of Shipment advice in terms of clause 46A of Letter of Credit. 18. All these documents are available on paper book. The Ld. counsel for the assessee also produced extract of Customs Act specifically sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under: "10. Mr. Mohan Prasaran, learned Solicitor General for the Union of India, on the other hand, submitted that as the notification dated 22- 11-2010 of the Central Government appointing the Justice Shah Commission under section 3 of the Commissions of Inquiry Act, 1952 would show, reports were received from various State Governments of widespread mining of iron ore and manganese ore in contravention of the MMDR Act, the Forest (Conservation) Act, 1980 and the Environment (Protection) Act, 1986 or other Rules and Licenses issued thereunder and for this reason, the Central Government appointed the Justice Shah Commission for the purpose of making inquiry into these matters of public importance. He submitted that after the Justice Shah Commission submitted the report pointing out various illegalities, the Union Government has kept the environment clearances in abeyance and it will legal action on the basis of its own assessment of the facts and not on basis of the facts as found in the Justice Shah Commission's report. Similarly, Mr. Atmaram N.S. Nadkarni, the Advocate General appearing for the State of Goa, submitted that after going through the report of the Justi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppreciate the error. We would like to make comparative analysis of certain exports made by other assessees. It is pertinent to note that the assessee has exported FD grade 58 iron ore. Therefore, we take note of rate of this grade noticed by the Commission with regard other parties. For example, Sesa Goa Ltd., has exported FE grade 58 vide two shipping bills bearing no. 5024395 and 5024397 on 10-12-2009. The rates were 2179.04 WMT. On the same day, this concern has exported same quality of iron ore at the rate of 3008.73. Thereafter, Commission noticed export was made by the Sesa Goa Ltd. on 15-12-2009 FE grade 58 at the rate of 2222 per MT. The next rate noticed by the Hon'ble Commission on 15.12.009 pertained to Chowgule& Co. P. Ltd. It relates to FE grade 58 and this concern exported at the rate of 2492.98. On 12-1-2010 Sesa Goa again exported FE 588 grade at the rate of 2120.76. The rates of the assessee which have been considered by the Hon'ble Commission are of 15-1-2010, FE 58 grade at the rate of Rs. 2604/-. If all these rates are being compared, then it would reveal that on 10-12-2009, the Commission has accepted reasonable rate at 3008/- and compared other rates f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....collect any evidence against the assessee demonstrating the fact that it has under-invoiced its export and therefore, received unaccounted sale proceeds. The undisclosed sales cannot be worked out on the basis of this report, and no addition required to be made in the absence of any evidence. We allow this fold of contention raised by the assessee and delete the addition. " 9. Thus, the Tribunal has taken into consideration the applicability of the report of the Justice M.B. Shah Commission so as to make addition of the alleged amount under-invoicing by the Assessing Officer. 10. We are in agreement with the findings recorded by the Tribunal, referred to above, and, therefore, no question of law, much less the substantial question of law arises. Accordingly, the appeal is dismissed with no order as to costs. 9. Ld.AR has also drawn attention to the decision of the Hon'ble Supreme Court in the case of Goa Foundation, passed in Writ Petition (Civil) No.435 of 2012, dated 11.11.2013, wherein the Hon'ble Supreme Court had held that the M.B.Shah Commission Report have been passed in violation of the principle of natural justice and had consequently dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion of Hon'ble Gujarat High Court in the case of Rawmin Mining and Industries (P.) Ltd., the reopening as quashed by the Id. CIT(A), stands upheld for the detailed reasoning as given above. 10. A perusal of the facts in the present case clearly shows that the Id. CIT(A) has taken into consideration the fact that the production of the Iron Ore as disclosed by the assessee in Form 3CD Report and as per the H-1 Form and as per the report submitted to the Central Empowered Committee in the case of Common Cause 9supra) before the Hon'ble Supreme Court were identical and there is no mention of any illegal mining by the assessee. Admittedly, in the demand notice issued by the Deputy Director of Mines in his reported dated 02.09.2017, there is a quantification of excess production but this is not illegal mining. Excess production has also been disclosed by the assessee in its report and in the Form H-1 and as per the demand notice issued by the Director of Mines, the assessee has been asked to pay compensation for the said excess mining as quantified in the report submitted to the Central Empowered Committee (CEC). A perusal of the assessment order also shows that the AO ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AO refer to the business report refer to Justice MB Shah Commission and thereafter, Criminal Complaint against the assessee. According to the ld. AO the assessee could not satisfactorily explained the illegal mining done by the assessee. Accordingly, the ld. AO computed the expenses incurred on the said illegal mining at Rs. 1,29,42,25,780/-, which was disallowed by considering the same as inadmissible u/s 37(1) of the Act and added to the income of the assessee. 