BAJINATH MELARAM, MUMBAI V. PR CIT 18, MUMBAI

ITA 1795/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1737 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Depreciation; Opportunity of being heard; Transactions in derivatives; Earning of tax free income; Corroborative evidences
• Section: 43B; 40A(3); 143(3); 54F; 43(5); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI G.S.PANNU , AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO. 1795 / M/ 1 6 ( ASSESSMENT YEAR: 2011 - 12 ) M/S. BAIJNATH MELARAM C/O.MANGALDAS D. SHAH & CO 506, LOTUS HOUSE, 5 TH FLOOR, 33 - A, NEW MARINE LINES MUMBAI - 400020 VS. PR. COMMISSIONER OF INCOME TAX 18 6 TH FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400021 PAN/GIR NO. : AAAFB2675E ( / APPELLANT ) .. RESPONDENT ) DATE OF HEARING: 08 . 0 6 .201 8 /DATE OF PRONOUNCEMENT: 30 .0 8 .2018 / O R D E R PER AMARJIT SINGH, J M: TH E ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 22.01 .2016 PASSED BY THE PR. COMMISSIONER OF INCOME TAX 18 RELEVANT TO THE A.Y.2011 - 12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND: - 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT ERRED IN PASSING ORDER U/S.263 OF THE IT ACT WH ICH SHOULD BE CANCELLED. (B) THE LEARNED CIT ERRED IN HOLDING THAT, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2. THE LEARNED CIT ERRED IN STATING THAT, THE AO HAS NOT MADE PROPER INQUIRIES IN RESPECT OF ISSUES RAISED WHICH IS CONTRARY TO THE FACTS AND EVIDENCE TO THE RECORD. 3. THE LEARNED CIT ERRED IN ISSUING NOTICE TWICE DATED 09.05.2014 AND 26.10.2015. 4. THE LEARNED CIT ERRED IN PASSING ORDER U/S.263 WHICH IS REVIEW OF THE ORDE R PASSED BY THE A.O. AND IGNORING THE FACT ASSESSEE BY: SHRI DHIRENDRA M. SHAH DEPARTMENT BY: SHRI N. P. SINGH & B.S.BIST THAT, THE A.O. HAD MADE DETAIL AND PROPER INQUIRY AND THEREAFTER PASSED THE ORDER U/S.143(3). 5. THE LEARNED CIT ERRED IN STATING THAT EVIDENCE WAS NOT FURNISHING THE SUBSTANTIAL CLAIM OF BURNING LOSS. THE LEARNE D CIT ERRED IN NOT CONSIDERING THE VARIOUS DECISIONS MENTIONED AND FILED IN SUPPORT OF CLAIM OF DEDUCTION ON ACCOUNT OF BURNING LOSS. THE LEARNED CIT ERRED IN STATING THAT, THE BURNING LOSS CANNOT BE ACCEPTED WITHOUT BRINGING ANY MATERIAL AND OR ANY EVIDE NCE IN SUPPORT OF THE SAME. THE APPELLANT PRAYS THAT, THE BURNING LOSS AS CLAIMED BE ALLOWED IN FULL. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT ERRED IN DIRECTING THE (A.O.) TO DISALLOWED THE EXERCISE DUTY. WITHOUT APPRECIATIN G THE CORRECT DETAILS ON RECORD. THE APPELLANT PRAYS THAT, THE DIRECTION GIVEN TO DISALLOW SUCH PAYMENT U/S.43B BE CANCELLED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT OF ASSESSEE WAS COMPLETED ON 31.03.2014 U/S.143(3) OF THE INCOME TAX ACT, 1961 ( IN SH ORT THE ACT) FOR THE A.Y.2011 - 12 DETERMINING THE TOTAL INCOME TO THE TUNE OF RS.5,05,12,360/ - AGAINST THE RETURNED INCOME OF RS.5,02,97,045/ - . THE RECORD WAS EXAMINED AND THE FOLLOWING PRIMA FACIE ERRORS BEING PREJUDICIAL TO THE INTEREST O F REVENUE WERE FOUND: - (I) ON PERUSAL OF ANNEXURE - L ATTACHED TO THE 3CV REPORT OF COMPULSORY AUDIT MADE U/S.44AB, IN RESPECT OF QUANTITATIVE DETAILS OF GOODS DEALT IN VESSAL AT BHAWNAGAR, THE ASSESSEE HAS SHOWN BURNING LOSS OF 10.35% AT 3942 M.T. WHICH IS A PPARENTLY ON A HIGHER SIDE IN THE SHIP BREAKING OPERATION. GENERALLY, SHIPS ARE MADE OF A STEEL AND WOODEN MATERIAL AND IT IS NOT UNDERSTOOD AS TO HOW BURNING LOSS OF 10.35% CAN HAPPEN. BURNING LOSS 1 TO 2% MAY HAVE HAPPENED DURING THE COURSE OF GAS CUTT ING OF IRON MATERIAL. THE ASSESSING OFFICER HAS NOT RAISED ANY QUESTION ON THE EXCESS CLAIM OF BURNING LESS. (II) FURTHER, FROM THE DETAILS OF EXCISE PAD AND MODVAT CLAIMED VIDE ANNEXURE - I, ATTACHED TO THE 3CB REPORT OF COMPULSORY AUDIT MADE U/S.44AB, IT IS NOTED THAT THE CLOSING BALANCE OF THE ASSESSEE WAS AT RS.4.30 CR. AND 11.58 LAKHS RESPECTIVELY OF EXCISE DUTY AND CESS APPEARING AS RECOVERABLE ON THE ASSETS SIDE OF THE BALANCE SHEET. IN THE FOOT NOTE TOT EH SAME, IT IS MENTIONED BY THE ASSESSEE THA T SEPARATE EXCISE DUTY ACCOUNT IS MAINTAINED & ACCORDINGLY IT IS NOT PASSED THROUGH P & L ACCOUNT. OUTSTANDING BALANCE IN EXCISE DUTY IS SHOWN AS ADVANCES RECOVERABLE IN THE BALANCE SHEET. AS A MATTER OF FACT, EXCISE DUTY AND CESS ARE PART AND PARCEL OF THE TRADING ACCOUNT. IF THE EXCISE DUTY AND CESS WOULD HAVE BEEN THE PART OF TRADING ACCOUNT, THE RECOVERABLE AMOUNT OF EXCESS EXCISE DUTY AND CESS PAID WOULD HAVE APPEARED ON THE CREDIT SIDE AND HAS AN ENHANCING EFFECT ON PROFIT TO THAT EXTENT. (III) FRO M THE DETAIL OF TRANSPORTATION PLACED ON RECORD, IT IS FOUND THAT AMOUNT EXCEEDING RS.20,000/ - HAS BEEN PAID ON A SINGLE DAY TO SOME OF THE TRANSPORTERS CONTRAVENING PROVISION OF SECTION 40A(3). 