Shri Ramesh Prasad Sao, Kolkata V. DCIT, Circle - 3(1), Kolkata , Kolkata

CO 11/KOL/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4297 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-05-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 06-04-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained investment; Capital asset; Transfer pricing; Sham transactions; Revenue expenditure; TDS
• Section: 32; 69; 37; 40A(3); 143(3); 37(1); 250; 251; 143(2)

Judgement Text

ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘A’ BENCH, KOLKATA Before Shri Rajpal Yadav, Vice-President (KZ) & Shri Girish Agrawal, Accountant Member I.T.A. No. 490/KOL/2018 Assessment Year: 2013-2014 Deputy Commissioner of Income Tax,...............................................Appellant Circle-3(1), Kolkata, Aayakar Bhawan, 4 th Floor, Room No. 19, P-7, Chowringhee Square, Kolkata-700069 -Vs.- Shri Ramesh Prasad Sao,..................................................................Respondent 91, A/1, 2 nd Floor, Avani Signature, Park Street, Kolkata-700016 [PAN:ALAPS8363F] & C.O. No. 11/KOL/2021 (arising out of I.T.A. No. 490/KOL/2018) Assessment Year: 2013-2014 Shri Ramesh Prasad Sao,.............................................................Cross Objector 91, A/1, 2 nd Floor, Avani Signature, Park Street, Kolkata-700016 [PAN:ALAPS8363F] -Vs.- Deputy Commissioner of Income Tax,.......................................... .Respondent Circle-3(1), Kolkata, Aayakar Bhawan, 4 th Floor, Room No. 19, P-7, Chowringhee Square, Kolkata-700069 Appearances by: Md. Ghayas Uddin CIT (DR) , appeared on behalf of the Revenue Shri Miraz D. Shah, A.R., appeared on behalf of the assessee ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 2 Date of concluding the hearing : May 12, 2022 Date of pronouncing the order : May 19, 2022 O R D E R Per Rajpal Yadav, Vice-President (KZ):- The Revenue is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals)-1, Kolkata dated 28.12.2017 passed for assessment year 2013-14. On receipt of notice in the Revenue’s appeal, assessee has filed Cross Objection No. 11 of 2021. The Registry has pointed out that Cross Objection is time-barred by 524 days. However, at the time of hearing, ld. counsel for the assessee did not press the Cross Objections. Accordingly, Cross Objections filed by the assessee are rejected. 2. The Revenue in its appeal has taken six grounds of appeal, out of which Grounds No. 5 & 6 are general in nature. In brief, the facts are that the assessee was having mining lease of mines of Iron Ore and Manganese. He was into the business of extracting and selling iron ore. He had filed his return of income declaring total income at Rs.2,34,19,62,190/-. The case of the assessee was selected for scrutiny assessment by issuance of a notice under section 143(2) on 08.09.2014. The ld. Assessing Officer has passed the assessment order under section 143(3) on 30.03.2016. He determined the taxable income of the assessee at Rs.341,73,20,958/-. Ld. Assessing Officer has made the following disallowances:- 1. Periphery Development Expenses Rs. 76,47,374/- 2. Disallowance of Consultancy Charges Rs. 2,02,24,800/- 3. Disallowance u/s 40A(3) Rs. 4,25,690/- ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 3 4. Suppression of Net Profit Rs.104,64,28,541/- 5. Undisclosed investment Rs. 6,32,363/- 3. Ld. CIT(Appeals) has deleted the disallowances. Before us, Revenue is challenging deletion of four disallowances. In other words, Revenue is challenging deletion of all the disallowances except at Sr. No. 3, i.e. the disallowance made under section 40A(3). 4. Now we take the grievances of the Revenue in seriatim as raised in the grounds of appeal. 5. Ground No. 1:- The grievance of the Revenue is that the ld. CIT(Appeals) has erred in deleting the disallowance of Rs.76,47,374/- out of Periphery Development Expenses. Brief facts of the case are that the assessee has debited a sum of Rs.76,47,376/- in respect of Periphery Development Expenses & Corporate Social Responsibility. According to the assessee, it is engaged in the business of Iron Ore Mining. The mines are situated in the village area and mining operations usually create a negative environmental impact during the mining activity and threaten the local environment by causing pollution and ecological changes. It also has negative impacts on human health. In case of iron ore mining, many of these side affect are caused by mine wastes and related sedimentation of rivers and dust in the air. Hence it was incumbent upon miners to look after the development of the area in which the mines are operating. The policy makers have also formulated the policies for development of these areas. Hence there are two mechanism formulated by the Government agencies, i.e. Periphery Development Committee (in short ‘PDC’) and Periphery Development Society (in short ‘PDS’). This “Periphery” means the entire District, where a particular Industry or Mining Industry is set ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 4 up. The PDC and PDS are responsible for the collection of the Periphery Development Contributions from the Mining Companies and implementation and supervision of the development activities. The assessee has submitted complete details but the ld. Assessing Officer was of the view that this expenditure does not fall within the ambit of sections 36 & 37 of the Income Tax Act. He was of the view that it is not an expenditure related to the business. Accordingly ld. Assessing Officer has disallowed this claim. 6. Dissatisfied with the action of ld. Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(Appeals). He has relied upon a large number of decisions. The ld. 1 st Appellate Authority has allowed the ground of appeal and deleted the disallowance. The finding recorded by the ld. 1 st Appellate Authority reads as under:- “I have perused and considered the A.Os finding, written submission and remand report, and the rejoinder thereon. A regards the Periphery Development expenses, incurred by the appellant company, it was stated that the company was engaged in the business of Iron Ore & Manganese Ore Mining in the village of Guali; District - Keonhjar, State - Odisha, and it incurred expenses amounting to Rs. 76,47,376/-. The assessee operates its mines in the village area of Guali, Keonjhar and it has to mandatorily contribute towards the welfare of the local villagers as per the directions/instructions of the District Administrative Authorities of the village of Guali, District - Keonjhar (which includes Gram Panchayat, Collector, Sub-Collector and Tehsildar) who from time to time conduct meetings and allocate welfare projects to different mines in the village area. Malaria Eradication Programme in the Guali Village, District - Keonjhar. The assessee executed this programme of malaria eradication by hiring vehicles Keonjhar & music system from Saga Ventures India Pvt. Ltd., Bhubaneswar. The assessee created awareness in all the villages of Keonjhar District and also distributed mosquito nets with bags (purchased from Sonic Resources Pvt. Ltd., Rourkela) in the course of the awareness programme to the village people,provision of vehicles (Ambulance - Janani Express) hired from Mohan Kumar Sahoo, Keonjhar., sinking a bore well in the school premises of St. Teresa's Nursery School, Joda, Keonjhar.donation of several sports items, viz, socks,- gloves, crepe bandage, foot ball boots, jersey- t-shirts, etc to Tarin Club, Ward No. 4, Joda, Keonjhar and the same were purchased from Sneha Sports Emporium, Joda, ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 5 Keonjhar. The assessee purchased & installed LED Display Board along with services such as fooding, lodging at the CBSA Park, Keonjhar for proper amusement of the children of the Guali village. The services rendered were purchased from Poushali Electronics, Keonjhar.The assessee in its welfare programme also looked after the issues faced by the village people in their regular life and posed a solution to it by constructing Bathing Ghat, repairing the anganwadi, construction of Devi Mandap, etc. and the materials required for construction work were purchased from Bijay Kumar Majhi, Joda, Keonjhar. However, in the remand report, the A.O has stated that, "The A.O has stated that the Periphery Development expenses were not directly made by assessee through PDS on malaria eradication, Anganwadi repairing and boundary walls, temples & vehicle use as Janani Express (Ambulance) etc. instead of contribution to the PDF and that "The conditions laid down in Section 37(1) was thus not fully satisfied". The A.R has rebutted the conclusion of the A.O by stating that although the said activities and connected expenditure for the periphery development expenses were not incurred directly through the District's Periphery Development Committee (PDC) , the company had carried out the development activities approved by the PDC and on the directions and guidance of the district administration in the surrounding geographical areas where its mines are located to augment the development activities through PDS on malaria eradication, Anganwadi repairing and boundary walls, temples & vehicle use as Janani Express (Ambulance) etc. The A.O has also not brought anything on record to controvert the incurring of the impugned expenditure for the purpose stated by the appellant. On careful consideration of the material on record, it is observed that there is substance in the contentions of the Appellant's A/R that as directed by the District Administrative Authorities of the village of Guali, District - Keonjhar the assesse also constructed a garage room for S.D.P.O. office at Barbil, Keonjhar with the help of Narasingha Das who is engaged in the business of civil contractor plumbing & Maintenance work from Saraikunda & Sarei to Tuntuna for two months , focus Area Programme to sub collector champua, Contribution to Red Cross Fund for the year 2012-13.The appellant's A.R has also relied upon the ratio of several judicial decisions holding that where the payment of periphery development expenses were incurred by the assessee under statutory obligation or on directions of the administration, for the welfare measures for the upliftment of ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 6 the tribals or local population of the locality where the mining unit was situated, or contribution for health and social welfare measures and for environmental preservation etc. such expenses were considered to be wholly and exclusively for business purposes , as held in the case of: CIT - vs.- Rungta Mines Pvt. Lt.d.[205 ITR 335] bv the Calcutta High Court. Held that where a trader, in his capacity as a trader, by compulsion of statutory obligation, has to incur an expenditure as a compelling requisite for carrying on his trade, the expenditure resulting in a capital asset in the hands of a third party, is to be taken as revenue expenditure because no asset arises to the trader by reason of such expenditure. It was further held that where law imposes on the assessee, an obligation to incur expenses for being permitted to pursue its trading activity, the expenditure would be an outgoing from the profits of the trade. NMDC LTD AY 2005- 06 in ITA No. 1791/Hvd/2008 dated 30/09/2009 We have considered the rival submissions on either side and also perused the material available on record. No doubt the assessee incurred an expenditure of Rs.5,00,00,000/- as contribution for establishing a medical college. The assessee also had a representation in the Board. In view of the above, in our opinion, the contribution of Rs. 5 crores is only a welfare measure for the upliftment of the Adivasis in the locality where the mining unit was situated and also for the welfare of the employees of the assessee. This contribution would definitely go a long way in conducting the assessee's mining business in a M/s NMDC Ltd. In view of the above discussion and considering the totality of facts of the case and the ratio of cited case laws, it is held that the impugned amount of Rs.76,47,376/- in relation to Periphery Development Expenses & Corporate Social Responsibility expenses were incurred on socio-economic welfare measures in the surrounding areas where the mines of the appellant company were located under the directions/guidance of the administration and were thus incidental to the business of the appellant company and are thus allowable u/s 37(1) of the Act. Therefore, it is held that the A.O was not justified in disallowing the impugned expenses of Rs.76,47,376/-. Accordingly, the A.O is directed to delete the disallowance of Rs.76,47,,376/-. This ground is allowed”. 