9911796707
TMI Blog2023 (3) TMI 1546X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The factual matrix of the case is that the assessee e-filed its return of income for the assessment year 2009-10 declaring an income of Rs.486,38,96,690/-. The case was selected for scrutiny and the assessment was completed under Section 143 (3) read with Section 144C (13) of the Income Tax Act on 31.12.2013, determining total income at Rs. 10,86,34,35,052/- by making various additions, which reads as under: Additional / Issues Rs. Transfer pricing adjustments 112,20,92,081/- Claim of bogus transportation expenses of iron ore 40% attributable towards illegal mining. 86,43,47,335/- Disallowance of expenses claimed under section 37 (1) towards illegal mining. 387,76,69,992/- 4. Aggrieved by the above additions, the assessee preferred an appeal before the Tribunal against the additions made hereinabove, which came to be allowed. 5. It is stated in the appeal that during the assessment proceedings, it was observed that, M/s GLA Trading International Pvt. Ltd, is an 'associated enterprise' (for short 'AE') of the assessee respondent within the meaning of section 92A based on the fact that Sri. Gali Janardhana Reddy, Director of tax payer company was appointed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable. The Tribunal also held that in order to constitute a relationship of an AE, the parameters laid down in both sub-sections (1) and (2) should be fulfilled. As per explanation, amendment carried out in sub-section (2) of section 92A by the Finance Act, 2002 w.e.f., 01.04.2002, mere participation of one or more persons in the management or control or capital of both the enterprises shall not make them AE unless the criteria specified in sub Section (2) is fulfilled and since the parameters laid down in sub Sections (1) and (2) of Section 92A are not fulfilled, there is no relationship of AE between the Assessee Company and GLATIPL and therefore, the provisions of chapter X of the Income Tax Act, are not applicable. 9. It is further stated as regards the issue of claim of bogus transportation expenses of iron ore at Rs. 86,43,47,335/- that during the assessment proceedings, the assessing authority made enquiries with regard to the genuineness of the claim of transportation expenses of Rs. 648,41,29,000/- made by the assessee which was far in excess compared to the immediate previous year. The assessee respondent also could not furnish any evidence in support of its claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40% of the total production. While completing the assessment, for the reasons given in detail, the assessing authority disallowed 40% of the total expenditure claimed towards transportation expenses at Rs. 387,76,69,992/- under Section 37 (1) of the Act. However, the Tribunal granted relief to the Assessee by deleting the additions made on this issue by following its earlier order in the case of assessee for the assessment year 2010-11. The tax effect in the present case is Rs. 273,39,03,77,056/- and fulfills the criteria of monetary limits prescribed by the Board. Aggrieved by the same, the appellant / revenue has filed this appeal by challenging the order dated 20.10.2016 passed by the Income Tax Appellate Tribunal, Bengaluru Bench 'C' in IT (TP) A No.182 (BANG) 2014 and to confirm the order dated 31.12.2013 passed by the Deputy Commissioner of Income Tax Central Circle 1 (3), Bengaluru. 11. Learned standing counsel Sri. Y.V. Raviraj for the appellants/revenue contends that with regard to the issue of transfer pricing adjustment, the Tribunal has grossly erred in not appreciating the categorical finding of facts made out by the revenue authorities that M/s. GLAT International P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Tribunal ought to have appreciated the addition towards disallowance of claim of transportation expenses which has been made by the Assessing Officer relying upon the independent evidence collected from the Transport Department and the banks and not merely on the basis of the transporters from whom statement under Section 131 was recorded and as such the additions made are sustainable even without the reliance on the statements recorded under Section 131. The Tribunal has grossly erred in not considering the judgment of the Hon'ble Apex Court in the case of ITO vs. M. Pirai Choodi (20 Taxmann.com 733 (2012) (SC), wherein it was held that the order of assessment passed without granting an opportunity to the assessee to cross-examine, should have been set aside by the High Court, and consequently the Tribunal should have remanded the matter directing the Assessing Officer to grant an opportunity to the assessee to cross-examine the concerned party and re-do the assessment. 17. However, in the present case, the Tribunal has grossly erred in deleting the additions made instead of remanding the matter back to the Assessing Officer to grant an opportunity to the assessee to cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by the assessee, particularly when the Assessing Officer has arrived at the additions based on independent enquiries and evidence collected from the transport department, the banks and not merely on the statements recorded from the transporters? 