TaxTMI 
TaxTMI 
2016 (11) TMI 599
X X X X Extracts X X X X
X X X X Extracts X X X X
.... take appeal for assessment year 2008-09 vide ITA no. 411/Mum/2013 . The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:- "1. The learned Commissioner of Income Tax(Appeal) had erred by upholding the wrong action of learned assessing officer wrongly calculating loss amounting to Rs. 3,83,03,181/- from sale of plywood /furniture instead of profit earned by appellant company amounting to Rs. 9,213/-. 2. The learned Commissioner of Income Tax(Appeal) had again erred by approving the incorrect action of learned assessing officer of disallowing the legitimate rebate and claim amounting to Rs. 18679300/-. " 3. The brief facts of the case are that the assessee is engaged in the business of trading of various goods and commodities. It was observed by the AO from the schedules giving details of purchases and sales that in respect of sale of plywood/furniture, the assessee had incurred loss of Rs. 3,71,01,964/. The figures for sale/purchase as per return of income filed by the assessee are as under: Plywood/Furniture Sale : Rs.3,71,01,964/-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e was some defective lot of paper and boards. Thus, it was observed that the product was not in a position to be sold in the open market as fresh and hence the assessee had to allow credit of Rs. 1,86,79,300/- to M/s. Premium Paper and Board Industries Limited which is one of the largest and reputed paper and board dealers of the country. The assessee submitted debit note supplied by M/s Premium Paper and Board Industries Limited on the assessee, wherein the account of the assessee was debited towards inferior quality of material supplied by the assessee as also credit notes were submitted by the assessee wherein the assessee has credited the account of the said party M/s Premium Paper and Board Industries Limited towards inferior quality of material supplied by the assessee to the said party. The AO observed that the assessee has not taken deliveries of these goods and in case if the assessee's supplier has supplied defective material, the assessee should raise debit notes in their favour since real transaction of purchase and sale of goods is between the assessee's suppliers and the purchaser M/s Premium Paper and Board Industries Limited and the assessee is only a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....less and the loss is genuinely incurred by the assessee. The AO did not issue any show cause to the assessee before making heavy and unjustified additions. The submissions made by the assessee were ignored and overlooked mistakenly by the AO while sending remand report to the learned CIT(A), was the submission of the assessee before learned CIT(A). It was submitted that the assessee dealt within several products such as plywood, furniture , cement, glasses, paper etc and the auditor of the assessee overlapped certain traded items in the audited Balance Sheet's grouping/schedules. It was submitted that the loss determined by the AO from plywood/furniture was mistakenly determined at Rs. 3,83,03,181/- instead of profit of Rs. 9,213/- both during assessment as well at the time of sending remand report to learned CIT(A). During remand report proceedings, it was submitted that complete details of purchase , sale and reconciliation statement was submitted by the assessee to the AO but the AO mistakenly overlooked to consider the vital details in the same. It was submitted that purchases being factual matter are recorded in the books of accounts which no body can alter the same and the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made by the assessee have been brought on record before learned CIT(A). Thus, vide appellate order dated 09-10-2012 passed by learned CIT(A), the assessee claim of Rs. 1,86,79,300/- towards rebate for defective material was rejected by learned CIT(A). 6. Aggrieved by the appellate orders dated 09-10-2012 passed by learned CIT(A), the assessee filed second appeal with the Tribunal. 7. The learned counsel for the assessee reiterated the submissions as were made before the authorities below and submitted that there was a mistake which occurred by the auditors in grouping/schedule with respect to reflecting purchase of plywood/furniture where in correct figure of purchase is Rs. 5,20,96,701/- instead of Rs. 9,09,78,075/- which is reflected in audited financial statements which was pointed out to the authorities below and hence instead of loss of Rs. 3,83,03,181/- as claimed in return of income filed with the Revenue on trading of plywood/furniture, the assessee earned profit of Rs. 9,213/- . The learned counsel for the assessee drew our attention to the orders of learned CIT(A) page 6/para 5.2 wherein it is stated that as per audited balance sheet as at 31-03- 2008, the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ehensively including implication of contention of the assessee that the purchase were shown at higher figure of Rs. 9,09,78,075/- due to inadvertent mistake instead of actual purchases being of Rs. 5,20,96,701/- , and its implication thereof on the taxability of the differential amount as now the expenditure stood reduced by the amount of Rs. 3,88,81,374/- due to withdrawal of claim of inflated purchases , as to that extent the total taxable income will stood increased .The assessee is directed to appear before the AO and produce all relevant and necessary evidences in support of its contentions in its defense which shall be admitted by the AO and adjudicated on merits in accordance