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2015 (7) TMI 680 - ITAT MUMBAI

2015 (7) TMI 680 - ITAT MUMBAI - TMI - Validity of Reopening of assessment - whether CIT(A) erred in confirming the disallowance of compensation charges of ₹ 11,00,000/- paid to Bhairav metals considering that the same is not an expense of current year and holding that the same could be an advance or debit? - Held that:- The issue regarding debit of ₹ 11.00 lacs to the P&L Account was duly enquired into by the AO vide notice issued to explain several expenses debited to P&L Account. .....

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e to contend that no addition was called for, re-assessment proceedings were initiated, which is clearly as a result of “change of opinion” and cannot be approved in the light of decision of Hon’ble Bombay High Court in the case of GKN Sinter Metals Ltd. vs. ACIT (2015 (1) TMI 832 - BOMBAY HIGH COURT ). Accordingly, accepting the arguments of Ld. AR that reassessment proceedings were not validly initiated - Decided in favour of assessee. - ITA No. 2014/MUM/2013 - Dated:- 3-7-2015 - Shri I.P. Ban .....

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2. The CIT(A) erred in confirming the disallowance of compensation charges of ₹ 11,00,000/- paid to Bhairav metals considering that the same is not an expense of current year and holding that the same could be an advance or debit. Yours appellant submits that on the facts and circumstances of the case and in law compensation paid to Bhairav metal shall be allowed as deductible business expense. 2. Assessment in this case has been reopened vide notice under section 148 of the Income Tax Ac .....

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5,00,000/- may be returned to us as soon as the payment is received from M/s. Reliance Silicons (I) Pvt. Ltd. In view of the above, the assessee did receive a part consignment of silicon metal which they tried to dispose of to another buyer. In this connection, the assessee gets business clients for big companies like Haldia, Petrochemicals, Usha Ispat and MSTC etc. and in process earns income being consultancy /broker charges as evidenced from TDS certificates. Further, the Audit also pointed o .....

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7; 11.00 lacs was made in the impugned assessment order dated 16/12/2010. The assessee challenged the validity and otherwise of the reassessment proceedings as well as the addition of ₹ 11.00 lacs on merits. 3. It was submitted by Ld. AR that the initiation of re-assessment proceedings is bad in law as the same is based upon change of opinion. To support such arguments Ld. AR submitted that during the course of original assessment proceedings the AO had raised the query regarding the impug .....

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at page 49 to 53 of the paper book, which is a notice dated 9/1/2007. It was submitted that various queries were raised including the impugned addition and reference of this was made to query raised as per Sl.No.22, where the assessee was asked to explain the allowability or otherwise of the expenses debited to P&L Account. Query raised at sl.No.22(K) of the aforementioned notice read as under: 22. Details of the following expenses debited: a. Rent rates taxes ₹ 1,48,825/- with copies .....

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re registered. h. Bank charges i. Bank loan interest with ledger copy of bank loan interest. j. Travelling expenses with details of person who has travelled, dates to and fro, designation, place, purpose, amounts k. Compensation charges ₹ 11,00,000/- with detailed note and copies of agreements. (Emphasis provided) l. Small balance w/off ₹ 36,352/-. m. Month wise Misc expenses with a note on these expenses n. Proof of payment of all provision of expenses. 3.1 It was further submitted .....

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d Representative s letter dt.3.05.2007 filed during regular assessment before ACIT - 25(3) alongwith following enclosures: - Note on compensation Charges Paid of ₹ 11,00,000/- Ledger Account of compensation Charges in Assessee s books of accounts. - Assessee s letter dt. 07.07.2003 addressed to M/s.MSTC Ltd. - Confirmation from M/s. Bhairav Metals for receipt of ₹ 25,00,000/- Letter of M/s. Bahirav Metals to assessee for refund of ₹ 11,00,000/- Letter of M/s. Bhairav Metal to a .....

