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TMI Blog2019 (10) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... o form belief that income escaped assessment. As stated by us (supra) at the initial stage of issue of notice u/s.148 of the Act, it is not necessary to go into the sufficing or of otherwise of the new material to make the addition. Therefore the information received from DCIT, Kolkata suggested that payment made to M/s. Sakshi Trade Link P. Ltd is bogus, the Assessing Officer formed belief that income chargeable to tax had escaped assessment and accordingly initiated reassessment proceedings. Therefore we uphold the validity of the reopening of the assessment and accordingly, allow ground No.2 raised by the Revenue. Addition of payments made to M/s. Sakshi Trade Link - In the present case, admittedly, there is no corroborative evidence brought by the Assessing Officer in support of the information received from DCIT, Kolkata. In the absence of such corroborative materials addition cannot be sustained, in the backdrop of legal position discussed above. Therefore, grounds of appeal challenging the deletion of addition of payment made to M/s. Sakshi Trade Link Pvt Ltd stands dismissed. Disallowance u/s 14A - HELD THAT:- In the present case, Indisputedly own and interest free funds ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discrepancies arose between the two. The ld. CIT(A) considering the explanation partly granted relief to the assessee. However, ld. CIT(A) had not discussed the fact situation as to how the income shown in Form-26AS had not accrued. Therefore, we are of the considered opinion that the matter should be remand back to the file of the Assessing Officer for denovo assessment Addition on account of payment made to subcontractor - AO made disallowance on the ground that subcontractor had not responded to the notice issued by the AO u/s.133(6) - CIT-A deleted the addition - HELD THAT:- There is no evidence to show that the amount paid to subcontractor is recycled back to the assessee and there is not even an allegation by the Assessing Officer to this effect. Nevertheless, the receipts from this contract was offered to tax and it is not the case of the Assessing Officer that assessee had incurred expenditure in executing the contract apart from the subcontract expenses. In the circumstances, we are unable to uphold the disallowance made by the Assessing Officer and accordingly do not find any reason to interfere with the order of the ld. CIT(A). Bogus purchases from Kolkata parties - HELD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure expended on the ground of commercial expediency in order to indirectly facilitate the carrying on the business is allowable as deduction. Therefore the claim falls within the purview of the provisions of Section37(1) Allowability of legal expenses - allowable revenue expenditure - HELD THAT:- The law is settled to the extent that legal expenditure incurred in order to protect the business is allowable as revenue expenditure. In the present case as held by us (supra) it is an expenditure incurred to protect the business of the assessee company. Therefore we hold that the same is allowable as deduction without any hesitation. X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. It was stated that Respondent ITA assessee was provided accommodation entries to the extent of A22,06,000/-. Based on the above information, the Assessing Officer had issued notice u/s.148 of the Act on 15.09.2014 by alleging that assessee had failed to disclose fully and truly all material facts necessary for the assessment. In response to the said notice, Respondent- assessee filed letter dated 09.10.2014 stating that original return of income filed on 29.09.2011 for the assessment year 2011-12 be treated as return in response to notice issued u/s.148 of the Act. The Assessing Officer also furnished reasons to assessee for reopening the assessment on 14.11.2014. The reasons recorded reads as under:- ''The assessee company filed the return of income on 29,092011 declaring an income of ₹ 241,05,04,870/- & Short term capital gain of ₹ 225,843/. Assessment was completed u/s 143(3) of Income lax Act, 1961 on 28.02.2014 by assessing income at ₹ 242,82,49,494/- & STCG at ₹ 2,25,843/-. Deputy Commissioner of Income Tax, Central Circle XXI, Kolkata has informed vide his letter dated 18.03.2014 that during the assessment proceedings in the case of M/s.S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed. 9,19,55,168 7. Being aggrieved by the above additions, the assessee-company preferred an appeal before ld. CIT(A) challenging the very validity of initiation of reassessment proceedings as well as merits of the additions made. Reopening was challenged on the grounds that reassessment proceedings were prompted by mere change of opinion on the same set of facts, primary facts necessary for assessment was disclosed fully and truly. It cannot be alleged that assessee had failed to disclose material facts necessary for the assessment, even on the merits, Respondent- assessee challenged the additions. Ld. CIT(A) after considering the submissions and materials placed before him allowed the appeal vide impugned order both on the validity of the reopening as well as merits of the additions. 8. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us in the present appeal. Ld. CIT (Departmental Representative) contented that the assessment was reopened based on creditable information received from the Deputy Commissioner of Income Tax, Central Circle XXI, Kolkata that Respondent- assessee was beneficiary of accommodation entries provided by one M/s. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings. (ii) Though the statement of Shri.Sumit Sharma was taken as the basis for reopening the assessment, another director of the company had confirmed the transaction vide letter dated 28.01.2016 (Refer page 7 of Paper book) (iii) It may be noted that Shri.Suraj is one of the directors of the company and that the same can be verified from the master data of M/s.Sakshi TradeLinks Pvt Ltd (Refer pages 8 & 9 of Paper book) (iv) Payments were made to Sakshi Trade Links Pvt Ltd after deducting tax at source at lower rates based on lower deduction certificate submitted by STLPL (Refer page 13 of Paper book) (v) Where the TDS Officer of STLPL has issued a lower deduction certificate it cannot be said that the payments made to STLPL were not genuine (vi) For liasioning services which is nothing but arranging and organizing for lifting of iron ore, no man power or equipment is necessary (vii) When the assessee has paid ₹ 22,06,000/- which is inclusive of service tax the Assessing Officer has chosen to disallow only a sum of ₹ 20,00,000/-. Where the Assessing Officer had decided that the expenditure is bogus then the entire sum of ₹ 22,06,000!- includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of original assessment proceedings, no doubt assessee had filed primary details in respect of this item of expenditure i.e. payments made to M/s. Sakshi Trade Link Pvt Ltd. However consequent upon information received from the DCIT, Central Circle XXI, Kolkata the assessment was reopened. Information received from DCIT, Central Circle XXI, Kolkata is that Respondent - assessee is a beneficiary of the accounting entry provided by M/s. Sakshi Trade Link Pvt Ltd, this would constitute tangible new material enabling the Assessing Officer to form an opinion that income escaped assessment. The Hon'ble Supreme Court in the case of Phool Chand Bajrang Lal and Another vs. ITO, (1993) 203 ITR 456 held that any fresh information relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment constitute fresh information enabling the Assessing Officer to believe that income chargeable to tax had escaped the assessment on account of omission of the assessee to make full and true disclosure of the primary facts was relevant, reliable and specific. Relevant para of the judgment as follows: ' "19..... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Gujarat High Court in the case of Jayant Security & Finance Ltd vs. ACIT, (2018) 254 Taxman 81, Hon'ble Rajasthan High Court in the case of Ankit Agrochem (P) Ltd vs. JCIT, 253 Taxman 141, PCIT vs. Paramount Communication P. Ltd, (2017) 392 ITR 444 (Delhi) and Aradhana Estate Pvt. Ltd vs. DCIT (2018) 404 ITR 105 (Guj) had upheld the validity of the reassessment based on the information received from Investigation Wing of the Department, if the Assessing Officer had formed a belief that income escaped assessment based on the information received from the investigation wing, if there is nexus between information so received and belief formed by the Assessing Officer. In the present case, the Assessing Officer had received information from the DCIT, Central Circle XXI, Kolkata and recorded reasons for reopening the assessment as extracted above. From the perusal of the reasons recorded, it is clear that the Assessing Officer had perused the material placed and perused the materials received from DCIT, Central Circle XXI and thereupon considering all the materials formed belief that income chargeable to tax had escaped assessment. There is no quarrel as to legal proposition adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat transaction is bogus. From the perusal of the assessment order, nothing is discernable to say that copy of the statement recorded from said Shri. Sumit Sharma stated to be Director of M/s. Sakshi Trade Link Pvt Ltd is made available to the assessee and assessee was given an opportunity of cross examination of the said Director. 16. It is a matter of record that that assessee filed letter dated 28.01.2016 before the Assessing Officer from one Mr. Suraj, Director of M/s. Sakshi Trade Link Pvt Ltd confirming the transaction and rendition of the services and the Assessing Officer had not given an opportunity to the assessee to neither cross examine Mr. Sumit Sharma nor made any independent enquiries to corroborate the statement of Mr. Sumit Sharma. It is settled proposition of law that no addition can be made based on unconfronted oral statement of third party. Reliance can be placed on the decision of Hon'ble Rajasthan High Court in the case of CIT vs. A.L. Lalpuria Construction (P) Ltd, (2013) 32 taxmann.com 387, wherein, it was held that addition on account of accommodation entries cannot be made on the basis of unconfronted oral statement of third party. Similarly, the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition can be sustained only, if addition had been made by the Assessing Officer in respect of an item of addition based on which reassessment notice was issued. 