TMI Blog2014 (6) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the AO himself, as compared to ₹ 38 as claimed by the assessee himself in the immediately preceding year. Most of the adverse findings recorded by the AO while disallowing the claim of the assessee on account of extraction/rescreening charges to the extent of about ₹ 45 lakhs were found to be correct by the ld. CIT(A), but she still restricted the disallowance made by the AO on this issue to ₹ 23 lakhs, giving a relief of about ₹ 22 lakhs to the assessee on this issue, without giving any cogent or convincing reasons and without appreciating the fact that the claim of the assessee for higher extraction/rescreening charges was allowed by the AO by adopting the rate of ₹ 200 per m.t., as compared to the rate of ₹ 38 per m.t. claimed by the assessee in the immediately preceding year. We are of the view that the disallowance made by the AO on account of extraction/rescreening charges was fair and reasonable and the ld. CIT(Appeals) was not justified in restricting the same to ₹ 23 lakhs. We, therefore, modify the impugned order of the ld. CIT(Appeals) on this issue and confirm the disallowance of ₹ 45,05,867 made by the AO on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently revised on 4.11.2009 declaring total income of ₹ 13,33,350. In the profit loss account filed along with the said return, a sum of ₹ 1,09,35,867 was debited by the assessee on account of extraction expenses. Since the extraction expenses so claimed by the assessee during the year under consideration were substantially higher than that of the immediately preceding year, the claim of the assessee on account of extraction expenses was examined by the Assessing Officer during the course of assessment proceedings. During the course of this examination, statement of the assessee was recorded by the AO wherein he stated while answering question No.8 that the average screening cost (extraction expenses) was around ₹ 150 to 200 per m.t., depending on the total quantity screened. Keeping in view this rate indicated by the assessee himself, the AO pointed out to the assessee that the total quantity of iron ore purchased during the year being only 32,150 m.t., the total screening /extractions charges even at the rate of ₹ 200 per m.t. should come to around ₹ 64.30 lakhs as against ₹ 1.09 crores claimed by the assessee. This difference pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges is not sustainable:- 1. Extraction Expenses (Re screening Charges) ₹ 45,05,867/-. The AO has simply stated that the assessee s submissions have already been carefully considered before the completion of the assessment. In fact the AO has not considered the drastic rise in prices on account of spurt in exports which resulted in unusual increase in procurement/purchase price. On account of the spurt in price only, I was forced to go for low quality material wherein I incurred higher rescreening expenses. Even though the cost of rescreening is high the total cost per metric ton is low when compared to total cost in A.Y.2010-11. For this purpose, I do have submitted the comparative statements in the earlier instance. The same is produced below. A.Y. Purchase Value Rescreening Cost Quantity Purchase Purchase Cost per Metric Ton Rescreening Charges per Metric Ton Total Cost Per M T 2009-10 1,52,37,608 1,09,35,867 31,046.44 490.80 352.24 843.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10 1,52,37,608 1,09,35,867 31,046 3,31,78,390 843 843 2010-11 5,70,36,161 35,08,800 63,263 6,67,37,516 902 902 3.6 It is clear from the above that the cost of materials per metric tonne is only higher in the year in question as compared to earlier year (AY 2008-09). Therefore, the appellant s main argument that he purchased poor quality of ore cannot be prima facie accepted. It is also observed that against wages of ₹ 15O - ₹ 200 per metric tonne claimed by the appellant to have been paid for rescreening, the AO has allowed the same at a uniform rate of ₹ 200 per metric tonne in all fairness to the appellant. Taking into account that payments are cash payments, with only unsubstantiated vouchers, the observation of the AO in the background of these facts are very relevant. It is observed, therefore, that the rescreening charges per metric tonne are much higher than that incurred in the immediately preceding year and, in the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee during the year under consideration. 10. The ld. DR, on the other hand, submitted that substantially higher expenses were claimed by the assessee on account of extraction/rescreening charges during the year under consideration, as compared to the immediately preceding year and the onus was on the assessee to justify such higher expenses claimed by it by offering satisfactory explanation. He contended that the assessee, however, clearly failed to discharge this onus despite sufficient opportunity afforded by the AO in this regard. He submitted that neither the relevant records were properly maintained by the assessee, nor the supporting vouchers were produced before the AO for verification. He contended that the claim of the assessee for expenses on extraction/rescreening charges was thus totally unverifiable, but still the AO was fair enough to allow the claim of the assessee on account of this expenditure on the basis of rate of rescreening charges of ₹ 200/- per m.t. indicated by the assessee himself in his statement recorded by the AO. He invited our attention to the comparative chart given by the ld. CIT(A) on page 6 of his impugned order to point out that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the cost of material per m.t. shown by the assessee in the year under consideration was actually more, as compared to that of the immediately preceding year. 12. Even before us, the ld. counsel for the assessee has made an attempt to support the case of the assessee by pointing out from some of the copies of invoices placed on record that lower grade material was purchased by the assessee during the year under consideration. A perusal of the said invoices, however, shows that higher grade material was also purchased by the assessee during the year under consideration and there was not much difference in the rates of the so-called low grade material and high grade material, as reflected in the said invoices. More over, the relevant quantitative details are also not placed on record before us by the by the ld. counsel for the assessee to show that the proportion of low grade material purchased during the year under consideration was substantially higher that of the immediately preceding and succeeding years. In any case, we find that the extraction/rescreening charges were paid by the assessee @ ₹ 38 and ₹ 55 per m.t. in the A.Ys. 2008-09 2010-11 respectively a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was liable to deduct tax at source from these payments aggregating to ₹ 9,76,185 and since no such deduction of tax at source was made by the assessee, he required the assessee to explain as to why the extraction charges to the extent of ₹ 9,76,185 should not be disallowed u/s. 40(a)(ia) of the Act. In reply, it was submitted by the assessee that all these amounts were paid to batch-heads for the sake of convenience and they in turn distributed the same amongst various labourers belonging to the batches. It was contended that none of the amounts so paid thus exceeded the limit of ₹ 50,000 in the case of payment made to each labour and there was thus no question of deducting tax at source from the said payments. This explanation of the assessee was not found acceptable by the AO and disallowance of ₹ 9,76,185 was made by him u/s. 40(a)(ia) for the following reasons:- a. The assessee had stated that he does not know the address or whereabouts of the casual labourers and he cannot identify them now. b. On inspection of labour register it is seen that he had paid labour charges every fortnight to at least 70-80 people on an average and thus asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, irrespective of the above, disallowance of ₹ 23 lakhs has been upheld in para 3.6 above on account of unsubstantiated labour payments for rescreening charges. Therefore, any disallowance u/s 40(a)(ia) / 194C of the Act as referred to above would also be covered within the disallowance of ₹ 23 lakhs upheld at para 3.6 above and no separate addition is required to be made in this regard. As the payments for which the AO has made disallowance u/s. 40a(ia) read with section 194C of the Act are also on account of rescreening charges extraction expenses, the disallowance of ₹ 9,76,185/- is telescoped into the disallowance of ₹ 23 lakhs sustained by me at paragraph 3.6 above. Hence, the appellant gets relief of ₹ 9,76,185/-. 19. We have heard both the sides and also perused the relevant record. It is observed that out of the total expenses of ₹ 1.09 crores claimed by the assessee on extraction charges, a disallowance of ₹ 45.05 lakhs was made by the AO treating the same as excessive expenses claimed by the assessee and the said disallowance made by the AO has already been confirmed by us, while deciding the main issue involved in both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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