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ing consultancy charges from Metal Scrap Trading Company Ltd (MSTC) Kolkata, a Public Sector Company attached to Ministry of Steel carrying on business of imports of industrial inputs for Public and Private Sector. During the year under consideration the assessee has introduced a client. M/s. Bhairav Metals to MSTC for supply of 50 MTs of Silicon Metal. M/s. Bhairav Metals deposited ₹ 25,00,000/- as advance against purchase of 50 Mf s of silicon metal. The MSTC in turn asked Reliance Silic .....

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well commercial obligation to resolve the dispute immediately between the parties since Bhairav was insisting for refund of advance of ₹ 25,00,000 immediately. On failure of the deal the assessee, even after great persuasion, could only arrange to get ₹ 14 lacs from Reliance Silicon for Bhairav. Since the assessee is a consultant of MSTC and he also introduced Bhairav Metal in this abortive deal, he had to compensate Bhairav by paying the balance amount of ₹ 11 lacs for maintai .....

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id by the assessee are enclosed herewith for your ready reference. On plain reading of these letters it is abundantly clear that assessee had to pay ₹ 11 lacs as compensation to Bhairav as MSTC did not pay the refund amount. 'While on the subject, we submit that MSTC has not paid any amount towards this deal till date and because of the business relation of the assessee with MSTC he can not take any other measure to recover the dues. Under these circumstances, H is submitted that compe .....

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xpenditure is allowable u/s 37(1) of the LT. Act. Section 37(1) of the I.T.Act allows an expenditure as deductible expenditure if the said expenditure is laid out or expended wholly and exclusively "for the purposes of the business". The term for the purposes of business is of wide connotation and includes all expenditure incurred for business out of commercial expediency. The term commercial expediency means everything that serves to promote commerce and includes every means suitable .....

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s order, it was submitted by Ld. AR that reasons to reopen are based only on the letter written by the assessee dated 7/7/2003 which was addressed to M/s. MSTC Ltd., copy of which was also filed before AO during the course of original assessment proceedings. Thus, it was submitted by Ld. AR that it is a case where initiation of reassessment proceedings is based on mere change of opinion . It was submitted that it is now an accepted proposition of law that if there is material on record to show t .....

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tals Ltd. vs. ACIT, 274 CTR 0001(Bom) dated 6/1/2015. Reference was made to the following observations of their Lordships: 14. However, Mr. Chhotrary, learned Counsel appearing for the Revenue submits that there has been no formation of opinion on allocation of expenditure amongst the three manufacturing units by the Assessing Officer as the Assessment Order dated 9th March, 2005 passed under Section 143(3) of the Act contains no discussion on the same. According to the Revenue, it could only be .....

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allowed in the assessment order, it could not be contended that the Assessing Officer had not applied his mind while passing the assessment order. Moreover in this case, it is evident from the letter dated 6th August, 2007 addressed by the Assessing Officer to the Petitioner containing the reasons recorded for issuing the impugned notice also record the fact that during the regular assessment proceedings, the Petitioner has been asked to furnish details in support of the claim for exemption unde .....

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the explanation offered by the Petitioner was found to be satisfactory. This is evident from query dated 27th December, 2004 and the Petitioner's response to the same on 25th January, 2005 explaining the manner of distribution of common expenses for delaying the process of claiming deduction under Section 80IA/IB of the Act. All this would indicate that Assessing Officer had formed an opinion while passing the order dated 9th March, 2005. This Court in Aroni Commercials Ltd. v Is. Assistant .....

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an assessee. Moreover, if every contention raised by the assessee which even if accepted is to be reflected in the assessment order, then as observed by the Gujarat High Court in CIT vs. Nirma Chemicals Ltd. 305 ITR 607, the order would result into an epic tome. Besides, it would be impossible for the Assessing Officer to complete all the assessments which have to under gone scrutiny at its hand. In the above view, it is clear that once a query has been raised during the assessment proceedings .....

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assessment order under Section 143(3) of the Act, the Assessing Officer would cease to have any reason to believe as held by the Supreme Court in Kelvinator of India Ltd. (supra). Moreover, the power to re-assess under Section 147/148 of the Act is not a power to review an order of assessment passed under Section 143(3) of the Act. 4. On the other hand, Ld. DR relied upon the order passed by AO and Ld. CIT(A). 5. We have heard both the parties and their contentions have carefully been considere .....

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