TMI Blog2022 (6) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... itures after considering the well reasoned finding of the ld. CIT(Appeals), we do not find any infirmity and, therefore, respectfully following the order of the Coordinate Bench in earlier years, we do not find any merit in this ground of appeal and it is rejected. Disallowance of Consultancy Charge - addition made as there is a relationship between the managerial staff of both the assessees i.e. assessee and Pushpak Financial Services Pvt. Limited and assessee failed to demonstrate the nature of services rendered by M/s. Pushpak Financial Services Pvt. Limited - CIT-A deleted the addition - HELD THAT:- AO himself has not disputed about the payments made by the assessee to M/s. Pushpak Financial Services Pvt. Limited. In other words, the existence of service providers has not been doubted. Now the issues are raised qua the transactions, the only passing reference made by the ld. AO in a non-speaking assessment order is that evidences depicting the nature of services provided to the assessee were not produced. It is pertinent to observe that the ld. Assessing Officer failed to appreciate the controversy in right perspective. He has not properly investigated the issue, rather in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee can be compelled to make the sales to the sister concerns also at the market price or at the same price at which it was made to other concerns. Apart from the above observation, it is to be appreciated the circumstances under which such sales have been made. The assessee has obtained renewal of lease licence understanding that iron ore produced in his mines will be used in a captive plant. In that exercises, he has sold the goods to the plant of the sister concern. The third reasoning assigned by the ld. Commissioner is that independent buyers would buy the material according to their requirement, whereas M/s. Thakur Prasad Sao Sons Pvt. Limited was bound to purchase the raw material produced by the assessee. Therefore, the assessee was never required to find out the customer for the iron ore produced by him. He was also bound to achieve the targets put by Indian Bureau of Mines, so in case excess material was produced and not able to sell to the independent buyer, in that case his associate concern i.e. M/s. TPSL would procure all the material produced by the assessee. Undisclosed investment - HELD THAT:- A perusal of the above finding would indicate that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Undisclosed investment Rs. 6,32,363/- 3. Ld. CIT(Appeals) has deleted the disallowances. Before us, Revenue is challenging deletion of four disallowances. In other words, Revenue is challenging deletion of all the disallowances except at Sr. No. 3, i.e. the disallowance made under section 40A(3). 4. Now we take the grievances of the Revenue in seriatim as raised in the grounds of appeal. 5. Ground No. 1:- The grievance of the Revenue is that the ld. CIT(Appeals) has erred in deleting the disallowance of Rs. 76,47,374/- out of Periphery Development Expenses. Brief facts of the case are that the assessee has debited a sum of Rs. 76,47,376/- in respect of Periphery Development Expenses Corporate Social Responsibility. According to the assessee, it is engaged in the business of Iron Ore Mining. The mines are situated in the village area and mining operations usually create a negative environmental impact during the mining activity and threaten the local environment by causing pollution and ecological changes. It also has negative impacts on human health. In case of iron ore mining, many of these sideaffect are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malaria eradication by hiring vehicles Keonjhar music system from Saga Ventures India Pvt. Ltd., Bhubaneswar. The assessee created awareness in all the villages of Keonjhar District and also distributed mosquito nets with bags (purchased from Sonic Resources Pvt. Ltd., Rourkela) in the course of the awareness programme to the village people, provision of vehicles (Ambulance - Janani Express) hired from Mohan Kumar Sahoo, Keonjhar., sinking a bore well in the school premises of St. Teresa's Nursery School, Joda, Keonjhar donation of several sports items, viz, socks,- gloves, crepe bandage, football boots, jersey- t-shirts, etc to Tarin Club, Ward No. 4, Joda, Keonjhar and the same were purchased from Sneha Sports Emporium, Joda, Keonjhar. The assessee purchased installed LED Display Board along with services such as fooding, lodging at the CBSA Park, Keonjhar for proper amusement of the children of the Guali village. The services rendered were purchased from Poushali Electronics, Keonjhar. The assessee in its welfare programme also looked after the issues faced by the village people in their regular life and posed a solution to it by constructing Bathing Ghat, repairing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses were considered to be wholly and exclusively for business purposes, as held in the case of: CIT - vs.- Rungta Mines Pvt. Ltd. [205 ITR 335] by the Calcutta High Court. Held that where a trader, in his capacity as a trader, by compulsion of statutory obligation, has to incur an expenditure as a compelling requisite for carrying on his trade, the expenditure resulting in a capital asset in the hands of a third party, is to be taken as revenue expenditure because no asset arises to the trader by reason of such expenditure. It was further held that where law imposes on the assessee, an obligation to incur expenses for being permitted to pursue its trading activity, the expenditure would be an outgoing from the profits of the trade. NMDC LTD AY 2005- 06 in ITA No. 1791/Hvd/2008 dated 30/09/2009 We have considered the rival submissions on either side and also perused the material available on record. No doubt the assessee incurred an expenditure of Rs. 5,00,00,000/- as contribution for establishing a medical college. The assessee also had a representation in the Board. In view of the above, in our opinion, the contribution of Rs. 5 crores