6.2. In the appellate proceedings, the ld. CIT(A) deleted the addition by observing and holding as under:- "The final ground of appeal relates to the disallowance of expenses of Rs. 129,42,25,780/- u/s. 37 of the I.T Act, 1961 by holding them to be 'illegal expenses. I have perused the facts of the case and have examined both the assessment order u/s. 147/143(3) dt. 28/03/2016 and the detailed submissions tendered by the counsel for the assessee. The line of reasoning followed by the AO in her assessment order is that since the assessee has indulged in 'illegal' mining, therefore all the expenses corresponding to this illegally mined tron ore would also be 'illegal in nature and thus li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....borne by the assessee, wholly and exclusively for the purpose of his business. Hence, it only now remains to examine whether this expenditure was incurred by the assessee for a purpose which is an offence or which is prohibited by law. Now, both the terms 'offence' and prohibited by law have not been defined in the Income Tax Act, 1961. The term 'offence' has, however, been defined in section 3(38) of the General Clauses Act, 1887 as follows: "Offence shall mean any act or omission made punishable by any law for the time being in force." In a similar manner, the term 'prohibited by law' may also be taken to mean any act which is expressly or impliedly prohibited by statute. As an aid to interpreting the intent of the legislature in introducing Explanation 1 to section 37 one may refer to the Memorandum to the provisions of the Finance Bill, 1998 which specifically mention that this proposed amendment was intended to check the practice whereby assessee's were seeking deduction as business expenditure of amounts paid as bribes, extortion money and protection money. Apart from the various types of expenditure covered in this memor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In CIT v/s India Cements Ltd (2000) 108 Taxman 67 (Mad.) it was held as follows:- "Infraction by assessee-company of provisions of section 349 of the Companies Act, 1956, in not deducting interest on borrowing, while computing net profit, a percentage of which was paid to managing agent, could not be ignored and remuneration paid to managing agent in excess of what was permissible under section 348, read with section 349 of the Companies Act could not be allowed as business expenditure." In CIT v/s Smt. Amarjeet Kaur (2007) 159 Taxman 178(Karnataka) the court held that expenditure incurred by assessee on deposit- linked incentive scheme which scheme had all basic ingredients of money circulation scheme, which is banned under section 3 of Prize Chits and Money Circulation Schemes (Banning) Act, 1978, could not be allowed as deduction in view of Explanation to section 37(1). In Overseas Trading & Shipping Co. (p) Ltd v/s ACIT(2013) 38 Taxman 86 (Gujarat) the court held that where assessee got its contract executed with a foreign company for import of furnace oil through its sister concern but subsequent purchases made by assessee from sister concern of furnace ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Explanation 1 to section 37 of the 1. T Act, 1961. This action of the AO is arbitrary and wholly unjustified as only the State Government of Odisha or the Ministry of Environment & Forest can penalise the assessee for any infraction of these laws. Neither was the assessee ever penalised by the State Government or the Ministry of Environment nor has the assessee debited any expenditure which relates to a penalty/fine paid for the violation of a statutory law. The payments made by the assessee to various parties like M/s. Thriveni Earthmovers Pvt Ltd and M/s Tarini Minerals Pvt Ltd represent genuine business expenditure for mining activities carried out by these parties like raising of Iron ore and transportation of the same. They are neither in the nature of bribes/protection money and nor do they suffer from the taint of illegality as no statutory law has been violated by the assessee in the course of incurring this expenditure. Hence, in view of the preceding observations, the disallowance of Rs. 129,42,25,780/- made by the AO by invoking Explanation 1 of section 37 of the I.T Act, 1961, is hereby deleted and the assessee's appeal is upheld. (Relief allowed....