4. Whether on the facts and circumstances of the case and in law, the Tribunal is correct in deleting the additions of Rs. 86,43,47,335/- made by the Assessing Officer on account of bogus claim of expenditure on transportation made by the assessee by relying on the decisions of the Hon'ble Delhi high Court in the case of CIT VS. SMC Share Brokers Ltd, and in the case of CIT Vs. Pradeep Kumar Gupta, the facts and circumstances of the cases are distinguishable? 5. Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in deleting the additions made by the Assessing Officer u/s 37 (1) on account of illegal mining by disallowing the expenditure of Rs. 387,76,69,992/-, wherein such disallowance has been made by the Assessing Officer on the basis of evidence from CBI, Hyderabad, Special Committee set up by the Andhra Pradesh Government and through investigation, thereby holding that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 21.12.2007, the entire share capital of (GLATIPL) being only one share of the value of 1 Singapore Dollar was transferred to GJR Holdings International Ltd. (GJRHIL) registered in the isle of MAN and Shri G. J. Reddy is one of the directors of that co. also i.e. (GJRHIL). Thereafter, it was submitted that the said one share of (GLATIPL) was transferred by GJRHIL to Inter Link Services Group Ltd. (ILSGL) on 22.12.2007 and the necessary evidence in this regard is available on page 169 of the paper book. It was submitted that in the present year i.e. during 01.04.2008 to 31.03.2009, the only one share of GLATIPL was held by ILSGL and neither the assessee company nor its directors are holding any share of that co. i.e. ILSGL and the directors of the assessee company are not a director in that co. i.e. ILSGL and hence, provisions of section 92A are not applicable under these facts and in view of the order rendered by the tribunal in the case of Page Industries Limited vs. DCIT (Supra). As against this, learned DR of the revenue supported the assessment order, TPO's order and the order of DRP. On consideration of the rival submissions, the ITAT reproduced the provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ink Services Group Limited was Arangannal S/o Kathamuthu and he was appointed on 24.04.2001 and the current shareholder on that date was Iyer Corporate Services Pte Ltd. (Formerly known as Crest Services Pte Ltd.). Hence, it is seen that from 22.12.2007 till 12.05.2001 at least, the entire share capital of (GLATIPL) was held by (ILSGL) and with this company, the assessee company or its directors has no relationship. 23. On considering the rival submissions, the ITAT held that since the learned DR of the revenue could not point out any difference in facts, we find no reason to take a contrary view in the present year. Hence in line with the Tribunal order in A.Y. 2010-11 in assessee's own case, ITAT deleted first two disallowances i.e., 1) Disallowance of Transportation charges, and 2) Disallowance of Expenses under Explanation to section 37 (1) and in respect of third issue i.e., addition made on account of sale of Land, the ITAT set-aside the order of CIT (A) on that issue and restored the matter to A.O. for a fresh decision with the same directions as were given by the tribunal in A.Y. 2010-11 and ground No.6 was allowed and the appeal of the assessee was allowed. 24. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this section to the Income Tax Appellate Tribunal is a judicial discretion which must be exercised in accordance with legal principles, and not in an arbitrary or capricious manner. Discretion means when it is said that something is to be done within the discretion of the authorities that something is to be done according to the rules of reason and justice, not according to private opinion. It is to be, not arbitrary, vague and fanciful, but legal and regular. It must be exercised within the limit, to which an honest man competent to the discharge of his office ought to confine himself. 26. Learned counsel Sri. Mayank Jain for the respondent / assessee further placed reliance on a decision in the case of Rajesh Babubhai Damania vs. Commissioner of Income Tax reported in (2001) 251 ITR 541, wherein at para 7 it is held as under: "7. The Tribunal totally overlooked the assessment of evidence done by the Commissioner of Income-tax (Appeals) and dealt with the matter as if it was entertaining an appeal against the order of the Assessing Officer. There was no question of giving "one more innings" to the Assessing Officer. The appeals are not to be decided for giving "one more innin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... protective assessments were provided for u/s. 23-B of the IT Act, 1922. This provisional assessment was a prelude to an advance tax or to regular assessments. In other words, if an Assessing Officer desires to pass a provisional assessment he had to do it u/s. 23-B of the IT Act, 1922. The Hon'ble Supreme Court had an occasion to deal with this provision in two judgments which are as under: a. Lalji Haridas Vs. ITO & Ors., (1961) 43 ITR 387 (SC) b. ITO Vs. Bachu Lal Kapoor (1966) 60 ITR 74 (SC) "15. Some argument was advanced on the question of the validity of what are called protective or precautional assessments" Reference was made to Jagannath Hanumanbux us TO (1957) 31 ITR 603 (Cal) and to the