TaxTMI 
TaxTMI 
2017 (7) TMI 256
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....d in all the appeals, they were heard together and are being disposed off by a common and consolidated order. 3. We shall first take up the appeal of the Revenue filed in ITA No.880/Chd/2012. ITA No.880/Chd/2009 (Assessment Year 2006-07): 4. Ground No.1 raised by the revenue reads as under : "1. That the Ld. CIT(A) has erred in law and facts in allowing the deduction @ 100% of eligible profits under the provisions of section 80IB of the Income Tax Act, 1961 as against @ 75% of eligible profits restricted by the Assessing Officer. 5. Brief facts relevant to the issue are that assessee company is engaged in the manufacturing, trading and export of hosiery goods, manufacturing dyeing and trading of knitted cloth and manufacturing of yarn, etc. For the assessment year under consideration, the assessee claimed deduction of 100% of its profits, under section 80IB of the Act. The AO,by referring to information obtained during the course of survey under section 133A of the Act carried on the premises of the assessee on 5.2.2003 and on which date searches were also conducted at the premises of the sister concerns of the assessee at Ludhiana, pointed out that the product....
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....essment of the assesses for the block period ending on 5.2.2003, wherein the claim of the assessee regarding deduction u/s 80IB had been discussed in detail. The Assessing Officer has referred to the block assessment to observe that production as declared by the assessee was not acceptable. The claim of the Assessing Officer was that the assessee company was not capable of producing the finished products as claimed. The Assessing Officer has also referred to survey u/s 133A of the Act at the premises of the assessee wherein machinery inventorised fell short of the machines recorded in the books of account. The case made out was that the production was being carried out in the premises of a sister concern and it was thereafter diverted to the industrial undertaking of the assessee company so as to claim higher benefits under section 80IB of the Act, The findings of the block assessment were relied upon by the Assessing Officer in the impugned assessment also. The Assessing Officer has concluded that considering the infrastructure available w i t h the assessee and the material on record, the assessee could achieve only 50% of the production shown. He, therefore, considered only half....
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....er section 133A of the Act; (c) Post search enquiries made- from the transport operators; (d) Statement recorded of 'Manager of the assesses, company in the' course of survey under section 133A of the Act; (e) Certain evidences impounded as a result of survey at the factory premises of the assesses company at Baddi. "9.6 From the aforesaid, it is evident that there is no material detected as a result of search on the assessee company, It is thus clear that in the absence of any evidences having been detected as a result of search on the assessee company, the conclusion of the Assessing Officer to restrict the claim of deductions under section 80HHC and 80IB of the Act by assuming that there is inflated production Js altogether without jurisdiction and beyond the scope of provisions contained in Chapter XIVB. In our opinion,' since very, fundamental aspect to restrict the claim of deduction has not been satisfied, the disallowance perse is unsustainable and therefore, the CIT(A) was justified in deleting the same. It may be added here that it is not in dispute that the assessee company had filed its return of income for each of the ass....
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....s 'are being manufactured in Bajra Road, premises, and packed with the brand stating that they are manufactured by Saluja Exim Pvt.:Ltd., then the logical conclusions is that Saluja Exim Pvt. Ltd. is having its manufacturing, facility at the premises also. What have you to say? Ans. I cannot comment on this. Q. 22, M/s Saluja Exim Pvt. Ltd. has shows its manufacturing facility at Baddi (H.P.) as per records, however, if has set up a parallel manufacturing facility at Bajra Road, factory premises. In view of the same, why it should not, be concluded that the various benefits given by the Govt. to the Industry set up at "Baddi" is being misappropriated by M/s Saluja Exim Pvt. Ltd. What have you to say? Ans. I do not know about the benefits given by the Govt. --------- I can not say that I look after the production work only at Bajra Road, premises only." 10.2 Moreover, on the said date, the statement of Sh.Neeraj Saluja had a so been recorded wherein, he had stated in question no. 4 and 5 as under: "Q. 4 As the whole stock lying in these premises has been found according as per our listby you, the finished stock ire. the T-shirts packe....
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....It has been explained and submitted by the assessee that the entire supply of machinery installed are purchased from Singapore based company and in support, a report from Singapore based company namely M/s Juki PTE Ltd., Singapore had been placed on record. It was also explained that the entire machinery was not available at the time of survey of the assessee company on 5.2.2003 and part of machinery had been sent for repairs/overhaul at the registered office at Ludhiana wherein the representative of the Singapore based company conducted the repairs. The copy of the report received from the supplier was also placed on record. The Assessing officer has not rebutted any of the above explanation tendered by the assessee but has merely disbelieved the same. Infact, all what he has held is that such an explanation is an after thought and the report appears to be an after made evidence. It is thus clear that the entire rejection of the explanation is based on surmises, conjectures and ^suspicion. The Assessing Officer, without appreciating the factual evidences as led by the assessee, has clearly proceeded on assumptions and presumptions. Infact, in regard to the request made by the asse....
