TaxTMI 
TaxTMI 
2018 (5) TMI 949
X X X X Extracts X X X X
X X X X Extracts X X X X
....d exporting of garments and made-ups and had filed its return of income for the Asst Year 2009-10 on 29.9.2009 declaring total income of Rs. 1,21,84,419/- after claiming set off of unabsorbed loss of earlier years of Rs. 9,19,651/-. The ld AO observed in his order that in support of assessee's claim of expenditure and on various queries raised in course of hearing, the authorized representative of the assessee submitted details and photo-copies of documents as per requisition and they have been test-examined and placed on record. The ld AO observed that the assessee during the year had earned tax exempt income by way of dividend of Rs. 5,17,362/- and that the assessee had not disallowed any sum u/s 14A of the Act as expenditure incurred for the purpose of earning such exempt income. The ld AO accordingly computed the disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules as under:- Under Rule 8D(2)(ii) - Rs. 7,09,878/- Under Rule 8D(2)(iii) - Rs. 2,29,690/- Total Rs. 9,39,568/- 2.2. The ld CITA observed that the average value of investments was Rs. 459.38 lacs whereas the net owned funds in the form of share capital and reserves were Rs. 18....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n it was held that only investments yielding exempt income should be considered for computing disallowance u/s 14A of the Act read with Rule 8D of the Rules. Hence we do not find any infirmity in the said direction of the ld CITA. Accordingly, the Ground No. 1 raised by the revenue is dismissed. 3. The next ground to be decided in this appeal is as to whether the ld CITA was justified in granting relief of Rs. 1,46,29,344/- under the head of Unexplained Expenditure on the basis of fresh evidences without waiting for the remand report, in the facts and circumstances of the case. The interconnected issue involved thereon is as to whether the ld CITA was justified in deleting the addition made in the sum of Rs. 94,45,995/- as unexplained expenditure in the facts and circumstances of the case. 4. The brief facts of this issue are that the assessee vide submissions dated 24.10.2011 filed details of various expenses claimed giving full particulars of names and addresses of the parties to whom the sums were paid, nature of work and TDS made thereon. To verify the genuineness of such expenses, notices were sent by the ld AO u/s 133(6) of the Act to some of the parties. In some caess,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed and the jobs performed are verified and accordingly the invoiced amount is remitted and the dues are settled. It was stated that the assessee maintains running and continuous account with these third parties and therefore in case any excess amount if paid, gets utilized / adjusted against future billings. In case of any defects, quality issues, delay in delivery schedules, the assessee raises debit notes on the third parties against the invoices raised by them. In case, debit notes are raised, the individual accounts of the suppliers are debited in the assessee's books. In some instances, however, the debit notes and / or the invoices are disputed on account of differences on quality of deliverables or the rates negotiated or the delay in supplies. In such a scenario, it so happens that the third party does not record the debit notes so raised or vice versa which leads to timing difference between the expenses as claimed by the assessee and the confirmation sent by the third parties. It may also so happen that the debit note raised by the assessee is recorded but not at the value as mentioned in the debit note, but on the disputed rate being claimed by the aforesaid parties. As ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....heques. Appropriate taxes were deducted on the said payments and credited to the P.A.N of the payee. It would therefore be appreciated that all the necessary information which the assessee is required to possess was furnished before the Assessing Officer. Merely because, the party did not respond to the notice issued u/s 133 does not ipso facto lead to the conclusion that the expenses are not verifiable. The assessee submits that it does not exercise any control or influence over the payees and could not direct them to respond to the notice issued by the Department. The assessee also placed reliance on the following decisions in support of its contentions:- a) Hon'ble Supreme Court in the case of CIT vs Orissa Corporation P Ltd reported in 159 ITR 78 (SC) b) Hon'ble Gauhati High Court in the case of Nemi Chand Kothari vs CIT reported in 136 Taxman 213 (Gau) c) Hon'ble Jurisdictional High Court in the case of CIT vs Currency Investment Co. ltd reported in 241 ITR 494 (Cal) d) Hon'ble Jurisdictional High Court in the case of CIT vs Korlay Trading Co. Ltd reported in 232 ITR 280 (Cal) 