19. The Hon'ble Bombay High Court in the case of Jet Airways (I) Ltd (supra) after referring to the decisions of Hon'ble Supreme Court in the cases of CIT vs. Sun Engineering Works P. Ltd (1992) 198 ITR 297 and V. Jaganmohan Rao vs. Commission of Income Tax and Excess Profits Tax, (1970) 75 ITR 373 had examined the effect of Explanation 3 to Section 147 and held as follows: "The effect of the amended provisions came to be considered, in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject matter of the notice under section 148. This view was adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee . . ." We agree with the submission which has been urged on behalf of the assessee that section 147 as it stands postulates that upon the for mation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income 'and also' any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words 'and also' are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion to Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words 'and also' by the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343 (Raj). Parliament has not ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under sections 80HH and 80-I as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under sections 80HH and 80-I and accordingly reduced the claim on these accounts. 20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded to make disallowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per Explanation 3 to reduce the claim of deduction under sections 80HH and 80-I as well. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner-assessee, has found resonance with at least three (3) High Courts, i.e., the Bombay High Court, the Gujarat High Court and the Delhi High Court in the following cases : (i) CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bom) ; (ii) CIT v. Mohmed Juned Dadani [2013] 355 ITR 172 (Guj) ; Manu/ GJ/0061/2013 ; and (iii) Oriental Bank of Commerce v. Addl. CIT Manu/DE/1935/2014. 23.1. The only High Court, which has taken a contrary view, as it were, is the Punjab and Haryana High Court in the matter of : Majinder Singh Kang v. CIT [2012] 344 ITR 358 (P&H) ; [2012] 25 taxmann.com 124 (P&H). 23.2. In my opinion, with respect, the court, in rendering the judgment in Majinder Singh Kang's case, ignored the fact that the provisions of Explanation 3 had to be read in conjunction with the main provision, and that, the said Explanation cannot override the main provision. 23.3. This aspect of the matter has also been brought to fore by the Bombay High Court in : CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bom). 23.4. The relevant observations made in this behalf are extracted hereafter (page 247) : "However, Explanation 3 does not and cannot override t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer had jurisdiction to reassess the income other than the income in respect of which the proceedings under section 147 were initiated, but, he was not justified in doing so when the reasons for the initiation of those proceedings ceased to survive. Therefore, the argument advanced by the Revenue placing reliance on Explanation 3 to section 147 is of little avail''. The principle that can be culled out from the ratios of the above decisions is that the Assessing Officer had jurisdiction to reassess the income other than the income in respect of which proceedings of Section 147 of the Act was initiated but he was not justified in doing so, when no addition was made in respect of item for which notice of reopening was issued. In the present case, admittedly, notice for re-assessment is issued for the purpose of disallowing the expenditure claimed being the payment made to M/s. Sakshi Trade Link P. Ltd. In the preceding paragraphs for the reasons stated therein, we held that no disallowance can be made for the payment made to M/s. Sakshi Trade Link P. Ltd. Thus, when addition made on account of item for which notice for reopening is issued is squashed by us, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the said party even after being told about the non compliance to the said statutory notice by the sub contractor. 6. The ld. CIT(A) is erroneous in deleting the additions made towards unproved purchases from various parties at Kolkata for the mines at Orissa, since the Dept. found out during the enquiries conducted that these firms were not existent. in the said addresses and thus, the genuineness of the transactions are not proved only because payments have been made through banking channels etc. 7. In view of the facts and circumstances, since monetary limit i.e. ₹ 3,97,17,826/- exceeds the prescribed limit as per the Board's Circular No.3/20 18 in F No.279/Misc. 142/ 2007-ITJ (Pt.), second appeal is suggested on this issue''. 