TMI Blog2017 (12) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of assessee. - I.T.A. No. 868/Kol/2017 - - - Dated:- 14-12-2017 - Shri P.M. Jagtap, AM And Shri S.S. Viswanethra Ravi, JM For The Assessee : Shri A. K. Gupta, FCA For The Revenue : Md. Usman, CIT DR ORDER Per P.M. Jagtap, AM This appeal filed by the assessee is directed against the order of Ld. Principal CIT 2, Kolkata dated 28.03.2017 passed under section 263 of the Income Tax Act, 1961 and the grounds raised by the assessee therein read as under: 1. For that the order passed under section 263 of the Income Tax Act, 1961 (in short the Act ) by the Principal Commissioner of Income Tax -2, Kolkata (in short CIT ) dated 28.03.2017 is without jurisdiction and illegal as none of the condition precedent for exercise of the power under section 263 of the Act exists and/or has been satisfied and as such the said order is erroneous and without jurisdiction and liable to be cancelled. 2. For that the order passed by the Assessing Officer was not in any way erroneous or prejudicial to the interest of revenue and as such the CIT would not exercise any power under section 263 of the Act. The CIT erred in holding that the order of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s engaged in mining business. The return of income for the year under consideration was originally filed by it on 30.09.2012 declaring a total income of ₹ 4,67,59,83,600/- under the normal provisions of the Act and book profit of ₹ 3,84,70,61,103/- under section 115JB of the Act. In the assessment completed under section 143(3) vide an order dated 30.03.2015, the total income of the assessee company was determined by the A.O. at ₹ 4,80,68,13,340/- after making the following additions: 1. Disallowance of depreciation Addl. Depreciation 8,22,02,645/- 2. Disallowance of foreign exchange fluctuation expenses 5,48,910/- 3. Disallowance of Gift expenses 14,27,807/- 4. Disallowance u/s 40(a)(ia) 63,98,253/- 5. Disallowance of compensation 13,80,000/- 6. Revenue expenses treated as capital 3,15,12,126/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment are satisfied and/or are fulfilled. The assessment order passed by the A.O. cannot be considered and termed as erroneous in so far as it is prejudicial to the interest of the revenue. The order passed by the A.O. was in accordance with the law after making due enquiry in respect of various matters arising in the assessment and as such the same cannot be revised under section 263 of the Act. 1. The notice under reply is proposing to revise the assessment on the ground that: A. Rate at which ROM were sold by our client needs to be substituted with the average sale price as per M.B. Shah Commission Report. B. Disallowance in entirety the expenses claimed by the client. Enquiry in assessment proceeding s 2. (a) Dealing with the jurisdictional issue we wish to state on behalf of our client above named that the notice proposes to disallow in entirety of the total operational and incidental expenses against various sums disallowed by the AO in the assessment proceeding. In this connection, we wish to point out that the allowance of expenditure was gone into by the AO in detail in the assessment proceedings. In course of the assessment proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above judgements are annexed hereto and marked as Annexure 1,2, and 3 respectively. 2.(c) lt is therefore, submitted that the legal position is well settled that where an issue has been gone into detail by the AO in course of the assessment proceeding and the decision taken by him is a possible view the same cannot be revised under section 263 of the Act. 5. In the written submission dated 24th March, 2017, the assessee also made a detailed submission on merit in reply to both the points raised by the Ld. Principal CIT in the notice issued under section 263 as under: 4.b) The notice has referred to and/or solely relied on the M B Shah Commission Report as far as substitution of value of sale price of ROM is concerned. You have also stated in para 5 of the notice under reply that there appears to be a hidden understanding between our client and M/s Jindal Steel Power Ltd. The details of the understanding, allegedly if any, has not spelt out and the same is totally vague. It is difficult to comprehend that how that alleged if any, has not understanding affects the allowance of expenditure. No material or evidence has beenreferred to in the notice under reply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summarised as under: Year Average Sale price of Iron Ore in Rs./Tonne Total production of Iron Ore (in thousand MT) Total Sale value (in Crores) 2011-12 8561.07 66529 56955.94 A perusal of the aforesaid report will show that it is not regarding our client on the sale price. In the context of Corporate Social Responsibility, the Shah Commission has given the average sale price of Iron Ore and the total production of Iron Ore in the whole State of Odisha and nothing more. The said report does not state that the sale price at which the production of our client was sold or that there was understatement of sale value. The addition as suggested does not have any leg to stand upon as there is no allegation in the said report at all, as regards the value at which our client has sold. It also does not contain any allegation as to our client having undervalued its sale. The undervaluation as alleged by you is only based on page 103 of the M B Shah Commission Report which cannot be relied upon for making the said alleged addition on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... economic resources and minimise its risk as far as possible. This was also one of the binding conditions for transfer of mining lease based on which the transfer was allowed by the State Government. To further elaborate the difference, a detailed write up of the various terms is as under: RoM As per Mineral Concession Rule, 2016, Rule 2 (f), RoM (run-of-mine) means the raw unprocessed or uncrushed iron ore in its natural state obtained after blasting or digging, from the mineral zone of the leased area . It is normally a mix of finer particles as well as bouldery material. Contents may vary in size from 1 mm to 1500 mm (geological classification basis of size of material). Finer particle percentage in the RoM at Odisha may vary from 30- 40% to even 60-70% in volume. ( ii) Iron Ore Lump(RoM) Iron ore Lump as per definition of ROM contains boulders, lumps, fines etc. Classified based on size and used as a terminology, wherein lumpy ore percentage is more, may be in range of 70-80% but in raw form. This category of Iron Ore ROM is well recognised by the IBM, Govt of India. This fact is clear and evident from the Mineral Conservation Development Rule, 1988.Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uoted for these graded ore only. Hence, you should procure the data on PMV from the JSPL for the purpose of reporting in the returns. On similar lines, the consignee wise despatches of processed grades and sale value has to be furnished in the returns (monthly and annual) . ( e) The letter is issued by Government of India, Ministry of Mines which is a nodal authority as far as the mining matters are concerned. lt states that the ROM excavated by our client is not MCDR grade ore as per the Rule. It also accepts the fact that the separate crusher plant within the mine site is operated by JSPL to whom our client is selling the ROM. It also directs our client that only the graded ore processed in the crusher plant is required to be reported and the PMV (Pit Mouth Value) should be quoted for these graded ores. Thus, it is clear that the Government of India, Ministry of Mines itself considers that the ROM produced by our client is clearly different from the MCDR grade ore which is required to be reported to the Government and which is sold in the market. The PMV of the said ROM cannot be the value of the finished product obtained after series of processes of crushing and screening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we submit on behalf of our client abovenamed that there is no basis or material given in the notice under reply to justify any further disallowance. The disallowances made in the assessment proceedings are already under appeal pending adjudication before CIT(A)-2, Kolkata. lt is an admitted fact that crusher plant was installed by JSPL in the area with the consent of the State Government. The proposed additional disallowance is simply based on the assumption that certain supporting infrastructure were created to use for the crushing and sizing plant of JSPL and the expenses claimed by our client ought to be disallowed as it will not require these infrastructure-c when the entire set up is owned and managed by JSPL. No material or evidence has been brought on record in respect of various erroneous assumption of facts made as stated above. Our client is not claiming any expenditure on crushing or any subsequent process. The expenses being claimed by our client is on account of the following: ( i) Extraction of ROM from the earth: this involved removal of overburden development of mine and pit as per rules specified, drilling and blasting for ore excavation. ( ii) Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ushing and sizing of ore on job contract basis, all other mining activities are being undertaken by our client. ( iii) It is therefore, submitted that there is no basis or material and none has been brought on record which could justify any additional disallowance. 6. On the submissions made by the assessee challenging the validity of the initiation of proceedings under section 263, no finding on conclusion was specifically recorded by the Principal CIT in his impugned order. As regards the detailed written submission filed by the assessee raising various contentions on merit on both the points raised in the notice under section 263, the Ld. Principal CIT summarised the same in brief in his impugned order and proceeded to set aside the order of reassessment dated 30.03.2015 passed by the A.O. by exercising his powers under section 263 after recording his observations as under: It was contended that full enquiry was made by the Assessing Officer while passing the order of assessment and the assessment order could not be revised in view of the judgement of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Limited vs. CIT reported in 243 ITR 83 and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer in course of assessment proceeding and he had asked various queries in respect of the operational and incidental expenses which was duly replied along with full details from time to time in course of the assessment proceeding. A detailed note on the expenses incurred by the assessee and the procedure involved in extraction of ROM undertaken by it was also annexed with the object and explained. I have gone through the submissions of the assessee and the various supporting documents filed along with letter dated 24.03.2017. I hold that the Assessment order passed by the Assessing Officer is erroneous and as such prejudicial to the interest of the revenue as the Assessing Officer did not consider and adopt the high price indicated in the M.B. Shah Commission Report in respect of the sale of ROM and also did not consider the allowance of expenditure in the light of the hidden understanding between the assessee and the JSPL and whether the said expenditure were required to be incurred by the assessee resulting in a substantial loss to revenue. I therefore, set aside the order of assessment order 30.03.2015 in respect of the aforesaid two points and direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Infinity Infotech Park Ltd. 58 ITR (Trib) 486. 