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TMI Blog2014 (6) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the higher extraction/rescreening charges @ 200 per m.t. are allowed by the AO himself, as compared to 38 as claimed by the assessee himself in the immediately preceding year. Most of the adverse findings recorded by the AO while disallowing the claim of the assessee on account of extraction/rescreening charges to the extent of about 45 lakhs were found to be correct by the ld. CIT(A), but she still restricted the disallowance made by the AO on this issue to 23 lakhs, giving a relief of about 22 lakhs to the assessee on this issue, without giving any cogent or convincing reasons and without appreciating the fact that the claim of the assessee for higher extraction/rescreening charges was allowed by the AO by adopting the rate of 200 per m.t., as compared to the rate of 38 per m.t. claimed by the assessee in the immediately preceding year. We are of the view that the disallowance made by the AO on account of extraction/rescreening charges was fair and reasonable and the ld. CIT(Appeals) was not justified in restricting the same to 23 lakhs. We, therefore, modify the impugned order of the ld. CIT(Appeals) on this issue and confirm the disallowance of 45,05,867 made by the AO o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the said return, a sum of ₹ 1,09,35,867 was debited by the assessee on account of extraction expenses. Since the extraction expenses so claimed by the assessee during the year under consideration were substantially higher than that of the immediately preceding year, the claim of the assessee on account of extraction expenses was examined by the Assessing Officer during the course of assessment proceedings. During the course of this examination, statement of the assessee was recorded by the AO wherein he stated while answering question No.8 that the average screening cost (extraction expenses) was around ₹ 150 to 200 per m.t., depending on the total quantity screened. Keeping in view this rate indicated by the assessee himself, the AO pointed out to the assessee that the total quantity of iron ore purchased during the year being only 32,150 m.t., the total screening /extractions charges even at the rate of ₹ 200 per m.t. should come to around ₹ 64.30 lakhs as against ₹ 1.09 crores claimed by the assessee. This difference pointed out by the AO was sought to be explained by the assessee by submitting that sometimes the work force will have to be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee's submissions have already been carefully considered before the completion of the assessment. In fact the AO has not considered the drastic rise in prices on account of spurt in exports which resulted in unusual increase in procurement/purchase price. On account of the spurt in price only, I was forced to go for low quality material wherein I incurred higher rescreening expenses. Even though the cost of rescreening is high the total cost per metric ton is low when compared to total cost in A.Y.2010-11. For this purpose, I do have submitted the comparative statements in the earlier instance. The same is produced below. A.Y. Purchase Value Rescreening Cost Quantity Purchase Purchase Cost per Metric Ton Rescreening Charges per Metric Ton Total Cost Per M T 2009-10 1,52,37,608 1,09,35,867 31,046.44 490.80 352.24 843.04 2010-11 5,70,36,161 35,08,800 63,262.84 901.50 55.46 957.04 Even though the purchase price is high during 2010-11 with lower rescreening charges, still, the cost of purchase and rescreening cost is low in 2009-10. On account of this only I have stated in my earlier statement Dated 29/12/2011 That in the cost of purchase, the qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are cash payments, with only unsubstantiated vouchers, the observation of the AO in the background of these facts are very relevant. It is observed, therefore, that the rescreening charges per metric tonne are much higher than that incurred in the immediately preceding year and, in the absence of verifiable evidence, the results declared cannot be accepted as such. However, taking into account the appellant's argument regarding increase in purchase price, payment on rainy days, etc. as well as additional payments to batch-heads, the appellant does deserve relief on this count. It is also observed that the turnover for the assessment year 2009-10 i.e. the year in question is almost comparable with that of the assessment year 2008-09 (immediately preceding year, which has been taken for comparison by the AO) even though the quantity purchased is far lower, which is suggestive of increased prices or/and better quality of ore after rescreening the year in question. The appellant has also submitted that the gross profit this year at 5.24% against 2.82% last year is higher. In fitness of things, therefore, I