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TMI Blog2013 (9) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment for the purpose of mining of iron ore, etc. In the meanwhile, the hon'ble apex court by orders dated October 30, 2002 and August 1, 2003 in I. T. A. No. 566 in Writ Petition (Civil) No. 202 of 1995 in the case of T. N. Godavarman Tirumalpad v.Union of India held that in the matter of compensatory afforestation fund, the user agencies are liable for payment of net present value for diversion of forest land for non-forest purposes under the Forest (Conservation) Act, 1980. Pursuant to the said order the Ministry of Forest and Environment, Government of India, formed guidelines in accordance with which the assessee had to make payment of Rs. 5,02,59,000 to the said fund to be eligible to continue its mining activities. The payment of Rs. 5,02,59,000 was made by the assessee towards the net present value to Compensatory Afforestation Planning and Managing Agency (CAMPA) during the period relevant to the assessment year 2004-05. The assessee in its books of account wrote off the entire amount as revenue expenses and filed its return of income for the assessment year 2004-05 on November 1, 2004 accordingly by declaring income of Rs. 2,87,22,404. The return was processed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below in so far as it is against the appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case. 2. The authorities below are not justified in law in treating an expenditure of Rs. 5,02,59,000 as capital expenditure and further failed to appreciate the fact that the expenditure incurred is in the nature of the revenue expenditure under the facts and circumstances of the case. 3. The learned Commissioner of Income-tax (Appeals) is not justified in law by making an enhancement to the income assessed by the learned Assessing Officer. Further, without prejudice, the learned Commissioner of Income-tax (Appeals) is not justified in law in directing the learned Assessing Officer not to allow amortisation of expenditure without looking into the facts and circumstances of the case. 4. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 5. In view of the above and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity." The grounds of appeal raised at S. Nos. 1, 4 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was incurred. The operative part of the order in paragraph 5 at pages 7 and 8 is extracted and reproduced hereunder: "We find force in the submission of learned counsel that payments to the government are to be paid once the mining lease is obtained and such payments are governed by various Acts along with the apex court making a ruling for State Governments to participate in the granting of mining lease by recovering compensation when their forests are uprooted. Therefore for this purpose, the funds are used for a natural regeneration which the assessee participates indirectly. Therefore at no point of time could it be said that the assessee had incurred a capital expenditure giving the assessee a benefit of enduring nature for the purpose of earning segmented income to render the same to income-tax. In other words, the authorities below have not pointed out the income generated against the purported deferred revenue expenditure so proposed by them in their impugned orders. The amount was incurred as revenue expenditure and is directed to be allowed in the year it has been incurred." Respectfully following the decision of the co-ordinate Bench of the Bangalore Tribunal, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pposed to law, weight of evidence, probabilities, facts and circumstances of the appellant's case. 2. The appellant denies itself liable to be on a total income assessed over and above the total income declared by the appellant of Rs. 46,99,74,790 under the facts and circumstances of the case of the appellant. 3. The authorities below are not justified in law in disallowing the brought forward losses of the earlier years amounting to Rs. 4,01,57,980 under the facts and circumstances of the case. 4. The authorities below are not justified in law in adding a sum of Rs. 35,99,196 under the head shortage in closing stock under the facts and circumstances of the case. 5. The authorities below are not justified in law in disallowing the payments made to ESI and PF amounting to Rs. 13,64,392 under the facts and circumstances of the case. 6. The authorities below are not justified in law in disallowing sales promotion expenses to the extent of Rs. 10,00,000 under the facts and circumstances of the case. 7. The appellant denies itself liable to be charged to interest under sections 234A, 234B and 234C of the Income-tax Act, 1961, under the facts and circumstances of the case. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying forward the losses, if any, of the assessment year 2004-05. Further, the loss returned by the assessee for the assessment year 2004-05 was not accepted in full in the assessment proceedings for the said year and in fact the income determined by the Assessing Officer was enhanced by the learned Commissioner of Income-tax (Appeals) in the appellate proceedings. We have, however, in I. T. A. No. 679/Bang/2010 (supra) allowed the appeal of the assessee and the loss, if any, determined on giving effect to our order in the said case, shall be permitted to be carried forward to the subsequent assessment years and be eligible for set off in accordance with the provisions of section 72 of the Act. In this view of the matter, this ground of appeal is allowed. The ground of appeal No. 4 challenges the addition of Rs. 35,99,186 claimed by the assessee on account of shortage in physical stock. The Assessing Officer in the course of assessment proceedings found that while valuing the closing stock as on March 31, 2005, the assessee had claimed shortages in respect of certain minerals and written off the value of the same. The Assessing Officer sought the explanation of the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. As pointed out by the Assessing Officer, it is unlikely that granite blocks, etc., could be lost due to winds or rain and the claim made by the assessee we find are certainly without any basis to establish them with any evidence. The learned Commissioner of Income-tax (Appeals) too has been categorical in his order in observing that the shortages claimed are without any basis ; that the assessee claims such shortages year on year and that nothing appears to have been done by the management to prevent such leakages. In this factual situation, we are of the considered view that the assessee's claim of shortages of closing stock cannot be accepted as except for putting forth the same explanation to us as before the authorities below, we find that the assessee has failed to bring on record any evidence to establish that such shortages had in fact occurred at all. We, therefore, having no reason to interfere with the findings of the authorities below on the issue of shortages in closing stock, dismiss the assessee's ground. The next ground at S. No. 5 is with regard to the disallowance of payments of Rs. 13,49,849 and Rs. 14,543 on account of delay in remittances of providen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were audited and expenses were vouched no disallowance was called for on an ad hoc basis. Per contra, the learned Departmental representative supported the orders of the authorities below. We have heard both parties and carefully perused the material on record. It is a matter of record and not disputed that the turnover of the assessee has increased from Rs. 58,56,28,396 in the immediately preceding year to Rs. 111,18,45,360 in the current year. We find that the sales promotion expenses have increased from Rs. 16,30,703 in the immediately preceding year to Rs. 43,36,645 in the current year. However though the accounts are said to be audited, it is noted both in the order of assessment and the order of the learned Commissioner of Income-tax (Appeals) that no details and supporting evidences have been produced to establish the expenses claimed for which the assessee has failed to discharge the onus upon it. Even before us, no details or supporting evidences have been filed to establish that the expenses on sales promotion claimed have in fact been spent. Further, interestingly, we also find that while the turnover in the immediately succeeding year relevant to the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made by the Assessing Officer for not charging interest on the amount of Rs. 2 crores paid to Vijayanagar Ispat Ltd.,although the assessee was paying interest to Kalyani Steels on borrowed funds. 5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Commissioner of Income tax (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 6. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above." The grounds raised at S. Nos. 1, 5 and 6 are general in nature and therefore no adjudication is called for thereon. The grounds at S. Nos. 2 and 3 are in respect of the deletion by the learned Commissioner of Income-tax (Appeals) of the addition of Rs. 15,51,45,117 made by the Assessing Officer on account of the difference in the sales recorded in the books of the assessee and the sales revenue accrued to the assessee on the basis of the marketing agreement with M/s. Kalyani Steels Ltd. The assessee entered into an agreement dated January 17, 2002 for extraction of iron ore at Subbarayanahalli and Jambunathahalli Mines and would pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) had erred in deleting the addition of Rs. 15,51,45,117 made by the Assessing Officer. It was submitted that the issue of rates of sales of C-ore at Rs. 253 per M.T. by the assessee to M/s. Kalyani Steels Ltd. when the market rates were quite high had been examined at length and dealt with elaborately by the Assessing Officer in the order of assessment at paragraphs 9.1 to 9.8 thereof and was wrongly deleted by the learned Commissioner of Income-tax (Appeals). It was further contended that the assessee's arguments that it was making payment as per long-term contractual agreements with Kalyani Steels Ltd. does not hold water especially for the reason that the C-ore was sold by the assessee at rates far below prevailing market rates. As per the record and media reports referred to by the Assessing Officer, it appears that the report of the Mining Scam investigated by the Karnataka LokAyukta was submitted on December 18, 2009 which mentions alleged malpractice on the part of the Minister for Mining and officials of the assessee-company. In this view of the matter, the learned Departmental representative prayed for the finding of the learned Commissioner of Income-tax (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss than that agreed to in the contract entered into with M/s. Kalyani Steels Ltd or that it has realised from M/s. Kalyani Steels Ltd. additional amounts on such sales which it had not recorded in its books. The assessee is legally bound to abide with the terms of the contractual obligations arising out of its agreement to sell C-ore to M/s. Kalyani Steels Ltd. and the contract entered into being legal and valid, it cannot be brushed aside. After taking into account the facts and circumstances of the case on this issue, we find that no evidence whatsoever has been brought on record by the Assessing Officer to establish that the assessee has realised from the sale of C-ore to M/s. Kalyani Steels Ltd. more than what is recorded in the assessee's books of account. In this view of the matter, the addition made on account of sales to M/s. Kalyani Steels Ltd. below market rate, in our considered opinion is not founded on sound and accepted accounting and legal principles and is therefore liable to be deleted. We, therefore, find no reason to interfere with the decision of the learned Commissioner of Income-tax (Appeals) in deleting the addition of Rs. 15,51,45,117. Grounds at S. Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the learned Commissioner of Income-tax (Appeals) deleting the addition of Rs. 6 lakhs made by the Assessing Officer. This ground No. 4 raised by the Revenue is, therefore dismissed. In the result, the Revenue's appeal in ITA 351/Bang/2011 is dismissed. I. T. A. No. 680/Bang/2010 and 733/Bang/2010 (assessment year 2006-07) The above are cross-appeals for the assessment year 2006-07 by both the assessee and the Revenue against the order of the Commissioner of Income-tax (Appeals)-III, Bangalore dated February 17, 2010. The facts of the case, in brief, are as under: The assessee, a Government of Karnataka undertaking engaged in the business of mining iron ore, other materials and granite, filed its return of income for the assessment year 2006-07 on November 30, 2006 declaring income of Rs. 46,99,74,790. The return was processed under section 143(1) and the case was taken up for scrutiny. The assessment was completed by an order under section 143(3) of the Act on December 22, 2008 determining the income of the assessee at Rs. 100,40,63,010 by making the following additions/disallowances. (Rs.) (i) Shortage in closing stock 1,17,71,039 (ii) Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sections 234A and 234B of the Act in the assessee's case. The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. Therefore, his action in doing so is held to be in order. The Assessing Officer is, however, directed to recompute the interest chargeable, if any, under sections 234B and 234C of the Act while giving effect to this order. In the grounds of appeal at S. Nos. 2 and 3, the assessee challenges the learned Commissioner of Income-tax (Appeals)'s order sustaining the addition of Rs. 1,17,71,039 made on account of shortage in closing stock. The very same issue was considered and decided by us in the appeal of the assessee in I. T. A. No. 350/Bang/2011 for the assessment year 2005-06 at paragraphs 12.1 to 12.4 of this order. For the reasons given therein, we follow the same for this year also and sustain the addition of Rs. 1,17,71,039 made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) on account of shortage in closing stock. In the ground of appeal at S. No. 4, the assessee challenges the disallowance of Rs. 5 lakhs made by the Assessing Officer and confirmed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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