TMI Blog2013 (9) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 19.70 lakhs. In this factual situation of the expenses claimed under this head in the preceding and succeeding years, we are of the considered view that the sales promotion expenses claimed in this year is excessive and in the absence of the assessee filing the details and supporting evidences of having incurred sales promotion expenses as claimed, the Assessing Officer was both reasonable and justified in disallowing only ₹ 10 lakhs out of sales promotion expenses in the relevant period and therefore sustain the same - Decided against assessee. Unexplained income - difference in sales - Held that:- AO has recorded that Karnataka Lokayukta in its report on the mining scam alleged malpractices on the part of the officials of the assessee-company. From the submissions made by the assessee, a Government of Karnataka Undertaking, it can be inferred that the sales of C-ore to Kalyani Steels Ltd. are supported by invoices raised, entries in the books of account audited by chartered accountants. The system of accounting followed by the assessee is the mercantile system as per the provision of section 145 of the Act and we find that no fault has been found therein nor has it bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of mining of iron ore, etc. In the meanwhile, the hon'ble apex court by orders dated October 30, 2002 and August 1, 2003 in I. T. A. No. 566 in Writ Petition (Civil) No. 202 of 1995 in the case of T. N. Godavarman Tirumalpad v.Union of India held that in the matter of compensatory afforestation fund, the user agencies are liable for payment of net present value for diversion of forest land for non-forest purposes under the Forest (Conservation) Act, 1980. Pursuant to the said order the Ministry of Forest and Environment, Government of India, formed guidelines in accordance with which the assessee had to make payment of ₹ 5,02,59,000 to the said fund to be eligible to continue its mining activities. The payment of ₹ 5,02,59,000 was made by the assessee towards the net present value to Compensatory Afforestation Planning and Managing Agency (CAMPA) during the period relevant to the assessment year 2004-05. The assessee in its books of account wrote off the entire amount as revenue expenses and filed its return of income for the assessment year 2004-05 on November 1, 2004 accordingly by declaring income of ₹ 2,87,22,404. The return was processed un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t- 1. The order of the authorities below in so far as it is against the appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case. 2. The authorities below are not justified in law in treating an expenditure of ₹ 5,02,59,000 as capital expenditure and further failed to appreciate the fact that the expenditure incurred is in the nature of the revenue expenditure under the facts and circumstances of the case. 3. The learned Commissioner of Income-tax (Appeals) is not justified in law by making an enhancement to the income assessed by the learned Assessing Officer. Further, without prejudice, the learned Commissioner of Income-tax (Appeals) is not justified in law in directing the learned Assessing Officer not to allow amortisation of expenditure without looking into the facts and circumstances of the case. 4. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 5. In view of the above and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure and was directed to be allowed in the year in which it was incurred. The operative part of the order in paragraph 5 at pages 7 and 8 is extracted and reproduced hereunder: We find force in the submission of learned counsel that payments to the government are to be paid once the mining lease is obtained and such payments are governed by various Acts along with the apex court making a ruling for State Governments to participate in the granting of mining lease by recovering compensation when their forests are uprooted. Therefore for this purpose, the funds are used for a natural regeneration which the assessee participates indirectly. Therefore at no point of time could it be said that the assessee had incurred a capital expenditure giving the assessee a benefit of enduring nature for the purpose of earning segmented income to render the same to income-tax. In other words, the authorities below have not pointed out the income generated against the purported deferred revenue expenditure so proposed by them in their impugned orders. The amount was incurred as revenue expenditure and is directed to be allowed in the year it has been incurred. Respectfully following the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and (vi) and deleted the additions at (iii) and (iv) above. Both the assessee and the Revenue are in appeal before us against the order of the learned Commissioner of Income-tax (Appeals) dated January 28, 2011. I. T. A. No. 350/Bang/2011 The assessee in its appeal I. T. A. No. 350/Bang/2011 has raised the following grounds as extracted hereunder: 1. The order of the authorities below in so far as it is against the appellant, is opposed to law, weight of evidence, probabilities, facts and circumstances of the appellant's case. 2. The appellant denies itself liable to be on a total income assessed over and above the total income declared by the appellant of ₹ 46,99,74,790 under the facts and circumstances of the case of the appellant. 3. The authorities below are not justified in law in disallowing the brought forward losses of the earlier years amounting to ₹ 4,01,57,980 under the facts and circumstances of the case. 4. The authorities below are not justified in law in adding a sum of ₹ 35,99,196 under the head shortage in closing stock under the facts and circumstances of the case. 5. The authorities below are not justified in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 139(5) of the Act which in the instant case is March 31, 2006. The record show that the assessee had filed the original return of income for the assessment year on November 1, 2004 (October 31, 2004 being a Sunday), which is in time under section 139(1) of the Act and therefore had time to revise his return of income under section 139(5) of the Act on or before March 31, 2006. The fact that the revised return of income was filed on March 9, 2006 does not deprive the assessee from carrying forward the losses, if any, of the assessment year 2004-05. Further, the loss returned by the assessee for the assessment year 2004-05 was not accepted in full in the assessment proceedings for the said year and in fact the income determined by the Assessing Officer was enhanced by the learned Commissioner of Income-tax (Appeals) in the appellate proceedings. We have, however, in I. T. A. No. 679/Bang/2010 (supra) allowed the appeal of the assessee and the loss, if any, determined on giving effect to our order in the said case, shall be permitted to be carried forward to the subsequent assessment years and be eligible for set off in accordance with the provisions of section 72 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard both parties and carefully perused the material on record. On a perusal of the order of assessment, we find that the Assessing Officer has dealt with this issue at length. It is seen that this item of shortage of closing stock is not a one off thing. The record show that the assessee claim's such shortages year after year. In the immediately preceding year, the assessee claimed shortage of stock to the tune of ₹ 22,377 metric tones and in the current year the shortages written off were 13,187 metric tonnes. As pointed out by the Assessing Officer, it is unlikely that granite blocks, etc., could be lost due to winds or rain and the claim made by the assessee we find are certainly without any basis to establish them with any evidence. The learned Commissioner of Income-tax (Appeals) too has been categorical in his order in observing that the shortages claimed are without any basis ; that the assessee claims such shortages year on year and that nothing appears to have been done by the management to prevent such leakages. In this factual situation, we are of the considered view that the assessee's claim of shortages of closing stock cannot be accepted as except f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claims recording that the assessee was unable to furnish any details of this expenditure and justification thereof. Before us also learned counsel for the assessee put forth the argument that the sales promotion expenses claimed were justified since the turnover had increased from ₹ 58,56,28,396 in the immediately preceding year relevant to the assessment year 2004-05 to ₹ 1,11,18,45,360 in the current year therefore justifying the increase in sales promotion expenses from ₹ 16,30,703 to ₹ 43,36,645. It was further contended that the fact that the accounts were audited and expenses were vouched no disallowance was called for on an ad hoc basis. Per contra, the learned Departmental representative supported the orders of the authorities below. We have heard both parties and carefully perused the material on record. It is a matter of record and not disputed that the turnover of the assessee has increased from ₹ 58,56,28,396 in the immediately preceding year to ₹ 111,18,45,360 in the current year. We find that the sales promotion expenses have increased from ₹ 16,30,703 in the immediately preceding year to ₹ 43,36,645 in the cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Karnataka Lokayukta. 4. The Commissioner of Income-tax (Appeals) is not justified in deleting disallowance of interest of ₹ 6,00,000 holding that in view of the disallowance of interest expenditure of ₹ 17.93 lakhs made under section 40(a)(ia) no separate disallowance of interest on account of using interest bearing funds for non-business purposes is called for. The Commissioner of Income-tax (Appeals) ought to have appreciated that the assessee is entitled to claim deduction of ₹ 17.93 lakhs disallowed under section 40(a)(ia) on remitting TDS to Government account in a subsequent year. The disallowance of ₹ 6 lakhs has been made by the Assessing Officer for not charging interest on the amount of ₹ 2 crores paid to Vijayanagar Ispat Ltd.,although the assessee was paying interest to Kalyani Steels on borrowed funds. 5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Commissioner of Income tax (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 6. The appellant craves leave to add, alter, amend and/or delete any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the contentions of both the Assessing Officer and the appellant. Under the Income-tax Act what is to be taxed is the real income and not the notional income. The appellant company had furnished all the details required by the Assessing Officer and the agreement between the appellant company and Kalyani Steels made provision for revision of sale price of C-ore only after January 17, 2005. Therefore, the Assessing Officer is not justified in making the addition on account of low sale price. In view of this the addition made by the Assessing Officer amounting to ₹ 15,51,45,117 is deleted. The learned Departmental representative strongly supported the grounds raised and submitted that the learned Commissioner of Income tax (Appeals) had erred in deleting the addition of ₹ 15,51,45,117 made by the Assessing Officer. It was submitted that the issue of rates of sales of C-ore at ₹ 253 per M.T. by the assessee to M/s. Kalyani Steels Ltd. when the market rates were quite high had been examined at length and dealt with elaborately by the Assessing Officer in the order of assessment at paragraphs 9.1 to 9.8 thereof and was wrongly deleted by the learned Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord do we find anything to establish that there were any realisation on account of sales beyond what is recorded in the books of account. As per the Income-tax Act, 1961 profits from business are to be computed under section 28 of the Act as per the accounting policies mandated by section 145 of the Act which in the assessee's case is the mercantile system. The scope of total income is also defined under section 5 of the Act. The Income-tax Act, 1961 is very clear that what is to be taxed is the real income of an assessee and not notional or hypothetical income and it does not permit an Assessing Officer to compute income without any evidence. There is no finding by the Assessing Officer that the assessee has sold its C-ore at a price less than that agreed to in the contract entered into with M/s. Kalyani Steels Ltd or that it has realised from M/s. Kalyani Steels Ltd. additional amounts on such sales which it had not recorded in its books. The assessee is legally bound to abide with the terms of the contractual obligations arising out of its agreement to sell C-ore to M/s. Kalyani Steels Ltd. and the contract entered into being legal and valid, it cannot be brushed aside. Afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. We have heard both parties and carefully perused the material on record. We find from the record that, it is not the case of the Assessing Officer that VIPL to whom the amount of ₹ 2 crores was given, is a sister concern of the assessee. It also appears that the Assessing Officer failed to appreciate the reasons for advancing of this amount by the assessee. The Assessing Officer failed to establish any direct nexus that the sum of ₹ 2 crores given to VIPL was out of ₹ 6 crores advanced by M/s. Kalyani Steels Ltd. The learned Commissioner of Income-tax (Appeals) in his order has also given a finding that the amount advanced to VIPL is done in the earlier years and not in the impugned year. In this factual matrix, we do not find any reason to interfere with the decision of the learned Commissioner of Income-tax (Appeals) deleting the addition of ₹ 6 lakhs made by the Assessing Officer. This ground No. 4 raised by the Revenue is, therefore dismissed. In the result, the Revenue's appeal in ITA 351/Bang/2011 is dismissed. I. T. A. No. 680/Bang/2010 and 733/Bang/2010 (assessment year 2006-07) The above are cross-appeals for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of industry normally occurs under the facts and circumstances of the case. 4. The authorities below are not justified in disallowing sales promotion expenses to the extent of ₹ 5,00,000 on the facts and circumstances of the case. 5. The additions made by the learned Assessing Officer is arbitrary and based on pure suspicions and surmises under the facts and circumstances of the case. 6. The appellant denies itself liable to be charged to interest under sections 234B and 234C of the Income-tax Act, 1961, under the facts and circumstances of the case. 7. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 8. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity. The grounds raised at S. Nos. 1, 5, 7 and 8 are general in nature and therefore no adjudication is called for thereon. The ground raised at S. No. 6 challenges the charging of interest under sections 234A and 234B of the Act in the assessee's case. The charging of interest is consequential and mandatory and the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justification for raising the invoices at a rate lower than the desired rate causing loss to public exchequer which has been investigated and reported by Karnataka Lokayukta. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Commissioner of Income-tax (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 5. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above. The grounds raised at S. Nos. 1, 4 and 5 are general in nature and therefore no adjudication is called for thereon. The grounds at S. Nos. 2 and 3 are raised in respect of the deletion by the learned Commissioner of Income-tax (Appeals) of the addition of ₹ 19,00,59,451 made by the Assessing Officer on account of the difference in the sales recorded in the books of the assessee and sales revenue accrued to the assessee on the basis of the marketing agreement with M/s. Kalyani Steels Ltd. The very same issue was decided by us in the Revenue's appeal in I. T. A. No. 351/Bang/2011 for the assessment year 2005-06 at paragraphs 18.1 to 18.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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