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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
Per N.V. Vasudevan, Judicial Member
This appeal by the Revenue is against the order dated 28.8.2014 of CIT(Appeals)-III, Bangalore relating to assessment year 2010-11.
The only issue raised by the Revenue in this appeal is projected in ground No.2, which reads as follows:-
“2. On the facts and in the circumstances of the case the learned CIT(A) erred in deleting the addition made by the Assessing Officer towards the suppressed profits in respect of sales made to M/s Kalyani Steels without appreciating the fact that the AO has given an independent finding for the relevant assessment year that the assessee had suppressed its profits by adopting lower rates.”
The assessee is a Government of Karnataka undertaking engaged in extraction of minerals and mineral ores. For the assessment year 2010- 11, it filed return of income on 15.10.2010 declaring an income of Rs.168,32,90,700/-. The assessment was concluded u/s. 143 (3) of the Act on 15.03.2013 and assessment order was served on the assessee on 19.03.2013 by making the following additions:-
Suppressed profit sales to M/s Kalyani Steels Ltd. below market price Rs. 11,46,46,400
Expenditure incurred in earning dividend Rs. 15,452 ---------------------- Total Rs. 11,46,61,852 ----------------------
The facts of the case are; the assessee had entered Into the raising contract with M/s Kalyani Steels as per agreement dated 17.01.2002. They have been short listed on the basis of tenders floated by the Company for commercially exploiting the mines through private participation with a need to augment financial resources of the Company. They have been awarded contracts after following procedures relating to award of contract and after obtaining permission from the State Government. As per the contract, M/s Kalyani Steels has to purchase C-ores from the assessee. During the FY 2009-10, the assessee had sold 286615.000 MTs of C-ores at the rate of Rs. 1500/MT. This price has been fixed as per the management’s decision and after taking into consideration various commercial aspects of the contract and in view of the fact that M/s. Kalyani Steels is a long standing buyer. The rate fixed per MT of C-ore is ex-mines and as is where is basis. Royalty, loading, cess and taxes are to be paid separately by M/s Kalyani Steels. During the FY 2009-10, sales to M/s Kalyani Steels was at the rate of Rs. 1500/MT. This is the consideration realized during the year and same is accounted in the books of accounts.
The Assessing Officer adopted price of C-ore sold at Rs. 1900/MT and accordingly, has arrived at a difference in sales amount amounting to Rs. 11,46,46,400 and treated the same as suppressed sales.
On appeal, the CIT(Appeals), following the order of his predecessor in assessee’s own case on an identical issue for A.Y. 2009-10, deleted the addition made by the AO.
Aggrieved by the order of CIT(Appeals), the Revenue has preferred the present appeal before the Tribunal.
At the time of hearing of the appeal, it was brought to our notice that this Tribunal on an identical issue in assessee’s own case for the AY 2005- 06 in by order dated 2.11.2012, held as follows:-
“18.4 We have heard both parties and carefully perused and considered the material on record. We find from the record that the assessee has furnished all the details required by the Assessing Officer. From the details on record in respect of the additions made to the returned income on account of sales to M/s. Kalyani Steels Ltd below market price, we agree with the observations of the Assessing Officer that the price charged for C-ore is below the market price. We also observe that the Assessing Officer has recorded that Karnataka Lok Ayukta in its report on the Mining Scam alleged malpractices on the part of the officials of the assessee company. From the submissions made by the assessee, a Govt of Karnataka Undertaking, it can be inferred that the sales of C-ore to Kalyani Steels Ltd are supported by invoices raised, entries in the books of accounts audited by Chartered Accountants. The system of accounting followed by the assessee is the Mercantile System as per the provision of section 145 of the Act and we find that no fault has been found therein nor has it been rejected. Nowhere in the order of assessment or the material on record do we find anything to establish that there were any realization on account of sales beyond what is recorded in the books of accounts. As per the I.T. Act, 1961 profits from business are to be computed under section 28 of the Act as per the accounting policies mandated by section 145 of the Act which in the assessee's case is the Mercantile System. The scope of total income is also defined under section 5 of the Act. The I.T. Act, 1961 is very clear that what is to be taxed is the real income of an assessee and not notional or hypothetical income and it does not permit an Assessing Officer to compute income without any evidence. There is no finding by the Assessing Officer that the assessee has sold its C-ore at a price less than that agreed to in the contract entered into with M/s. Kalyani Steels Ltd or that it has realized from M/s. Kalyani Steels Ltd additional amounts on such sales which it had not recorded in its books. The assessee is legally bound to abide with the terms of the contractual obligations arising out of its agreement to sell C-ore to M/s. Kalyani Steels Ltd and the contract entered into being legal and valid, it cannot be brushed aside. After taking into account the facts and circumstances of the case on this issue, we find that no evidence whatsoever has been brought on record by the Assessing Officer to establish that the assessee has realized from the sale of C-ore to M/s. Kalyani Steels Ltd more than what is recorded in the assessee's books of account. In this view of the matter, the addition made on account of sales to M/s. Kalyani Steels Ltd below market rate, in our considered opinion is not founded on sound and accepted accounting and legal principles and is therefore liable to be deleted. We, therefore, find no reason to interfere with the decision of the learned CIT(Appeals) in deleting the addition of Rs.15,51,45,117. The grounds at S.Nos.2 and 3 raised by revenue are accordingly dismissed.”
We are of the view that the facts and circumstances giving rise to appeal on the above issue are identical as in the earlier assessment year. Respectfully following the decision of the Tribunal (supra), we uphold the order of the CIT(Appeals) and dismiss the appeal by the Revenue.
In the result, the appeal by Revenue is dismissed.
Pronounced in the open court on this 7th day of August, 2015.