7. The ld. CIT(D.R.) while impugning the order of the ld. CIT(Appeals) submitted that certain expenditure does not fall in the category of ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 7 business expenditure. He drew our attention towards details of expenditure compiled in the paper book at pages No. 117 to 120 where details have placed in tabulated form. He submitted that perusal of these details would indicate that some of the expenditure are in the nature of donation on Rathajatra, Construction of a Garrage in some Public Authorities Office i.e. bill dated 17.10.2012. According to him, CIT(Appeals) has erred in deleting the additions. 8. On the other hand, ld. counsel for the assessee submitted that similar expenditures were incurred in the past and those were allowed to the assessee. The Revenue challenged that the decision of the ld. CIT(Appeals) which could met the approval of the Tribunal. In other words, Tribunal has upheld the deletion of the disallowance. He placed on record the copy of the Tribunal’s order dated 24.08.2020 passed in ITA Nos. 1875, 1300 & 1299/KOL/2019 for A.Ys. 2016-17, 2015-16 and 2012- 13. 9. We have duly considered the rival contentions and gone through the record carefully. A perusal of the finding of the ld. CIT(Appeals) would reveal that the ld. 1 st Appellate Authority has reproduced the remand report submitted by the ld. Assessing Officer on page no. 9 of the impugned order. We have also gone through this report. Section 37 of the Income Tax Act contemplates that any expenditure not being expenditure of the nature described in sections 32 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 purpose of the business or profession shall be allowed in computing the income chargeable under the Head “Profits & Gains of the Business or Profession”. In other words, the specific nature of expenditure enumerated in sections 32 to 36 or ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 8 expenditure of capital nature should not be claimed by the assessee under section 37. The only restriction put in this section is that expenditure should not be identifiable as dealt with under section 32 to 36 or capital expenditure or it should not be personal expenditure. The expenditure should be laid out or expended wholly or exclusively for the purpose of the business. The expression ‘wholly’ emphasises the quantification of the expenditure, whereas expression ‘exclusively’ provides that such expenditure should be only for the purpose of the business. The only objection raised by the ld. Assessing Officer is that some of the expenditure debited by the assessee cannot be termed as exclusively for the purpose of the business. To our mind, ld. Assessing Officer failed to appreciate the nature of the assessee’s business and the atmosphere where he has been carrying out his business. The expenditures have been incurred under the guidance of District Periphery Development Committee as well as Periphery Development Society. Certain isolated instance of expenditure brought to our notice are not of personal nature rather they were incurred for keeping the harmonious atmosphere at mining site i.e. to give donation on festival or to help local authority in there functioning. These expenditure are to be seen in comparison of return of Rs. 234 crores of income shown by the assessee. Therefore, the ld. 1 st Appellate Authority has appreciated the nature of the business, i.e. mining of Iron Ore, vis-a-vis incurrence of these expenditures after considering the well reasoned finding of the ld. CIT(Appeals), we do not find any infirmity and, therefore, respectfully following the order of the Coordinate Bench in earlier years, we do not find any merit in this ground of appeal and it is rejected. ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 9 10. Ground No. 2:- The grievance of the Revenue is that the ld. CIT(Appeals) has erred in deleting the disallowance of consultancy charges of Rs.2,02,24,800/-. 11. Brief facts of the case are that the assessee has made payment of Rs.2,02,24,800/- to M/s.Pushpak Financial Services Pvt. Ltd. The ld. Assessing Officer has disallowed this consultancy charges for two reasons:- (a) There is a relationship between the managerial staff of both the assessees i.e. assessee and Pushpak Financial Services Pvt. Limited. (b) The assessee failed to demonstrate the nature of services rendered by M/s. Pushpak Financial Services Pvt. Limited. 12. On appeal, the ld. CIT(Appeals) has re-appreciated the controversy and deleted the addition. The finding recorded by the ld. CIT(Appeals) reads as under:- “I have considered the material before me. The A.O found that the appellant company had paid amount of Rs.2,02,24,800/-to M/s. Pushpak Financial Services Pvt. Ltd , in which the sister concern M/s. Thakur Prasad Sao & Sons Pvt. Ltd. was the substantial partner and Director and that the appellant was unable to furnish the details of service rendered by the said company and had thus reduced its profits through booking the said consultancy expenses. The Appellant's A/R has submitted that consultation charges were made to Pushpak Financial Services Pvt. Ltd and that Sri Ramesh Prasad Sao was not a shareholder or Director of Pushpak Financial Services Pvt. Ltd contrary to the finding of the A.O. and has submitted the copy of Balance Sheet of Pushpak Financial Services Pvt. Ltd. included in audited accounts, to establish that the consultancy charges of Rs. 1,80,00,000 was offered as income of the year. The submissions of the appellant were sent to the A.O for verification and submission of remand report thereon. The A.O has stated in the remand report that, In this point the AO made addition vide order u/s. 143(3) dated 30 th March, 2016 on ground that one of the Directors of the sister concern of M/s. Thakur Prasad Sao & Sons Pvt. Ltd. is also a director in M/s. Pushpak ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 10 Financial Services Pvt. Ltd. and the assessee reduced his profit through bogus expenses. Mr. S.K. Naredi was common Director in T.P. Sao & Sons Pvt. Ltd. and Pushpak Financial Services Pvt. Ltd. The appellant was the sole proprietor of M/s. Ramesh Prasad Sao. The payments of consultation charges were made to Pushpak Financial Services Pvt. Ltd. Sri Ramesh Prasad Sao was not a shareholder or Director of Pushpak Financial Services Pvt. Ltd. The copy of Balance Sheet of Pushpak Financial Services Pvt. Ltd. included in audited accounts, made available at the remand stage, shows that the consultancy charges of Rs. 1,80,00,000 was offered as income of the year. The consultancy charges Bills raised by Pushpak Financial Services