TaxTMI 
TaxTMI 
2019 (12) TMI 1030
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....pportunity of cross examination as also without bringing any corroborative material apart from the statements. 3. Without Prejudice to the above grounds, the learned CIT(A) erred in law and on facts in confirming disallowance to the extent of Rs. 29,94,307/- and Rs. 4,11,961/- reflected in work in progress and VAT credit respectively which was not debited to the Profit and Loss Account. 4. Learned CIT(A) erred in law and on facts in confirming disallowance of Rs. 90,42,612/- u/s 14A r.w.s. Rule 8D without recording any satisfaction that any expenditure was incurred for earning exempt income. 5. Learned CIT(A) erred in not appreciating that there was no exempt income earned during the year as also no interest bearing funds were utilized for making investments for tax free income. 6. Learned CIT(A) erred in law and on facts in confirming the disallowance u/s 14A in absence of any nexus of expenditure with tax free income. [B]. Assessment order dated 28.03.2013 was passed by the Assessing Officer ("AO", for short) under section 143(3) of the Income Tax Act, 1961. In this assessment order, the AO made a further disallowance of Rs. 90,42,612/- under section 14A of the Income Tax ....
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....ated to us that your are in possession of certain information received from Sales Tax Department, Mumbai according to which our company has communicated by the Sales Tax Department has booked fictitious purchases amount to Rs. 72,50,159/- and AR was asked to submit his say on this. The time was asked by AR till 19.03.2013 on which we have to send our reply to reach you by 2P' March, 2013. We would like to submit as under: i. During the PI Y. 2009-10, we were carrying some labour some labour contracts and certain Government Projects. The total purchases or labour contract expenses were around 117 crores. The list of alleged fictitious purchases as received by you from Sales Tax Department shown to AR contains purchases from six parties amounting to Rs. 72,50,159/- ii. We are verifying the said transactions with purchase department and at sites. During the F.Y. 2009-10 we were carrying projects of Borivali Sty Walk, ES1C and Nashik. iii. We have prepared a stale merit showing the details of above purchases, VAT paid on the same and how much was charged to Profit and Loss Account and how much is carried to Work In Progress. We are enclosing herewith chart showing the details....
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....ked for more time for verifying the Transactions. It can be seen from the records that the assessee was given time from15.03.2013 till 28.03.2013 to reconcile its accounts and file its reply. However, the assessee failed to do so. 5.3. As per the information received by this office, statements of the above mentioned hawala dealers were recorded by the Investigation Wing of the Maharastra Sale Tax / VAT Department. Sh. Munish Rajnikant Modi, who is the proprietor of M/s Supreme Enterprises in his statement categorically confessed to providing only bills. In response to the specific question raised by the Assistant Commissioner of Sale Tax (Inv.) m the statement recorded on 18-11-2008 his reply was as under "Q No, 28 - Do you carry on any real business of sale or purchase of goods? Ans. No. I don't know anything about the business. I have not carried any business what ever done is by Mr. Hemant Muni and Mr. Mahesh his men. / once again confirm that 1 have not sold or purchase any goods. Similarly, Sh. Hashmukh H. Panchal proprietor of M/s Darshan Trade Corporation vide his letter dated 08-12-2011 submitted to the Assistant Commissioner of Sale lax (1-28)(Inv.-B), Mumbai admit....
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...., the investments made by the assessee will yield income which is not includible in the total income of the assessee under the provision of income tax Act, the assessee was asked to explain as to why the provisions of section 14A be not invoked. The assessee has submitted the following reply:- "This is to submit that the company has received the tax free income in the form of dividend amounting to Pm, 33,410/-. This dividend is received on the shares of Model Co. operative Bank. The company has mailed the loan from the hank and it is the pre condition of the loan that the shares of certain amounts has to be purchased by the borrower from the bank The shares are not purchased as investments or to earn the dividend or tax free income. It is also to be noted that there is no any expenditure incurred for purchase of these share of the bank. Considering the above, the provisions of section 14A of the IT. Act are not attracted in this case and pending on this there is no disallowance made while filing the return of income". 8. I have considered the reply filed by the assessee, 1 do not find any force in the reply submitted by the assessee, Provision of section 14A. are mandatory in....
