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TMI Blog2014 (8) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... income of Rs. 2,03,55,300/-. During the course of assessment, the Assessing Officer observed that the Mining division of the assessee sold iron ore to its group concern viz. M/s. Ramcanta Velingkar Minerals (100% EOU). The Assessing Officer observed that as per the description on the invoices, the assessee has sold Iron Ore Fines/Lumpy to the said Ramcanta Velingkar Minerals having around 54-54% iron content. The assessee was asked to provide the grade-wise list of purchase and sales data which is reproduce in Assessment Order as under: PURCHASE DATA: PURCHASE OF ORE-MINING DIVISION: S. No. Name of the party (SELLER) Quantity(MT) Grade Unit Rate (Rs./MT) Total Cost (Rs.) 1 Mr. M.S. Rege 20,871.300 47.60 480 10,41,985 2 Mr. M.S. Rege 17,062.400 47.90 480 8,51,755 3 Mr. M.S. Rege 3011 48.30 510 1,59,703 4 Mr. M.S. Rege 22,537.500 47.80 480 11,25,072 5 Mr. M.S. Rege 3,946 48 510 2,09,296 6 Mr. M.S. Rege 22,731 47.50 480 11,34,771.45 7 Mr. M.S. Rege 4,011 48.20 510 2,12,743.45 Purchase of Ore-EOU Division: Sl. No. Name o the party Address Quantity Grade Rate Total Cost+VAT 1 Atchuta V.S. Velingkar (Secorda Mine) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , M/s Ramacants Velingkar Minerals has started to claim the deduction. It was found that as mentioned in the above quoted provisions there existed a relating and close connection between the assessee and one of the buyer M/s Ramacanta Velingkar Minerals as presented below: M/s Velingkar Brothers Assessee firm S. No. Partner's name Profit sharing ratio(%) 1. Atchuta V.S. Velingkar 10 2. Ramacanta V.S. Velingkar 10 3. Vishnum N.S. Velingkar 15 4. Anilkumar N.S. Velingkar 15 5. Prafulla N.S. Velingkar 7.5 6. Dinesh N.S. Velingkar 15 7. Vasudeva A.S. Velingkar 10 8. Dattararaj Velingkar 10 9. Gaurav P.S. Velingkar 7.5 M/s Ramacanta Velingkar Mineral Buyer S. No. Partner's name Profit sharing ratio(%) 1. Sh. Vasudeva A.S. Velingkar 20 2. Sh. Dattaraj R.S. Velingkar 20 3. Gaurav P.S. Velingkar 20 4. Diptip N.S. Velingkar 20 5. Avinas N.S. Velingkar 20 To bring on record the missing details regarding the physical features of the ore purchases, all the purchases invoices were asked for. From the purchase invoices the following clear picture emerged with respect to the purchases made from associated/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were proposed to be made were unknown. The same is not correct as the details were given on 20.12.2010 and placed on record. In the third paragraph of the reply produced by the assessee, notice has been brought on Chapter X which enumerates on the Sections 92 to 94 dealing with Transfer pricing. Transfer pricing is applicable only to, international transactions and not to domestic transaction. By mentioning about the Transfer pricing provisions, the assessee is only trying to deviate away from the issue. There was no mention about the Sections 92 to 94 in the order sheet noting made by me. The noting only mentioned about the recalculation of profit based on the fair market price. In the last paragraph of the letter, the assessee had accepted the estimate of Rs. 300/- for the ROM ore. Only after ensuring the correctness of the factual matrix as per the assessee's own invoices, it has been concluded that there exists an arrangement wherein it has resulted in the eligible unit of the assessee (ie) M/s. Ramacanta Velingkar Minerals making more than the ordinary profits; subsequently the AO of the sister firm M/s. Ramacanta Velingkar Minerals proceeded to compare the rates with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a related/closely connected firm/party by which while the profits of the seller-unit that is not eligible for any tax deductions, the buyer-firm that is eligible for deduction u/s10B of the IT Act, is able to make more than ordinary profits. This is a classic case of an assessee working through the system in such a way that even the benign provisions of the IT Act offering tax deductions and exemptions are exploited and in fact abused to a significant extent resulting in a huge revenue loss for the exchequer. This case is clearly covered by the provisions of S. 10B(7) of the IT Act. If we go by the names as provided in the invoices S.80-IA(8) is applicable; or if we go by what the assessee claims and consider the supplier is actually the firm, then S.80-IA(10) is applicable. In any of these two scenarios the working of the revised profit remains the same. Accordingly, given below is the working of the recomputed sales value and thereby the revised income for the assessee: S. No. Name of the party(SELLER) as per invoices Quantity (MT) Description Grade% Unit Rate (Rs/MT) claimed Total Cost (Rs.) Estd. Rate (Rs/MT) Estd. Total Cost (Rs.) 1. Mr. Ramacanta V.S. Velingka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above, to support its contention, the appellant has placed reliance on many judicial pronouncements. Among, these, worth mentioning is the order of the Hon'ble Apex Court in the case of CIT V/s. A. Raman and Co. (1968) 67 ITR 11 (SC) wherein it was held that ITO cannot have reason to believe that income had escaped assessment for purpose of 147 (b) on the plea that income which could have been earned by the assessee firm was not earned and earned by the assessee firm was not earned and by a subterfuge or contrivance, part of that income was earned by the HUF, whose kartas were partners of the assessee firm: there being no case that HUF's were benamidars of the assessee. Similarly in the case of CIT V/s Calcutta Discount 91 ITR 8 (SC) the Hon'ble Supreme Court held that when one trader transfers his goods to another trader at a price less than the market price, the taxing authority cannot take into consideration the market price of these goods, ignoring the rea1 price fetched. In the instant case, the appellant has sold its product at the market price and therefore in my opinion, the addition was not justified. The A.O. is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is basis'. The said ROM included many impurities such as mud, silica, stones sulfur, boulders, etc. The Assessing Officer has applied the rates of processed fine ore. The Sale price of ROM cannot be applied equated with that of finished goods. Therefore, AO is not justified in his action. The price of ROM varies between Rs. 360 to Rs. 575 for per ton whereas the assessee has charged Rs. 450 for per tonne which conclusively proves that the assessee has sold the ore at the market rate. The Assessing Officer has applied the rate on estimated basis. The Assessing Officer has relied upon the decisions of Hon'ble Panjab & Haryana High Court in the case of Patiala Biscuits Manufacturers vs. CIT (1976) 103 ITR208 (P&H), CIT Vs. A Raman & Co. (1968) 67 ITR 11(SC), CIT Vs. Calcutta Discount 91 ITR 8(SC) and Marghabhai K. Patel & Co vs. CIT(1977) 108 ITR 54 (Guj) and submitted that even if the goods are sold lesser rate to the buyer, it does not entitle the department to assess the difference as the income of the assessee. It may be noted that the law does not oblige a trader to make the maximum profit that he can make out of his trading transaction. The assessee cannot be assessed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners in respect of purchases made by them. We respectfully following the same, we are of the view that CIT(A) is justified in his action and our interference is not required. In the result, appeal of the revenue is dismissed on this ground. 3. Ground No.2- During the course of assessment proceeding assessee has claimed expenditure of Rs. 1,07,73,000/- as land compensation and Rs. 1,93,899/- as compensation for afforestation charges. The assessee is carrying out mining activities and assessee has treated this expenditure as revenue expenditure. The assessee contended that the assessee made payments towards the net present value compensation for using the land for mining purposes. The payment was made for allowing the land to be used for mining purposes and was primarily meant to offset the ecological degradation that would ensure as a result of mining activities on the aforesaid land. Therefore, this payment is changing the nature of land use of the aforesaid piece of land for mining activities which would render benefit of lasting duration to the assessee and this expenditure was incurred for diversion of forest land for non-forest land use i.e. mining. The levy of charges im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid for acquiring a capital asset is capital expenditure and not a revenue expenditure. But in this case the assessee has not acquired any capital asset but assessee has paid the amount of compensation for carrying out mining activities and the assessee has paid compensation as charges for degrading the forest land and the expenditure is incurred wholly and exclusively for the purpose of mining business and same has been treated as revenue expenditure by CIT(A). We find that similar issue has come up before Hon'ble Bombay High Court in the case of Deputy Commissioner of Income Tax vs. Timblo Pvt. Ltd. in Tax Appeal No. 66/2012 wherein the question No. D which read as under: "D. Whether the Tribunal is correct in law in holding that one time amount made to the forest Department towards Net Present Value (NPV) and aforestation compensation is not a capital expenditure but revenue expenditure?" Wherein the Hon'ble High Court has decided this issue by observing as under: "5. The issue raised in paragraph 5(D) is covered against the appellant and in favour of the assessee in view of the order of this Court dated 6/02/2012 in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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