Pvt. Ltd. was a total of Rs.2,02,24,800/- inclusive of Service Tax & Cess. The appellant assessee had made TDS on Rs.2,02,24,800/- and the same was reflected in the 26AS of Pushpak Financial Services Pvt. Ltd." In his rejoinder, the A/R submitted that assessee had large business spread over different locations and M/s Pushpak had provided Managerial Consultancy including verification of day to day business and banking transactions, computer hardware and software support services by way of Consultancy charges for expansion of existing projects , and the fact that although Pushpak, was not a sister concern, it would not justify the disallowance. I have considered the material before me. I find that the A.O has in the remand report categorically stated that the appellant, Sri Ramesh Prasad Sao was not a shareholder or Director of Pushpak Financial Services Pvt. Ltd and from the copy of Balance Sheet of Pushpak Financial Services Pvt. Ltd. included in audited accounts, made available at the remand stage, shows that the consultancy charges of Rs.1,80,00,000 was offered as income of the year, and that appellant had deducted TDS on the said payment, which was also reflected in the 26AS statement of the recipient company. In view thereof, it is found that although the A.O has made the disallowance based on the finding that the appellant was closely connected with the recipient viz. Pushpak Financial Services Pvt. Ltd and had booked bogus. expenses as consultancy charges, which is contradicted by the findings of the A.O in the remand report that the appellant was not connected as either director or shareholder in the said company and the payments were duly reflected by the recipient company and offered for tax in its hands The assessee also stated that the consultancy charges Bills raised by Pushpak Financial Services Pvt. Ltd. was a total of Rs.2,02,24,800 inclusive of Service Tax & Cess and TDS was deducted by the assessee on Rs.2,02,24,800, and was thus a genuine expense. On similar facts for disallowance of Consultancy paid to sister concern, the Hon'bie Delhi High Court in the case of CIT v. Modi Revlon Pvt. Ltd. in ITA No.1450 & 51 of 2010, it was had held that expenditure incurred by way of consultancy charges for paid by the assessee would be allowable revenue expenditure. The fact that it is paid to as sister concern by itself would not justify the disallowance. ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 11 Therefore, the expenditure on consultancy paid to M/s Pushpak Financial Services Pvt. Ltd is found to be an allowable expenditure as it was incurred wholly and exclusively for business purposes. Hence, I am of the view that the disallowance of the consultancy charges of Rs.2,02,24,800/- made by the A.O was unwarranted. Accordingly, the AO is directed to delete the disallowance of Rs.2,02,24,800/-. This ground is allowed”. 13. The ld. CIT(DR), at the very outset, submitted that the ld. 1 st Appellate Authority has failed to note that the assessee was not able to demonstrate the nature of services rendered by M/s. Pushpak Financial Services Pvt. Limited. Hence, this addition ought not to have been deleted. For buttressing his contention, he relied upon the order of Third Member in the case Veena Kanoria –vs.- ITO [(85 ITD 95) (Cal. (TM)]. 14. On the other hand, ld. counsel for the assessee submitted that M/s. Pushpak Financial Services Pvt. Limited had offered 100% payments made by the assessee as its income. This fact has duly been noted by the ld. 1 st Appellate Authority on page no. 20 of the impugned order. The ld. CIT(Appeals) has observed that consultancy charges of Rs.1,80,00,000/- was offered as income of the year by M/s. Pushpak Financial Services Pvt. Limited. The assessee has deducted the TDS and the assessee had submitted complete details exhibiting the payments made to the service provider. As far as the objection of the Assessing Officer that evidence demonstrating the services were not submitted by the assessee is concerned, he submitted that this is an incorrect finding at the end of the ld. Assessing Officer. M/s. Pushpak Financial Services Pvt. Limited was having large number of Accountants and Chartered Accountants, it has raised an invoice and for the purpose of reference copy of the two invoices have been placed at pages 250 and 251 of the paper book. A perusal of the invoices would indicate that they have provided Management Consultancy which is in the nature of accountancy ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 12 verification of day-to-day business and banking transactions. This fact has also been noticed by the ld. 1 st Appellate Authority while re- appreciating every aspect of this dispute on page no. 21 of the impugned order. Ld. counsel for the assessee took us through the finding of the ld. CIT(Appeals). He further contended that the returned income of the assessee is 234.19 crore of rupees. What to talk of turnover even if the returned income is being looked into, then this expenditure is less than 1% of the returned income. There cannot be any attribution of avoidance of taxes towards the assessee. 15. We have duly considered the rival contentions. The ld. Assessing Officer himself has not disputed about the payments made by the assessee to M/s. Pushpak Financial Services Pvt. Limited. In other words, the existence of service providers has not been doubted. Now the issues are raised qua the transactions, the only passing reference made by the ld. Assessing Officer in a non-speaking assessment order is that evidences depicting the nature of services provided to the assessee were not produced. It is pertinent to observe that the ld. Assessing Officer failed to appreciate the controversy in right perspective. He has not properly investigated the issue, rather in a hurried manner made the addition by making certain vague observation, which is running into few lines only. The assessee has submitted that service provider has suffered the taxes on the payments made by the assessee, both are taxable at the same rate. The invoices produced by the assessee depict the nature of services rendered by the service provider. In other words, the assessee has submitted that Pushpak Financial Services Pvt. Ltd. had provided managerial consultancy including verification of day-to-day business and banking transactions. If the magnitude of the business carried out by the assessee is looked into, vis-a-vis the charges then it is just a normal ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 13 charges paid by the assessee. We do not find any error in the finding of the ld. CIT(Appeals) on this point and this ground of appeal is rejected. 