5.2. The assessee pleaded that having submitted the name, complete address & PAN detai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isclosed income and expenditure of Rs. 94,45,995/- would be NIL. Later the assessee made its submissions on merits as under:- "i) Pushp Creation The total of the debits in the appellant's account in the Party's books for FY 2008-09 is Rs. 56,32,869/-. The said amount comprises of the invoices raised by the Party on the appellant during the year under consideration. As mentioned earlier in case of defects/quality issues/rate differences, the appellant raises debit notes on the Party. The appellant debits and claims the net amount (Amount as per Invoices - Amount raised in Debit Notes) as expenditure in the Profit & Loss Account. Similarly the 'Party' credits the amount raised in the debit note in its books to the appellant's account. On perusal of the ledger account of the appellant in Pushp Creation's books the total of debit notes credited is Rs. 18,56,428/-. The individual amounts of the debit notes has been marked in the ledger account of appellant in the books of M/s Pushp Creation and the total of the same has been enclosed by way of a separate enclosure. In view of the foregoing the "Net Billing" by M/s Pushp Creation was Rs. 37,76,44....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by them. It is submitted that the aggregate amount of debit notes of Rs. 441 ,918/- stands disputed and is pending final settlement. The appellant had debited the said amount in its books thereby reducing the claim of expenditure. On the other hand M/s Ar Dee Textile did not credit the same in its books in order to keep its claim alive till the debit notes so raised are finally settled. It is further submitted that Ar Dee Textile in its books had debited invoices raised by them during the year but which was received by the appellant only in the subsequent financial year. This resulted in a timing difference. As mentioned earlier the appellant recognizes and debits expenses only on receipt of invoices. Since the bills aggregating to Rs. 15,442/- were received only in the subsequent financial year the appellant debited and claimed it in the succeeding year. The details of the bills along with bill numbers, date and amount is enclosed. In view of the above the appellant submits that the addition of Rs. 79,35,346/- under Section 69C as alleged unreconciled difference was factually incorrect, arbitrary and without appreciating the facts of the case. It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity for furnishing the report was thereafter given by the predecessor of ld CITA by sending a reminder dated 20.6.2014. There was no response from the side of the ld AO even for this reminder. Accordingly, the ld CITA having waited for more than 3 years (ie from 10.1.2013 onwards), proceeded to examine the materials and supporting evidences placed by the assessee in the paper book by himself and decided the appeal of the assessee without waiting for the remand report of the ld AO. 7. The ld CITA granted relief to the assessee in the sum of Rs. 1,40,55,777/- in respect of M.A.Enterprises by observing as under:- "5.4 From the above figures it is apparent that the principal disallowance related to appellant's transactions with M/s M.A. Enterprises where addition of 1,40,55,777/- is made. In the impugned order the AD has alleged that the appellant had claimed expenditure of Rs. 2,39,41,877/- in the name of M/s M.A. Enterprises. While furnishing the confirmation of accounts in response to notice u/s 133(6), M/s M.A. Enterprises confirmed receipt of only Rs. 98,86, 100/-. The AD claimed that the appellant was asked to explain or reconcile the difference but no explanation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the not the sum total of all debits given to the appellant's account in the books of M.A. Enterprises for FY 2008-09. The said amount represented the debits appearing only on the second page of the ledger account and did not include therein the debits to the assesee's accounts made on account of invoices raised on the appellant starting from 27.04.2008 to 21.11.2008. I have also examined the account of M/s M.A. Enterprises appearing in the appellant's books and find that the invoiced amounts debited by M/s M.A. Enterprises to the appellant's account were given corresponding credit in the appellant's books to the account of M/s M.A. Enterprises. The gross amount billed by M/s M.A. Enterprises towards stitching charges in FY 2008-09 was Rs. 2,44,86,225/-. From the said amount of stitching charges the appellant had deducted tax u/s 194C amounting to Rs. 5,44,348/- and accordingly the net sum due to M/s M.A. Enterprises was Rs. 2,39,41 ,877/-. On verification of the appellant's ledger account in the books of M/s M.A. Enterprises vis-a-vis the accounts of M.A. Enterprises in the appellant's books, it was noted that there was no discrepancy of Rs. 1,40,55,77....