22. The brief facts of the case are as under: The return of income for the AY 2012-13 was filed electronically on 30.09.2013 disclosing total income of ₹ 153,37,92,630/- under normal provisions and book profit of 142,14,99,272/- under the provisions of Section 115JB of the Act. Against the said return of income, the assessment was completed by the Dy. CIT, Circle -1, Salem (hereinafter called as ''Assessing Officer'') vide order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee co for reduction mining contract receipts claimed in FY 2011-12. In FY 2012-13 the provision is said to be reversed. 2. ₹ 43,42,206/- K J S Ahiuwalia- Transportation income -earlier period 2010-11. Debit note dt 21.10.2011 3. ₹ 18,98,293/- Orewin contract receipts- Discount ₹ 18.62 lakhs for Feb &mar2Oll and June 2011 ₹ 39967/- acctd 4. 3,79,768/- Contract receipts - BS Mining deduction 5. 90,376/- Contract receipts - Geo Mm consultants 6. 5,909/- MSP sponge Iron Ltd 7. 43,683/- The Rameshwar Jute Mills Ltd 8. 2,04,080/- Ardent Steel Ltd 9. 32,636/- Banspani Iron Ltd 10. 4444/- ABS Merchants P Ltd 11. 12,677/- T R Chemicals 12. 4,86,460/-Steel Authority Of India Ltd 13. 23,40,000/- Bagadiya Brothers Private Limited''. Based on the explanation offered by the assessee, the Assessing Officer noted that Respondent - assessee had not offered explanation in respect sum of A3,79,15,937/- The Assessing Officer also disallowed payments made to sub contractors. During the assessment proceedings, the Assessing Officer noted that assessee made payments to various subcontractors for doing drilling, excavation, screening etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of making purchases at Kolkata when the mining operations were carried out at Orisha, he disallowed the above payment by holding that the purchases are bogus. 23. Being aggrieved by the above additions, the assesseecompany preferred an appeal before ld. CIT(A), who vide impugned order deleted the addition made u/s.14A of the Act accepting the contention of the assessee that no borrowed funds were utilized for the purpose of making investments, when no expenditure was incurred in earning dividend income, no expenditure can be disallowed. As regards to the disallowance of CSR expenditure, ld. CIT(A) placing reliance on the decisions of Hon'ble Jurisdictional High Court in the cases of CIT vs. Madras Refineries Ltd, 266 ITR 170, CIT vs. Velumanickam Lodge, 317 ITR 338, Cholan Roadways Corporation ltd vs. CIT, 235 ITR 473 and Amarjothi Pictures vs CIT, 69 ITR 755 and on the analysis of the expenditure incurred on CSR, the ld. CIT(A) directed the Assessing Officer to disallow only 10% of the expenditure incurred in case amounting to ₹ 1,12,827/-. As regards to the addition made on account of difference between receipts as per 26AS and the amount credited to P & L account, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n during the proceedings before ld. Commissioner of Income Tax (Appeals) fit into the facts of the present case. Regarding disallowance of purchase of ₹ 70,66,678/-, disallowance was made by the Assessing Officer based on the information received from the DICT, Circle-5, Kolkata, and therefore ld. Commissioner of Income Tax (Appeals) ought not have granted relief. 25. On the other hand, ld. Authorised Representative submitted that the Assessing Officer ought not have invoked the provisions of Section 14A read with Rule 8D(2) (ii) and (iii) as much as assessee had substantiated the contention that no borrowed funds were utilized for making investments which yielded exempt income by referring to the financial statements placed at pages 2 to 18 of the paper book. As regards to the disallowance u/s.8D(2) (iii), he submitted that if at all, disallowance is to be made, only investments which yielded exempt income has to be considered. As regards to the CSR expenditure, the ld. Authorised Representative submitted that expenditure was incurred for the following purposes. ''(i) Setting up and running and maintenance of schools (ii) Setting up and running and maintenance of hos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper appreciation of facts and no interference is called for. With regards to the disallowance of purchases from Kolkata parties to the tune of ₹ 70,66,678/-, ld. Authorised Representative submitted that assessee company discharged primary onus lying upon it by filing details i.e. name, address, TIN, CST numbers, details of payments made etc. He further submitted that the sellers had directly delivered the goods to assessee's mines and therefore there is no evidence of transportation of goods and he further submitted that it is purely business decision as to where from purchases has to be made, the Assessing Officer cannot step into the shoes of the assessee company. 26. We heard the rival submissions and perused the material on record. The grounds of appeal No.1 & 7 are general in nature therefore does not require any adjudication. 