16. Ground No. 3: In this ground of appeal, the grievance of the revenue is that the ld. CIT(Appeals) has erred in deleting the addition of Rs.1,04,64,28,541/-. 17. Brief facts of the case are that the ld. Assessing Officer has analysed the details of sales made by the assessee. On a comparative study of the rates for sale of Iron Ore to different parties, he observed that the assessee had made sales to associate concerns at a lower rate than the sales made to other parties. These two concerns are M/s. Thakur Prasad Sao & Sons Pvt. Ltd. (in short ‘TPSL’) as well as M/s. Pratham Steel Pvt. Ltd. (in short ‘PSPL’). The ld. Assessing Officer has taken the rates of sales made to an independent party and observed that to the extent lower rate charged from associate concerns amounts to suppression of profit. He made addition to such profit to the income of the assessee. The details compiled by him for a comparative study of the rates were annexed at Annexure ‘A’ & ‘B’ to the assessment order. Though these Annexures were not filed originally alongwith the appeal but during the course of hearing, ld. CIT(DR) had supplied copies of these Annexures to the Bench as well as to the ld. counsel for the assessee. We had taken them on the record. 18. The ld. 1 st Appellate Authority has re-appreciated these facts and thereafter deleted the addition. The finding recorded by the ld. CIT(Appeals) on this issue reads as under:- “I have considered the AO’s finding, written submissions and the cited case laws. It is found that the AO has held the difference in sale price between sales made to the sister concerns of the appellant company and outside parties amounting to Rs.1,04,64,28,541/- as suppression of profits. The ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 14 appellant’s A/R has challenged the validity of the impugned addition to total income on the following grounds : (i) That the sales were made to sister concern, viz. M/s Thakur Prasad Sao And Sons Pvt. Ltd on the basis of agreement and part of contractual agreement between the two parties dated 25.3.2012, which permitted the appellant company to dispatch the material as and when it is produced, irrespective of the prevailing market condition to M/s TPSL . Where as in the case of sale to other parties at different rates which could be higher, there is no certainty that any particular party would purchase from the assessee. (ii) That the said party M/s. Pratham Steel Pvt. Ltd. is a separate and independent legal entity and is in no way connected with the assessee and the Learned Assessing Officer has wrongly alleged that M/s. Pratham Steel Pvt. Ltd. is a dummy company of the group. The Learned Assessing Officer should have at least conducted an enquiry/examination in this regard before coming to any such conclusion. (iii) That the assessee has a long term arrangement with its sister concern M/s. Thakur Prasad Sao & Sons Pvt. Ltd. whereby it sells to this party throughout the year and M/s. Thakur Prasad Sao & Sons Pvt. Ltd. does not buy material from any third party and also there is no fixed Regulatory Authority which governs the prices of ores and there is always a fluctuation in the prices in the market. (iv) That sales made to M/s. Thakur Prasad Sao & Sons Private Limited are as per the bills raised and there is no material with the Assessing Officer to hold that bills raised were not correct or manipulated. Similarly, sales made to M/s. Pratham Steel Private Limited are fully verifiable from the bills and are in conformity with the books of accounts. (v) For that it is for the assessee to decide at what prices the goods have to be sold keeping in mind the various market conditions and scope of raising turnover and also the quantum of sales to a particular concern. (vi) That the Mines of the assessee were operating under second and subsequent renewal, and as per policy of renewal of the State Government, if the mines are used for captive purposes, the renewal process would be easier. The assessee has captive plants and the ore as raw material is are supplied from the Guali Iron Ore mines, of which the assessee is lessee. These facts have been stated in the lease renewal application files with the State Government of Odisha and from time to time there are various correspondences with the State Government asking the lessee to ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 15 state the status of its captive plants within the State of Odisha, In fact for smooth renewal, the lessee along with his relatives had acquired the said industries in the year 20017 and 2009. (vii) That the sales made by the appellant company were subject to VAT , and no discrepancies were pointed out by the Commercial Taxes Deptt as per the copy of the VAT Assessment order passed by Joint Commercial of Commercial Taxes, Jajpur on the basis of the Audit Report submitted by DCST Barbil Circle for the period 01.04.2011 - 31.03.13. As per the order, the Sales Tax Authorities have raised no objection with regards to the transfer price charged to M/s TPSL by the Assessee. (vii) That the appellant company has not incurred any losses in selling the material to M/s TPSL. The cost of Production of the Assessee for the said period as declared to IBM in Form HI was Rs. 1575 per MT. However the Assessee has sold the material to M/s TPSL at Rs. 2500 resulting in profit of Rs. 925.00 per MT. The A.R has further relied upon the ratio of the following judicial pronouncements in support of its arguments: a) There are various judicial pronouncements in regard to sale/market price. To quote a few In the Supreme Court of India CAT Kv. Calcutta Discount Co. Ltd. Where a trader transfers his goods to another trader at a price less than the market price and transaction is a bona fide one the taxing authority cannot take into account the market price of those goods ignoring the real price fetched, to ascertain the profit from the transaction. In the Madras hiah Court CIT Fs. Ramalinaa Choodambikai Mills Ltd. The sales could not be regarded as mere sham transaction unless there was sufficient evidence to prove that: and if they were sham transactions, the sales had to be ignored and the company could be assessed only on the profits, if any, made