TaxTMI 
TaxTMI 
2018 (11) TMI 1845
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of income, at col.5 of schedule BP, the assessee had claimed Rs. 60 crores as other exempt receipt credited to P& A/c. The return filed u/s 139(4) of the Act was selected for scrutiny under the compulsory guidelines issued by the CBDT and also under CASS. Accordingly, notice u/s 143(2) dated 18/05/2015 was issued and served on the assessee. Subsequently, the assessee filed a revised return of income on 31/03/2016, which was treated as invalid by the AO on the ground that the original return of income u/s 139(4) was filed after the due date. 2.1 A reference was made to the Transfer Pricing Officer (TPO) for determination of arm's length price in respect of the international transactions reported by the assessee company for the FY relevant to AY 2014-15 with the prior approval of the CIT(Central), Hyd. 2.2 Assessee's Profile: The assessee company is engaged in the business of providing a range of services to power transmission companies for setting up transmission lines and sub-stations. The company has two manufacturing facilities which are located near Hyderabad with an annual installed capacity of 2,40,000 MTPA. Company is certified with quality management (ISO 9001:2008), Env....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsaction between the BS Limited and BS Global Resources Pte Ltd, Singapore is relating to the working capital advances and corporate guarantee by the assessee company in the subsidiary company. Hence, no arms length price is warranted for such type of transaction. 2.7 Analysis by the TPO 1. Loans and advances provided of Rs. 20,58,50,500/- AE Nature of transaction Amount (Rs.) Addition during the year Total amount BS Global Resources Pvt. Ltd. Interest free loan/advances 0 20,50,50,500/- 20,58,50,500/- 2.8 The TPO observed as under: "It is stated that the company has made the advances/loan to BS Global Resources Pvt Ltd during the year under consideration for acquisitions and business expansion. The taxpayer further stated that the advances were given on the condition that the advance will be converted as equity after completion of transaction. These advances will not carry any interest. The taxpayer stated that even though these advances have been made for the purpose of acquisition and for expansion of business, these were classified as advance while preparing the financial statement. The taxpayer relied on various case laws to state that the transfer pricing is not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed as equity with zero coupon rate of interest and was invested in subsidiary without any interest. For the reasons mentioned above, the contention of the taxpayer is not acceptable for these transactions also. Thus, this amount is also considered for the purpose of benchmarking. Accordingly, the assessee was show caused as to why an interest @ 14.45% as per SBI PLR is not charged. It is seen from the reply that the assessee stating that it has extended interest free loan only according to the requirement of the business and not charged any interest. The taxpayer also relied upon several case laws. The above discussion on interest free loan has not been considered by either the taxpayer or in case laws, hence, the submission of the taxpayer is not acceptable. In view of the above observations, the TPO computed the arm's length price of the interest as under: Loan amount Rs. 20,58,50,500/- Arms length of the interest (20,58,50,500*14.45%) Rs. 2,97,45,397/- Thus the arm's length price of the interest on the transaction is Rs. 2,97,45,397/- and the same is treated as adjustment u/s. 92CA of I.T. Act and the total income of the taxpayer will be enhanced accordingly u/s 92CA(3) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e charges are 2.10% per annum, from Rs. 5 to 10 crores is 1.60% and above Rs. 10 crores the charges are 1.30% per annum. He, accordingly, computed the ALP of corporate guarantee fee as under: Amount of corporate guarantee extended to AE Rs. 30,14,04,500 Corporate guarantee fee @ 1.30% Rs. 39,18,258 Thus the arm's length price of corporate guarantee fee is Rs. 39,18,258/- and the shortfall of the same amount is treated as an adjustment u/s 92CA of the Act and the total income of the assessee was enhanced by Rs. 39,18,258/- u/s 92CA(3) of the Act. 3. When the assessee objected the same before the DRP, the DRP upheld the action of the TPO. CORPORATE MATTERS 4. Apart from the adjustment to international transactions, the following disallowances were also made by the AO as under: 1. Disallowance of Rs. 60,00,00,000/- 1.1 On perusal of the computation of income, as per the return of income filed u/s 139(4), the AO noticed that the business of Rs. 24,71,83,826/- was declared by the assessee after claiming exemption under the head 'other exempt income' from net profit of Rs. 96,10,93,608/- as per P&L A/c. When the AO asked to file the details of such exemption claimed and substan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. - Rs. 1,37,88,369/-, the AO observed that for AY 2012-13, against contract received from the entities (as mentioned in page 26 of AO's order) amounting to Rs. 5,60,13,796/-, work amounting to Rs. 5,34,76,748/- was given on subcontract to Silverpoint Infratech Ltd., for which M/s BS Ltd. has paid Rs. 1,13,83,335/- in AY 2012-13 and Rs. 4,10,23,613/- in AY 2013-14. Apart from the above, M/s BS Ltd has made payments of Rs. 5,79,00,000/- in AY 2013-14 and the amount is still outstanding as on date. The AO issued show cause letter to the assessee and since there was no reply from the assessee and was unable to substantiate the genuineness of the transactions with M/s Silver Point Infratech Ltd., the AO held that the payments to M/s Silver Point Infratech Ltd. were made without any business prudence & exigency thus entailing financial cost to the assessee company. He, therefore, interest @ 12.5% attributable to such amounts of Rs. 11,03,06,948/- i.e. Rs. 1,37,88,369/- was considered for disallowance. 4.1 When the assessee objected before the DRP, the DRP confirmed the addition made by the AO. 5. As regards the addition made towards loss incurred on 4th quarter - Rs. 13,23,00,000/-, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ithout appreciating the fact that the assessee has already received an amount of Rs. 22,98,08,769/- during the year itself and an amount of Rs. 2,39,58,269/- is outstanding to the AE. 3.1 Erred in re-characterizing the nature of transaction from 'Working Capital Advance' to 'Loans' which is not permissible u/s. 145 of the Act. 3.2 Erred in calculating notional interest by not following any method and the procedure laid down u/ s.92C of the Act relating to computation of ALP adjustment. 3.3 Erred in charging interest on the amount of advances of Rs. 20,58,50,500/ without appreciating the fact that the assessee has received back an amount of Rs. 22,98,08,769/- the said amount during the year itself. Further the company has received an excess amount of Rs. 2,39,58,269/- which was outstanding at end of the year and the AE has not charged any interest for the said amount. 3.4 Erred in not appreciating the fact that even if the above transaction is to be benchmarked it should be benchmarked using CUP method wherein it is not justified in charging interest by the assessee as no interest is charged by the AE on advances given by them. 3.5 Without prejudice to the above....
X X X X Extracts X X X X
X X X X Extracts X X X X
....corporate guarantee fee using 'CUP' as the most appropriate method and by applying the rates of SBI without any basis and without complying with the procedure laid down for computation of arm's length price as given in the provisions of section 92C of the Act. 4.7.1 Erred in adopting rate which is fixed by the Indian Bankers considering the various factors in India however, the said transaction entered by the appellant is outside India. 4.7.2 Erred in not appreciating the fact that corporate guarantees are totally different from bank guarantees and in case of bank guarantees they are highly secured and liquid and cashable by the beneficiary instantly without any legal route. 4.7.3 Erred in not bringing anything on the record with regard to terms and conditions and circumstances under which the banks have been charging guarantee commission at the rate of 1.3%. The charging of a guarantee commission depends upon transaction to transaction and mutual understanding between the parties. 4.7.4 Erred in comparing Bank rates quoted by SBI as CUP without appreciating the fact that the assessee is not carrying banking business. Hence, the comparable taken by the TPO is not in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... confusion and mis-apprehension that certain discrepancies might be there and to take care of the discrepancies if any. But as no such discrepancies or inconsistency were found later on, therefore no addition was required to be made in this behalf. 6.3 Erred in making addition of Rs. 60,00,00,000/- only on the basis of statement recorded without their being any corroborative incriminating documents or evidences found by it which could support the above said statement recorded. 6.4 Erred in not referring to the CBDT Instruction No. F.No. 286/2/2003-IT (Inv.II) dated 10.03.2003 which has clearly stated that no addition to income shall be made during the course of search u/s. 132 or survey u/ s. 133A of the Act, without bringing on record any corroborative material evidence in support of the admission made by the assessee. 6.5 Erred in making addition of Rs. 60,00,00,000/- without appreciating the fact that the income admitted at the time of search has been withdrawn as there were no discrepancies or inconsistency found later/ subsequent to the search operation. 6.6 Without prejudice to above, the AO ought to have appreciated the fact that the assessee has offered the income to av....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... parties were made in the earlier assessment years also wherein they are accepted and assessment were completed without any disallowances. Interest bearing funds are utilized for the regular business operations for which the loan is sanctioned. 7.8 Erred in not considering the fact that the interest cost is relating to the funds applied by the assessee for normal business operations for which loan is sanctioned and it may include all the expenditure debited to profit and loss account during the course of business and the same are paid during the year. 7.9 Erred in observing that only the interest bearing funds are utilized only for purchases without appreciating the fact that the assessee has reserves and surplus of Rs. 4,399,661,415/- 7.10 Erred in concluding a major portion of purchase as bogus and disallowing the proportionate interest cost without rejecting the books and results (profit) as admitted in the Return of Income. 7.11 Erred in disallowing the interest by disbelieving certain portion of purchase but taking into account the entire profit which includes profit relatable to so called bogus purchases. 7.12 Erred in disallowing the interest expenditure without apprec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lver point Infratech Limited. 8.2 Erred in not appreciating the fact that the assessee is operating in a infrastructure business of power transmission wherein mobilization advances are common and it has received certain amount as advance from parties which is pending as on 31.03.2014. 8.3 Erred in not appreciating the fact that the sub contract expenditure incurred by the assessee is in its regular course of business activity as a matter of business expediency and has direct nexus with the business. 8.4 Erred in disallowing the interest expenditure without appreciating the fact that the manner the assessee should conduct his business is best left to the J discretion of the assessee and the Assessing Officer cannot sit in the arm chair of the businessman to decide, how the funds should have been utilized. 8.5 Erred in not appreciating the fact that the assessee is having similar kind of sub contract expenditure with the same party in the earlier years wherein the same was allowed. 8.6 Erred in not considering the fact that the assessee has already admitted profit of Rs. 25,37,318/- in respect of transaction with the Silver point Infratech Limited and the same was offered to tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s per procedure laid down u/s 144C(1) of the Act by issuing the notice of demand u/s 156 of the Act & penalty notices u/s 271(1)(c) and 271AAB along with draft assessment order dated 30/12/2016, which tantamount to passing of final assessment order: 1. Vijay Television Pvt. Ltd. Vs. DRP, [2014] 369 ITR 113 (Mad.) 2. Capsugel Healthcare Ltd. Vs. ACIT, ITA No. 1356/Del/2012 3. ACIT Vs. Getrag Hi Tech Gears Pvt. Ltd., ITA No. 823/Chd/2012. 8. Ld. DR, on the other hand, relied on the orders of revenue authorities and further submitted that the case laws relied upon by the assessee are not relevant to the present case. 9. Considered the rival submissions and perused the material on record. The ld. AR submitted that the draft assessment was completed with demand notice u/s 156 and penalty notices u/s 271. By issuing such notices, the assessment order becomes final. Various courts have held that such assessment orders to be null and void ab-initio. We have carefully considered the submission and case laws relied. In all the case laws relied on by the assessee, the common mistake made by the AO in those assessments were that AO passed the final assessment order instead of Draft Assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etting business from AE and the transaction has to be seen on commercial consideration as no motive to evade tax by shifting the income to tax heaven. The working capital advances are provided by the assessee to the AE in view of the overall growth of the company's. The assessee is deriving business from various parties in Singapore and to these parties the AE is also supplying material. In order to achieve overall growth of the company the assessee is giving advances for meeting the regular activity to the AE and the same are being returned during the year itself. In this regard, assessee relied on the Decision of Hon'ble Supreme Court in the case of SA Builders in [2007] 158 Taxman 74 (SC). e. Receipts of advances are more than the amount of advances given:- As can be seen from the ledger extract submitted in paper book, the assessee has received the advances of Rs. 22,98,08,769/- from its AE during the year for which AE has not charged any interest. There is an excess amount of Rs. 2,39,58,269/- received by the assessee and the same is outstanding as on 31.03.2014 for which AE has not charged any interest. Hence, the transaction is within ALP. f. Without prejudice to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ALP adjustment made in respect of advances." 12. The ld. DR, on the other hand, relied on the orders of revenue authorities. 13. Considered the rival submissions and perused the material on record. We observe that assessee has given short term advance to its AE and received back the advance before the end of the financial year. There is no dispute with the transaction and it is acknowledged by the assessee that it has not charged or received any interest on this transaction considering the fact that at the end of the year, assessee owes to its AE to the extent of Rs. 239,58,269/-. On careful perusal of the ledger extract submitted before us, which is placed on record at page 384 of paper book. The summary of the ledger extract is given below: Date Advance given Advance received back Cumulative balance No. of days 19/06/2013 470,88,000 - 470,88,000 - 18/07/2013 298,75,000 - 769,63,000 30 days 30/09/2013 1257,40,000 - 20,27,03,000 43 days 20/11/2013 - 8,83,92,2002 11,43,10,998 51 days 04/12/2013 - 248,39,012 8,94,71,986 14 days 05/12/2013 - 11,65,77,755 (271,05,769) 1 day 03/02/2014 31,47,500 - (239,58,269) 59 days From the above ledger extr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee has not incurred any cost for providing such guarantee. Without prejudice, to the above, he submitted that the AO ought to have applied reasonable rate of corporate guarantee fee percentage, say 0.20%. He relied on the following cases: 1. Bharati Airtel Ltd. Vs. ACIT, ITA No. 5816/Del/2012 2. Aban Offshore Ltd. vs. DCIT, ITA No. 585/Mds/2015 3. Videocon Industries Ltd. Vs. ACIT, ITA No. 6145/Mum/2012/ 55 Taxmann.com 263 4. Manugraph India Ltd., Vs. DCIT, [2016] 69 Taxmann.com 400 (Mum. Trib) 5. Rusabh Diamonds Vs. ACIT, 68 Taxmann.com 141 ( Mum. Trib) 6. Asian Paints Ltd. Vs. ACIT, ITA No. 7801/Mum/2010 7. Lanco Infratech Ltd. Vs. DCIT, ITA No. 450/hyd/2016 8. Aster Pvt. Ltd., Vs. DCIT, ITA No. 220/Hyd/2015. He further, submitted that this issue is covered by the decision of the coordinate bench of this Tribunal in assessee's own case for AY 2013-14 in ITA No. 2186/Hyd/2017 vide order dated 27/04/2018. He submitted that in the above decision, the bench has adjudicated the rate at 0.53%. He prayed that in the Singapore where the AE company is incorporated, the banks are charging interest rate @ 0.15% on bank Guarantee, therefore, the same may be adopted. 15. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t utilized the full financial facility during the year, hence, the quantum cannot be determined in full value of corporate guarantee. We are in agreement with the assessee that corporate guarantee is contingent liability, relevant consequence depends upon future event. However, the quantum of exposure should be on the basis of actual exposure. In this case, it is not clear from the document submitted before us the actual exposure. Therefore, we find it appropriate to remit this issue back to the file of TPO/AO to determine the actual exposure of contingent liability for this AY and apply the rate of 0.53% as per the ratio of Glenmark Pharmaceuticals (supra) on the actual contingent liability. It is needless to say that assessee may be given proper opportunity of being heard. Accordingly, ground raised by the assessee is allowed for statistical purposes." Following the said decision, we remit this issue to the file of TPO/AO to decide the issue in line with the above directions given in AY 2013-14.The assessee made specific reference to the charging rate at Singapore @ 0.15%. We find that the assessee has a point since the Bench Marking is generally based on Bank rates when the ban....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing officer to tax an amount based on suspicion which does not represents the real income of the assessee. * Further, during the ITAT Appellate proceedings for AY 2013-14 in the assessee's own case which is heard in ITA No 2186/H/2017, the Ld. DR has stated that the addition of Rs. 60 Crores was made in respect of discrepancies in finance cost for alleged purchases with group companies. The relevant extract of the above findings is as under: "17.7 Further, ld. DR tried to apply the above decision of Shri Jagdish H. Patel i.e. 8% of total purchases of two A Ys i.e. 2013-14 & 2014-15 which comes to Rs. 58.09 CT01'es. He submitted that against the above, AO has already made the disallowance of Rs. 60 crores in AY 2014-15. We find there is no relevance for this submission in this AY and moreover, AO has not made any disallowance in purchases in A Y 2013-14." Herein, it is submitted that the Hon'ble ITAT Hyderabad, in ITA No 2186/H/2017 have already deleted the addition made in respect of finance cost on alleged purchases from group companies vide Para 17.8. Once the very basis of the addition has been deleted by the Hon'ble ITAT for which the additional income was....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... held by the Hon'ble Bombay High Court in the case of H.M. Keshiparekh & Co. Ltd. (supra) that the principle of real income is not to be so subordinated as to amount virtually to a negation of it when a surrender or concession or rebate in respect of managing agency commission is made, agreed to or given on the ground of commercial expediency, simply because it takes place sometime after the close of accounting year. It was held that in examining any transaction and situation of this nature, the Court would have more regard to the reality and specialty of the situation rather than pure theoretical or doctrinaire aspect of it. 47. A some what similar issue again arose before the Hon'ble Bombay lligh Court in the case of CIT v. Shivsagar Estates (AGP) [1993] 204 ITR 1. In the said case, the assessee had leased a plot on rent and had made certain advances on interest to M under an agreement. M was to construct the Hotel on the said plot which he was unable to do. A fresh agreement, therefore, was entered into between the assessee and M subsequently under which the assessee waived rent and interest and received back the plot. In these facts and circumstances, the doctrine of r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reported in l20161 70 taxmann.com 2 (SC).The Hon'ble High Court has held as under: "12. On both counts, the Tribunal has in a detailed discussion of more than 40 paragraphs found that there is no substance in the objections of the Revenue. If the Revenue is trying to show that the relevant transactions were sham and not real, then it has to bring in satisfactory material. The Tribunal found in paras 37 to 40 of the impugned order that the income which was earlier disclosed was not as such because the Agreements were terminable or could have been cancelled. Once they were cancelled, the properties have reverted back to the assessee. They are duly reflected in the balance sheet and as assets of the assessee. There were revised accounts and which were also scrutinized. They were found to be in order and meeting the accounting practice adopted. Therefore, the accounting policy also could not have been faulted. In para 42 of the impugned order, the Tribunal held that income could not have really accrued because of the fact that these Agreements were cancelled. Then the issue of their cancellation has been gone into, and in extensive details. The correct legal principles were appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 721 of Nadergul village and report the factual position. Accordingly, Sri Y. Prasad visited the lands at Sy.No. 664 & 721 of Nadergul village and submitted his report on 23.09.2011. As per the report of Inspector, the lands in Sy.No.664 & 721 of Nadergul village are agricultural lands wherein is agricultural activity is being carried out even on the date of inspection. Some of the lands in these survey No. are barren lands and a village by name Rangannaguda is situated in this survey no. No trace of any development work was found to have taken by taken place in these survey Nos." 15. Not only that A.O. has summoned the VRO and his statement was extracted in paras 5 and 6 of the order which also indicate that the so-called land sold to M/s. New Cyberabad City Projects Ltd., is in fact owned by various agriculturists and they are conducting agricultural operations and as per VIW records, neither assessee nor M/s. New Cyberabad City Projects l.td., or any of its associates are owners of the lands. AO. also made an attempt to trace the trail of money received by assessee company and the outflows are to various individuals and also to various group concerns. However, except analyzin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....can be seen from the above, the Hon'ble jurisdictional ITAT has held that if the entry in the books of account of the assessee does not arrive at taxable income as per the provisions of Income Tax Act, 1961, then the return income of the assessee is to be accepted. (a) Judgment of Hon'ble Supreme Court in the case of CIT Vs Hind Construction Limited [19721 83 ITR 211 (SC) (b) Judgment of Hon'ble Supreme Court in the case of Sanjeev Woollen Mills Vs CIT [2005] 279 ITR 434 In view of the above, it is requested that the Hon'ble ITAT to kindly consider the same in favour of the assessee and delete the additions made in the assessment order." 17. The Ld. DR, on the other hand relied on the orders of revenue authorities. 18. Considered the rival submissions and perused the material on record. We notice that assessee has declared Rs. 60 crores as additional income subsequent to the search conducted on 13/12/2013. Accordingly, assessee drafted its balance sheet and P&L account by making addition of Rs. 60 crores in the turn over of the company by which the book profit also increased by Rs. 60 crores. As per the book result, the turnover stood at Rs. 1770.38 crores but ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orded. It is submitted that the assessee company had offered to disclose additional income during the course of search assuming that there are certain discrepancies in the books of account of the company. However, on verification of the books, no discrepancies were noticed in the books and therefore, no additional income was offered in the return of income filed for AY 2014-15. However, the assessing officer without appreciating the above facts added the amount of Rs. 60 Crores to the returned income merely on the basis of statement recorded during search proceedings without bringing any corroborative material on record. Fact remains that the books of accounts of the assessee company have been accepted by the assessing officer and also, the AO has made certain addition towards interest disallowance. Further, no incriminating material was found during the course of the search proceedings on basis of which the AO can conclude that there was any undisclosed income. It is submitted that the assessing officer, while making the above addition, has referred to the certain transactions with the following parties namely (i) M/s Adarsh Global Trades & Services Private Limited (ii) M/s T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T for which the additional income was offered, once again addition made on the basis of same discrepancies, which were later found to do not exist; addition so made is not correct and hence it is requested to kindly delete the same. It is submitted that making addition to the income of the assessee relying merely on the statement recorded without there being any corroborative evidence on record is against the basic; provisions of Income Tax Act, 1961. The assessing officer ought to have appreciated the fact that only Real Income can be taxed under Income Tax Act, 1961. The AO during the complete post-search assessment proceedings has not been able to establish any undisclosed investment/ expenditure of the assessee. Being so, making addition by merely basing on statement recorded is not only incorrect but against the law governing Income Tax in India. In this regard, reliance is placed on the following: (i) CBDT Circular in F No 286/2/2003-IT(Inv) dated 10.03.2003 which states as under "Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey oper....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o. 286/2/2003-IT(Inv.), dt. 10/03/2003. At the time of completing assessment, it is the duty of AO to make the addition based on incriminating material found during the search and not confined to rely on the declaration of the assessee. 21.1 In the given case, AO has not brought on record any incriminating material or cogent material in support of the above addition. Merely relying on the declaration given by the MD is not proper, since the same was withdrawn by the assessee subsequently. In this connection, we refer to the decision of the Hon'ble High Court of Telengana and AP in the case of Gajjam Chinna Yellappa Vs. ITO, (ITTA Nos. 268, 273 & 308 of 2003 and others), dated 6th November, 2014 wherein the Hon'ble Court held as under: "11. In 1. T. T. A. No. 112 of 2003 (see CIT v. Naresh Kumar Agarwal [2014] 369 ITR 171/[2015] 53 taxmann.com 306 CAP) this court dealt with the very aspect and held that a retracted statement cannot constitute the sole basis for fastening liability upon the assessee. 12. In the instant case, the appellants specifically pleaded that the statements were recorded from them by applying pressure, till midnight, and that they have been denied access out....
X X X X Extracts X X X X
X X X X Extracts X X X X
....improper vehicles to transport, no physical movements of goods and no VAT details or seal/stamps on the seized invoices. AO came to the conclusion that the transactions entered with all related concerns were sham transactions. 17.1 However, we noticed that AO has not rejected any purchases or made any enquiry to find the fair market value of transactions in line with the provisions of section 40A. Instead of rejecting the turnover, he proceeded to disallow only the associated financial cost. He disallowed the interest cost in proportion to the purchases with related and unrelated parties. 17.2 However, DRP remitted this issue of disallowance of interest back to the AO to recalculate the interest properly and by following cash flow on day to day basis. 17.3 AO recalculated the interest, after DRP's direction, on the basis of calculating no. of days of each purchase transaction and date of year end i.e. 31/03/2013. In our considered view, this is not the proper way of calculating interest on this kind of transaction particularly, after accepting the purchases and sales as proper transaction. DRP has given direction to AO to verify the transaction and calculate the interest on day ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est cost. 17.5 Coming to AO's observation that assessee has diverted funds to other related concerns for making huge investment, we find in the consolidated statement submitted by the assessee that the peak credit outstanding with these concerns are Rs. 24.31 crores on 06/08/2012. In order to find out the diversion of funds, there will be huge outstanding with these concerns for considerable period of time. In this case, these are regular business transactions and there is no such huge outstanding with these concerns. 17.6 Coming to ld. DR's submission, he relied on the case law of Hon'ble Gujarat High Court in ITA No. 410 of 2017 in the case of Sri Jagadish H. Patel, in which, it was found that assessee made bogus purchases to the extent of Rs. 5.66 crores. Accordingly, AO disallowed 100% purchases. However, ld. CIT(A) has reduced to 25% and ITAT at 8%. Whereas in the given case, AO has not disallowed any purchases. Therefore, this case cannot be applied to the case on hand. 17.7 Further, ld. DR tried to apply the above decision of Shri Jagdish H. Patel i.e. 8% of total purchases of two AYs i.e. 2013 & 2014-15 which comes to Rs. 58.09 crores. He submitted that against the above....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is allowed for statistical purposes. 24. As regards ground No. 9 relating to the addition of Rs. 13,23,00,000/- towards loss incurred on 4th quarter, the assessee in its written submissions, stated as under: "It is submitted that the assessing officer has made an addition of Rs. 13.23 Crores to the income of the assessing being the disallowance of loss incurred in 4th quarter i.e., between 01.01.2014 to 31.03.2014. In this regard, it is submitted that the assessing officer has made the above addition merely on the basis of suspicion and surmises. The assessing officer ought to have appreciated the fact that the assessee had filed its return of income for the year under consideration based on the book profits for the complete financial year i.e. FY 2013-14. The assessing officer has accepted the books of account of the entire financial year and has found no discrepancies. However, ignoring the same, the assessing officer has made an addition of Rs. 13.23 Crores to the income of the assessee based on suspicion and surmises. In this regard, it is submitted that the assessee company during FY 2012-13 and FY 2013-14 have under take the transmission work in respect of one tender of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (AP & Telengana) In view of the above, it is requested that the Hon'ble ITAT to kindly consider the same in favour of the assessee and delete the additions made in the assessment order." 25. Ld. DR, on the other hand relied on the orders of revenue authorities. 26. Considered the rival submissions and perused the material on record. We observe that AO called for the IV Quarter results and noticed that assessee has incurred loss to the extent of Rs. 13.23 crores during this quarter. He asked for the explanation to substantiate the loss incurred during this quarter. Assessee could not substantiate the same to the satisfaction of AO and accordingly, he made addition. 26.1 We notice that AO has not found any misstatement or any wrong claim by the assessee in the result submitted by the assessee for the 4th Quarter. AO noticed the loss in the 4th Quarter and asked the assessee to substantiate the loss. This loss is incurred during regular course of business and it is not the case of AO that the loss was incurred due to discrepancies in the result for which he could have applied the rule 'preponderance of probability'. There is no finding by the AO but just because assessee incu....