decision of this Court in Lals Haridas us. ITO (1961) 43 ITR 387 (SC) In the former, the validity of protective assessment was approved and in the latter, this Court though the question of assessment was raised, did not express its final opinion thereon. This Court held that when there was a doubt as to which person among two was liable to be assessed, parallel proceedings might be started against both; and it also laid down an equitable procedure to be followed in that situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was confirmed by the Appellate Commissioner is without jurisdiction and has no legs to stand on and cannot be enforced. It is without "authority of law" as contemplated under Article 265 of the Constitution of India. Hence, the order of the Assessing Officer (Ananthpur), Appellate Commissioner's order (Karnool), Tribunal's order (Hyderabad) is without jurisdiction and cannot be looked into. 31. Learned counsel for the respondent / assessee facilitated the assessment order dated 31.12.2009 for the assessment year 2008-09 and contended that the assessee has filed e-return of income for the assessment year 2008-09 under Section 139 on 30.09.2008 under ack. No.44479161300908 with digital signature declaring income of Rs. 764,53,84,970/-. The financial year 2007-08 is the year of search in the case of the assessee. Consequent to the material gathered in the case of the assessee searched, action under Section 153A of the Act was initiated in the assessee's case for earlier years. In view of this, in the case of assessee the assessment year 2008-09 falls under Section 153B (1) (b) of the Act. Accordingly, the case was posted for hearing by issuance of notice under Section 143 (2) on 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting them to explain why the difference in price/rate representing under invoiced portion should not be added to the income of the assessee company for the Asst. Year 2008-09 under the provisions of Income Tax Act. 34. It is further contended that in view of non-reference by the assessing officer to the TPO for determining Arm's Length Price (ALP) is erroneous and also prejudicial to the interest of revenue inasmuch as the matter could not be examined by the TPO as per the Instructions of the CBDT in Instruction No 3, as mentioned above, having regard to the fact that the international transaction was more than the specified amount. 35. However, the submissions made by the assessee company before the Commissioner of Income Tax were as under: (a) In this case, the assessment has been completed under section 143 (3) of the Act on 31/12/2009 by the Deputy Commissioner of Income Tax, Central Circle-1 (3), Bangalore. During the course of assessment proceedings the Assessing Officer vide para No.4.1 to 7, considered the transactions done by the assessee company with GLA Trading Pvt. Ltd., and added a sum of Rs. 86,42,88,802/- to the returned income on the ground of under-invoice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprises have been defined in section 92A of this Act. The A.R. in his submissions has reproduced Sec. 92A and contends that in the assessee's case Sri G. Janardhan Reddy is the director of the Assessee Company and GLA Trading International Private Ltd. The assessing officer has NOT established that Assessee Company is in the management or control or capital of the other enterprise. The assessing officer has not proved that G. Janardhan Reddy owns more than 25% of voting power in the other company. All these things show that the GLA Trading International Private Ltd is not an associated enterprise of the Assessee Company. (e) Without prejudice to the above, the contracts with G LA Trading International Private Ltd were entered into on 4/12/2007, whereas Sri G. Janardhan Reddy became director of the other company only on 19/12/2007. As on the date of contract, GLA Trading International Private Ltd. was not an associate enterprise of Obulapuram Mining Company Private Ltd. After becoming the director of the GLA Trading International Private Ltd the assessee has only executed the contract which was entered into earlier. Hence the question of application of section 92CA in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut application of mind. The Apex Court further held that when the Assessing Officer adopted one of the courses permissible under law and it has resulted in loss of revenue, or where views are possible and where AO has taken one of the views with which the Commissioner of income tax does not agree, it cannot be treated as the erroneous order prejudicial to the interest of revenue, unless the view taken by the AO is unsustainable in law. (h) In the case of CIT Vs. Smt. Minalben S Parikh 215 ITR 81, Honourable Gujarat High Court held that, Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue, for example, when an income tax officer adopted one of the coerces permissible in law and it has resulted in loss of revenue; or where two views are possible and the income tax officer has taken one view with which the commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the income tax officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer. Therefore, the Commissioner exercised jurisdiction u/s 263 of the IT Act and directed the Assessing Officer to transfer the file to the transfer pricing officer in accordance with law. This order of the Commissioner was challenged before the Income Tax Appellate Tribunal. The Tribunal proceeded to hold that section 92CA (4) of the IT Act which came into effect from 01.06.2007 would be applicable only for Assessment Year 2009-10 and not for the current Assessment Year 2008-09 by relying on a number of judgments. Hence, the Tribunal by order dated:29.07.2016 held that exercise of jurisdiction u/s 263 of the IT Act was erroneous and allowed the appeal of the assessee. 37. In the meantime, based on the order of the Commissioner, proceedings were initiated by the Assessing Officer by referring the matter to the Transfer Pricing Officer. The Transfer pricing officer passed an order. Consequently the Assessing Officer gave effect to this Transfer Pricing Officer's order by passing a separate assessment order u/s 143 (3) read with Section 263 and 144C (13) of the IT Act. This order of the Assessing Officer was challenged before the Tribunal who proceeded to confirm its earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .07.2010 notice was issued u/s. 143 (2) of the IT Act for scrutiny of the return of income to the assessee. On 28.10.2010 Section 92CA (1) of the IT Act, first Reference made by Assessing Officer to TPO-2, Bangalore to compute arms length price in respect of export sale of iron ore to M/s. GLA Trading International P. Ltd., worth Rs. 205,07,08,959/- on the ground that M/s. GLA Trading International P. Ltd., and assessee had common Director. On 23.05.2012, Section 92CA(2A) of the IT Act, the second reference made by Assessing Officer relating to helicopter hiring charges paid to M/s OSS Air Management Pvt. Ltd., New Delhi and M/s Heligo Charter Pvt. Ltd, Mumbai of Rs.3,99,41,330/- on the ground that it amounted to international transaction. On 03.11.2010 Section 92CA(2B) of the IT Act Transfer Pricing Officer, proceeded to issue notice to the assessee to show cause as to why iron ore sold to GLA Trading International, Singapore should not be computed at "arms length price" by invoking the cup method of computation. On 10.12.2010, reply sent by the assessee to the Transfer Pricing Officer, stating that response filed to the penalty notice dated 04.02.2010 should be taken as a respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. (2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one percent of the book value of the total assets of the other enterprise, or (d) one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or (e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the objections of the A.O. as reproduced above are that Shri Gali Janardhan Reddy, one of the directors of the assessee company was appointed a director of (GLATIPL) also on 19.12.2007 and on 21.12.2007, the entire share capital of (GLATIPL) being one equity share was transferred to (GJRHIL) in which, Shri Gali Janardhan Reddy is one of the directors. As per the objections of the A.O., the entire share capital of (GLATIPL) is held by (GJRHIL) on 21.12.2007 and on that date, Shri Gali Janardhan Reddy, one of the directors of the assessee company is director of (GJRHIL) also being a company holding entire share capital of (GLATIPL). Therefore, looking into the result, whether these facts make (GLATIPL) an AE of the assessee company later but before that, we first examine the facts in the present year and see whether during the period from 01.04.2008 to 31.03.2009 also, the facts were same or not because if the facts are not same in this later period, then even if it is held that (GLATIPL) is AE of the assessee company on 21.12.2007, it will not help the revenue in the present year. 45. Perusal of the provisions of sub section (2) of section 92A, for the purpose of Sub Section (1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be AE. The opening words of sub-sec. (2) are amended by Finance Act, 2002 w.e.f. 1/4/2002. The amendment was explained as follows by the Memorandum of Finance Bill 2002: (means) "It is proposed to amend sub-sec. (2) of the said section to clarify that the mere fact of participation of one enterprise in the management or control or capital of the other enterprise or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprise unless the criteria specified in sub-sec (2) are fulfilled."" The resultant of the amendment is thus explained that unless the requirements of sub-sec. (2) are fulfilled, the sub- section (1) cannot be applied at all. This implies that in order to constitute a relationship of an AE, the parameters laid down in both sub- sections (1) and (2) should be fulfilled. If we were to hold that there is a relationship of AE, once the requirements of sub-se (2) are fulfilled, then the provisions of sub-sec. (1) renders otiose or superfluous. Now, it is well settled canon interpretation of statutes that while interpreting the taxing statute, construction shall not be adopted which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , by respectfully following the Tribunal's order, that since the parameters laid down in sub section (1) and (2) of section 92A are not fulfilled, there is no relationship of AE between the Assessee Company and GLATIPL and therefore, the provisions of Chapter X of the I.T. Act has no application. 