Sri. D.M. Sankar, Tumkur V. ITO, Tumkur

ITA 1321/BANG/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76994 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: L V BHASKAR REDDY
• Assessee Lawyers: MRS SHEETAL BORKAR
• Keywords: Cost of acquisition
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI PRAMOD M. JAGTAP, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI , JUDICIAL MEMBER ITA NO.1321/BANG/2012 ASSESSMENT YEAR : 2009-10 SHRI D.M. SHANKAR, VEERABHADRESHWARA NILAYA, 3 RD CROSS, VIDYANAGAR, TUMKUR. PAN : AWVPS 4348E VS. THE INCOME TAX OFFICER, WARD-1, TUMKUR. APPELLANT RESPONDENT ITA NO.1383/BANG/2012 ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER, WARD-1, TUMKUR. VS. SHRI D.M. SHANKAR, VEERABHADRESHWARA NILAYA, 3 RD CROSS, VIDYANAGAR, TUMKUR. PAN : AWVPS 4348E APPELLANT RESPONDENT ASSESSEE BY : MRS. SHEETAL BORKAR, ADVOCATE REVENUE BY : SHRI L.V. BHASKAR REDDY, ADDL. CIT(DR) DATE OF HEARING : 23.06.2014 DATE OF PRONOUNCEMENT : 27.06.2014 ITA NOS.1321 & 1383/BANG/2012 PAGE 2 OF 16 O R D E R PER PRAMOD M. JAGTAP, ACCOUNTANT MEMBER THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEIN G ITA NO.1321/B/12 AND THE OTHER FILED BY THE REVENUE BEI NG ITA NO.1383/B/12, ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE OR DER OF THE LD. CIT(APPEALS)-II, BANGALORE DATED 29.8.2012. 2. THE SOLITARY SUBSTANTIVE GROUND RAISED IN THE AP PEAL OF THE ASSESSEE AND THE GROUNDS NO.1 TO 3 OF THE REVENUES APPEAL I NVOLVE A COMMON ISSUE RELATING TO DISALLOWANCE OF RS.45,05,867 MADE BY TH E AO ON ACCOUNT OF EXTRACTION/RESCREENING CHARGES WHICH HAS BEEN SUSTA INED BY THE LD. CIT(APPEALS) TO THE EXTENT OF RS.23 LAKHS. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L, WHO IS CARRYING ON THE BUSINESS OF TRADING IN IRON ORE ON WHOLESALE BA SIS IN THE NAME AND STYLE OF HIS PROPRIETARY CONCERN, M/S. VINAYAKA MINERALS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS ORIGINALLY FIL ED BY HIM ON 30.9.2006 WHICH WAS SUBSEQUENTLY REVISED ON 4.11.2009 DECLARI NG TOTAL INCOME OF RS.13,33,350. IN THE PROFIT & LOSS ACCOUNT FILED A LONG WITH THE SAID RETURN, A SUM OF RS.1,09,35,867 WAS DEBITED BY THE ASSESSEE O N ACCOUNT OF EXTRACTION EXPENSES. SINCE THE EXTRACTION EXPENSES SO CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE S UBSTANTIALLY HIGHER THAN THAT OF THE IMMEDIATELY PRECEDING YEAR, THE CL AIM OF THE ASSESSEE ON ACCOUNT OF EXTRACTION EXPENSES WAS EXAMINED BY THE ASSESSING OFFICER ITA NOS.1321 & 1383/BANG/2012 PAGE 3 OF 16 DURING THE COURSE OF ASSESSMENT PROCEEDINGS. DURIN G THE COURSE OF THIS EXAMINATION, STATEMENT OF THE ASSESSEE WAS RECORDED BY THE AO WHEREIN HE STATED WHILE ANSWERING QUESTION NO.8 THAT THE AV ERAGE SCREENING COST (EXTRACTION EXPENSES) WAS AROUND RS.150 TO 200 PER M.T., DEPENDING ON THE TOTAL QUANTITY SCREENED. KEEPING IN VIEW THIS RATE INDICATED BY THE ASSESSEE HIMSELF, THE AO POINTED OUT TO THE ASSESSE E THAT THE TOTAL QUANTITY OF IRON ORE PURCHASED DURING THE YEAR BEING ONLY 32 ,150 M.T., THE TOTAL SCREENING /EXTRACTIONS CHARGES EVEN AT THE RATE OF RS.200 PER M.T. SHOULD COME TO AROUND RS.64.30 LAKHS AS AGAINST RS.1.09 CR ORES CLAIMED BY THE ASSESSEE. THIS DIFFERENCE POINTED OUT BY THE AO WA S