M/s Muktar Minerals Pvt. Ltd., Margao V. Addl. Commissioner of Income tax, Margao

ITA 17/PAN/2013

• Counselvise Citation: 1724114 RSA 2013
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 08-02-2013
• Court: TRIBUNAL
• Department Lawyers: ASHA DESAI
• Assessee Lawyers: SHRINIVAS NAYAK
• Keywords: Capital asset; Depreciation; Search and seizure; Revised return; Revenue expenditure; Capital expenditure
• Section: 133A; 133(6); 139(5); 68; 37; 6; 10; 154; 2; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 17 /PNJ/201 3 : (ASST. YEAR - 2007 - 08 ) M/S. MUKTAR MINERALS PVT. LTD. G28, PHOENIX ESTATE, GOGAL, MARGAO, GOA. PAN : AAECM0510E (APPELLANT) VS. A DDL . COMMISSIONER OF INCOME TAX, MARGAO RANGE, MARGAO , GOA. (RESPONDENT) ITA NO. 53 /PNJ/201 3 : (ASST. YEAR - 2008 - 09 ) A SST . COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, PANAJI, GOA. (APPELLANT) VS. M/S. MUKTAR MINERALS PVT. LTD. PLOT NO. B - 2, B - 3, PHASE IA, VERNA INDUSTRIAL ESTATE, VERNA, GOA. PAN : AAECM0510E (RESPONDENT) REVENUE BY : SMT. ASHA DESAI, DR ASSESSEE BY : SHRI SHRINIVAS NAYAK, CA DATE OF HEARING : 23 / 04 /2013 DATE OF ORDER : 28 / 06 /2013 O R D E R PER P.K. BANSAL : 1. THE ABOVE APPEALS; ONE BY THE ASSESSEE AND OTHER BY THE REVENUE HAVE BEEN FILED AGAINST THE ORDER S OF CIT(A) DT. 12.12.2012 IN APPEAL NO. 201/MRG/09 - 10/ADDL. CIT, MARGAO FOR A.Y. 2007 - 08 AND APPEAL NO. 298/MRG/10 - 11/ACIT C - 1, MARGAO FOR A.Y 2008 - 09 RESPECTIVELY. 2 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) ITA NO. 17/PNJ/2013 2 . IN T HIS APPEAL T HE ASSESSEE HAS TAKEN AS MANY AS 8 GROUNDS OF APPEAL. GROUND NO. 8 IS GENERAL IN NATURE WHILE GROUND NOS. 4, 5 AND 7 HAS NOT BEEN PRESSED AND THEREFORE THESE GROUNDS ARE DISMISSED AS NOT PRESSED. NOW, FOLLOWING GROUNDS SURVIVE FOR OUR ADJUDICATION : 1. THE LEARNED CIT(A) HAS DISMISSED THE CASE WITHOUT CONSIDERING THE FACT THAT ASSESSMENT DONE BY THE AO WAS BASED ON THE REVISED RETURN WHICH WAS SUBSEQUENTLY RESCINDED BY THE ASSESSEE AND ALSO THE REVISED RETURN FILED WAS BARRED BY TIME U/S 139(5) OF THE IT ACT1961. 2. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE ADDITION AS PER THE REVISED RETURN OF RS.2,60,00,000/ - AND RS.8,00,000/ - ON ACCOUNT OF DISALLOWANCE OF MINE DEVELOPMENT EXPENDITURE AS THE SAME IS PURELY REVENUE EXPENDITURE INCURRED TOWA RDS DAY TO DAY WORKING OF THE COMPANY. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ADDITION AS PER THE REVISED RETURN OF DISALLOWING OF 25% OF EXCAVATION CHARGES OF RS.1,10,00,000/ - (25% OF RS.4,36,55,642/ - ), AS THE TOTAL EXPENDITURE INCURRED IS TOWARDS THE REVENUE GENERATED DURING THE YEAR AND IS OF REVENUE IN NATURE. 6. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ADDITION AS PER THE REVISED RETURN OF DISALLOWING OF RS.606096/ - PAID TOWARDS MINING PLAN & TESTING CHARGES AS THE EXPENDITURE IS OF REVENUE NATURE AND HAS BEEN INCURRED TOWARDS DAY TO DAY WORKING OF THE COMPANY. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF EXTRACTION AND SALE OF MINERALS. THE ORIGINAL RETURN WAS F ILED ON 31.10.2007 DECLARING INCOME OF RS.1,38,14,410/ - . AUDIT UNDER SECTION 44AB WAS CARRIED OUT. SURVEY WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 24.3.2009 WHEREBY THE ASSESSEE DECLARED INCOME OF RS.3,95,00,000/ - AND ACCORDINGLY FILED R EVISED RETURN ADDING A SUM OF RS.3,95,00,000/ - IN THE ORIGINAL RETURNED INCOME DECLARING A TOTAL INCOME OF RS.5,33,14,415/ - . IN THE REVISED RETURN, THE ASSESSEE DISALLOWED THE FOLLOWING EXPENSES : 3 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) I. MINES DEVELOPMENT EXPENDITURE 2,60,00,000 II. MINES DEVELOPMENT EXPENDITURE ALLOWABLE IN 5 YEARS 8,00,000 III. 25% DISALLOWANCE OF EXCAVATION CHARGES 1,10,00,000 IV. SHARE CAPITAL INCREASE FEES 1,90,000 V. RATES, ROAD & GOODS TAX 2,00,305 VI. MINING PLAN & TESTING 6,06,096 VII. OTHER EXPENSES INCLUDING INTEREST 7,03,599 THE AO COMPLETED THE ASSESSMENT AS PER THE REVISED RETURN. EVEN THOUGH THE ASSESSEE FILED THE LETTER DT. 28.12.2009 DISPUTING THE ADDITIONAL INCOME DECLARED BY HIM AND STATED THEREIN THAT THE ADDITIONAL INCOME WAS OFFERED AT THE TIME OF SURVEY TO CO - OPERATE WITH THE DEPARTMENT AND THAT ALL THE EXPENSES HAD DULY BEEN DEBITED IN THE BOOKS OF ACCOUNTS AND HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THESE EXPENSES NEED NOT BE CONSIDERED AS PART OF THE INCOME OF THE ASSESSEE E VEN THOUGH THEY ARE INCLUDED IN THE REVISED RETURN. THE AO REJECTED THE EXPLANATION OF THE ASSESSEE STATING THEREIN THAT THE ASSESSEE HAS VOLUNTARILY FILED RETURN OF INCOME AND HAVING HAD KNOWLEDGE OF THE NATURE OF THE EXPENSES SO DEBITED HAS VOLUNTARILY OFFERED THE SAME FOR T AXATION IN THE REVISED RETURN AND THE LAST MINUTE CLAIM OF THE ASSESSEE MADE ON 28.12.2009 CANNOT BE CONSIDERED TO BE GENUINE. THE ASSESSEE WENT IN APPEAL BEFORE CIT(A) AND CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE FOR STATISTICAL PURPOSE. 4 . GROUND NO. 1 : THE FIRST GROUND TAKEN BY THE ASSESSEE RELATES TO THE FACT THAT THE REVISED RETURN FILED BY THE ASSESSEE SINCE BARRED BY LIMITATION U/S 139(5) CANNOT BE ACTED UPON BY THE AO AND, ACCORDINGLY, THE ASSESSMENT FRAMED ON THIS RETURN WAS VOID AB INITIO . 4 .1 THE LEARNED AR IN THIS REGARD VEHEMENTLY CONTENDED THAT THE ASSESSEE HAS FILED ORIGINAL RETURN ON 31.10. 2007. SURVEY WAS CONDUCTED ON 24.3.2009. IN CONSEQUENCE THEREOF, ON THE PERSUASION OF THE SURVEY TEAM, THE ASSESSEE HAS 4 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) FILED REVISED RETURN ON 13.5.2009 DISALLOWING CERTAIN EXPENSES. THE REVISED RETURN HAS TO BE FILED AT ANY TIME BEFORE EXPIRY OF ONE Y EAR FROM THE END OF THE FINANCIAL YEAR OR BEFORE COMPLETION OF THE ASSESSMENT, WHICHEVER IS EARLIER. THE REVISED RETURN WAS FILED ON 13.5.2009 I.E. AFTER EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THEREFORE, IT IS INVALID. THE REVI SED RETURN BEING INVALID SHOULD HAVE BEEN IGNORED AND ASSESSMENT SHOULD HAVE BEEN MADE BASED ON THE ORIGINAL RETURN. THE ASSESSMENT SO MADE IS, THEREFORE, INVALID. IN THIS REGARD, REL I ANCE WAS PLACED ON THE FOLLOWING DECISIONS. A. ITAT MUM (ACIT VS SMT MANJU K BHATIA (2004) 1 SOT 577 B. ITAT MUM (ITO VS PRAKASH RAMJI GAVALI (2012) 21 TAXMANN.COM 534 C. HIGH COURT OF GUJARAT (DCIT VS LMP PRECISION ENGG CO LTD. (2009) 183 TAXMANN 12 4 . 