27. The Ground No.2, challenges the decision of the ld. Commissioner of Income Tax (Appeals) in deleting the addition of ₹ 52,94,404/- made u/s.14A of the Act. Admittedly, assessee had dividend income of ₹ 4,03,78,555/-. The addition made includes under clause (ii) of Rule 8D of ₹ 28,65,261/- and clause (iii) of Rule 8D &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the Tribunal. The Hon'ble High Courts of Gujarat & Bombay reiterated the same principle of law in the case of CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom) and Gujarat State Fertilizers & Chemicals Ltd. [2013] 358 ITR 323 (Guj) & CIT vs. Amod Stamping (P.)Ltd. [2014] 45 taxman.com 427 (Guj.). 28. In the present case, Indisputedly own and interest free funds are more than the investment made and therefore that the presumption should be drawn that investments are made out of own funds in view of the principle enunciated in above mentioned decisions. Therefore, no disallowance of interest under clause (ii) of Rule 8D can be made. As regards to the disallowance of administrative expenses under clause (iii), the law is settled to the extent that for the purpose of computing the amount of disallowance on clause (iii) of Rule 8D, only investments which yielded exempt income alone should be considered. Accordingly, we direct the Assessing Officer to compute the amount of disallowance under Rule 8D(iii) by considering the value of investments which yielded exempt income alone. In the result, ground No.2 filed by the Revenue is partly allowed for statistical purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd No.4 filed by the Revenue is partly allowed for statistical purpose. 31. The Ground of appeal No.5 challenges the decision of the ld. CIT(A) deleting the addition made on account of payment made to subcontractor. Admittedly, the Assessing Officer made disallowance to the tune of 4,38,09,329/- on the ground that subcontractor had not responded to the notice issued by the Assessing Officer u/s.133(6) of ITA Nos.2280-83 /2018 :- 42 -: the Act. The assessee company had discharged its initial onus by filing primary details i.e., name, address, payment details, copies of invoices etc., The Assessing Officer had not even called upon the assessee company to produce subcontractor before him. The Assessing Officer cannot resort to the disallowance merely because subcontractor has not responded to the notice issued u/s.133(6) of the Act. Reliance in this regard can be placed on the decision of Hon'ble Bombay High Court in the case of PCIT v. Chawla Interbild Construciton Co. (P.) Ltd. [2019] 104 taxman.com 402 held as follows: "7. We find that the Assessing Officer while passing the assessment order has dis-allowed 40% of the total payments made on the basis of the payments made to 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had discharged the initial onus of filing the name, address, copies of invoice, TIN and CST etc. The Assessing Officer had not brought any evidence on record to show that the amounts paid to the sellers was recycled back to the assessee and moreover, the Assessing Officer had not doubted the consumption of the materials brought. In the absence of this material evidence, no addition can be made towards alleged bogus expenditure. We refer to the decision of Hon'ble Gujarat High Court in the case of PCIT vs. Tejua Rohitkumar Kapadia (2018) 94 taxmann.com 324 which was confirmed by Hon'ble Supreme Court by dismissal the SLP in PCIT vs. Tejua Rohitkumar Kapadia [2018] 94 taxmann.com 325 (SC). Accordingly, we do not find any reason to interfere with the order of the ld. CIT(A). Ground No. 6 filed by the Revenue stands dismissed. 32. In the result, the appeal filed by the Revenue in ITA No.2281/CHNY/2018 for assessment year 2012-2013 is partly allowed for statistical purpose. 33. Now, we take up appeal in ITA No.2282/CHNY/2018 for assessment year 2013-14. 34. The Revenue raised the following grounds of appeal. '1. The order of the ld.CIT(A) is contrary to the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 (iii) Payment from Chettinad Cement Corporation 11,542 (iv) Receipts from Electrical Engineer, Rural works II, Keonjhar 45,27,491 (v) Expenditure over booked by the assessee 19,14,735 (vi) Sub-contract payments M/s. Preeya Earth Mover, Salem 81,76,288 36. Being aggrieved by the above additions, the assesseecompany preferred an appeal before ld. CIT(A) challenging the additions made. The ld. CIT(A) deleted the addition in respect of addition made u/s.14A, in respect of CSR expenditure, directed the Assessing Officer to restrict to 10% of expenditure incurred in cash. Ld. CIT(A) also deleted addition on account of receipt received from State Highways Dept. Rural Works II, Keonjhar of 45,27,491/- considering the fact that the income was offered to tax in the assessment year 2014-15. As regards to the disallowance of subcontractor payment of 81,76,288/-, ld. CIT(A) considering the partnership deed, details of payments, details of TDS made and the fact that Mr. M. Neduncheziyan, Managing Partner of Preeya Earthmovers had expired on 27.12.2014 had directed the Assessing Officer to delete the addition. 