4. THE AO HAS LOST SIGHT OF MAKING PROPER ENQUIRIES ON THE A BOVE SAID ISSUES. THEREAFTER THE NOTICE DATED 09.05.2014 AND ANO THER NOTICE DATED 14.10.2015 WERE ISSUED AND THE RELEVANT PORTION OF THE SAID NOTICE IS HEREBY REPRODUCED AS UNDER: - ON PERUSAL OF THE MATERIAL BROUGHT OR, RECORD, IN THE COURSE OF ASSESSMEN T PROCEEDINGS IN YOUR CASE IN A.Y. 2011 - 12, THE FOLLOWING DISCREPANCIES ARE FURTHER FOUND: (I) FROM THE DETAIL OF TRANSPORTATION PLACED ON RECORD, I FIND THAT AMOUNT EXCEEDING RS. 20, OOO/ - HAS BEEN PAID ON A SINGLE DAY TO SOME OF THE TRANSPORTERS CONTRAVENING PROVISION OF SECTION 40A(3). THE OBJECT OF THE ABOVE PROVISION IS TO CHECK EVASION OF TAXES SO THAT THE PAYMENT IS MADE FROM THE DISCLOSED SOURCES AND VIDE AMENDMENT TO THE PROVISIONS OF SECTION 40A(3) OF THE INCOME - TAX ACT, SECTION 40A(3)(A) OF THE INCO ME - TAX ACT, 1961 IT IS PROVIDED THAT ANY EXPENDITURE INCURRED IN RESPECT OF WHICH PAYMENT IS MADE OF A SUM EXCEEDING RS. 20,000/ - OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR BY AN ACCOUNT PAYEE BANK DRAFT, SHALL NOT BE ALLOWED AS A DEDUCTIO N. IT IS SEEN THAT THE A. O. HAS NOT APPLIED HIS MIND AT THE TIME OF THE PASSING OF THE ASSESSMENT ORDER, AS TO THE APPLICABILITY OF SECTION 40A(3) ON THE 'TRANSPORTATION EXPENSES . (II) FROM THE DETAIL OF TRANSPORTATION EXPENSES PLACED ON RECORD, I ALSO FIND THAT THE PAN OF 19 PARTIES TO WHOM PAYMENTS WERE MADE ARE WRONG AND PAN IN THEIR CASES PERTAIN TO SOME OTHER PERSONS. THE PROVISION OF SECTION 40(A)(IA) SR. NO. NAME OF THE PARTIES TO WHOM TRANSPORTATION EXPENSES WERE PAID PAN OF THE PARTIES TO WHOM PAYM ENTS WERE MADE AMOUNT IN (RS.) STATUS OF PAN/NAME OF THE PAN HOLDERS 1 GOHIL KISHORSINH PRABHATSINGH AKQPG6564P 30,265 WRONG PAN 2 M A LOGISTICS BROPS0243R 5,33,645 WRONG PAN 3 MOHANSINH BHURUBHA GOHIL AHHEG5011F 32,230 WRONG PAN 4 RIZVANBHAI NURANI AJ KPD7142GF 28,785 WRONG PAN 5 SARVAIYA ABBASBHAI CGUPF6560H 28,620 WRONG PAN 6 VASUDEVSINH JADEJA AQHPJ4732C 13,750 WRONG PAN 7 GURUKRUPA TRANSPORT AKUPG2269F 3,17,455 RAMRAJSIN PRADYUMAN SINH 8 GURUKRUPA TRANSPORT AIIPG0572H 64,400 9 HARBHOLE TRANSPO RT ALWPC5668B 8,945 SUKHDEVBHAI DESHALJIBHAI CHAUHAN 10 HARI OM TRANSPORT ABJPR3651E 38,869 KANAIYALAL NARAYANDAS RAJI 11 KESRINANDAN TRANSPORT ALTPG7463M 16,000 SURJIT SINGH MAHAVIRSINH GOHIL 12 MATRUKRUPA TRANSPORTS AGVPG7037L 6,16,980 YOGENDRA SINGH BHUNBHARCHIL 13 MOMAIKRIPA TRANSPORT AMAPC6874G 11,900 LALABHAI BHAKABHAI CHOSLA 14 POOJA ROADLINES ADLPP6295L 1,98,154 VIJAYKUMAR PATEL 15 RAFIKBHAI BABUBHAI VIRANI AIYPB7298R 33,025 TAMBE SHREENIVASA BIJESH 16 RAJVI ROADLINES AHDPG6573G 12,64,515 RAM DEVSINH CHANDRA SINH GOHIL 17 SHARDA GOODS AEDPY3155R 15,02,475 DHOLA RAM YADAV 18 SHARDA GOODS ADQPJ4197E 19,600 INDRAJEET SINH 19 SIT ARAM TRANSPORT AHSPJ0636J 8,960 DIVESH SINH HARUBHA JADEJA (III) AS PER PROVISION OF SECTION 71 OF THE I.T.ACT, CURRENT YE ARS LOSS UNDER ANY HEAD OF INCOME CAN BE SET OFF AGAINST INCOME UNDER ANY OTHER HEAD SUBJECT TO CERTAIN EXCEPTIONS. LOSS FROM SPECULATION BUSINESS IS ONE OF THOSE EXCEPTIONS AND CANNOT BE SET OFF FROM OTHER HEADS OF INCOME. IT IS SEEN FROM THE PROFIT AN D LOSS ACCOUNT THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS.1,17,29,996/ - AND RS.5,44,714/ - BEING LOSS INCURRED DURING THE COURSE OF TRADING IN COMMODITY TRADING AND LOSS ON CURRENCY TRANSACTIONS RESPECTIVELY. IT IS ALSO NOTICED FROM THE CONTRACTS NOTE THAT ASSESSEE IS NOT AN INVESTOR, BUT TRADES IN DERIVATES WHICH IS IN THE NATURE OF SPECULATION BUSINESS. IN THE LIGHT OF PROVISION QUOTED, LOSS SUSTAINED IN COMMODITY TRADING CANNOT BE SET OFF AND THE SAME HAS THUS, RESULTED IN UNDERASSESSMENT OF INCOME OF RS .1,22,74,710/ - . (IV) IT IS SEEN FROM THE BOGUS REGISTER THAT IN MOST OF THE CASES PAYMENT TO EMPLOYEES IS MADE AFTER OBTAINING THUMB IMPRESSION WHICH CASTS DOUBT THAT WORKERS ARE ILLITERATE AND DO NOT KNOW HOW TO WRITE THEIR NAMES OR PUT THEIR SIGNATURES. A FE W APPARENT MISTAKES COMMITTED WHILE PREPARING THE ABOVE REGISTER NOTICED ARE GIVEN BELOW WHICH SHOW THAT ALL PAYMENTS MAY NOT BE GENUINE. NAME PERIOD OBSERVATION NIRANJAN KUMAR, DRIVER 1/3/2011 TO 31/3/2011 HIS DESIGNATION IS DRIVER AND HIS THUMB IMPRESSI ON HAS BEEN OBTAINED. IT IS HARD TO BELIEVE THAT A DRIVER CANNOT WRITE HIS NAME WHEREAS, TO OBTAIN DRIVING LICENCE IT IS COMPULSORY THAT A PERSON CAN READ & WRITE (SR.NO.76) CHAITU ALI 1/6/2010 TO 30/06/2010 AND 1/9/2010 TO 30/9/2010 THE NAME IS SPELT DI FFERENTLY IN TWO DIFFERENT PERIODS, AS MENTIONED. A PERSON MAY NOT COMMIT SUCH MISTAKES. MORE OVER WRITING ARE ALSO DIFFERENT. (SR.NO.23 AND 54) SETBHAN SINGH, DRIVER 1/9/2010 TO 30/6/2010 AND 1/3/2011 TO 31/3/2011 THE NAME IS SPELT DIFFERENTLY IN TWO D IFFERENT PERIODS, AS MENTIONED. A PERSON MAY NOT COMMIT SUCH MISTAKES. MORE OVER WRITING ARE ALSO DIFFERENT. (SR.NO.56 AND 70) DINDAYAL PANDEY 1/6/2010 TO30/6/2010 AND 1/9/2010 TO 30/9/2010 IN JUNE, THE PERSON HAS SIGNED AND IN SEPTEMBER THUMB IMPRESSIO N IS PUT AGAINST HIS NAME (SR. NO.2 BOTH PERIOD) WHEN BONUS FIGURES OF SEPTEMBER 2010 ARE COMPARED WITH THE MONTH OF JUNE, 2010 IT IS NOTICED THAT IN MOST OF THE CASES THUMB IMPRESSION HAS BEEN OBTAINED IN SEPTEMBER WHEREAS, THE SAME PERSON IN JUNE, HAS S IGNED THE ROLL 5. AFTER CONSIDERING THE REPLY OF THE ASSESSEE , THE CASE WAS REOPENED BY MAKING THE OBSERVATIONS WHICH IS HEREBY REPRODUCED BELOW: - 8. AFTER CAREFUL CONSIDERATION OF THE ENTIRE SUBMISSION OF THE ASSESSEE, I FIND THAT VISIONS QUOTED BY THE ASSESSEE ARE PRIMA FACIE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE IN VIEW OF THE MATERIAL DIFFERENCES IN THE FACTS DISCUSSED IN THE SUCCESSIVE PARAS. 8.1 IN REGARD TO THE FIRST POINT ON THE ISSUE OF EXCESS CLAIM ON A/C OF BURNING LOSS , IT HAS BEEN STATED BY THE ASSESSEE THAT 'THE PERCENTAGE OF BURNING LOSS IS IN COMMENSURATE WITH THE SHIP BREAKING INDUSTRY, WHICH HAVE BEEN ACCEPTED OVER SEVERAL YEARS AND IS AS PER THE ACCEPTED GUIDELINES OF THE INDUSTRY. THE OBSERVATION THAT THE CONDEMNED SHIPS ARE MADE OF STEEL AND WOODEN MATERIAL ONLY IS NOT CORRECT. IT ALSO CONTAINS IRON PLATES, ETC., THE LEARNED ASSESSING OFFICER CONSIDERING THE NATURE OF SHIP BREAKING INDUSTRY, LOSS ON CUTTING AND CONSIDERING THE PAST RECORDS AND AWARE OF VARIOUS JUDICIAL DECISI ONS, THE TRADE PRACTICE, THE BURNING LOSS OF 10.35% HAS BEEN ACCEPTED. IN FACT SUCH LOSS IS LESS THAN EARLIER YEARS. THUS, IT IS NOT CORRECT THAT THE OFFICER HAS NOT RAISED ANY QUERY AS TO QUANTITY REALIZED/SOLD ON PURCHASE OF SHIPBREAKING. AS STATED ABOVE SPECIFIC QUERIES WERE RAISED, FURTHER, YOU HAVE ROT GIVEN ANY EVIDENCE AS TO YOUR PERSONAL OPINION OF BURNING LOSS OF 1 TO 2% MAY HAVE HAPPEN'. 