1. This appeal is filed by the appellants/revenue seeking to set aside the order passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru (for short “ITAT”) in ITA No.653 (Bang) 2015, dated 29.07.2016; to confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle 1(3), Bengaluru (for short “DCIT”) and to pass such other suitable order as deems fit in this appeal.

2. Heard the learned standing counsel Shri Y.V. Raviraj for appellants/revenue and the learned counsel Shri Mayank Jain for respondent/assessee. Perused the order dated 29.07.2016 passed by the ITAT in ITA Nos.653 (Bang) 2015 for the Assessment Year 2010-11.

3. The factual matrix of this appeal is that the assessee Company is engaged in the business of iron ore mining and has been allotted 131 acres of mining area by the Government of Andhra Pradesh. It transpired that the mining activities consisted of extraction and excavation of iron ore, screening, crushing, breaking, quality assignment through labor and machinery and sale in the domestic and international market. The assessment came to be completed by the Assessing Authority under Section 143(3) of the Income Tax Act after making various additions to the income declared and assessing the income of the assessee at Rs.619,91,32,272/- as against the income declared at Rs.225,13,29,740/-. The main additions made to the assessment, which are the subject matter of this appeal relating to the claim of bogus transportation expenses of iron ore; illegal mining expenses; & personal expenses of Directors. The appeal filed against the order of assessment by the assessee/respondent came to be dismissed by the Commissioner of Income Tax (Appeals). Further, the appeal filed by the assessee/respondent came to be partly allowed by the Tribunal on the issue towards claim of bogus transportation expenses, being the payment to transporters of iron ore, the Tribunal deleted holding that, the statement recorded from these transporters were not made available to the assessee and the assessee was not given an opportunity for cross- examining the transporters whose statement were recorded by the assessing authority under Section 131 of the Act. Insofar as illegal mining expenses claimed, the Tribunal deleted the disallowance of expenditure relating to the illegal mining by holding that explanation to Section 37 is not attracted. Further, details towards personal expenses were sought by the assessing authority with regard to the use of the helicopter of the assessee, as one of its Directors was a Minister of the State Government and the helicopter was said to have been used by him for his personal use during the time of elections. The assessing authority disallowed 50% of the expenditure while completing the assessment as the assessee had not discharged its onus to prove that the claim of expenditure was genuine and the entire expenditure had been incurred wholly and exclusively for the purpose of its business.

4. This Court on 02.04.2018, formulated the following substantial questions of law for consideration, which reads as under:

"i) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the addition made towards the claim of bogus transportation expenses. holding that the assessee was not given the opportunity of cross examining the payees without recording any finding as to the genuineness of the expenditure

ii) Whether the Tribunal being the final fact finding authority is justified in deleting the addition towards claim of bogus transportation expenses without giving a finding of fact by itself or in the absence of it. by exercising its power of remand with proper direction to the lower authorities in the face of rival claims as to the claim of genuineness of the expenditure

iii) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that. Explanation-1 to section 37 is not attracted to case of the assessee respondent on the issue of disallowance of expenditure relating to illegal mining in spite of the conclusive findings as to the illegal mining carried on by the assessee respondent and as such the order of the Tribunal is perverse

iv) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the addition made by the Assessing Authority on the issue of expenditure and maintenance of helicopter when the Assessee had failed to discharge its onus to prove the said claim of expenditure as genuine and that the entire expenditure had been incurred wholly and exclusive for the purpose of its business"

5. In this appeal, the learned standing counsel for the appellants/revenue namely Shri Y.V. Raviraj taken us through the order dated 29.07.2016 passed by the ITAT in ITA No.653 (Bang) 2015, wherein the Tribunal has grossly erred in not appreciating that the core issue with regard to the additions made towards the claim of transportation expenses is whether the expenditure is genuine or bogus. It is further contended that the Tribunal ought to have noted that the assessing authority had clearly brought on record the large scale illegal mining with reference to the investigation conducted by CBI, Hyderabad and the report of the Committee set up by the Government of Andhra Pradesh and as such explanation to Section 37(1) was attracted to the case of the Assessee/respondent. It is further contended that the Tribunal has grossly erred in not appreciating that as per the provisions of Section 37 of the Act, the expenditure incurred on illegal business is not an allowable expenditure and as such considering the facts of the case the assessing authority has rightly disallowed 40% of the expenses attributable to 40% of the illegal production. Whereas, the tribunal has made an observation with respect to the applicability of Section 37(1) are incorrect and perverse.

6. Further, the learned counsel for the appellants/revenue referring the order passed by the ITAT contended that the respondent/ assessee’s reply is considered carefully and is not accepted for the reasons that there is a substantial increase in the transportation expenses claimed during the year under assessment as compared to the quantity of iron ore produced and sold during this year. The respondent/ assessee could not discharge its onus of proving the genuineness of the expenditure by producing evidence to show the actual rendering of services. Though, the respondent/assessee claimed that the expenditure is supported by bills and vouchers, it could not produce any such bill or voucher. No evidence to show that transportation has been carried out by such parties was produced. As per the decision of the Hon’ble Supreme Court in the case of State of J & K Vs. Bakshi Ghulam Mohammed reported in AIR 1967 SC 122 [LQ/SC/1966/139] , the learned counsel for the appellants/revenue contended that the right of hearing doesn’t necessarily include the right of cross-examination.

Further, the assessee’s request seeking cross-examination of the transporters from whom statement under Section 131 has been recorded is not considered necessary because the entire expenditure has been proved to be bogus through independent evidence collected from the transport department and the banks. The averments made by the alleged transporters have been independently corroborated with evidence collected from the banks and the transport department. The transaction would not become ginuwine just because the payments have been routed through banks. To substantiate the same, reliance is also placed on the decision of the High Court of Madras in the case of Precision Financer reported in 208 ITR 465 [LQ/CalHC/1993/281] , wherein it was held that mere payment by account payee cheque is not sacrosanct not would it make a non-genuine transaction genuine. From the assessment order, it is seen that the reasons given by the Assessing Officer in paragraph 1.9 for not accepting the reply of the assessee are that there is substantial increase in the transportation expenses as compared with the earlier years which is not in proportion to the quantity of iron ore produced and sold during this year. The second reason given by the assessing officer is that the assessee could not produce evidence to show the actual rendering of services regarding various statements given by the transporters in the statement recorded by the assessing officer under Section 131 o f the Income Tax Act. It is seen that the main basis for disallowance is statements of the transporters of whom the assessee requested for cross-examination but the same was not allowed by the assessing officer.

7. Explanation-1 to Section 37(1) of the Income Tax Act because disallowance was made by the assessing officer by invoking the provisions of this explanation-1, which states that ...for the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offense or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. In the present case, even if this allegation of assessing officer is accepted that the assessee is doing some illegal mining and the production of the assessee to the extent of 40% of production is out of illegal mining, in our considered opinion, expenses incurred for such production does not attract the disallowance under Explanation-1 to Section 37(1) of the Income Tax Act because the expenses incurred for mining cannot be considered as offense or prohibited by law in itself. In the present case, we are not concerned as to whether the assessee is engaged in illegal mining or not but this is not the case of the assessing officer that any deduction has been claimed by the assessee for facilitating to carry out the illegal mining alleged by the assessing officer or for any penalty in respect of such illegal mining.

8. Further, there is some force in the submission of the learned counsel Shri Y.V. Raviraj that the amount of Rs.86,60,079/- for which addition has been by the assessing officer is the amount of assessee’s share in the sale consideration for sale of land and hence even if it is held that the income on this account is to be taxed in the present year, the same cannot be to the extent of gross amount of sale proceeds and the income has to be assessed after allowing deduction regarding cost of acquisition, if any incurred by the assessee but since there is no discussion on this aspect in the orders of the authorities, the issue should be restored back to the file of the assessing officer for a fresh decision. However, the appeal filed by the assessee stands allowed in part in terms of the aforesaid order.

