TaxTMI 
TaxTMI 
2020 (1) TMI 216
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....nd Nos. 1 & 2 raised by the assessee was with regard to the action of the ld. CIT(A) confirming the disallowance for rent expenditure of Rs. 15 lakhs and society maintenance charges of Rs. 65,039/- and Rs. 1,69,374/- paid to Mrs. Chitra Agarwal by invoking provisions of Section 37 as well as Section 40A(2)(b) of the Act. 3. We have heard rival submissions. We find that the ld. AR stated that this issue is covered in favour of the assessee by the orders passed in assessee's own case in earlier years by the ld AO. Per contra, the ld. DR argued that no evidence was produced by the assessee for rent paid to Mrs. Chitra Agarwal in respect of flats owned by her and no records of usage by the company executives were produced by the assessee. Hence, the ld. DR argued that business nexus was not proved by the assessee warranting allowability of the same as revenue expenditure. The primary facts as stated in the orders of the lower authorities are not in dispute and hence, the same are not reiterated herein for the sake of brevity. The nature of payment made by the assessee are not in dispute. We find that the ld. AR placed on record the copy of the assessment orders in assessee's own cas....
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.... the voluntary disallowance of Rs. 1,40,392/- made by the assessee. This action of the ld.AO was upheld by ld.CIT(A). We find that the law is now very well settled that the disallowance u/s.14A of the Act should be restricted only to the extent of exempt income. Reliance in this regard is placed on the decision of Hon'ble Delhi High Court in the case of Joint Investment Pvt. Ltd., reported in 372 ITR 694. The relevant operative portion of the said judgement is reproduced herein:- "9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ulti....
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....rdingly, the ground No.5 raised by the revenue is dismissed. 11. The ground No.4 raised by the revenue is challenging the action of the ld. CIT(A) deleting the addition made on account of disallowance of foreign expenses of Rs. 8.64 Lakhs. We find that the ld. AO observed that the assessee had debited a sum of Rs. 6,94,068/- on account of foreign travelling expenses of Shri Amit Agarwal for Europe visit and a sum of Rs. 1,70,511/- on account of foreign travel of Shri Sandeep Agarwal and Mrs. Chitra Agarwal for travelling to London. The assessee was asked to justify the business nexus of these foreign trips for the purpose of allowability by the ld. AO. The assessee submitted the ledger account alongwith copy of invoices issued by the travel agent. The ld. AO observed that all the three persons travelled to the same location i.e. Bombay to London during Europe visit. The ld. AO observed that assessee could not produce any other evidences to substantiate the business nexus by proving the purpose of visit by its Directors to these foreign countries and benefits derived by the assessee company thereon pursuant to such visits. Accordingly, he disallowed a sum of Rs. 8,64,579/- toward....
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....are that the assessee company is engaged in the business of (a) solvent extraction business having its factory located at Devas-MP and corporate office at Indore-MP. (b) Hotel business operated in the name of Welcome hotel - Rama International at Aurangabad (c) Tobacco Processing Unit at Bhilai-Tedessara and is maintaining regular books of accounts including cash book, bank book, journal, ledger, stock records and other records required to be maintained under the statute and the same are audited as per the provisions of the applicable statutes. On account of disputes amongst the shareholders and director of the Company, Mr. Sunil Agarwal, the erstwhile Director of the Company who had resigned as a Director with effect from 14/01/2000, had filed a case against the Company and its directors before the Company Law Board, Principal Bench-Delhi and based on certain complaints made by Mr. Sunil Agarwal to various statutory authorities including senior officials of the Income Tax Dept, a special audit u/s. 142 (2A) of IT Act, was conducted and the report in respect of the same was submitted by the Auditors, to the office of ld AO on 25/08/2014 and accordingly the assessment proceedings we....