8.1.1 THE EVIDENCE PRODUCED BY THE ASSESSEE RELATING TO THE CLAIM OF BURNING LOSS, HAS BEEN PERUSED AND FOUN D THAT NO DOCUMENTARY EVIDENCE WAS FURNISHED TO SUBSTANTIATE THE CLAIM OF BURNING LOSS, THAT IS HOW AND WHY THE SAID LOSS OCCURS. FURTHER, REGARDING THE QUANTITATIVE DETAILS OF GOODS DEALT IN VESSEL AT BHAWNAGAR, ASSESSEE HAS FAILED TO SUBMIT CONCRETE EVID ENCE IN SUPPORT OF BURNING LOSS, AS WELL AS COPY OF PURPORTED DECISIONS IN ITS FAVOUR AS MENTIONED IN HIS REPLY. IT IS A FACT THAT SHIPS CONTAIN (IN - BUILT AND ON BOARD) HAZARDOUS AND NON - HAZARDOUS SUBSTANCES, SIGNIFICANT BOTH IN QUANTITY AND TOXICITY, WHIC H CANNOT (OR SHOULD NOT) BE TOTALLY REUSED OR RECYCLED. SHIPBREAKING IS THE PROCESS OF DISMANTLING AN OBSOLETE OCEAN - GOING VESSEL FOR SCRAP AND REUSABLE PARTS, WHILE DISPOSING OF THE REMAINING UNWANTED MATERIALS. ON AVERAGE, THE OVERALL WASTE GENERATED BY THE SHIPBREAKING PROCESS IS BETWEEN ONE - HALF OF A PERCENT TO TEN PERCENT OF THE SHIP'S TOTAL WEIGHT, AND MOST OF THAT MAY BE COMPRISED OF HAZARDOUS MATERIALS. PROBABLY, THE ASSESSEE HAS CLAIMED A HIGHER WEIGHT LOSS/BURNING LOSS AND THEREBY SUPPRES SED THE S ALES OF SCRAP. IN VIE W OF ABOVE MENTIONED FACTS, THE ASSESSEE'S CLAIM OF BURNING LOSS CANNOT BE ACCEPTED AND MAY BE RESTRICTED AFTER EXAMINING THE PROCESS OF SUCH LOSS AS AGAINST 10.35% CLAIMED BY THE ASSESSEE. THEREFORE, DISALLOWANCE OF THE SAME WAS DEFI NITELY CALLED FOR U/S.37(1) OF THE I.T. ACT, 1961. I, ACCORDINGLY DIRECT THE AO TO EXAMINE THE ABOVE MENTIONED ISSUE THOROUGHLY AND DECIDE THE PERCENTAGE OF BURNING LOSS. 8.2 IN RESPECT OF THE SECOND POINT RELATING TO ISSUE OF RECOVERABLE AMOUNT OF EXCE SS EXCISE DUTY AND CESS PAID OUGHT TO HAVE APPEARED ON THE CREDIT SIDE OF THE P&L AL C AND THE SAME HAS ENHANCING EFFECT ON PROFIT OF THE BUSINESS TO THAT EXTENT, IT HAS BEEN STATED BY THE ASSESSEE THAT 'THE AMOUNT OF EXCISE DUTY PAID ON SHIP PURCHASE IS DE BITED TO EXCISE DUTY A/C AND AMOUNT RECOVERED ON SALE IS DEDUCTED AS 'EXCISE DUTY UTILIZED AGAINST SALE'. THIS ACCOUNT IS NOT ROUTED THROUGH P&L A/C. THE BALANCE IN THIS ACCOUNT IS SHOWN ON ASSET SIDE OF BALANCE SHEET AS. 'ADVANCES AND RECOVERABLE' 8.2.1 I HAVE GONE THROUGH THE SUBMISSION OF THE ASSESSEE CAREFULLY. NORMALLY THE EXPENSES ARE ALLOWABLE IN THE YEAR OF ACCRUAL OF EXPENSES IF A MERCANTILE SYSTEM OF ACCOUNTING IS FOLLOWED BY THE ASSESSEE. THERE IS ONE EXCEPTION PROVIDED IN SECTION 43B OF THE I T ACT. IT WAS INSERTED W.E.F. 1 - 4 - 1984 TO DISCOURAGE TAXPAYERS WHO DID NOT DISCHARGE THEIR STATUTORY LIABILITY FOR LONG PERIOD BUT CLAIMED DEDUCTION ON ACCRUAL BASIS. FROM A CAREFUL PERUSAL OF THE PROVISIONS MADE IN SECTION 43B OF THE ACT, IT CAN BE SAID T HAT SECTION 43B CAN BE APPLIED ONLY WHEN THE TAX OR DUTY HAS BEEN CLAIMED AS EXPENDITURE, BUT THE SAID TAX HAD NOT BEEN PAID. A.O. IS DIRECTED TO FIND OUT THE AMOUNT OF EXCISE DUTY & SERVICE TAX AND OTHER CESS ON THE PURCHASES MADE BY THE ASSESSEE DURING T HE RELEVANT YEAR AND OUT OF THAT (EXCISE DU TY ETC.) , THE AMOUNTS DEPOSITED BY THE ASSESSEE IN THE GOVT. ACCOUNT BEFORE THE DUE DATE OF THE FILING THE RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. IF ANY EXCISE DUTY, CESS ETC. IS FOUND UNPAI D BY THE ASSESSE E BY THE ABOVE DATE , AO SHO ULD DISALLOW THE SAME U/S 43B OF THE ACT. '' 8.3. AS FAR AS THE THIRD POINT IN RESPECT OF ISSUE OF CONTRAVENING THE PROVISION OF SECTION 40A(3) IN RESPECT OF TRANSPORTATION EXPENSES IS CONCERNED, IT HAS BEEN STATED BY THE ASSESSEE THAT ''THE PAYMENT IS MADE FOR DIFFERENT TRUCKS, AND SINE PAYMENT PER TRUCK DOES NOT EXCEED RS. 20,000/ - . FURTHER, HAVING REGARD TO THE N ATURE OF PAYMENT MADE TO THE TRUCK DRIVER AND KEEPING IN BUSINESS CONSIDERATION AND TH E CIRCUMSTANCES SUCH PAYMENTS ARE MADE. THERE IS NO CONTRAVENTION OF SECTION 40 A(3). AS PER THE PROVISIONS OF SECTION 40A(3) THE PAYMENTS MADE F OR TRANSPORT CHARGES ARE ALLOWABLE'. 8.3.1 THE EVIDENCE PRODUCED BY THE ASSESSEE HAS BEEN PERUSED AND FOUND THAT AMOU N T EXCEEDING RS7~20,000/ - HAS BEEN PAID ON A SINGLE DAY TO SOME OF THE TRANSPORTERS CONTRAVENING PROVISION OF SECTION 40A(3). THE OBJECT OF THE ABOVE PROVISION IS TO CHECK EVASION OF TAXES SO THAT THE PAYMENT IS MADE FROM THE DISCLOSED SOURCES AN D VIDE AMENDMENT TO THE PROVISIONS OF SECTION 40A(3) OF THE INCOME - TAX ACT IN SECTION 40A(3)(A) OF THE INCOME - TAX ACT, 1961 IT IS PROVIDED THAT ANY EXPENDITURE INCURRED IN RESPECT OF WHICH PAYMENT IS MADE OF A SUM EXCEEDING RS. 20,0007 - OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR BY AN ACCOUNT PAYEE BANK DRAFT, SHALL NOT BE ALLOWED AS A DEDUCTION . IT IS SEEN THAT THE A.O. HAS NOT APPLIED HIS MIND AT THE TIME OF THE PASSING OF THE ASSESSMENT ORDER, AS TO THE APPLICABILITY OF SECTION 40A(3) ON THE TRANSPORTATION EXPENSES. I, THEREFORE, DIRECT THE AO TO VERIFY THE SAME AND DISALLOW THE SAID EXPENSES ACCORDINGLY. 8.4 AS FAR AS THE FOURTH POINT IN RESPECT OF ISSUE OF CONTRAVENING THE PROVISION OF SECTION 40A(IA) IN RESPECT OF THE PAN OF VARIOU S PARTIES TO WHOM PAYMENTS WERE MADE ARE WRONG AND PAN IN THEIR CASES PERTAIN TO SOME OTHER PERSONS IN RESPECT OF TRANSPORTATION EXPENSES IS CONCERNED, IT HAS BEEN STATED BY THE ASSESSEE THAT 'THE PAN NOS. ARE GIVEN AS MADE AVAILABLE TO US BY THE TRUCKERS AND AS MENTIONED IN THEIR LORRY RECEIPT(TRANSPORT BILL). PAN NOS. ARE IN NAME OF INDIVIDUAL AND NOT IN NAME OF THE FIRM OF WHICH THEY ARE PROPRIETOR, THEREFORE, PROVISIONS OF SECTION 40(A)(IA) ARE NOT ATTRACTED. THE PAYMENT OF THE TRANSPORT CHARGES REFERR ED TO ARE PAID DURING THE YEAR AND NOT OUTSTANDING AT THE END OF THE YEAR.