Orissa Minerals, Cuttack V. ITO, Keonjhar

ITA 221/CTK/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0801 (ITAT-CUTTACK)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 15-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 07-06-2010
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: S N SAHU

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 221/CTK /2010 / ASSESSMENT YEAR 2005 - 06 ORISSA MINERALS, TANTO,BAHADRA SAHI,BARBIL,KEOJHAR. PAN: AAAF 07610 A - - - VERSUS - I.T.O., KEONJHAR WARD,KEONJHAR. ( /APPE LLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI S.N.SAHU, AR / FOR THE RESPONDENT: / SHRI S.C.MOHANTY, DR / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THE ASSESS EE IS IN APPEAL AGITATING DISALLOWANCE S COMPUTED BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 143(3)/147 RELATING TO EXPENSES INCURRED WHICH HAVE BEEN PARTLY GRANTED RELIEF BY THE LEARNED CIT(A). 2. THE ASSESSEE FIRM CARRIES ON THE BUSINESS OF IRON ORE, CRUSHING PLANT, FILED RETURN OF INCOME AT 5,05,430 FOR THE IMPUGNED ASSESSMENT YEAR AND WAS SUBJECTED TO SCRUTINY U/S.143(3)/147.THE ASSESSING OFFICER VERIFIED THE PURCHASES OF IRON ORE FROM LOCAL MINE OWNERS AND IRON ORE TRADERS. ON FURTHER EXAMINATION OF THE PROFIT & LOSS ACCOUNT, THE ASSESSING OFFICER SOUGHT TO DISALLOW A SUM OF 3 LAKHS PAID FOR BY THE ASSESSEE AS PERIPHERAL DEVELOPMENT EXPENSES APPLICABLE TO MINING BUSINESS IN ORDER TO COMPENSATE THE EXCAVATION IN ACCORDANCE WITH THE GOVERNMENT RULES TO CONTRIBUTE FOR RESTORATION OF THE SIT ES EXCAVATED. THE ASSESSING OFFICER OBSERVED THAT THESE EXPENSES ARE NOT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE FOR DISALLOWANCE. HE FURTHER DISALLOWED 5% FROM REPAIR AND MAINTENANCE EXPENSES CLAIMED AT I.T.A.NO. 221/CTK/2010 2 9,46,995. 10% OF GENERAL OFFICE EXPENSES AMOUNTI NG TO 57,057 AND MINING PERMISSION EXPENSES 25% BY 44,803. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THE ASSESSEE - APPELLANTS CONTENTION. ON THE ISSUE OF CLAIMING PERIPHERAL DEVELOPMENT EXPENSES, HE AGREED TO THE PROPOSITION THAT THE EXPENSES INCURRED BEING A LUMP SUM PAYMENT MADE TO THE DEPUTY DIRECTOR OF MINE, ZODA, DISTRICT KENOJHAR WAS FOR THE ASSESSEES BUSINESS REQUISITIONED BY THE GOVERNMENT AUTHORITIES VIDE THEIR LETTER DT.11.10.2004 BUT RESTRICTED THE SAM E TO 5% OF THE ASSESSEES INCOME HOLDING A VIEW THAT THE ORISSA GAZETTE HAD NOTIFIED IT TO BE 5% OF NET ANNUAL PROFIT. HE CONFIRMED THE DISALLOWANCE OF MINING PERMISSION EXPENSES FOR WANT OF DETAILS OF EXPENSES AS CLAIMED. OUT OF THE LABOUR, MAINTENANCE AN D GENERAL EXPENSES, HOWEVER, HE RESTRICTED THE DISALLOWANCE TO 5% HOLDING THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS AT A HIGHER RATE. 3. THE ASSESSEE IS IN APPEAL BEFORE US ON THIS PART RELIEF GIVEN TO THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW HAVE MISDIRECTED THEMSELVES TO HOLD THAT THE EXPENSES ARE NOT INCURRED FOR THE BUSINESS OF THE ASSESSEE INSOFAR AS THE LEARNED CIT(A) AGREED TO THE PROPOSITION THAT PERIPHERAL DEVELOPMENT EXPENSE ARE PART AND PARCEL OF THE ASSESSEES BUSINESS OF MINING AND WAS TO BE INCURRED BY THE ASSESSEE ON THE DEMAND OF DEPUTY DIRECTOR OF MINES WHICH CLINCHES THE ISSUE TO THE FACT THAT THE MINERS IN THE VICINITY ARE REQUIRED TO CONTRIBUTE TH E SAID SUMS TO A COMMON POOL OF A PERIPHERAL DEVELOPMENT FUND MAINTAINED BY THE COLLECTOR OF THE AREA TO BE INCURRED IN ACCORDANCE WITH THE GUIDELINES PROVIDED IN THE ORISSA GAZETTE WHICH COPY IS ALSO BEING FURNISHED. HE POINTED OUT THAT THE ORISSA GAZETTE CATEGORICALLY MENTIONED THE DISBURSEMENT OF THE SAID FUNDS IN ACCORDANCE WITH THE GUIDELINES WHICH TALK ABOUT 5% OF THE SAID SUM TO BE I.T.A.NO. 221/CTK/2010 3 GIVEN TO A SOCIETY OR A TRUST CONSTITUTED BY THEM TO BE SPENT FOR HEALTH, EDUCATION, COMMUNICATION, IRRIGATION AND AGRICULTURE OF THE SAID SCHEDULED AREA WITHIN A RADIUS OF 50 KMS . THIS NOTIFICATION WAS MISCONSTRUED BY THE LEARNED CIT(A) AS CAN BE PERUSED IN HIS ORDER AS OF CONTRIBUTION TO BE RESTRICTED TO 5% OF THE ACCRUED PROFIT OF THE ASSESSEE WHICH WAS PAID ON THE DEMAND OF DEPUTY DIRECTOR OF MIN ES, ZODA, DIST. KEONJHAR TO BE SPENT BY THE COLLECTOR OF THE AREA IN ACCORDANCE WITH THE CITED GUIDELINES. THE WHOLE OF THE DISALLOWANCE OF 3 LAKHS, THEREFORE, MAY KINDLY BE CONSIDERED FOR DELETION. FOR THE OTHER DEDUCTION DISALLOWED AND CONFIRMED PARTLY BY THE LEARNED CIT(A) , HE POINTED OUT THAT IT IS NOT THE CASE OF THE ASSESSEE THAT THE VOUCHERS AND DETAILS OF EXPENSES WE RE NOT AVAILABLE AS CAN BE OBSERVED THAT THE ASSESSING OFFICER HAS NOT POINT ED TO A SPECIFIC ITEM FOR DISALLOWANCE WHICH WAS NOT SUPPORTED BY ANY LEGITIMATE CLAIM. ALL THE EXPENSES ARE INCURRED FOR THE BUSINESS OF THE ASSESSEE AS CAPTIONED NAME SUGGESTS TH EREFORE HAS BEEN ARBITRARILY DISALLOWED ON THE BASIS OF PERCENTAGE. THE LEARNED CIT(A) REDUCED THE DISALLOWANCE TO 5% IN THE CASE OF LABOUR, MAINTENANCE AND GENERAL EXPENSES, WHICH MAY KINDLY BE CONSIDERED FOR DELETION COMPLETELY , IN SOFAR AS THE MINING PER MISSION EXPENSES ARE CONCERNED THE VERY FACT THAT THE SAME ARE STATUTORY EXPENSES , ARE FULLY VOUCHED AND ARE NECESSARILY INCURRED FOR THE PURPOSES OF ASSESSEES BUSINESS OF MINING MAY KINDLY BE CONSIDERED FOR DELETION IN ITS ENTIRETY. 5. THE LEARNED DR SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW. HE STATED THAT THE ASSESSEE COULD NOT PRODUCE THE DOCUMENTARY EVIDENCE FOR CLAIMING THE EXPENSES SO INCURRED THEREFORE SHOULD BE CONSIDERED ON THE BASIS OF A REASONABLE DISALLOWANCE AS CONSIDERED BY THE LEARNED A SSESSING OFFICER AND LEARNED CIT(A) . I.T.A.NO. 221/CTK/2010 4 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL PERUSAL OF THE FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT 5% TO BE SPENT FOR DEVELOPMENT OF THE AREA WAS THE RESTRICTION IMPOSED BY THE ORISSA GAZETTE TO THE COLLECTOR AND NOT THE ASSESSEE WHO WAS TO COMPUTE HIS PROFIT AFTER PAYING THE SAID SUM O N THE DEMAND BY DEPUTY DIRECTOR OF MINES IN ACCORDANCE WITH THE MINING AREA COVERED BY THE INDIVIDUAL MINERS. HAVING AGREED TO THE PROPOSITION THAT THE EXPENSE INCURRED WAS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND IS INCIDENTAL TO ITS CARRYING OUT THE MINING ACTIVITIES, T HE RESTRICTION TO THE EXPENDITURE WAS NOT WARRANTED INSOFAR AS THE ENTIRE AMOUNT HAS BEEN PAID AS PER THE DEMAND AND COPIES OF CHEQUES ISSUED IN FAVOUR OF THE PERIPHERAL DEVELOPMENT FUND MAINTAINED BY THE COLLECTOR OF THE DISTRICT. FINDING NO INFIRMITY I N THE CONTENTION OF THE LEARNED COUNSEL WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION AS CLAIMED BY ASSESSEE AMOUNTING TO 3 LAKHS. ON AL L OTHER DISALLOWANCE NAMELY MINING PERMISSION EXPENSES AND LABOUR AND MAINTENANCE AND GENERAL EXPENSES, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WAS NOT ABLE TO PROCURE THE REQUISITE DETAILS FOR FURNISHING WHEN ADHOC DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER AND PARTLY CONFIRMED AT 5% BY THE LEARNED CIT(A), WHICH WE ARE INCLINED TO CONFIRM IN VIEW OF T HE FACT THAT THE ASSESSEE HAS NOT BEEN ABLE TO FURTHER SUBSTANTIATE THE CLAIM BY ENTIRELY SUPPORT ING WITH REQUISITE DETAILS AND VOUCHERS. HOWEVER, AS HAS BEEN STATED BY THE LEARNED COUNSEL THAT MINING PERMISSION EXPENSES ARE STATUTORILY REQUIRED TO BE BORN E BY THE ASSESSEE, WE FIND NO REASON TO DISALLOW 25% THEREOF INSOFAR AS THERE IS NO HARD AND F AST RULE THAT PARTICULAR PERMISSION COULD BE OBTAINED BY PAYING ONLY 75% OF THE CLAIM. THE DISALLOWANCE OF 44,803 IS DIRECTED TO BE DELETED COMPLETELY. I.T.A.NO. 221/CTK/2010 5 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS CONSIDERED PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 18 TH FEBRUARY, 2011 S D/ - S D/ - ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 18 TH FEBRUARY, 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : ORISSA MINERALS, TANTO,BAHADRA SAHI,BARBIL,KEOJHAR. 2 / THE RESPONDENT: I.T.O., KEONJHAR WARD,KEONJHAR. 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY.