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TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 78
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....ason for the increase in shortages, the Assessing Officer asked the assessee to provide the records and correspondence establishing each and every cost cut made by the customers. On verification of details furnished by the assessee, the Assessing Officer noted that under the head of expenditure includes shortages of Rs..38,00,774/-, shortages account of Rs..35,72,178/- and finally quality cut and liquidated damages of Rs..7,99,26,147/- and tabulated at para 4.2 in pages 2 & 3 of the draft assessment order. The Assessing Officer noted that such losses were only 0.113% of the turnover in the immediately preceding year and the same had risen to 1.19% during this year. The Assessing Officer, after considering the submissions of the assessee and making elaborate discussions in para 3.3 to 3.7 of the draft assessment order, disallowed the claim of expenditure of Rs..7 crores and added to the total income of the assessee. 5. The assessee raised objection before the DRP and produced debit notes issued by its buyers for lesser quality and quantity. The DRP noted that, when the Assessing Officer specifically asked, the assessee failed to produce evidence of weighment of the goods dispatch....
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....supply and not from quality-related deductions. Further, as the entire coal was imported from the AE, M/s. Coal & Oil, Dubai, the assessee should have raised a debit note for the full short supply of Rs..9.40 crores but did so only for Rs..2.34 crores, indicating non-arm's length pricing. Additionally, since stock valuation was book-based and not physical, the short-supplied coal may still be in stock, justifying an increase in closing stock. Accordingly, Rs..7 crore claim was disallowed, and taxable income enhanced, which was confirmed by the DRP. 8. The ld. AR further submits that the assessee has supplied coal to the 11 customers. He vehemently argued that the Coal is not a product manufactured by the assessee, but it is a homogeneous product, which is supplied and quality of coal may vary even if samples are tested from one large quantity of coal stored in a particular area. He further argued that prior to its supply to the customers, the coal is stored in open storage area which is subject to sunlight and rain. The quality of coal may also get affected during the course of transportation by railway racks or trucks without proper cover. Further, in the case, at the time ....
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.... 11. The ld. AR, further, submits that the coal consignments sold by the assessee to its customers do not necessarily correspond on a one-to-one basis with specific consignments received from the AE. The coal supplied to customers is often drawn from a mixed inventory comprising multiple shipments from the AE, and it is neither feasible nor commercially practical to match short supply or quality claims from customers with individual inward consignments. Furthermore, the purchase orders placed by the assessee on the AE are independent of the purchase orders received from its customers. The assessee transacts with the AE on a principal-to-principal basis and assumes full ownership of related commercial risks including pilferage and quality-related deductions-prior to the sale of goods to end customers, such risks cannot be automatically passed on to the AE, and there is no obligation or commercial basis to raise a corresponding debit note for every debit note issued by a customer. Accordingly, the debit note of Rs. 2.34 crores raised on the AE reflects only those cases where a direct linkage could be established. He argued vehemently the balance shortfall claimed by the customers doe....
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....dger accounts, material receipt certificates, payment details, debit notes, and client confirmations pertaining to deductions on account of higher moisture content, lower GCV, and shortages, substantiating expenses amounting to Rs..5,84,89,193/-, was duly furnished in the paper book filed before the ITAT on 23.05.2012 and as additional evidence vide petition filed before the ITAT on 10.07.2017. 14. The ld. AR drew the attention to the additional evidence petition filed on 10.07.2017, along with the documents enclosed therein (pages 1-27) and submitted that the top sheet of the said petition contained a comprehensive table summarizing all amounts for which evidences were submitted, with specific reference to highlighted parties in respect of whom additional evidences had been enclosed along with the petition. In order to establish a clear and logical flow between the evidences submitted and the genuineness of the expenses incurred, the ld. AR drew our attention pages 1-17 of the additional evidence filed vide the aforementioned petition, wherein, in the case of MPM-Medi Dubai at page 2, contains a tabulation of the quantity of coal received and the corrected weight, after taking ....
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....ure which is unreasonably high had actually been incurred. The AR provided certain documentation in the assessment proceedings but, the same is not sufficient, requires providing the records and correspondence establishing each and every cost cut made by the customers. At the time of first hearing before the Assessing Officer on 28-11-2011, the copies of ledger folio of these accounts included in shortages were provided and supporting evidence, was not complete. Even such documentation restricted to transactions of lesser value. It was repeatedly emphasized by the Assessing Officer to provide the complete documentation on this issue but, the assessee provided only a portion of the details and the entire records pertaining to this shortage account were not submitted. 19. The ld. DR further submits that the head of expenditure includes shortages of Rs..38,00,774/-, shortages account of Rs..35,72,178/- and finally quality cut and liquidated damages of Rs..7,99,26,147/-. Regarding the first two items, the shortages could be understandable and acceptable because, while handling coal in bulk, pilferages and loss due to moisture content is prevalent and contemplated. Even in the third ....