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....ment of seeds for maximizing the volume of business. The assessee stated that it used to sell cargo of DOC to MUL when DOC production was ready and loaded on truck. The sale of cargo facilitated it to realize the amount urgently, which in turn were utilized for the payment towards fresh seed procurement. It further added that by the time the vessel is berthed and ready for stuffing and loading container, the assessee repurchased the cargo from MUL. 12.4. The assessee vide letter dated 17/10/2014 gave the profit and loss account of trading in DE Oiled Cake (DOC) with MUL and others. The ld AO had disallowed the claim of deduction towards rate difference in the sum of Rs. 18,00,41,709/- by observing as under:- "(1) The assessee failed to furnish trading account of delivery based transactions and non delivery based transaction with MUL. (2) The assessee failed to establish that the nature of expenses debited through debit note. (3) The assessee failed to adduce any evidence to establish the correctness of the rate difference. (4) The assessee failed to establish that the genuineness of the expenses debited through debit note. (5) The ass....
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....n that there cannot be any concept of rate difference as it cannot simply arise, the assessee being entitled to a fixed 25% service charge. 12.6. The assessee made a detailed written submission before the ld. CIT(A) as under:- Ground No. -3: Disallowance of Rs. 18,00,41,709/- in respect of DOC Trading Purchase price difference on DOC trading transaction with Mauria Merchandise a div. of Mauria Udyoq Ltd (MUL). 7.1 The Ld. A.O. disallowed the above amount of Rs. 18,00,41,709/- for lack of clarity and as per premeditated mindset and therefore has chosen to make disallowance with Two sets of Reasoning termed in the assessment order as an alternative stands, which indicates Doubts in the mind of A.O. on account of Two Opinion, spelt out by the Ld. A.O. 7.2. In the assessment order at Para 4.3(a to i) L'd A.O has chosen to state that the amount included in purchase of DOC towards rate difference is not correct and genuine. 7.3 Again at Para 4.3 (i) the L'd. A.O. has chosen to disallow the said amount, on account of non deduction of TDS treating it as Interest expenditure and therefore disallowed the amount of Rs. 18,00,41,700/-u/s.....
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....r report U/s. 142 (2A) of IT Act which states "we are unable to comment on purchase rate difference of Rs. 18,00,41,709/~ charged by Mauria Merchandise, in absence of Market price of Soya DOC for Financial Year 2010-11". 7.11. The Ld. A.O. ought to have considered the details furnished by the appellant of Statement of difference in rate qua each invoice, placed on record which substantiated the market price of DOC, prevailing during Financial Year 2010-11, based on the published rate by the statutory authority for Soya/DOC trade "gOPAl^duly supported by monthly debit notes issued by MUL and the abstracts of ledger account of MUL. The same is annexed herewith. (Annexure - 15 to 17) 7.11 The A.O ought to have considered the modus oprandi of DOC transaction between the appellant and MUL as was being explainece in the letter of the A.R of the Appellant marked as the submission No. 6 dated 13-10-2014, which is as under. "During the year the Company has carried out trading transaction of DOC with M/s. Mauria Udyog Ltd.(MUL) We have already placed on record the copy of Extracts of Ledger account of M/s. Mauria Udyog Ltd. as appearing in the Books of ....
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.... way out and solution for toe Short Term funding, made available to LVIL on an Urgent basis, by using the DOC stock in the intervening period for sale in Domestic Market and raising funds for procurement of seed for maximizing the volume of business. Pursuant to the Trading operations between LVIL & MUL, the cargo of DOC was sold by LVIL to MUL when the DOC production was ready (duly packed) and loaded on Truck or the DOC lying at CHA warehouse at Kandla Port. The sale of cargo facilitated LVIL to realize the amount urgently towards sales proceeds from MUL, which in turn were utilized for payment towards fresh seed procurement. By the time the vessel is Birthed and ready for stuffing and loading in container LVIL re-purchased the cargo from MUL. The sale and purchase of cargo was done at a prevailing market price and the ownership of goods was transferred back and forth by Deliver/ Notes issued and recorded by CHA. The sales and purchase Invoices and Delivery notes issued by CHA for purchase and sale of DOC have been monitored and verified periodically by the Stock Auditors on behalf of the Bankers of LVIL. LVIL had made payments to MUL towards p....
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.... Udyog Limited (MUL) and others. (Annexure: 19) The Ld. A.O. ought to have considered, that the figures stated in the Memorandum P & L Account are derived from the Audited Financial Statements of LVIL for above years and the same has been duly reconciled. Also the Ld. A.O. ought to have considered that on the perusal of the said statements, it is observed that the Trading Operations of M/s. Laxmi Solvex Div. of LVIL has resulted into profit for the F.Y. 2010-11, similarly even if one was to consider the Trading Operations with MUL, it also has resulted into the profit for the year even after considering the rate difference allowed to the MUL. The Ld. A.O. ought to have considered that, the appellant Company, have ensued Trading Operations of DOC Soya consistently for past several years and the operating results of the Trading Operations have been included in the Business Income offered for Tax in the Return of Income for all the years. The Ld. A.O. ought to have considered the complete and entire submission No. 6 placed on record vide letter dated 13.10.2014 of A.R. in compliance of the details desired by the A.O., instead of following the illegal prac....
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.... place with the ld. AR of the appellant during the hearing held on 17th October, 2014 when after taking on record the submission made by the A.R. of the appellant marked as submission No.8 dated 17/10/2014 the same was reconciled with the value & quantity stated in the Audited Accounts / Tax Audit Report for the F.Y. 2010-11 submitted along with the ROI and lying in assessment records of A.O. The reconciliation brought out adequate clarity that the quantity purchased being more than the quantity sold during the year and the balance quantity out of the purchases made, were lying in closing stock which also was reconciled with quantity & value of closing stock stated in Audited Statement of Accounts for the year ended on 31-3-14. The submission made by the A.R of the appellant marked as Submission No. 8 dt 17.10.2014 clearly brought out that the statement annexed to the submission, contained aggregate volume of trading of DOC with bifurcation of the trading with MUL and "others" with comparative figures of year F.Y. 2009-10, and the figures stated in the statement are and reconciled with Audited Accounts, and the trading activity of DOC has resulted in profits. 10. ....
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.... admitted by the assessee in its submission filed vide letter dated 13.10.2014 on which interest has been paid in guise of rate difference". However the Ld. A. O. completely ignored to give cognizance to the other contents of the same submissions as brought out in preceding Para's without any confrontation or basis for the same. 12. The Ld. A.O. ought to have realized that the A.R. of the appellant submitted the details of Names & Address of Creditors & Debtors (including Name & Address of MUL) for the first time vide the submission by the A.R of the appellant marked as Submission No. 5 dated 7.10.2014, whereas at Para (b) of Page-5 of the assessment order, it is brought out erroneously that the MUL did not comply with the Notice U/s. 133 (6) dated 1.10.2014. 13. The Ld. A.O. ought to have considered the copy of ledger extracts of the Account of MUL in the books of LVIL along with submission made by the A.R of the appellant marked as submission made by the A.R of the appellant marked as Submission No.8 dated 17,10.2014, which contained complete details of transactions between MUL & LVIL for F.Y. 2010-11. 14. The Ld. A.O. ought to have considered the f....
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.... the invoice vice details of rate difference all these composite details, very well established with documentary evidence the correctness & genuineness of the expenses debited as per the debit notes of rate difference. The Ld. A.O. has made additions & disallowance on account of discount allowed of Rs. 18,00,41,709/-, based on pre-meditated assumptions, conclusions and surmises and therefore the same is not sustainable and accordingly the same may be directed to be deleted." 12.7. The ld. CIT(A) granted relief to the assessee by observing as under:- 5.3 Decision - I have carefully considered the AO's order and the appellant's submissions. Before proceeding further, it would be essential to understand the two business activities involved herein, viz. crushing of soya seeds and trading of DOC. Soya seeds - which are quoted on MCX / NCDEX (and whose prices fluctuate dynamically) - are purchased and crushed in industrial units. DOC (which is always soya DOC) is a by-product of the crushing process and is in turn traded separately as a commercial item. It is quoted dynamically by SOPA. DOC is usually used as chicken-feed in European and American markets and ....
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....ly carried out that exercise himself. In other words, this comment by itself does not lead to any conclusion of wrongdoing on part of the appellant. 5 3 2.2 According to the AO, the appellant had contended that soya trade was very volatile and that the price fluctuates every hour on MCX / NCDEX. The purchases are made on a provisional basis and that the final price is determined at the end of the day. In my opinion, it is clear that the appellant was referring to the trade in soya seeds, whereby soya seeds are purchased for the purposes of crushing and not to the trade in DOC. It would hence be incorrect to take this allusion in the context of DOC, it having never been & quoted on MCX/NCDEX. 5.3.2.3 According to the AO, the appellant had failed to provide the details of the DOC trade done on the basis of actual delivery. It is by now clear that DOC trading is not done on the basis of actual delivery. As the ownership of goods loaded onto trucks changes hands on the basis of endorsement on documents issued by the CHA, this could be more accurately termed as being a case of 'constructive delivery'. Hence, in my considered opinion, failure of the appellant to....
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....n question was for crushing of soya seeds while the debit note in question was raised for trading of DOC. 5.3.2.9 To conclude, according to the AO, the appellant had failed to establish its claim on account of the debit note, due to which he had summarily added the entire amount of Rs. 18 crores mentioned therein. 5.3.3 From the discussion in the above paragraphs, it would become clear the debit note in question arose on account of trading transactions of DOC with MUL. It did not arise either as a result of crushing of soya seeds or pursuant to the agreement with MUL. In fact, there has never been any agreement for trading in DOC, it being simply a case of purchase and sale. On the other hand, it is the AO who has clearly confused the crushing of soya seeds and the underlying agreement with trading in DOC. After careful consideration, I am inclined to reject the arguments of the AO and his conclusion, finding it lacking in foundation. 5.3.4 Coming to the alternate ground of the AO of violation of provisions of section 40(a)(ia) of the Act, once more his logic is seen to be flawed. He has inferred an element of interest of Rs. 18 crores by way of the debit....
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....ume of business/ profitability and to utilize the in house infrastructure of trained staff for Soya and Commodities and Metal Business and operate its soya Processing Unit to its full capacity and MUL having dealt with Laxmi Soivex successfully for past few years for the trading and exports of Soya seed Commodities Metals etc. and Soya products and with aview to explore profit potential of Soya Business have tied up large business commitment with Over Seas customer for exports of Soya seed Commodities & Metals and Soya products for this purpose MUL has proposed to Laxmi Solvex and parties hereto have mutually agreed to persue the Soya Seed and Soya products business and also to deal with Metals & commodities at mandi, MCDEX and MCX to heigh the risk of future market of the commodities (DOC and Oil). F. MUL and Laxmi Solvex have had mutual discussions for the .modalities and procedures for the aforesaid purpose have been mutually discussed and agreed , upon by and between MUL and Laxmi Solvex, which they wish to record as under: NOW IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: 1. This Agreement shall be in force for a period from 1-4-2....
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.... / MCX and any losses due to such sale and cost of selling the goods shall MUL. Laxmi Solvex also entitled to pay the margin, settle the amount \ quantity \ quality of material on account of MUL and the final loss / gain shall be settled/pay/receive through account. 9. MUL representative(s) shall supervise the entire process from the time the quantity of Soya seed requisitioned by Laxmi Solvex, to the entire process of procurement, receipt of seed, storage of seed and processing of seed stocking, crushing and other incidentals. The parties agree that crushing of seeds shall be the sole responsibility of Laxmi Solvex. 12.10. We find that the ld. DR pointed out that Point No.2 and Point No.9 of the aforesaid agreement assumed vital importance wherein it had been categorically agreed between the parties that there cannot be any loss or claim that would fall on the assessee pursuant to this agreement. But from the close reading of the said agreement, we find that the same has been entered into only for Soya bean crushing as is evident from the preamble to the agreement reproduced hereinabove. The De-Oiled Cake (DOC) is the only by- product which emanates out of the....
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....finance to the assessee. The ld. CIT(A) had given a categorical finding that crushing of soya seeds and trading of DOC are independent twin businesses. With regard to comments made by the Special Auditor, the ld. AR stated that the rates were indeed available in SOPA for the DOC trading but the Special Auditor was not willing to verify the same and accordingly, he was non-committal in his Special Audit Report regarding the same. 12.10.2. In the instant case, we find that the ld. CIT(A) should have asked for a remand report from the ld. AO so that the ld. AO could have understood the business model and the Modus Operandi of DOC trading business of the assessee and the said goods being available as security for earning finance for the assessee within a time gap of three weeks. Since the ld. CIT(A) had not asked for a remand report or not given proper opportunity for the ld. AO to understand the entire facts of the case, we find that the principles of natural justice have been grossly violated in the instant case. Hence, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the ld. AO for denovo adjudication in accordance with....