2 THE LEARNED DR ON THE OTHER HAND VEHEMENTLY CONTENDED THAT ONCE ASSESSEE HAS FILED THE REVISED RETURN, AO IS BOUND TO TAKE THE SAID RETURN INTO CONSIDERATION. THE ASSESSEE HIMSELF SURRENDERED THE EXPENSES AND MADE THE DISALLOWANCE IN HIS RETURN. THE AO HA S NOT DONE ANYTHING WRONG IN MAKING THE ASSESSMENT ON THE BASIS OF THE REVISED RETURN. 4 . 3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD. WE HAVE GONE THROUGH THE ORDER OF THE TAX AUTHORITIES BELOW ALONGWITH THE CASE LAWS RELIED ON BEFORE US. WE NOTED THAT THE AO COMPLETED THE ASSESSMENT ON THE BASIS OF THE REVISED RETURN FILED BY THE ASSESSEE EVEN THOUGH THE REVISED RETURN FILED BY THE ASSESSEE WAS BARRED BY LIMITATION. ONCE THE REVISED RETURN IS NOT A VALID RETURN AS BARRED BY LIMITATION, THE ORIGINAL RETURN IS BOUND TO BE TAKEN TO BE THE BASIS FOR MAKING ASSESSMENT EVEN THOUGH THE REVISED RETURN MAY BE TAKEN TO BE EVIDENCE FOR THE PURPOSE OF ASSESSING THE INCOME OF THE ASSESSEE. WE NOTED THAT IN THIS CASE THE AO J UST COMPLETED THE ASSESSMENT ON THE BASIS OF THE REVISED STATEMENT IGNORING THE FACT THAT THE REVISED RETURN FILED BY THE ASSESSEE WAS NOT VALID. EVEN THE AO REJECTED THE 5 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) EXPLANATION OF THE ASSESSEE THAT THE CLAIM MADE BY THE ASSESSEE IN THE ORIGINAL RETU RN WAS GENUINE AND THE ASSESSEE IS ENTITLED FOR DEDUCTION. THE AO WITHOUT GOING THROUGH THE MERITS OF THE LETTER FILED BY THE ASSESSEE ON 28.12.2009 REJECTED IT STATING THEREIN THAT LAST MINUTE CLAIM OF THE ASSESSEE CANNOT BE CONSIDERED TO BE GENUINE AND CAN, AT BEST, BE AN AFTERTHOUGHT. THE AO DID NOT EXAMINE WHETHER THE EXPENSES CLAIMED BY THE ASSESSEE AS DEBITED IN HIS BOOKS OF ACCOUNTS IN THE ORIGINAL RETURN ARE LEGALLY ALLOWABLE OR NOT BUT SIMPLY REJECTED THE CLAIM ACCEPTING THE TOTAL INCOME AS PER T HE REVISED RETURN. SECTION 4 WHICH IS THE CHARGING SECTION IMPOSES INCOME TAX ON THE TOTAL INCOME OF THE PREVIOUS YEAR OF ANY PERSON IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT. THE TOTAL INCOME HAS TO BE COMPUTED FOR THE PURPOSE OF CHARGING OF INCOME TAX UNDER THE HEAD S SALARY, INCOME FROM HOUSE PROPERTY, PROFIT AND GAINS OF BUSINESS OR PROFESSION, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. FOR COMPUTING THE INCOME, THE DEDUCTION AND ALLOWANCES AVAILABLE UNDER EACH HEAD ARE GIVEN UNDER THE RESPECTIVE HEADS. THE INCOME OF THE ASSESSEE HAS TO BE COMPUTED UNDER THE HEAD INCOME FROM BUSINESS. THE COMPUTATION OF INCOME UNDER THE HEAD INCOME FROM BUSINESS IS REGULATED BY THE PROVISIONS OF SEC. 28 TO 44 OF THE INCOME TAX ACT. SECTION 28 DEF INES WHAT INCOMES ARE CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS & PROFESSION. SECTION 29 STATES THAT THE INCOME UNDER HEAD PROFIT AND GAINS OF BUSINESS & PROFESSION HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAI NED UNDER SEC. 30 TO 43D. SECTION 30 TO 38 DEALS WITH THE DEDUCTIONS AVAILABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THEREFORE, IN OUR OPINION, THE AO BEFORE MAKING THE ASSESSMENT AND BEFORE DISALLOWING THE VARIOUS EXPENDITURE TO THE ASSESS EE WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS MUST HAVE EXAMINED WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THE RECEIPT CANNOT BE REGARDED TO BE THE INCOME MERELY BECAUSE THE A SSESSEE AGREES TO TREAT IT TO BE ITS INCOME. IF SOME RECEIPT IS INCOME WITHIN THE FOUR CORNERS OF THE 6 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) INCOME TAX ACT, IT WILL BE CHARGEABLE TO TAX, OTHERWISE IT CANNOT BE CHARGED TO INCOME TAX. THE SUBJECT IS NOT TO BE TAXED UNLESS THE CHARGING PROVISION CLEARLY IMPOSES THE OBLIGATION ON THE SUBJECT. THIS VIEW HAS BEEN TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. AJAX PRODUCTS LTD. 55 ITR 741 (SC). EVEN OTHERWISE, THERE CANNOT BE ANY ESTOPPEL AGAINST THE STATUTE. THE REVENUE OR THE ASSESSE E CANNOT AGREE TO TREAT A RECEIPT TO BE THE INCOME OR NOT TO BE INCOME WHEN IT IS AN INCOME WITHIN THE PROVISION OF THE INCOME TAX ACT. AN AGREEMENT BETWEEN THE PARTIES CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT, IN OUR OPINION, IS INVALID AND VOID AB INITIO . IF A PARTICULAR RECEIPT IS NOT TAXABLE UNDER THE INCOME TAX ACT, IT CANNOT BE TAXED ON THE BASIS OF ESTOPPEL OR ANY OTHER EQUITABLE DOCTRINE. EQUITY IS OUT OF PLACE IN THE TAX LAWS. A PARTICULAR INCOME IS EITHER LIABLE TO TAX UNDER THE TAXATION STATUT E OR IT IS NOT. IF IT IS NOT, THE INCOME TAX OFFICER HAS NO POWER TO IMPOSE TAX ON THE SAID INCOME. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. V. MR. P. FIRM, 56 ITR 67 (SC). THE TAX CAN BE COLLECTED BY THE TAX COLLE CTOR ONLY AS PROVIDED UNDER THE ACT. IF THE ASSESSEE UNDER A MISTAKE, MISCONCEPTION OR ON NOT BEING PROPERLY INSTRUCTED IS OVER - ASSESSED, THE AUTHORITIES UNDER THE ACT ARE REQUIRED TO ASSIST HIM AND ENSURE THAT ONLY LEGITIMATE TAXES DUE ARE COLLECTED . IF A PARTICULAR LEVY IS NOT PERMITTED UNDER THE ACT, THE TAX CANNOT BE LEVIED BY APPLYING DOCTRINE OF ESTOPPEL. ON THIS BASIS, WE NOTED THAT THE BOARD HAS ISSUED CIRCULAR NO. 14 (XL - 35) DT. 11.4.1955. THIS CIRCULAR READS AS UNDER : 1. THE BOARD HAVE ISSUE D INSTRUCTIONS FROM TIME TO TIME IN REGARD TO THE ATTITUDE WHICH THE OFFICERS OF THE DEPARTMENT SHOULD ADOPT IN DEALING WITH ASSESSES IN MATTERS AFFECTING THEIR INTERESTS AND CONVENIENCE. IT APPEARS THAT THESE INSTRUCTIONS ARE NOT BEING UNIFORMLY FOLLOWED. 2. COMPLAINTS ARE STILL BEING RECEIVED THAT WHILE INCOME - TAX OFFICERS ARE PROMPT IN MAKING ASSESSMENTS LIKELY TO RESULT INTO DEMANDS AND IN EFFECTING THEIR RECOVERY, THEY ARE LETHARGIC AND INDIFFERENT IN GRANTING REFUNDS AND GIVING RELIEFS DUE TO ASSESSE ES UNDER THE ACT. DILATORINESS OR INDIFFERENCE IN DEALING WITH REFUND CLAIMS (EITHER UNDER SECTION 48 OR DUE TO APPELLATE, REVISIONAL, ETC . , ORDERS) MUST BE COMPLETELY AVOIDED SO THAT THE PUBLIC MAY FEEL THAT THE GOVERNMENT ARE ACTUALLY 7 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) PROMPT AND CAREFUL IN THE MATTER OF COLLECTING TAXES AND GRANTING REFUNDS AND GIVING RELIEFS. (3) OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THEIR DUTIES TO ASSIST A TAXPAYER IN EVERY REASONABLE WAY, PARTICU LARLY IN THE MATTER OF CLAIMING AND SECURING RELIEFS AND IN THIS REGARD THE OFFICERS SHOULD TAKE THE INITIATIVE IN GUIDING A TAXPAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICATE THAT SOME REFUND OR RELIEF IS DUE TO HIM. THIS ATTITUDE WOULD, IN THE LONG RUN, BENEFIT THE DEPARTMENT FOR IT WOULD INSPIRE CONFIDENCE IN HIM THAT HE MAY BE SURE OF GETTING A SQUARE DEAL FROM THE DEPARTMENT. ALTHOUGH, THEREFORE, THE RESPONSIBILITY FOR CLAIMING REFUNDS AND RELIEFS RESTS WITH ASSESSEE ON WHOM IT IS IMP OSED BY LAW, OFFICERS SHOULD (A) DRAW THEIR ATTENTION TO ANY REFUNDS OR RELIEFS TO WHICH THEY APPEAR TO BE CLEARLY ENTITLED BUT WHICH THEY HAVE OMITTED TO CLAIM FOR SOME REASON OR OTHER; (B) FREELY ADVISE THEM WHEN APPROACHED BY THEM AS TO THEIR RIGHTS AND LIABILITIES AND AS TO THE PROCEDURE TO BE ADOPTED FOR CLAIMING REFUNDS AND RELIEFS. 