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....l evidence and as the Assessing Officer has no occasion to examine and verify the details placed on record, the ld. DR submits that the matter may be remanded to the file of the Assessing Officer for verification and adjudication on merits. 21. Heard both the parties and perused the material available on record. At the outset, upon the perusal of the final assessment order, we note that the Assessing Officer elaborately discussed the issue at para 4 of the assessment order. On verification of the ledger folio on quality cuts and liquidated damages, the Assessing Officer noted that the assessee has debited Rs. 7,99,26,148/- and in the cases of amount exceeding Rs..10 lakhs, the details extracted from the ledger folio and tabulated under para 4.2 at pages 2 & 3 of the assessment order and such item of expenses are quantified at Rs..9,36,73,592/- and by reducing credit note provided by the associated enterprise Coal & Oil Ltd. on 04.12.2007, the Assessing Officer reduced a sum of Rs..2,34,23,019/- and the balance amount of Rs..7,02,50,573/- is considered for disallowance towards shortages and quality cut. The DRP noted that, when the Assessing Officer specifically asked, the assess....
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.... copies of ledger folio of accounts included in shortages were provided before the ASSESSING OFFICER on 28-11-2011 supporting evidence, was not complete. Even such documentation restricted to transactions of lesser value and it was repeatedly emphasized by the Assessing Officer to provide the complete documentation on this issue but, the assessee provided only a portion of the details and the entire records pertaining to this shortage account were not submitted. 24. Considering the petition under Rule 29 of the Income Tax Rules (AT) Rules, 1963 for admission of additional evidences filed in the form of paper book consisting of pages 1 to 27 containing various details of payment for imported coat, material receipt certificate No. 1 to 13, confirmation from the vendor M/s. Terra Energy Limited, etc, which are not placed before the Assessing Officer and had no occasion to verify the same, we are of the considered opinion that the additional evidences filed by the assessee needs complete verification by the Assessing Officer. Accordingly, we remand the matter to the file of the Assessing Officer for fresh consideration in terms of additional evidence filed and referred by us in the ....
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....suant to the DRP's directions, the Assessing Officer, in the final assessment order passed under section 143(3) r.w.s. 144C(13) and 92CA(3) of the Act dated 19.10.2012, made an addition of Rs. 6,05,31,118/- on account of transfer pricing adjustment for international transactions. 28. The ld. AR submits that the assessee had entered into international transactions involving the purchase of coal from its Associated Enterprise (AE). In the course of the transfer pricing assessment, the TPO identified nine specific transactions wherein the prices paid by the assessee to its AE were allegedly in excess of the prevailing market price. In response to this, the assessee submitted the following contentions: -In 3 instances, the transactions were at arm's length considering the benefit of 5 percent range provided under proviso to section 92C(2) of the Act. -In 3 instances, the transactions are at arm's length after considering the discount received by assessee from its AEs. -In 3 instances, the transactions are at arm's length after considering the discount received by the assessee from its AEs and also the benefit of 5 percent range provided und....
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....t note was dated before the invoice cannot be a valid ground to disregard its authenticity or commercial substance, particularly when the contract itself pre-dates both documents and governs the transaction. 31. The ld. AR drew our attention to sworn affidavit furnished by the supplier, M/s Coal & Oil Company DMCC, confirming the genuineness of the credit note in question, which was filed before ITAT on 01.10.2014 and argued that the said sworn testimony from the supplier, clearly establishes that the incorrect date on the credit note was merely a clerical error and does not undermine the substance or authenticity of the transaction. The fact that the credit note was duly accounted for in the books of the supplier prior to the end of the financial year further corroborates the commercial legitimacy of the transaction and thus, the subjected transactions are demonstrably at arm's length price, and therefore, no transfer pricing adjustment or addition is warranted on this account. 32. The ld. AR drew our attention to pages 49-50 of the Paper Book, a rectification petition under section 154 of the Act, dated 30.01.2012 seeking rectification of the error apparent on record in....
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.... the credit note was erroneously dated as 06.03.2008 i.e., before the date of invoice viz. 15.03 2008. However, we confirm that such sales discount/credit note was provided for and accounted for in the books of our company on 31.03.2008 and accordingly, the aforesaid transaction/credit note is genuine and reliable." 34. On perusal of the above, we find force in the arguments of the ld. AR that the said sworn testimony from the supplier, clearly establishes that the incorrect date on the credit note was merely a clerical error and does not undermine the substance or authenticity of the transaction. Further, we note that the credit note was duly accounted for in the books of the supplier prior to the end of the financial year further corroborates the commercial legitimacy of the transaction and we find no dispute from respondent revenue in this regard. Further, we find the assessee filed rectification on 30.01.2012 under section 154 of the Act, which specifically seeking the error in the original assessment by furnishing revised arm's length price, the detailed computation is reproduced as under: Name of Vessel Rate before discount Qty Price before discount Discount....