TaxTMI 
TaxTMI 
2021 (10) TMI 86
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....t the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the addition of Rs. 1,55,38,830/- made by Ld. AO on account of capital gain and Rs. 39,96,76,340/- as business income in terms of section 45(2) and section 28 respectively, more so when the stock was not sold in the year under appeal as per the case of Ld. AO himself. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in not deleting the addition of Rs. 1,55,38,830/- made by Ld. AO on account of capital gain and Rs. 39,96,76,340/- as business income in terms of section 45(2) and section 28, is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 7,28,980/- allegedly on account of bogus expenses claimed with respect to M/s Sai Export, more so when no incriminating material has been found as a result of search and impugned additio....
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....Rs. 26,48,09,191/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s Super Connection, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 12. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs. 26,48,09,191/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s Super Connection, is bad in law and against the facts and circumstances of the case. 13. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 1,85,11,715/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from various concerns, more so when no incriminating material has been found as a result of search and impugned addition has been made by reco....
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.... the services rendered by the proprietary concern M/s Palwal Enterprises (Prop. Smt. Hema Sharma) is on the assessee company. iii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that at the time of search no evidence was found to prove that the expenses incurred in respect of fabrication job alleged to be undertaken by M/s Palwal Enterprises. iv) Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the disallowance of product development /sampling expenses Rs. 13,73,86,146/- made by the AO by ignoring the decision of the Hon'ble Supreme court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT 225 ITR 802. v) Whether section 14A(1) of the Income Tax Act, 1961 would stand attracted even if the tax-exempt income is not actually earned during a particular year subject to expenditure relatable to such income having been incurred during the year. vi) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in deleting the addition on account of section 14A without appreciating that while noticing the ....
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....ich lay down that total income under the Act would include income from all sources whether "received", "deemed to be received", "accrued" or "deemed to accrue". xi) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 2. We shall now proceed to dispose of the appeals as under: 3. Assessee has filed paper book in 4 Volumes having Pages 1 to 1734, which were referred by Ld. AR extensively during the course of hearing of the above appeals. Brief synopsis has also been filed by Ld. Counsel for the assessee in both the appeals running into 8 pages, which is also held on record and has also been considered by us. 4. The case of the assessee represented by Dr. Rakesh Gupta and that of revenue represented by Ms. Parmita Biswas. Arguments were extensively heard on all the grounds involved. Since both appeals are the cross appeals and therefore, we take both the appeals for disposal by taking the assessee's appeal first. 5. Ground of appeal no. 1 & 2 These grounds were relating to assumption of jurisdiction under section 153A but these grounds of appeal were not pressed by Ld. Counsel as per the brief synopsis filed and hence ....
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....firmed. 9. We have considered the submissions made on behalf of the appellant and Revenue and we have taken into account the orders passed by the lower authorities. We have read and referred the pages of the paper book as contained in this regard. 10. It would be appropriate at this stage to reproduce the written submissions filed before the first appellate authority for and on behalf of the appellant-assessee: 11. Ld. AO has made the addition of Rs. 1,55,38,830/- vide discussion made in para-7 at pages 45-61 of the assessment order on the ground that assessee has converted its capital asset into stock in trade and therefore, as per the provisions of section 45(2) of the Income Tax Act,1961, capital asset will be deemed to have been transferred on the date of conversion and liability to capital gain tax will arise in the year in which the stock in trade is sold. 12. According to Ld. AO, the incidence of tax as capital gain in terms of section 45(2) arose in this year and therefore according to him, there was long term capital gain on conversion of capital asset into stock in trade, which was brought to tax by Ld. AO in the year under appeal. 13. Associated with this ....
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....96. 16. It can be seen that capital asset so converted is deemed to be transferred at the time of conversion and its fair market value at the time of conversion is deemed to be the sale consideration for the purpose of determining the capital gain. But this has further been provided in this section itself that the liability to capital gain tax is deferred till the year in which the stock is sold. Similarly, business profits can be taxed in the year in which sale of stock takes place. 17. Your good self would also kindly see from the entire discussion made by Ld. AO in the impugned assessment order that stock in trade was admittedly not sold in the year under appeal. Therefore, as per the plain provision of section 45(2), there would not be any liability to tax either in respect of capital gain or in respect of business income. This is evident from the fact that Ld. AO has mentioned in para 7.6 and 7.7 at pages 61 of the assessment order that assessee is holding FSI of 98106 sq. ft. in the form of stock. It is thus even not the case of Ld. AO that the stock has been sold in the year under appeal. 18. It is also a matter of record that assessee has sold the partially stocks ....