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....eipt An amount computed in accordance with the following formula, namely: A. interest Expenses Rs. 44,01,462/- B. Average Investment Rs. 120,46,24,010/- C. Average Assets Rs. 175,59,59,525/- AXB/C Rs. 30,19,492/- (iii) An amount equal to one half percent of the average of the value of investment, income from which does not or Shall not form part of the total income, as appearing in the Balance Sheet of the assessee, on the first day and the last Day of the previous year. 0.5% of average value of investment i.e. B Rs. 60,23.120/- Total [(i)+(ii)+f(iii)] Rs. 90,42,612/- Therefore, I make a disallowance of Rs. 90,42,612/- in accordance with the provisions of Section 14A of the Income Tax Act. Since the assessee has not disallowed the expenses incurred for earning of exempt income, in view of the provisions of the section 14A read with Rule 8D of the Income Tax Rules, hence, I am satisfied that the assessee has furnished inaccurate particulars of his income, accordingly penalty proceedings are initiated u/s 271(1) (c) of the I.T. Act, 1961 separately. With this remarks, the total income of the assessee company is computed as under: Income returned as per re....
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....etc. During the year the assessee has also executed labour contracts. 4. The AR submitted the details called for and also accounts of the company. From the various discussions held as well as the details filed by the assesses, the income of the assessee is assessed as under. 5. Information has been received from the DIT (Inv.) - I, Delhi vide letter F.No. DIT (lnv.)-l/MVAT/Del/2012-13/87 dated 26.02.2013 enclosing therewith details of non- genuine/bogus bills availed by the assessee M/s Dhanshree Developers Pvt. Ltd. This information was received by the DIT (Inv.), Delhi from DGIT (lnv.), Mumbai who in turn received the same from the VAT Department, Mumbai. According to the information received, M/s Dhanshree Developers Pvt, Ltd. during the financial year 2009-10 relevant to assessment year 2010-11 has availed accommodation bills totaling to Rs. 72,50,159/- from the following persons who are engaged in providing bogus bills (hawala dealers):- S. No. Name of the hawala dealer PAN no. F. Y, in which bills availed Amount of bill 1 Supreme Enterprise AKRPM9147P 2009-10 2007980 2 Newzone Multi trade Pvt. Ltd. AAECM7719B 2009-10 30758 3 Mahalaxmi Corporation/ &....
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....s Account on which revenue is declared and balance is included in the amount of Work in Progress at the end of the year. iv. As such, it will be seen from the chart enclosed that Rs. 38,43,891/- is debited to Profit and Loss Account and Rs. 29.94,307/- is included in the figure of Work in Progress as at the end of the year. The figure of Its 4 11,961/- which is VAT is considered separately. In this situation total figure of 72,50,159/- can in no circumstances be disallowed while computing taxable income. We would like to request as follows: a. The information received from Sales Tax Department is informed to our AR on 16. 03.2013 which is at the fag end of the assessment proceedings for which we have very limited time to justify our case, as our office is at Mumbai and the Assessing Officer is stationed at Delhi. b. We are verifying that transactions and can revert only after conducting deep investigation in the matter. c. Further time may please be allowed for submission of the details called for. d. Besides, the party concerned may be called for Cross examination to find out the truth regarding the Sale of materials to us. Besides, the material has been used in our site....
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.... his business activity. His Sale Tax Registration was also cancelled by the Mumbai VAT Department. A copy of affidavit dated 09-12-2011 submitted by him has also been received by this office. Similar information has also been received in respect of Sh. Kamlesh K. Seth Proprietor of M/s Ambica Trade Impex and in respect of other hawala dealers. The information has been supplied by the Maharastra VAT Department to the DGTT (Inv.), Mumbai and from there it has been disseminated to this office. 5.4 The information received from the Maharastra VAT Department is specific and not general or vague. The information contains the details of the beneficiaries party, in the present case assessee M/s Dhanshree Developers (P) Ltd. (formerly known as M/s Pearls Dhanshree Infrastructure (P) Ltd.), PAN no. of the beneficiary, name of the hawala dealer, TIN No. of the hawala dealer, PAN No. of the hawala dealer and the amount of bogus bills of purchases obtained from the hawala dealers. The information was confronted to the assessee. The assessee has failed to prove the genuineness of the purchases made from these hawala dealers. From the above it is clear that the assessee has inflated its purch....
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....ons are recorded in books, no addition can be made. 5. The learned AO has not rejected sales in case of the appellant. The learned AO has accepted the books results. Simply on the basis of information from the sales tax Department, the learned AO directly proceeded to disallow the purchases. Reliance is placed on the decision of Bombay High Court in case of Nikunj Eximp Enterprises (P) Lid reported in 216 Taxman 171 wherein the Hon High Court held that once sales are accepted, the purchases cannot be treated as ingenuine in those cases where the appellant had submitted all details of purchases and payments were made by cheques, merely because the sellers/suppliers could not be produced before the AO. 6. In AC IT v, Kishanlal Jewels (P.) Ltd. (2012) 147 TTJ 308 (Del) (Trib.) it is held that the assessee while furnishing necessary information regarding the transactions and the aforesaid parties like purchase bills issued against goods purchased, sales- tax registration numbers of the parties, PANs, their confirmations and Bank statements showing the debit of the amount paid through Account payee Cheques to them in the account of assessee and credited in the Bank Account of seller....
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....d by the strict rules of evidence, the department is bound to afford an opportunity to controvert and cross examine the evidence on which the department places its reliance. Opportunity of cross examination must be given. The consequence of breach of natural justice is that either the addition is void or mailer may have to he to be remanded to lower authorities. 13. In G. G. Diamond International v Dy. CAT (2006) 104 TTJ 809 (Mum.) (Trib.) it is held That it is not case of the Revenue that the assessee is not maintaining books of account. The purchases are recorded in the books of account. Payments are made by cheque to the immediate purchasers. They accepted and confirmed the sale. To hold otherwise, there should be some evidence in The possession of The Revenue. Suspicion, however strong, cannot take the place of evidence and that alone cannot he the criteria for deciding the matter. 14. In DCIT v. Shri Rajeev G. Kalaihil, (Mum) (Trib) (ITA No. 6727/M/2012 dt. 20/8/2014. Bench 'D' AY .2009-10) Suspicious purchases - Name on website of Sales Tax Department as hawala dealer not enough to disallow purchases. Held, the AO had made the addition as one of the suppliers was declared....
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....roceedings, the appellant has submitted that no material has been referred by the A.O. in assessment order and also no opportunity was given to cross-examine. This argument of the appellant is not acceptable since the A.O. has referred only 7 parties for bogus purchase, as against the total purchases of Rs. 116,84,02,349/- debited in the P & L a/c. Further, in the assessment proceedings, the appellant was allowed the opportunity to substantiate its claim from 15.3.2013 to 28.3.2013 and therefore, contention of the appellant that no adequate opportunity was allowed, is not found to be correct. CONCLUSION: From the above, it is clear that the appellant failed to substantiate the claim of alleged bogus purchases from 7 hawala dealers amounting to Rs. 72,50,159/-, before the A.O. and as well as in the appellate proceedings. In the sub-ground no. 2.4, it has been claimed without prejudice by the appellant that the A.O. ought to have restricted the addition to the extent of Rs. 38,43,891/-, since an amount of Rs. 34.06,268/- (Rs. 29,94,307./- + Rs. 4,11,961/-), is actually not debited in the P & L a/c. In view of the above, I do not find any infirmity in the A.O's order and additio....
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....ing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not par! of the total income under this Act. The provision of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. " 9. From the above, it is evident that the provision of section 14A are mandatory in nature. The provisions are also applicable to a case where assessee claims that no expenditure was incurred in earning of the income, not includible in total income. Further, Rule 8D of the Income Tax Rules provides the basis of computing the expenditure relating to earning of income which is not included in the total income. During the year under consideration, assessee derived tax exempt income in the form of dividend. Since, the assessee has not made ant suo-motto disallowance u/s 14A of the Income Tax Act and has contended that no expenditure has been incurred in relation to the income not includible in the total income, I am left with....
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....r earning any tax free income and therefore the provisions of Section 14A are not applicable. The learned AO concluded in para 9 that the provisions of Section 14A read with Rue SB are mandatory, since the appellant had earned (tax free income in the form of dividend. The learned AO further observed that the appellant has not made any suo moto disallowance and claimed that there is no expenditure is incurred for earning any tax free income, the provisions of Section 14A have to be mandatorily invoked. The learned AO therefore computed the disallowance as per clause (ii) of Rs. 30,19,492/- and (Hi) of Rs. 60,23,120/- of Rule 8D. 2. The investment in shares and the dividend income at the end of the year under consideration is as under- Name Amount Dividend Amaya Infrastructure Pvt Ltd. 1,24,08,26,000/- - Prodyon Tech Pvt. Ltd. 20,00,000/- - Grace Plasto Fab Pvt Ltd 15,00,000/- - Punjab & Maharashtra Coop Bank 14,00,000/- Model Coop Bank Ltd 2,98,010/- 33,410/- 3. It is submitted that the appellant has received dividend income of Rs. 33,410/- on shares of a cooperative bank from which the appellant has availed a loan facility. The investment in shares was ....
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....he correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act: (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by Mm in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001." 7. Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the. total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine (he accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation ....
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....ue of investment; income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment; income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the "total assets" shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. " 7. Sub Rule (I) categorically and significantly stales that the Assessing Officer having regard to the account of the assessee and on not being satisfied with the correctness of the claim of expenditure made by the assessee or claim that no expenditure was incurred in relation to income which does not form part of the total income under the Act, can go ....
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....in relation to income which does not form pan of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act, It is only if (he Assessing officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 81) of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent, reasons for the same.....
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....way of interest which is not directly attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest (other than the amount of interest included in clause (i)) incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The third component is an artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income, as appearing- in the balance sheets of the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the expenditure in relation to exempt income and it is this amount of expenditure which would be disallowed under Section 14 A. of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of expenditure in relation to exempt income has two aspects - (a) direct and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. Th....
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.... 108 Del held that the lower authorities were expected to examine, whether the interest paid in this year is or is not directly attributable to any particular income or receipt. There is a finding that the interest is not directly related to receipts by way of dividends. Therefore, it follows that the payment of interest is in respect of income other than dividend income. In such a situation, the interest cannot be said to be a kind of general expenditure incurred for earning of various kinds of incomes. Therefore, the provision contained in Rule 8D(2)(ii) is not applicable. It was also the argument of the Id. senior DR that the AO has followed the procedure laid down in the case of Maxopp Investments Ltd. The decision is that the AO has to examine the expenditure and its nexus with the earning of tax-free income, as provided in sub-section (2) of section 14A. If there is no such nexus, the disallowance cannot be made, otherwise the disallowance can be computed as prescribed under Ride 8D. In view of the finding of the Id. CAT (Appeals), no interest expenditure had been incurred for earning tax-free income. Therefore, the provision contained in Rule 8D(2)(ii) cannot be invoked. 1....
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....from a domestic company and dividend distribution tax should have been paid on such dividend. In the instant case the dividend is received from Model Cooperative bank Ltd., which is not a company but a cooperative society governed by the laws of cooperative society. A part of Annual Report of the Model Cooperative Rank Ltd, is attached for your perusal. In the section AUDIT: It has been made very clear that Auditors are appointed by the Cooperative Dept. Mumbai, which is a clear evidence that Model Cooperative Bank Ltd is a Cooperative society and is not a domestic company. Co operative Banks in India are registered under the Co-operative Societies Jet and are taxed as an AOP and not as a domestic company. Therefore the dividend earned is not exempt from tax. Since there is no dividend income exempt earned during the year, no disallowance u/s 14A can be made. Reliance is placed on decision in case of Cheminvest V CIT dt 2nd September 2015, the Hon Delhi High Court held as under- (i) The expression "does not form part of the total income" in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the re....
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.... from 1 company M/s. Model Co. Operative Bank Ltd. Therefore, from these facts it is not correct to claim that the investment in shares in all the 5 companies, were made as a compulsion on account of loan, (iii) During the appellate proceedings, it was claimed by the appellant for first time in the appellate proceedings, that dividend paid by M/s. Model Co. Operative Bank Ltd is taxable, as same is not exempt u/s 10(34). This argument of the appellant is not acceptable for the reason that: > The appellant has claimed it as exempt in the return of income not only A.Y. 2010-11, but also in subsequent assessment years. > The auditor has also not suggested in the audit report that this dividend income is taxable. > This argument was never taken before the A.O. in the assessment proceedings. In view of the above and also the fact that documents furnished by the appellant in the appellate proceedings, do not substantiate its claim made in the appellate proceedings. (iv) Further, if the assessee has earned any income, which does not form part of total income, then as per section 14A(1), of the Act, no deduction shall be allowed, in respect of expenditure incurred in relation t....