TMI Blog2019 (10) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 are more than the investment made and therefore that the presumption should be drawn that investments are made out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief 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 THAT:- Admittedly, purchases made by the assessee company was duly supported by bills a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly 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. - I.T.A. Nos. 2280, 2281, 2282 & 2283/CHNY/2018 - - - Dated:- 25-9-2019 - DUVVURU RL REDDY (JUDICIAL MEMBER) AND INTURI RAMA RAO (ACCOUNTANT MEMBER) Appellant by : Shri. M. Srinivasa Rao, IRS, CIT. Respondent by : Shri. T. Banusekar, C.A. ORDER INTURI RAMA RAO, These are appeals filed by the Revenue directed against different orders of the Commissioner of Income Tax (Appeals)-18, Chennai ( CIT(A) for short) dated 16.04.2018 for the Assessment Years (AY) 2011-12, 2012-13, 2013-14 and 2014-15. 2. There is a delay of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sakshi Trade Link Pvt Ltd had received commission at the rate of 0.50% of the turnover during the previous year relevant to assessment year under consideration. 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/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21,28,32,313 Provisions made reducing amounts from contract receipts received from M/s. Serajuddin Co 8,27,62,884 Provisions made reducing amounts from contract receipts received from Indrani Patnaik (Mahaparat site) 44,70,158 Subcontract payments in Sirajuddin mines out of scope of work order disallowed. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs. Shree Rajasthan Syntex Ltd (2009) 313 ITR 231 (Raj). 11. On the merits of the additions payments made to M/s. Sakshi Trade Link Pvt Ltd, he submitted that payments were made towards liasoning services and he further submitted that expenditure cannot be treated as bogus expenditure for the following reasons:- (i)A letter from the director of Sakshi Trade Links Pvt Ltd, Shri.Suraj confirming the transaction and that the payment was received by them through e transfer, was filed before the Assessing Officer during the course of assessment proceedings. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed. This is nothing but difference in royalty and this provision is made for ascertained liability and the same is deductable as deduction and placed reliance on the following judgments. S.A. Builders Ltd vs. CIT (A) Anr (2007) 288 ITR 1 (SC) Hero Cycles (P) Ltd vs CIT, (2015) 379 ITR 347 (SC) Sassoon J. David Co P Ltd vs. CIT (1979) 118 ITR 261 12. We heard the rival submissions and perused the material on record. We shall take up the primary ground which goes to the very root of the matter i.e validality of the reopening of the assessment. Admittedly original assessment order was passed by the Assessing Officer under scrutiny proceedings. During 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) had held that at the initiation stage, what is required is only reasons to believe but not establishing the fact of escapement of income. At the stage of issue of notice, the only question is whether there is relevant material on which reasonable person could have formed requisite belief, whether the material would conclusively prove the escapement is not the concern at that stage. This fact of law is reiterated by the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Private Ltd (2007) 291 ITR 500. 13. The question whether information received from the Investigation Wing of the Department for reopening the assessment has been justified or not is gone into by several High Courts. The 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 Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee made payment of A22,06,000/- to M/s. Sakshi Trade Link Pvt Ltd inclusive of Service Tax towards consideration stated to have been for services of liasoning work. The payment was made through banking channel and Respondent- assessee had also deducted TDS and the laisoning services are rendered for arranging and organizing for lifting of iron ore, no man power or equipment is necessary. Assessee also filed confirmation letter from one of the Directors of M/s. Sakshi Trade Link Pvt Ltd namely Suraj who confirmed the transaction vide his letter dated 28.01.2016 placed at page No.7 of the paper book. However, based on the statement of another Director of M/s. Sakshi Trade Link Pvt Ltd namely Shri. Sumit Sharma, DCIT, Kolkata have come to conclusion that 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additions in respect of items which has come to the notice at the time of reassessment proceedings, this issue had been considered by Jurisdictional High Court in the case of Martech Peripherals P. Ltd vs. DCIT, (2017) 394 ITR 733 wherein the Hon ble High Court after referring to the decisions of Hon ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd, (2011) 331 ITR 236 (Bom), Gujarat High Court in the case of CIT vs. Mohmed Juned Dadani, (2013) 355 ITR 172 (Guj) and Delhi High Court in the case of Oriental Bank of Commerce vs. Addl. CIT, 49 Taxmann.co, 485 held that in case where notice for reopening of assessment was issued in respect of one item of addition, and during the reassessment proceeding, if the Assessing Officer had come to notice other items of addition, other items of addition 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ('such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. 