SOUGHT TO BE EXPLAINED BY THE ASSESSEE BY SUBMITTING THAT SOMETI MES THE WORK FORCE WILL HAVE TO BE PAID EVEN THOUGH REGULAR PRODUCTION IS N OT DONE DUE TO RAIN AND EVEN SOMETIMES MATERIAL DULY SCREENED AND DISPATCHE D MAY BE REJECTED BY THE RECEIVING SIDE. THIS EXPLANATION OF THE ASSESS EE WAS FOUND TO BE VERY VAGUE BY THE AO AND IN ORDER TO VERIFY THE SUBSTANT IALLY HIGHER EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXTRACTION/RE SCREENING CHARGES, HE RECORDED THE STATEMENT OF ONE SHRI B.Y. JNANESHWARA SINGH, PROPRIETOR OF SHRI SHANKARESHWARA MINING INDUSTRY, FROM WHOM THE RAW MATERIAL WAS CLAIMED TO HAVE BEEN PURCHASED BY THE ASSESSEE. A CCORDING TO THE AO, THE SAID STATEMENT REVEALED THAT THE ASSESSEE WAS P ROCURING SCREENED MATERIAL FROM THE MINE OWNER WHICH HAD ALREADY BEEN PROCESSED AND WAS READY FOR SALE TO THE END USER. IT WAS ALSO REVEAL ED THAT ONLY IN CASES OF ITA NOS.1321 & 1383/BANG/2012 PAGE 4 OF 16 VARIATION IN THE QUALITY OF MATERIAL SUPPLIED, THE TRADER WAS SUBJECTING THE MATERIAL TO FURTHER RESCREENING. 4. KEEPING IN VIEW THE CONTRADICTION/VARIATION IN T HE STATEMENT OF THE MINE OWNER AND THE STATEMENT OF THE ASSESSEE, THE A O FOUND THAT THE EXPLANATION OFFERED BY THE ASSESSEE IN RESPECT OF S UBSTANTIALLY HIGHER EXTRACTION/RESCREENING CHARGES CLAIMED DURING THE Y EAR UNDER CONSIDERATION WAS NOT RELIABLE. HE ALSO NOTED THAT THERE WAS A S UBSTANTIAL DIFFERENCE BETWEEN THE SALES AND PURCHASES DECLARED BY THE ASS ESSEE FOR THE YEAR UNDER CONSIDERATION SHOWING HIGHER GROSS PROFIT (GP ) RATE AS COMPARED TO THE GP RATE DECLARED BY THE ASSESSEE IN THE IMMEDIA TELY PRECEDING YEAR. ACCORDING TO THE AO, THIS HIGHER GROSS PROFIT WAS B ROUGHT DOWN BY THE ASSESSEE BY ENHANCING THE EXPENDITURE ON EXTRACTION /RESCREENING CHARGES IN ORDER TO SHOW A LESSER NET PROFIT. THE AO THERE FORE ALLOWED THE EXTRACTION/RESCREENING EXPENSES CLAIMED BY THE ASSE SSEE ONLY TO THE EXTENT OF RS.64,30,000 CALCULATED @ RS.200 PER M.T. FOR 32,150 M.T. AND DISALLOWED THE BALANCE AMOUNT OF RS.45,05,867 IN TH E ASSESSMENT COMPLETED U/S. 143(3) OF THE ACT VIDE ORDER DATED 2 9.10.2011. 5. AGAINST THE ORDER PASSED BY THE AO U/S. 143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(APPEAL S) AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE BEF ORE THE LD. CIT(A) IN RESPECT OF ITS CASE THAT THE DISALLOWANCE OF RS.45, 05,867 MADE BY THE AO ON ACCOUNT OF EXTRACTION/RESCREENING CHARGES IS NOT SUSTAINABLE:- ITA NOS.1321 & 1383/BANG/2012 PAGE 5 OF 16 1. EXTRACTION EXPENSES (RE SCREENING CHARGES) RS.45,05,867/-. THE AO HAS SIMPLY STATED THAT THE ASSESSEES SUBMIS SIONS HAVE ALREADY BEEN CAREFULLY CONSIDERED BEFORE THE COMPLE TION OF THE ASSESSMENT. IN FACT THE AO HAS NOT CONSIDERED THE D RASTIC RISE IN PRICES ON ACCOUNT OF SPURT IN EXPORTS WHICH RESULTE D IN UNUSUAL INCREASE IN PROCUREMENT/PURCHASE PRICE. ON ACCOUNT OF THE SPURT IN PRICE ONLY, I WAS FORCED TO GO FOR LOW QUALITY M ATERIAL WHEREIN I INCURRED HIGHER RESCREENING EXPENSES. EVEN THOUGH THE COST OF RESCREENING IS HIGH THE TOTAL COST PER METRIC TON I S LOW WHEN COMPARED TO TOTAL COST IN A.Y.2010-11. FOR THIS PUR POSE, I DO HAVE SUBMITTED THE COMPARATIVE STATEMENTS IN THE EA RLIER INSTANCE. THE