37. Being aggrieved by the order of the ld. CIT(A), the Revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract. Mere receipt of money does not constitute income and therefore we cannot uphold the addition to income. Accordingly, ground No.4 filed by the Revenue stands dismissed. 42. Vide its ground No.5, the Revenue challenges the decision of the ld. CIT(A) in deleting the addition made on account of subcontractor payment made to M/s. Preeya Earthmovers. On perusal of the assessment order, it would reveal that Assessing Officer made disallowance of subcontractor payment made to M/s. Preeya Earthmovers of A81,76,288/- primary on the ground that subcontractor had not filed return of income. It is also stated that assessee had discharged its initial onus by filing details such as name, address, payments details, copies of invoices, bills raised etc., On appeal before the ld. CIT(A) the addition deleted the addition by holding that mere non filing of return by the sub contractor would not itself can be reason to disallow the payment. The Assessing Officer had not disputed the actual work done by M/s. Preeya Earthmovers. This ground is similar to the ground No. 5 raised by the Revenue for assessment year 2012-13 in ITA No.2281/CHNY/2018. We have already deleted the disallowance in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b "wholly" in the phrase "laid out or expended for business" refer to the quantum of expenditure. The adverb "exclusively" has reference to the object or motive of the act behind the expenditure. Unless such motive is solely for promoting the business, the expenditure will not qualifying for deduction CIT Vs T.S.Haji Moosa Co.(Madras) 153 ITR 422. Mysore Kirlosker Ltd Vs CIT(Karnataka) 166 ITR Vs 836. Siddo Mal & Sons Vs ITO(Delhi) 122 ITR 83. 5. The ld.CIT(A)'s decision on the disallowances made u/s 14A is not accepted, since the Assessing Officer had only made the disallowances as per provisions of Rule 8D of Income Tax Rules as per the CBDT Circular No.5/20 14, dated 11.02.2014 6. In view of the facts and circumstances, since monetary limit i.e. ₹ 26,48,97,183/- exceeds the prescribed limit as per the Board's Circular No.3/20 18 'in F No.279/Misc. 142/ 2007-ITJ (Pt.), second appeal is suggested on this issue''. 46. The return of income for the AY 2014-15 was filed electronically on 29.09.2014 disclosing total income of ₹ 191,05,21,190/- under normal provisions and book profit of ₹ 193,27,18,841/- under the provisions of Section 115JB of the Act. Against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay the sub contractors. If the ore mined by the assessee company is of low grade, it has only to be reprocessed for improving the quality of the finished product. Therefore, once the ores are dispatched from the mine, it is considered to be of proper quality. After the sales by the mine owner there is no possibility for the purchaser to raise a debit note on the assessee company. First of all there is no direct link between the purchaser of ore and the assessee company. If the grade of ore purchased is not upto the mark, the purchaser can raise a debit note on the mine owner who had sold the ore and not against the raising contractor''. Based on the facts, the Assessing Officer had required the assessee to explain why the same should not be allowed as deduction, for which detailed reply was filed by the assessee which is reproduced by the Assessing Officer vide pages 5, 6 & 8 of the assessment order. The explanation offered by the assessee company is that agreement between mine owners and assessee company is silent as regards to the liability arising out of the claim from buyer on quality issue. After mutual discussion, it was decided that liability of claims from buyer should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om mines to office, mines to weighbridge and mines to staff quarters! canteen. The temporary roads have been laid within the mines owned by the mine owned by the mine owners M/s.Serajudhin & Co. and Indrani Patnaik. These temporary mine haul roads are laid with excavated earth and are not concrete or tar roads. Such roads are laid down mainly for hauling purposes by dumpers, loaders, mining equipments and jeeps. By maintaining good roads, both truck and equipment maintenance will be kept to minimum resulting in reduced mining cost. Besides the temporary nature of road, these are laid on land owned by the mine owners for use by our company. By incurring the expenditure for laying of temporary roads, our company got the business advantage of using it...." Assessee has relied on the Supreme Court judgement in the case of L.H.Sugar factory & oil mills (p) Ltd. Vs. CIT 125 ITR 293. In this particular case, the assessee was carrying on the business of manufacture and sale of sugar. It had it's factory in UP. The assessee paid a contribution towards meeting the cost of construction of roads in the area around it's factory under a sugarcane development scheme. The court held that, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer to delete the addition on account of quality allowance of A44,54,80,402/-, considering