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....lowing the aforestated decision we uphold the order of the CIT (Appeals) in deleting the addition made on account of restricting the deduction claimed under section 80IB to 75% as against 100% claimed by the assessee. As a result ground No.1 raised by the Revenue is dismissed. 9. Ground No.2 raised by the Revenue reads as under : 2. That the Ld. CIT(A) has erred in law and facts in deleting the addition of Rs. 59,01,329/- made by the A.O. on account of disallowance of interest on non business interest free advances. 10. Brief facts relating to the issue are that the Assessing Officer noticed that the assessee had made interest free advances amounting to Rs. 3.42 crores to the following: Name Amount of advance Date Akhil Malhotra Rs.20,00,000/- 01.06.2005 Saurabh Knitwears Rs.88,00,000/- Old balance Sport King Synthetics Rs.26,00,000/- Old balance Saluja Cotex Pvt. Ltd. Rs.2,08,00,000/- Share Application Money Later changed as Advance 11. In addition the AO found that an interest free advance of Rs. 22.32 crores was outstanding in the account of M/s S.E. Exports as on 31-03-2005 which was transferred to the capital accou....
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....l expediency of the advances made. He relied upon the decision of the Hon'ble Apex Court in the case of S.A. Builders Ltd. Vs. CIT, 288 ITR 1 and in the case of Hero Cycles Pvt. Ltd. Vs. CIT, 379 ITR 347. The Ld. DR also contended that the CIT (Appeals) had incorrectly borrowed the proposition that where mixed funds are available and own funds are more than advances made, the presumption is that the advance has been made out of own funds, from the case law cited. Ld DR also contended that the assessee had never stated either before the AO or the CIT(A) that its own funds exceeded interest free advances but had only stated that it had substantial own reserves and share capital. Further the Ld. DR argued that the principle of res-judicata does not apply to income tax proceedings. 14. The Ld. counsel for the assessee, on the other hand, argued that on account of availability of enough own funds there was no reason to make any disallowance at all and placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. Vs. CIT 381 ITR 107(P&H), CIT Vs. Kapsons Associates, 381 ITR 204(P&H) and Hero Cycles Ltd. vs. CIT 379 ITR 347....
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....rplus of the appellant, no disallowance of interest could be made as done by the A.O." 16. This finding of fact has not been controverted before us by the Ld DR.In view of the same we find no infirmity in the order of the Ld.CIT(A) deleting the disallowance made on account of interest amounting to Rs. 59,01,329/-, u/s 36(1)(iii) of the Act. 17. The ground raised by the revenue is therefore dismissed. 18. Ground No.3 raised by the Revenue reads as follows : 3. That the Ld. CTT(A) has erred in law and facts in deleting the addition of Rs. 2,67,11,842/- made by the A.O. on account of disallowance u/s 14A of the Income Tax Act, 1961. 19. Brief facts relating to the issue are that the Assessing Officer made disallowance under section 14A of the Act of financial expenses amounting to Rs. 2,67,11,842/- on account of investment made by the assessee in shares, bonds, government security and capital for partnership concerns, on all of which, income earned in the form of interest, dividend and share of profit was claimed as exempt under various provisions of section 10 of the Act. The Ld. CIT (Appeals) deleted the disallowance for the following reasons : a) All i....
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....atisfaction by the Assessing Officer that the interest bearing funds were used for making investments earning exempt income and further went on to state that the satisfaction should be based on credible evidence and the onus lies on the Revenue in this regard. At para 9 of its order the Hon'ble High Court held as follows : "Section 14A of the Act requires the Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax free income. The satisfaction to be recorded must be based upon credible and relevant evidence. The onus, therefore, to prove that interest bearing funds were used, lies squarely on the shoulders of the revenue. Thus, if the Assessing Officer is able to refer to relevant material while recording satisfaction that borrowed funds were used to earn interest free income as opposed to the assessee's own funds, the Assessing Officer may legitimately disallow such a claim. The Assessing Officer, however, cannot, by recording general observations, particularly where the assessee has denied using interest bearing funds, proceed to infer that interest bearing income must has been used to earn exempted income. Section 14A of t....