19. In the present case, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The emphasis in this behalf is on the expression and also bring to tax appearing in the main part of section 147 in relation to the right of the Revenue to assess taxable income discovered during reassessment proceedings. In my view, Explanation 3, clearly, expounds that the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment and such other issue, that comes to his notice subsequently, albeit, in the course of proceedings held under section 147 of the Act. In other words, if, notice for reopening of the assessment was issued on one aspect, and in the course of reassessment proceedings another aspect was discovered, the reassessment order would be valid, only if, the aspect, which led to the reopening of assessment, continues to form part of the reassessed income. 23. This view, as has been correctly submitted by the learned counsel for the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Tractors and Farm Equipment Ltd vs. ACIT, (2018) 409 ITR 369, wherein it was held as follows:- 16. The decision in the case of Jet Airways (cited supra) was referred to by the High Court of Delhi in the case of Ranbaxy Laboratories Limited v. CIT [2011] 336 ITR 136 (Delhi), wherein it was held that the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. Further, it was held that for every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148 of the Act. Thus, it was held that the Assessing 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 justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been incurred wholly and exclusively for the purpose of the business of the assessee. 4. The order of the ld.CIT(A) is not considered acceptable on the deletion of addition made to income based on difference between the figures as per income credited to P L account and as per form 26AS, further appeal to the ITAT is recommended since the assessee has not properly given in any acceptable explanations as to why the said amount has not been credited into P L a/c as income. Also, in respect of the major amount of ₹ 2,80,75,405/- involved in the above disallowances the same represents the provision made during the year in accounts which has been reversed in the next financial year without adequate reasons. 5. The ld. CIT(A) s deletion of the additions made towards payment made to sub contractors, is not accepted, since the very fact that there has been no response to the statutory notices issued u/s 133(6) to the concerned sub contractor who is stated to have undertaken certain works and also considering the fact that the assessee did not bother to produce any proper confirmation of accounts from the said party even after being told about the non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which no disallowance was made by the assessee. The Respondent - assessee was required to explain as to why the expenditure should not be disallowed, invoking the provisions of s. 14A of the Act. The Respondent - assessee submitted that no borrowed funds were utilized for making investments which yielded exempt income. In support of this, Respondent - assessee submitted that interest free funds were available with the assessee as on 31.12.2012 is A55,71,00,000/- and investments made are only A10,11,90,000/-. As regards to the other disallowance of administrative expenses, it is submitted that maximum expenditure that can be disallowed is only A6,00,000/- per annum, however the Assessing Officer computed the amount of disallowance under the provisions of Rule 8D arrived at the disallowance of A52,94,404/-. The Assessing Officer also disallowed a sum of A76,76,946/- out of the Corporate Social Responsibility (in short CSR ) expenditure by holding that expenditure was in the form of donation and renovation of college building etc., and the expenditure was not incurred out of any business expediency. The Assessing Officer disallowed interest on belated remittance of TDS A13,57, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (ROM), excavation loading work, hiring of dumpers and supply of heavy earth moving equipment for working at the crusher plant. It is further stated that all the payments were made out of account payee cheques or through banking channels and expenditure was incurred wholly and exclusively for the purpose of business. On consideration of the explanation of the Respondent assessee, the Assessing Officer concluded that payment by cheque or banking channels and deduction of tax at source does not establish the genuineness of the transaction as the sub-contractor had not responded to notice issued u/s.133(6) of the Act, the Assessing Officer concluded that payments were not made for business purpose and accordingly disallowed the sum of A4,38,09,329/-. The Assessing Officer further disallowed a sum of ₹ 70,66,678/-out of purchases. The Assessing Officer disallowed purchases of A70,66,678/- made from the following three persons. Sl.No Name of the concern Address of the concern Amount paid 1 Maruti Enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) after considering the fact that payments were made through banking channels and TDS was made holding that the mere fact that sub contractors not responded in response to notice issued u/s.133(6) of the Act cannot be reason to disallow the expenditure, he directed the Assessing Officer to delete the addition. As regards to the disallowance of purchases amounting to 70,66,678/- alleged to be bogus, the ld. CIT(A) directed the Assessing Officer to delete the addition considering the fact that payments were made through banking channels and by observing that the Assessing Officer cannot step into the shoes of the assessee as to how assessee should conduct the business. 