TMI Blog2016 (7) TMI 1435X X X X Extracts X X X X X X X X Extracts X X X X ..... owance has been made by the AO to the extent of 40% of the total mining expenses and since 60% of the expenses are allowed by the AO, the remaining 40% of the same expenses cannot be considered as expenses for the purpose of offence or unlawful purposes. Hence, this disallowance is not justified. Addition of expenditure incurred on vehicles, Telephone for personal use of directors - Held that:- This issue is covered in favour of the assessee by the judgment of the Hon’ble Gujarat High Court rendered in the case of Sayaji Iron & Engg.Co.(2001 (7) TMI 70 - GUJARAT High Court ) wherein it was held by the Hon’ble High Court that in respect of expenditure incurred on vehicles, Telephone etc., even if there is any personal use by Director/employee of the assessee company, addition can be made in the hands of such Director/employee on account of perquisite value of such personal use by concerned person but no disallowance can be made in the hands of the assessee company. Thus this disallowance is deleted. However, the A.O. of the concerned director is at liberty to make addition as per law in the hands of the concerned director Addition of gross amount of sale proceeds of land whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Competent Court for a decision and therefore it is premature for the lower authorities to decide this issue on assumptions and presumptions which amounts to assumption of the jurisdiction of the Competent Court. 4. The learned authorities have erred in disallowing ₹ 4,31,80,919/- under the helicopter expenses on hear-say evidences and rumours and gossips without appreciating the fact that the learned AO has not brought on record any evidences to support his conclusion. 5. The Learned Authorities have erred in disallowing ₹ 4,31,80,919/- ₹ 86,60,079/- being entire sale consideration without appreciating the fact that Income-tax is only a tax on income and not a tax on the turnover and further that the income has not accrued according to the method of accounting regularly followed by the appellant. 6. The appellant seeks your leave to add, alter, amend or delete any grounds urged at the time of hearing. 3. It was submitted by the ld. AR of the assessee that ground no.1 is general in nature and hence we hold that no adjudication is called for regarding ground no.1 of the appeal. 4. Regarding ground no.2, it was sub mitted by the ld. AR of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t holders which were withdrawn in cash. The next objection of the AO is this that common names are appearing on the back side of the cheque leaves showing the name of the persons withdrawing the cash and six such names are noted by the AO on page-12 of the assessment order. In our considered opinion, these objections of the AO on the basis of enquiry from various banks can form the basis of making further enquiry regarding the genuineness of the payments. On page-12 of the assessment order, the AO noted that the assessee was asked to explain by letter dated 13-02-2013 and the letter was served on the AR of the assessee Shri Vasudev Vittal Leji on 21-02- 2013. Thereafter, he further noted that the assessee had furnished reply vide letter dated 27-02-2013 and the relevant extract of the reply was reproduced by the AO on page-12 to16 of the assessment order. For the sake of ready reference, para 1.7 to 1.10 of the assessment order are reproduced herein below containing the discussion regarding show cause notice, the assessee s reply and the reasons given by the AO for not accepting the reply of the assessee and thereafter, the final decision of the AO for making disallowance of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the previous year 2009-10 relevant to assessment year 2010-11 are genuine and actuals. These expenses which have been claimed by the assessee are well supported by bills, vouchers, ledger entries and payments are made through cheques drawn on scheduled banks. Further, on the entire amount of the transportation charges incurred by OMCPL, tax has been deducted and paid at source itself at applicable rates under provisions of Income Tax Act. There is no need for the transporter own a vehicle to run the transportation company. The course of business in transportation are run on the hiring of a vehicle by third party who in first turn will hire a vehicle. As we have furnished the details of all the transporters, the Assessing Officers of those parties never denied the existence 'of the parties, the DCIT may call for the accounts copies of the above parties from the banks and the DCIT may summon the above transporters and examine them on oath. In case any of the above parties claims that they have not received the above payments, the assessee may given an opportunity to cross examine them, which is necessary in the interest of natural justice. On the above mentioned ground we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany and Sri Gangadhar and his employees, who in turn have admitted that such cash was handed over to Sri Phani Kishore, CA of the assessee company and its sister concerns. Each leg of this transaction has been proved with evidence to be false. i) It has been proved by the admission of the alleged transporters that their business concerns have been floated only at the behest of the assessee. ii) IT has been proved by the admission of the alleged transporters that they have never transported the goods of the assessee company. iii) It has been proved by the admission of the alleged transporters