SAME IS PRODUCED BELOW. A.Y. PURCHASE VALUE RESCREENING COST QUANTITY PURCHASE PURCHASE COST PER METRIC TON RESCREENING CHARGES PER METRIC TON TOTAL COST PER M T 2009-10 1,52,37,608 1,09,35,867 31,046.44 490.80 352.24 843.04 2010-11 5,70,36,161 35,08,800 63,262.84 901.50 55.46 957.04 EVEN THOUGH THE PURCHASE PRICE IS HIGH DURING 2010- 11 WITH LOWER RESCREENING CHARGES, STILL, THE COST OF PURCH ASE AND RESCREENING COST IS LOW IN 2009-10. ON ACCOUNT OF T HIS ONLY I HAVE STATED IN MY EARLIER STATEMENT DATED 29/12/2011 THA T IN THE COST OF PURCHASE, THE QUALITY OF PURCHASE AND COST OF RE SCREENING ARE INVERSELY RELATED. EVEN THOUGH COST OF PURCHASE I S HIGH DURING 2008-09 AND RESCREENING COST IS LOW, THE PROFIT OFF ERED IS MORE IN A.Y. 2009-10. FURTHER, THE TOTAL COST OF PURCHASE A ND RESCREENING COST IS LOW DURING 2009-10 WHEN COMPARED TO THE COS T OF PURCHASE DURING 2010-11. 6. AFTER CONSIDERING THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDER OF THE AO, THE LD. CIT(APPEALS) DECIDED THIS ISSUE VIDE PARAS 3.4 TO 3.6 OF HIS IMPUGNED ORDER AS UNDER:- ITA NOS.1321 & 1383/BANG/2012 PAGE 6 OF 16 3.4 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSIONS AND PERUSED THE ASSESSMENT ORDER/RECORDS. THE MAIN ARGUMENTS TAKEN BEFORE ME ARE THAT, DURING THE YEAR IN QUESTI ON, THE QUALITY OF ORE PURCHASED WAS POORER THAN THAT PURCHASED IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 200 8-09, SO THE COST OF EXTRA SCREENING IS HIGHER. IN ADDITION, THE OTHER ARGUMENT TAKEN BEFORE THE AO THAT PAYMENTS ARE MADE NOT ONLY FOR THE REGULAR WORK AT RS.150/- AND RS.200/- PER METRIC TO NNE FOR WOMEN AND MEN LABOURERS RESPECTIVELY BUT ALSO ON RA INLY DAYS WHEN NO WORK CAN BE EXPECTED FROM LABOURERS OR WHEN THEY ARE ON STRIKE. ALSO, IT WAS ARGUED THAT IN THE SUBSEQUE NT ASSESSMENT YEAR 2010-11 ALSO HIGHER SCREENING CHARGES HAVE BEE N CLAIMED AS THE COST HAD GONE UP, ETC. 3.5 I FIND FROM THE DETAILS SUBMITTED BY THE APPEL LANT THAT THE COST OF PURCHASE AND RESCREENING FOR THE THREE YEAR S IS AS UNDER: A.Y. PURCHASE VALUE (RS.) EXTRACT EXPENSES (RS.) QUANTITY PURCHASED (TONNES) TURNOVER (RS.) AVERAGE COST PER MT. TON OF PURCHASE COST PER MT & EXTRACTION EXPENSES 2008-09 3,09,05,166 34,23,833 89,756 3,67,70,633 344 382 2009-10 1,52,37,608 1,09,35,867 31,046 3,31,78,390 491 843 2010-11 5,70,36,161 35,08,800 63,263 6,67,37,516 902 957 3.6 IT IS CLEAR FROM THE ABOVE THAT THE COST OF MA TERIALS PER METRIC TONNE IS ONLY HIGHER IN THE YEAR IN QUESTION AS COMPARED TO EARLIER YEAR (AY 2008-09). THEREFORE, THE APPELLANT S MAIN ARGUMENT THAT HE PURCHASED POOR QUALITY OF ORE CANN OT BE PRIMA FACIE ACCEPTED. IT IS ALSO OBSERVED THAT AGAINST WA GES OF RS.15O RS.200 PER METRIC TONNE CLAIMED BY THE APPELLANT TO HAVE BEEN PAID FOR RESCREENING, THE AO HAS ALLOWED THE SAME A T A UNIFORM RATE OF RS.200 PER METRIC TONNE IN ALL FAIRNESS TO THE APPELLANT. TAKING INTO ACCOUNT THAT PAYMENTS ARE CASH PAYMENTS , WITH ONLY UNSUBSTANTIATED VOUCHERS, THE OBSERVATION OF THE AO IN THE BACKGROUND OF THESE FACTS ARE VERY RELEVANT. IT IS OBSERVED, THEREFORE, THAT THE RESCREENING CHARGES PER METRIC TONNE ARE MUCH HIGHER THAN THAT INCURRED IN THE IMMEDIATELY PRECED ING YEAR AND, IN THE