with law. Needless to say proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly. With respect to second issue of disallowance of claim of rebate of Rs. 1,86,79,300/- by the authorities below on account of defective material supplied by the assessee to its customer, we after considering the rival contentions and perusing the material on record are again of considered view ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s. 10(34) of the Act. It was observed by the AO during the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act upon examination of the assessee's accounts that it is not possible to pinpoint the expenses related to various heads of income including exempt income. All the expenses were incurred out of common pool funds as well as the assessee has maintained composite books of accounts for taxable as well exempt income. The assessee paid interest of Rs. 5,03,805/- and the assessee was asked to give computation of disallowance u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962. The assesssee submitted the details which worked out to disallowance of Rs. Nil u/r 8D(2)(i), Rs. 66,358/- u/r 8D(2)(ii) and Rs. 5,86,369/- u/r 8D(2)(iii) of Income Tax Rules, 1962, aggregating to disallowance of Rs. 6,52,727/- u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962, which was in-fact disallowed by the AO vide assessment order dated 30-12-2011 passed u/s 143(3) of the Act. 12. Aggrieved by the assessment order dated 30-12-2011 passed by the AO u/s. 143(3) of the Act, the assessee filed first appeal before learned CIT(A). 13. Before the lear....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the appellate order dated 11.09.2012 passed by learned CIT(A), the assessee filed second appeal with the Tribunal. 15. Before the Tribunal, the learned counsel for the assessee contended that the assesse earned dividend income of Rs. 79,975/- during the previous year relevant to the assessment year and the disallowance u/s 14A of the Act read with Rule 8D of the Act cannot exceed dividend income earned by the assessee, while the AO disallowed the amount of Rs. 6,52,727/- while applying Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962. The assessee relied on decision of Mumbai Tribunal in the case of Sylvex Cables Company Private Limited v. DCIT in ITA no 8581/Mum/2011 as well on decision of Pr. CIT v. Empire Packaging Private Limited and decision of Hon'ble Delhi High Court in the case of Joint Investment Private Limited v. CIT (2015) 372 ITR 694(Del HC) to contend that the disallowance u/s. 14A of the Act cannot exceed the dividend income earned by the assessee. The ld DR relied upon the orders of learned CIT(A). 16. We have heard the rival contentions and perused the material on record including case laws relied upon, we have observed that the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the case of India Advantage Securities Ltd. (supra) has held that disallowance, if any, to be made under section 14A r.w. Rule 8D should only be made with regard to investments and not with regard to shares held as stock-in-trade. This decision of the Hon'ble Bombay High Court (supra) has been followed by the Coordinate Bench of this Tribunal in the case of Devkant Synthetics (India) (P.) Ltd. (supra) wherein at para 12 and 13 thereof it has been held as under:- "12. We heard the parties and perused the record. We notice that the Hon'ble Karnataka High Court has held in the case of CCI Ltd. (supra) that the shares held as stock in trade should be excluded for the purpose of computing disallowance u/s 14A of the Act, since they cannot be said to be "investment" made for the purpose of earning dividend income. In the case of India Advantage Securities Ltd. (supra), the Hon'ble Bombay High Court has noticed that the CIT(A) took into account the words of the Rule and found that the figures as derived by the Assessing officer cannot be taken into consideration. The Ld CIT(A) had observed that, one can at best disallow the expenses which are incurred for earning di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,38,275/- for A.Y. 2010-11. On appeal, the learned CIT (A) restricted the disallowance under section 14A r.w. Rule 8D to Rs. 1,07,754/- for A.Y. 2009-10 and to ½% of average investments for A.Y. 2010-11. 3.3.2 Before us, Revenue for A.Y. 2009-10 and the assessee by way of COs for A.Y. 2009-10 and 2010-11 have assailed the orders of the learned CIT (A) in respect of his finding/decision on the issue of disallowance under section 14A r.w. Rule 8D. Revenue in A.Y. 2009-10 assails the orders of the learned CIT (A) in restricting the disallowance to ½% of the average investment for administrative expenses. On the other hand, the assessee in its COs for assessment years 2009-10 and 2010-11 has challenged the impugned orders of the learned CIT (A) in directing the AO to compute the disallowance under section 14A r.w. Rule 8D @0.5% of the total average investment for administrative expenses without assigning any reasons, when such disallowance ought to be made only in respect of 0.5% of average investments yielding tax free income. 