(RELIANCE IS PLACED ON CIT V. VECTOR SHIPPING SERVICES PVT. LTD. 357 ITR 642(AII)'. 8.4.1 ON PERUSAL OF THE ASSESSEE'S SUBMISSION , IT APPEARS THAT PAN OF FOLLOWING 5 PARTIES OUT OF 19 PARTIES (MENTIONED IN PARA (II) OF THIS OFFICE LETTER DTD. 14.10.2015)TO WHOM PAYMENTS WERE MADE ARE WRONG AND PAN IN THEIR CASES PERTAIN TO SOME OTHER PERSONS. THE DETAILS OF THE SAME ARE AS FOLLOWS: SR. NO NAME OF THE PARTIES T O WHOM TRANSPORTATION EXPENSES WERE PAID PAN OF THE PARTIES TO WHOM PAYMENTS WERE MADE AMOU NT IN (RS.) STATUS OF PAN/ NAME OF THE PAN HOLDERS EVIDENCE SUBMITTED BY THE ASSESSEE: INVOICE ISSUED BY EVIDENCE SUBMIT TED BY THE ASSESSEE: PAYMENT MADE TO 1 GOHIL KISHORSINH PRABHATSINGH AKQPG6564P 30,265 WRONG PAN JAY LAXMI ROAD LINES BHAVNAGAR (COMMISSION AGENT) PAN AIVPM9525H DRIVER PRABHAT SINH KISHOR SINH GOHIL PAN: AKQPG6564 P 2 M OHANSINH BHURUBHA GOHIL AHHEG5011F 32,230 WRONG PAN MATRUKRUPA TRANSPORT BHAVNAGAR PAN AGVPGF 037 7. MOHAN SINH BHURUBHA GOHIL PAN AHHEG5011 F 3 RIZVANBHAI NURANI AJKPD7142GF 28, 785 WRONG PAN RAMESH ROADWA YS PAN BZBPM6848M RIZVANBHAI NOORANI PAN ADGPN3469 B 4 SARVAIYA ABBASBHAI CGUPF6560H 28, 620 WRONG PAN GURUKRUPA TRANSPORT PAN AKUPG2269F SARVAIYA ABBASBHAI PAN CGUPS6560 H 5 RAFIKBHAI BABUBHAI VIRANI AIYPB7298R 33,025 TAMBE SHREENIVA SA BIJESH GURUKRUPA TRANSPORT AGENT PAN AKUPG2269F RAFIKBHAI BABUBHAI VIRANI PAN A/YPB7298R THE PROVISION O F SECTION 40A(IA), THUS, IS FOUND TO HAVE BEEN CONTRAVENED. I, THEREFORE , DIRECT THE AO TO DISALLOW THE SA ME U/S.40A(IA) OF THE ACT. 8.5 AS FAR AS THE FIFTH POINT IN RESPECT OF ISSUE OF LOSS FROM SPECULATION BUSINESS IS CONCERNED, IT HAS BEEN STATED BY THE ASSESSEE THAT 'THE TRADING IN COMMODITY IS ON FUTURE AND OPTION BASIS WHICH IS DERIVATIVE BUSINESS AND A S PER SECTION 43(5) IT IS NOT A SPECULATIVE TRANSACTION AND IT IS ELIGIBLE TRANSACTION ' AS PER EXPLANATION TO THE SECTION CAUSED BY THE FORWARD CONTRACTS (REGULATION) ACT'. 8.5.1 THE EVIDENCE PRODUCED BY THE ASSESSEE IN THE ABOVE REGARD HAS BEEN PERUSED . IT IS SEEN FROM THE PROFIT AND LOSS ACCOUNT THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS. 1,17,29,996/ - AND RS. 5.44.714/ - BEING LOSS INCURRED ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 8 DURING THE COURSE OF TRADING IN COMMODITY TRADING AND LOSS ON CURR ENCY TRANSACTIONS RESPECTIVELY.IT IS ALSO NOTICED FROM THE CONTRACTS NOTE THAT ASSESSEE IS NOT AN INVESTOR, BUT TRADES IN 1 DERIVATES (F & O)WHICH IS IN THE NATURE OF SPECULATION BUSINESS. IN THE AUDIT REPORT, IT IS CLEARLY MENTIONED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF SHIP BREAKING AND DEALING IN IRON AND STEEL. FROM THE STATEMENT OF CURRENCY TRANSACTION, IT APPEARS THAT THE SAID TRANSACTION PERTAINS TO THE PERIOD FROM 24.8.2010 TO 15.12.2010 \ ND COMMODITY TRANSACTIONS PERTAINS TO THE PERIOD FROM 10.5.2010 TO 01.03.2011AND PURCHASE & SALE OF F & O TRANSACTIONS OCCUR WITHIN A SPAN OF ONE MONTH. SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE P URCHASEOR SALE OF ANY COMMODITY, INCLUDING STOCK S AND SHARES, IS PERIODICALLY OR TIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. 8.5.2 IN THE LIGHT OF PROVISION QUOTED, LOSS SUSTAINED IN COMMODITY TRADING(F&O) CANNOT BE SET OFF AND THE SAME HAS THUS, RESULTED IN UNDER OF IN COME OF RS.1,22,74,710/ - .I, THEREFORE, DIRECT TH E AO TO DISALLOW THE ASSESSEE'S CLAIM OF SET OFF LOSS. 8.6. AS FAR AS THE SIXTH POINT IN RESPECT OF ISSUE OF PAYMENT TO EMPLOYEES REFLECTED IN THE BONUS REGISTER IS CONCERNED, IT HAS BEEN STATED BY THE ASSESSEE THAT 'THE PAYMENTS ARE MADE TO THE EMPLOYEE WHO ARE ALSO COVE RED UNDER THE PROVIDENT FUND AND REGISTERED AS REGULAR EMPLOYEE. THEY ARE ILLITERATE. SOME CAN SIGN/ WRITE THEIR NAME ONLY AND NO MORE. FOR BEING DRIVER THERE IS NO EDUCATION OR LITERACY REQUIRED. THEY ARE REQUIRED TO PASS TEST AS PER M. V. ACT TO QUALIFY FOR DRIVER AND I N MOFUSSII AREA, MOST OF THEM KNOW AND POSSESS DRIVING SKILL THROUGH EXPERIENCE THOUGH THEY ARE ILLITERATE'. 8.6.1 I HAVE GONE THROUGH THE SUBMISSION OF THE ASSESSEE CAREFULLY, HOWEVER, THE ASSESSEE'S ARGUMENT IS NOT ACCEPTABLE. UNDER THE R TO ACT, IT IS MANDATORY FOR ALL / THE LICENCE HOLDERS TO UNDERSTAND THE TRAFFIC RULES/SYMBOLS AND THEY SHOULD BE CAPABLE TO WRITE & READ THE LOCAL DIALECT. FURTHER. WHEN BONUS FIGURES OF SEPTEMBER 2010 ARE COMPARED WITH THE MONTH OF JUNE 2010, IT IS NOTICE D THAN IN MOST OF THE CASE? THUMB IMPRESSION HAS BEEN OBTAINED IN SEPTEMBER WHEREAS , THE SAME PERSON , HAS SIGNED THE ROLL IN THE MONTH OF JUNE. THEREFORE, AMOUNT PAID TO NIRANJAN KUMAR, CHAITU ALI, SETBHAN SINGH & DINDAYAI PANDEY (PERIOD MENTIONED IN PARA (IV) OF THIS OFFICE LETTER DTD. 14.10.2015) ARE SUSPICIOUS IN NATURE . I, THEREFORE, DIRECT THE AO TO LOOK INTO THE MATTER. 