ABSENCE OF VERIFIABLE EVIDENCE, THE RESULTS DECLARED CANNOT BE ACCEPTED AS SUCH. HOWEVER, TAKING INTO ACCOUNT T HE APPELLANTS ARGUMENT REGARDING INCREASE IN PURCHASE PRICE, PAYM ENT ON RAINY DAYS, ETC. AS WELL AS ADDITIONAL PAYMENTS TO BATCH- HEADS, THE ITA NOS.1321 & 1383/BANG/2012 PAGE 7 OF 16 APPELLANT DOES DESERVE RELIEF ON THIS COUNT. IT IS ALSO OBSERVED THAT THE TURNOVER FOR THE ASSESSMENT YEAR 2009-10 I.E. T HE YEAR IN QUESTION IS ALMOST COMPARABLE WITH THAT OF THE ASSE SSMENT YEAR 2008-09 (IMMEDIATELY PRECEDING YEAR, WHICH HAS BEEN TAKEN FOR COMPARISON BY THE AO) EVEN THOUGH THE QUANTITY PURC HASED IS FAR LOWER, WHICH IS SUGGESTIVE OF INCREASED PRICES OR/A ND BETTER QUALITY OF ORE AFTER RESCREENING THE YEAR IN QUESTI ON. THE APPELLANT HAS ALSO SUBMITTED THAT THE GROSS PROFIT THIS YEAR AT 5.24% AGAINST 2.82% LAST YEAR IS HIGHER. IN FITNESS OF THINGS, TH EREFORE, I DEEM FIT THAT THE ADDITION BE RESTRICTED TO RS.23 LAKHS AS A GAINST RS.45 LAKHS MADE BY THE AO. THE APPELLANT GETS A RELIEF O F RS.22 LAKHS. 7. THE LD. CIT(APPEALS) THUS RESTRICTED THE DISALLO WANCE OF RS.45,05,867 MADE BY THE AO ON ACCOUNT OF EXTRACTIO N/RESCREENING CHARGES TO RS.23 LAKHS, THEREBY ALLOWING A RELIEF O F RS.22,05,867 TO THE ASSESSEE ON THIS ISSUE. 8. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE REVENUE AND THE ASSESSEE, BOTH HAVE RAISED THIS ISSUE IN THEIR RESP ECTIVE APPEALS FILED BEFORE THE TRIBUNAL. 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED BEFO RE US THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE T HE AO AND THE LD. CIT(APPEALS) ON THIS ISSUE. SHE CONTENDED THAT THE INCREASE IN EXTRACTION/RESCREENING CHARGES PAID DURING THE YEAR UNDER CONSIDERATION, AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR, WAS DULY EXPLAINED BY THE ASSESSEE BEFORE THE AO AS WELL AS BEFORE THE LD. CI T(A) AND THE SAME WAS SUFFICIENT TO JUSTIFY THE HIGHER EXTRACTION/RESCREE NING EXPENSES CLAIMED BY ITA NOS.1321 & 1383/BANG/2012 PAGE 8 OF 16 THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. SHE SUBMITTED THAT THE RAW MATERIAL PURCHASED BY THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION WAS SUBSTANTIALLY OF LOWER GRADE QUAL ITY AND SINCE MORE SCREENING WAS REQUIRED TO BE DONE TO SUCH LOW GRADE MATERIAL, THE EXPENSES INCURRED BY THE ASSESSEE ON THE RESCREENIN G WERE OBVIOUSLY ON THE HIGHER SIDE. SHE INVITED OUR ATTENTION TO SOME OF THE COPIES OF THE PURCHASE BILLS PLACED IN THE PAPERBOOK AND POINTED OUT THAT LOW GRADE RAW MATERIAL WAS PURCHASED BY THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION. 10. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT S UBSTANTIALLY HIGHER EXPENSES WERE CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXTRACTION/RESCREENING CHARGES DURING THE YEAR UNDE R CONSIDERATION, AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR AND THE ONUS WAS ON THE ASSESSEE TO JUSTIFY SUCH HIGHER EXPENSES CLAIMED BY IT BY OFFERING SATISFACTORY EXPLANATION. HE CONTENDED THAT THE AS SESSEE, HOWEVER, CLEARLY FAILED TO DISCHARGE THIS ONUS DESPITE SUFFICIENT OP PORTUNITY AFFORDED BY THE AO IN THIS REGARD. HE SUBMITTED THAT NEITHER THE R ELEVANT RECORDS WERE PROPERLY MAINTAINED BY THE ASSESSEE, NOR THE