TaxTMI 
TaxTMI 
2017 (3) TMI 187
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....ion 14A while computing the book profit under section 115JB (Ground No.3.1 and 3.2). iv) Disallowance on account of alleged bogus purchases comprised of following:- Utilization of material as- Amount (Rs.) Treatment in Accounts Plant & Machinery/Moulds 23,79,82,268 Addition to Plant and Machinery Trail Run 13,94,92,838 Charged to Capital WIP account Trail Production 6,83,99,170 Charged to Capital WIP account Machinery Spares 14,97,74,663 Shown as Inventory in Balance Sheet Raw Material & Consumables 3,50,24,425 Charged to Profit and Loss account 63,06,73,365 v) Credit of TDS amounting to Rs. 51,00,532/- (Ground No.5) vi) Short period for advance tax amounting to Rs. 15 crore (Ground No.6) vii) Charging of interest under section 234B and 234C (Ground Nos.7 & 8) viii) Initiation of penalty proceedings under section 271(1)(c) (Ground No.9) 2. The assessee company is engaged in the business of manufacturing and trading of consumer electronics and home appliances, exploration crude oil and gas, investment in shares, securities and properties, lease and finance and other incidental ac....
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....t international transaction. However, out of abundant caution assessee company has recovered 0.25% as guarantee commission from its AEs which has been offered to the tax. As submitted earlier in the immediately preceding assessment year, the corporate guarantee provided by the VIL does not fall within the definition of international transaction as per the definition of International Transaction prevailing at the time of providing corporate guarantee. However, TPO in earlier years has taken a view that the Finance Act 2012 introduced Explanation to Sec 92B with retrospective effect from 01.04.2002 and as per the Explanation Corporate Guarantee is a type of capital financing transaction and within the meaning of definition of international transactions under 92B." 5. Apart from that the assessee also submitted a detailed analysis and reasoning to justify firstly; it is not an international transaction and therefore no bench marking is required; secondly, the rate of 3% as guarantee commission is not correct on the facts of the case; and lastly, charging of 0.25% of guarantee commission is justified from internal CUP. However, the Ld. TPO, after detailed analysis and discussion,....
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....rantee for 170 days Rs.9,91,77,534/- Price Received vis-à-vis the Arms Length Price: The guarantee fee charged by the assessee to the AE is Rs. 8463,750. Hence the difference between ALP of guarantee commission and commission actually charged is to be adjusted as computed below: Arm's Length Guarantee Fee calculated above Rs.9,91,77,534/- Guarantee Fee received Rs.84,63,750/- Difference between arm's length price and price charged by the assessee Rs.9,07,13,784/- Thus, the above amount of Rs. 9,07,13,784/- is treated as transfer pricing adjustment being the difference between the arm's length guarantee fee receivable and the actual guarantee fee received by the assessee from its AE, Videocon Global Energy Holdings Ltd, British Virgin Islands for the FY 2010-11." 6. As regards the letter of undertaking in the case of Videocon Hydrocarbon Holdings Ltd., commission allowance, the adjustment was made in the following manner: Outstanding Guarantee Amount Rs.18,056.00 Million No. of days the guarantee is outstanding during the FY 2010-11 (07-03-2011 to 31.3.2011) 25 days Arm's Length Guarantee Commission/Fee 1.....
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.... 8958.03 Hypothecation of receivables of AE 6217.63 Approximate value of security (excluding Guarantee given) 15,175.66 Loan for which Guarantee Given (Amount in million rupees) by Assessee as on 31.3.2011 9028.00 Value of security covering Loan 1.68 times Videocon Global Energy Holding Ltd. - Guarantee of USD 150 Million Particulars Amount in million rupees Security Margin Deposit of USD 30 Million @ 46.44 (as on 1.9.2010) 1393.20 Loans and advance (joint venture interest as on 1.9.2010) (230.89 millions) 10722.53 Approximate value of security (excluding Guarantee given) 12,115.73 Loan for which Guarantee Given 150 million at 46.44 as on 1/9/2010rupees) by Assessee as on 31.3.2011 6966.00 Value of security covering Loan 1.739 times Regarding letter of undertaking given to Videocon Hydro Carbon Ltd., he pointed out that State Bank of India has charged bank guarantee commission by giving 50% concession to assessee (i.e. 50% of 1.75%) which comes to 0.875%. If adjustment on account of entity risk, currency risk and country risk is given then it comes down approximately 0.44%. Thus, at the ....