the fact that in the earlier years similar expenditure was allowed and the payments has been made by way of banking channels. As regards to the CSR expenditure, the ld. CIT(A) had restricted the disallowance to 10% of the expenditure incurred in cash A3,90,49,461/-. As regards to the disallowance of road lying expenditure, ld. CIT(A) directed the Assessing Officer to allow the claim as revenue expenditure following the decisions of Hon'ble Supreme Court in the cases of Laskhmiji Sugar Mills Co. P. Ltd vs. CIT, 82 ITR 376, CIT vs. Kirkend Coal Co, 77 ITR 530, Jurisdictional High Court in the cases of CIT vs. Coats Viyella India Ltd 253 ITR 667 and CIT vs. T.V. Sundaram Iyengar & Sons (P) Ltd, 95 ITR 428, the CIT(Appeals) deleted the additions on legal expenses and disallowance u/s.14A of the Act. 52. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us in the present appeal. Ld. Departmental Representative submitted that with regard to quality allowances and claims in the absence of clause in the agreement between the assessee and the mine owners th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to protect the business interest of the assessee and the same should be allowed as deduction. He placed reliance on the decisions of Hon'ble Supreme Court in the cases of S.A. Builders Ltd (supra), Hero Cycles (P) Ltd vs CIT, (supra) and Sassoon J. David & Co P Ltd (surpra). As regards to CSR expenditure and Section 14A of the Act disallowance, he reiterated the same submissions made in assessment year 2012-13. 54. We heard the rival submissions and perused the material on record. The grounds of appeal No.1 & 6 are general in nature therefore does not require any adjudication. 55. Ground No.2 challenges the decision of the ld. CIT(A) allowing the claims on quality from the buyers of the ore of A44,54,80,402/-. The Assessing Officer disallowed quality allowances and claims primarily for the following reasons. (i) There is no agreement between assessee company and the mine owners to bear the quality allowances and claims in case of mining low grade ores. (ii) Mine owners only do sampling of Ore at crushing and screening plant as well as at the point of dispatch. Assessee company being contractor may have to further process any produce if desired by the mine owners f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uture business relationship with the mine owner. This is purely a commercial decision taken by the contractor completely weighing the pros and cons of the proposal and for the betterment of relation with mine owner and continuity of business. The cost of compensation borne by the contractor has ultimately been passed on to the buyer. This has got close nexus with the business carried on by the assessee and being revenue in nature, rightly allowable under section 3 7(1) of the Income tax Act. * Link between the purchaser and the raising contractor: With regard to the AO's observation that there is no direct link between the purchaser of ore and assessee company, we submit that owing to the nature of operation carried out by the contractor and as per the commercial arrangement with the mine owner, the "Quality allowance/ claim" expenditure has been borne by the contractor. * On all material dispatched are of Hood quality only: With regard to AO 's observation that f the ore mined by assessee company is of low grade, it has to be only reprocessed for improving the quality and once, ore is dispatched from mines, it is considered of good quality, we beg to differ. We submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sel Ltd. We submit that the comparison of rebate on account of quality allowance to what the contractor gets would not be appropriate to the instant case. Payments made to a) Shyam Metalics and Energy Ltd. and b) Shyam Sel &Power Ltd. We submit copies of statement received from Shyam Metallics & Energy Ltd. for the period 2013-1 4 which confirms the quality allowance received by them * Payments to Bhusan Steel & Power Ltd: ₹ 7,22,68,416/- In respect of payments made to Bhusan Steel &Power Ltd. we have enclosed copies of all the debit notes issued by the party. The rebate in the case of Bhusan Steel &Power Ltd. amounted to ₹ 105/- per metric Ton. * Bait Logitech Private Limited: ₹ 3,16,1O,248/- Our company had entered into an MOU with M/s.Bait Logitech Private Limited to facilitate BLPL to participate in a open tender (copy enclosed- Annexure 3) for supply of iron ore fines for 3.53 lakh MT by MMTC Ltd. to the integrated steel plant at Nelachal Isptat Nigam Ltd. Under the arrangement, if the BLPL is awarded the contract for iron ore fines supply, it shall flfl the fines material that is accumulated and held at the Serajuddin &Co. Balda mines. Our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtantly, the Assessing Officer had not doubted the genuineness of the expenditure. The Assessing Officer is only questioning the necessity of the expenditure. In the backdrop of the fact that there is no clause in the agreement between assessee company and the mine owners to bear the liability of claim of buyers of the ores. The