by the benami purchasers when they will sell the goods in the absence of evidence to show either that the sales were sham transactions or that the market prices were in fact paid by the purchasers, the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expense of the company would not entitle the IT department to assess the difference between the market price and the price paid by the purchasers, as profits of the company. In the Hiah Court of Delhi CIT Fs. Discovery Estates fP) Ltd. The AO could not make additions to sale price or profits, without evidence to show either that sales were sham transactions or that market prices were in fact, paid by purchasers: no addition could be made based merely on perceived general market conditions or notorious practices in trade circles. In the high Court of Punjab & Harvana CIT Vs. Rainish Ahuia ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 16 Whether where assesse had charged less sale price from sister concern as compared to non-sister concerns, provisions of sec 40A could not be invoked as no payment had been made to sister concern for any item of expenditure, which assessee might have claimed as revenue expenditure In the ITAT f Chandigarh) Dept. Of income tax -Vs-. Khandalia Oil & General Mills Pvt Ltd if the sales to the related parties result in a profit to the assessee, even though the sales are made at a rate lower than at which the sales are made to other parties, the revenue cannot bring to tax the notional profit which the assessee would or could have earned, had the sales been made at the rates charged from unrelated parties CIT Vs. SA Builders No businessman can be compelled to maximize his profit. The Income tax authorities must put themselves in the shoes of the assesee and how a prudent businessman would act. I have considered the material before me and also perused the evidences and other documents filed. The appellant has submitted that it had obtained mining lease and the said mines of the company were operating under second and subsequent renewal, and as per policy of renewal of the State Government, if the mines are used for captive purposes, the renewal process would be easier. In order to achieve this, it has to perforce offer its products i.e. iron ore at a price which is very competitive rates, till such time the appellant company had established financial viability for its operations establishes itself in the market. Thus, it was argued that selling its products at a lower price to connected concerns, it was argued that this was neither uncommon nor an unreasonable business practice. The Appellant has also averred that the said connected concerns, M/s TSPL and M/s. Pratham Steel Pvt. Ltd. are separate and independent legal entity and is in no way connected with the assessee., and. that the appellant has undertaken genuine sale transactions to the two purchaser concerns and the A.O has not made any enquiry or any corroborative evidence to substantiate the allegation of suppression of profits through sale to sister concerns was either ingenuine or bogus. In this regard, it is well settled that every trade and industry has its own market dynamics and it is best left to the businessman to take policy decisions on how best to run its business. The observation of the hon'ble High Court in CIT v. S.A Builders that no businessman can be compelled to maximize his profits and the Income Tax authorities must not put themselves in the shoes of the businessman have also been cited by the A.R in support of his averments, and found to be relevant to the issue under dispute.The A.R has also placed reliance upon the decision of the hon'ble ITAT, Chandigarh in Dept. Of income tax Vs. Khandalia Oil & General Mills Pvt Ltd, wherein it was held that, "if the sales to the related parties result in a profit to the assessee, even though the sales are made at a rate lower than at which the sales are made to other parties, the revenue cannot bring to tax the notional profit which the assessee would or could have earned, had the sales been made at the rates charged from unrelated parties." Reliance was also placed on decision by the hon'ble Delhi High Court of Delhi CIT Vs. Discovery Estates (P) i,td in 356 ITR 159(Delhi), stating ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 17 that "The AO could not make additions to sale price or profits, without wB^dence to show either that sales were sham transactions or that market prices f were in fact, paid by purchasers: no addition could be made based merely on perceived general market conditions or notorious practices in trade circles." On perusal of the findings of the A.O in the assessment order, it is observed that it is not the case of the Assessing Officer that the appellant has suppressed its sales or has realised more profits than what it has accounted in its books, which was suppressed from the Department. The Assessing Officer has proceeded on the suspicion that the sales transactions were unreliable, only because the appellant has offered its products to different customers at different rates, which in my opinion cannot be justified. It is also found that the A.O has not rejected the book results and has not disturbed the sales and purchase figures disclosed by the appellant company, which were admittedly based upon duly audited accounts. Moreover, the genuineness of the sales transactions made to the sister concerns have not been doubted by the A.O nor any material brought on record to establish either that M/s. Thakur Prasad Sao & Sons Pvt. Ltd and M/s Pratham were dummy company of the appellant as alleged, nor that it had in fact received market price on sales from sister concerns and showed lesser rates to evade taxes. 1 On the issue in dispute, i.e difference in sales treated as suppression of profits, the ratio of various decisions relied upon by the appellant also clearly establish the view held by the hon'ble Courts/Tribunals that in the absence of a specific finding by the Assessing Officer that the transactions were entered in to defraud the Revenue, it is not permissible for the Assessing Officer to make additions on the basis of mere suspicion and assumptions. The decision cited by the authorised representative in the case of CIT Vs. Calcutta Discount Co. Ltd. (1971) 82 ITR 941 (CAL) by the Hon'ble Calcutta High Court which is the jurisdictional court in the case:, and later affirmed by the Hon'ble Supreme Court in [1973] 91 ITR 8(SC), is found to be applicable to the facts of the appellant's case. Therefore, respectfully following the decision of the hon'ble jurisdictional High Court and the facts of the instant case, it is held that the action of the Assessing Officer in making the impugned addition of Rs.1,04,64,28,541/- made by the A.O on account of alleged suppression of net profit was not justified and accordingly, the Impugned addition is directed to be deleted. This ground is allowed”. 19. The ld. CIT(DR) while impugning the order of the ld. CIT(Appeals) contended that the assessee has sold Iron Ore to his associate concerns at a lower price than sold to the independent parties in the open market. Therefore, the ld. Assessing Officer has rightly considered it as a suppression of profit and has rightly estimated the profit. ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 18 20. The ld. counsel for the assessee, on the other hand, demonstrated the circumstances under which sales have been made at a different rate to two concerns. He submitted that the Mines of the assessee are operating under second and subsequent renewal. As per the policy of renewal of the State Government, if the mines are used for captive purposes, the process of renewal becomes more easier and smooth. The raw materials (i.e. Iron Ore) are supplied from Guali Iron Ore Mines of which the assessee is the lessee. He further pointed out that buyers of Iron Ore put a lot of conditions about the grade and quality of Iron Ore and to procure the same, they pay better rates. At the time of raising & production, the materials are mixed and the grades vary from lot to lot. With a view of maximizing production in the mines, the assessee sends all the remaining materials to its plant irrespective of its grade. The assessee was also required to achieve the target production as approved by the Indian Bureau of Mines and he has no options but to send the materials to its plants. Therefore, the assessee had sold materials to M/s. Pratham Steel Pvt. Limited at a lower rate with a motive and understanding that the materials would be sold to its sister concern i.e. M/s. Thakur Prasad Sao & Sons Pvt. Ltd. by M/s. Pratham Steel Pvt. Limited at the same price through its Railway Sliding in order to ensure smooth and volume supply of materials to its sister concern. Similarly he pointed out that there was an agreement between he and his sister concern i.e. M/s. Thakur Prasad Sao & Sons Pvt. Ltd. for purchase of its raw materials from the appellant alone and not from any other outside party. Under these circumstances, the assessee has sold the material at a little lower rate to this concern. He further contended that in none of the transactions, the assessee has a loss. According to him, there is no provision in the Income Tax Act which can persuade the assessee to earn higher deemed profit. The Act only made provision for disallowance of ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 19 excess expenditure if some undue benefit at the cost of assessee’s business is being given to an associate concern namely section 40A(2)(b) of the Income Tax Act. 21. We have duly considered the rival contentions and gone through the record carefully. Before embarking upon the impugned order in order to find out any fallacy or error committed by the ld. 1 st Appellate Authority, let us appreciate the fact, which has been demonstrated before us. According to the assessee, he has been operating Mines under second and subsequent renewal. As per the Renewal Policy of the State Government, if the minerals are used for captive purposes, the process of renewal becomes more easier and smooth. It has entered into two agreements, namely with M/s. Pratham Steel Pvt. Limited and M/s. Thakur Prasad Sao & Sons Pvt. Limited. M/s. PSPL was having a Railway Siding, from where goods can be transported more easily with an understanding that whatever purchase will be made from the assessee would be sold to the sister concern at a same rate. He has sold the goods to this concern. The TPSL i.e. M/s. Thakur Prasad Sao & Sons Pvt. Limited which is termed to be a sister concern was having its sponge iron plants situated at Rourkela & Jharsuguda i.e. for captive consumption. The assessee has pointed out the following factors for making the sales to this concern:- a) The assessee has an arrangement with the company whereby the company purchases all its Raw Material (Iron Ore) from the assessee and not from any outside party. a) The assessee has to sell materials to other parties at different rates which could be higher, but there is no certainty at a particular party would purchase from us or not. Throughout the year, as and when materials are available with the assessee, it sends to the plant at the pre-determined/agreed rate. b) The Mines of the assessee are operating under second and subsequent renewal and as per policy of renewal of the State Government if the minerals are used for captive purposes the renewal process would be easier. The assessee has captive plants and the Ore as raw materials are supplied from the Guali Iron Ore Mines, of which the assessee is ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 20 lessee. These facts have been stated in the lease Renewal application filed with State Government of Odisha and from time to time there are various correspondence with the State Government asking the lessee to state the status of its captive plants within the State of Odisha. Infact for smooth renewal, the lessee along with his relatives had acquired the said industries in the year 2007 and 2009 c) Buyers of the Iron Ore put a lot of conditions about the grade and quality of the ore and to procure that they pay better rates. Whereas during raising/production the materials taken out are mixed and the grades varies from lot to lot. With a view to achieve maximum production in the mines, the assessee sends the remaining materials to its plant (TPSL) irrespective of the grade. The assessee has to achieve the target production as approved by the Indian Bureau of Mines and hence has no option but to send the materials to Its plant. d) There is no fixed regulatory authority which governs the prices of ore and there is always a fluctuation in the prices in the market. e) Further the assessee has not incurred any losses in selling the materials to the sister concern and no one can compel any person to make profit out of every transaction and maximize its profit. 