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....ntee commission rate between 0.25% and 0.50% and in support of which he relied on various decisions. He has not stressed on this issue, whether corporate guarantee is an international transaction or not. Whence assessee before us is not pursuing the matter, we are also not inclined to adjudicate the issue. On merits, Ld. CIT DR tried to justify the charging of corporate guarantee commission @ 3% and submitted that there are various decisions wherein corporate guarantee commission of 2% to 3% have been accepted. 11. After considering the rival submissions and on perusal of the impugned orders, we find that it is an undisputed fact that the assessee has given corporate guarantees to financial institution/banks in respect of loan or credit facilities extended to its two AEs and letter of undertaking to the lenders in the case of another AE. For providing such corporate guarantee it has recovered 0.25% as guarantee commission. In support of charging of 0.25%, the assessee, first of all, contended that the loans for which the assessee has given guarantee are primarily covered by pledged securities, hypothecation of debtors' balances and other assets of the AE, therefore, it cannot be....
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....h section 14A read with rule 8D. In response to the said show cause notice, the assessee had submitted as under: "II. Dividend Income of Rs. 49,14,724/- has been shown in the Investment Division. Our investments as per Sch. 6 of our Balance Sheet are of Rs. 39,66,70,91,020. Our share capital of Rs. 347,95,82,540 and Reserves & Surplus of Rs. 79,65,27,57,457 total up to Rs. 83,13,23,39,997/- which amount is more than our investments. Hence, it is submitted that provisions of Sec. 14A of the I. T. Act, 1961, are not applicable in our case as held by B'bay H.C. in Reliance Utilities & Power Ltd., 313 ITR 340 (Bom) & followed in Godrej & Boyce Ltd., ITAT, Mum, No. 1629/MUM/09. We have inadvertently not claimed exemption u/s 10(34) of the Act, in respect of Dividend Income of Rs. 49,14,724/- included in accounts of our Investment Division. You are requested kindly allow the same and oblige." However, the Assessing Officer rejected the assessee's contention and held that, since assessee itself has not claimed dividend income as exempt and has included as part of miscellaneous income, therefore, it will not be treated as exempt. He was of the opinion that, since the assess....
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....T-IV vs. Holcim India Private Limited ITA No. 486/2014 & ITA No. 299/2014] (Mumbai ITAT) viii) Avshesh Mercantile P. Ltd. vs. ACIT [ITA No. 5779/Mum/2006] 148 TTJ 607 ix) Jindal Steel & Alloys Ltd. vs. ACIT [ITA No. 9611Mum/2009] Mumbai ITAT) x) ACIT vs. Lafarge India Holdings Pvt. Ltd 19 SOT 121 (Mumbai ITAT) xi) ACIT vs. M Baskaran [ITA No. 1717/Mad/2013] 152 ITD 844 (Chennai ITAT) 15. That apart, he pointed out that the assessee had huge surplus fund in the form of 'share capital' and 'reserve and surplus' which aggregated to Rs. 8313,23,39,997/- which is far excess than the investments made which stood at Rs. 3966,70,91,020/-. Thus, in view of the decision of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom); CIT Vs. HDFC Bank Ltd. 366 ITR 505 (Bom); and again in HDFC Bank Vs. DCIT reported in (2016) 67 Taxman.com 42 (Bom), if assessee has surplus funds which far exceeds the investments, then no disallowance u/s 14A can be made. Regarding disallowance of indirect expenses, he pointed out that the assessee had huge strategic investments both on domestic investment as well as foreign investment which were purely for ....
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....he total income and assessee claims any deduction in respect of expenditure attributable to earning of such income. If assessee has not claimed any exempt income or has made it part of total income liable for tax, then provisions of sec 14A does not get triggered. This basic postulate is not satisfied in the present case, because neither the assessee has claimed it as exempt income nor Assessing Officer has allowed any exempt income which was in the form of dividend income of Rs. 49,14,724/-. Once the revenue itself has treated the exempt income as part of the total income which has been held to be taxable, then the disallowance of expenditure under sec. 14A does not gets triggered, especially in light of the judgments of various High Courts as referred to above especially in the case of Cheminvest Limited, (supra); Corrtech Energy Pvt. Ltd, (supra); CIT Vs. Shivam Motors Pvt. Ltd, (supra); Lakhani Marketing lnc, (supra); and Holcim India Private Limited, (supra). Even if we ignore this proposition completely, on merits also, as pointed by the Ld. Counsel for the assessee here in this case no disallowance of interest expenditure u/r 8D(2)(ii) can be made because, assessee had huge ....
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.... the book profit u/s. 115 JB. Accordingly, we order that, whatever disallowance is made under rule 8D, the same should be added to the book profit. 19. The next issue relates to various additions made on account of purchases from certain dealers which has been treated as bogus and sums aggregating Rs. 63,06,73,365/- has been added to the income of the Assessee. 20. The relevant facts and background qua this issue are that, an information was received to the Assessing Officer vide letter dated 15.05.2014 from the Assistant Director of Income-tax (Inv.), Unit-Ill, Kolhapur, allegedly indicating that certain concerns from whom purchases has been shown did not actually sell material but only issued bills, that is, were providing accommodation entries. Based on the report of the ADIT (Inv.), Unit Ill, Kolhapur, the AO observed that during enquiries conducted by the ADIT (Inv), Unit-Ill, Kolhapur in the case of M/s. Jagdish Trading Co. and M/s. Mahalaxmi Distributors, it was gathered that these two entities and certain other entities based at Sangli were instrumental in providing accommodation entries to various business houses / industries /small businessmen spread all across Maha....
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....ss examination of Suresh A. Parekh in pursuance of Tribunal order in the AY 2009-10. He pointed out that the Assessing Officer in his order has referred to statement of Shri Suresh A. Parekh recorded on 28.03.2014 by DDIT (Inv.), Kolhapur and in his specific reply to question no.12, he admitted that he is in the business of providing accommodation bills without delivery of goods and this activity was being carried out by him from Sangli. He also referred to question No. 13 and 14 which was appearing at pages 32 and 33 of the assessment order. The relevant questions for the sake of ready reference are reproduced hereunder: "Q.12. As admitted by you on earlier occasions, you were indulged in providing of accommodation bills/ entries to various business houses/ business concerns/ entities/persons without actual delivery of the goods by charging your commission. In this regard, during the course of present enquiries you were requested to provide complete details of the other persons who were with you in providing of accommodation. bills/entries, complete names, and bank account details of various entities from which such accommodation bills were given, total turnover of such accommo....
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.... We assure you that such list of beneficiaries will be submitted at the earliest by clearing the entire suspense entries. Meanwhile, in order to work out the details of turnover of accommodation entries achieved by each one of us either independently or in common, we have agreed to accept the following basis: 1. The turnover of accommodation bills independently carried out by each person has been identified and the same has to be taken separately. 2. The turnover of accommodation bills carried out in common between me and Shri Dinesh Parekh and where beneficiaries have been identified, such turnover has to be shared by me and my younger brother Shri Dinesh Parekh in the ratio of 50:50. 3. The turnover of accommodation bills carried out in common between me and Shri Dinesh Parekh and where beneficiaries have not been identified, such turnover of suspense entries has to be shared by me and my younger brother Shri Dinesh Parekh in the ratio of 75:25. 4. The turnover of accommodation bills carried out by Shri Sushant Ladda in M/s. Param Trading Company and M/s. Swastik Enterprises has been identified. The turnover which has independently carried out by him is taken as his t....
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....s to the extent of amount of accommodation entries provided by you and your allies? Yes, these are only accommodation entries in the books of the beneficiaries as in respect of such bills neither me nor my allies had sold any goods to them nor was there any physical movement of goods." Based on such reply, the Assessing Officer had concluded that Shri Suresh A. Parekh had received the cheques/RTGS from the corporate houses in the respective bank account maintained in the names of various entities and after the receipt of RTGS/clearance of cheque, cash was withdrawn and handed over to the respective corporate houses after deducting their commission. During the course of assessment proceedings, the assessee was asked to provide complete details of transaction with the abovementioned parties and the fitment in the books of account was also asked to reconcile. Further, the assessee was also show caused as to why the purchases made from these hawala dealers should not be treated as bogus and added to the total income. In response, the assessee submitted full item wise details of purchases, details of utilization of these purchases, treatment or these purchases in the books or acco....
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....after the material has been supplied to M/s. Videocon Industries Ltd., Aurangabad (assessee) by the suppliers of the grey market that bills are prepared in the names of various entities controlled by him. He also confirmed before the Assessing Officer that proprietors of the said concerns were his family members and friends. Thus, he categorically admitted that he had actually procured the material from grey market without sale bill and the said material procured from the grey market was supplied to M/s. Videocon Industries Ltd. along with the sale invoices of his concerns in various years. When the material was supplied to the assessee, he has received the payments by way of cheque/RTGS in the names of respective parties and after the clearing of cheques/RTGS in the respective bank accounts, cash has been withdrawn and the payment has been made subsequently to the grey market suppliers from whom he had duly procured /purchased the goods. In his reply, Shri Suresh A. Parekh had stated that he has received oral orders for supply of material from Videocon Industries Ltd., Aurangabad and as per their requirement he supplied material from grey market. However, the Assessing Officer not....
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....rial has really been received in the factory premises. More importantly, certain delivery challans have also been attached to the bills, however, one of the delivery challans have acknowledgment of receipt of material either of the company or the supplier. More so there are materials of various specifications, however, no such supporting evidences of specific specification for supply of material has been attached to the bills / delivery challans. There is no single initial/ stamp showing date and time of receipt, etc. From the statement of Shri Rajesh Methi, Accounts Manager of M/s. Videocon Industries Ltd., it is seen that in respect of purchases shown from other than hawala parties, there are proper documentary evidences viz., Tax Invoice, Delivery Challan, Gate Entry Stamp (i.e. stamp of the Guard on duty, date of challan, Challan No., Entry No., Time in, S.I on Duty, Reg. No. 16.1 In this regard, attention is invited to the discussion by the Assessing Officer in para 8.17 at pages 56 onwards in the assessment order. The Assessing Officer has analyzed nature of documentation in respect of a number of hawala entities. A.O has also given comments in respect of the documentation....
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....sued sale bins for commission. Importantly, this fact was brought to the notice of Shri Suresh A. Parekh, while recording his statement on oath (Q.No.13) for which he has simply stated that he has procured the material from grey market and material was supplied to the company in the name of aforesaid hawala parties. However, in support of purchase of goods Shri Parekh has not submitted any evidences. This demonstrates that he has not purchased any material, but issued bogus sales bills without supply of material. Hence, there is no mention in receipt of receipt of material by the assessee company. It is also important to mention that the assessee company has also not been able to show evidences of receipt of goods at the factory premises. It is common knowledge that the transporters carry multiple copies of goods being transported through the carrier and one copy is meant for the party receiving the goods. In this case, the assessee company has failed to show any credible evidence relating to transportation of material or receipt at the factory. 18. During the course of recording of the statement (March 2015) of Shri Suresh A. Parekh, the Principal Officer of the assessee compan....
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.... delivery has been submitted at any point of time by either the haw ala party or the assessee company even though specifically been asked for. Even during the course of survey no evidence was found at the premises of the assessee, whereas in other genuine purchases, all such evidences were found or submitted by the assessee." 24. In view of the aforesaid finding the Assessing Officer made following additions/disallowances on account of bogus purchases: (i) disallowance of Rs. 8,98,22,987/- on account of depreciation on plant and machinery and moulds; (ii) reduced written down value of plant and machinery and moulds by Rs. 33,20,80,461/- by holding that the assessee does not have evidence in respect of purchase of said plant and machinery and moulds and assessee has never procured and put them into use; (iii) a sum of Rs. 20,78,92,008 was reduced from the book value of capital work-in-progress by holding that the assessee could not produce cogent evidence to substantiate the claim or purchases accounted under "capital work-inprogress on account or trial run and trial production"; (iv) disallowance or Rs. 3,50,24,425 on account or raw material and consumables purchased....
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....t do not provide any sale bill; therefore, he has regularized the said supply of those goods by raising invoices through the aforesaid concerns against which the payments have been received, by cheques/RTGS. By utilizing the payments received, from the corporate houses, he pays, the supplier, who supplied the goods in grey market without bill. With regard to the transportation cost and other related expenditure for delivering the goods at site or desired place of the Corporate Houses, Suresh Parekh clarified that the transportation costs were to be borne by the suppliers as the order was placed at a fixed rate, which included the overhead expenses from source to destination. He had submitted that the practice of purchasing materials from grey market is not uncommon and is prevalent since long. It is followed across cotton market, cloth market, sand market and so on. He emphasized that just because someone does not use or prepare written purchase order while purchasing the materials, it does not make relevant purchase void or bogus. He submitted that a purchase is not void for want of purchase order. 26. With regard to the specific contention of the Assessing Officer as raised in....
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....the items and receives the payments via the entities controlled by him. (Refer to Question no. 8 and 9 of statement u/s. 131 of the Act on 12/3/2015 Page No. 45 - 46). 2. Contention of the AO The AO has stated that in reply to Q. Nos. 15 & 16, in statement dated 18-03-2014, Suresh Parekh had categorically explained the modus operandi adopted by him for giving accommodation bills and also his commission thereon. According to the AO, from the reply of Shri Suresh Parekh, it is amply clear that he had received the cheques/RTGS from the corporate houses, in the respective bank accounts maintained in the name of hawala entities and after receipt of RTGS/clearance of cheque, cash was withdrawn and handed over to the respective corporate house after deducting their commission. This according to the AO clearly establishes that no deliveries of physical goods were made. (Page No.36 of the Assessment Order) Submission of the Appellant Mr. Suresh Parekh has confirmed before AO on 12.3.2015 that he deals with a number of corporate houses. In certain instances as per the client requirement no goods have been supplied, where he had merely received RTGS/cheque and returned cash aft....
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.... the AO that there are purchase orders in each and every purchase other than the purchases of Rs. 63.07 crores. There are number of instances other than these purchases of Rs. 63.07 crores, where appellant has purchased material with oral orders and material has been received. The mere absence of a purchase order does not make genuine purchases made by the appellant as bogus. 5. Contention of the AO There are no details of 'Transportation'. Submission of the Appellant: Mr. Suresh Parekh has admitted and explained that the transportation costs and other related expenditure for delivering the goods at the delivery station was to be borne by the supplier as the order is placed at a fixed rate, which included all the overhead expenses from source to destination. Therefore, there are no transportation details available on the bills which were taken from the concerns other than the actual supplier. The details were obviously not put as the delivery was made by the grey market suppliers and not the providers of the bills. (Refer Reply to Question nos. 6 and 14 (Page No. 45 and 51 of the Assessment Order) Rajesh Methi Accountant of appellant company has also confirme....
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....ed from the various dealers indicate the use of same gate entry stamp i.e. stamp having only challan number and signature of a person. While in other purchases, the gate entry stamp is different and more elaborate and is having various fields. (Page No. 66 of the Assessment Order) Submission of the Appellant The Appellant generally maintains 2 to 3 sets of gate entry stamps in order to handle contingencies of emergency or number of consignment entering the premises at the same time. It is not the case of the assessing officer that in all other cases one single gate entry stamp was used. 9. Contention of the AO: The AO stated that there is no evidence regarding receipt of material other than the affidavit filed by Shri Suresh A. Parekh in support of supply of goods. (Page No. 71 and 75 of the Assessment Order) Submission of the Appellant The Appellant has submitted the written confirmation and affidavit of Suresh Parekh to the effect that he has supplied material to Appellant. Mr. .Suresh Parekh also confirmed before the AO in his statement u/s. 131 dated 12.03.2015, that materials were purchased from grey market and delivered by those suppliers to the Appell....
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....ble. The necessary details as called for have been duly reconciled with necessary supporting and submitted before Investigation Wing as well as in the assessment proceedings. Therefore, the purchases shown from the aforesaid parties are genuine, the material of which have been received through Shri Suresh Parekh, along with the bills of these parties and payment for which have been made by cheques/RTGS by the appellant company." Apart from above rebuttal, reliance was placed on following judgments: (i) Ramesh Kumar & Co. Vs. ACIT, ITA No. 2959/Mum/2014; (ii) ACIT Vs. Ramila Pravin Shah, ITA No. 5246/Mum/2013; (iii) Ganpatraj A Sanghavi Vs. ACIT, ITA No. 2826/Mum/2013; (iv) Hiralal Chunilal Jain Vs. ITO, ITA No.4547/Mum/2014; (v) CIT Vs. Nikunj Eximp Enterprises (P) Ltd. 35 Taxmann.com 384 (Bom) (vi) ACIT Vs. M/s. G. V. Sons, ITA No. 2238, 2239 & 2240 of 2012 (ITAT Mum); (vii) DCIT Vs. Rajeev G. Kalathil 67 SOT 52 (ITAT Mum); (viii) Balaji Textile Industries (P) Ltd. Vs. Third ITO 49 ITD 177 (ITAT Mum); He also made distinction of various decisions which was relied by the Ld. DR. 28. We have carefully considered the entire gamut of facts, perused ....
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....liers of the material in the grey market. In his cross examination he has also explained and clarified his earlier statement and admitted that what has been said is correct but he admitted and clarified that material has been actually procured and delivered from the grey market to the assessee company. In the earlier statement also he has confirmed the supply of material in his sworn affidavit dated 08.01.2013 filed before ADIT, Kolhapur. He has also admitted to deal in number of corporate houses and he is in the business of supply of electronic items and material for several years. However, when confronted to specific supplies made to Videocon Industries group, he duly confirmed that physical goods were actually supplied which were procured from grey market and bills for purchases other than actual suppliers were given to the assessee. This aspect of the matter has been confirmed by him twice, once in his affidavit dated 08.03.2013 and other in his statement before the AO on 12.03.2015. The assessee to prove the genuineness of the purchases, that is, the purchase of materials have actually been supplied to the assessee had given the item wise details and utilisation of such materi....
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....& Consumables 3,50,24,425 Charged to Profit and Loss account Total 63,06,73,365 29. From the aforesaid additions it is quite ostensible that firstly it has been accounted for in the books of account and majority of the material purchased are either part of addition to the plant and machinery or it has been charged to capital WIP account or shown as inventory in the Balance Sheet. There is no immediate effect on inflation of expenditure which can lead to an impression that assessee has tried to suppress its profit by entering into alleged bogus transactions with hawala dealers, which is generally resorted to by traders and such suppression of profit is often offset by applying some GP rate to factor in the profit element. The revenue cannot resort to approbate and reprobate on the statement of Shri Suresh A. Parekh, that is, it cannot chose to rely upon the first set of statements recorded in the year 2013/2014 and ignored his sworn affidavit and the second statement on oath which was recorded post direction of the Tribunal and cross examination conducted by the AO himself in the course of the assessment proceedings. Even if we agree that purchases....
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....his case, unlike in the other cases of bogus purchases the assessee's trading account is not affected directly because the material purchased have been utilised for addition to the plant and machinery and has been charged to capital WIP account and only a part of it has been shown as inventory in the Balance Sheet and raw material consumables which has been charged to the P&L Account. There is no direct impact of suppression of profit, at least on the amount which has been charged to capital WIP account or addition made to plant and machinery. Thus, we are of the opinion that the entire purchase cannot be disallowed by the department solely on the basis of first statement of Shri Suresh A. Parekh. As regards the submission and contention of the Ld. CIT, DR that there is lack of documentation in respect of purchases made from the hawala operators because supply of goods could not be proved, in this regard, one has to see the other attended facts and circumstances also which are that, the purchase of materials are backed by firstly, entry in the gate pass at factory premises; and secondly, entry in the books of account and manufacturing account showing item wise material purchase, ma....