9. The learned counsel for the assessee also raised arguments in support of the assessee s case on both the issues raised by the Ld. Principal CIT in the notice issued under section 263 in order to show that the claim of the assessee on the said issues was in accordance with law on merit and there was no error committed by the A.O. in allowing the said claims. In this regard, he mainly reiterated before us the submissions made on behalf of the assessee before the Ld. Principal CIT in writing during the course of proceedings under section 263. He emphasised that the main issue was raised by the Ld. Principal CIT in the notice under section 263 alleging the under charging of sale price by the assessee on the basis of M.B. Shah Commission report. He submitted that the issue relating to the under charging of sales prices by the assessee to JSPL however was not at all the subject matter of the enquiry conducted by the Shah Commission. In this regard, he invited our attention to the relevant portion of the commission report to point out that as per the terms of the reference to the commission, the issue of under pricing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the context of value added tax and relief was also given to the assessee on that basis. He also relied on the decision of Panaji Bench of this Tribunal in the case of M/s. Velingkar Bros. (ITA No. 18/Pnj/2014 dated 30.05.2014 wherein the difference between ROM and processed iron ore was highlighted by the Tribunal in paragraph no 2.5 of its order and the case made out by the A.O. of under invoicing or under pricing was rejected. 11. The learned counsel for the assessee contended that there was in any case no material whatsoever available on record to show that there was any actual suppression of sale price by the assessee and in the absence of the same, there was no provision in the Act permitting the Assessing Officer to enhance the sales price as held by Hon ble Delhi High Court in the cases of CIT vs Discovery Estates Pvt. Ltd. 356 ITR 159. He contended that the errors in the order of the A.O. as allegedly pointed out by the Ld. CIT in the notice under section 263 thus were not in existence as explained and established by the assessee in the detailed written submission filed before the Ld. CIT during the course of proceedings under section 263 and the Ld. CIT was not justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e average selling price given by the Shah Commission in its report. 14. The Ld. CIT DR contended that the A.O. is not only an adjudicator but also an investigator and it is, therefore, his duty to keep his eyes open and examine the relevant issues which are necessary for the purpose of assessment. He contended that the A.O. however had utterly failed to make the enquiries and verifications which were necessary for the purpose of assessment and passed the order of assessment without application of mind. He contended that it was thus a case of lack of enquiry by the A.O. which made the order of reassessment passed by him erroneous as well as prejudicial to the interest of the revenue. He also contended that the Ld. Principal CIT by his impugned order passed under section 263 has not decided any issue on merit and has mainly set aside the order of the A.O with a direction to him to conduct the necessary enquiries and pass fresh assessment. He contended that the order of assessment passed by the A.O. contained specific errors as pointed out by the Ld. Principal CIT which were prejudicial to the interest of the revenue and the same therefore was rightly revised by the Ld. Principal C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and processing of ROM in the plant, CLO is obtained. It was also pointed out that the yield of CLO from ROM is only in the range of 25% to 30% while the residuary material obtained in the process in the range of 70% to 75% has no market value. It was further submitted that the average rate of CLO / Iron Ore given in the Shah Commission Report was for the entire State of Orissa and it was mentioned in the context of Corporate Social Responsibility and not in the context of allegation of under-charging of sales price by the assessee company to JSPL. All these submissions made by the assessee, which were relevant to meet the objection of the Ld. Principal CIT regarding the alleged under valuation of sales to JSPL by the assessee company, however, were neither considered nor dealt with by the Ld. Principal CIT and without arriving at any conclusion or finding to show how the order of the A.O. was erroneous on this issue, he simply set aside the same on the ground that the A.O. failed to consider various aspects and did not apply his mind fully to the facts of the case. 16. In the case of ITO vs D.G. Housing Project Ltd. 343 ITR 329 cited by the learned counsel for the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer without putting the assessee on notice. Reliance in support of this conclusion was placed by the Tribunal on the decision of Hon ble Delhi High Court in the case of ITO vs D.G. Housing Project Ltd. (supra) and the order passed by the CIT under section 263 was quashed. 17. In the present case, the relevant facts involved are materially similar to the case of Infinity Infotech Park Ltd. (supra) in as much as notice under section 263 pointing out the errors in the order of the A.O. was issued by the Ld. Principal CIT on 10.03.2017 and a detailed reply to the said notice was filed by the assessee on 24.03.2017 submitting that there were no errors as alleged in the notice under section 263 in the order of assessment passed by the A.O. on merits. Immediately thereafter i.e. on 28.03.2017, the Principal CIT passed the impugned order under section 263 without giving any finding or conclusion as to how the order of the A.O. was erroneous on merits in respect of issues raised in the notice under section 263 and set aside the same on the ground of lack of enquiry by the A.O. without putting the assessee on notice. In our opinion, the ratio of the decision rendered by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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