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to reply to the notice u/s 133(6) cannot be the sole ground for AO to conclude that the expenditure incurred in the names of these parties was unverifiable or bogus. The appellant's case in this regard is supported by the judgment of the Calcutta High Court in the case of CIT Vs Korlay Trading Co Ltd (232 ITR 280) as also CIT Vs. Inbuilt Merchant Pvt Ltd (G.A. No. 3825 of 2013). For the reasons set out in the foregoing, the additions of Rs. 5,13,349/- and Rs. 60,218/- on account of purchases from Sofia Fashion and Batra Associates respectively are deleted. In the result, the addition of Rs. 1,46,29,344/- made u/s 69C is deleted in full. Ground No. 3 is therefore allowed." 7.2. The ld CITA granted relief to the assessee in the sums of Rs. 15,10,649/- and Rs. 79,35,346/- in respect of M/s Pushp Creation and M/s Ar Dee Textiles respectively by observing as under:- "6.2. I have considered the submission of the AR of the appellant and also the materials available on record. From the impugned order it appeared that the appellant had disclosed expenses of Rs. 41,22,220/- and Rs. 6,95,55,218/- in the name of M/s Pushp Creation and M/s Ar Dee Textile respectively. Both the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it notes was Rs. 37,76,441/- and not Rs. 56,32,869/- as claimed by the AO. As opposed to the said amount of Rs. 36,76,441/- the net expenditure claimed by the appellant as per its books was Rs. 37,69,120/-. As such the expenditure claimed by the appellant as per its books was lower by Rs. 7,321/-and such difference though unreconciled cannot be considered to be unusual given the volume of business and the possibility for timing differences that occur in such I transactions. The addition of Rs. 15, 10,649/- on account of appellant's transactions with Pushp Creations is therefore found to be unjustified. 6.4 As regards, appellant's transactions with Ar Dee Textile, I find that the gross total transactions as per the party's books amounted to Rs. 7,74,90,564/-. During the relevant year the appellant had raised debit notes on the party on account of defects/ rejections/ rate differences / sales returns etc. and as per the account confirmation of Ar Dee Textile, it had accounted for these debit notes amounting to Rs. 74,68,368/-. As such even as per the account confirmation of Ar Dee Textile, the net billing on the appellant by Ar Dee Textile was only Rs. 7,00,22,19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s from 10.1.2013 onwards for the remand report from the ld AO. We find that the ld AO did not comply with several reminders issued by the ld CITA for furnishing of the remand report. In fact in one such reminder, the ld CITA had even stated that in case if no remand report is received within the prescribed time, then it would be presumed that the ld AO has nothing adverse against the assessee on those evidences and reconciliations submitted. Despite this reminder, the ld AO chose to remain silent by not furnishing the remand report. The remand report was first sought for vide letter dated 10.1.2013. Ultimately the ld CITA had disposed off the appeal only on 17.3.2016 after a gap of three years. The various opportunities afforded by the ld CITA to the ld AO in this regard are explained in detail in para 6 of this order supra. The ld AR also stated that the CBDT had come out with an action plan to dispose off high dossier cases of demands outstanding for more than Rs. 1 crore within the prescribed time. In the continued inaction of the ld AO, the ld CITA had no other choice but to examine the various evidences and documents available on record by himself and then pass a speaking orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mount of TDS (Debit entry dated 31.03.2009) Books of Appellant: Ledger of M.A. Enterprises Expenses Claimed during the year Amount Matched. No unreconciled difference Amount (in Rs.) 2,44,86,225/- 544,348/- 2,39,41,877/- 2,39,41,877/- of face Document 3 Particulars Books of Pushp Creation Total of Debits during the year Less: Total of Debit Notes raised by the appellant (Various Credit Entries) Wet Billings during the year Books of Appellant Ledger of Pushp Creation Amount (in Rs.) 56,32,869/- 18,56,428/- 37,76,441/- Expenses Claimed during the year Raw Material 33,63,341/- Design & Development Exps - Dying & Printing Exps Amount as furnished before the AO Account (Copy of debit note enclosed) Net Billings during the year Less: Debit Note No. 0800620 credited to Shipping & Forwarding 1,710/- 7,57,169/- 41,22,220/- 353,100/- 37,69,120/- Unreconciled Difference (Rs.37,76,441 - Rs. 37,69,120) Rs.7,321/- Document 4 Particulars Books of Ar Dee Textile Total of Debits during the year Less: Total of Debit Notes raised by the appellant (Various Credit Entries) Less....