3.3.3 We have heard both the learned D.R. for Revenue and the learned A.R. for the assessee. In the course of hearing, the learn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pt income. The income from dividend had been shown at Rs. 1,11,564/- whereas disallowance under Section 14A read with Rule 8D of the Rules worked out by the Assessing Officer came to Rs. 4,09,675/-. Thus, the Assessing Officer disallowed the entire tax exempt income which is not permissible as per settled position of law. Consequently, the Tribunal remitted the matter to the Assessing Officer with a direction to decide the same afresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. The relevant finding recorded by the Tribunal reads thus:- "7. In the instant case, the income from dividend has been shown at Rs. 1,11,564/-, the disallowance under section 14A read with Rule 8 D worked out by the Assessing Officer comes to Rs. 4,09,675/-. Thus, it is clear that the AO has disallowed the entire tax exempt income which is not permissible in view of the judgment of the Hon'ble Delhi High Court referred to above. The Hon'ble Delhi High Court held that the window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the facts and circumstances of the instant case, we are setting aside and restoring the above issue to the file of learned AO for de-novo working out disallowance of expenditure u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 in accordance with our above directions and also keeping in view decisions of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340(Bom HC) and in the case of HDFC Bank Ltd. v. DCIT (2014) 366 ITR 505(Bom HC) and decision of Hon'ble Bombay High Court in writ petition in HDFC Bank Limited v. DCIT(2016) 67 taxmann.com 42(Bom. HC) . We order accordingly. 17. Next Issue in this appeal is with respect to treatment by Revenue of short term capital loss incurred by the assessee on sale of land at Hasteda(Rajasthan) amounting to Rs. 1,14,27,420/- as arising out of sham transaction. On perusal of the details of capital gains/losses incurred by the assessee during the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act, it was observed by the AO that the assessee had incurred loss of Rs. 1,14,27,420/-- on sale of land at Hasteda, Tal, Chomu District, Jaipur which short....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to Siyaram Exports Private Limited was made late , it could not be held to be bogus transaction. The assessee has paid full consideration to the seller party and the assessee has also got full payment from buyer party. The documents have been duly registered with appropriate authority i.e. Sub- registrar and stamp duty has been duly paid to the Government. The AO held that these are sham transaction as the assessee company has accommodated both the parties i.e. sellers and buyers wherein sellers got full consideration and buyer also paid full consideration being lesser amount . The theory of new township is cooked up and information is not from 'public sources' but from so called 'reliable sources' which has no credence. The transaction defies logic and the balance sheet does not show any stress sign and at best the assessee could have lost advance payment of Rs. 10 lacs if the assessee was not able to carry forward the sale transaction and complete the sale by 31-12-2008 as there was no need for sale and to incur loss of Rs. 1.14 crores and instead loss could have been only Rs. 10 lacs. Thus, the AO held based on the series of events mentioned above and also conduct of entire....
X X X X Extracts X X X X
X X X X Extracts X X X X
....District Jaipur for Rs. 171.5 lacs with a view to earn short term capital gains expecting huge increase in valuation of land within short period of time on account of development of township. The assessee paid Rs. 10 lacs in cash at time of purchase agreement while rest of the consideration of Rs. 161.50 lacs was paid in the month of January 2009 starting from 17th January 2009. The said agreement is placed in paper book / page 26-28 filed with Tribunal. It was submitted that the land prices did not appreciate and the assessee had to fulfill obligation to pay balance sales consideration. The said land was sold by the assessee vide two separate sale deeds both 16-01-2009 for total consideration Rs. 58.40 lacs to Smt. Anju Yadav and secondly to Smt. Savitri Yadav and Smt. Nirmala Yadav. The balance consideration of Rs. 161.50 lacs for the purchase of land was paid by the assessee to Siyaram Exports Private Limited after selling the land on 16-01-2009 to Smt. Anju Yadav and secondly to Smt. Savitri Yadav and Smt. Nirmala Yadav. The two sale deeds are placed in paper book/page 29-58.The assessee incurred loss of Rs. 1,14,27,420/- in the said purchase and sale of land. It was submitted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jaipur, Rajasthan from Siyaram Exports India Private Limited who were the owners vide agreement to sale dated 10-03-2008 for a total stated consideration of Rs. 171.50 lacs against which the assessee paid cash of Rs. 10 lacs on 10-03-2008. The balance consideration of Rs. 161.50 lacs was paid from 17-01-2009 onwards in the month of January 2009 to Siyaram Exports India Private Limited. The agreement to sale dated 10-03-2008 stipulated that if the assessee failed to pay balance consideration of Rs. 161.50 lacs on or before 31-12-2008, the said amount of Rs. 10 lacs paid as an advance will be forfeited by the sellers M/s Siyaram Exports India Private Limited. The assessee had stated that the land was purchased on 10-03-2008 with an objective of selling it within a short period of time and making capital gains as it was expected that there will be huge increase in valuation of land as there was some 'reliable information' that some new township is being developed by some private builder in Hasted. But, no evidence is brought on record even before us to substantiate the basis of the so called 'reliable information' which induced assessee to purchase the land. The said agreement to sal....