8.7 I ALSO RELY ON THE FOLLOWING DECISIONS WHEREIN PROCEEDINGS U/S 263 OF THE ACT, HAVE BEEN UPHELD BECAUSE OF LACK OF ENQUIRY A ND INVESTIGATION INTO A MATERIAL TRANSACTION DURING THE COURSE OF ASSESSMENT PROCEEDINGS: 1. IN THE CASE OF CIT VS. JAWAHAR BHATTACHARJEE(2012) 342 ITR007 - 4,WHILE REVERSING THE ORDER OF THE ITAT, CALCUTTA ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 9 HIGHCOURTVIDEORDER DTD. 29.2.2012 HAS HELD THAT CIT HAS CLEARLYCONCLUDEDTHATORDERWAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND CALLED FOR EXERCISE OF REVISIONS! JURISDICTION. VALID REASONS FOR EXERCISE OFJURISDICTION HAVE BEEN GIVEN. INTERFERENCE BY CIT WAS NOT MERELYONGROUND THAT A DIFFEREN T VIEW COULD BE TAKEN BUT ON GROUNDTHATTHEREWAS FAILURE TO FOLLOW ESTABLISHED NORMS AND THEREBEINGNON - APPLICATION OF MIND. REASONS GIVEN BY CIT INCLUDING THE ONE THAT THERE WAS UNUSUAL JUMP OF PRICES FROM RS. 6 PER SHARE TO RS. 200 PER SHAREWITHINA SPAN OF 13 MONTHS WHICH COULD NOT BE HELD TO BE EXPLAINED WITHOUT EXAMINING THE SELLERS AND BUYERS AND MAKING FURTHER ENQUIRIES IS RIOT SHOWN TO BE IRRELEVANT. TRIBUNAL COMMITTED ERROR OF LAW IN IGNORING THIS ASPECT. SECTION 263 IN PRESENT CASE HAS NOT BEEN EXERCI SED MERELY ON GROUND THAT AO SHOULD HAVE GONE DEEPER INTO MATTER BUT BY POINTING OUT THAT AO HAD FAILED TO APPLY HIS MIND IN ALLOWING BENEFIT U/S 54F BY ACCEPTING GENUINENESS OF CAPITAL GAIN. 2. IN THE CASE OF P.V.SREENIJIN VS. CIT(CENTRAL)(2014) 106 DTR 087,WHILE DECIDING THE VALIDITY OF NOTICE ISSUED BY THE CIT U/S 263 OF THE ACT, IN THE WRIT FILED BY THE ASSESSEE, KERALA HIGH COURT VIDE ORDER DTD. 30.05.2014 HAS HELD THAT COMMISSIONER FOUND THAT ORDER WAS ERRONEOUS FOR REASON OF AO HAVING NOT APPLIED H IS MIND TO A NUMBER OF FACTUAL ASPECTS AVAILABLE IN RECORDS. COMMISSIONER HAD NOT ATTEMPTED A SUBSTITUTION OF HIS OPINION TO THAT OF AO. FURTHER, HE HAD TAKEN COGNIZANCE OF 'LACK OF ENQUIRY' WITH RES PECT TO CERTAIN TRANSACTIONS AS DISTINGUISHED FROM 'INSUF FICIENT ENQUIRY'. NO INTERFERENCE CAN BE MADE AT OF SHOW CAUSE NOTICE. HENCE, IMPUGNED NOTICES WERE ISSUED WITHIN POWERS OF COMMISSIONER U/S 263 OF THE ACT. 3. IN THE CASE OF CIT VS. PARASMAL JAIN(2012) 249CTR 0534, WHILE REVERSING THE ORDER OF THE ITAT, GAUHATI HIGH COURT VIDE ORDER DTD. 29.2.2012 HAS HELD THAT ORDER OF AO SUFFERS FROM NON - APPLICATION OF MIND. AO FAILED TO MAKE BASIC ENQUIRY, REQUIRED TO BE MADE WHEN THERE WAS UNUSUAL INCREASE OF PRICES OF SHARES PURCHASED BY ASSESSEE BY CASH AND ID ENTITY OF PERSONS FROM WHOM SHARES WERE PURCHASED AND TO WHOM SHARES WERE SOLD, WAS NOT ASCERTAINED, NOR BROKER EXAMINED. SHARES WERE NOT OF WELL KNOWN COMPANY AND POSSIBILITY OF UNDISCLOSED INCOME BEING INTRODUCED IN FORM OF CAPITAL GAIN WAS NOT RULED OUT . CASE WAS CLEARLY WITHIN PURVIEW OF EXERCISE OF SUO - MOTU REVISIONAL JURISDICTION. OBSERVATION OF TRIBUNAL THAT SINCE AS MANY AS 7 HEARINGS HAD TAKEN PLACE AND THAT CIT COULD NOT HAVE RAISED AN OBJECTION TO MANNER OF ASSESSMENT, WERE UNSUSTAINABLE IN LAW A ND NOT WARRANTED BY LEGAL REQUIREMENT U/S 263 FOR EXERCISE OF SUO - MOTU REVISIONAL JURISDICTION. 4. IN THE CASE OF CIT VS. ANAND KUMAR JAIN(2015) 370 ITR 140,WHILE UPHOLDING THE VALIDITY OF ORDER U/S 263 OF THE ACT, ALLAHABAD HIGH COURT VIDE ORDER DTD.03.11 .2014 HAS HELD THAT ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 10 UNDER SECTION 263, THE TEST IS WHETHER THE COMMISSIONER HAS ANY MATERIAL ON THE BASIS OF WHICH HE CONSIDERS THAT AN ORDER PASSED BY AN ASSESSING OFFICER IS 'ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENU E'. IT IS WELL SETTLED THAT EVERY LOSS OF REVENUE IN CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN ASSESSING OFFICER ADOPTS ONE OF THE COURSES PERMISSIBLE IN LAW OR W HERE TWO VIEWS ARE POSSIBLE OF WHICH THE ASSESSING OFFICER HAS TAKEN ONE VIEW, THE COMMISSIONER CANNOT EXERCISE JURISDICTION U/S 263 MERELY BECAUSE HE DOES NOT AGREE WITH THE VIEW OF THE ASSESSING OFFICER UNLESS THE VIEW WHICH IS TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. ON THE OTHER HAND, WHERE AN ORDER HAS BEEN PASSED BY THE ASSESSING OFFICER WITHOUT APPLICATION OF MIND OR WHERE THE ASSESSING OFFICER HAS MADE AN INCORRECT ASSESSMENT OF FACTS OR AN INCORRECT APPLICATION OF LAW, THAT WOULD SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AS REGARDS THE WORDS 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE', THE SUPREME COURT HAS HELD THAT IF DUE TO AN ERRONEOUS ORDER OF THE ASSESSING OFFICER THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, II WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN THE PRESENT CASE, THE PLAIN READING OF THE ORDER OF THE AO INDICATE THAT THERE HAS BEEN NO APPLICATION OF MIND BY THE ASSESSING OFFICER. 5. IN THE CASE OF CIT VS ASHOK L OGANI (2012) 347 ITR 22, WHILE REVERSING THE ORDER OF THE ITAT, DELHI HIGH COURT VIDE ORDER DATED 11.5.2011, HAS UPHELD THE ORDER OF CIT AND HELD THAT CIT WAS JUSTIFIED IN EXERCISING HIS POWERS U/S 263 AND GIVING ANOTHER CHANCE TO ASSESSEE TO EXPLAI N HIS CASE. TRIBUNAL WAS NOT JUSTIFIED IN UNDERTAKING THE EXERCISE BY ITSELF ABOUT THE EXPLANATION TENDERED BY ASSESSEE. 6. IN THE CASE OF TATA B.P.SOLAR INDIA LTD.VS.ADDL.CIT(2011) 139TTJ 0289, ITAT VIDE ORDER DTD. 30.10.2010 HAS HELD THAT THE AO DID NOT RAISE ANY SPECIFIC QUERY REGARDING ASSESSEE'S CLAIM. IN ANY EVENT HE OUGHT TO HAVE BEEN CALLED FOR DETAILS FROM THE ASSESSEE. NOT DOING SO WAS A FAILURE ON THE PART OF THE AO TO MAKE ENQUIRIES WHICH WERE NECESSARY IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE CIT WAS THEREFORE, RIGHT IN EXERCISING JURISDICTION U/S 263 OF THE ACT. 9. IN VIEW OF THE DISCUSSION MADE ABOVE, I HAVE NO OTHER OPTION LEFT OTHER THAN TO SET ASIDE THE ASSESSMENT ON THE ABOVE POINTS. FOR THE REASONS MENTIONED ABOVE, THE INCOME TAX ASSESSMENT ORDER PASSED BY THE A.O. IS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HENCE, I DIRECT THE ASSESSING OFFICER TO REFRAME THE ASSESSMENT ORDER FOR A.Y.2011 - 12, AND EXAMINE THE ABOVE MENTIONED POINTS DISCUSSED IN PA RA 8 ABOVE AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 11 6. THE ASSESSING OFFICER