22. Apart from the above conditions, the other conditions have been noticed by the ld. 1 st Appellate Authority on page nos. 27 & 29 of the impugned order (extracted supra). 23. The ld. 1 st Appellate Authority has made reference to a large number of decisions, wherein it has been propounded that no businessman can be compelled to maximize his profit. The Income Tax Authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities should not look at the matter from their own view point but that of a prudent businessman. A reference to this effect can be made to the judgment of the Hon’ble Supreme Court in the case of SA Builders (288 ITR page 1). The allegations of the ld. Assessing Officer are, that the assessee has siphoned off his profit to his sister concern, is concerned prior to introduction of domestic transfer pricing, there was no mechanism to check this aspect in the Income Tax Act. In the present case, the ld. Assessing Officer has not ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 21 applied any domestic transfer pricing concept. It was not available in this year. In the scheme of Income Tax Act, if by incurrence of such expenditure, some undue benefit is being extended to the sister concern, then claim of those expenditure could be disallowed. But nowhere it has been provided that assessee should earn deemed profit according to the calculation of the revenue official. In the present case, the assessee has not shown losses rather in the understanding of the Assessing Officer, he failed to show the profit as calculated by the ld. Assessing Officer. We have confronted the ld. D.R. to show us the provision under which the assessee can be compelled to make the sales to the sister concerns also at the market price or at the same price at which it was made to other concerns. 24. Apart from the above observation, it is to be appreciated the circumstances under which such sales have been made. The assessee has obtained renewal of lease licence understanding that iron ore produced in his mines will be used in a captive plant. In that exercises, he has sold the goods to the plant of the sister concern. The third reasoning assigned by the ld. Commissioner is that independent buyers would buy the material according to their requirement, whereas M/s. Thakur Prasad Sao & Sons Pvt. Limited was bound to purchase the raw material produced by the assessee. Therefore, the assessee was never required to find out the customer for the iron ore produced by him. He was also bound to achieve the targets put by Indian Bureau of Mines, so in case excess material was produced and not able to sell to the independent buyer, in that case his associate concern i.e. M/s. TPSL would procure all the material produced by the assessee. ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 22 25. We have perused the record carefully and after re-appreciating the finding by the ld. CIT(Appeals) on this issue, we do not find any error in it. This ground of appeal is rejected. 26. Ground No. 4:- In this ground of appeal, the grievance of the Revenue is that the ld. CIT(Appeals) has erred in deleting the addition of Rs.6,32,363/-. 27. The discussion made by the ld. 1 st Appellate Authority on this point reads as under:- Finding of ld. CIT(Appeals) on Ground No. 4 The A.O observed from perusal of H-l, received from Indian Bureau of that in fixed assets schedule total addition of during the year showed an amount of Rs.1,90,81,555/-, whereas as per assessee's balance sheet, total addition of fixed assets during the year was Rs.1,84,49,192/-, the A.O treated the difference of Rs.6,32,363/- as unexplained investment u/s 69 of the Act. The A.R has submitted that the difference in the amount of investments in Form H-l and books of accounts of assessee was due to the fact that a bill amounting to Rs.6,32,363/- raised in the name of M/s. Jyotsna Electricals was erroneously taken into account twice in Form H-l and also that the appellant has not failed to record any of its investments in the Books of Accounts. The difference in the amount of investments in Form H-l and books of accounts of assessee was due to the fact that a bill amounting to Rs.6,32,363/- raised in the name of M/s. Jyotsna Electricals was erroneously taken into account twice in Form H-l. I have considered the material before me. I find that there is substance in the contention of the A./R that the difference in the amount of investments in Form H-l and books of accounts of the appellant was due to the fact that a bill amounting to Rs.6,32,363/- raised in the name of M/s. Jyotsna Electricals was erroneously taken into account twice in Form H-l, which is an inadvertent error. Since the appellant is found to have satisfactorily explained the impugned difference of Rs.6,32,363/- which was found to be duly recorded in the books of accounts therefore the provisions of sec. 69 are found to be not applicable to the said investment. Therefore, the addition of the amount of Rs.6,32,363/- u/s 69 by the A.O was unwarranted. Accordingly, the A.O is directed to delete the addition of Rs.6,32,363/-. This ground is allowed”. ITA No. 490/KOL/2018 A.Y. 2013-2014 Shri Ramesh Prasad Sao & C.O. 11/KOL/2021 (in ITA No. 490/KOL/2018) A.Y. 2013-2014 Shri Ramesh Prasad Sao 23 28. With the assistance of the ld. representatives, we have gone through the record carefully. A perusal of the above finding would indicate that the ld. CIT(Appeals) has deleted this addition after finding out that a particular amount has been accounted for twice. It is an arithmetical error which has been corrected and there cannot be any addition for such type of mistake under section 69 of the Income Tax Act. After going through the order of the ld. CIT(Appeals), we do not find any error in this finding and this ground of appal is rejected. 29. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on May 19 th , 2022. Sd/- Sd/- (Girish Agrawal) (Rajpal Yadav) Accountant Member Vice-President (KZ) Kolkata, the 19 th day of May, 2022 Copies to : (1) Deputy Commissioner of Income Tax, Circle-3(1), Kolkata, Aayakar Bhawan, 4 th Floor, Room No. 19, P-7, Chowringhee Square, Kolkata-700069 (2) Shri Ramesh Prasad Sao, 91, A/1, 2 nd Floor, Avani Signature, Park Street, Kolkata-700016 (3) Commissioner of Income Tax (Appeals)-1, Kolkata (4) Commissioner of Income Tax, Kolkata, (5) The Departmental Representative (6) Guard File TRUE COPY By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.