48. The grounds relating to Corporate Tax issue as per Grounds No. 6, 9 and 10, the learned AR of the assessee submitted that three issues are involved in this ground i.e. 1) Disallowance of Transportation charges, 2) Disallowance of Expenses under Explanation to section 37 (1) and 3) Addition made on account of sale of Land. He submitted that all these three issues are covered in favor of the assessee by the tribunal order rendered in assessee's own case for A. Y. 2010-11 in ITA No. 653/Bang/2015 dated 29.07.2016 and accordingly, in the present year also, the disallowance should be deleted because facts are same. Thereafter, he submitted that Para 14 and 15 of tribunal's order are relevant in respect of Disallowance of Expenses under Explanation to section 37 (1), which was deleted by the tribunal in that year. Regarding the third issue i.e. Addition made on account of sale of Land, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning because the disallowance 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 offense or unlawful purposes. Hence, this disallowance is not justified. 15. Now we examine the applicability of various judgments cited by the Id. AR of the assessee. The first judgment cited by him is of the Hon'ble Apex Court rendered in the case of CIT Vs Piara Singh (Supra). In this case, it was held that loss arising from confiscation 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 favor of the assessee by this judgment since the explanation to section 37 (1) is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of law. 51. It is relevant to refer to the assessment order dated 31.12.2013 under Section 143 (3) read with Section 144C (13) of the IT Act, for the assessment year 2009-10, wherein the export sale to GLA trading international Pte Ltd., claim of bogus transportation expenses of iron ore, illegal mining, personal expenses of directors of the assessee company, sale of land, bogus of accommodation entry has been taken for consideration and the Central Bureau of Investigation, Hyderabad, has conducted investigations into the illegal mining activity of the assessee Company and has filed a charge sheet in RC 17(A)/2009. It was found during investigations that the assessee in its lease area of 68.50 Ha. in AGK Mines had shifted permanent boundary pillars of station No.8 to Western direction about 40 mtrs. and constructed a permanent pillar in order to encroach unallotted area for illegal mining. It was also found that the permanent pillar of station No. 10 was removed. The assessee company has formed illegal roads for transportation of ore to join station No.7 instead of to station No.8. They have also formed illegal roads near station No.1 in the reserved forest area outside the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2008-09 by relying several judgments and an order dated 29.07.2006 and held that the exercise of jurisdiction under Section 263 of the I.T. Act was erroneous. On this premise, allowed the appeal of the assessee. 54. The subject matter of this appeal is that the assessing officer was bound to refer the matter to the Transfer Pricing Officer. Therefore, the order passed by the Commissioner was upheld. Consequently, both the orders of the Tribunal were set aside. Further, the subject of this appeal for the assessment year 2008-09 is whether the assessing officer can suo motu decide the issue regarding transfer pricing that the matter has to be referred to the Transfer Pricing Officer; the assessment year 2008-09 has absolutely no connection to the subsequent assessment year 2009-10. The revenue cannot trace any reliance on the order passed for the assessment year 2008-09. However, the subject matter of the controversy was in respect of jurisdiction. Whereas the question on merits whether intervention of the Transfer Pricing Officer is correct or not has not been addressed. Therefore, for the assessment year 2008-09, the proceedings are incomplete. As this contention is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the year when the sale transaction has been completed by way of registration of sale deed that the assessee's action treating the sale proceeds as advance as incorrect. Therefore the sale proceeds amounting to Rs.3,09,74,266/- is brought to tax as the assessee's business income. As per the golden rule of interpretation two views are possible and the view favorable to the assessee has to be adopted. Tax can be imposed only if a case falls within the words of the statute and it does not avail to said that it comes within the spirit of statutes Intention of the legislature to be found in the words of the statute and any omission cannot be supplied vide Padmanatha Rao vs. CIT reported in 255 ITR 147 (SC). One has only to look at the words of the statute and nothing should be implied so as to supply any assumed deficiency, but a deeming provision should be strictly construed and given the settled legal position, the TPO gets no jurisdiction at all since he has unable to show under which specific provision of law there is an associated enterprise as defined by Section 92A of the I.T. Act. It is stated that the TPO is unable to show which specific clause under Section 92A (1) or 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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