4. PUBLIC RELATION OFFICERS HAVE BEEN APPOINTED AT IMPORTANT CENTRES, BUT BY THE VERY NATURE OF THEIR DUTIES, T HEIR FIELD OF ACTIVITY IS BOUND TO BE LIMITED. THE FOLLOWING EXAMPLES (WHICH ARE BY NO MEANS EXHAUSTIVE) INDICATE THE ATTITUDE WHICH OFFICERS SHOULD ADOPT: (1) SECTION 17 (1 ) OF THE 1922 ACT [SECTION 113 OF THE 1961 ACT] - WHILE DEALING WITH THE ASSESSMEN T OF A NON - RESIDENT ASSESSEE THE OFFICER SHOULD BRING TO HIS NOTICE THAT HE MAY EXERCISE THE OPTION TO PAY TAX ON HIS INDIAN INCOME WITH REFERENCE TO HIS TOTAL WORLD INCOME IF IT IS TO HIS ADVANTAGE. (2) SECTION 18(3), (3A), (3B) AND (3D) OF THE 1922 ACT [SECTIONS 193, 197(1), 195(1), 195(2) AND 194 OF THE 196] ACT] - THE OFFICER SHOULD IN EVERY APPROPRIATE CASE BRING TO THE ASSESSEES NOTICE THE POSSIBILITY OF OBTAINING A CERTIFICATE AUTHORISING DEDUCTION OF INCOME - TAX AT A RATE LESS THAN THE MAXIMUM OR D EDUCTION OF SUPER TAX AT A RATE LOWER THAN THE FLAT RATE, AS THE CASE MAYBE. (3) SECTION 25(3) AND 25(4) OF THE 1922 ACT - THE MANDATORY RELIEF ABOUT EXEMPTION FROM TAX MUST BE GRANTED WHETHER CLAIMED OR NOT; THE OTHER RELIEF ABOUT SUBSTITUTION, IF NOT TI ME BARRED, MUST HE BROUGHT TO THE NOTICE OF A TAXPAYER. (4) SECTION 26A OF THE 1922 ACT SECTIONS 184 TO 186 OF THE 1961 ACT] - THE BENEFIT TO BE OBTAINED BY REGISTRATION SHOULD BE EXPLAINED IN APPROPRIATE CASES. WHERE AN APPLICATION FOR REGISTRATION PRESE NTED BY A FIRM IS FOUND DEFECTIVE, THE OFFICER SHOULD POINT OUT THE DEFECT TO IT AND GIVE IT AN OPPORTUNITY TO PRESENT A PROPER APPLICATION. 8 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) (5) SECTION 33A OF THE 1922 ACT [SECTION 264 OF THE 196 1 ACT] - CASES IN WHICH THE INCOME - TAX OFFICER OR THE ASSISTANT COMMISSIONER THINKS THAT AN ASSESSMENT SHOULD BE REVISED, MUST BE BROUGHT TO THE NOTICE OF THE COMMISSIONER OF INCOME - TAX. (6) SECTION 35 OF THE 1922 ACT [SECTIONS 154 AND 155 OF THE 1961 ACT] - MISTAKES SHOULD BE RECTIFIED AS SOON AS THEY ARE DISCOVERED WITHOUT WAITING FOR AN ASSESSEE TO POINT THEM OUT. (7) SECTION 60(2) OF THE 1922 ACT [SECTIONS 89(1) AND 103 OF THE 1961 ACT] - CASES WHERE RELIEF CAN PROPERLY BE GIVEN UNDER THIS SUB - SECTION SHOULD BE REPORTED TO THE BOARD. 5. WHILE OFFICERS SHOULD WHEN REQUESTED, FREELY ADVICE ASSESSEES THE WAY IN WHICH ENTRIES SHOULD BE MADE IN VARIOUS FORMS, THEY SHOULD NOT THEMSELVES MAKE ANY IN T HEM ON THEIR BEHALF. WHERE SUCH ADVICE IS GIVEN, IT SHOULD BE CLEARLY EXPLAINED TO THEM THAT THEY ARE RESPONSIBLE FOR THE ENTRIES MADE IN ANY FORM AND THAT THEY CANNOT BE ALLOWED TO PLEAD THAT THEY WERE MADE UNDER OFFICIAL INSTRUCTIONS. THIS EQUALLY APPLIES TO THE PUBLIC RELATION OFFICERS. 6. THE INTEN T ION OF THIS CIRCULAR IS NOT THAT TAX DUE SHOULD NOT BE CHARGED OR THAT ANY FAVOUR SHOULD BE SHOWN TO ANYBODY IN THE MATTER OF ASSESSMENT, OR THAT WHERE INVESTIGATIONS ARE CALLED FOR, THEY SHOULD NOT BE MADE. WHATEVER THE LEGITIMATE TAX IT MUST BE ASSESSED AND MUS T BE COLLECTED. THE PURPOSE OF THIS CIRCULAR IS MERELY TO EMPHASISE THAT WE SHOULD NOT TAKE ADVANTAGE OF AN ASSESSEES IGNORANCE TO COLLECT MORE TAX OUT OF HIM THAN IS LEGITIMATELY DUE FROM HIM. 4 .3.1 FROM THE CIRCULAR IT IS APPARENT THAT THE CBDT IS FUL LY CONSCIOUS THAT THE LEGITIMATE TAX MUST BE ASSESSED AND MUST BE COLLECTED AND REVENUE SHOULD NOT TAKE ADVANTAGE OF THE IGNORANCE OF THE ASSESSEE IN RESPECT OF ANY PROVISION FOR COLLECTING MORE TAX THAN WHAT IS LEGITIMATELY DUE FROM HIM. WE NOTED THAT TH E JURISDICTIONAL HIGH COURT HAD ALSO TAKEN SIMILAR VIEW IN THE CASE OF BALMUKUND ACHARYA VS. DCIT, 310 ITR 310 WHEREIN THE HIGH COURT HAS HELD AS UNDER : 31. HAVING SAID SO, WE MUST OBSERVE THAT THE APEX COURT AND THE VARIOUS HIGH COURTS HAVE RULED THAT THE AUTHORITIES UNDER THE ACT ARE UNDER AN OBLIGATION TO ACT IN ACCORDANCE WITH LAW. TAX CAN BE COLLECTED ONLY AS PROVIDED UNDER THE ACT. IF ANY ASSESSEE, UNDER A MISTAKE, MISCONCEPTION OR ON NOT BEING PROPERLY INSTRUCTED IS OVERASSESSED, THE AUTHORITIES U NDER THE ACT ARE REQUIRED TO ASSIST HIM AND ENSURE THAT ONLY LEGITIMATE TAXES DUE ARE COLLECTED [SEE S.R. KOSHTI VS. CIT 9 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) (2005) 193 CTR (GUJ) 518 : (2005) 276 ITR 165 (GUJ), C.P.A. YOOSUF VS. ITO (1970) 77 ITR 237 (KER), CIT VS. BHARAT GENERAL REINSURANCE CO. LTD. (1971) 81 ITR 303 (DEL), CIT VS. ARCHANA R. DHANWATEY (1981) 24 CTR (BOM) 142 : (1982) 136 ITR 355 (BOM)]. 32. IF PARTICULAR LEVY IS NOT PERMITTED UNDER THE ACT, TAX CANNOT BE LEVIED APPLYING THE DOCTRINE OF ESTOPPEL [SEE DY. CST VS. SREENI PRIN TERS (1987) 67 SCC 279]. 33. THIS COURT IN THE CASE OF NIRMALA L. MEHTA VS. A. BALASUBRAMANIAM, CIT (2004) 191 CTR (BOM) 8 : (2004) 269 ITR 1 (BOM) HAS HELD THAT THERE CANNOT BE ANY ESTOPPEL AGAINST THE STATUTE. ARTICLE 265 OF THE CONSTITUTION OF INDIA I N UNMISTAKABLE TERMS PROVIDES THAT NO TAX SHALL BE LEVIED OR COLLECTED EXCEPT BY AUTHORITY OF LAW. ACQUIESCENCE CANNOT TAKE AWAY FROM A PARTY THE RELIEF THAT HE IS ENTITLED TO WHERE THE TAX IS LEVIED OR COLLECTED WITHOUT AUTHORITY OF LAW. IN THE CASE ON HA ND, IT WAS OBLIGATORY ON THE PART OF THE AO TO APPLY HIS MIND TO THE FACTS DISCLOSED IN THE RETURN AND ASSESS THE ASSESSEE KEEPING IN MIND THE LAW HOLDING THE FIELD. 4 .3.2 THE DECISION OF THE JURISDICTIONAL HIGH COURT IS BINDING ON US. WE, THEREFORE, HOLD THAT THE AO WAS NOT CORRECT IN LAW IN ASSESSING THE INCOME ON THE BASIS OF THE REVISED STATEMENT WITHOUT EXAMINING WHETHER THE ASSESSEE IS ENTITLED FOR THE DEDUCTION IN RE SPECT OF VARIOUS EXPENSES WHICH HAVE BEEN CLAIMED BY THE ASSESSEE IN THE ORIGINAL RETURN. 5 . GROUND NO. 2 : GROUND NO. 2 RELATES TO DISALLOWANCE OF RS.2,68,00,000/ - CLAIMED BY THE ASSESSEE AS MINE DEVELOPMENT EXPENSES. 