deem fit that the addition be restricted to ₹ 23 lakhs as against ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this expenditure on the basis of rate of rescreening charges of ₹ 200/- per m.t. indicated by the assessee himself in his statement recorded by the AO. He invited our attention to the comparative chart given by the ld. CIT(A) on page 6 of his impugned order to point out that the extraction expenses incurred by the assessee in A.Y. 2008-09 and 2010-11 were only ₹ 38 and ₹ 55 per m.t. respectively. He contended that the AO, however, was more than fair in allowing the claim of the assessee for extraction/rescreening charges to the extent of ₹ 200 per m.t. He invited our attention to para 3.6 of the impugned order of the ld. CIT(A) and submitted that the claim of the assessee of having purchased low grade raw material during the year under consideration was found to be not acceptable by the ld. CIT(A) after having noted that the cost of material per m.t. shown by the assessee was actually higher for the year under consideration, as compared to that of the immediately preceding year. He submitted that even the other findings recorded by the AO while making the disallowance of about ₹ 45 lakhs on this issue were agreed upon by the ld. CIT(A). He contended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration was substantially higher that of the immediately preceding and succeeding years. In any case, we find that the extraction/rescreening charges were paid by the assessee @ ₹ 38 and ₹ 55 per m.t. in the A.Ys. 2008-09 & 2010-11 respectively and the AO already having allowed the claim of the assessee for such charges @ ₹ 200 per m.t. during the year under consideration, we are of the view that even if the various reasons advanced by the assessee in support of its claim for higher extraction/rescreening charges are assumed to be correct, the same are already covered and taken care of by the fact that the higher extraction/rescreening charges @ ₹ 200 per m.t. are allowed by the AO himself, as compared to ₹ 38 as claimed by the assessee himself in the immediately preceding year. 13. It is relevant to note here that most of the adverse findings recorded by the AO while disallowing the claim of the assessee on account of extraction/rescreening charges to the extent of about ₹ 45 lakhs were found to be correct by the ld. CIT(A), but she still restricted the disallowance made by the AO on this issue to ₹ 23 lakhs, giving a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that he does not know the address or whereabouts of the casual labourers and he cannot identify them now. b. On inspection of labour register it is seen that he had paid labour charges every fortnight to at least 70-80 people on an average and thus assessee's statement of 3-4 people working under each batch head means at least 300-350 people would have to be employed by him at all times. This does not appear to be the truth, because there is only signature of one person whose name is written against the said entry. If so, then when the assessee is writing 80 names, he could have as well written each person's name and paid them separately. c. Also, if 80 persons were to be employed, that itself means 20-25 batches. The idea of 80 batches appears to be unrealistic. d. Further, this is not the first year of tax audit in the case of the assessee. Earlier years have also been subjected to tax audit. Hence, the assessee's contentions of TDS will not arise is not proper. Sec. 40 says - "Notwithstanding anything to the contrary in section 30to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, a disallowance of ₹ 45.05 lakhs was made by the AO treating the same as excessive expenses claimed by the assessee and the said disallowance made by the AO has already been confirmed by us, while deciding the main issue involved in both these appeals. Consequently, out of the total expenses of ₹ 1.09 crores claimed by the assessee on account of extraction charges, expenses to the extent of ₹ 45.05 lakhs are already disallowed and it is not possible to ascertain precisely as to whether the expenses of ₹ 9,76,185, which were again disallowed by the AO u/s. 40(a)(ia) of the Act, are forming part of the expenses allowed or disallowed. In the circumstances, we are of the view that the benefit of doubt should go to the assessee and since substantial portion of the expenses claimed by the assessee on extraction charges are already disallowed, it would not be fair and proper to make a disallowance on account of extraction charges again u/s. 40(a)(ia), which may result into double disallowance of the same expenses. We, therefore, uphold the impugned order of the ld. CIT(A), deleting the disallowance made by the AO on account of extraction charges by invoking the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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