WAS DIRECTED TO EXAMINE THE ABOVE MENTIONED ISSUES AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE IN ACCORDANCE WITH LAW. THE ASSESSEE WAS NOT SATISFIED, THEREFORE, FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1 TO 11: - 7. ALL THE ISSUES ARE IN CONNECTION WITH THE REOPENING OF THE CASE OF THE ASSESSEE U/S.263 OF THE ACT ON THE GROUND OF EXCESS CLAIM ON ACCOUNT OF BURNING LOSS AND ON ACCOUNT OF RECOVERABLE A MOUNT OF EXCESS EXCISE DUTY AND CESS PAID HAVING ON THE CREDIT SIDE OF THE PROFIT & LOSS ACCOUNT WHICH WAS ENHANCING EFFECT ON PROFIT OF THE BUSINESS TO THAT EXTENT AND ON ACCOUNT OF CONTRAVENING OF PROVISION U/S.40A(3) IN RESPECT OF TRANSPORTATION EXPENSE S AND ON ACCOUNT OF ISSUE OF LOSS FROM SPECULATION BUSINESS AND ON ACCOUNT OF ISSUE OF PAYMENT TO THE EMPLOYEES REFLECTED IN THE BONUS REGISTER. ALL THESE ISSUES ARE NOWHERE DISCUSSED AND DECIDED WHILE PASSING THE ASSESSMENT ORDER DATED 31.03.2014 BY THE AO. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE A CT AND THE ASSESSING OFFICER HAD ALREADY INQUIRED THE MATTER ON ALL THE SUBJECTS WHICH WAS PROPERLY CONVEYED TO THE ASSESSEE BY VIRTUE OF LETTER DATED 14.11.201 3. AT THE TIME OF ASSESSMENT U/S 143(3) OF THE ACT , THE ASSESSING OFFICER ISSUED THE NOTICE DATED 17.10.2013 WHICH IS HEREBY REPRODUCED BELOW FOR READY REFERENCE, WHICH MAY CLEAR T HIS FACT THAT WHETHER THE AO HAD ALREADY CONDUCTED THE PROPER AND ADEQUATE INQUIRY UPON THE SUBJECT MENTIONED IN THE NOTICE OR NOT : - TO, ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 12 M/S. BAJINATH MELARAM 43, RAMWADI, KALBADEVI ROAD, MUMBAI 400002 / . . PAN NO.AAEFB 2675 E SUB: SCRUTINY ASSESSMENT IN YOUR CASE FOR AY 2011 - 12 - REG. SIR/MADAM, PLEASE REFER TO THE ABOVE. IN RESPECT OF SCRUTINY ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 FOR AY 2011 - 12 IN YOUR CASE, YOU ARE REQUESTED TO FUR NISH THE FOLLOWING: - 1. LETTER OF AUTHORIZATION. 2. WHAT IS THE NATURE OF BUSINESS OF YOUR PARTNERSHIP CONCERN. FURNISH COMPLETE ADDRESS OF ALL OFFICE PREMISES & GODOWNS. STATE WHETHER THESE ARE OWNED OR RENTED. 3. PLEASE FURNISH GROSS PROFIT / NET PROFIT MARGIN SHOWN WITH CORRESPONDING TURNOVER FOR THE CURRENT AND PAST FIVE YEARS IN THE FOLLOWING FORMAT: - TURNOVER GROSS PROFIT (BEFORE DEPRECIATIO N) G.P.MARGIN (BEFORE DEPRECIATIO N) NET PROFI T N.P.MARGI N A.Y.(CURRENT) A.Y.(PRECEDIN G - 1) A.Y.(PRECEDIN G - 2) REASONS FOR ALL IN GROSS PROFIT MARGIN, IF ANY, MAY BE EXPLAINED WITH SUPPORTING EVIDENCES. 4. FURNISH DETAILS OF PURCHASES ABOVE RS.10,00,000/ - MADE DURING THE YEAR IN THE FOLLOWING FORMAT NAME& ADDRESS OF THE PARTY FROM WHOM PURCHASES ARE MADE PRODUC TS PURCHASED QUANTITY AMOUNT OF PURCHASES DURING THE YEAR AMOUNT PAID BALANCE PAYABLE 1 2 3 4 5 6 5. FURNISH DETAILS OF SALES ABOVE RS.10,00,000/ - MADE DURING THE YEAR IN THE FOLLOWING FORMAT NAME& ADDRESS OF THE PARTY TO WHOM PRODUCTS SO LD QUANTITY AMOUNT OF SALES DURING THE YEAR AMOUNT RECEIVED BALANCE RECEIVABLE ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 13 PURCHASES ARE MADE 1 2 3 4 5 6 6. SOURCES OF CAPITAL INTRODUCED DURING THE YEAR. 7. AS REGARDS ACQUISITION OF VARIOUS FIXED ASSETS DURING THE YEAR, PLEASE FURNISH INFORMATION IN THE FOLLOWING FORMAT. NAME & ADDRESS OF THE SUPPLIER DESCRIPTION OF THE ASSET BILL NO. & DATE PLACE WHERE INSTALLED DATE OF INSTALLATIO N DATE OF ACTUAL USE COST OF ASSETS DEPRECIATION CLAIMED RATE AT WHICH CLAIMED 1 2 3 4 5 6 7 8 PLEASE PRODUCE THE ORIGINAL BILLS, TRANSPORT RECEIPTS AND DELIVERY NOTES FOR VERIFICATION. 8. FURNISH DETAILS, PAN & LEDGER A/C OF COMMISSION / BROKERAGE EXPENSES WITH TDS APPLICABILITY THEREOF. ALSO EXPLAIN THE NEXUS OF COMMISSION / BROKERAGE EXPENSES VIS - - VIS BUSINESS. WHAT NATURE OF SERVICES THEY HAVE PROVIDED. 9. EXPLAIN FLC CHARGES OF RS.42,22,866/ - WITH EVIDENCE. 10. DETAILS OF INTEREST PAYABLE OF RS.29,91,023/ - WITH RATE OF INTEREST AND DATE OF PAYMENT. 11. DETAILS OF LIC KEY MEN POLICY OF RS.9,93,299/ - WITH EVIDENCE. 12. DETAILS OF TRANSPORTATION EXPENSES OF RS.1,03,97,637/ - WITH TDS APPLICABILITY. 13. DETAILS OF LOSS OF COMMODITY TRANSACTION OF RS.1,17,29,996/ - WITH EVIDENCE. 14. LEDGER A/C OF WAGES & BONUS, BANK INTEREST A/C. (PAID), TRAVELLING EXPENSES, GOODS SHIFTING CHARGES. 15. CREDITORS CONFIRMATION FROM M/S. YALU MBA INC. OF RS.52,57,76,550/ - (21,51,90,300 + RS.31,05,86,250/ - ). 16. ALSO FURNISH CONFIRMATION FROM CREDITORS VIZ SEVERSTAL EXPORT GMBH OF RS.5,89,12,097/ - . 17. GIVE DETAILS OF THE SECURED LOANS IN THE FOLLOWING FORMAT: SR. NO. AMOUNT OF LOAN TAKEN NAME AND ADDRE SS OF BANK / FINANCIAL INSTITUTION AMOUNT OF SECURITY PLEDGED / VALUE OF HYPOTHECATION OF STOCK DETAILS OF COLLATERAL SECURITY OFFERED NAME AND ADDRESS OF THIRD PARTY 1 2 3 4 5 6 18. FURNISH MONTH - WISE DETAILS OF OPENING STOCK, PURCHASE, SALES AND CLOSI NG STOCK OF DIFFERENT MATERIALS INDICATE QUANTITY AND VALUE. ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 14 19. GIVE DETAILS OF THE BANK ACCOUNT INCLUDING F.D.S IN THE FOLLOWING FORMAT. NAME & ADDRESS OF THE BANK WITH BRANCH ACCOUNT NO./TYPES OF ACCOUNT INTEREST RECEIVED / ACCRUED AND CLOSING BALANCE A S ON 31.03.2011 1 2 3 IN RESPECT OF OVER - DRAFT ACCOUNT, GIVE DETAILS OF SECURITIES PLEDGED. 20. SHOW CAUSE WHY DISALLOWANCE U/S.14A R.W.R.8D SHOULD NOT BE MADE CONSIDERING YOU HAVE EARNED EXEMPT INCOME. 21. FURNISH DETAILS OF YOUR INCOME - TAX ASSESSMENTS FO R THE EARLIER 5 YEARS IN THE FOLLOWING FORMAT: A.Y . INCOME RETURNE D INCOME ASSESSE D NATURE OF ADDITIO N AMOU NT OF ADDITIO N RESUL T OF 1 ST APPEA L RESUL T OF 2 ND APPEA L ARREAR S DUE 1 2 3 4 5 6 7 8 IN CASE APPEAL IS PENDING, THE SAME SHOULD BE MENTIO NED AGAINST THE RELEVANT COLUMN. 