KALINGA MINING CORPORATION,CUTTACK vs. A.C.I.T, CIRCLE-2(1), CUTTACK

As the issues involved in both the years under appeal are common and the grounds taken by the assessee are also similar, therefore, both the appeals are decided together. For the sake of convenience, facts and grounds mentioned in ITA No.373/CTK/2023 for the assessment year 2008-2009 shall be taken into consideration for decision of both the appeals.

Brief facts of the case are that the assessee is the lease-holder of Joruri Iron & Manganese Mine in Keonjhar district. The return of income was filed for the assessment year 2008-2009 on 29.09.2008 declaring total income at Rs.43,57,28,924/-, which was processed u/s.143(1) of the Act and assessment was completed u/s.143(3) of the Act on 03.12.2010 and after making certain additions, determined total income at Rs.51,67,03,080/-. Subsequently, the assessment in the case of the assessee was reopened by issuing notice u/s.148 of the Act for the reasons recorded by the AO as under :-

Reasons for belief that income has escaped assessment: As per the report of Hon'ble Justice M.B. Saha Commission the assessee has shown more production of 8800 MT of iron than the quantity shown by the DMG. To be specific, as per the report, production reported by the assessee is at 630300 MT whereas, as per the information available with the DMG it is at 621500 MT. As no quantitative details are available in the assessment record it is not possible to ascertain whether all the production disclosed by the assessee has been duly consider in his books of account. Prima facie, excess production shown by the assessee may be a device to inflate expenses to reduce the profit. DMG being the appropriate authority for providing au information in regards the production of iron ore. excess production of quantity reported by assessee is nothing but an action contrary to law for which expenses pertaining to such production cannot be allowed U/s 37 of the IT Act. Considering the fact that the GP declared in such activities is at 52.48% and average "base rate" as determined in the assessment order is at Rs.1447.72 MT. Then expenses not allowable u/s.37 of the Act is at Rs.60,54,017/- (8800 X 1447.72 X 47.52%).

In first appeal, the ld. CIT(A) upheld the disallowawnce so made, therefore, the present appeal is filed before us by the assessee.

Before us, ld. AR has filed the written submissions which reads as under :- The appellant most respectfully sweth;

It is also respectfully submitted that the said report is a subject matter of challenge before the Hon'ble High Court of Delhi at New Delhi in WP (C) No. 6512 of 2014, wherein, the Hon'ble High Court of Delhi, has been pleased to issue notice on 29.09.2014. The said report is only a tentative as will be evident from a bare reading of the said report itself. The Hon'ble Supreme Court of India in the case of Goa Foundation VS. Union of India = (2014) 6 SCC 590; While considering another report of the very same Shah Commission has felt that such report cannot form the basis of initiating action against the lessee, as principles of natural justice have not been complied with.

It is also respectfully submitted that in the case of Mudra Exports vrs Deputy Commissioner of Income Tax Writ Tax No.628 of 2015 dtd.05j04j2024 in the Hon'ble High Court, Allahabad, an opinion expressed by an expert howsoever, revered and respected remains only an opinion. In the context of the Report relied by learned counsel for the revenue, it was wholly subjective. The only fact that was considered and found in existence by the Commission was of the invoice price disclosed by the petitioner being lower than the prevailing international price of that commodity. No other fact was gone into or brought out in the Report to suggest that the invoice price was deliberately suppressed or that actual consideration received was more. The vital fact of the value/price realized by the petitioner against the invoice issued, was neither gone into nor any definite opinion was expressed thereto. In any case, no material was discovered by the commission, as may support that "relief'.

That, vital fact fell within the domain of the assessing authority. It is that fact alone which may have given rise to a reason to believe that income had escaped assessment at the hands of the petitioner. Since there is no material in that regard, we find that the present re- assessment proceedings have been initiated without any relevant material coming to the hands of the assessing authority to form any "reason to believe" as to escapement. Once the tangible/relevant material itself is missing, there arose no occasion with the assessing authority to form any "reason". In absence of material and reasons what arose was a simple subjective "belief' based on no objective/tangible material and reason. It was in actionable.

In. exactly similar facts, the Bombay High Court has also quashed re-assessment proceeding, in Sesa Sterlite Limited (supra) and Sociedade de Famento Industrial Pt. Ltd. (supra). We are in agreement with that view. For the reasons note above, we find re-assessment proceeding initiated against the petitioner for the Assessment Year 2011-12 were wholly without juri iction. It also being beyond the pale of doubt-unless juri iction is first clearly established, the re-assessment proceeding may not survive and an assessee may not be forced to participate in the same. The writ petition is allowed, the re-assessment proceeding are quashed. No order as to costs.