circumstances under which expenditure was incurred by the assessee company before Assessing Officer as well a ld. CIT(A) stating that expedition disposal of the ore and realization thereof would benefit the assessee company in the form of lower working capital and the continuous business relationship with mine owners and higher revenue from the contract compared to the market rates etc., Submissions made by the assessee company remain uncontroverted by the Assessing Officer. The Assessing Officer had also not questioned the genuineness of the expenditure but disallowance was made by the Assessing Officer questioning the necessity of the expenditure. Now, it is settled position of law that it is not for the Assessing Officer to dictate the assessee as to how the assessee should conduct his business and it is not for him to tell the assessee on what expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business. The relevant para is reproduced hereunder:- ''20…………………… It has to be observed here that the expression "wholly and exclusively" used in section 10(2)(xv) of the Act does not mean "necessarily". Ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of section 37 of the Income-tax Act, 1961 which corresponds to section 10(2)(xv) of the Act. An attempt was made in the Income-tax Bill of 1961 to lay down the "necessity" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d between assessee company and mine owners to bear the loss claims from the buyers of the ore. The explanation offered to substantiate that payments were made out of business expediency remain unconverted by the Assessing Officer. Having regard to the principles enumerated above, it is not for the Assessing Officer to question the necessity of expenditure irrespective of the fact whether expenditure has resulted in profit or more income, as long as payment was made wholly and exclusively for business purpose, the same should be allowed as deduction. From the material on record, it can inferred that expenditure was incurred voluntarily indirectly to facilitate the carrying on of the assessee company as the expenditure was incurred on grounds of commercial expediency. The Hon'ble SC in the case Gordon Woodrofee Leather Mfg vs. CIT, 44 ITR 551 (SC) held that any expenditure expended on the ground of commercial expediency in order to indirectly facilitate the carrying on the business is allowable as deduction. Therefore the claim falls within the purview of the provisions of Section37(1) of the Act. In the circumstances, the order of the ld. CIT(A) is based on proper appreciation of fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred must be considered as capital expenditure. But, on the other hand, if it is held that the expenses were incurred to protect the business of the assessee, then it must be considered as a business loss. The principle which has to be deduced from decided cases is that, where the expenditure laid out for the acquisition or improvement of a fixed capital asset is attributable to capital, it is a capital expenditure but if it is incurred to protect the trade or business of the assessee then it is a revenue expenditure. In deciding whether the particular expenditure is capital or revenue in nature, what the courts have to see is whether the expenditure in question was incurred to create any new asset or was incurred for maintaining the business of the company. If it is the former it is the capital expenditure; if it is the latter, it is the revenue expenditure." (b) In Dalmia Jain, this Court relied upon Shree Meenakshi Mills and held that "Deductibility of expenditure incurred in prosecuting a civil proceeding depends upon the nature and purpose of the legal proceeding in relation to the assessee's business and the same cannot be affected by the final outcome of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinction as the law by itself is likely to achieve…." (d) In Mangalore Ganesh Beedi Works, it has been observed at Paragraph No.17, that on a consideration of the issues placed before the Tribunal, including the decision of this Court in Dalmia Jain, it is held that the expenses incurred by the Assesee were honest and reasonable and were incurred for the purpose of protecting the business of the firm as a going concern. (e) In M/s. ITC Hotels Ltd., it has been observed that on a consideration of the facts in detail, the Tribunal has recorded a finding that the litigation expenses were incurred not to protect the lease hold rights or to protect its title, but were incurred to defend its right to carry on business of a hotel and therefore, the expenses are revenue in nature and it is purely a finding of fact and does not involve any question of law. (f) Similarly, in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC), it has been held that the question as to whether any expenditure is capital or revenue in nature has all along been considered to be a question of fact to be determined by the Income-tax Authorities on an application of the broad principl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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