5 .1 IN THIS REGARD, THE LEARNED AR CONTENDED THAT THE ASSESSEE HAS INCURRED SUM OF RS.2.70 CRORES DURING THE YEAR AS MINE DEVELOPMENT EXPENSES WHICH CONSISTS OF RS.2.6 CRORES PAID VIDE AGREEMENT DT. 8.9.2006 TO MR. KIRAN PADIYAR IN RESPECT OF TAKING OVER EXISTING INFRASTRUCTURE DEVELOPE D BY HIM ON MINES BELONGING TO MR. DAMU NAYAK AT SULCORNA, QUEPEM, GOA. THE LEARNED AR SUBMITTED THAT ASSESSEE ENTERED INTO AN AGREEMENT WITH LEGAL HEIRS OF LATE DAMU NAYAK TO PURCHASE THE IRON ORE AND OTHER ORE EXTRACTED IN THE MINES OF LATE 10 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) DAMU NAYAK A T AN AGREED RATE. EARLIER, THERE WAS AN AGREEMENT BETWEEN DAMU NAYAK AND KIRAN PADIYA IN RESPECT OF SUPPLY OF MINERAL ORE EXTRACTED FROM THE MINES, FOR WHICH AGREEMENT HAS NOW BEEN ENTERED WITH THE ASSESSEE BY THE LEGAL HEIRS OF LATE DAMU NAYAK. MR. KIRA N PADIYAR HAD DEVELOPED THE INFRASTRUCTURE AT THE MINE SITE. THEREFORE, A SUM OF RS. 2.6 CRORES WAS PAID TO MR. KIRAN PADIYAR BY CHEQUE NO. 110579 DT. 8.9.2006 DRAWN ON HDFC BANK, MARGAO IN RESPECT OF THE INFRASTRUCTURE DEVELOPED BY HIM AT THE SITE . IT W AS POINTED OUT BY THE LEARNED AR THAT THIS FACT IS MENTIONED AT PARA 7 OF THE AGREEMENT. IT WAS SUBMITTED BY THE LEARNED AR THAT WITHOUT MAKING THIS PAYMENT, MR. KIRAN PADIYAR WAS NOT READY TO CANCEL THE AGREEMENT. 5 . 1.1 THE LEARNED AR SUBMITTED THAT IT IS REVENUE EXPENDITURE AS NO CAPITAL ASSET HAS EVER BUILT UP. THE OWNERSHIP OF THE MINES DO NOT REMAIN WITH THE ASSESSEE. THE ASSESSEE INCURRED THIS EXPENDITURE TO FACILITATE THE BUSINESS. THE ASSESSEE WOULD HAVE TO INCUR THIS EXPENDITURE EVEN IF PAYMEN T HAD NOT BEEN MADE TO MR. KIRAN PADIYAR AS IT WAS ESSENTIAL FOR THE PURPOSE OF THE BUSINESS. WITHOUT MAKING THE PAYMENT, MR. KIRAN PADIYAR WAS NOT READY TO SURRENDER HIS RIGHTS IN THE AGREEMENT. DURING THE SURVEY, THE ASSESSEE WAS COMPELLED TO SURRENDER THIS AMOUNT AS CAPITAL EXPENDITURE. THE ASSESSEE WAS NOT EVEN ALLOWED ANY DEPRECIATION ON THE SAID AMOUNT. THE EXPENSES WAS NECESSARY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HAD HE NOT INCURRED THESE EXPENSES, THE ASSESSEE WOULD NOT HAVE BEEN ABLE TO BUY THE MINERAL ORE FROM THE HEIRS OF MR. DAMU NAYAK. THE LEARNED AR FURTHER SUBMITTED THAT THERE IS NO ENDURING BENEFIT BEING RECEIVED BY THE ASSESSEE. IT IS ONLY FOR FACILITATING THE PURCHASES FROM MR. DAMU NAYAK THAT THE ASSESSEE HAD TO INCUR T HESE EXPENSES. THE EXPENDITURE HAS BEEN INCURRED FOR ENSURING THE REGULAR SUPPLY OF MINOR ORE IN WHICH THE ASSESSEE WAS ENGAGED. RELIANCE WAS PLACED ON THE ORDER OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT MINERAL DEVELOPMENT CORPORATION VS. CIT 143 ITR 822 (GUJ) WHEREIN THE COURT HAS TAKEN THE VIEW 11 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) THAT IF EXPENDITURE IS INCURRED FOR ENSURING THE REGULAR SUPPLY OF RAW MATERIAL MAY BE FOR PERIOD EXTENDED OVER SEVERAL YEARS, IT IS ON REVENUE ACCOUNT. THE EXPENDITURE HAS NOT BEEN INCURRED FOR PROCURING THE CAPITAL ASSET BUT FOR PROCURING THE IRON ORE IN WHICH THE ASSESSEE WAS TRADING AND THEREFORE IT IS A REVENUE EXPENDITURE. 5 . 1.2 THE LEARNED AR FURTHER SUBMITTED THAT SO FAR THE SUM OF RS . 10 LAKH IS CONCERNED, SUM OF RS. 7.5 LAKHS WAS PAID TO THE MINE OWNERS AS PER THE AGREEMENT DT. 8.9.2006 THROUGH CHEQUE IN RESPECT OF AMOUNT SPENT BY THEM FOR VARIOUS DEVELOPMENT WORK AT THE MINES. OUR ATTENTION WAS DRAWN TO CLAUSE NO. 18 AT PG. 31 - 41 O F THE COPY OF AGREEMENT. IT WAS FURTHER SUBMITTED THAT RS. 2.5 LAKHS WAS PAID TO THE MINE OWNER VIDE AGREEMENT DT. 8.9.2006 TOWARDS EXPENSES TO BE INCURRED BY THE MINE OWNER FOR DEVELOPMENT AND OTHER ACTIVITIES. ATTENTION WAS DRAWN TO CLAUSE NO. 2 AT PG. 43 - 50 OF THE COPY OF AGREEMENT. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS BOUND TO INCUR THE EXPENSES FOR DEVELOPMENT OF MINERAL SOURCE. THE ASSESSEE UNDER THE AGREEMENT HAD TO RECEIVE THE DELIVERY OF MINERAL ORE AT IRON PIT AND EXTRACTION HAD TO BE CARRIED OUT BY THE MINE OWNER. ASSESSEE HAD TO GET THE MINE DEVELOPED, OTHERWISE IT WOULD HAVE BEEN DIFFICULT FOR THE ASSESSEE TO GET PROPER SUPPLY OF THE MINERAL ORE. ASSESSEE WAS NOT THE OWNER OF THE MINES. OWNERS WERE THE LEGAL HEIRS OF LATE MR. DAM U NAYAK AS IS APPARENT FROM THE AGREEMENT. TO SAFEGUARD THE INTEREST OF THE BUSINESS FOR THE WHOLE AND EXCLUSIVE PURPOSE OF THE BUSINESS, THE ASSESSEE HAS TO INCUR THE EXPENSES. ASSESSEE HAS TREATED THIS EXPENDITURE TO BE REVENUE EXPENDITURE. THE SURVEY TEAM ASKED THE ASSESSEE TO TREAT THIS EXPENSE AS DEFERRED REVENUE EXPENDITURE AND WRITE IT OFF OVER A PERIOD OF FIVE YEARS. ACCORDINGLY, THE ASSESSEE SURRENDERED RS. 8 LAKHS (4/5 TH OF RS. 10 LAKHS). THE LEARNED AR SUBMITTED THAT THERE IS NO DEFERRED REV ENUE EXPENDITURE UNDER THE INCOME TAX ACT. EXPENDITURE HAS TO BE EITHER REVENUE OR CAPITAL. IT CANNOT BE 12 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) DEFERRED EXPENDITURE UNDER THE INCOME TAX ACT. RS. 2.7 CRORES WAS DULY CHARGED TO THE PROFIT & LOSS A/C. 5 .1.3 ALTERNATELY, IT WAS ARGUED THAT SECT ION 35E(2) ALLOWS ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY ON ANY OPERATIONS RELATING TO PROSPECTING FOR ANY MINERALS OR GROUP OF ASSOCIATED MINERALS SPECIFIED IN PART A OR PART B RESPECTIVELY OF THE SEVENTH SCHEDULE OR ON THE DEVELOPMENT OF MIN E OR OTHER NATURAL DEPOSIT OF ANY SUCH MINERAL OR GROUP OF ASSOCIATED MINERALS . THE EXPENDITURE SO INCURRED BY THE ASSESSEE SHOULD BE REGARDED TO HAVE BEEN INCURRED ON OPERATIONS RELATING TO PROSPECTING FOR MINERALS AND THE ASSESSEE ACCORDINGLY BE ALLOWED 1/1 0 TH OF SUCH EXPENDITURE IN EACH OF THE YEAR. 5 . 2 THE LEARNED DR ON THE OTHER HAND REFERR ING TO THE AGREEMENT VEHEMENTLY CONTENDED THAT THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR ACQUIRING RIGHT TO PURCHASE THE MINERAL ORE AND THE EXPENDITURE SO INCURRED IS A CAPITAL EXPENDITURE. THIS IS NOT EXPENDITURE WHICH HAS BEEN INCURRED ON ACCOUNT OF REVENUE OR FOR THE DEVELOPMENT OF THE MINERAL. 5 . 3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON R ECORD. WE NOTED THAT EARLIER THE SUCCESSOR OF LATE MR. DAMU NAYAK HAD ENTERED INTO AN AGREEMENT WITH SHRI KIRAN PADIYAR FOR EXTRACTING THE MINERALS. SHRI KIRAN PADIYAR CREATED THE NECESSARY INFRASTRUCTURE FOR ORE EXTRACTION. THE SUCCESSOR OF LATE MR. DA MU NAYAK WOULD NOT HAVE ENTERED INTO AN AGREEMENT WITH THE ASSESSEE FOR MINING UNTIL AND UNLESS THE ASSESSEE WOULD HAVE PAID THE EXPENDITURE TO SHRI KIRAN PADIYAR. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXTRACTION OF MINERALS AND SALE THEREOF. IF THI S EXPENDITURE WOULD NOT HAVE BEEN REIMBURSED BY THE ASSESSEE TO SHRI KIRAN PADIYAR, THE ASSESSEE C OULD NOT HAVE TAKEN THE ORE FROM THE SUCCESSOR OF LATE MR. DAMU NAYAK. THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR FACILITATING THE 13 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) AVAILABILITY OF THE ORE FROM THE SUCCESSOR OF LATE MR. DAMU NAYAK. IT RELATES TO THE CURRENT ASSETS. IT IS NOT A CAPITAL EXPENDITURE BY WHICH IT COULD HAVE BEEN SAID THAT AN ENDURING RIGHT HAS BEEN CREATED OR A FIXED ASSET HAS COME INTO EXISTENCE. THIS, IN OUR OPINION , IS EXPENDITURE FOR FACILITATING THE AVAILABILITY OF IRON ORE ON THE SALE OF WHICH THE ASSESSEE HAS EARNED HUGE PROFIT. THIS EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE DURING THE COURSE OF THE BUSINESS AND THEREFORE THE EXPENDITURE MUST BE ALLOWED AS IT IS NEITHER PERSONAL EXPENDITURE NOR A CAPITAL EXPENDITURE. BUSINESS EXPEDIENCY REQUIRED THE ASSESSEE TO INCUR SUCH EXPENDITURE. ACCORDINGLY, THE ASSESSEE HAS INCURRED THE EXPENDITURE FOR ENSURING REGULAR SUPPLY OF RAW MATERIAL ATLEAST FOR 5 YEARS. THE CASE OF THE ASSESSEE, IN OUR OPINION, IS DULY COVERED BY THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT MINERAL DEVELOPMENT CORPORATION VS. CIT 143 ITR 822 (GUJ) ( SUPRA) . WE, THEREFORE, DELETE THE DISALLOWANCE OF RS. 2.6 CRORES PAID BY THE ASSESSEE TO SHRI KIRAN PADIYAR VIDE CHEQUE NO. 110579 . SO FAR THE BALANCE SUM OF RS. 8 LACS IS CONCERNED, WE NOTED THAT THE SAID SUM HAS BEEN PAID BY THE ASSESSEE FOR VARIOUS DEVELOPMENT WORK AT THE MINES AS PER THE COPY OF AGRE EMENT AVAILABLE AT PAGES 31 TO 41. THESE EXPENSES HAVE BEEN INCURRED FOR OBTAINING THE MINERAL SOURCE . A S THE ASSESSEE IS TO RECEIVE DELIVERY OF THE MINERAL ORE AT IRON PIT AND EXTRACTION HAS TO BE CARRIED OUT BY THE MINE OWNER, IN THE ABSENCE OF INCURRI NG THIS EXPENDITURE THE ASSESSEE COULD HAVE NOT GOT PROPER SUPPLY OF THE MINERAL. THE ASSESSEE TREATED THESE EXPENSES IN HIS ACCOUNTS TO BE REVENUE EXPENDITURE AND ACCORDINGLY CLAIMED IN THE ORIGINAL INCOME TAX RETURN WHILE SUBSEQUENTLY BY FILING THE REVI SED STATEMENT IT IS WRITTEN OFF OVER A PERIOD OF 5 YEARS. THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE WAS RS. 10 LACS WHILE RS. 8 LACS WAS ADDED BACK IN THE REVISED STATEMENT ON THE ADVICE OF THE SURVEY TEAM. THIS EXPENDITURE ALSO, IN OUR OPINION, IS REVENUE EXPENDITURE AND THERE IS NO TERM UNDER THE INCOME TAX ACT WHICH MAY BE CALLED DEFERRED REVENUE EXPENDITURE. THE EXPENDITURE HAS TO BE EITHER REVENUE OR CAPITAL. THE MINE DOES NOT BELONG 14 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) TO THE ASSESSEE. THE EXPENDITURE IS ONLY INCURRED FOR GE TTING RIGHT TO PURCHASE THE MINERAL ORE I.E. FOR FACILITATING PURCHASE OF MINERAL ORE. THEREFORE, THIS EXPENDITURE CANNOT BE A CAPITAL EXPENDITURE. WE, ACCORDINGLY, DELETE THE DISALLOWANCE. IN THE RESULT, WE ALLOW GROUND NO. 2 DELETING THE ADDITION OF R S.2,68, 00, 000/ - MADE ON THE BASIS OF THE REVISED COMPUTATION. THUS, GROUND NO. 2 STANDS ALLOWED. 6 . GROUND NO. 3 : THIS GROUND RELATES TO DISALLOWANCE OF RS. 1.10 CRORES OUT OF EXCAVATION CHARGES. 6 .1 THE LEARNED AR CONTENDED THAT THE ASSESSEE INCURRED RS.4,36,55,642/ - FOR EXTRACTION WORK CARRIED OUT ON BASALT STONE QUARRY AT SANUGEM, GOA BY M/S. SM CONSTRUCTIONS. ATTENTION WAS DRAWN TO COPY OF THE BILLS IN THE PAPER BOOK. TDS IN RESPECT OF THIS PAYMENT HAS ALSO BEEN DULY DEDUCTED. DETAILS O F THE EXPENSES WERE FILED BEFORE US. THE LEARNED AR SUBMITTED THAT FROM THE DETAILS IT CANNOT BE SAID THAT ANY EXPENDITURE IS UNVERIFIABLE OR OF A CAPITAL NATURE OR PERSONAL EXPENDITURE. IT IS ONLY ON THE PERSUASION OF THE SURVEY TEAM THAT THE ASSESSEE H AD TO SURRENDER THIS EXPENSE BY FILING THE REVISED RETURN AND THAT THERE IS NO EVIDENCE TO PROVE THAT THIS EXPENSE IS NOT INCURRED FOR THE PURPOSE OF THE BUSINESS. HE FURTHER SUBMITTED THAT E XPENSE INCURRED IS ALLOWABLE U/S 37 OF THE INCOME TAX ACT AND CI T(A) WITHOUT LOOKING INTO THE FACTS OF THE CASE, JUST CONFIRMED THE ORDER OF THE AO. NO SPECIFIC EXPENSE HAS BEEN POINTED OUT BY THE CIT(A) OR BY THE SURVEY TEAM WHICH IS OF A CAPITAL NATURE AND THE QUANTUM OF EXPENSE CANNOT DETERMINE THE NATURE OF THE EX PENDITURE. 6 .2 THE LEARNED DR ON THE OTHER HAND, RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 6 .3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE ASSESSEE HAS 15 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) INCU RRED EXPENDITURE FOR THE EXTRACTION WORK CARRIED OUT AT BASALT STONE QUARRY AT SANGUEM, GOA. THE AO HAS DISALLOWED THIS EXPENDITURE MERELY ON THE BASIS OF THE REVISED COMPUTATION WHICH WAS FILED BY THE ASSESSEE ON THE PERSUASION OF THE SURVEY TEAM EVEN TH OUGH THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DENIED. THE ASSESSEE HAS SUBMITTED THE COMPLETE DETAILS OF THE EXPENDITURE. THE ASSESSEE HAS ALSO DEDUCTED THE TDS IN RESPECT OF THE EXPENDITURE INCURRED. THERE IS NO ALLEGATION ON THE PART OF THE REV ENUE THAT THE EXPENDITURE IS A CAPITAL EXPENDITURE. EVEN NO SPECIFIC EXPENDITURE HAS BEEN POINTED OUT WHICH MAY BE OF CAPITAL OR PERSONAL EXPENDITURE AND NOT BEING INCURRED FOR THE PURPOSE OF BUSINESS. IN VIEW OF THIS, WE DELETE THE DISALLOWANCE. THUS, GROUND NO. 3 STANDS ALLOWED. 7 . GROUND NO. 6 : THIS GROUND RELATES TO DISALLOWANCE OF MINING PLAN AND TESTING EXPENSES AMOUNTING TO RS. 6,06,096/ - . 7 .1 THE LEARNED AR CONTENDED THAT THIS EXPENDITURE HAS BEEN INCURRED FOR ASCERTAINING THE QUALITY AND QUANTITY OF MINERAL ORE. THESE ARE REGULAR EXPENSES WHICH HAVE TO BE INCURRED AT THE MINE DURING THE EXCAVATION AND TRANSPORTATION OF THE ORE. ALL THE EXPENSES ARE DULY VERIFIABLE. THE DETAILS ALONGWITH THE BILLS OF EXPENSES WERE FILED BEFORE US. TDS HAS BEEN DEDUCTED ON THE EXPENSES SO INCURRED. IT WAS FURTHER SUBMITTED THAT THESE EXPENSES ARE OF REVENUE NATURE AND DO NOT CREATE ANY RIGHT OR ASSET EXCEPT ASCERTAINING THE QUALITY OF THE MINERAL ORE FOR THE PURPOSE OF DETERMINING THE SALE PRICE IN THE MARKET AND THAT THEY ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND CANNOT BE DISALLOWED. 7 .2 THE LEARNED DR ON THE OTHER HAND, RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 16 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) 7 .3 W E HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THIS EXPENDITURE HAS BEEN INCURRED AS MINING PLAN AND TESTING CHARGES. THIS EXPENDITURE CAN UNDER NO STRETCH OF IMAGINATI ON BE REGARDED TO BE CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE. THE EXPENDITURE IS MERELY BEEN DISALLOWED ON THE BASIS OF THE REVISED COMPUTATION WHICH WAS FILED BY THE ASSESSEE ON THE PERSUASION OF THE SURVEY TEAM WITHOUT THERE BEING ANY MATERIAL ON RE CORD THAT THE EXPENDITURE DOES NOT RELATE TO THE BUSINESS AND IS NOT A REVENUE EXPENDITURE. WE, THEREFORE, DELETE THE DISALLOWANCE. ITA NO. 53/PNJ/ 2013 - 8 . THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DT. 12.12.2012 FOR A.Y. 2008 - 09 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : (A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN GIVING RELIEF OF RS.50,00,000/ - TO THE ASSESSEE, WHEN THE ASSESSEE HAS NOT CLAIMED THE EXPENDITU RE U/S. 35E OF IT ACT IN THE RETURN OF INCOME? (B) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN DELETING THE ADDITIONS MADE U/S68 OF IT ACT OF RS.13,66,35,554/ - WHEN THE ASSESSEE FAILED TO PROVE THE TAX IDENTITY OF THE SUNDRY CR EDITORS, GENUINENESS OF THE TRANSACTIONS AND CREDIBILITY OF THE CREDITOR. (C) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN DELETING THE ADDITIONS MADE U/S.40(A)(IA) OF IT ACT OF RS.82,622/ - WHEN THE ASSESSEE FAILED TO DEDUCT THE TAX AT SOURCE AS PER THE PROVISIONS OF SEC. 40(A)(IA) OF I.T. A CT . 9 . THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN FOR THE A.Y 2008 - 09 HAS BEEN FILED BY THE ASSESSEE ON 16.2.2009 DECLARING INCOME OF RS.7,19,85,910/ - . SURVEY U/S 133A WAS CONDUCTED ON 24.03.2009. ON THE PERSUASION OF THE SURVEY 17 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) TEAM, REVISED RETURN WAS FILED ON 17.06.2009 AT AN INCOME OF RS. 12,36,45,195/ - . THE ASSESSMENT WAS COMPLETED BY MAKING FOLLOWING ADDITIONS AT RS.27,48,63,869/ - IN THE REVISED RETURN: I. INCOME OFFERED PER REVISED RETURN 12,36,45,190 II. ENHANCED DEPRECIATION 33,07,998 III. DEPRECIATION ON CATERPILLAR MACHINES 11,92,500 IV. MINES DEVELOPMENT EXPENDITURE 1,00,00,000 V. DISALLOWANCE U/S 68 OF IT ACT 13,66,35,554 VI. DISALLOWANCE U/S 40(A)(IA) OF IT ACT 82,622 T O TAL 27,48,63,869 THE CIT(A) PARTLY A LLOWE D THE APPEAL OF THE ASSESSEE. 10 . GROUND NO. 1 RELATES TO THE ALLOWANCE OF RS.50 LACS U/S 35E. THE BRIEF FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSEE A S PER AGREEMENT PAID A SUM OF RS. 5 CRORES TO SHRI SHAIKH SALIM THROUGH ACCOUNT PAYEE CHEQUES NO. 172871 DT. 23.7.2007 OF RS. 25 LACS AND 194744 DT. 27.8.2007 OF RS. 4.75 CRORES. THE AO TREATED SAID EXPENDITURE TO BE CAPITAL EXPENDITURE WHILE THE ASSESSEE CLAIMS 1/5 TH OF SUCH EXPENDITURE AS DEDUCTION AS THE BENEFIT HAS TO BE DERIVED, ACCORDING TO THE ASSESSEE, OVER A PERIOD OF 5 YEARS. WHEN THE MATTER WENT BEFORE CIT(A), THE CIT(A) ALLOWED 1/10 TH OF THE EXPENDITURE IN VIEW OF APPLICABILITY OF SEC. 35E(2) . 10 .1 THE LD. AR BEFORE US CONTENDED THAT THE ASSESSEE HAS INCURRED SUM OF RS. 5 CRORES ON MINERAL DEVELOPMENT. THE EXPENDITURE SO INCURRED IS NOT A CAPITAL EXPENDITURE BUT IS REVENUE EXPENDITURE. THE EXPENDITURE HAS BEEN INCURRED TO FACILITATE THE S UPPLY OF RAW MATERIAL. THE EXPENDITURE IS INCURRED ON THE DEVELOPMENT OF APPROACH ROAD TO THE MINES, TEMPORARY HUTS, DRILLING ETC. AND DO NOT RELATE TO ANY RIGHT BUT PURELY TO PROVIDE THE FACILITIES FOR PROCURING THE MINERAL ORE. SHRI SHAIKH SALIM IS THE HOLDER OF MINING CONCESSION AT QUEPEM 18 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) COMPRISING OF AREA OF 83 HECTARES. HE HAD EARLIER ENTERED INTO AN AGREEMENT WITH ONE DILIP A. NAIK FOR EXTRACTION OF ORE FROM THE SAID MINING LEASE EXCEPT ON AREA OF 10 HECTARES WHICH IS MINING PIT AND SECOND AGREEME NT FOR SALE WITH SMT. SEEMA DILIP NAIK. OUR ATTENTION WAS DRAWN TO THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH SHRI SHAIKH SALIM, ESPECIALLY CLAUSE NOS. 2, 3 AND 19 OF THE AGREEMENT. AS PER THESE CLAUSES, THE AGREEMENT ENTERED INTO BY THE ASSESSEE WI TH SHAIKH SALIM WAS THAT OF EXTRACTION OF ORE AND NOT FOR LEASE. IT WAS CLEARLY MENTIONED IN THE AGREEMENT THAT CONSIDERATION OF RS. 5 CRORES IS TOWARDS INFRASTRUCTURE FACILITIES WHICH ARE PURELY REVENUE EXPENDITURE. THESE FACILITIES CONSIST OF BUILDING OF APPROACH ROAD, OFFICE, SORTING PLOTS, BENCHES, PROSPECTING ETC. THE EXPENSES FOR MINING HAS TO BE BORNE BY THE ASSESSEE AND ASSESSEE WAS ENTITLED TO SELL OR DISPOSE OFF 58% OF THE ORE EXTRACTED BY HIM AND THE REMAINING 40% SHALL BE DELIVERED TO SHRI SH AIKH AT PITS MOUTH AND 2% TO THE THIRD PARTY. AS PER THE AGREEMENT, PAYMENT FOR EXTRACTION CARRIED OUT BY THE ASSESSEE IS AGREED TO BE PAID IN KIND BY WAY OF 40% OF THE EXTRACTED ORE AND THERE IS NO OFFER OF PAYMENT TOWARDS PURCHASE OF MINING LEASE/RIGHT S. THUS, THE AMOUNT OF RS. 1 CRORE CHARGED TO THE EXPENSES IS PURELY OF REVENUE NATURE AND IS HAS NOT CREATED ANY LONG TERM ASSETS. NO ENDURING BENEFIT HAS BEEN DERIVED BY THE ASSESSEE. RELIANCE WAS PLACED ON THE DECISION OF THE CIT(A). ALTERNATIVELY, I T WAS SUBMITTED THAT THE PROVISIONS OF SEC. 35E WERE APPLICABLE AND THE EXPENDITURE IS NOT IN RESPECT OF PAYMENT RELATING TO PROSPECTING FOR ORE EXTRACTION OR PRODUCTION OF THE MINERAL. THEREFORE, THE ASSESSMENT MUST BE ALLOWED ATLEAST 1/10 TH OF THE EXP ENDITURE. 10 .2 THE LD. DR ON THE OTHER HAND, RELIED ON THE ORDER OF THE AO. 10 .3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE HAVE GONE THROUGH THE RELEVANT CLAUSES OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE ALONGWITH SHRI SHAIKH SALIM. IT IS A FACT THAT THE ASSESSEE HAS 19 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) INCURRED LUMPSUM AMOUNT OF RS. 5 CRORES TOWARDS DEVELOPMENT OF NEW EXTRACTION SITE/UNIT. THE EXPENDITURE WAS DEFERRED FOR 5 YEARS AND OUT OF SUCH EXPENDITURE, THE ASSESSEE HAS SET OFF RS. 1 CRORE DURI NG THE YEAR UNDER CONSIDERATION. WE HAVE GONE THROUGH THE PROVISIONS OF SEC. 35E. WE NOTED THAT THE EXPENDITURE SINCE RELATE TO THE ADDITIONAL NEW SITE DEVELOPMENT OF THE MINERAL IRON ORE AND THE INITIAL PRODUCTION HAS BEEN CARRIED OUT FROM THE SITE DURI NG THE YEAR, THE PROVISIONS OF SEC. 35E ARE CLEARLY APPLICABLE AND THIS EXPENDITURE IS TO BE AMORTIZED OVER A PERIOD OF 10 YEARS. WE, THEREFORE, CONFIRM THE ORDER OF CIT(A) ON THIS GROUND ALLOWING THE DEDUCTION OF RS. 50 LACS U/S 35E OF THE INCOME TAX ACT . ACCORDINGLY, THE FIRST GROUND TAKEN BY THE REVENUE STANDS DISMISSED. 1 1 . GROUND NO. 2 RELATES TO THE DELETION OF THE ADDITION MADE U/S 68 AMOUNTING TO RS. 13,66,35,554/ - . THE BRIEF FACTS RELATING TO THIS ADDITION ARE THAT THE AO NOTED THAT THE ASSESSEE HAS SHOWN UNSECURED LOAN BORROWED DURING THE YEAR TO THE EXTENT OF RS. 15 CRORES AND SUNDRY CREDITORS OUTSTANDING TO THE EXTENT OF RS.12,15,25,261/ - . FROM THE PERUSAL OF THE SUNDRY CREDITORS LIST, IT WAS FOUND THAT AN AMOUNT OF RS.3,45,63,555/ - WAS SHOWN AS OUTSTANDING TO M/S. BALAJI MINERALS AND A SUM OF RS.3,20,71,989/ - WAS DUE TO M/S. MATHA MINERALS. THE AO OBSERVED THAT THE ASSESSEE HAS PURCHASED 3,60,992.74 MTS OF IRON ORE DURING THE YEAR. OUT OF THIS, 3,13,354.37 MT OF IRON ORE WAS SUPPLIED BY M/S . NADEEM MINERALS AND BALANCE 47,638.37 MTS OF IRON ORE WAS SHOWN TO BE SUPPLIED BY M/S. MATHA MINERALS AND M/S. BALAJI MINERALS, THE DETAILS OF WHICH ARE GIVEN AS UNDER : DT OF INVOICE NAME OF CREDITOR QTY (MT) PURCHASED AMT (CR) OPNG BAL(DR) NET BAL (CR) TFD TO LOAN A/C BAL IN SCRS 26.02.08 MATHA MINERALS 24685.42 72821989 750000 72071989 40000000 32071989 04.03.08 BALAJI MINERALS 22952.95 66563555 2000000 64563555 30000000 34563555 TOTALS 47638.37 136635544 70000000 66635544 20 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) THE AO FURTHER NOTICED THAT THE IRON ORE WAS SUPPLIED BY M/S. MATHA MINERALS FOR RS.7,28,21,989/ - AND BY M/S. BALAJI MINERALS FOR RS.6,65,63,555/ - . THE ACCOUNT OF M/S. MATHA MINERALS WAS DEBITED BY AN AMOUNT OF RS.4 CRORES BY SHIFTING THE AMOUNT TO UNSECU RED LOAN. SIMILARLY, THE SUM OF RS.3 CRORES WAS DEBITED BY SHIFTING THE LIABILITY TO UNSECURED LOAN IN RESPECT OF M/S. BALAJI MINERALS. THE BALANCE RS.3,20,71,989/ - AND RS. 3,45,63,555/ - AFTER ADJUSTING THE OPENING BALANCE WAS SHOWN AS SUNDRY CREDITORS A S ON 31.3.2008 IN RESPECT OF M/S. MATHA MINERALS AND M/S. BALAJI MINERALS. THE AO, THEREFORE, OBSERVED THAT THE TOTAL AMOUNT, IN FACT, WAS DUE TO THESE PARTIES BY THE ASSESSEE AS ON 31.3.2008. THE ASSESSEE WAS ASKED TO PRODUCE THE CONFIRMATION. THE CONF IRMATION LETTERS PRODUCED DID NOT HAVE THE PAN NUMBER. THE AO, THEREFORE, INVOKING THE PROVISIONS OF SEC. 133(6) WROTE TO M/S. MATHA MINERALS AND M/S. BALAJI MINERALS FOR CONFIRMATION OF THE BALANCE DUE TO THEM. THE LETTER ADDRESSED TO M/S. MATHA MINERALS WAS RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARKS INSUFFICIENT ADDRESS. THE LETTER WRITTEN TO M/S. BALAJI MINERALS WAS SERVED ON WRONG ADDRESS WHICH WAS LATER ON REVERTED BACK TO THE AOS OFFICE. IN THE MEANTIME, EFFORTS WERE MADE TO SERVE THE N OTICE U/S 133(6) TO THE DEPARTMENTS COUNTERPART OFFICE SITUATED AT HOSPET. FINALLY, THE INSPECTOR SUBMITTED THE FOLLOWING REPORT : AS PER THE DIRECTIONS OF ITO WARD 2, HOSPET, I WENT TO SERVE THE LETTERS OF ACIT, C - 1 , MARGAO PERTAINING TO M/S. BALAJI MINERALS, OPP: STAR MINERALS, 22 - W , BESIDES SHADI MAHAL, ARVIND NAGOR, HOSPET AND M/S. MATHA MINERALS, 6 / W, CHUNNABHATTI, HAMPI ROOD, NEAR BOB TALKIES, HOSPET. IT IS SEEN THAT M/S. BALAJI MINERALS AND M/S. MATHA MINERALS ARE NOT SITUATED IN THE ADDRESS ME NTIONED . I WAS NOT ABLE TO FIND OUT THE ADDRESS OF THE ABOVE PARTIES ON LOCAL ENQUIRIES ALSO. HENCE, I AM NOT ABLE TO SERVE THE SAID LETTERS TO THE PARTIES MENTIONED AND I AM RETURNING THE SAME, IN VIEW OF THIS REPORT, A SHOW CAUSE NOTICE DT. 20.12.2010 FOR COMPLIANCE ON 24.12.2010 WAS ISSUED TO THE ASSESSEE TO PROVE THE IDENTITY, GENUINENESS AND 21 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) CREDIBILITY OF THE CREDITORS. THE ASSESSEE COULD NOT PRODUCE THE PARTIES . THE DIRECTOR OF THE ASSESSEE COMPANY PERSONALLY APPEARED AND STATED THAT THESE PARTIE S ARE NOT WILLING TO APPEAR. IN VIEW OF THIS, THE SAID AMOUNT WAS SURRENDERED AS AN ADDITIONAL INCOME WITH THE CONDITION THAT THIS AMOUNT IS SHOWN TO BUY PEACE OF MIND AND TO ENABLE THE INCOME TAX OFFICE TO COMPLETE THE TIME BARRING PROCEEDINGS. IT WAS A LSO STATED THAT SINCE THE ASSESSEE HAD PAID THE COST OF ORE TO THESE PARTIES, THE ASSESSEE SHOULD BE ALLOWED TO SET OFF THE PURCHASE PRICE IF THE ASSESSEE WAS ABLE TO PRODUCE THE PARTIES ALONGWITH THE CONFIRMATION. THE AO, THEREFORE, ADDED THE SUM OF RS.1 3,66,35,554/ - IN THE INCOME OF THE ASSESSEE. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER GIVING OPPORTUNITY TO THE ASSESSEE AND CONSIDERING HIS SUBMISSION DELETED THE DISALLOWANCE BY OBSERVING AS UNDER : I HAVE GONE THROUGH FACTS OF THE CASE, CONTENTS OF THE ASSESSMENT ORDER WRITTEN SUBMISSIONS OF THE ASSESSEE AND CASE LAWS REFERRED AND RELIED BY THE ASSESSEE. THE MAIN CONTENTIONS OF THE AO IS THE CREDITORS WERE NOT PROVED UP TO SATISFACTION OF THE AO, THE CONFIRMATION WERE NOT FILED , CREDITORS WERE NOT PRODUCED FOR VERIFICATION AND THE LETTERS SENT BY THE AO WERE RETURNED AND THE IT I REPORT INDICATES THAT THE CREDITORS WERE NOT AVAILABLE AT THE GIVEN ADDRESS . IF YOU LOOK AT TOTALITY OF THE FACTS NOT BY THE INDIVIDUAL INFERENCE THE FACT IS THAT THE ASSESSEE HAS PURCHASED THE IRON ORE OF 47638.37 TONS DURING THE YEAR AND THE PAYMENTS WERE MADE THROUGH CHEQUE, OUTSTANDING BALANCES WERE PAID SUBSEQUENTLY THROUGH CH EQUE ONLY AND THE DETAILS OF THE TRANSPORTER, THE MODE OF PAYMENT AND RATE OF PAYMENT ARE THE INDICATORS THAT THE TRANSACTIONS ARE GENUINE. THE ASSESSEE HAS MENTIONED FOR NON - AVAILABILITY OR DISAPPEARANCE OF THE CREDITORS IS ON ACCOUNT OF THE RAIDS CONDUCT ED ON THE BUSINESS PREMISES AT THE INSTANCE OF LOKAYUKTA KARNATAKA ON ILLEGAL MINE OWNERS . IN THIS REGARD I RELY ON FOLLOWING JUDGMENTS 1. THE HON. CAL HIGH COURT IN THE CASE OF 64 ITR 314 (CAL) SHRIRAM JHABARMULLA LTD., V. CIT., IT WAS HELD THAT THE TRUE VIE W IS THAT, WHILE THE ITO IS NOT BOUND TO ACCEPT AS A TRUE ANY EXPLANATION WHICH THE ASSESSEE MAY PUT FORTH, HE CANNOT ALSO ARBITRARILY REJECTS THE ASSESSEES EXPLANATION. IN VIEW OF THE FACTS DISCUSSED ABOVE, THOUGH THE ASSESSE HAVE NOT PRODUCED THE PARTIE S OR FILED CONFIRMATION LETTERS AND THE PAYMENTS MADE THE PURCHASES CLEARING OUTSTANDING BALANCES TRANSPORT CHARGES AND THE PREVAILING MARKET 22 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) CONDITIONS THAT THE AO MAKING ADDITIONS U/S 68 OF THE IT ACT., IS NOT JUSTIFIABLE, AND THE ADDITIONS MADE BY THE A O ARE DELETED AND THE ASSES SEE GROUND OF APPEAL IS ALLOWED 1 1 . 1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) WHILE THE LD. DR RELIED ON THE ORDER OF THE AO. WE NOTE D THAT IN THIS CASE IT IS NOT DENIED BY THE REVENUE THAT THE ASSESSEE HAD MADE PURCHASES OF IRON ORE FROM M/S. MATHA MINERALS AND M/S. BALAJI MINERALS VIDE INVOICE NO. 35 DT. 26.2.2008 AND 50 DT. 4.3.2008. THE TOTAL QUANTITY PURCHASED FROM BOTH THE PARTI ES IS 47638.37 MT. THE ASSESSEE HAD MADE THE ADVANCE BEFORE MAKING THE PURCHASES TO THESE PARTIES VIDE CHEQUES DETAILS OF WHICH ARE AVAILABLE AT PG. 31 OF CIT(A)S ORDER. THE IRON ORE WAS TRANSPORTED TO KARWAR PORT FOR EXPORT THROUGH M/S. NECC ROADWAYS A ND M/S. SSTA LOGISTICS (I) PVT. LTD. FROM THE PLACE OF THESE PARTIES. THE SAID IRON ORE WAS ALSO EXPORTED TO M/S. HORNOR RESOURCES (INTERNATIONAL) CO. LTD. ALONGWITH OTHER IRON ORE. THE ASSESSEE HAS DULY RAISED BILLS FOR THE IRON ORE SO EXPORTED. THE PA YMENT FOR THE EXPORT OF IRON ORE HAS BEEN RECEIVED BY THE ASSESSEE. THE ASSESSEE HAS ALSO FILED THE QUANTITATIVE RECONCILIATION SHOWING THE OPENING STOCK OF IRON ORE, PURCHASES MADE DURING THE YEAR, SALES MADE DURING THE YEAR AND THE CLOSING STOCK . NO QU ANTITATIVE DIFFERENCE IS CHALLENGED BY THE REVENUE. WITHOUT MAKING THE PURCHASES, IN OUR OPINION, SALES CANNOT BE MADE BY THE ASSESSEE. THE SALES HAS BEEN DULY ACCEPTED BY THE REVENUE. EVEN THE SALES AMOUNT HAS DULY BEEN CREDITED TO THE PROFIT AND LOSS A CCOUNT OF THE ASSESSEE WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. EVEN THE PURCHASES MADE BY THE ASSESSEE WHICH INCLUDE THE VERY PURCHASES MADE FROM THESE TWO PARTIES WERE DULY ACCEPTED AND ON THAT BASIS THE PROFIT AND LOSS ACCOUNT WAS ACCEPTED BY THE RE VENUE. THE CREDITORS ARISE OUT OF THE PURCHASES. IT IS NOT AN ENTRY THROUGH WHICH THE ASSESSEE HAD RECEIVED ANY CASH OR BANK AMOUNT. THE CREDITORS ARISE ONLY DUE TO THE PURCHASES. THE PAYMENT FOR THE SAME HAS DULY BEEN GIVEN BY THE ASSESSEE IN THE SUBS EQUENT YEAR. THE CIT(A) 23 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) HAS GIVEN THE FINDING THAT IN THE SUBSEQUENT YEAR, THE PAYMENT IS MADE THROUGH CHEQUE. IT IS ALSO A FACT ON RECORD THAT THERE HAD BEEN A RAID CONDUCTED BY LOKAYUK TA AND THERE HAD BEEN MINING BAN AND DUE TO WHICH FEAR, THE ASSESSEE CONTENDED THAT THESE PARTIES DISAPPEARED FROM KARNATAKA. THE SUBMISSION OF THE ASSESSEE, IN OUR OPINION, HAS A FORCE AND IS PLAUSIBLE ONE. SECTION 68 LAYS DOWN THE RULES OF LAW. THE ADDITION CAN BE MADE WHERE THE ASSESSEE IS NOT ABLE TO OFFER ANY EXPLA NATION ABOUT THE NATURE AND SOURCE OF THE AMOUNT OR THE EXPLANATION OFFERED BY THE ASSESSEE IS, IN THE OPINION OF THE AO, NOT SATISFACTORY. IT IS A CASE WHERE THE ASSESSEE HAS DULY OFFERED EXPLANATION. EVEN THE ASSESSEE HAS EXPLAINED THE NATURE AND SOURC E OF THE CREDITORS. THE CREDITORS HA VE ARISEN DUE TO THE PURCHASE MADE BY THE ASSESSEE AND THE PURCHASES MADE BY THE ASSESSEE HAS DULY BEEN ACCEPTED BY THE REVENUE TO BE GENUINE ONE AND THE PURCHASES IS A CLEAR - CUT SOURCE DUE TO WHICH THESE CREDITORS IN T HE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE ARISEN. SUBSEQUENTLY, THE ASSESSEE HAS MADE THE PAYMENT TO THE PARTIES ALSO. THE PURCHASES WERE MADE IN FEBRUARY END AND IN THE MONTH OF MARCH. THEREFORE, IT IS QUITE POSSIBLE THAT THE ASSESSEE WOULD HAVE MADE T HE PAYMENT SUBSEQUENTLY AND THE ASSESSEE WOULD HAVE NOT MADE THE PURCHASES BY MAKING THE PAYMENT. THE ASSESSEE HAS RETURNED A N INCOME OF RS.7,19,85,910/ - . KEEPING IN VIEW THE QUANTUM OF PROFIT WHICH THE ASSESSEE HAS DERIVED OUT OF THE PURCHASES AND SALES OF IRON ORE, IT CANNOT BE SAID THAT THE CREDITORS WOULD NOT HAVE COME OUT OF PURCHASES. THE SATISFACTION OF THE AO THAT THE EXPLANATION GIVEN BY THE ASSESSEE IS NOT SATISFACTORY MUST BE BASED ON THE MATERIAL AND EVIDENCE. THE AO SHOULD FORM AN OPINION K EEPING IN VIEW THE SURROUNDING CIRCUMSTANCES AND THE FACTS OF EACH CASE. NO PERSON OF ORDINARY PRUDENCE CAN SAY THAT THE CREDITORS IN THE BOOKS OF THE ASSESSEE WOULD NOT HAVE ARISEN OUT OF THE PURCHASES. EVEN THE REVENUE HAS ALSO NOT DENIED THIS. THE EX PLANATION GIVEN BY THE ASSESSEE, IN OUR OPINION, IS A PLAUSIBLE ONE AND IS TO BE ACCEPTED. WE HAVE ALSO GONE THROUGH THE FOLLOWING DECISIONS ON WHICH THE ASSESSEE HAS RELIED. 24 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) A. J T CIT VS MATHURA DAS ASHOK KUMAR 101 TTJ (ALL) 810 B. ITO V RAJENDRA KUMAR TAPARIA 106 TTJ ( J D) 712 C. (2011) 16 TAXMANN.COM 262 (DELHI) DCIT V. DIVINE INTERNATIONAL D. (2010) 2 DTONLINE 134 (DELHI) HIGH COURT OF DELHI CIT V RITU ANURAG AGGARWAL E. 28 TAXMANN.COM 220 (BANGALORE TRIB) SHRIMATI VICTORIA ROBERTS VS ACIT, MYSORE F. 1 6 TAXMANN.COM 350 (DELHI) HIGH COU RT CIT V VARDHAMAN OVERSEAS LTD. THESE DECISIONS, IN OUR OPINION, SUPPORT THE CASE OF THE ASSESSEE. IN VIEW OF THIS, IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT(A) DELETING THE ADDITION. THUS, THIS GROUND STANDS DISMISSED. 1 2 . GROUND NO. 3 - THIS GROUND RELATES TO DELETION OF THE ADDITION MADE U/S 40(A)(IA) AMOUNTING TO RS.82,622/ - . 1 2 .1 WE NOTED THAT THIS ADDITION HAS BEEN DELETED BY CIT(A) ON THE BASIS OF THE DECISION IN MERILYN SHIPPING & TRANSPORTS VS. ACIT 20 TAXMANN.COM 244 (VISAKHAPATNAM TRIB.) (SB). THE SAID DECISION HAS BEEN REVERSED BY THE HON'BLE GUJARAT HIGH COURT IN TA NO. 905/2012 IN THE CASE OF CIT - IV VS. SIKANDARKHAN N. TUNVAR AS WELL AS BY THE HON'BLE CALCUTTA HIGH COURT I N GA 190 OF 2013 IN CASE OF CIT VS. CRESCENT EXPORT SYNDICATE AND CIT VS. PARK INTERNATIONAL . 1 2 .2 RESPECTFULLY FOLLOWING THE DECISIONS OF THE HIGH COURTS IN THE ABOVE CASES, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ORDER OF AO. IN THE RESULT, TH E GROUND TAKEN BY THE REVENUE STANDS ALLOWED. 25 ITA NO S . 17 &53 /PNJ/2013 (ASST. YEAR : 2007 - 08 & 2008 - 09 ) 1 3 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AND THE APPEAL FILED BY THE REVENUE ARE PARTLY ALLOWED. 1 4 . ORDER PRONOUNCED IN THE OPEN COURT ON 28 /06/2013. SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 28 / 0 6/ 2013 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , SR. PRIVATE SECRETARY, ITAT, PANAJI, GOA