SUPPOR TING VOUCHERS WERE PRODUCED BEFORE THE AO FOR VERIFICATION. HE CONTEN DED THAT THE CLAIM OF THE ASSESSEE FOR EXPENSES ON EXTRACTION/RESCREENING CHA RGES WAS THUS TOTALLY UNVERIFIABLE, BUT STILL THE AO WAS FAIR ENOUGH TO A LLOW THE CLAIM OF THE ASSESSEE ON ACCOUNT OF THIS EXPENDITURE ON THE BASI S OF RATE OF RESCREENING CHARGES OF RS.200/- PER M.T. INDICATED BY THE ASSES SEE HIMSELF IN HIS ITA NOS.1321 & 1383/BANG/2012 PAGE 9 OF 16 STATEMENT RECORDED BY THE AO. HE INVITED OUR ATTEN TION TO THE COMPARATIVE CHART GIVEN BY THE LD. CIT(A) ON PAGE 6 OF HIS IMPU GNED ORDER TO POINT OUT THAT THE EXTRACTION EXPENSES INCURRED BY THE ASSESS EE IN A.Y. 2008-09 AND 2010-11 WERE ONLY RS.38 AND RS.55 PER M.T. RESPECTI VELY. HE CONTENDED THAT THE AO, HOWEVER, WAS MORE THAN FAIR IN ALLOWIN G THE CLAIM OF THE ASSESSEE FOR EXTRACTION/RESCREENING CHARGES TO THE EXTENT OF RS.200 PER M.T. HE INVITED OUR ATTENTION TO PARA 3.6 OF THE I MPUGNED ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE CLAIM OF THE ASSESSEE OF HAVING PURCHASED LOW GRADE RAW MATERIAL DURING THE YEAR UNDER CONSID ERATION WAS FOUND TO BE NOT ACCEPTABLE BY THE LD. CIT(A) AFTER HAVING NOTED THAT THE COST OF MATERIAL PER M.T. SHOWN BY THE ASSESSEE WAS ACTUALLY HIGHER FOR THE YEAR UNDER CONSIDERATION, AS COMPARED TO THAT OF THE IMMEDIATE LY PRECEDING YEAR. HE SUBMITTED THAT EVEN THE OTHER FINDINGS RECORDED BY THE AO WHILE MAKING THE DISALLOWANCE OF ABOUT RS.45 LAKHS ON THIS ISSUE WER E AGREED UPON BY THE LD. CIT(A). HE CONTENDED THAT THE LD. CIT(A), HOWE VER, STILL SUSTAINED THE ADDITION MADE BY THE AO ON THIS ISSUE ONLY TO THE E XTENT OF RS.23 LAKHS, GIVING A RELIEF OF ABOUT RS.22 LAKHS TO THE ASSESSE E, WITHOUT GIVING ANY CONVINCING OR SOUND BASIS. THE LD. DR, THEREFORE, STRONGLY SUPPORTED THE ORDER OF THE AO AND URGED THAT THE DISALLOWANCE MAD E BY THE AO ON THIS ISSUE MAY BE CONFIRMED. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT T HE EXTRACTION/RESCREENING CHARGES CLAIMED BY THE ASSESSEE DURING THE YEAR UND ER CONSIDERATION AT ITA NOS.1321 & 1383/BANG/2012 PAGE 10 OF 16 RS.352 PER M.T. WERE SUBSTANTIALLY HIGHER THAN THE EXTRACTION/RESCREENING CHARGES CLAIMED AT RS.38 AND RS.55 BY THE ASSESSEE IN THE A.YS. 2008-09 & 2010-11 RESPECTIVELY. ALTHOUGH THIS HIGHER CLAIM ON ACCOUNT OF EXTRACTION/RESCREENING CHARGES PAID DURING THE YEAR UNDER CONSIDERATION WAS SOUGHT TO BE EXPLAINED BY THE ASSESSEE, THE SAM E WAS NOT SUBSTANTIATED BEFORE THE AO BY BRINGING ON RECORD R ELEVANT DETAILS OR DOCUMENTS IN SUPPORT THEREOF. ONE OF THE EXPLANATI ONS OFFERED BY THE ASSESSEE IN THIS REGARD BEFORE THE AO AS WELL AS TH E LD. CIT(A) WAS THAT THE RAW MATERIAL PURCHASED BY IT DURING THE YEAR UNDER CONSIDERATION WAS OF LOWER QUALITY AND CONSEQUENTLY HIGHER RESCREENING C HARGES WERE REQUIRED TO BE INCURRED FOR THIS LOWER QUALITY RAW MATERIAL. THIS CLAIM OF THE ASSESSEE, HOWEVER, WAS NOT FOUND ACCEPTABLE BY THE LD. CIT(A) AFTER HAVING FOUND FROM THE RELEVANT DETAILS THAT THE COS T OF MATERIAL PER M.T. SHOWN BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATI ON WAS ACTUALLY MORE, AS COMPARED TO THAT OF THE IMMEDIATELY PRECEDING YE AR. 12. EVEN BEFORE US, THE LD. COUNSEL FOR THE ASSESSE E HAS