that bank accounts have been opened by such concerns only at the behest of the assessee. iv) It has been proved that the cheques given by the assessee to the transport concerns have been deposited in their bank accounts by the assessee s employees and Shri Gangadhar alongwith the clerks acting on instructions of the assessee s CA. vi) It has been proved that the entire money deposited through cheques into the alleged transporters bank accounts has been withdrawn by the assessee s employees and Shri Gangadhar alongwith his clerks acting on instructions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply of the assessee are that there is substantial increase in the transportation expenses as compared with the earlier years which is not in proportion to the quantity of iron ore produced and sold during this year. Second reason given by the AO is that the assessee could not produce evidence to show the actual rendering of services and thereafter, the major discussion by the AO in this para is regarding various statements given by the transporter in the statement recorded by the AO u/s 131 of the IT Act and therefore, it is seen that the main basis for this disallowance is statements of the transporters of whom the assessee requested for cross examination but the same was not allowed by the AO. Now, under these facts, we examine the applicability of various judgments cited by the ld. AR of the assessee. First judgment is of the Hon ble Delhi High Court rendered in the case of CIT Vs SMC Share Brokers Ltd., (Supra). In this case, it was held by the Hon ble Delhi High Court that in the absence of third party being made available for cross examination despite repeated requests by the assessee, his statement could not be relied upon to the detriment of the assessee and Tribunal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submitted that copy of the report of three member committee is available on pages -48 to 785 of the paper book and in particular our attention was drawn to page-50 51 of the paper book and it was point out that as per this report, there are problems in fixing the boundary leases once the boundary line/stations are disturbed. Thereafter, reliance has been placed on the following judicial pronouncements a) CIT Vs Piara Singh 124 ITR 40(SC) b) CIT Vs S.C.Kothari 82 ITR 794 (SC) c) Badridas Daga Vs CIT 34 ITR 10 (SC) 10. The ld. DR of the revenue supported the orders of the authorities below. 11. We have considered the rival submissions. First of all we reproduce the relevant portion of report of the three member committee on irregularity in Iron ore mining leases in Bellary as available in 50 51 of the paper book. The mining leases listed from Sl.No.1 to 4 are old leases which have been renewed by the GOI. The leases listed at Sl.NO.5 and 6 are the fresh leases approved by the GOI. Copies of the GOI orders/GOAP orders along with the lease sketches are given at Annexure-I to Annexure-6. 1. Genesis of the problem in Iron ore mining leases in Bella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation -1 to sec.37 (1) of the IT Act, it is seen that if any expenditure is made by the assessee for any purpose which is an offence or prohibited by law then it is not incurred for the purpose of business and no deduction or allowance can be made in respect of such expenditure. In the present case, even if this allegation of AO is accepted that the assessee is doing some illegal mining and the production of the assessee to the extent of 40% of production is out of illegal mining, in our considered opinion, expenses incurred for such production does not attract the disallowance under Explanation-1 to sec.37 (1) of the IT Act because, the expenses incurred for mining cannot be considered as offence or prohibited by law in itself and the only objection can be that such mining is not in accordance with law and for that violation by the assessee if any, action may be taken under relevant provisions of law if such violation of law is proved but this cannot be said that the expenses is incurred for any purpose which is an offence or which is prohibited by law. The expenses for mining itself is not an offence or prohibited by law because the AO himself has allowed deduction to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation by Customs authorities is deductible from the income derived from smuggling activities. Hence, expenses incurred in course of an illegal business is allowable for computing income from such business but this judgment is prior to introduction of Explanation -1 to sec.37 of the IT Act and therefore, this judgment is not relevant in respect of those expenses which are hit by this explanation and in our considered opinion, the normal mining expenses are not hit by this explanation and hence, this issue is covered in favour of the assessee by this judgment since the explanation to section 37 (1) is not attracted in the facts of the present case. Similarly, the other two judgments of which reliance has been placed by the ld. AR of the assessee are also for the period prior to introduction of Explanation-1 to sec.37 (1) of the Act, 1961 and therefore, as per these judgments also, this issue is covered in favour of the assessee since the explanation to section 37 (1) is not attracted in the facts of the present case. In view of our above discussion, ground no.3 of the assessee is allowed. 16. Regarding ground no.4, it was submitted by the ld. AR of the assessee that it is noted b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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