is only a welfare measure for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 9 of the impugned order. We have also gone through this report. Section 37 of the Income Tax Act contemplates that any expenditure not being expenditure of the nature described in sections 32 to 36and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the Head Profits Gains of the Business or Profession . In other words, the specific nature of expenditure enumerated in sections 32 to 36 or expenditure of capital nature should not be claimed by the assessee under section 37. The only restriction put in this section is that expenditure should not be identifiable as dealt with under section 32 to 36 or capital expenditure or it should not be personal expenditure. The expenditure should be laid out or expended wholly or exclusively for the purpose of the business. The expression 'wholly' emphasises the quantification of the expenditure, whereas expression 'exclusively' provides that such expenditure should be only for the purpose of the business. The only objection raised by the ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and had thus reduced its profits through booking the said consultancy expenses. The Appellant's A/R has submitted that consultation charges were made to Pushpak Financial Services Pvt. Ltd. and that Sri Ramesh Prasad Sao was not a shareholder or Director of Pushpak Financial Services Pvt. Ltd. contrary to the finding of the A.O. and has submitted the copy of Balance Sheet of Pushpak Financial Services Pvt. Ltd. included in audited accounts, to establish that the consultancy charges of Rs. 1,80,00,000 was offered as income of the year. The submissions of the appellant were sent to the A.O for verification and submission of remand report thereon. The A.O has stated in the remand report that, In this point the AO made addition vide order u/s. 143(3) dated 30th March, 2016 on ground that one of the Directors of the sister concern of M/s. Thakur Prasad Sao Sons Pvt. Ltd. is also a director in M/s. Pushpak Financial Services Pvt. Ltd. and the assessee reduced his profit through bogus expenses. Mr. S.K. Naredi was common Director in T.P. Sao Sons Pvt. Ltd. and Pushpak Financial Services Pvt. Ltd. The appellant was the sole proprietor of M/s. Ramesh Prasad Sao. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deducted by the assessee on Rs. 2,02,24,800, and was thus a genuine expense. On similar facts for disallowance of Consultancy paid to sister concern, the Hon'ble Delhi High Court in the case of CIT v. Modi Revlon Pvt. Ltd. in ITA No. 1450 51 of 2010, it was had held that expenditure incurred by way of consultancy charges for paid by the assessee would be allowable revenue expenditure. The fact that it is paid to as sister concern by itself would not justify the disallowance. Therefore, the expenditure on consultancy paid to M/s. Pushpak Financial Services Pvt. Ltd. is found to be an allowable expenditure as it was incurred wholly and exclusively for business purposes. Hence, I am of the view that the disallowance of the consultancy charges of Rs. 2,02,24,800/- made by the A.O was unwarranted. Accordingly, the AO is directed to delete the disallowance of Rs. 2,02,24,800/-. This ground is allowed . 13. The ld. CIT(DR), at the very outset, submitted that the ld. 1st Appellate Authority has failed to note that the assessee was not able to demonstrate the nature of services rendered by M/s. Pushpak Financial Services Pvt. Limited. Hence, this addition ought not to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided to the assessee were not produced. It is pertinent to observe that the ld. Assessing Officer failed to appreciate the controversy in right perspective. He has not properly investigated the issue, rather in a hurried manner made the addition by making certain vague observation, which is running into few lines only. The assessee has submitted that service provider has suffered the taxes on the payments made by the assessee, both are taxable at the same rate. The invoices produced by the assessee depict the nature of services rendered by the service provider. In other words, the assessee has submitted that Pushpak Financial Services Pvt. Ltd. had provided managerial consultancy including verification of day-to-day business and banking transactions. If the magnitude of the business carried out by the assessee is looked into, vis- -vis the charges then it is just a normal charges paid by the assessee. We do not find any error in the finding of the ld. CIT(Appeals) on this point and this ground of appeal is rejected. 16. Ground No. 3: In this ground of appeal, the grievance of the revenue is that the ld. CIT(Appeals) has erred in deleting the addition of Rs. 1,04,64,28,541/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Learned Assessing Officer has wrongly alleged that M/s. Pratham Steel Pvt. Ltd. is a dummy company of the group. The Learned Assessing Officer should have at least conducted an enquiry/examination in this regard before coming to any such conclusion. (iii) That the assessee has a long term arrangement with its sister concern M/s. Thakur Prasad Sao Sons Pvt. Ltd. whereby it sells to this party throughout the year and M/s. Thakur Prasad Sao Sons Pvt. Ltd. does not buy material from any third party and also there is no fixed Regulatory Authority which governs the prices of ores and there is always a fluctuation in the prices in the market. (iv) That sales made to M/s. Thakur Prasad Sao Sons Private Limited are as per the bills raised and there is no material with the Assessing Officer to hold that bills raised were not correct or manipulated. Similarly, sales made to M/s. Pratham Steel Private Limited are fully verifiable from the bills and are in conformity with the books of accounts. (v) For that it is for the assessee to decide at what prices the goods have to be sold keeping in mind the various market conditions and scope of raising turnover and also the qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions, the sales had to be ignored and the company could be assessed only on the profits, if any, made by the benami purchasers when they will sell the goods in the absence of evidence to show either that the sales were sham transactions or that the market prices were in fact paid by the purchasers, the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expense of the company would not entitle the IT department to assess the difference between the market price and the price paid by the purchasers, as profits of the company. In the Hiah Court of Delhi CIT Fs. Discovery Estates (P) Ltd. The AO could not make additions to sale price or profits, without evidence to show either that sales were sham transactions or that market prices were in fact, paid by purchasers: no addition could be made based merely on perceived general market conditions or notorious practices in trade circles. In the high Court of Punjab Haryana CIT Vs. Rainish Ahuia Whether where assessee had charged less sale price from sister concern as compared to non-sister concerns, provisions of sec 40A could not be invoked as no payment had been made to si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shoes of the businessman have also been cited by the A.R in support of his averments, and found to be relevant to the issue under dispute. The A.R has also placed reliance upon the decision of the hon'ble ITAT, Chandigarh in Dept. of income tax Vs. Khandalia Oil General Mills Pvt. Ltd., wherein it was held that, if the sales to the related parties result in a profit to the assessee, even though the sales are made at a rate lower than at which the sales are made to other parties, the revenue cannot bring to tax the notional profit which the assessee would or could have earned, had the sales been made at the rates charged from unrelated parties. Reliance was also placed on decision by the hon'ble Delhi High Court of Delhi CIT Vs. Discovery Estates (P) Ltd. in 356 ITR 159(Delhi), stating that The AO could not make additions to sale price or profits, without Bench to show either that sales were sham transactions or that market prices were in fact, paid by purchasers: no addition could be made based merely on perceived general market conditions or notorious practices in trade circles. On perusal of the findings of the A.O in the assessment order, it is observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociate concerns at a lower price than sold to the independent parties in the open market. Therefore, the ld. Assessing Officer has rightly considered it as a suppression of profit and has rightly estimated the profit. 20. The ld. counsel for the assessee, on the other hand, demonstrated the circumstances under which sales have been made at a different rate to two concerns. He submitted that the Mines of the assessee are operating under second and subsequent renewal. As per the policy of renewal of the State Government, if the mines are used for captive purposes, the process of renewal becomes more easier and smooth. The raw materials (i.e. Iron Ore) are supplied from Guali Iron Ore Mines of which the assessee is the lessee. He further pointed out that buyers of Iron Ore put a lot of conditions about the grade and quality of Iron Ore and to procure the same, they pay better rates. At the time of raising production, the materials are mixed and the grades vary from lot to lot. With a view of maximizing production in the mines, the assessee sends all the remaining materials to its plant irrespective of its grade. The assessee was also required to achieve the target production as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or making the sales to this concern:-a) The assessee has an arrangement with the company whereby the company purchases all its Raw Material (Iron Ore) from the assessee and not from any outside party. a) The assessee has to sell materials to other parties at different rates which could be higher, but there is no certainty at a particular party would purchase from us or not. Throughout the year, as and when materials are available with the assessee, it sends to the plant at the pre-determined/agreed rate. b) The Mines of the assessee are operating under second and subsequent renewal and as per policy of renewal of the State Government if the minerals are used for captive purposes the renewal process would be easier. The assessee has captive plants and the Ore as raw materials are supplied from the Guali Iron Ore Mines, of which the assessee is lessee. These facts have been stated in the lease Renewal application filed with State Government of Odisha and from time to time there are various correspondence with the State Government asking the lessee to state the status of its captive plants within the State of Odisha. Infact for smooth renewal, the lessee along with his relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has not shown losses rather in the understanding of the Assessing Officer, he failed to show the profit as calculated by the ld. Assessing Officer. We have confronted the ld. D.R. to show us the provision under which the assessee can be compelled to make the sales to the sister concerns also at the market price or at the same price at which it was made to other concerns. 24. Apart from the above observation, it is to be appreciated the circumstances under which such sales have been made. The assessee has obtained renewal of lease licence understanding that iron ore produced in his mines will be used in a captive plant. In that exercises, he has sold the goods to the plant of the sister concern. The third reasoning assigned by the ld. Commissioner is that independent buyers would buy the material according to their requirement, whereas M/s. Thakur Prasad Sao Sons Pvt. Limited was bound to purchase the raw material produced by the assessee. Therefore, the assessee was never required to find out the customer for the iron ore produced by him. He was also bound to achieve the targets put by Indian Bureau of Mines, so in case excess material was produced and not able to sell t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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