That without prejudice to the above it is further humbly submitted that the sole basis and the consequential proposed action of seeking to add back Rs.34, 11,77,436/- to the total income of the assessee and to disallow deduction under Section 37(1) of the Income Tax Act in the impugned order is based upon the allegation of illegal mining and violation of Rule 37 of the M.C. Rules 1960. The said alleqation in turn, stems from Shah Commission report and without any basis and application of mind. It is respectfully submitted that the lessee had engaged a raising contractor for excavation of ores only. The engagement of raising contractor is not illegal/violation of MMDR Act / MCR Rules. The raising contractor was paid Rs.34, 11,77,436/- during the A.Y. 2008-09. Even the Shah Commission report does not give a finding to the effect that the lessee has violated any provisions of MCR 37. The attempt to add back Rs.34, 11,77,436/- which was paid to the raising contractor to the total income of the assessee for the assessment year 2008-09, and to decline deduction in respect of the expenditure under Section.37(1) of the Income Tax Act, is an exercise without application of mind and contrary to the judgment of the Hon'ble Supreme Court and various High Courts. The finding of the Honble Supreme Court in writ petition (civil) No- 114 of 2014 on violation of Rule 37 of the Mineral Concession Rules 1960 is reproduced here for your Honor's ready reference. "Violation of Rule 37 of the Mineral Concession Rules,1960 The CEC has discussed the possible the possible violation of Rule 37 of the MCR. In this' context, it was noted that there were several mining lease holders who had entered into raising contracts which were actually a transfer of the lease as postulated by Rule 37 of the MCR. On this basis the State of Odisha constituted a Committee on 8th July,2011 to carry out a study of the financial transactions between the mining lease holders and the raising contractors to determine whether there is a prima facie violation of Rule 37 of the MCR. MCR. These mining lease holders are as under: i) R.P. Sao,Guali Iron Ore Mines, Keonjhar ii) Indrani Patnaik, Unchabali Iron Ore Mines, Keonjhar iii) M/s. K.J.S. Ahluwalia, Nuagaon Iron Ore Mines, Keonjhar iv) M/s. Aryan Mining & Trading Corporation Pvt. Ltd., Narayanposhi Iron Ore Mines, Sundergarh v) M/s. Mideast Integrated Steel Ltd., Roida, Sidhamatha Iron Ore Mines, Keonjhar vi) Kavita Agrawal, Kusumdihi Manganese Mines, Sundergarh vii) Mala Roy & Others, Jalabari Iron Ore Mines, Keonjhar viii) M/s. Sharda Mines (P) Ltd., Thakurani Iron Ores Mines, Keonjhar"

It is the respectful submission of the appellant that the exercise undertaken by the Ld. Asst. Commissioner of Income Tax, is ex- facie without juri iction, in as much as, even the basic condition precedent for invoking juri iction/power under section 147/148 of the Act is missing in the present case. It is a settled position of law as held by the Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. Vs. ITO-AIR 1961 SC- 372; Ganqa Prasad Maheswari Vs. CID- 1391TR 1043; Sheonath Sinqh Vs. ACC - 82 ITR - 87; ITO Vs. Laxmani Mewal Das - 103 ITR - 437; that; a) If the condition precedent for exercising juri iction under section 147/148 of the Act, does not exist, then the entire exercise, by the Income Tax Authorities is wholly without juri iction; b) The expression "reason to believe' does not mean a purely subjective satisfaction of Income Tax Officer. Such a belief has to br founded upon legally sustainable information/basis; c) Where such satisfaction is not based on any material or it cannot withstand the test of reason, which is a integral part of it then it falls through 'and the Court is empowered to strike it down; d) "reason to believe" suggest that the belief based upon reasonable grounds; e) If the reason for his belief is not based upon material relevant to the belief required by the section, then there is no "reason to believe"

That, our submissions further gets support and strength from the decisions of the Hon"ble Bombay High Court in IT Appeal No. 1714 of 2009, ClT-5, Mumbai -vrs- Jet Airways (I) Ltd., Mumbai, Writ Petition NO.2036 of 2016, Bharati Infratel Ltd. - vrs- Dy. CIT & ANR, High Court of Delhi reported in Volume 306 CTR Page-529 and ITA No.396jCTKj2013 of ITAT, Cuttack Bench, Cuttack, ACIT, Circle-2(1), Sambalpur -vrs- Mahanadi Coalfields Ltd, Sambalpur