24. Being aggrieved by the above decision of the CIT(A), the Revenue is in appeal before us challenging the correctness of the order of the CIT(A). Ld. Departmental Representative submitted that ld. Commissioner of Income Tax (Appeals) ought not have allowed CSR expenses of ₹ 76,76,946/- being amount spent on the development of local area of mines. He further submitted that ld. Commissioner of Income Tax (Appeals) ought not have restricted disallowance of 10% of cash expenditure alone. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lighting facilities (v) Training the villager particularly the unemployed youth by way of skill development programs and creation of employment opportunities (vi) Training the tribals by setting up security training schools and providing employment to them (vii) Community assisted programmes and events, sports activities (viii) Community welfare expenses and running old aged homes (ix) Providing plantation jobs for the tribal and unskilled people living in the vicinity of the mines area . It is submitted that assessee company is engaged in mining services at various mines located in Keonjihar Dist. Odisha State. The mines are located in remote and tribal areas of Kenojhar Dist. The villages lack adequate drinking water, medical facilities, school for children and proper road facilities. Most of the villagers in this region are indentified as living below the poverty line and this expenditure was incurred in order to buy goodwill and ensure smooth business operations in the locality and therefore expenditure was incurred only out of the business expediency. Thus, he submitted that no int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) of Rule 8D ₹ 24,29,143/-. During the course of assessment proceedings as well as before the ld. Commissioner of Income Tax (Appeals) assessee company had substantiated its claim that no borrowed funds were utilized for making investments which yielded the exempt income by filing financial statements. From the financial statements, it is clear that assessee has own funds of ₹ 55,71,00,000/- against investments of A10,11,90,000/-. It is clear that own funds are more than investments. Therefore presumption should be drawn that own funds were utilized for the purpose of making investments and no disallowance of interest should be made. This proposition of law has been upheld by the Hon ble Supreme Court in the case of CIT v. Reliance Industries Ltd. [2019] 410 ITR 466 (SC) affirm the decision of the Hon ble High Court in the case of CIT v. Reliance Industries Ltd. [2017] 86 taxmann.com 24 (Bom.), wherein it was held as follows: 33. We do not see how when the Assessing Officer's views are that in cases of the interest free loans and interest given by the assessee to its subsidiary companies are in the above sums, still, the principle laid down by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Revenue is partly allowed for statistical purpose. 29. Ground No.3 challenges the decision of the ld. Commissioner of Income Tax (Appeals) to restrict the CSR disallowance to 10% the expenditure incurred in cash. From the perusal of the assessment order, it is clear that the Assessing Officer had accepted in principle the allowability of the CSR expenditure. The Assessing Officer disallowed the amount only to the extent of ₹ 76,76,946/- as expenditure was incurred in the nature of donation and renovation of college building etc., Admittedly, the expenditure was incurred in the areas where business operations of the assessee company were carried out in order to promote social economic condition of the local community living and in order to win the goodwill of the local people. The Hon ble Jurisdictional High Court in the cases of Madras Refineries Ltd (supra), Velumanickam Lodge (supra) as well as Cholan Roadways Corporation Ltd (supra) had held that the expenditure incurred on promoting social welfare of the local community and providing drinking water facilities, educational facilities cannot be regarded as expenditure wholly incurred outside the ambi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order has dis-allowed 40% of the total payments made on the basis of the payments made to 13 parties, who were not produced before him during the assessment proceedings. This on the ground that payments are not genuine. We are unable to understand on what basis the dis-allowance is made on the total payments, if at all it should have been restricted only to the amounts paid to the 13 persons who are not produced before the Assessing Officer. Be that as it may, we find that the respondent - assessee had done everything to produce necessary evidence, which would indicate that the payments have been made to the parties concerned. The details furnished by the respondent assessee were sufficient for the Assessing Officer to take further steps if he still doubted the genuineness of the payments to examine whether or not the payment was genuine. The Assessing Officer on receipt of further information did not carry out the necessary enquiries on the basis of the PAN numbers, which were available with him to find out the genuineness of the parties. The CIT(A) as well as the Tribunal have correctly held that it is not possible for the assessee to compel the appearance of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Income Tax Act, Rules and facts of the case. 2. 