9. Further, the learned counsel for the appellants/revenue contended that the enquiries were conducted with the bank with regard to account opening forms of these transport concerns, cheques deposited, pay in slips used for depositing the cheques and cheques used for withdrawing cash from the account of the transport concern. But most of the bank accounts do not have details of the introducer. The accounts are stated to be opened on meeting the account holder across the table. 17 bank accounts in the name of 17 of the above transport concerns have been opened on the same day i.e., 9 accounts in HDFC Bank, 4 accounts in ING Vysya Bank & 4 accounts in Pragathi Grameena Bank. Common names appear on the back side of the cheque leaves showing the name of the person withdrawing the cash. Enquiries with the banks corroborate the deposit made by the proprietors of transport concerns referred above and that of Mr. R.Gangadhar, Proprietor of M/s. Gangadhar Transport and Partner of M/s. Narmada Transport.

10. The said evidence was confronted to the appellant by the assessing officer. In reply, no satisfactory explanation or evidence was furnished as extracted in the assessment order. Therefore, the assessing office came to the conclusion that there is a substantial increase in the transportation expenses claimed during the year under assessment as compared with the earlier years, which is not in proportion to the quantity of iron ore produced and sold during this year. The alleged transporters have admitted in the sworn statements recorded under Section 131 of the Act, that they have not rendered any transportation services to the respondent/assessee’s company. They have categorically stated that they have not been engaged in the business of providing transportation services.

11. Insofar as disallowance of expenditure attributable towards illegal mining, the assessing officer has brought on record that the appellant Company was granted three leases for mining of iron ore as detailed in the assessment order. On the basis of investigation conducted by the CBI, Hyderabad, into the illegal mining activities, a charge sheet was filed in RC No.17(A)/2009. The evidence collected showed that large scale illegal mining was carried out by the appellant. The legal requirements in the mining industry had been floated. The evidence collected from the production details of production quantity taken from the records of M/s. R.K. Mining which was the raisin contractor. Further showed that there was a large amount of illegal production and said production is compared with the permitted value.

12. The appellant who is respondent in this appeal during the course of the appeal in this regard stated that disallowance of helicopter expenses of Rs.4,31,80,919/- sy 50% on rumors, gossips and conjectures is wholly unjustified especially where the appellant itself had disallowed what is considered as for personal expenses. Disallowance is not maintainable on law and facts and evidence and requires to be deleted. The grounds of appeal, the addition of entire sale consideration and taxing the same amounts to levy of turnover tax for which the assessing officer has no jurisdiction. It is also learnt that appellant has been accounting the receipts on this account regularly on the basis of the information received from the other parties. It is seen that the entire sale proceeds pertaining to the appellant has been brought to tax without giving any benefit of cost, if any. However, as the appellant has not brought on record the cost in respect of the said property, no relief can be allowed and upheld the order of the assessing officer.

13. Insofar as the assessment order by the Income Tax Department for the assessment year 2010-11, the claim of transportation expenses of iron ore which are bogus is concerned it is contended that during the course of assessment proceedings, it was seen that the assessee had claimed transportation expenditure amounting to Rs.440,87,71,000/- during the year. Analysis of such expenditure claimed over the years shows that there is a sudden jump in the expenditure claimed under this head during the years under assessment.

14. Insofar as investigation caused by the DCIT, Circle-1, Aananthapur and ITO, Ward-1, Proddatur, the assessing officer of the transport concerns shown above namely the DCIT, Circle-1 and ITO, Ward-1, Proddatur, and in the light of the above facts summoned the proprietors, partners and Principal officers of such concerns and examined them on oath. To verify whether, a sworn statement was recorded from Mr. Pinajri Abdul Saleem on 13.03.2013 under Section 131 of the I.T. Act, 1961. In his deposition, he has stated that the above parties opened bank accounts and signed blank cheques on the advice of Shri R.Gangadhar, who was a transport contractor doing business as a partner in M/s. Narmada Transport, Tadipatri. He had confirmed that the books of account of all the above transport concerns were not written on a day to basis, but were written by the accountants Shri Sundar Rao and Ganga Rao of Tadipatri, recently two to three months before the date of the sworn statement when such books of accounts were sought to be produced by the assessing officer during the scrutiny assessment proceedings for the assessment year 2010-11. To verify the payments made by the assessee company through cheques to the above referred concerns, enquiries were caused with the banks, namely HDFC Bank, Bellary, Axis Bank, Bellary, Pragrithi Grameena Bank, Bellary, Karnataka Bank, Bellary, SBI, Bellary, SBM, Bellary and ING Vysya Bank, Bellary, copies of the following documents were obtained like account opening forms of these transport concerns, copies of cheque deposited, copies of the pay in slips used for depositing the cheques, and copies of cheques used for withdrawing cash from the account of the transport concerns. Even common names appearing on the back side of the cheque leaves showing the name of the person withdrawing the case namely, Mr. Pinaji Abdul Saleem, Mr. L. Raghuram Chaudhry, Mr. Suresh, Mr. Srinivasulu Reddy, Mr. Murali and Mr. R. Gangadhar, the above persons close associate of Shri G. Janardhana Reddy, who is the Director of the Assessee Company M/s. OMCPL.

15. The assessee’s reply is considered carefully by the authority and is not accepted on the ground that there is a substantial increase in the transportation expenses claimed during the year under assessment as compared with the earlier years, which is not in the proportion to the quantity of iron ore produced and sold during the year and the assessee could not discharge its onus of proving the genuineness of the expenditure by producing evidence to show the actual rendering of services. However, the transaction would not become genuine just because the payments have been routed through the bank. Whereas, reliance is placed on the decision of the Hon’ble High Court of Madras in the case of Precision Finance reported in 2008 ITR 465, wherein it was held that mere payment by account payee cheque is not sacrosanct nor would it make a non-genuine transaction genuine.

16. Further, the assessee company along with its sister concern namely M/s. Mudita Properties P. Ltd., and M/s. Tubular Rivet Pvt. Ltd., has entered into a Development agreement with M/s Sree Vensai Realtors Pvt. Ltd., on 20.10.2007 for developing lands owned by them measuring 130 acres 12 guntas. The assessee’s authorized representative during the personal hearing on 27.02.2013 stated that the land is kept as stock in trade. He further submitted that the assessee’s share of the sale proceeds has been kept as advance received and shown in the balance sheet as at the end of the year. When the sale transaction has been completed by way of registration of sale deed, the assessee’s action of treating the proceeds as advance is incorrect. Therefore the sale proceeds amounting to Rs.86,60,079/- is brought to tax as the assessee’s business income. However, the penalty proceedings under Section 271(1)(c) are initiated for concealment of income and furnishing inaccurate particulars of income and issue penalty notice under Section 271(1)(c) of the I.T. Act, 1961.

17. These are the grounds, which are urged by the learned counsel for the appellants/revenue seeking to set aside the order passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru in ITA No.653(Bang) 2015, dated 29.07.2016 and to confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle 1(3), Bengaluru.

18. In support of his contention, the learned counsel for the appellants/revenue namely Shri Y.V. Raviraj placed reliance on the judgment in the case of Income Tax Office Vs. M.Pirai Choodi reported in (2010)78 CCH 0917 ISCC, relating to the assessment validity of opportunity to cross-examine the witness. The High Court has set aside the order of assessment on the ground that no opportunity to cross-examine was granted, as sought by the assessee. Instead the High Court should have directed the AO to grant an opportunity to the assessee to cross- examine the concerned witness even on this particular aspect, the assessee could have gone in appeal to CIT (A). In the circumstances, the High Court should not have quashed the assessment proceedings, under Articles 226 of the Constitution. Impugned order is set aside. Liberty is granted to the assessee to move CIT(A) in M.Pirai Choodi Vs. ITO (2008)302 ITR 40 (Mad) set aside.

19. Further, in the case of Maddi Venkataraman & Co. (P) Ltd., Vs. Commissioner of Income Tax reported in (1997) 65 CCH 1084 ISCC, wherein it is held that the expenditure penalty, fine etc for infraction of law wholly and exclusively for business export of tobacco at discounted price. The assessee claiming that it had to export sub-standard tobacco at a rice 20 per cent less than floor price fixed by the Government in order to avoid loss and difference was passed on to importer through an illegal channel transactions were in violation of FERA Spur of loss cannot be a justification for contravention of law. Expenditure incurred for evading the provisions of FERA cannot be allowed as deduction. 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.

20. Further, in the case of Commissioner of Income Tax Vs. KAP Scan & Diagnostic Center Pvt. Ltd., reported in (2012)80 CCH 0221 PHHC, wherein at paragraph Nos.17 & 21 held as under:

“17. Now we proceed to examine whether soliciting business by the assessee by paying commission to the private doctors is unethical, against public policy and forbidden by law.

21. 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.”

21. Further, in the case of Commissioner of Income Tax Vs. PT. Vishwanth Sharma, reported in (2008) 76 CCH 0270 AIIHC, wherein at paragraph No.6, it is held as under:

“6. The alleged expenditure in question is sought to be deducted under Section 37of the Act. The relevant provision for the purpose of the present case, is reproduced as under:

37. (1) Any Expenditure (not being expenditure of the nature described in Section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession.

Explanation. - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offense or which is prohibited by law shall not be deemed to have been incurred for the purposes of business or profession and no deductions or allowance shall be made in respect of such expenditure.”

22. Further, in the case of J.K. Panthaki & Co. Vs. Income Tax Officer,reported in (2010)78 CCH 0724 KarHC, wherein at paragraph Nos.38 & 43, it is held as under:

“38. Infraction of the law is not a normal incident of business. Only such disbursements can be deducted as are really incidental to the business itself. They cannot be deducted if they fall on the assessee in some character other than that of a trader. It is well settled that contracts which are prohibited by statute, the prohibition being either express or implied, would be illegal and unenforceable if they are entered into in contravention of the statute. Where a contract is expressly or by implication forbidden by statute, no court will lend its assistance to give effect to such contract. A distinction is sometimes made between contracts entered into with the object of committing an illegal act and contracts expressly or impliedly prohibited by statute. The distinction is that in the former class one has only to look and see what acts the statute prohibits; it does not matter whether or not it prohibits a contract. In the latter class, one has to consider not what act the statute prohibits, but what contracts it prohibits. Any agreement which tends to be injurious to the public or against the public good is invalidated on the grounds of public policy. The question whether a particular agreement is contrary to public policy is a question of law, to be determined like any other question of law by the proper application of legal principles and prior decisions.

43. The doctrine or rule of pari delicto is the embodiment of the principle that the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to an illegality or fraud. It is a maxim of law, established, not for the benefit of either of the parties to the litigation, but is founded on the principles of public policy, which will not assist a party who has paid over money, or handed over property, in pursuance of an illegal or immoral contract, to recover it back; for 'the Courts will not assist an illegal transaction in any respect'. The maxim is therefore, intimately connected with the more comprehensive rule of law, ex turpi causa non oritur actio, on account of which no Court will allow itself to be made the instrument of enforcing obligations alleged to arise out of a contract or transaction which is illegal, and the maxim may be said to be a branch of that comprehensive rule. If he requires aid from the illegal transaction to establish his case, the Court will not entertain his claim.”

23. Further, in the case of Commissioner of Income Tax Vs. Dalmia Cement (Bharat) Ltd., reported in (2001) 69 CCH 0830 DelHC, wherein at paragraph No.9, it is held as under:

“9. Coming to the second question it has been argued by learned counsel for the Revenue that when funds were available with another concern there was no necessity for borrowing. The amount which was treated to be "deposits" in essence belonged to the assessee and not the CDL When funds were available no prudent businessman would incur a loan pay interest and at the same time not collect amounts held by some other person on its behalf. Even if it was held on behalf of the assessee, there was no prohibition on the assessee charging interest on the amounts held by the CDL so that the interest component could have been neutralized to that extent. Though learned counsel for the Revenue referred to certain observations to show that ultimately the amount was held on account of the assessee, we find that the admitted position was that the CDL was handling the sales-tax matters in regard to cement sales, sales-tax returns were filed by it and sales-tax assessment were made by the sales-tax authorities on it, i.e., the CDL in regard to cement sales of the company. The CDL was collecting necessary sales- tax as also the security deposit. There was a dispute as regards levy of sales-tax on packing and freight elements. While the ST authorities were demanding and levying sales- tax on two items, the assessee was challenging the levy and since there was no final decision on the issue, deposits were being collected by the agent, i.e., the CDL to cover the possible levy of sales-tax on packing and freight elements. Therefore, the stand of the assessee all through was that in case of final adjudication, the amount was either to be refunded to the customers or was required to be paid to the state exchequer if the levy was upheld. The deposit was collected from the customers and was in the nature of a contingent liability relating to levy of sales-tax. Allowability of interest is covered by s. 36(1)(iii) of the Act. The said provision corresponds to s 10(2)(ii) of the old Act. In Madhav Prasad Jatia vs. CIT (1979) 10 CTR (SC) 375: (1979) 118 ITR 200 (SC): TC 15R.823, the apex Court observed that the conditions required to be fulfilled to be entitled to deduction were that the interest must have been paid on borrowings incurred for the purpose of the business. The conditions laid down were as follows: (a) that money (capital) must have been borrowed by the assessee, (b) that it must have been borrowed for the purpose of business, and (c) that the assessee must have paid interest on the said amount and claimed it as a deduction. It is to be noted that in Madhav Prasad's case (supra), reference was made to a decision of the Bombay High Court in CIT vs. Bombay Samachar Ltd. (1969) 74 ITR 723 (Bam): TC 15R.843. Learned counsel for the Revenue submitted that the factual position in the case of Madhav Prasad (supra) and Bombay Samachar's case (1969) 74 ITR 723 (Bom) [LQ/BomHC/1969/85] was different. According to him, the point involved in the case at hand, l.e., availability of funds with somebody else holding the money for and on behalf of the assessee was not in issue. We find that such an issue was really under consideration of the Bombay High Court in Bombay Samachar's case (supra) to which reference was made in Madhav Prasad's case (supra). It was. noted as follows:

"The two Bombay decisions on which reliance was placed by the counsel for the appellant, namely, CIT vs. Bombay Samachar (1969) 74 ITR 723 (Bom) [LQ/BomHC/1969/85] : TC 15R.843 and CIT vs. Kishinch and Chellaram (1977) 109 ITR 569 (Bom) [LQ/BomHC/1976/397] : TC 17R.985 are clearly distinguishable and do not touch the issue raised in the instant case before us. In the former case, the assessee had during the relevant assessment years paid amounts of interest on capital which was borrowed from outsiders and had claimed deduction in respect of such interest. It was not disputed that the capital borrowed by the assessee from the outsiders was admittedly used by the assessee for the purpose of its business. The taxing authorities had taken the view that if the assessee had collected outstanding which were due to it from others it would have been able to reduce its indebtedness and save a part of the interest which it had to pay on its own borrowings, that the assessee could not be justified in allowing itsoutstanding to remain without charging any interest thereon while it was paying interest on the amounts borrowed by it, and that to the extent to which it would have been in a position to collect interest on the outstanding due to it from others, it could not be permitted to claim as an allowance interest paid by it to outsiders. The High Court held that such a view was clearly unsustainable and observed that it is not the requirement under s. 10(2)(iii) that the assessee must further show that the borrowing of the capital was necessary for the business so that if at the time of the borrowing the assessee has sufficient amount of its own the deduction could not be allowed and the High Court further took the view that in deciding whether a claim of interest on borrowing can be allowed the fact that the assessee had ample resources at its disposal and need not have borrowed, was not a relevant matter for consideration."

24. Further, in the case of Commissioner of Income Tax Vs. Malayalam Plantations Ltd., reported in (1964) 32 CCH 0110 ISCC, wherein it is held that the business expenditure – Meaning of the express for the purposes of business appearing in s. 10(2)(xv) of the 1922 Act. The said expression is wider than the expression "for the purpose of earning profits-Only where the assessee himself is carrying on business, the expenditure incurred by him for the business could be allowed to be deducted, where the assessee is acting as an agent for a third party the expenses incurred by him would not be allowable as deduction.

25. The learned counsel for the appellants/revenue submits that the above judgments relied are squarely applicable to the facts and circumstance of the present case on hand and emphatically submits that intervention of this Court is required in this appeal.

26. To controvert the arguments of the learned counsel for the appellants/revenue, learned counsel Shri Mayank Jain for the respondent/assessee submitted that the reliance on evidence of transporters itself is without jurisdiction contrary to Income Tax Act, Indian Evidence Act and Civil Procedure Code Therefore, the evidence of transporters cannot be relied on by the Assessing officer. This is the law as understood from reading of the provisions and the law declared by the Hon’ble Patna High Court in the case of Dr. M.P. Sinha Vs. Life Insurance Corporation of India and another reported in 1963 SCC Online Pat 60, which reads as under

"6 Depositions which are taken on commission ought to be tendered in evidence under Order 26 Rule 8. It is only when the Court has permitted the deposition to be read in evidence that it is evidence in the case. There was, therefore, no material on the basis of which the learned Munsif could decide the suit on merits in this case....." (P-40)"

He relied upon the decision in the case CIT Vs. Dharam Pal Prem Chand Ltd. reported in (2007) 295 ITR 105 (Del) [LQ/DelHC/2007/1063] , wherein it is held as under:

“The fact remains that the CIT(A) came to the conclusion that the assessee was not given permission to cross-examine the analyst who had prepared the test report obtained from the Shri Ram Institute for Industrial Research and that was enough to vitiate the assessment order.

9. There is no doubt that even if the strict rules of evidence may not apply, the basic principles of natural justice would apply to the facts of the case. The AO placed reliance upon the report of the Shri Ram Institute for Industrial Research for deciding against the report cannot be automatically accepted particularly since there is a challenge to it and the assessee had sought permission to cross-examine the analyst making the report. Since the AO did not permit the correctness or otherwise of the report to be tested, there is a clear violation of the principles of natural justice observed by him in relying upon it to the detriment of the assessee."

27. Further, in the case of Prakash Chand Nahta Vs. CIT reported in (2008) 301 ITR 134 (MP) [LQ/MPHC/2008/219] , wherein it is held as under:

"17. In view of the aforesaid we answer the reference holding that as the AO had not summoned Mohd. Rashid, the proprietor of M/s Rashid & Co., Jabalpur in spite of the request made under s. 131 of the Act, the evidence of said Mohd. Rashid could not have been used against the assessee and in the absence of affording reasonable opportunity of being heard by summoning the said witness the assessment order is vitiated and cannot be saved as the addition has been made on the foundation of his deposition."

6.5. It is therefore submitted that the Assessing Officer having failed to record the evidence of transporters or issuing commission and recording their statements nor summoning them for cross examination is a jurisdictional error which cannot be rectified. Hence, the disallowance is totally vitiated. Revenue's contentions not correct: (Finality of assessment proceedings). Due procedure not followed due to "oversight" "inadvertent or "mistake". Once income tax order is passed the same cannot be re- examined except within the permissible provisions and time limit prescribed under the Act. In other words, the Assessing Officer is not vested with second innings to redo the assessments. The department cannot go on making fresh computations and issuing fresh notices of demand to the end of time. This is the law declared by various courts as under:-

In the case of CIT VS. Khemchand Ramdas reported in (1938) 6 ITR 414 (Privy Council), wherein it is held that in view of these express provisions of the Act. It is in their Lordships opinion quite impossible to suppose that the ITO may in every kind of circumstance and after any lapse of time make fresh assessment or issue fresh notice of demand or that the CIT can direct him so to do. In their Lordships' opinion the provisions of the two sections are exhaustive, and prescribe the only circumstances in which and the only time in which such fresh assessments can be made and fresh notices of demand can be issued." Indian & Eastern Newspaper Society Vs. CIT (1979) 119 ITR 996 (SC) (P-67) "8.....It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power."

28. The second limb of argument advanced by the learned counsel for the respondent/assessee is that on 14.10.2010 the assessee filed return of income under Section 139 of the I.T. Act for the assessment year 2010-11. The assessee claimed expenditure towards repair and maintenance of Rs.779,22,370/- and towards depreciation of Rs.84,39,457/- in all a sum of Rs.8,63,61,817/- towards Helicopters. On 31.03.2013, the assessment order held that there was a report that the assessee was involved in political activity. The Helicopter was used for political purposes as per media report. The claim was considered by the Assessing Officer under Section 37 of the I.T. Act. The claim of expenditure on Helicopters was disallowed to an extent of 50% as having been used for Political purpose, which would amount to personal use. On 16.01.2015, the assessee preferred an appeal to the Appellate Commissioner. The Appellate Commissioner confirmed the finding of the Assessing Officer that 50% of the Helicopter usage should be attributed to the Political activity of the assessee and therefore personal expenses and the appeal of the assessee was dismissed. Further, when the assessee company allows a certain type of expenditure in the directors hand, it will be allowable as the expenditure in the hands of the assessee and treated as salary/perquisite in the hands of the directions receiving it. Remissible under Section 198 and Section 309 of the Companies Act, 1956. Further this legal position stands concluded by a judgment of Gujarat High Court in Sayai Iron & Engg. Co. Vs. CIT reported in (2002) 253 ITR 0749 (Guj).

29. Learned counsel for the respondent/assessee relied upon Section 309(1) of the Companies Act, 1956, which reads as under

“309. Remuneration of directors.-(1) The remuneration payable to the directors of a company, including any managing or whole- time director, shall be determined, in accordance with and subject to the provisions of section 198 and this section, either by the articles of the company, or by a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting 1 and the remuneration payable to any such director determined as aforesaid shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity.”

30. It is further contended regarding transportation charges for the assessment year 2010-11 and submits that on 30.03.2013 the Assessing officer examined the claim of the transpiration expenses of Rs.440,87,71,000/- towards iron ore transport. The payment made by the assessee to 21 transporters at Ananthur and 8 transporters at Proddatur through cheque after deducting TDS was enquired by DCIT Circle-I, Ananthpur and ITO, Ward-I, Proddatur, Andhra Pradesh. The Assessing Officer without taking this evidence on record, furnishing copies of statements to assessee or permitting cross-examination,, relied on it and disallowed Rs.131,00,28,895/- and Rs.37,69,65,007/- in all Rs.168,69,93,902/-. Further, the assessing officer has proceeded to invoke Section 143(3) of the I.T. Act to pass assessment orders. Part of the transportation expenses for transporting 23,61,083 metric tons at a cost of Rs.168,,69,93,902/- is disallowed. The jurisdictional error committed is the assessing officer’s jurisdiction is Deputy Commissioner of Income Tax, Central Circle-1(3), Bengaluru, whereas the jurisdictional assessing officer of the transporters is located in Andhra Pradesh.

31. Admittedly, as stated above the evidence of transporters recorded by the assessing officer outside the jurisdiction of Bengaluru has not been taken on record by following the due procedure. Therefore, the oral evidence of these transporters recorded at the back of the assessee cannot be used in evidence in the present proceedings. Various High Courts in support of this submission have held that such evidence is opposed to principles of natural justice contrary to law and therefore vitiated.

32. Further, in the case of CIT VS. Dharam Pal Prem Chand Ltd., reported in (2007) 295 ITR 105 (Del) [LQ/DelHC/2007/1063] wherein it is held that ……the fact remains that the CIT(A) came to the conclusion that the assessee was not given permission to cross- examine the analyst who had prepared the test report obtained from the Shri Ram Institute for Industrial Research and that was enough to vitiate the assessment order. Further, There is no doubt that even if the strict rules of evidence may not apply, the basic principles of natural justice would apply to the facts of the case. The AO placed reliance upon the report of the Shri Ram Institute for Industrial Research for deciding against the assessee. The report cannot be automatically accepted particularly since there is a challenge to it and the assessee had sought permission to cross-examine the analyst making the report. Since the AO did not permit the correctness or otherwise of the report to be tested, there is a clear violation of the principles of natural justice observed by him in relying upon it to the detriment of the assessee."

33. In the case of Prakash Chand Nahta Vs. CITreported in (2008) 301 ITR 134 (MP) [LQ/MPHC/2008/219] wherein it is held that in view of the aforesaid we answer the reference holding that as the AO had not summoned Mohd. Rashid, the proprietor of M/s Rashid & Co., Jabalpur in spite of the request made under s. 131 of the Act, the evidence of said Mohd. Rashid could not have been used against the assessee and in the absence of affording reasonable opportunity of being heard by summoning the said witness the assessment order is vitiated and cannot be saved as the addition has been made on the foundation of his deposition."

34. The above reliances facilitated by the learned counsel for the respondent/assessee and referring various provisions of law, addressed his arguments and submitted that the same are applicable to the facts and circumstances of this case. On all these premises, the respondent/assessee is seeking for dismissal of this appeal as the same being devoid of merits and to confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle-1(3) Bengaluru.

35. The contentions made by the learned standing counsel for the appellants/revenue namely Shri Y.V. Raviraj, referring the impugned order passed by the ITAT and so also the order passed by the Assessing Officer by referring the materials and also recording of the statements of the witnesses and so also the counter arguments advanced by the learned for the respondent/assessee namely Shri Mayank Jain, where certain judgments and so also the materials inclusive of the specific provisions of the Income Tax Act, 1961 are relied, it is deemed appropriate to refer Section 11 of the Code of Civil Procedure, 1908, which reads as under:

“11. Res judicata.—No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court.

Explanation I.—The expression “former suit” shall denote a suit which has been decided prior to a suit in question whether or not it was instituted prior thereto.

Explanation II.—For the purposes of this section, the competence of a Court shall be determined irrespective of any provisions as to a right of appeal from the decision of such Court.

Explanation III.—The matter above referred to must in the former suit have been alleged by one party and either denied or admitted, expressly or impliedly, by the other.

Explanation IV.—Any matter which might and ought to have been made ground of defense or attack in such a former suit shall be deemed to have been a matter directly and substantially in issue in such a suit.

Explanation V.—Any relief claimed in the plaint, which is not expressly granted by the decree, shall for the purposes of this section, be deemed to have been refused.

Explanation VI.—Where persons litigate bona fide in respect of a public right or of a private right claimed in common for themselves and others, all persons interested in such right shall, for the purposes of this section, be deemed to claim under the persons so litigating.

Explanation VII.—The provisions of this section shall apply to a proceeding for the execution of a decree and references in this section to any suit, issue or former suit shall be construed as references, respectively, to a proceeding for the execution of the decree, question arising in such proceeding and a former proceeding for the execution of that decree.

Explanation VIII. —An issue heard and finally decided by a Court of limited jurisdiction, competent to decide such issue, shall operate as res judicata in a subsequent suit, notwithstanding that such Court of limited jurisdiction was not competent to try such subsequent suit or the suit in which such issue has been subsequently raised.”

36. It is also relevant to refer Section 115 of the Indian Evidence Act, 1872, which reads as under:

“115. Estoppel.- When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.”

37. However, in view of the given peculiar facts and circumstances of the case, it is also relevant to refer Section 300 of the Code of Criminal Procedure, 1973, which reads as under:

“300. Person once convicted or acquitted not to be tried for same offence.—(1) A person who has once been tried by a Court of competent jurisdiction for an offense and convicted or acquitted of such offense shall, while such conviction or acquittal remains in force, not be liable to be tried again for the same offense, nor on the same facts for any other offense for which a different charge from the one made against him might have been made under sub-section

(1) of section 221, or for which he might have been convicted under sub-section (2) thereof.

(2) A person acquitted or convicted of any offense may be afterwards tried, with the consent of the State Government, for any distinct offense for which a separate charge might have been made against him at the former trial under sub-section (1) of section 220.

(3) A person convicted of any offense constituted by any act causing consequences which, together with such act, constituted a different offense from that of which he was convicted, may be afterwards tried for such last mentioned offense, if the consequences had not happened, or were not known to the Court to have happened, at the time when he was convicted.

(4) A person acquitted convicted of any offense constituted by any acts may, notwithstanding such acquittal or conviction, be subsequently charged with, and tried for, any other offense constituted by the same acts which he may have committed if the Court by which he was first tried was not competent to try the offense with which he is subsequently charged.

(5) A person discharged under section 258 shall not be tried again for the same offense except with the consent of the Court by which he was discharged or of any other Court to which the first mentioned Court is subordinate.

(6) Nothing in this section shall affect the provisions of section 26 of the General Clauses Act, 1897 (10 of 1897) or of section 188 of this Code.

Explanation.—The dismissal of a complaint, or the discharge of the accused, is not an acquittal for the purposes of this section”

38. Whereas, it is relevant to refer Article 20 of the Constitution of India, which reads as under:

“20. Protection in respect of conviction for offences.— (1) No person shall be convicted of any offense except for violation of a law in force at the time of the commission of the Act charged as an offense, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offense.

(2) No person shall be prosecuted and punished for the same offense more than once.

(3) No person accused of any offense shall be compelled to be a witness against himself."

39. Referring to the materials facilitated by the learned standing counsel for the appellants/revenue namely Shri Y.V. Raviraj and equally the reliance facilitated by the learned counsel for the respondent/assessee namely Shri Mayank Jain, it is necessary to cite the above provisions of law.

40. Keeping in view the aforesaid provisions of law and so also the scope of the specific provision relating to this appeal is concerned it is relevant to state here that substantial question of law has been raised based upon the ground which are urged in this appeal by the appellants/revenue. Whereas Chapter-XX of the Income Tax Lax Act, 1961 refer to the instances, where there was no substantial question of law. The difference between a question of law and substantial question of law was explained by the High Court citing from the decision of the Hon’ble Supreme Court in the case of Sir Chunilal Vs. Mehta and Sons reported in ITAT (2011) 336 ITR 149 (Ori), whereinthe Hon’ble Supreme Court laid down the following tests to determine whether a substantial question of law is involved. The tests are as under:

(1) whether directly or indirectly it affects substantial rights of the parties, or,

(2) the question is of general public importance, or,

(3) whether it is an open question in the sense that the issue is not settled by the pronouncement of the Supreme Court or the Privy Council or by the Federal Court, or,

(4) the issue is not free from difficulty, and

(5) it calls for a discussion for an alternative view.

41. Insofar as jurisdiction relating to this appeal for entertainment is concerned a reliance is placed in the case of Chem Amit Vs. ACIT reported in (2005) 272 ITR 397 (Bom) [LQ/BomHC/2004/1920] , wherein it is held that an order of the Tribunal declining to rectify its order was held to be non-appealable because Section 256 specifically conferred jurisdiction on any question of law arising out of an order passed under Section 254, while there is no similar provision under Section 260A, so that it was inferred that the reference to the order of the Tribunal could only refer to the order passed in normal course and not to rectification order. Further, a reliance is also made in the case of CIT Vs. Durga Engineering and Foundry Works reported in (2000) 245 ITR 272 (SC), wherein the Hon’ble Supreme Court took the view that all the order passed could be subject of reference to the High Court. It could not have therefore meant that direct appeals to the High Court should have limited jurisdiction.

42. The appeal is preferred by the appellant/revenue to the High Court and if it is satisfied that the case involves a substantial question of law is required to be considered. Sub Section (7) of Section 260A states that the provisions of CPC, relating to appeals to the High Court, as far as may be, apply to these appeals. This section is analogous to Section 100 of CPC. Noticeably, both these sections i.e., Section 260A of IT Act and Section 100 of CPC do not define the expression substantial question of law. The Apex Court vide Santosh Hazari vs. Purushottam reported in 251 ITR 84 [LQ/SC/2001/352] SC is of the view that the word substantial qualifies the term question of law, it means a question having substance, essential, real or sound worth, important or considerable. The substantial question of law on which an appeal shall be heard need not necessarily be a question of law of general importance. To be substantial, a question of law of general importance. To be substantial, a question of law must be debatable and it must have a material bearing on the decision of the case in the sense that if answered either way insofar as the rights of the parties are concerned.

43. On examination of the nature of ‘substantial question of law’ as redrafted by the Revenue on which the Co-ordinate Bench admitted this appeal, the said question which is already reproduced above, has been framed keeping in view the provisions of sub section (1) section 37, which has the following text:

“Any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession…”.

1.On examination of the nature of ‘substantial question of law’ as redrafted by the Revenue on which the Co-ordinate Bench admitted this appeal, the said question which is already reproduced above, has been framed keeping in view the provisions of sub section (1) section 37, which has the following text:

“Any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession…”.

44.The impugned order passed by the ITAT in ITA No.653(Bang) 2015 for the assessment year 2010-11, wherein the grounds raised by the assessee are as under:

“1. The order of the Lower Authorities is contrary to law and facts, the evidence on record insofar as the additions made by the Learned AO have even been confirmed by the Learned CIT(A}.

2. The Learned CIT(A) has erred in confirming the addition of Rs.168,69,93,902/- as bogus transportation expenses on hear-say, surmises and conjectures without even affording an opportunity of cross examination and on the basis of information collected on the back of the appellant without even supplying the information to the appellant and ignoring the appellant's submissions in this regard.

3. The Learned CIT(A) has erred in upholding the disallowance of Rs.220,89,67,632/- on the allegations based on surmises and conjectures, and hear-say evidences to the effect that 40% of the business is illegal and therefore explanation (1) to Section 37(1) is attracted without appreciation the fact that the said Explanation is concerned with the nature of expenditure and not that of business, and further that the issue whether the allegation of the illegal mining is true or not is before the Competent Court for a decision and therefore it is premature for the lower authorities to decide this issue on assumptions and presumptions which amounts to assumption of the jurisdiction of the Competent Court.

4. The learned authorities have erred in disallowing Rs.4,31,80,919/- under the helicopter expenses on hear-say evidence and rumors and gossip without appreciating the fact that the learned AO has not brought on record any evidence to support his conclusion.

5. The Learned Authorities have erred in disallowing being entire Rs.4,31,80,919/- Rs.86,60,079/- sale consideration without appreciating the fact that Income-tax is only a tax on income and not a tax on the turnover and further that the income has not accrued according to the method of accounting regularly followed by the appellant.

6. The appellant seeks your leave to add, alter, amend or delete any grounds urged at the time of hearing.”

45. The order of the learned authorities is contrary to law and facts. The evidence on record insofar as the additions made by the assessing officer even on confirmation by the CIT (Appeals). However, in the aforesaid impugned order even taken the grounds relating to the authorities have erred in disallowing the helicopter expenses on hear-say evidence and rumors and gossip without appreciating the fact that the learned AO has not brought on record any evidence to support his contention. Even various grounds have been urged in the appeal preferred by the appellant M/s. Obulapuram Mining Company Pvt. Ltd., Ennoble House, No.6/4, Raghavachari Road Bellary-583101. It is submitted by the learned AR of the assessee that the ground No.1 is general in nature and hence hold that no adjudication is called for regarding ground No.1 of the appeal. As this contention made by the learned counsel for the respondent/assessee has taken us through the impugned order passed by the ITAT in ITA No.653(B)/2015 relating to the decisions in the cases of CIT Vs. SMC Share Brokers Ltd., reported in 288 ITR 345 & CIT Vs. Pradeep Kumar Gupta, reported in 303 ITR 95 [LQ/DelHC/2006/2638] .

46. These are the reliances facilitated relating to the impugned order which is challenged in this appeal by the appellants/revenue. Further, addition has been made mainly on the basis of the sworn statement under Section 131 of Mr. R.Gangadhar. Thereafter, enquiries were made from various banks namely HDFC Bank Ballari, Axis Bank Ballari, Pragrithi Grameena Bank Ballari, Karnataka Bank Ballari, SBI Ballari, SBM Ballari, and ING Vysya Bank Ballari. The assessing officer has noted that from the analysis of various documents obtained from these Banks, it is seen that most of the Bank Accounts do not have the details of the introducer and the accounts are stated as opened on meeting the account holder across the table. It is also noted that 17 Bank accounts in the name of 17 different transport concerns had been opened on the same with HDFC Bank – 9 accounts, ING Vysya Bank – 4 accounts, Pragrithi Grameena Bank – 4 accounts. It is also noted by the AO that the bank account holder of 10 accounts have the same mobile numbers. The Deputy Commissioner has proposed to disallow transportation charges paid to 28 parties in Ananthapur and 10 parties in Proddutur. The reason given by the Deputy Commissioner is that the Assessing Officer has stated that the above said transporters, whose cases are being scrutinized by him, have not rendered any transportation services to you during the financial year relevant to the assessment year 2010-11. So far as vehicle numbers furnished by some of the above said parties in support of their claim of rendering transportation service to you were either incorrect numbers or not relating to goods carriers. When the payments are genuine, the assessee is engaged in the business of extraction and trading in iron ores. The same is also taken into consideration by the ITAT in the aforesaid impugned order, which is challenged in this appeal. Insofar as transportation charges incurred by the assessee during the previous year 2009-10, relevant to assessment year 2010-11 are genuine and actual. However, these expenses which have been claimed by the assessee are well supported by bills, vouchers, ledger entries and payments are made through cheques drawn on schedule banks, then there is no need for the transporter to own a vehicle and to run the transportation company. The course of business in transportation is run on the hiring of a vehicle by a third party who in turn will hire a vehicle. On the above mentioned ground, the object for disallowance of the transportation charges unless the assessee is given an opportunity to rebut the evidence in the custody of the Deputy Commissioner.

47. The assessee’s reply is considered carefully and is not accepted, but the alleged transporters have claimed to have rendered transportation services only to a group of companies in which Sri G Janardhana Reddy is interested. The alleged transporters have admitted in the sworn statements recorded under Section 131 of the Act, that they have not rendered any transportation services to the assessee company. Insofar as examination of the bank statements of the alleged transporters showed that the amount deposited in cheques received from the assessee company is immediately withdrawn in cash. Cash has been withdrawn from the bank accounts mainly by the employees of the assessee company. Each leg of this transaction has been proved with evidence to be false, it has been proved by the admission of the alleged transporters’ that their business concerns have been floated only at the behest of the assessee. However, on the assessee’s request seeking cross examination of the transporters from whom statement under Section 131 has been recorded is not considered necessary because the entire expenditure has been proved to be bogus through independent evidence collected from the transport department and the banks.

48. In the case of Nath International Sales Vs. UOI, reported in AIR 1992 (Del.) 295, [LQ/DelHC/1992/33] it is held that the right of cross examination is not an absolute right. Further in the case of State of J&K Vs. Bakshi Gulam Mohammed reported in AIR 1967 SC 122 [LQ/SC/1966/139] , it is held that the right of hearing doesn’t necessarily include the right of cross examination.

49. Disallowance was made by the Assessing Officer by invoking the provisions of the Explanation – 1 to Section 37(1) of the Income Tax Act, 1961, which reads as under:

“Explanation-1 …For the removal of doubts it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offense or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.”

50. From the above explanation, it is seen that if any expenditure is made by the assessee for any purpose which is an offense or prohibited by law then it is not incurred for the purpose of business and no deduction or allowance can be made in respect of such expenditure. In the instant appeal, we are not concerned as to whether the assessee is engaged in illegal mining or not but in the present case, because this is not the case of the assessing officer that any deduction has been claimed by the assessee for facilitating to carry out the illegal mining alleged by the assessing officer or for any penalty in respect of such illegal mining because the disallowance has been made by the assessing officer. Whereas representative of the assessee submitted that it is noted by the assessing officer that the assessee has not discharged its onus to prove that the entire expenses in respect of repairs and maintenance and depreciation on helicopter has been incurred wholly and exclusively for the purpose of its business. He submitted that this issue is squarely covered in favor of the assessee by the decision of the Hon’ble Gujarat High Court rendered in the case of Sayaji Iron & Engg. Vs. CIT (Supra) Even if there any persona use by Director/employee of the assessee company, addition can be made in the hands of such Director/employee on account of perquisite value of such personal use by the concerned person but no disallowance can be made in the hands of the assessee company. However, the assessing officer of the concerned Director is at liberty to make additions as per law in the hands of the concerned director. Accordingly, ground No.4 of the assessee is also allowed. Insofar as ground No.5 it was submitted that the AR of the assessee that the AO has made addition of gross amount of the sale proceeds of land which was kept as advance by the assessee in its balance sheet at the end of the year and even if addition is made on this account, the same should be net amount after allowing deduction in respect of cost of acquisition as per law and for this purpose, the matter be restored back to the file of the AO. The ITAT considered the submission made by the parties and also find force in the submission of the AR of the assessee because we find that the amount of Rs.86,60,079/- for which addition has been by the AO is the amount of assessee’s share in the sale consideration for the sale of land and hence even if it is held that income on this account is to be taxed in the present year, the same not be to the extent of gross amount of sale proceeds and income has to be assessed after allowing deduction regarding cost of acquisition. Further, the ITAT partly allowed the appeal filed by the assessee.

51. Keeping in view the contentious contentions made by the learned standing counsel for the appellant/revenue namely Shri Y.V. Raviraj and so also the counter arguments advanced by the learned counsel for the respondent/assessee namely Shri Mayank Jain based upon the relevant provisions of the Income Tax Act, 1961 and so also based upon the impugned order passed by the Income Tax Appellate Tribunal in ITA No.653/BANG/2015 for the assessment year 2010-11, whereby under this appeal, the assessee who is arrayed as respondent herein has challenged the order passed by CIT(A), Bengaluru, dated 16.01.2015 for the assessment year 2010-11, it is relevant state that the penalty proceedings have been held to be distinct from assessment proceedings and the independent therefrom, inasmuch as the assessment proceedings are taxing proceedings and the penalty proceedings are criminal proceedings in their very nature and a decision given in an assessment proceeding cannot possibility bind the authority who tries the assessee for an offense. Further, a difference was sought to be made between the expression “not proved” and “disproved” in the case of Raghuvir Soni Vs. ACIT reported in (2002) 258 ITR 239 (Raj), explanation would cover a case of a not proved situation as well as disproved ones, where there is failure to substantiate an explanation since inference in this case could well rest on the facts, the attempt of the taxpayer to make a question of law out of the same failed. Further, it requires to take into consideration the scope of assessee must be informed that explanation to Section 271(1)(c) is sought to be applied, otherwise notice is invalid, wherein the explanation is necessary in the show cause notice itself. However, a contrary view has been expressed in the undernoted cases the assessing officer can invoke it in the course of the penalty proceedings and even if he fails to do so, the deputy commissioner and the Tribunal must examine its applicability before arriving at their decision whether a penalty is or is not leviable.

52. Whereas the appellant namely M/s. Obulapuram Mining Company Pvt. Ltd., has preferred an appeal and that appeal is directed against the order of the Income Tax Appellate Tribunal, Bengaluru Bench ‘C’, Bengaluru in ITA No.653(Bang) 2015, dated 29.07.2016 for the assessment year 2010-11 and the appellant is seeking intervention in the order of the ITAT by urging various grounds to allow the appeal and set aside the order passed by the ITAT and confirm the order passed by the DCIT, Bengaluru in terms of the aforesaid reasons.

53. A perusal of the impugned order passed by the ITAT and so also the order passed by the DCIT and the order consisting several materials relating to 17 bank accounts in the names of 17 of the above transport concerns have been opened on the same day i.e., 9 accounts in HDFC Bank, 4 accounts in ING Vysa Bank & 4 accounts in Pragriti Grameena Bank including the cheque leaves showing the name of the person withdrawing the cash. The said evidences was confronted to the appellant by the assessing officer. In reply, no satisfactory explanation or evidence was furnished as extracted in the assessment order. However, in this appeal raising certain substantial questions of law, those questions of law are required to be response based upon the order passed by the ITAT and so also the order passed by the Income Tax Department relating to the assessment order insofar as scope of Section 143(3) of the I.T. Act, 1961 relating to the mining operations and exports of iron ore, the same is indicated in the assessment year 2010-11 maintained by M/s. Obulapuram Mining Company Private Limited,

54. However the word substantially qualifies the term ‘question of law’ it means a question having substance, essential real, of sound worth, important or considerable. The substantial question of law on which an appeal shall be heard need not necessarily be a question of law of general importance. To be substantial, a question of law must be debatable and it must have a material bearing on the decision of the case in the sense that if answered either way insofar as the rights of the parties are concerned. It is required to be refer in this appeal that what Kanga & Palkhivala’s law and Practice of Income Tax’ Vol. II Eleventh Edn., Lexis Nexus at pages 3316 – 17 states:

“…A question is a substantial question of law if: (i) it directly or indirectly affects substantial rights of the parties; or (ii) it is of general importance; (iii) it is an open question in the sense that the issue has not been settled by a pronouncement of the Supreme Court; (iv) it is not free from difficulty; or (v) it calls for a discussion for alternative view… The findings are based on no evidence; (vii) relevant admissible evidence has not been taken into consideration; (viii) inadmissible evidence has been taken into consideration; (ix) legal principles have not been applied in appreciating the evidence; or (x) the evidence has been misread…”

55. These tests are stated to be illustrative and in no way exhaustive of the powers of the High Court to entertain an appeal, if there is other substantive ground of law. It hardly needs to be stated that a provision for appeal should be liberally construed and read in a reasonable & practical manner.

56. Keeping in view the submissions made by the learned counsel for the parties, it would be relevant to refer to Section 260A of the Income Tax Act, the relevant provisions reads as under:

“260-A. Appeal to High Court.- (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law.

XXXXX

(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.

XXXXX

(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure 1908 (5 of 1908) relating appeals to the High Court shall, as far as may be, apply in the case of appeals under this Section.”

57. It is clear from the above section that an appeal to the High court from a decision of the Tribunal lies only when a substantial question of law is involved and where the High Court comes to the conclusion that a substantial question of law arises from the said order it is mandatory that such questions must be formulated. The expression substantial question of law is not defined in the Act. Nevertheless, it has acquired a definite connotation through various judicial pronouncements.

58. In the case of Sir Chunilal Vs. Mehta & Sons Ltd. Vs. Century Spg & Mfg. Co. Ltd. reported in AIR 1962 SC 1314 [LQ/SC/1962/104] , the Hon’ble Supreme court held that the proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law."

59. Similarly in the case of Santosh Hazari Vs. Purushottam Tiwari reported in (2001) 3 SCC 179, [LQ/SC/2001/352] it is held that a point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be 'substantial' a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law 'involving in the case' there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis."

60. A finding of fact may give rise to a substantial question law inter alia in the even the findings are based on no evidence and/or while arriving at the said finding relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread.

61. A Co-ordinate Bench of this Court admitted this appeal on the question as ‘Redrafted’ vide Memo filed by the Revenue. The said question needs to be construed keeping in view sub- section (1) of Section 37 of the Act. This provision apparently is the residuary section extending the allowance to the items of expenditure not covered by other sections. ‘Expenditure’ inter aliain the text & context of Section 37 primarily denotes the idea of spending or paying out or paying away. It is something that has gone irretrievably. Expenditure is not necessarily confined to the money which has been actually paid out, but it covers a liability which has accrued due or incurred, although it may have to be discharged at a future date

62. Keeping in view the rival submissions made by the parties, it is relevant to reproduce the relevant portion of the report of the three member committee on irregularity in the iron ore mining leases in Bellary

“The mining leases listed from Sl. No.1 to 4 are old leases which have been renewed by the GOI The leases listed at SL.NO.5 and 6 are the fresh leases approved by the GOI. Copies of the GOI orders/GOAP orders along with the lease sketches are given at Annexure-I to Annexure-6.

1. Genesis of the problem in Iron ore mining leases in Bellary RF of Ananthpur District.

a. Status of boundary demarcation of various leases.

i. There are five individual leases as mentioned above from Sl.NO.1 to 5 are located at one place close to each other in compartment NO.695 of Bellary RF where boundary disputes have arisen.

ii. All the leases were sanctioned individually in different years. For all these leases in individual surveyed sketches (whether original lease or renewal lease), no tie line particulars with a known permanent feature was shown except the marking of the GTS station on the common boundary of Y.M.& Sons and BIOP leases. In the absence of tie line particulars in the sketches for any survey station, once the boundary pillars are disturbed, it is very difficult to demarcate the leave boundary in the field.

iii. Even in the description of boundaries as given in the agreement of original leases entered by the user agency with the Mines and Geology Department, the boundaries are described generally as the village boundary in Eastern or western direction and in few cases, the existing mining leases in North or South direction.

iv. It was also verified and observed that for some leases the original survey was conducted by showing internal angles and distances but in other leases only challenge and bearings were shown. The bearings taken with compass would have been influenced by the magnetic defections due to iron ore all around.

v. As there are many actively working similar iron ore mining leases in the same RF on the other side of the state boundary in Karnataka State, the inter-state boundary also is disturbed due to mining activity resulting in certain disputes between the mining leases held on either side of the state boundary.

Thus, there are problems in fixing the boundary leases once the boundary line/stations are disturbed".

63. Even considering the forceful submission made by the parties, the assessing officer in para-3.3 of the assessment order held that the assessee has not discharged its onus to prove that the entire expenses in respect of repairs and maintenance and depreciation on Helicopter has been incurred wholly and exclusively for the purpose of its business. The AO has considered that 50% of such expenses is for personal use of Helicopter by the Director of the assessee company and he made disallowance of 50% of such expenses. He submitted that this issue is squarely covered in favor of the assessee by the judgment of the Hon'ble Gujarat High Court rendered in the case of Sayaji Iron & Engg. Co. Vs CIT as reported in 253 ITR 749.

64. We have considered the rival submissions. We find force in the submission of the representative of the assessee that this issue is covered in favor of the assessee by the judgment of the Hon'ble Gujarat High Court rendered in the case of Sayaji Iron & Engg. Co. (Supra) wherein it was held by the Hon'ble High Court that in respect of expenditure incurred on vehicles, Telephone etc., even if there is any personal use by Director/employee of the assessee company, addition can be made in the hands of such Director/employee on account of perquisite value of such personal use by concerned person but no disallowance can be made in the hands of the assessee company. Following this judgment of Hon'ble Gujarat High Court, the ITAT deleted this disallowance. However, the A.O. of the concerned director is at liberty to make addition as per law in the hands of the concerned director. Accordingly, ground no.4 of the assessee is also allowed. These are all the observations made and considered by the Income Tax Appellate Tribunal in its order, which is challenged in this appeal.

65. However, keeping in view the contention made by the learned Standing Counsel Shri Y.V. Raviraj for the appellant / Revenue and so also the learned counsel Shri Mayank Jain for the respondent / Assessee, at the cost of repetition, it is relevant to state that the counsel for the respondent / Assessee had relied the judgment of THE COMMISSIONER OF INCOME TAX AND ORS. Vs. MANJUNATHA COTTON AND GINNING FACTORY AND ORS. (MANU / KA/ 2416/2012), wherein a Co-ordinate Bench of this Court has extensively addressed the issues relating to the provisions of the IT Act, 1961 and more particularly, has addressed the issues relating to Section 271(1)(c) of the IT Act, 1961, by referring to so many reliances.

66. Similarly, another Co-ordinate Bench of this Court in the case of PR. COMMISSIONER OF INCOME TAX & ANR vs. M/S. ENNOBLE CONSTRUCTION (I.T.A.No.383 OF 2016) dated 20.07.2022, has addressed the issues relating to the provisions of Section 260A of the IT Act, 1961 referring to various reliances to arrive at a conclusion relating to the response to the substantial question of law in the given facts and circumstances of the case and so also relating to the concept of Section 37 of the IT Act, 1961 as well as the burden of proof and impossibility of its discharge and so also relating to Legal maxim ‘Lex Non Cogit Ad Impossibilla (Co.Litt. 231 b.) – The law does not compel a man to do that which he cannot possibly perform…”

67. These are all the issues that have been addressed by the Co-ordinate Benches of this Court. The aforesaid reliances are squarely applicable to the present case on hand in the given facts and circumstances of the case. Therefore, it is said that the various contentions made by the counsel for the appellant / Revenue do not hold any substance to question the impugned order passed by the Income Tax Appellate Tribunal.

68. In the totality of the circumstances of the case and also at a cursory glance, the order passed by the ITAT is found to be justifiable and it is based upon the materials secured by the Investigating Agency under the IT Act, 1961. Therefore, keeping in view of the aforesaid reasons and findings, we are of the opinion that the appeal preferred by the appellant/revenue do not hold any substances that calls for any interference in the impugned order passed by the ITAT “C” Bench, Bengaluru in ITA No.653 (Bang) 2015, dated 29.07.2016 and in terms of the aforesaid reasons and findings, the appeal deserves to be dismissed as being devoid of merits. Accordingly, we proceed to pass the following order:

ORDER

The appeal preferred by the appellants/revenue is hereby dismissed by confirming the order passed by the Income Tax Appellate Tribunal, “C” Bench, Bengaluru in ITA No.653 (Bang) 2015, dated 29.07.2016.

Before parting with this judgment, this court places on record its deep appreciation for the able research and assistance rendered by its Research Assistants-cum-Law Clerk, Mr.Pranav.K.B.