22. RECONCILE THE AIR/CIB INFORMATION (COPY ENCLOSED). YOU ARE REQUESTED TO FURNISH ALL THE ABOVE DETAILS WITH A PAGE - WISE INDEX OF THE DETAILS CALLED FOR, AND APPEAR BEFORE THE UNDERSIGNED EITHER IN PERSON OR THROUGH AN AUTHO RISED REPRESENTATIVE ON 30.10.2013 AT 10.30A.M. PLEASE NOTE THAT FAILURE ON THE PART OF AN ASSESSEE TO COMPLY WITH THE TERMS OF THIS NOTICE WILL ENTAIL EX - PARTE ASSESSMENT AND MAY FURTHER ENTAIL PENALTY OR EVEN PROSECUTION AS PER THE PROVISIONS OF THE INC OME TAX ACT, 1961. (ANAM BENISH) ASSTT. COMMISSIONER OF INCOME TAX 14(3) MUMBAI. ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 15 8. HOWEVER, IN PURSUANCE OF THE SAID LETTER THE ASSESSEE REPLIED TO THE QUERY RAISED BY THE ASSESSING OFFICER WHICH IS HEREBY REPRODUCED B ELOW: - FROM M/S.BAIJNATH MELARAM 43, RAMWADI, KALBADEVI ROAD, MUMBAI 400 002. DT: 14/11/2013 TO, THE ASSTT. COMMISSIONER OF INCOME TAX WARD 14(3) NARIMAN POINT, MUMBAI DEAR SIR, REG: PAN NO.AAEFB2675E SUB: ASST. PROCEEDING FOR A.Y.2011 - 12 --------------------------------- WITH REFERENCE TO THE ABOVE PROCEEDING AND WITH REFERENCE TO THE ADJOURNED HEARING ON 21 ST INST., AND IN COMPLIANCE TO YO UR LETTER DT:17/10/2013 WE MAKE DETAIL SUBMISSIONS AS UNDER: - 1. LETTER OF AUTHORITY IS FILED AND ON RECORD. 2. THE NATURE OF BUSINESS AND SYSTEM OF ACCOUNTING REMAINS THE SAME AS IN THE EARLIER YEARS. WE CARRYON BUSINESS OF TRADING IN IRON AND STEEL SHEETS ROLL S, COILS AND BARS AND ALSO SHIP BREAKING. WE HAVE HEAD OFFICE AT MUMBAI AND BRANCH AT ALANG, BHAVNAGAR. THE PARTICULARS OF ADDRESSES OF ALL OFFICE AND PROMISES AND GODOWN IS ENCLOSED HEREWITH AS ANNEXURE - 1 GIVING ALSO DETAILS AS TO WHETHER PREMISES ARE REN TED OR OWNED. 3. THE PARTICULARS OF GROSS PROFIT / NET PROFIT MARGIN WITH CORRESPONDING TURNOVER FOR THE LAST FIVE YEARS INCLUDING CURRENT YEAR IS ENCLOSED - ANNEXURE - 2. ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 16 KINDLY NOTE, IN OUR TRADE THERE IS HEAVY FLUCTUATIONS DEPENDING ON VARIOUS FACTORS INCLUDIN G EXCHANGE RATE, GOVT. POLICY ETC., IT WILL BE SEEN THAT, THERE IS SWING OF G.P.RATE FROM ( - )1.53 TO 4.23 TO 10.37 AND N.P. RATE FROM ( - ) 3.17 TO 4.1 THIS YEAR. KINDLY NOTE TOTAL QUANTITY DETAILS WITH SUPPORTING DETAILS ARE MAINTAINED. THE TOTAL TURNOVER THIS YEAR IS RS.1,24,07,63,234/ - AS AGAINST LAST YEAR OF RS.82,63,97,648/ - THAT IS THERE IS SUBSTANTIAL INCREASE IN SALE TURNOVER BY ABOUT 50%. THERE IS ALSO INCREASE IN GROSS PROFIT WHICH IS RS.8,97,52,192/ - AS AGAINST RS.8,56,72,680/ - LAST YEAR. 4. DETAILS OF PURCHASES ABOVE RS.10,00,000/ - (TEN LAKHS) IN THE FORMAT ASKED FOR IS ENCLOSED. ANNEXURE - 3. 5. DETAILS OF SALES ABOVE RS.10,00,000 (TEN LAKHS) IN THE FORMAT AKSED FOR IS ENCLOSED. ANNEXURE - 4 . 6. REGARDING NEW CAPITAL INTRODUCED DURING THE YEAR, ONE OF THE PA RTNER MELARAM BAIJNATH HAS INTRODUCED ADDITIONAL CAPITAL AS PER DETAILS GIVEN IN THE LEDGER COPY OF CAPITAL A/C. ENCLOSED. THESE AMOUNTS ARE WITHDRAWN BY HIM FROM HIS PERSONAL SAVINGS BANK A/C. WITH PUNJAB NATIONAL BANK, ZAVERI BAZAR BR., COPY OF LEDGER A /C. ALONGWITH PHOTOCOPY OF PERSONAL PASSBOOK IS ENCLOSED. ANNEXURE - 5. 7. DURING THE YEAR WE HAVE DONE SUBSTANTIAL MAJOR REPAIRS OF ALANG OFFICE WHICH EXPENSES ARE CAPITALIZED AS ADDITION TO BUILDING. THE DETAILS OF ALL SUCH REPAIRS, AND ALSO ADDITION OF OTHER ASSETS WITH SUPPORTING BILL IN THE FORMAT IS ENCLOSED. ANNEXURE - 6. 8. THE PARTICULARS OF COMMISSION / BROKERAGE PAID GIVING DETAILS OF NAME, ADDRESS, PAN NOS. AMOUNT PAID AND TDS DEDUCTED IS ENCLOSED. ANNEXURE - 7. THE BROKERAGE / COMMISSION IS PAID FOR LOANS / FINANCE ARRANGEMENT MADE AND ON SALE OF GOODS. THESE AGENTS / BROKERS, NEGOTIATE AND PROCURE SALE ORDERS ON OUR BEHALF. THE FINANCE BROKERS ARRANGE LOANS OTHER FINANCE FACILITY FOR OUR WORKING CAPITAL. FOR PROVIDING SUCH SERVICES BROKERAGE IS PAID. ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 17 9. TH E FLC CHARGES (FOREIGN LETTER OF CREDIT) ARE LEVIED BY BANK FOR OPENING/GIVING LC (LETTER OF CREDIT) FACILITY AND WHEN PAYMENTS ARE MADE. THE DETAILS OF FLC CHARGES, DATEWISE WITH NAME OF THE BANK AND PURPOSE FOR WHICH PAID WITH AMOUNT PAID IS ENCLOSED, WI TH SAMPLE COPY BANK ADVISE / VOUCHERS FOR LEVY OF SUCH CHARGES ENCLOSED. ANNEXURE - 8 10. THE DETAILS OF INTEREST PAYABLE WITH NAME, AMOUNT, TDS DEDUCTED AND DATE OF PAYMENT IS ENCLOSED. KINDLY NOTE, THE INTEREST IS PAID DURING THE YEAR HOWEVER BY MISTAKE IT I S TYPED AS PAYABLE. ANNEXURE - 9. 11. DETAILS LIC KAYMAN POLICY OF RS.9,93,299/ - IS ENCLOSED WITH PROOF OF PAYMENT OF LIC ANNEXURE 10. 12. DETAILS OF TRANSPORTATION EXPENSES OF RS.1,03,97,637/ - GIVING PARTICULARS OF NAME OF TRANSPORTER, AMOUNT PAID WITH THEIR IT P AN NO. IS ENCLOSED ANNEXURE 11. NO TDS IS DEDUCTED AS, AS PER THE RULES, THE TRANSPORTER HAS GIVEN THEIR IT PAN NOS. 13. THE DETAILS OF COMMODITY TRANSACTION WITH LEDGER ACCOUNT IS ENCLOSED. ANNEXURE - 12. BROKERS BILLS ARE PRODUCED. PHOTOCOPY OF CERTAIN BIL LS (AS SAMPLE) ENCLOSED. 14. LEDGER ACCOUNT OF FOLLOWING IS ENCLOSED AS ASKED FOR ANNEXURE - 13 (I)/(II)/(III)/IV. (I) WAGES AND BONUS OF RS.90,01,529. (II) BANK INTEREST PAID (III) TRAVELLING EXPENSES RS.3,76,949 (IV) GOODS SHIFTING CHARGES RS.18,46,222 15. THE DETAIL COPY OF LEDGER A /C. OF YALUMBA INC. C/O.NO.5, SHENTON WAY, 10 - 02, ULC BUILDING, SINGAPORE IS ENCLOSED ANNEXURE - 14. 16. THE DETAIL COPY OF LEDGER A/C. OF SEVERSTAL EXPORT GMBH, SASCHERGASSE 36362, STANSTAV, SWITZERLAND, ENCLOSED ANNEXURE - 15. 