TaxTMI 
TaxTMI 
2018 (11) TMI 1845
X X X X Extracts X X X X
X X X X Extracts X X X X
....8/- and paid taxes accordingly. In the return 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 cer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ged under section 92 of the Income-tax Act,1961, in the opinion of assessee, determination of Arm's Length Price is not warranted. The transaction 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 expans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ources Pvt Ltd Rs. 22,98,08,769/-, the taxpayer has stated that the advance has been given out of the proceeds of FCCB which were non-interest bearing. Accordingly, as the money was raised 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the meaning of international transaction in terms with section 92B of the Act and he collected the information from SBI by issue of notice u/s 133(6), as per which, loans upto Rs. 5 crores, the bank guarantee 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. 24,71,8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....towards interest of Rs. 28,54,23,451/-. 3.1 When the assessee objected before the DRP, as per the DRP directions, the AO computed the disallowance at Rs. 22,19,36,623/-. 4. As regards interest disallowance on payments to M/s Silver Point Infratech Ltd. - 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat it was "expedient and necessary" to refer the matter to the TPO for computation of the arm's length price, as is required under section 92CA(1) of the Act. 3. Erred in making ALP adjustment of Rs. 2,97,45,397/- towards interest on advances of Rs. 20,58,50,500/- without 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arental obligation to its new subsidiaries and is in nature of shareholder service. 4.6 Erred in not appreciating the fact that the Assessee has not derived any benefit by giving guarantee to its AE. Hence, no ALP adjustment is warranted in this regard. 4.7 Erred in calculating the ALP of the 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 cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncluded in gross receipts and subsequently withdrawn by the director. 6.1 Erred in making addition of Rs. 60,00,00,000/- without issuing any show cause notice proposing such addition. 6.2 Erred in not appreciating the fact that the director has admitted Rs. 60,00,00,000/ as additional undisclosed income due to some misnomer, 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 additio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....echnical study wherein the stock and debtors were considered for granting the funds and it cannot be presumed that the same were utilized for paper transactions. Purchases with the similar parties in the earlier years also. 7.7 Erred in disallowing the interest expenditure without appreciating the fact that the purchases and sales with the above referred 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng that the sub contract expenditure of Rs. 11,03,06,948/- to Silver point Infratech Limited is non-genuine. 8.1 Erred in not appreciating the fact that the assessee has received contract works from various parties and the same is sub contracted to Silver point Infratech Limited. The assessee has received advances from the respective parties and from such advances payments were made to Silver 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 h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ked the ld. AR to specify the grounds of appeal, which are contested, reason being there are so many sub-grounds. Ld. AR submitted that he will press only the main grounds and press the argument placed before the Bench. The bench will adjudicate only the main grounds of appeal and not its sub-grounds. 7. As regards ground No. 1, the ld. AR of the assessee submitted that the AO erred in not issuing draft assessment order as 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 wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Payment Amount in USD Amount in INR Purpose 19.06.2013 8,00,000 4,70,88,000 Used for LC payment 18.07.2013 500000 2,98,75,000 Usedas margin money for opening LC 30.09.2013 20,00,000 12,57,40,000 Used as deposit with Coal mine d. Advances are given on account of business and commercial expediency: Advances were given on account of business and commercial expediency which results in overall growth of the company. The assessee is getting 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). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed @ 14.45% which has no basis. The ALP of the transaction should be determined in accordance with the provisions of section 92C of the Act relating to Computation of Arms Length Price. The method should be decided as per the appropriateness of the transaction. It cannot be selected arbitrarily/randomly. The rate of 14.45% has no relevance and is adopted by following cherry picking approach which is against the provisions of the Act. In view of the above submissions, it is requested to kindly delete the 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 pag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....does not fall within the scope of international transaction u/s 92B. He submitted that the corporate guarantee is provided to AE for commercial, business expediency and promoter obligation. Also, It is different from the bank guarantee. Further, he submitted that TPO has adopted the rate of SBI, whereas the assessee has extended the bank guarantee to the foreign AE. Therefore, he should have adopted rates available in the international market. He also submitted that TPO should have charged the rate on the actual loan, availed by the AE, not on the corporate guarantee extended by the assessee and the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee cannot be equated with a bank guarantee provided by third party banks. Therefore, the rate charged by banks cannot be applied to determine the 'ALP' for the guarantee provided by the assessee. The coordinate bench in the case of Four Soft (supra) referred to the decision of Mumbai ITAT in the case of Glenmark Pharmaceuticals, 43 Taxmann.com 141 (Mum. Trib.) wherein distinction was made between bank guarantee and corporate guarantee and 0.53% was held to be appropriate 'ALP' for guarantee commission. 14.2 Further, ld. AR submitted that the assessee has extended the corporate guarantee to the AE whereas AE has not 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 liabi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e offered during the search proceedings which is later withdrawn as no discrepancies were noticed in the books of account of the company. This fact was available before the assessing officer. However, the assessing officer, ignoring the facts available on record, went on to add the amount observing that the assessee company is not able to substantiate the claim of deduction. * Fact remains that the amount of Rs. 60 Crores is only towards alleged estimation of bogus transactions and does not represent the real income of the assessee. Once the additional income offered is withdrawn, the provisions of income tax act do not empower the assessing 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 tot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the assessee firm to the managed companies. The reduction was a part of the agreement entered into by the assessee firm to secure a long-term managing agency arrangement for the two companies which it had floated." (b) Order of Mumbai ITAT in the case of Lok Housing & Construction Limited vs ACIT reported in [2012] 27 taxmann.com 15(Mum) wherein the Hon'ble ITAT has held as under: "46. In the case of HM. Keshiparekh & Co. Ltd. (supra), the concept of real income was expounded by the Hon 'ble Bombay High Court which has been approved by the Hon'ble Supreme Court in the case of Poona Electric Supply Co. Ltd. v. CIT [1965]57 ITR 521. It was 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ected by the assessee by filing the revised return and the AO as well as the learned CIT(Appeals), in our opinion, was not justified in bringing to tax such hypothetical income in the hands of the assessee company on the basis of original return of income ignoring the revised return filed by the assessee. We, therefore, decide this issue in favour of the assessee on merit and delete the addition made by the 110 and confirmed by the learned CIT(Appeals) on this issue." (c) Order of Bombay High Court in the case of CIT Vs Lok Housing & Constructions Limited reported in [2015] 58 taxmann.com 179 (Bombay) which has later been upheld by Hon'ble Supreme Court 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 te....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... offered incomes, subsequently with revising accounts treated them as a liability in the books of accounts. Be that as it may, there are enquires made by A.O. about the transactions and AO has the following findings. "In view of the statement of Sri Prasad V. Potluri, Director of NCCPL, that no development activities were carried on by the assessee company and the fact that no evidence in the form of bills/vouchers were found at the business premises of the assessee at the time of survey, it was felt necessary to cause inquiries at field level to ascertain the truth. Accordingly, Sri Y. Prasad, Inspector of Income Tax was directed to visit the lands at Survey No.664 and 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said company which are found to be not correct. Therefore, A.D. is directed to enquire about these aspects and arrive at the correct position of incomes as per law and facts of the case. However, in case, no escaped incomes are to be considered, A.D. is directed to accept the income returned, as reassessment proceedings are only for the benefit of Revenue. Keeping the principles laid down by Hon'ble Supreme Court(supra), we direct the AD. to accept the income returned in case further enquiries reveal that these transactions does not give rise to any concealed income. With these observations, assessee's grounds are partly allowed for statistical purposes." * As 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, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elating to addition of Rs. 60,00,00,000/- on the basis of statement recorded at the time of search, the assessee stated in its written submission as under: "The assessing officer has made an addition of Rs. 60,00,00,000/ - to the income of the assessee stating that the MD of the assessee company has admitted income of Rs. 60,00,00,0000/- on the day of search in a statement dated 13.12.2013 recorded u/s 132(4) of the IT Act. In this regard, it is submitted that the AO 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. 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 retu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove 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 AY s i.e. 2013 & 2014-15 which comes to Rs. 58.09 crores. He submitted that against the above, AO has already made the disallowance of Rs. 60 crores in A Y 2014-15. It is submitted that 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." 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 IT AT 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 ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ddition of Rs. 60 crores basing completely on the confession statement given by the MD of the assessee company. Apart from the above statement, there is no other evidence brought on record by the AO. AO found lot of materials during search relating to the discrepancies in the commercial transactions of the assessee. The same was investigated and made addition. AO has not brought on record any disputed transactions to substantiate or to support the additional income. It is fact that assessee makes certain declarations and subsequently the same were withdrawn once the search proceedings are over. The AO has to keep the evidence or cogent material to the extent of additional income declared by the assessee. The same view was given in CBDT Circular No. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,19,36,623/-, the ld. AR of the assessee submitted that similar issue was decided by the coordinate bench of this Tribunal in assessee's own case for AY 2013-14 (supra), wherein the coordinate bench held as under: "17. Considered the rival submissions and perused the material on record. During the course of assessment proceedings, the AO noticed that the assessee is making major purchases from related concerns and sells mostly to concerns namely, M/s Adarsh Global Traders Pvt. Ltd., M/s Resource Metals & Minerals Traders Pvt. Ltd., M/s United Mineral Resource P. Ltd., M/s SB Metals P. Ltd. and M/s Vedika Steels P. Ltd. AO has verified few transactions entered with these concerns and found certain discrepancies like non-existence of LR or way bills, uses of 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad purchased at Rs. 377.64 crores and sold at Rs. 379.98 crores with the margin of Rs. 2.34 crores. (refer page 52 of paper book I). At the same time, assessee has also submitted the interest calculation on the basis of outstanding running balance of all the suppliers. (refer page 56 of paper book I), as per which, the financial costs are (-) 1.34 crores. We cannot accept the above calculation as the interest should be calculated on outstanding of each supplier not on the basis of consolidated outstanding. In our view, the assessee has made margin of 2.34 crores in this transaction and it is enough to cover the interest cost on these transactions. Even otherwise, as explained earlier, when AO accepted the turnover without disallowing any purchases, he cannot disallow only interest 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on was not submitted before the AO and DRP, but, ld. AR claims that these were submitted before DRP. Since these payments were not verified by the tax authorities, we find it appropriate to remit this issue back to AO to verify the claim of the assessee and if it is found that these are back to back payments, received from main contractor and paid to sub-contractor M/s Silver Point Infratech Ltd., the addition made on interest may be deleted. It is needless to say that assessee may be given proper opportunity of being heard. Therefore, ground raised by the assessee is allowed for statistical purposes." As the issue is similar in this AY, following the decision in AY 2013-14, we remit this back to the file of AO to decide the issue in line with the directions given in AY 2013-14. This ground 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., betw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessing officer grossly erred in making an addition to the business income of the assessee which is not debited in books of account of the assessee company. It is submitted that the assessing officer has been grossly unjustified in making an addition of Rs. 13.23 Crores to the income of the assessee. On one hand, the assessing officer has accepted the books of account of the assessee company and accepted the returned profit, on the other hand, the assessing officer has made addition of Rs. 13.23 Crores on the basis of suspicion and surmises. The action of the assessing officer is not only self-contradictory but also against the provisions of Income Tax Act, 1961. In this regard, reliance is placed on the judgement of (a) CIT Vs Pact Securities & Financial Services Limited [2015] 61 taxmann.com 192 (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....