MADE AN ATTEMPT TO SUPPORT THE CASE OF THE ASSESSEE BY POIN TING OUT FROM SOME OF THE COPIES OF INVOICES PLACED ON RECORD THAT LOWER GRADE MATERIAL WAS PURCHASED BY THE ASSESSEE DURING THE YEAR UNDER CON SIDERATION. A PERUSAL OF THE SAID INVOICES, HOWEVER, SHOWS THAT HIGHER GR ADE MATERIAL WAS ALSO PURCHASED BY THE ASSESSEE DURING THE YEAR UNDER CON SIDERATION AND THERE WAS NOT MUCH DIFFERENCE IN THE RATES OF THE SO-CALL ED LOW GRADE MATERIAL AND HIGH GRADE MATERIAL, AS REFLECTED IN THE SAID I NVOICES. MORE OVER, THE ITA NOS.1321 & 1383/BANG/2012 PAGE 11 OF 16 RELEVANT QUANTITATIVE DETAILS ARE ALSO NOT PLACED O N RECORD BEFORE US BY THE BY THE LD. COUNSEL FOR THE ASSESSEE TO SHOW THAT TH E PROPORTION OF LOW GRADE MATERIAL PURCHASED DURING THE YEAR UNDER CONSIDERAT ION WAS SUBSTANTIALLY HIGHER THAT OF THE IMMEDIATELY PRECEDING AND SUCCEE DING YEARS. IN ANY CASE, WE FIND THAT THE EXTRACTION/RESCREENING CHARG ES WERE PAID BY THE ASSESSEE @ RS.38 AND RS.55 PER M.T. IN THE A.YS. 20 08-09 & 2010-11 RESPECTIVELY AND THE AO ALREADY HAVING ALLOWED THE CLAIM OF THE ASSESSEE FOR SUCH CHARGES @ RS.200 PER M.T. DURING THE YEAR UNDER CONSIDERATION, WE ARE OF THE VIEW THAT EVEN IF THE VARIOUS REASONS ADVANCED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM FOR HIGHER EXTRACT ION/RESCREENING CHARGES ARE ASSUMED TO BE CORRECT, THE SAME ARE ALREADY COV ERED AND TAKEN CARE OF BY THE FACT THAT THE HIGHER EXTRACTION/RESCREENING CHARGES @ RS.200 PER M.T. ARE ALLOWED BY THE AO HIMSELF, AS COMPARED TO RS.38 AS CLAIMED BY THE ASSESSEE HIMSELF IN THE IMMEDIATELY PRECEDING Y EAR. 13. IT IS RELEVANT TO NOTE HERE THAT MOST OF THE AD VERSE FINDINGS RECORDED BY THE AO WHILE DISALLOWING THE CLAIM OF THE ASSESS EE ON ACCOUNT OF EXTRACTION/RESCREENING CHARGES TO THE EXTENT OF ABO UT RS.45 LAKHS WERE FOUND TO BE CORRECT BY THE LD. CIT(A), BUT SHE STIL L RESTRICTED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE TO RS.23 LAKHS, GIVING A RELIEF OF ABOUT RS.22 LAKHS TO THE ASSESSEE ON THIS ISSUE, WI THOUT GIVING ANY COGENT OR CONVINCING REASONS AND WITHOUT APPRECIATING THE FACT THAT THE CLAIM OF THE ASSESSEE FOR HIGHER EXTRACTION/RESCREENING CHARGES WAS ALLOWED BY THE AO ITA NOS.1321 & 1383/BANG/2012 PAGE 12 OF 16 BY ADOPTING THE RATE OF RS.200 PER M.T., AS COMPARE D TO THE RATE OF RS.38 PER M.T. CLAIMED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR. 14. AS SUCH, CONSIDERING ALL THE FACTS AND CIRCUMST ANCES OF THE CASE, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS.45,05,8 67 MADE BY THE AO ON ACCOUNT OF EXTRACTION/RESCREENING CHARGES WAS FAIR AND REASONABLE AND THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN RESTRICTING T HE SAME TO RS.23 LAKHS. WE, THEREFORE, MODIFY THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE AND CONFIRM THE DISALLOWANCE OF RS.45,05,867 MADE BY THE AO ON ACCOUNT OF EXTRACTION/RESCREENING CHARGES. 15. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS DISM ISSED, WHEREAS GROUNDS NO.1 TO 3 OF THE REVENUES APPEAL ARE ALLOW ED. 16. IN GROUNDS NO.4 AND 5 OF ITS APPEAL, THE REVENU E HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWAN CE OF RS.9,76,185 MADE BY THE AO BY APPLYING THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT. 17. FROM THE DETAILS OF EXTRACTION/RESCREENING CHAR GES FURNISHED BY THE ASSESSEE, IT WAS NOTICED BY THE AO THAT THE LABOUR CHARGES PAID BY THE ASSESSEE TO AT LEAST 17 PERSONS WERE EXCEEDING RS.5 0,000. ACCORDING TO THE AO, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SO URCE FROM THESE PAYMENTS AGGREGATING TO RS.9,76,185 AND SINCE NO SU CH DEDUCTION OF TAX AT SOURCE WAS MADE BY THE ASSESSEE, HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXTRACTION CHARGES TO THE EXTENT OF R S.9,76,185 SHOULD NOT BE ITA NOS.1321 & 1383/BANG/2012 PAGE 13 OF 16 DISALLOWED U/S. 40(A)(IA) OF THE ACT. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT ALL THESE AMOUNTS WERE PAID TO BATCH- HEADS FOR THE SAKE OF CONVENIENCE AND THEY IN TURN DISTRIBUTED THE SAME A MONGST VARIOUS LABOURERS BELONGING TO THE BATCHES. IT WAS CONTEND ED THAT NONE OF THE AMOUNTS SO PAID THUS EXCEEDED THE LIMIT OF RS.50,00 0 IN THE CASE OF PAYMENT MADE TO EACH LABOUR AND THERE WAS THUS NO Q UESTION OF DEDUCTING TAX AT SOURCE FROM THE SAID PAYMENTS. THIS EXPLANAT ION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO AND DISALLOWANCE OF RS.9,76,185 WAS MADE BY HIM U/S. 40(A)(IA) FOR THE FOLLOWING REASON S:- A. THE ASSESSEE HAD STATED THAT HE DOES NOT KNOW T HE ADDRESS OR WHEREABOUTS OF THE CASUAL LABOURERS AND HE CANNO T IDENTIFY THEM NOW. B. ON INSPECTION OF LABOUR REGISTER IT IS SEEN THA T HE HAD PAID LABOUR CHARGES EVERY FORTNIGHT TO AT LEAST 70-80 PE OPLE ON AN AVERAGE AND THUS ASSESSEES STATEMENT OF 3-4 PEO PLE WORKING UNDER EACH BATCH HEAD MEANS AT LEAST 300-35 0 PEOPLE WOULD HAVE TO BE EMPLOYED BY HIM AT ALL TIME S. THIS DOES NOT APPEAR TO BE THE TRUTH, BECAUSE THERE IS ONLY SIGNATURE OF ONE PERSON WHOSE NAME IS WRITTEN AGAIN ST THE SAID ENTRY. IF SO, THEN WHEN THE ASSESSEE IS WRITIN G 80 NAMES, HE COULD HAVE AS WELL WRITTEN EACH PERSONS NAME AND PAID THEM SEPARATELY. C. ALSO, IF 80 PERSONS WERE TO BE EMPLOYED, THAT I TSELF MEANS 20-25 BATCHES. THE IDEA OF 80 BATCHES APPEARS TO BE UNREALISTIC. D. FURTHER, THIS IS NOT THE FIRST YEAR OF TAX AUDI T IN THE CASE OF THE ASSESSEE. EARLIER YEARS HAVE ALSO BEEN SUBJECTE D TO TAX AUDIT. HENCE, THE ASSESSEES CONTENTIONS OF TDS WI LL NOT ARISE IS NOT PROPER. ITA NOS.1321 & 1383/BANG/2012 PAGE 14 OF 16 SEC. 40 SAYS - NOTWITHSTANDING ANYTHING TO THE C ONTRARY IN SECTION 30TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION - (A) IN THE CASE OF ANY ASSESSEE - (IA) ANY INTEREST COMMISSION, OR BROKERAGE, RENT, R OYALTY FEES .FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB CONTRACTOR BEING RESIDENT FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING ANY WORK) ON WHICH TAX IS DEDUC TIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEE N DEDUCTED. 4.2 ACCORDINGLY LABOUR CHARGES PAID TO THE TUNE OF 9,76,185/- ON WHICH TAX DEDUCTION AT SOURCE HAS NOT BEEN EFFEC TED BY THE ASSESSEE IS DISALLOWED AND BROUGHT TO TAX. 18. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWA NCE MADE BY THE AO U/S. 40(A)(IA) FOR THE FOLLOWING REASONS GIVEN IN P ARA 4.3 OF HIS IMPUGNED ORDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSIONS AND PERUSED THE ASSESSMENT ORDER/RECORDS. THE APPEL LANT HAS ALSO CLAIMED THAT THESE PAYMENTS WERE MADE TO GROUP HEAD S AND DID NOT PERTAIN TO A SINGLE PERSON AND, IF THIS IS TAKE N INTO ACCOUNT, THE AMOUNT IN EACH CASE WOULD NOT EXCEED RS.50,000/- IN A YEAR FOR APPLICATION OF SECTION 194C AND INVOKING OF THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT. THE APPELLANT HAS PRO DUCED SOME PAYMENT DETAILS, WHICH SUGGEST WHAT THE APPELLANT C LAIMS TO BE TRUE. EFFECT WOULD HAVE TO BE GIVEN TO SUCH PAYMENT S MADE TO GROUP HEADS BEFORE APPLYING SECTIONS 194C AND 40(A) (IA) OF THE ACT. THIS EXERCISE WOULD HAVE TO BE MADE BY THE AO. HOWEVER, IRRESPECTIVE OF THE ABOVE, DISALLOWANCE OF RS.23 LA KHS HAS BEEN UPHELD IN PARA 3.6 ABOVE ON ACCOUNT OF UNSUBSTANTIA TED LABOUR PAYMENTS FOR RESCREENING CHARGES. THEREFORE, ANY DI SALLOWANCE U/S 40(A)(IA) / 194C OF THE ACT AS REFERRED TO ABOV E WOULD ALSO BE COVERED WITHIN THE DISALLOWANCE OF RS.23 LAKHS UPHE LD AT PARA 3.6 ABOVE AND NO SEPARATE ADDITION IS REQUIRED TO BE MA DE IN THIS REGARD. AS THE PAYMENTS FOR WHICH THE AO HAS MADE DISALLOWANCE U/S. 40A(IA) READ WITH SECTION 194C OF THE ACT ARE ALSO ON ACCOUNT OF RESCREENING CHARGES EXTRACTION E XPENSES, THE DISALLOWANCE OF RS.9,76,185/- IS TELESCOPED INTO TH E DISALLOWANCE ITA NOS.1321 & 1383/BANG/2012 PAGE 15 OF 16 OF RS.23 LAKHS SUSTAINED BY ME AT PARAGRAPH 3.6 ABO VE. HENCE, THE APPELLANT GETS RELIEF OF RS.9,76,185/-. 19. WE HAVE HEARD BOTH THE SIDES AND ALSO PERUSED T HE RELEVANT RECORD. IT IS OBSERVED THAT OUT OF THE TOTAL EXPENSES OF RS .1.09 CRORES CLAIMED BY THE ASSESSEE ON EXTRACTION CHARGES, A DISALLOWANCE OF RS.45.05 LAKHS WAS MADE BY THE AO TREATING THE SAME AS EXCESSIVE EXPEN SES CLAIMED BY THE ASSESSEE AND THE SAID DISALLOWANCE MADE BY THE AO H AS ALREADY BEEN CONFIRMED BY US, WHILE DECIDING THE MAIN ISSUE INVO LVED IN BOTH THESE APPEALS. CONSEQUENTLY, OUT OF THE TOTAL EXPENSES O F RS.1.09 CRORES CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXTRACTION CH ARGES, EXPENSES TO THE EXTENT OF RS.45.05 LAKHS ARE ALREADY DISALLOWED AND IT IS NOT POSSIBLE TO ASCERTAIN PRECISELY AS TO WHETHER THE EXPENSES OF R S.9,76,185, WHICH WERE AGAIN DISALLOWED BY THE AO U/S. 40(A)(IA) OF THE AC T, ARE FORMING PART OF THE EXPENSES ALLOWED OR DISALLOWED. IN THE CIRCUMSTANC ES, WE ARE OF THE VIEW THAT THE BENEFIT OF DOUBT SHOULD GO TO THE ASSESSEE AND SINCE SUBSTANTIAL PORTION OF THE EXPENSES CLAIMED BY THE ASSESSEE ON EXTRACTION CHARGES ARE ALREADY DISALLOWED, IT WOULD NOT BE FAIR AND PROPER TO MAKE A DISALLOWANCE ON ACCOUNT OF EXTRACTION CHARGES AGAIN U/S. 40(A)(I A), WHICH MAY RESULT INTO DOUBLE DISALLOWANCE OF THE SAME EXPENSES. WE, THER EFORE, UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A), DELETING THE DISA LLOWANCE MADE BY THE AO ON ACCOUNT OF EXTRACTION CHARGES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) AND DISMISS GROUNDS NO.4 & 5 OF THE REVEN UES APPEAL. ITA NOS.1321 & 1383/BANG/2012 PAGE 16 OF 16 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF JUNE, 2014 . SD/- SD/- ( P. MADHAVI DEVI ) (PRAMOD M. JA GTAP) JUDICIAL MEMBER ACCOUNTANT ME MBER BANGALORE, DATED, THE 27 TH JUNE , 2014 . /D S/ COPY TO: 1. ASSESSEE 2. REVENUE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.