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. 3. The view of the ld.CIT(A) is not correct in as much as the CSR expenses have not been proved to have been incurred wholly and exclusively for the purpose of the business of the assessee. 4. The order of the ld.CIT(A) is not considered acceptable on the deletion of addition made in respect of receipts from Electrical Engineer, Rural Works II, Keonjhar, since the assessee maintains accounts in Mercantile system basis and hence the income should be recognized in the year in which the work was done and necessary bill raised. Hence, second appeal. 5. The ld.CIT(A) s deletion of the additions made towards payment made to sub contractors, is not accepted, sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is in appeal before us in the present appeal. 38. 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. 39. The Ground of appeal No.2, challenges the decision of the ld. Commissioner of Income Tax (Appeals) in deleting the addition u/s.14A of the Act. Identical issue has arisen in the preceding year in ITA No.2281 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 26 above. Accordingly, we delete the ground No.5 raised by the Revenue. 43. In the result, the appeal filed by the Revenue in ITA No.2282/CHNY/2018 for assessment year 2013-14 is partly allowed for statistical purpose. 44. Now, we take up appeal No.2283/CHNY/2018 for assessment year 2014-2015 for adjudication. 45. The Revenue raised the following g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness, 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 the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Central Circle Salem (hereinafter called as Assessing Officer ) vide order dated 29.12.2016 passed u/s. 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses the assessee company, rather the Raising Contractor is not at any kind of risk with respect to the quality of ore mined. If the ores mined by the subcontractor is of low grade, assessee company need not 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 agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying work at the Balda Block Mines of Serajudhin CO AND AT Unchaballi Mines of Indrani Patnaik. These internal roads are laid with carting of excavated earth and laying in 6 or 8 inches thick layer of excavated earth, consolidation using road roller, evenly spreading, watering and compacting for vehicle use from 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal expenditure of A1,06,60,000/-. 50. Disallowance u/s.14A of the Act, the Assessing Officer made disallowance under clause (iii) of Rule 8D of A7,51,000/- noticing that assessee had earned dividend income of A4.1 Crores. 51. Being aggrieved by the above additions, the assessee filed an appeal before the ld. CIT(A), who vide impugned order directed the Assessing 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 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the assessee company received notice from M.B. Shah Commission which was set up for inquiring into illegal mining case in various states. It is further submitted that assessee company is a member of FIMI, an association of mining industries also participated in the hearings in the business interests of its members which in turn distributed the expenses among its members. Expenditure is incurred only 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greed with the mine owners is either affixed percentage of the sale price of the ore or fixed rate per Metric Ton as specified in the work order. Such revenue rates awarded to our company are comparatively higher and result in much better realization per MT as compared to rates awarded by other entities namely Odisha Mining Corporation, a state Govt. undertaking. The rates are agreed upon to compensate the considerable risk involved, the totality of the services of an end to end nature of work, scientific mining with state of the art mining equipment and maximizing the returns by optimizing productivity. After mutual discussion it was agreed between the mine owner and the contractor that any compensation arising out of quality issues shall be borne by the contractor and has to be mutually settled by the buyer and the contractor. Contractor has agreed upon to bear the cost of compensation in view of the higher price awarded and to continue the future 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 continuit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing equivalent to rate paid for ore: The mine owner sells the processed iron ore 5-18, 10-30 and fines material to the buyer at mutually agreed market rates as per the purchase order issued by the buyer. As already stated, owing to the nature of operation and services rendered by the contractor, it has been agreed that any quality issues or claim or allowance relating to the processed ore shall be borne and settled by the contractor. As far as the buyer is concerned, any quality allowance or claim shall be relating to the total price paid by him for the material. Generally, the sale price of 5-18 is around ₹ 5500/ per MT and ₹ 1600 to 1800/per MT for fines. The buyer is not concerned about the rate or the price which the contractor gets. The quality allowance paid, amounts to around 20% of the total sale price of the ore. We are submitting few copies of the purchase order issued by the buyer to mine owner (Annexure-I) which contains the quantity and rate agreed in the case of 1)Shyam Metalics and 2) Shyam Power 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 inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.01.2014 Differential 176160 1,46,01,886 2 3 28.02.2014 Price on 1,07,97,962 3 4 31.03.2014 Purchase and sales 62,10,400 Total 3,16,10,248 Our company had accounted the above loss under the head Quality allowances claims. The price differential per MT works out to around 180/- per MT. On the other hand our company had realized its share of revenue for raising work offines at around ₹ 780/- to 820/- per MT We submit the quality allowance expenditure has a direct nexus with the business carried on by the assessee and being revenue in nature rightly allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this appeal rests on the true construction of Section 12(2). In our opinion, the law on this point has been correctly summarised in the judgment of the High Court. The following principles are relevant:- (a) though the question must be decided on the facts of each case the final conclusion is one of law: Indian Radio Cable Communi cation Ltd. v. The Commissioner of Income-tax, Bombay [1937] 5 ITR 270 PC, and Tata Hydro- Electric Agencies Ltd. v. The Commissioner of Income-tax, Bombay [1937] 5 ITR 202 PC; (b) it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned : Moore v. Stewarts and Lloyds [1906] 6 Tax Cas. 501and Usher's case [1915] AC 433; (c) it is enough to show that the money was expended not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business . 13 British Insulated and Helsby Cables Ltd. v. Athertonh [1926] AC 205; and (d) beyond that no hard and fast rule can be laid down to explain what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, the word necessarily came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. This view is in accord with the following observations made by this Court in CIT v. Chandulal Keshavlal Co. [1960] 3 SCR 38 at page 48 : Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party-Usher's Wiltshire Brewerv v. Bruce 6 TC 399 (HL). Another test is whether the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment year 2012-13 in ITA No.2281/CHNY/2018. We have already deleted the disallowance in para 29 above in the ground of appeal involving identical facts and issue. For the parity of reasons mentioned therein, we dismiss this ground of appeal also filed by the Revenue. 57. Ground No.4 challenges the decision of ld. CIT(A) in allowing legal expenses to the tune of A1,06,60,000/-. The Assessing Officer disallowed legal charges in connection with the case of T.N. Godavarman Thirumalpad vs. UOI, a PIL filed against illegal mining in Odisha. It is the case of the Assessing Officer that assessee is being a contractor for mine owners and he had no locus standi in litigation before Hon'ble Supreme Court. Therefore the Assessing Officer was of the opinion that legal expenditure was not allowable as deduction. The assessee company submitted that it is a member of FIMI, which is also impleaded before the Hon'ble Supreme Court in the PIL and the association had allotted its expenditure among members. Apparently, business of the assessee is directly connected with mining and expenditure was incurred only to protect the business interest of the assessee company and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure was laid out for the purpose of the business wholly and exclusively, that is, reasonably and honestly incurred to promote the interest of the business. Persistence of the assessee in launching the proceeding and carrying it from Court to Court and incurring expenditure is not a ground for disallowing the claim. (c) In B. Jaganmohan Rao, it has been held, it is well established that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be capital payment and not revenue payment. What is essential to be seen is whether the amount was paid for bringing into existence a right or an asset of an enduring nature. In other words, if the asset which is acquired is in its character a capital asset, then any sum paid to acquire it must surely be capital outlay. Money paid in consideration of the acquisition of a source of profit of income is capital expenditure. In the aforesaid judgment, reliance has been placed on Atherton v. British Insulated and Helsby Cables Ltd. [1926] A.C. 205 (HL), wherein, Viscount Cave has said as under:- But when an exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. 14. In B. Jaganmohan Rao, facts were that payment of money made by the assessee therein was in order to perfect his title to the capital asset. It was a lump sum payment for acquisition of a capital asset and therefore, the Hon'ble Supreme Court held that the amount should be treated as capital payment and the assessee was not entitled to exclude from the income sought to be assessed in his hands any portion of that amount. But having regard to the facts in the present case noted above and by applying the decisions in the aforementioned judgments, we find that the Tribunal was justified in holding in favour of the assessee and thereby, dismissing Department's appeal . Thus 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. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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