That the impugned order had been passed by the AO on alleged grounds that the assessee's mining activity is in violation of Rule 37 of the Mineral Concession Rules, 1960. It is the Department of Mines, the Centre and Sate who are the implementing authority under the MMDR Act and the M.C. Rules. There are specific authority under the Act and Rules who have been bestowed with the duty and the power to implement Rule 37 of the Mineral Concession Rules, 1960. In fact, the power to interpret the Rules and the power to give a finding on the violation of Rule 37 of the Mineral Concession Rules, 1960 rests with the Mining Department, with distribution of power between the Centre and the States. It is respectfully submitted that the competent authority to decide whether there is violation of Rule 37 of the Mineral Concession Rules, 1960 is not the Income Tax authority. The appropriate authority is the mining authority constituted under the Mines and Minerals (Development and Regulation) Act, 1957, competent to decide matters relating to i'llegal and unauthorized mining. Necessary action has been contemplated under the said Act for infringement or violation of any statutory provisions prescribed under the said Act. It is respectfully submitted that till date the authority prescribed under the statute have not found the petitioner having violated any provision. The assessee is a bonafide lessee and operating its mine by following all the Rules and Regulations prescribed under the MMDR Act. Therefore, the action initiated by the assessing authority under the Income Tax Act is without juri iction and authority of law. Further the findings of the authorities under the MMDR Act and Rules are also not final. The Statue provide for quasi judicial authorities before whom any finding of the administrative authorities can be challenged. In short unless and until there is a finding of violation of Rule 37 of the Mineral Concession Rules, 1960 by the authorities under the MMRD Act and Rules, the Income Tax authority cannot make it a ground and raise a demand.

That the alleged ground for raising the demand is that there is violation of the provisions of Rule 37 of the M.C Rules, 1960, In this regard the appellant begs to submit that an agreement had been executed between the lessee and the raising contractor for excavation of ore in the mines under the strict supervision and direction of the Mines Manager of the lessee. In order to execute the work given by the lessee, the raising contractor has to engage machinery and manpower to fulfill the contractual obligation to achieve the said target. The mining activities are directly controlled by the Manager of the petitioner company. For dispatching of the stock, Form-l is submitted by Manager to the DY. Director. Hence there is no direct or indirect financing by the raising contractor.

The fact of payment of Rs.34, 11,77,436/- to the raising contractor had been enquired into and accepted by the AO at the time of first assessment order u/s.143(3) dtd.03.12.201 0 as is evident from the notice u/s.142(1) dtd.25.10.2010. In annexure of said notice at SI.No.11 .a the AO has specifically asked for the details of the payment to the contractors, sub-contractors and being satisfied has accepted the same. Hence the addition now is mere change of opinion which is not permissible under the purview of U/s.147. The payment is neither illegal nor unlawful under any stretch of imagination. Section 370f the Income Tax Act, 1961 provides for deduction of business expenditure incurred wholly and exclusively for the purpose of business. An amendment made by Finance (No.2) Act, 1998 enabled Revenue to disallow payments of an illegal nature. The amendment declared that no allowance shall be made in respect of expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law. This payment of Rs 34,11,77,436/- to the raising contractor is neither an offence nor illegal. Hence, should not have been disallowed.

That, the addition of Rs.34,11,77,436/-, the total payment to the raising contractor is a double taxation which is against the principle of natural justice and equity. The raising contractor has shown this receipt' in his income tax return and has been taxed on the same.

That, it is well settled principle of law when the income is taken for taxation the legitimate expenses incurred for the same has to be allowed.

That the Ld. CIT (Appeals), Cuttack considering our above submissions and the law as it stands has rightly deleted the addition made by the AO by invoking explanation 1 of section 37 of IT Act, 1961 Prayer It is therefore humbly prayed that the Ld. CIT (Appeals), NFAC, Delhi is not justified in sustaining the disallowance of payment made to the raising contractor. Hence the additions being illegal and uncalled for should be quashed for which the petitioner as in duty bound shall ever remain grateful'.

Ld. AR further submitted that the case of the assessee was reopened solely on the basis of Justice MB Shah Commission Report and the payments made to the raising contractor were disallowed by alleging Rule, 1960. The ld. AR submitted that Justice MB Shah Commission Report is only an opinion expressed by the Commission and no new information or material was brought before initiating the proceedings u/s.148 as in the instant case reopening is done after 4 years from the end of the relevant year and assessment was already completed u/s.143(3) of the Act where all the details with respect to production were examined and no doubts whatsoever was raised for the same. With regard to the so-called difference between figures reported to the Justice MB Shah Commission, the ld. AR of the assessee submitted that during the course of reassessment proceedings vide reply dated 08.06.2015 it was submitted that the figures as taken from DGM report are related to dispatch, whereas the figures reported to the Justice MB Shah Commission related to the production, therefore, they are not comparables as such there was no difference. These facts were however, ignored by the AO. Besides this, there was no fresh material available with the Assessing Officer, therefore, the reopening of the completed assessment is deserves to be held bad in law and consequential order passed deserves to be quashed.

On merits, it was submitted by the ld. AR that the entire expenses towards payment made to raising contractor of Rs.34,11,77,436/- was disallowed by alleging that the assessee has violated the provisions of rule 37 of Mineral Concession Rule, 1960. It was submitted that all the expenses were incurred in the normal course of business and the sales/turnover and has no link with the production done. Ld. AR further submitted that the details have been examined in original assessment proceedings in regard to the payment to the raising contractor and, therefore, the expenses disallowed deserves to be deleted on merits also.

On the other hand, ld. CIT(A) vehemently supported the order of the lower authorities and submitted that the case of the assessee was reopened not solely on the Justice MB Shah Commission Report but for the reasons that certain difference in the quantity of production reported by the assessee before the Commission and before the Mining Department. Moreover, the assessee has never submitted any production details during the course of assessment proceedings, therefore, there was escapement of income to the extent of the difference in the figures reported to Justice MB Shah Commission. He further submitted that the assessee has claimed expenses on excess production to inflate the expenses thus, the same deserves to be disallowed and accordingly the reasons taken by the AO was correct and consequently the order passed u/s.147 of the Act should be upheld. With regard to the merits, the ld. CIT- DR submitted that disallowance to the extent of the excess production should be upheld.

We have considered the rival submissions and perused the material available on record. From the perusal of the reasons recorded, which has been reproduced hereinabove, it is seen that the case of the assessee Commission. Admittedly, no new fact was brought on record and reopening is based on the opinion expressed by Justice MB Shah Commission with regard to illegal mining and production and expenses claimed on such illegal mining.

The Hon'ble Bombay High Court at Goa in the case of Balaji Mines and Minerals Pvt. Ltd. vide its order dated 26th April, 2024 passed in WP Nos.262 of 2016 along with connected Writ Petitions, has held that the reopening on the basis of Justice MB Shah Commission Report is an expression of opinion without any authoritativeness and, therefore, no independent satisfaction is recorded by the AO for reopening the assessment. The relevant observations made by the Hon'ble High Court in paras 51 to 61 are as under :-

We have already dealt with the reasons for re-opening of the assessment on the basis of material borrowed from DRI authorities and how it cannot be considered as tangible material having a live link for the purpose of forming independent opinion of the Assessing Officer, which is in fact not formed in all the matters. Thus, as far as the re-opening on the basis of borrowed material from DRI is concerned, we are firm on our opinion that such material without application of mind of the Assessing Officer could not have been directly borrowed and used.

Other reasons basically deals with the report from Justice M.B. Shah Commission as well as the observations of the Apex Court in the case of Goa Foundation, thereby holding that the mining leases beyond 22.11.2007 in Goa, were illegal.

As far as the report of Justice M.B. Shah Commission is concerned, the Co-ordinate Bench of this Court(S.C. Gupte & N.D. Sardessai, JJ.) clearly observed that the third report of Justice M.B. Shah Commission contains merely the expression of its opinion and it lacks finality as well as authoritativeness. Only on the basis of expression of such opinion by the commission, there cannot be any prima facie belief which could be recorded by the Assessing Officer, without any independent material for the purpose of reopening.

We are fully endorsing such view taken by the Co-ordinate Bench and have no reason to deviate from it in any manner. Similarly, we have taken the same view while deciding Writ Petition No. 233/2015 with Writ Petition No. 883/2016 in our Judgement dated 19.01.2024. All these petitions which are disposed of by the Co-ordinate Bench and by this Bench are in fact bunch of the matters which were taken together, however, detagged for the reasons disclosed therein. Thus, the third report of Justice M.B. Shah Commission is in fact only an expression of opinion without any authoritativeness.

In the present matters, the reasons for re-opening clearly goes to show that Assessing Officer, except borrowing the information from the third report of Justice M.B. Shah Commission, failed to record independently to his own satisfaction any reason so as to direct re-opening of assessment. We do not see any reason independently forming opinion by the Assessing Officer, apart from what was borrowed from the Justice M.B. Shah Commission report. Thus, such reasons which are not having any application of mind as well as any independent material and reason to believe, cannot be construed as legal reasons for re-opening of the assessment.

Finally, in some matters it is claimed that the assessee failed to disclose fully and truly the material findings that beyond 22.11.2007, the mining activities were illegally continued. In all these matters, the returns were filed somewhere in the year 2009- 10, even though, there was no such decision passed by the Apex Court holding that mining leases beyond 2007 were illegal.

It is a fact that for making disclosure truly and fully the assessee must have the knowledge of it. It is necessary to note here that the case of Goa Foundation Vs. Union of India in Writ Petition No. 435 of 2012 was decided by the Apex Court on 21.04.2014. While deciding the said petition, the Supreme Court observed that the mining leases in Goa expired in the year 1997 and thereafter, renewal could have been granted only for 20 years upto 2007. 58. Thus, the Apex Court observed that from November 2007 all mining leases in Goa are required to be considered as illegal for the simple reason that there was no power to renew such leases beyond 20 years. The fact remains that these observations of the Apex Court are in connection with mining leases, however, the Apex Court no where expressed that till the date of such decision i.e. 21.04.2014, the mining activities carried on by the leaseholders were considered to be illegal. The illegality of the lease is one thing and carrying out business activities on assuming that such leases exists is another thing. Similarly, business activities were carried out and Iron Ore was extracted, sold, exported till all the activities came to a grinding hold. The lease-holders paid royalty, customs duty, other charges to the Government till such activities were stopped. Extraction of Iron Ore including export and payment of remaining illegal. Even this fact, that the mining leases beyond 2007 were not legal, was even not known to the Assessing Officer himself, till such declaration came from the Apex Court in the year 2014. Thus, claiming that the assessee failed to disclose truly and fully that such activities were illegally carried out and that too while filing returns for the assessment year 2009-10 would not arise. In this regard the observation in the case of Calcutta Credit Corporation (supra) would clearly attract.

Thus, we are of the considered opinion that notices issued for re-opening and assessment in all these matters failed to satisfy twin conditions. The Assessing Officer, therefore, could not have exercised juri iction for re-opening of assessment which were concluded way back.

The additional affidavit filed in two petitions cannot be looked into for the above reason as Revenue or the Assessing Officer is not entitled to supplement material beyond the reasons recorded at the time of issuance of notice under section 147/148 of Income Tax Act.

For all the above reasons, we hold that the impugned reopening notices and the orders passed rejecting the objection needs interference and are required to be quashed and set aside. Accordingly, we allow the Petitions by quashing and setting aside the notices as well as the orders rejecting objections field by the petitioners.

Similar view was expressed by the Hon'ble Bombay High Court at Goa in the case of Sesa Sterlite Limited and Ors., reported in (2019) 267 Taxmann 275 (Bom), wherein it has been held as under :- Reassessment—Reason to believe—Full and true disclosure— Report of Inquiry Commission—Information or material available to the AO and which is disclosed in the reasons to believe stated in the original order sheet is said to be the Shah Commission report, which, inter alia, reported under-invoicing of exports by the exporters of iron ore mentioned in it including the assessee herein—It is impermissible to the Department to act exclusively on the basis of the Commission’s report—It must make its own assessment of facts before any action is initiated—Even if it is assumed that so far as this fact is concerned, the information contained in the report of Shah Commission by itself can be treated as information available to the AO within the meaning of s. 147, the further information, however, that there was under-invoicing of exports by the assessee does not simply follow from this primary information—There is nothing whatsoever in the impugned notice issued by the AO to indicate that he has applied his mind to this aspect of the matter—Further, entire case of the Revenue is founded on the so-called under-invoicing of exports—It is difficult to fathom what information or particulars was the assessee expected to disclose in its assessment insofar as the export prices charged by it are concerned and which is now available to the AO so as to enable him to form a belief that income has indeed escaped assessment—Even if it is assumed that at all times the activity carried on by the assessee, through which income was said to have accrued to it, was in violation of law, that does not alter the character of the activity—Income earned from the activity is still very much business income and any expenditure made for the activity is business expenditure—It is not open to the Revenue to seek to sustain the reopening notice on a new reason, namely, disallowance of deduction of expenditure since the whole activity was illegal—Impugned notice issued by the AO under s. 148 cannot be sustained and must be set aside

The ITAT Cuttack Bench of the Tribunal in the case of Tarini Minerals Pvt. Ltd., passed in ITA Nos.268/CTK/2020 along with other connected appeals, vide order dated 02.05.2022 has also expressed the same view and observed in para 9 as under :-

Perusal of Ground No.1 shows that the revenue has challenged the order of the ld CIT(A) in respect of quashing of the reopening. We find that at page 5 of 15 of the impugned order, the ld CIT(A) has examined the issue of reopening of assessment and has categorically given finding that the entire reassessment proceedings u/s.147 is based on report of Justice M.B.Shah Commission in regard to illegal mining in the State of Odisha which was placed in the public domain in the months of July, 2013 and October, 2013. Ld CIT (A) further goes on to hold that without any independent application of mind, the AO has accepted the Commissions finding that the assessee had indulged in illegal mining of iron ore. ld CIT (A) has categorically given a finding that the AO has made no attempt to Page4|9 ITA Nos.268, 270 & 272/CTK/2020 ITA Nos.269, 271 & 273/CTK/2020 C.O. Nos.6 to8/CTK/2021 Assessment Years : 2008-09 to 2010-2011 reconcile the production data furnished by the assessee in its H-1 report submitted to the Indian Bureau of Mines with the data shown by it in its tax audit report. Ld CIT (A) has further noted that the AO has failed to take the cognizance of the decision of Hon'ble Supreme Court in the case of Goa Foundation vs Union of India & others, in which the Hon'ble Supreme Court has cast aspersions on the findings of the Hon'ble Justice M.B.Shah Commission report in so far as the report had been made without giving an opportunity to the affected parties to respond. Ld CIT(A) while quashing the reopening of assessment has given a categorical finding that the AO has accepted information from outside source without subjecting it to critical scrutiny and that the AO's "reason to believe" that income application of mind to the facts available. The revenue, admittedly has not been able to dislodge any of the categorical findings of the ld CIT(A). This being so, we find no error in the order of the ld CIT(A) in quashing the reopening of assessment. Consequently, Ground No.1 of revenue stands dismissed.

In view of the above facts and following the decision of the Hon'ble Bombay High Court at Goa and the coordinate bench of the Tribunal, we are of the considered view that the reopening in the present case is without any material on record and solely on the basis of the opinion expressed by Justice MB Shah Commission Report. Therefore, no independent mind was applied while recording the reasons by the AO and accordingly the notice issued u/s.148 of the Act is hereby quashed. The subsequent order is hereby held as illegal and same is hereby quashed.

With regard to merit of the issue, it is seen that the entire expenses claimed by assessee on total production/mining was disallowed by alleging that the assessee has violated the provisions of Mineral Concession Rules, 1960. In this regard during the course of hearing when a specific query was made to the ld. AR, it was submitted at Bar that no such case was ever registered by the mining department regarding any illegal mining in the case of the assessee or for any violation of Mining Concession Rules, 1960. Further the Hon'ble Bombay High Court at Goa in the case of Balaji Mines and Minerals Pvt. Ltd. (supra), has also dealt with this issue and held that the activities though were illegal in the mining Act, however, when the concerned department has not declared the same as illegal, the AO cannot disallow such expenses u/s.37 of the Act. So far as excess production is concerned, it is seen that details were submitted sought details of production. Therefore, the difference, if any, is for this reason only which cannot be held as excess production. Accordingly, this allegation also holds no water. In view of the above discussion, the disallowance made by the AO is without any basis and the assessee succeeds on merits also.

As a result, the appeal of the assessee for the assessment year 2008-2009 in ITA No.373/CTK/2023 is allowed.

As the facts of the appeal for A.Y.2009-2010 in ITA No.374/CTK/2023 are similar to the appeal decided by us in ITA No.373/CTK/2023 for A.Y.2008-2009 are pari materia applicable to the assessment year 2009-2010. Accordingly, the appeal of the assessee for the A.Y.2009-2010 is allowed for the reasons given in the assessment year 2008-2009. 19. In the result, both appeals of the assessee are allowed. Order dictated and pronounced in the open court on 29/08/2024. (GEORGE MATHAN) (MANISH AGARWAL) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य/ ACCOUNTANT MEMBER कटक Cuttack; ददनाांक Dated 29/08/2024 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीऱाथी / The Appellant-