17. PARTICULARS OF LOANS TAKEN IS A PER THE DETAILS. ANNEXURE - 16. THE LOANS ARE FROM PUNJAB NATIONAL BANK, ZAVERI BAZAR BR. MUMBAI AND CAR LOAN FROM BHAVNAGAR BR., ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 18 COPIES OF LOAN SANCTION LETTER ENCLOSED IN SUPPORT. CAR LOAN IS SECURED AGAINST CAR PURCHASE. OTHER LOANS ARE AGAINST SECURITY AS MENTIONED IN SANCTION LETTER. 18. MONTH WISE DETAILS OF PURCHASE AND SALE WITH DETAILS OF OPENING STOCK AND CLOSING STOCK OF GOODS WITH QUANTITY AND VALUE ENCLOSED ANNEXURE - 17. 19. DETAILS OF BANK ACCOUNTS IN THE FORMAT ENCLOSED. ANNEXURE - 17. THERE IS NO SEPARAT E OVERDRAFT ACCOUNT. IT IS SHOWN UNDER THE HEAD SECURED LOAN A/C. UNDER SERIAL NO.17 20. REGARDING APPLICABILITY OF DISALLOWANCE U/S.14A, R.W.R8D, YOUR ATTENTION IS INVITED TO TAX AUDIT REPORT ANNEXURE - F. KINDLY NOTE, DURING THE YEAR TOTAL EXEMPT INCOME EAR NED IS RS.22,743/ - . WE HAVE NOT DIVERTED ANY INTEREST BEARING LOAN FOR SUCH INVESTMENT. IN FACT THERE IS NET INTEREST INCOME OF RS.1,11,60,501/ - (15744898 LESS 4584397). FURTHER NO DIRECT OR INDIRECT EXPENSES INCURRED FOR EARNING SUCH DIVIDEND INCOME WH ICH IS DIRECTLY CREDITED TO BANK A/C. UNDER ECS SYSTEM. 21. THE DETAILS OF ASSESSMENTS OF EARLIER YEAR IS AS PER RECORD. DETAILS ENCLOSED. ANNEXURE - 19. 22. THE RECONCILIATION STATEMENT IS BEING SUBMITTED HEREWITH. WE HOPE THIS IS TO YOUR SATISFACTION. THANKING YOU. YOURS FAITHFULLY, FOR M/S. BAIJNATH MELARAM SO FAR AS THE FIRST REASON IN CONNECTION WITH RAISING THE QUESTION ABOUT THE BURNING LOSS OF 10.35% AT 3942 M.T. SEEMS TO BE HIGHER SIDE IS CONCERNED, THE ASSESSEE HAS REPLIED THAT IN THE EARLI ER ASSESSMENT YEAR THE BURNING LOSS WAS ALMOST IN THE SAME RATIO I.E. IN THE YEAR OF 2008 - 09 10.97%, 2009 - 10 10.46%, 2010 - 11 ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 1 9 10.78% AND 2011 - 12 10.35%. IT WAS ALSO CONTENDED THAT IN ALL THE ASSESSMENT YEARS, THE ASSESSMENT WAS COMPLETED AFTER SCRU T INY AND NATURE OF TRADE REMAINED THE SAME AND NATURE OF CONDEMNED SHIP / VESSEL PURCHASED / ACQUIRED FOR SHIP BREAKING IN ALL YEARS WERE MORE OR LESS WHICH WERE OIL TANKER, OIL/CHEMICAL CARRIER, TANKER AND BULK CARRIER AND THE PERCENTAGE OF BURNING LOSS WA S IN COMMENSURATE WITH THE SHIP BREAKING INDUSTRY WHICH HAD BEEN ACCEPTED OVER SEVERAL YEARS. AFTER THE INQUIRY , THE BURNING LOSS WAS ACCEPTED TO THE EXTENT OF 10.5% ON THE BASIS OF EARLIER YEARS. THE AO RAISED THE QUERY AND EXAMINE D THE MATTER. SO FAR AS A MODVAT CLAIM IS CONCERNED , THE SAID CLAIM WAS DULY RAISED IN THE NOTICE DATED 17.10.2013 BEFORE THE ASSESSEE WHICH WAS ALSO REPLIED. DETAILS OF BOOKS OF ACCOUNTS AND LEDGER ACCOUNT WAS ALSO PRODUCED WHICH WAS VERIFIED BY THE AO. SO FAR AS THE QUERY OF SECTION 40A(3) IS CONCERNED , THE DETAILS OF DATE - WISE LEDGER ACCOUNT AND PARTICULARS OF GIVING DETAILS OF NAME, AMOUNT AND I.T.PAN NO. OF TRANSPORTER WERE PRODUCED AND N O TDS WAS REQUIRED TO BE MADE. NEEDLESS TO SAY THAT , THIS ASPECT WAS EXAMINED BY THE AO. SO FAR AS CONTRAVENTION OF SECTION 40A(3) IS CONCERNED , THIS QUERY WAS ALSO RAISED BY THE AO BY VIRTUE OF LETTER DATED 17.10.2013 AND EXAMINED . ON ACCOUNT OF ISSUE OF LOSS FROM SPECULATION AND ISSUE OF PAYMENT TO EMPLOYEES REFLECTED IN THE BONUS REGI STER IS CONCERNED, THE RELEVANT DETAILS WERE PRODUCED BEFORE THE AO WHICH WERE ASKED BY VIRTUE OF LETTER DATED 17.10.2013. IT SEEMS THAT THE MATTER WAS PROPERLY INQUIRED AND LOOKED INTO BY THE AO BY RAISING THE QUERY BY VIRTUE OF LETTER DATED ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 20 17.10.2013. IT SHOULD BE APPARENT ON RECORD THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WHILE PASSING THE ORDER U/S.263 OF THE ACT, IT IS NECESSARY ON THE PART OF THE AUTHORITY TO SHOW THE ERRONEOUS ORDER OF THE AO BUT IT IS ALSO NECESSARY TO SHOW THE FACT THAT THE ORDER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ON APPRAISAL OF THE ORDER DATED 31.03.2014 , WE FIND THAT THE AO NOWHERE DISCUS SED ALL THE ISSUES IN THE ORDER . I T IS NOT NECESSARY TO REFLECT EACH AND EVE RYTHING IN THE ASSESSMENT ORDER BUT THE IMPORTANT THING IS THAT THE MATTER WAS QUESTIONED BY THE AO AND REPLIED BY THE ASSESSEE AND THEREAFTER THE AO PASSED THE ORDER. NON DISCUSSION THE ISSUES IN THE ORDER NOWHERE VITIATE THE ORDER IN VIEW OF THE PROVISI ON U/S.263 OF THE ACT AND IN THIS REGARD WE ALSO FOUND SUPPORT LAW SETTLED IN 241 TAXMAN 255 (BOM) IN CASE OF CIT VS. NIRAV MODI AND 385 ITR 592 (KARN) IN CASE OF CIT VS. SUBHASH KABINI POWER CORPORATION LTD. AND 372 ITR 303 (BOM) CIT VS. FINE JEWELLERY (I NDIA) LTD. AND IN ITA NO.2690/M/2016 IN CASE OF SHRI NARAYAN TATU RANE VS. ITO WARD 27(1)(1) AND IN ITA NO.987/PN/2013 IN CASE OF M/S.MUDHOL LAND HOLDING COMPANY PVT. LTD. VS. CIT 1, PUNE AND IN ITA NO.1921/M/2015 IN CASE OF M/S.HOTEL MAYFAIR PVT. LTD.VS . CIT, CENTRAL - I. TAKING INTO ACCOUNT OF ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT HAS PASSED THE ORDER U/S.263 OF THE ACT WRONGLY AND ILLEGALLY WHICH IS NOT LIABLE TO BE SUSTAINABLE IN THE EYES OF LAW, THEREFORE, WE SET ASIDE THE ITA NO. 257 /MUM/2013 ASSESSMENT YEAR: 20 0 6 - 07 21 OR DER DATED 22.01.2016 IN QUESTION AND ACCORDINGLY ALLOWED THE APPEAL OF THE ASSESSEE. 5 . IN THE RESULT, APPEAL OF THE ASSESSEE IS HEREBY A LLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 30.08 .2018 SD/ - SD/ - ( G. S. PANNU ) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED : 30.08.2018 MP COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. / BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI