M/S ILC INDUSTRIES LTD.,,HOSPET vs. DCIT, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BANGALORE

BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

ITA No.767 to 771/Bang/2014 (Assessment years: 2007-08 to 2011-12) AND ITA Nos.1008 & 1009/Bang/2015 (Assessment year: 2004-05 & 2007-08)

M/s.ILC Industries Ltd. D 6/7, Near Industrial Estate, Dam Road, Hospet-583203 … Appellant PAN:AABCI0361A Vs. Deputy Commissioner of Income-tax, Circle 11(4), Bangalore. … Respondent

Appellant by : Zain Ahmed Khan, CA. Respondent by : Shri Sanjay Kumar, CIT(DR)

Date of hearing : 20/07/2016 Date of pronouncement : 20/09/2016 O R D E R Per BENCH :

All these appeals are filed by the assessee directed against the respective orders of the CIT(A) for the assessment years 2004-05, 2007-08 to 2011-11.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 2 of 72 ITA No.1008/Bang/2015 (Asst.year: 2004-05): 2. This is an appeal filed by the assessee directed against the order of the Commissioner of Income-tax (Appeals)-11, Bangalore, [CIT(A)] dated 16th January, 2015 for the assessment year 2004-05.

2.1 Briefly facts of the case are that the assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of trading iron ore. Return of income for the assessment year 2004-05 was filed on 27/10/2004 declaring income of Rs.3,44,42,860/-. The said return of income was revised on 10/3/2006 disallowing transport expenditure u/s 40a(ia) of Rs.49,80,906/-. Thus revised return was filed disclosing income of Rs.3,79,29,500/-. Against the said return of income, assessment was completed u/s 143(3) on 27/4/2006 at a total income of Rs.3,79,29,500/-.

2.2 Subsequently, the Commissioner of Income-tax [CIT] exercising power vested u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] set aside the assessment order vide his order dated 27/4/2006. We are informed at the Bar that no appeal was filed against the order of the CIT passed u/s 263. Consequent to this 263 order, assessment order was passed u/s 143(3) r.w.s 263 vide order dated 31/12/2009 determining the total income at Rs.5,09,51,155/-. While doing so, the Assessing Officer [AO]

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 3 of 72 disallowed excess claim of deduction u/s 80HHC of Rs.1,23,73,932/- and made addition on account of undervaluation of closing stock of Rs.66 lakhs.

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ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 5 of 72 forwarding charges and not on account of freight and insurance charges. It is submitted that the expenditure was incurred within the premises of customs station and therefore, according to the assessee-company, this expenditure need not be reduced from export turnover. Furthermore, it is submitted that when the expenditure is reduced from export turnover same is required to be reduced from total turnover in order to maintain parity as held by the Hon’ble Calcutta High Court in the case of CIT vs. H.M.Exports (276 ITR 299).

6.1 On the other hand, ld.CIT(DR) placed reliance on the orders of the lower authorities and thus he prayed that the addition may be sustained.

6.2 We heard rival submissions and perused material on record. The issue in grounds of appeal relates to the method of calculation of the amount of deduction u/s 80-HHC of the Act. The AO has reduced an amount of Rs.1.65 crore from export turnover on the ground that this expenditure related to freight and insurance attributable to transport of goods beyond customs station whereas it is the contention of the assessee-company is that this expenditure was incurred within the premises of the customs station and therefore, it is not required to be reduced from export turnover. However, assessee-company has not filed any evidence in support of this contention. Learned AR of the assessee has not led any evidence on record in support of the

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 6 of 72 contention that the expenditure was incurred as a clearing and forwarding charges within the customs station. It is a mere bald assertion and therefore, we are not unable to appreciate the submissions made by the assessee-company.

6.3 As regards transport charges of Rs.49.8 lakhs disallowed u/s 40(a)(ia) of the Act, the contention of the assessee-company is that since the amount was disallowed under the provisions of section 40(a)(ia), the same should not form part of direct cost. This contention of the assessee-company does not hold good for the simple reason that on account of disallowance of transport expenditure, business profits have been inflated to that extent and the same was considered for exemption u/s 80-HHC and in order to maintain parity, the same requires to be reduced from the direct cost. Thus, we do not find any merit in the submission of the assessee-company. Thus, ground No.4 is dismissed.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 7 of 72 Before us also, no evidence was filed substantiating the explanation for discrepancy in valuation of the closing stock. Even before us, altogether different argument was advanced saying that domestic sales were not taken into consideration while valuating closing stock. It is altogether a new submission and does not emanate from the orders of the lower authorities and no evidence was filed even in respect of this argument. Hence, the ground of appeal cannot be accepted and dismissed as such. 8. In the result, the appeal filed by the assessee is dismissed.

ITA No.1009/Bang/2015 (Asst.year: 2007-08): 9. This is an appeal filed by the assessee directed against the order of the Commissioner of Income-tax (Appeals)-11, Bangalore, [CIT(A)] dated 16th January, 2015 for the assessment year 2007-08.

9.1 Briefly facts of the case are that the assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of trading iron ore. Return of income for the assessment year 2007-08 was filed declaring income of Rs.4,62,37,210/-. The said return of income was duly processed under the provisions of section 143(1) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] and subsequently after issue of requisite

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 8 of 72 notice u/s 143(2) along with notice u/s 142(1) the assessment was completed u/s 143(3) vide order date 31/12/2009 by the Deputy Commissioner of Income-tax Circle 11(4), Bangalore, at a total income of Rs.23,27,80,147/-. While doing so, the Assessing Officer [AO] made the following disallowances:

1 Disallowance of transportation charges Rs.15,54,39,229/- 2 disallowance of transportation charges Rs. 61,28,628/- 3 Disallowance of deduction u/s 10B Rs. 2,24,88,659/- 4 Disallowance of depreciation Rs. 24,86,425/-

9.2 Being aggrieved, an appeal was preferred before the CIT(A) who, vide impugned order, dismissed the appeal.

9.3 Being aggrieved, assessee-company is before us in the present appeal raising the following grounds of appeal:

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11.1 Learned AR of the assessee vehemently contended that the AO was not justified in denying deduction u/s 10B on the ground that the assessee-company had not carried on any manufacturing or production activity but merely a trader. Learned AR of the assessee submitted that the assessee- company had carried on the activity which amounts to manufacture and he attempted to explain the process carried on by way of following chart:

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11.2 Learned AR of the assessee also explained that the following process was conducted in the EOU division and the same was explained as follows:

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 14 of 72 The ROM contains various impurities. The ROM is subjected to processes of screening, sieving, washing, blending of various grades to arrive at the required grade of Iron Ore products. The improvement in Fe content is achieved either by using Magnetic Separator (Dry Screening) or washing (Wet Screening). This beneficiation process and blending with Iron Ores of varying Fe content results in Iron Ore Lumps, Iron Ore fines, Calibrated Iron Ore, etc of various Fe content which are different marketable commodities. He further submitted that the process undertaken by the assessee-company amounts to manufacture or production of excisable goods. He submitted that the assessee procures ROM.

11.3 Learned AR of the assessee further submitted that the assessee-company procures ROM (Run of Mines) and same are brought into EOU. ROM contains various impurities and is subjected to process of screening, sieving, washing, blending of various grades to arrive at the required grade of Iron Ore products. The improvement in Fe content is achieved either by using Magnetic Separator (Dry Screening) or washing (Wet Screening). This beneficiation process and blending with Iron Ores of varying Fe content results in Iron Ore Lumps, Iron Ore fines, Calibrated Iron Ore, etc of various Fe content which are different marketable commodities. Thus, according to him, the activity undertaken by the assessee-company amounts to manufacture or process of goods, which qualifies for deduction

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 15 of 72 under the provisions of sec.10B of the Act. In this connection, he relied on the decisions of the co-ordinate bench of Panaji in the case of ACIT vs. Sesa Goa (ITA No.72/PN/2013) and Shree Bhavani Minerals vs. CIT (ITA No.68/PNJ/2013).

11.4 On the other hand, ld.CIT(DR) vehemently contended that the activity undertaken by the assessee-company of processing iron ore does not amount to manufacture as envisaged within the meaning and ambit of the provisions of sec.10B of the Act. He submitted that the assessee purchases iron ore and after some process without much value addition, sells the same or exports it to foreign countries. This activity, by no stretch of imagination, can be called ‘manufacture’ or ‘production’ of an article or thing. In this connection, he has referred to the findings of the AO in para.5.5.1 of the assessment order, wherein the AO dealt with the actual activity carried on by the assessee-company extensively. He further submitted that only an assessee who is engaged in the business of extraction of iron ore from earth is alone be called a manufacturing activity within the meaning of the decision of the Hon’ble Supreme Court in the case of ITO vs. Arihant Tiles and Marbles P. Ltd. (320 ITR 79). He thus submitted that since assessee-company is only a trader in iron ore, it is not entitled to deduction u/s 10B of the Act.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 16 of 72 12. We heard rival submissions and perused material on record. The only issue in these grounds of appeal is whether the assessee-company is eligible for deduction /s 10B of the Act. The AO had denied claim for deduction u/s 10B solely on the ground that the assessee-company is not engaged in any activity of manufacture or production of an article or thing which is a pre-requisite for claiming deduction u/s 10B of the Act. Admittedly, assessee-company was not in the business of extracting iron ore from earth. The assessee-company buys iron ore after carrying out certain process as a result of which the impurities from iron ore are removed and iron ore so generated is exported out of India. The process, as explained by the assessee-company though by not an independent technical expert is that the assessee-company purchases ROM which is subjected to process of screening, sieving, washing, blending of various grades to arrive at the required grade of Iron Ore products. The improvement in Fe content is achieved either by using Magnetic Separator (Dry Screening) or washing (Wet Screening). Now, the question is whether the process undertaken by the assessee amounts to ‘manufacture’. The term ‘manufacture’ has not been defined in the provisions of the Income-tax Act during the relevant period. The definition of the term ‘manufacture’ was inserted by section 2(29BA) of the Act only from 01/04/2009. Therefore, meaning of the term

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 17 of 72 ‘manufacture’ has to be ascertained with reference to judicial rulings.

12.1 The Hon’ble Supreme Court had an occasion to interpret the term ‘manufacture’ in the context of deduction u/s 80HH of the Act in the case of CIT vs. N.C.Budharaja & Co.(1993)(204 ITR 412) wherein Hon’ble Supreme Court had deprecated the tendency to enlarge the meaning of the word ‘manufacture’ widely. The Hon’ble Supreme Court also held that for determining whether manufacturing can be said to have taken place is where the commodity which is subject to the process of manufacturing can no longer be regarded as the original commodity but is recognized in a trade as a new and distinct commodity. The relevant part of the judgment is as follows: ...........The only question, therefore, is whether the assessee has begun to manufacture or produce articles after the specified date in an area notified as a backward area. It is not in dispute that the assessee commenced its work after 31-12-1970 and that the work carried on by it is in a notified backward area. In short, the limited question is whether the construction of a dam to store water (reservoir) can be characterized as amounting, to manufacturing or producing an article or articles, as the case may be. The words 'manufacture' and 'production' have received extensive judicial attention both under this- Act as well as Central Excise Act and the various Sales Tax Laws. The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterized as production, every production need not amount to manufacture. The meaning of the expression 'manufacture' was considered by this Court in Dy. CST v. Pio Food Packers [1980] 46 STC 63 among other decisions. In the said decision, the test evolved for determining whether manufacture can be said to have taken place is, whether the commodity which is subjected to the

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 18 of 72 process of manufacture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity. Pathak, J., as he then was, stated the test in the following words : ". . . Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. . . ."

The word 'production' or 'produce' when used in juxta- position with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The next word to be considered is 'articles', occurring in the said clause. What does it mean? The word is not defined in the Act or the Rules. It must, therefore, be understood in its normal connotation - the sense in which it is understood in commercial world. It is equally well to keep in mind the context since a word takes its colour from the context. The word 'articles' is preceded by words 'it has begun or begins to manufacture or produce'. Can we say that the word 'articles' in the said clause comprehends and takes within its ambit a dam - a bridge, a building, a road, a canal and so on? We find it difficult to say so. Would any person who has constructed a dam say that he has manufactured an article or that he has produced an article? Obviously not. If a dam is an article, so would be a bridge, a road, an underground canal and a multi-storeyed building. To say that all of them fall within the meaning of word 'articles' is to overstrain the language beyond its normal and ordinary meaning. It is equally difficult to say that the process of constructing a dam is a process of manufacture or a process of production. It is true that a dam is composed of several articles; it is composed of stones, concrete, cement, steel and other manufactured articles like gates, sluices, etc. But to

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 19 of 72 say that the end-product, the dam, is an article is to be unfaithful to the normal connotation of the word. A dam is constructed; it is not manufactured or produced. The expressions 'manufacture' and 'produce' are normally associated with movables - articles and goods, big and small - but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or a building. The decisions of the Bombay High Court in N.U.C. (P.) Ltd.'s case (supra) and Shah Construction Co. Ltd.'s case (supra) relied upon by Shri Murthy are, no doubt, not decisions rendered under section 80HH or under section 84 - they arose under the relevant Finance Acts, the question being whether the assessees were industrial companies - they do contain observations which tend to support the stand of the revenue.

12.2 Again, the Hon’ble Supreme Court in the case of Aspinwall and Co. v. CIT [2001] 251 ITR 323 (SC) held that in the absence of a definition of word ‘manufacture’ it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combination whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.

12.3 Furthermore, reference can be made to the decision of the Hon’ble Gujarat High Court in the case of CIT v. Prabhudas Kishordas Tobacco Products (P.) Ltd. [2006] 282 ITR 568, 573 (Guj), wherein it was held as follows: “The tests to ascertain whether an activity amounts to manufacture or production of an article or thing have

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 20 of 72 been laid down and reiterated by various decisions of the apex court and this High Court. Broadly, the requirement is that the raw material must be, in the first instance, subjected to a process of such a nature that it cannot be termed to be the same as the end- product after the raw material undergoes the process of manufacture. In other words, the goods purchased as raw material should go in as inputs in the process of manufacture and the result must be manufacture of other goods. The article produced must be regarded by the trade as a new and distinct article having an identity of its own, an independent market after the commodity is subjected to the process of manufacture. The nature and extent of process would vary from case to case, and in a given case, there may be only one stage of processing, while in another case, there may be several stages of processing, and perhaps, a different kind of process at every stage. That with every process, the commodity would experience a change, but ultimately, it is only when the change, or a series of changes, bring about a result so as to produce a new and distinct article, that it can be said that the commodity used as raw material has been consumed in the manufacture of the end-product. To put it differently, the final product does not retain the identity of the raw material after it has undergone the process or processes of manufacture.”

12.4 Even in the context of provisions of Central Excise Act, the term ‘manufacture’ has been held to have been taken place only when the process results in commercial or different commodity. A five-member Constitution Bench of the Hon’ble Supreme Court in the case of Union of India v. Delhi Cloth and General Mills Co. Ltd. [1963] AIR 1963 SC 791, held that manufacture means bringing into existence a new substance. Manufacture is end result of one or more processes, through which original commodity passes. Thus, manufacture implies a change but every change is not manufacture. A new and

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 21 of 72 different article must emerge having a distinctive name, character or use. 12.5 In Indian Organic Chemicals Ltd. v. Collector of Customs and Excise [1996] 88 ELT 644 (SC) also, it was held that goods cannot be said to be manufacture if commodity distinct or different from the original input is not produced—same view in CCE v. Pan Pipes Resplendents Ltd. [2006] 193 ELT 129 (SC), Kesarwani Zarda Bhandar v. State of U.P. [2009] 19 VST 545 (SC).

12.6 In UOI v. J.G. Glass Industries Ltd. [1999] 114 STC 387 (SC), the Supreme Court has laid down a two-fold test for deciding whether the process is “manufacture”. First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist. Secondly, whether the commodity which was already in existence will serve no purpose but for the said process. Applying the two-fold test, it was held that printing on bottles does not amount to manufacture. In Empire Industries Ltd. v. Union of India [1986] 162 ITR 846 (SC) confirmed by a Constitution Bench in Ujagar Prints v. Union of India [1989] 179 ITR 317 (SC), (see also Chowgule and Co. Private Ltd. v. Union of India [1981] Tax LR 2929 (SC), it has been observed that whatever may be the operation, it is the effect it has on the commodity that is material for the purpose of determining whether the operation constitutes such a process which will be

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 22 of 72 part of “manufacture”. Any process or processes creating something else having distinctive name, character and use would be “manufacture”. Manufacture has been held to mean (as a noun) signifying the production of an article for use from raw or prepared materials, by giving these materials new form, quality, properties or combinations, whether by hand labour or by machinery. It is a process of converting some material into a different form, adapted to uses to which in its original form it could not be so readily applied. As a verb ‘manufacture’ means to make, to invest, to fabricate or to produce an article by hand, by machinery or by other agencies. To manufacture is to produce something new out of existing materials ( Chirukandan v. Superintendent, Central Excise [1984] 15 ELT 7, 11 (Ker). The court referred to Corpus Juris Secundum Vol. 55 p. 667 and Vol. 72 page 1208).

12.7 Very recently, in the context of provisions of Central Excise Act, Hon’ble Supreme Court in the case of Maruti Suzuki India Ltd. vs. CCE (2015) 32 GSTR 28 (SC), held that only that activity as a result of which a transformation has taken place viz., new different article emerges having a distinct name, character or use, can only said to be a manufacturing activity. The Hon’ble Supreme Court further held that mere value addition without change in name, character or end-use of goods cannot possibly constitute criteria to decide as to what is manufacturing.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 23 of 72 12.8 Again, in the case of Satnam Overseas Ltd. vs. CCE (2015) 32 GSTR 121(SC), the Hon’ble Supreme Court held that the process would be treated as ‘manufacture’ only if a new product known to market comes into existence with original product losing its original character. It was held that: “......a distinction has to be drawn between “manufacture” and “marketability”. A duty of excise is levied on the manufacture of excisable goods. “Excisable goods” are those goods which are included in the Schedules of the Central Excise Tariff Act, 1985. ‘Excisable goods’ brings in the concept of goods that are marketable, that is, goods capable of being sold in the market. On the other hand, manufacture is distinct from sale-ability. Manufacture takes places on the application of one or more processes. Each process may lead to a change in the goods, but every change does not amount to manufacture. There must be something more—there must be a transformation by which something new and different comes into being, that is, there must now emerge an article which has a distinctive name, character or use. The court then explained the concept of transformation. When a finished product cannot conveniently be used in the form in which it happens to be, and it is required to be changed into various shapes and sizes so that it can conveniently be used, no transformation takes place if the character and the end use of the first product continue to be the same. An illustration of this principle is brought out by the judgment in CCE v. S. R. Tissues (P.) Ltd. [2005] 5 RC 28. On facts, in the said case, jumbo rolls of tissue paper were cut into various shapes and sizes so that they could be used as table napkins, facial tissues and toilet rolls. The court held that there was no manufacture as the character and the end use of the tissue paper in the jumbo roll and the tissue paper in the table napkin, facial tissue and toilet roll remain the same. Another example of when transformation does not take place is when foreign matter is removed from an article or additions are made to the article to preserve it or increase its shelf life. If the essential character of the product has not changed, there would

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 24 of 72 be no manufacture. However, if by adopting a particular process a transformation takes place which makes the product have a character and use of its own, which it did not bear earlier, then such process would amount to manufacture irrespective of whether there was a single process or several processes. According to the court, a two-fold test had emerged for deciding whether the process is that of manufacture. The first test is extremely important — that by a process, a different commercial commodity must come into existence as a result of the identity of the original commodity ceasing to exist. The second test, namely, that the commodity which was already in existence will serve no purpose but for a certain process must be understood in its true perspective. It is only when a different and/or finished product comes into existence as a result of a process which makes the said product commercially usable that the second test laid down in the judgment leads to manufacture. Thus understood, this judgment does not lead to the result that merely because the unsterilised syringe and needle is of no commercial use without sterilisation, the process of sterilisation which would make it commercially useable would result in the sterilisation process being a process which would amount to manufacture. If the original commodity, i.e. syringes and needles, continue as such post-sterilisation, the second test would not lead to the conclusion that the process of sterilization is a process which leads to manufacture. This is because, in all cases, there has first to be a transformation in the original article, which transformation brings about a distinctive or different use in the article. The Supreme Court after taking into account the views expressed in various cases came to the following conclusions : (1) Where the goods remain exactly the same even after a particular process, there is obviously no manufacture involved. Processes which remove foreign matter from goods complete in themselves and/or processes which clean goods that are complete in themselves fall within this category. (2) Where the goods remain essentially the same after the particular process, again there can be no manufacture. This is for the reason that the original article continues as such despite the said process and the changes brought about by the said process.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 25 of 72 (3) Where the goods are transformed into something different and/or new after a particular process, but the said goods are not marketable. Examples within this group are cases of transformation of goods having a shelf life of extremely small duration. In these cases also no manufacture of goods takes place. (4) Where the goods are transformed into goods which are different and/or new after a particular process, such goods being marketable as such. It is in this category that manufacture of goods can be said to take place. ”

12.9 Further, the Hon’ble Supreme Court in Servo-Med Industries (P) Ltd. vs. CCE (2015) 32 GSTR 404 (SC) held that process by which goods are made marketable cannot be called a manufacturing activity. Manufacture takes place on application of one or more processes, each process may lead to a change in goods but every change does not amount to manufacture. There must be something more i.e. there must be transformation by which something new and different comes into being i.e. there must now emerge an article which has distinct name, character or use. The Hon’ble Court went on to explain concept of transformation. It is explained that when a finished product cannot conveniently be used in the form into which it happens to be and it is required to be changed into various size and shape so that it can conveniently be used no transformation takes place if the character and end-use of the first product continues to be the same.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 26 of 72 12.10 Finally, the Hon’ble Supreme Court evolved two steps for deciding whether the process is that of manufacturing or not. The first stage is that by process a different commercial commodity must come into existence as a result of identity the original commodity cease to exist. The second test viz., the commodity which was already in existence will serve no purpose. It is only when a different and finished product comes into existence as a result of process which makes the said product commercially usable the second test laid down in the judgment leads to manufacture.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 27 of 72 continues to be the same. Therefore, it cannot be said that the assessee-company is engaged in the activity of manufacturing qualify for deduction u/s 10B. The co-ordinate bench of the Panaji in the case of Sesa Goa (supra) and Shree Bhavani Minerals (supra) relied on by the Learned AR of the assessee had not considered the judgment of the Hon’ble Supreme Court cited supra. The above decisions are per incurium and are not binding on us. Therefore, we dismiss the grounds of appeal No.3 to 9 filed by the assessee-company.

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ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 29 of 72 16.1 Learned AR of the assessee vehemently contended that the assessee-company has filed details of transport expenditure as to name of the party, vehicle number, date, amount, origin, cargo etc. during the course of assessment proceedings. Learned AR of the assessee also submitted that ledger extracts of the expenditure was filed showing details during the course of the assessment proceedings. Without verifying genuineness of this expenditure, the AO merely had chosen to disallow the same.

16.2 On the other hand, learned CIT(DR) vehemently contended that mere filing ledger extracts of the expenditure account does not discharge the onus lying upon the assessee- company to prove the genuineness of the expenditure incurred. Thus, learned CIT(DR) prayed for sustaining the disallowance.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 30 of 72 has not been able to prove genuineness of the expenditure incurred. Mere filing of ledger account, copy of expenditure depicting the name and address, truck number, does not absolve the assessee-company of proving the expenditure. It is settled principle of law that mere entry in books of account neither establishes accrual of income nor incurring of expenditure. It has to prove conclusively that the expenditure was actually incurred wholly and exclusively for the purpose of business. The very fact that the entire transport expenditure was incurred in cash and no TDS was deducted also leads one to suspect the genuineness of the expenditure. The assessee-company had made no effort to conclusively prove that this expenditure was incurred wholly and exclusively for business purpose. Entry in the books of account is self-made entry, no credence can be given unless and otherwise corroborated by independent evidence. Mere entry in the books of account alone does not enable assessee to claim deduction Kedarnath Jute Mfg. Co Ltd. v. CIT (82 ITR 363)(SC) Sutlej Cotton Mills Ltd. vs. CIT (116 ITR 1)(SC) The assessee-company had failed to bring on record any independent corroborative evidence in support of its expenditure. It is incumbent upon the ac to prove the claim conclusively to the satisfaction of the AO. Failure to do so entails addition and therefore we do not find any reason to interfere with the orders of the lower authorities. Hence, we confirm the addition.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 31 of 72 18. Ground Nos.14 to 17 relates to disallowance of transport expenditure of Rs.61,28,628/- shown as payable to Ms Kavitha and Sandhya. The AO disallowed the transport expenditure shown as payable to Ms.Kavitha and Sandhya as he found that only journal entries were being passed in the books of account without any supporting material. The CIT(A) also confirmed the addition as no evidence was filed as showing that the expenditure was actually incurred.

18.1 Learned AR of the assessee contended before us that expenditure which is incurred though not paid during the previous year should be allowed as deduction.

18.2 On the other hand, learned CIT(DR) submitted that failure of the assessee-company to prove conclusively that the expenditure was incurred entails the addition.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 32 of 72 the present case, except making a provision in the books of account, assessee-company had failed to establish crystallisation of the liability but also actually the liability has been incurred. While making journal entry for alleged expenditure of transport in the name of Kavitha and Sandhya, assessee-company had not furnished details of transport when they incurred it for the purpose of transport of the material etc. A mere entry in the books of account does not enable the assessee-company to claim deduction. It is trite law that onus lies on the assessee to prove that claim is allowable as deduction. CIT vs. Calcutta Agency Ltd. (19 ITR 191)(SC). We may further add that the Hon'ble Supreme Court in the case of CIT Vs. Imperial Chemical Industries (India) Pvt. Ltd. (1969) 74 ITR 17 has unequivocally held that the burden of proving that a particular expenditure had been laid out or incurred wholly and exclusively for the purpose of business entirely lies on the assessee.

Thus, following well settled principles of law, we uphold the disallowance. Grounds of appeal of the assessee-company are dismissed.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 33 of 72 21. On appeal before the CIT(A), the same was confirmed. According to the CIT(A), assessee-company had failed to establish that activity of manufacturing of an article was carried on. The assessee-company is in appeal before us.

21.1 It was contended that the plant and machinery was used in crushing for the purpose of processing iron ore and it was also submitted that in the immediately assessment year, depreciation on machinery was allowed. Thus, Learned AR of the assessee prayed that depreciation claimed should be allowed.

21.2 On the other hand, learned CIT(DR) placed reliance on the orders of the lower authorities for sustenance of disallowance of depreciation on machinery.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 34 of 72 on the same machinery was allowed in earlier years, we set aside the issue to the file of the AO to examine whether the machinery in question was put to use in course of carrying on business of the assessee and if so, allow admissible depreciation in accordance with law. Accordingly, these grounds of appeal are set aside to the file of the AO for de novo assessment.

ITA Nos.767 to 769/Bang/2014 (Asst years: 2007-08 2009-10):

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Same grounds of appeal (except change in figure) are raised by the assessee for assessment years 2008-09 and 2009-10.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 36 of 72 ITA No.770/Bang/2014 (Asst.year: 2010-11):

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ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 39 of 72 residence of one Mr. Ali Khan [AK] who is alleged to be one of the close-aids of said GJR. CPU was seized and inventorized as AK/CPU/A. Relevant information/documents were retrieved from the said CPU of the computer and enclosed to the assessment order as Annexure AK/CPUA - 13 pages. From the information so retrieved, it revealed that GJR had sold to the appellant company 941,336 MT of iron ore for a consideration of Rs.111,05,32,933/-. The AO also discussed the modus operandi adopted by GJR vide para.4.2 of the assessment order. Then, AO had discussed the nature of transaction appellant had with said GJR and his concerns vide para.4.4 of the assessment order which is reproduced below:

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ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 45 of 72 to the concern of GJR. This fact enabled the AO to conclude that the very transaction purchase of iron ore from GJR and his concerns is hit by Explanation to sub-section (1) of section 37 and therefore disallowed same.

On merits of the issue, CIT(A) confirmed the action of the AO placing reliance on the material retrieved from CPU seized

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 46 of 72 from AK and also the admission of the director of the assessee- company Mr.Somasekar that transactions with GJR and also having regard to the fact that payments were made to GJR and is concern, though iron ore was lifted from mines situated at V.Nag, Vyasankar NEB A Block and MBT. The CIT(A) has confirmed the action of the AO vide para.6.2 to 6.14 as under:

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32.1 Learned AR of the assessee argued that the assessee- company was in the business of export of iron ore right from the year 2000 and enjoyed good reputation in the business circle. It is further submitted that the assessee-company is not an associate of GJR. The appellant had only business transactions with GJR and has never indulged in any illegal mining activity. It is further submitted that the Central Bureau of Investigation (CBI), Hyderabad which conducted investigation into illegal mining activity, had not filed any charge sheet against the appellant or its directors. Addition on account of purchase of illegal iron ore is based on information retrieved from CPU from the premises of one AK who is a partner of M/s.Devi Enterprises Ltd. AK is alleged to be a conduit for GJR who was involved in illegal mining. He further submitted that non-production of permit ipse facto does not establish that iron ore purchased is

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 52 of 72 illegal. At the most, he suggests that royalty due on iron ore has not been paid. It is further contended that in any event, the appellant only purchased iron ore from concerns of GJR on the bona fide belief that iron ore was legally mined. As far as transport of iron ore is concerned, the Government of Karnataka has notified rules governing transport of iron ore only w.e.f. 1/4/2011. It was further submitted that the AO should not have come to the conclusion that the assessee-company has purchased illegal mined ore solely based on the information retried from CPU found in the premises of AK without giving an opportunity of cross examining AK. The assessment has been made in clear violation of the principles of natural justice. Thus, it is submitted that the assessment should be cancelled as null and void. Without prejudice to above submission, it was submitted that there was no corroborate evidence to show that GJR had involved in any illegal mining and even for argument sake, it is assumed that illegal iron ore from GJR is purchased, when income on account of sale of such illegal iron ore is assessed to tax, purchases should be allowed as deduction. Thus, it is submitted that addition on account of purchase of illegal iron ore cannot be sustained in the eyes of law.

32.2 On the other hand, ld.CIT(DR) vehemently opposed the submissions of the learned AR of the assessee. It is submitted that it is conclusively proved that GJR was involved in illegal mining and such illegal iron was purchased by the appellant

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 53 of 72 contravening statutory provisions governing minds. Thus, any expenses incurred in contravention of the plain provisions of any statute are illegal and cannot be allowed as a deduction in view of Explanation to section 37(1) of the Act. Thus, he prayed that the addition may be sustained. He also relied on the decision of the co-ordinate bench of the Tribunal in the case of J.K.Panthaki & Co. vs. ITO (16 tax.man.com 114)(Bang).

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 54 of 72 “Return of income, etc., not to be invalid on certain grounds. 292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act. ” Thus, the assessment order passed by the AO is valid in law and thus, we dismiss grounds of appeal

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 55 of 72 time and finally a charge sheet was filed against him in CBI Court, Hyderabad. In our considered opinion, this evidence is enough to hold that GJR was indulging in illegal mining activity and iron ore mined illegally was sold to several concerns including the appellant. When the appellant was called upon to explain as to why purchases made cannot be treated as illegal in the light of these facts, the appellant had failed to disprove the contention of the AO that the appellant has purchased illegally mined iron ore. This is something which is known to the appellant himself. The appellant was afforded an opportunity by the AO to prove that the iron ore purchased was legally mined. The AO had put forth all the evidence, he gathered during the course of assessment proceedings, to say that the iron ore purchased was illegally mined by GJR. The provisions of section 23C of the Mines & Minerals (Development & Regulation) Act, 1957 [MMDR Act] had empowered the State Government to frame rules for preventing illegal mining, transportation and storage of minerals. Sub-section (2) of section 23C of the said Act, specifically lays down that the Government make Rules for regulation of mineral being transported from the area granted under a prospecting license or a mining lease or a quarrying license or a permit, in whatever name the permission to excavate minerals, has been given.

34.1 Thus from the above provision, it is clear that the buyer of iron ore is clearly made aware of from which permit the iron

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 56 of 72 ore was mined. It cannot be said that the buyer of iron ore is ignorant of the permit in which area iron ore is mined. The excavation, storage and transport of iron ore is regulated by the State Government under the Rules framed there-under. Therefore, even assuming that the appellant is unaware of illegal mining activity of GJR, it logically follows that he has purchased the iron ore in flagrant violation of provisions of MMDR Act and Rules framed there-under. Had he purchased the iron ore which is legally mined, he would have shown the compliance of the Act and Rules there-under. Failure on the part of the appellant to do so automatically imply that the appellant had purchased the iron ore illegally mined. Furthermore, this is a fact which is within the special knowledge of the appellant and he cannot expect the department to prove violation of the provisions of the Statute. When the AO had raised this issue it is incumbent upon the appellant to prove compliance of the Act and Rules there-under. This finding of the AO that the appellant purchased illegally mined iron ore from GJR and his concern, remain uncontroverted. Therefore, the finding of the AO that appellant has purchased illegally mined iron ore from GJR attained the finality.

34.2 The consequence that flows out of such transactions is that the buyer of such goods i.e. the appellant cannot acquire a superior title than that of a seller. In other words, if the thief disposed of stolen goods, buyer of such goods has the same title

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 57 of 72 as the seller had. This is based on the maxim Nemo dat quod non habit literally means no-one gives what he does not have. This principle has been incorporated in section 27 of the Sale of Goods Act, 1930. It is not under dispute that the provisions of the Sale of Goods Act, 1930 applies to this transaction. The Hon’ble Apex Court in the case of State of NCT of Delhi vs. Sanjay [Criminal Appeal No.499 of 2011 dt.04/09/2014] had clearly held that illegal mining activity is not only a criminal offence under the provisions of Mines & Minerals (Development & Regulation) Act, 1957 [MMDR Act] but also against public policy. Needless to mention that violation of the provisions of any statute is not a normal incident of business.[Hazi Aziz & Abdul Shakoor Bros. vs. CIT (1961) 41 ITR 350(SC)].

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The purpose for incorporation of this Explanation had been explained by the Central Board of Direct Taxes in Circular No. 772, dated December 23, 1998 ([1999] 235 ITR (St.) 35, 53) as under :

"20. Disallowance of illegal expenses. 20.1 Section 37 of the Income-tax Act is amended to provide that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purposes of business or profession and no deduction or allowance shall be made in respect of such expenditure. This amendment will result in disallowance of the claims made by certain assessees in respect of payments on account of protection money, extortion, hafta, bribes, etc., as business expenditure. It is well decided that unlawful expenditure is not an allowable deduction in computation of income. 20.2 This amendment will take effect retrospectively from 1st April, 1962, and will, accordingly, apply in relation to the assessment year 1962-63 and subsequent years."

It, thus, emerges that an assessee would not be entitled to deduction of payments made in contravention of law. Similarly, payments which are opposed to public policy being in the nature of unlawful consideration cannot equally be recognized. It cannot be held that businessmen are entitled to conduct their business even contrary to law and claim deductions of payments as business expenditure, notwithstanding that such payments are illegal or opposed to public policy or have pernicious consequences to the society as a whole.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 59 of 72 Further, section 23 of the Contract Act equates an agreement or contract opposed to public policy, with an agreement or contract forbidden by law. Section 23 of the Contract Act reads thus :

"23. What consideration and objects are lawful, and what not.- The consideration or object of an agreement is lawful, unless- it is forbidden by law ; or is of such a nature that, if permitted, it would defeat the provisions of any law ; or is fraudulent ; or involves or implies, injury to the person or property of another ; or the court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void."

Therefore, no expenditure, which is incurred in blatant violation of the provisions of any Statute cannot be allowed as a deduction out of income arising from lawful business because infraction of law is not a normal incident of such business. It would be a different case if the whole business itself is illegal business and expenses incurred in connection with such illegal business can be allowed as a deduction. In the present case, it is not the case of the appellant that the whole business is illegal business. Under the provisions of section 11 of the Companies Act, 1956, a company can be incorporated only for lawful business. It is a matter of fact that the appellant is a company under the provisions of the Companies Act and therefore, by no

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 60 of 72 stretch of imagination it can be assumed that the company is formed for the purpose of carrying on illegal business.

35.1 The Hon’ble Andhra Pradesh High Court in the case of CIT vs. Maddi Venkataraman & Co.(P) Ltd. [144 ITR 373) had an occasion to deal with identical situation where-in the Hon’ble High Court, after referring to judgment of the Apex Court in the case of Hazi Aziz & Abdul Shakoor Bros (supra) held that there is no distinction in principle between penalty for infraction of law and the amount paid towards execution of illegal activity. Justice Jeevan Reddy, speaking for the bench held as follows: “………. 9. A careful reading of this passage leaves no one in doubt about the distinction between an infraction of the law committed in the carrying on of a lawful business, and an infraction of the law committed in a business inherently unlawful, and constituting a normal incident of it. More than once in this passage, the Supreme Court reiterates the said distinction. Further, the words emphasized by me in the above passage show that the disallowability, pointed out by the Supreme Court is not confined to penalties alone. Applying the above principle to the facts of the present case, it must be held that the payment made in furtherance of an illegal transaction, cannot be deducted. As pointed out by the Supreme Court in Haji Aziz (supra) with respect to the business of importing dates, the business of export of tobacco carried on by the assessee before us, is also a lawful business; but the particular transaction is an unlawful one. Since infraction of law cannot be said to be a normal incident of business, any amount lost of expended in furtherance of such illegal transaction, cannot equally be treated as a business loss, or business expenditure, as the case may be. The position would have certainly been different if the very business of export of tobacco were itself an illegal business. Mr. Khazi contended that the application of such a principle would indeed result in putting a premium upon persons carrying on illegal trade or business. He submitted that, while a

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 61 of 72 person who carries on a business which is inherently illegal, is entitled to deduct the losses incurred by him in such illegal business, a person carrying on a lawful business but indulging in one or two illegal transactions in the course of such business, would not be entitled to deduct the losses arising from such illegal transaction, from his business profits. But, if one remembers the basis upon which even gains of an illegal business are taxed by the state, set out by Rowlatt, J., in Mann ( supra), there is no reason to despair over such a consequence. The principle is this: A business means a lawful business; and it should be carried on according to law. Violation of law is not an incident of such business. Therefore, any penalty or fine paid on account of such violation, or any payment made in furtherance of such violation, cannot be treated as a business expenditure, or business loss. While committing a violation or an infraction of law, the trader or businessman, as the case may be, must be deemed to be acting in a capacity other than that of a trader, or businessman and, therefore, the amounts paid by him on that account cannot be set off against the income from his business. Now, the other principle is this: True it is that an unlawful business is not a business ; but, a man has already carried out such business. It is a fait accompli. For such violation, he may be punished elsewhere; but, there is no reason why he should be allowed to get away with all the profits and gains made in such illegal business, and there is no reason why the state should not tax it. By doing so, it is not condoning the illegal business or trade. Indeed, if in such a case no tax is levied on the ground that the business itself is illegal, it would amount to giving further benefit to a person indulging in an illegal business. ”

The above judgment of the Hon’ble AP High Court was affirmed by the Hon’ble Apex Court in the following words in 229 ITR 534(SC): “7. The Indian Courts, have also consistently held that payments tainted with illegality cannot be treated as money spent wholly and exclusively for the purpose of business. A long line of decisions was noted in the judgment under appeal. It is not necessary to refer to all of them. We shall refer to three cases decided by this Court.

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ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 64 of 72 proceedings. It was also pointed out that the income-tax assessment had to be made for every year and could not be held up until the final result of the legal proceedings which pass through several Courts was announced.

Moreover, it will be against public policy to allow the benefit of deduction under one statute, of any expenditure incurred in violation of the provisions of another statute or any penalty imposed under another statute. In the instant case, if the deductions claimed are allowed, the penal provisions of FERA will become meaningless. It has also to be borne in mind that evasion of law cannot be a trade pursuit. The expenditure in this case cannot, in any way, be allowed as wholly and exclusively laid out for the purpose of assessee's business.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 65 of 72 35.2 The Hon’ble Punjab & Haryana High Court had an occasion to deal with the provisions of Explanation to sub-section (1) of section 37 of the Act in the case of CIT vs. Kap Scan & Daignostic Centre P.Ltd. (344 ITR 476) wherein, after referring to the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002, held that commission paid to Doctors for referring the business to a Diagnostic Centre was held to be not allowable as both parties were privies to a wrong. It was held that payment of commission to doctors for referring patients to a Diagnostic Centre could not be accepted to be legal or in accordance with public policy.

35.3 The issue with regard to the amount illegally paid to the police authorities for running their business came up for consideration before the Hon’ble Madhya Pradesh High Court in Gwalior Road Lines v. CIT [1998] 234 ITR 230 wherein it was held that after insertion of the Explanation to section 37(1) by the Finance Act, 1998, with effect from April 1, 1962, the assessee could not claim such payment as expended for commercial exigency and, therefore, the same was not an allowable deduction.

35.4 The Hon’ble Allahabad High Court in CIT vs. Pt. Vishwanath Sharma (316 ITR 419)(All) while considering the issue relating to commission paid to Government doctors for

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 66 of 72 prescribing the assessee's medicines to patients held it to be contravening public policy and an inadmissible expenditure. However, no distinction can be made in respect of Government doctors and private doctors as has been canvassed by the learned counsel for the assessee.

35.5 Following the principles enunciated by the Hon’ble Courts cited supra to the facts of the case, it can be very well said that payments made for purchase of illegal iron ore cannot be allowed as a deduction as the payments were made in blatant violation of the provisions of MMDR Act and also opposed to public policy. The Explanation to section 37(1) is squarely applicable.

ITA No.771/Bang/2014 (Asst. year: 2011-12): 37. This is an appeal filed by the assessee directed against the order of the Commissioner of Income-tax (Appeals)-VI, Bangalore, [CIT(A)] dated 28th March, 2014 for the assessment year 2011-12.

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ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 69 of 72 Therefore, information gathered as a result of action u/s 132 or otherwise can be used in the assessment proceedings. The fact that the AO mentioned wrong section in the assessment order does not invalidate the order in view of the specific provisions of section 292B of the Act which reads as under:

“Return of income, etc., not to be invalid on certain grounds. 292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act. ” Thus, the assessment order passed by the AO is valid in law and thus, we dismiss grounds of appeal Nos.4 to 8.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 70 of 72 payment outside books of account and brought to tax a sum of Rs.2,46,50,257/-.

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 71 of 72 46. Ground Nos.13 to 17 relates to addition on account of valuation of closing stock. The AO made addition of Rs.5,10,19,433/- on account of valuation of closing stock after observing that the appellant had valued the stock lying at Belekeri port at nil. The AO had not accepted the contention that iron ore lying at Belekeri port was taken at nil as the Government of Karnataka, by order dated 28/7/2010 had banned export of iron ore from all ports of Karnataka. It is the contention of the appellant that it is the policy of the appellant to value closing stock at cost or realizable value whichever is less as the stock cannot be exported, following the orders of the Government of Karnataka, stock was valued at nil whereas it is the contention of the AO that stock can be sold in the domestic market. Therefore, value cannot be accepted at nil.

We heard rival submissions and perused the material on record. No doubt it is trite law that stock can be valued at cost or market value whichever is less. While valuing closing stock at nil, appellant had not brought on record any evidence suggesting that realizable value of the closing stock lying at Belekeri Port is nil, nor the assessee-company brought on record any

ITA No.767 to 771/2014 & 1008- & 1009/Bang/2015 Page 72 of 72 independent valuation from technical experts in the field. Thus, in absence of evidence on record, we are unable to appreciate the contention of the assessee and dismiss the grounds of appeal as such.

Order pronounced in the open court on this 20th September, 2016

sd/- sd/- (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bangalore D a t e d : 20/09/2016 srinivasulu, sps Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore