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Page | 4 (ASSESSMENT YEAR-2012-13) While processing Iron ore lumps, sub grade screen fines are automatically generated along with sized ore. Sub grade screen fines are the fines generated in the screening process with low Fe content and that's why it is called sub-grade screen fines. It was brought to our notice that since sub-grade screen fines are a by-product with low Fe content, no cost is separately attributable for it's raising. Therefore, in the regular books of accounts, the assessee reports the fines at NIL value. It was brought to our notice that the assessee in the regular course of business maintains stock register at the mines sites wherein all the details of the production of iron ore lumps, sized ores and fines are recorded along with the details of raising of iron ores done and dispatches made from the mines. Thus, according to the assessee company, the full quantities of iron ores raised by the assessee are duly accounted in the stock register maintained in the normal course of business. Our attention was drawn to the important fact that the assessee has reported to the Director General of Mines in the statutory form H-1 in which the quantity of production of sized ores and sub-grade fines are reported and Ld.AR drew our attention to Paper Book page No.64 to 87 i.e. Form H-1 which was duly filed by the assessee company with the Director General of Mines in respect of sized ore and sub-grade fines. According to assessee, the Form H-1 which is filed before the Director General of Mines is as per the stock register maintained by the assessee company at the mining site. It was brought to our notice that the officers of the Mining Department regularly visit mine heads for inspection and to verify the stock register maintained by the assessee company. Thus, it was contended by the Ld.AR that the stock of screen fines are properly maintained and are part of regular books of accounts (stock register maintained by the assessee company). Our attention was drawn to the details of stock as per Form H-1for F.Y. 2010-11 (A.Y. 2011-12) and F.Y 2011-12 (A.Y.2012-13) which is reproduced hereunder:-

12. We have given our thoughtful consideration to the rival submissions, perused the materials on record, considered the applicable legal provisions and scrutinized the judicial precedents relied upon. The sum and substance of the issue to be adjudicated in the present appeal is whether the income offered by the assessee in its return for AY 2012-13 being the value of closing stock of sub-grade fines having cost of Rs.59,09,00,000/- can be considered to be 'undisclosed income' found in the course of search so as to warrant penalty u/s 271AAB of the Act. Before dealing with this issue, it will be appropriate to discuss the relevant factual background. It is undisputed fact that the assessee has been operating mines in the State of Orissa and the assessee extracts iron ore as well as manganese ore. The ore extracted from the womb of the mother earth is a natural product, which cannot straightaway be used for industrial purposes. In the circumstances therefore the ore extracted from the womb of the mother earth, which is called run-of-the-mines ('ROM') is required to be processed. Further the processed ore is required to be segregated according to the sizes and for such purpose the processed ore called as "lumps" is required to be screened and washed with the use of machinery called washeries. The end product is the lump ore, which is segregated according to the sizes as also according to the Fe content and such finished product i.e., Iron Ore is sold by the mines. In this process however certain dust-like ore is produced which is known in the mining parlance as Fines. Such fines are considered to be waste generated in the process of mining of ores. Since the Fe content in much of the fines is below 55% which is threshold for marketable fines, stock of fines having sub 55% Fe content was always considered as waste and there being no realizable value, taken in the books at Nil value. It is has been the assessee's contention before the lower authorities that since Fines generated in the process of mining was in the nature of waste having no realizable market value in the past, such fines were stored in the form of dumps or used for making of internal roads etc. within Page | 9 (ASSESSMENT YEAR-2012-13) the mining areas. For such reason in the financial books the production of fines was never recognized and no cost for extraction of sub-grade fines was attributed. The Ld. AR however brought to our attention that the production of sub-grade fines was always reported to the Indian Bureau of Mines which is the controlling authority for operation of mines in India to whom every mine owner is required to furnish the production details at periodic intervals. Drawing attention to annual production returns filed in Form H-1, the Ld. AR brought to our attention that as of 01/04/2011 which was the opening day of the previous year relevant to the AY 2012-13, the stock of Fines at the Mine-Head was 23,56,513 MT out of which 20,04,540 MT was stock of sub-grade fines which did not find mention in the annual audited accounts of the assessee company. The remaining fines which were not in the nature of sub-grade Fines were accounted in the stock records as well as financial records and its value was duly included in the value of opening stock. The Ld. AR brought to our attention that in the assessment order u/s 153A/143(3) for the AY 2011-12 the AO had accepted the method of accounting employed by the assessee where under the value / cost of extracting sub-grade Fines in stock was taken at NIL. We find that the said method of accounting was consistently followed in all the past years and in none of the assessment orders passed for any of the preceding years the AO had disputed or questioned the method of valuation followed by the assessee in respect of sub-grade Fines. The Ld. AR also brought to our attention that as and when the sub-grade Fines were sold the entire sale proceeds were considered as income in the year of sale and this method was also regularly followed and accepted by the Revenue in the past as well as in the relevant year under consideration. We therefore find that the assessee has been consistently following a particular method of stock valuation in preparation of its annual financial accounts. As per the method consistently followed and accepted by the Revenue, the stock of sub-grade Fines was always valued at NIL although the details of such stocks were regularly reported by the assessee to the Indian Bureau of Fines in the prescribed Form. We therefore find that the assessee followed a particular method in respect of reporting of stock of sub-grade fines in all the past assessments and following such consistent method, in the accounts for the year ended 31st March 2012 also, the value of stock of sub-grade fines was taken at NIL.

voluntary offered as income by the assessee represented undisclosed income which was uncovered as a result or consequence of the search. The relevant findings of the AO in Para 7.1 to 7.3 of the assessment order u/s 143(3) was as follows:

7.1 The submission made by the assessee was considered. The main process involve in the raising of Iron Ore are Excavation, Raising, Screening and Crushing. The sub-grade Screen Fines are automatically generated with high grade Iron Ore either at the time of Raising or Crushing. The sub-grade Fines did not have market earlier and as such it was dumped by the assessee at its Mining Sites without making valuation of the same. The entire process cost was absorbed by the high value marketable ores and no cost was apportioned for being attributable to the sub-grade Screen Fines. As the cost was 'NIL', the valuation of sub-grade Screen Fines stock was also being taken as NIL. The sales of sub-grade Screen Fines are made and reflected in the accounts.