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....assessee's company income is recognized in the year in which property is being sold by the company as per provision of section 45(2) of the Income Tax Act, 1961. The assessee company converted the land in question from capital asset to business asset in A.Y. 2008-09. As per provision of section 45(2) capital gain tax up to the date of conversion and further business profits if any generated on sale of the asset is required to be shown in the computation of tax in the year in which asset is sold and accordingly tax liability channelized in that year. During assessment year 2014-15 and 2015-16 no part of commercial units have been sold by the assessee company, therefore no income has been recognized during these years...." 23. Question to be addressed here is that when the conversion of capital asset into stock in trade has been accepted in the assessment order, can the long term capital gain and business profits arising from such converted capital asset into stock in trade be taxed in the year of completion of the project disregarding the year of taxability as per plain provision of law as contained in this regard including section 45(2) of the Income Tax Act. We have considered ....
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....etion certificate of the project from the Appropriate Authority as on 8.5.2013 does not ipso facto give rise to any business income. We have also read/seen& considered the objections raised by the first appellate authority which in our considered opinion are more or less on the same lines as adopted by the assessing officer. We do not concur with such observations and findings recorded by the first appellate authority and we thus hold that the addition of Rs. 1,55,38830/- as long term capital gain and Rs. 39,96,76,340/- made in the assessment order and confirmed by the first appellate authority do not stand to the test of law and are not justified on the facts and circumstances of the case and hence we delete the above said both the additions and allow the grounds of appeal of the assessee. 24. Ground no. 5 & 6 are in respect of addition of Rs. 7,28,980/- made by the A.O. and confirmed by CIT(A) and are in respect of the expenses claimed to be incurred by the assessee company on account of job work done by M/s Sai Exports. Assessing Officer at page 28-36 of his order held such expense as bogus which was upheld by CIT(A) vide discussion made at page 98-105. 25. It was submitte....
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....der Kumar Garg and the assessee company with the same. 27. Arguments were made by Ld. Counsel on the basis of evidences referred at page 1709-1716 of the paper book. It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the job worker M/s Sai Export has raised invoice and payment have been made through account payee cheques and tax having been deducted at source and documents at page 507-514, 565-1463 the paper book establish the existence of the job worker and the job work carried out by M/s Sai Exports. We have also seen the statement of Mr. Mohinder Kumar Garg and Sh. Rajiv Poddar placed enclosed in the paper book, which also establish the job work done by M/s Sai Export. We have also referred to sample copy of muster roll of the all the employees, (PB 775-843) employed by the job worker for two months for all the years involved and so have we seen salary sheet (PB 844-1236) for two months on sample basis, on account of payment of wages. Similarly pages 1257-1310 is the sample copy of bonus register showing actual payment proof of bonus to the employees of job workers and paper book page 1311-1318is the sample copy of Leave regist....
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....CIT(A) and are in respect of the expenses claimed to be incurred by the assessee company on account of job work done by M/s Shri Ram Exports. Assessing Officer at page 36-39 of his order held such expense as bogus which was upheld by CIT(A) vide discussion made at page 105-110. 30. It was submitted by the Ld. Counsel with the help of various evidences referred at page 1716-1721of the paper book& It was argued that M/s Shri Ram Exports was one of the job workers engaged by the assessee for doing various job work such as bundling, cutting, stitching, thread cutting, finishing etc., which are integral part of the garments manufacturing and further submitted that these job work activities are such without which it was not possible to manufacture the garments and therefore export sales could not be possible. On the other hand, LdCIT(DR) relied upon the findings recorded in the assessment and first appeal order. 31. We have considered the entire material before us including the paper books, orders of the lower authorities, synopsis filed before us, written submissions filed before CIT(A) which is part of the paper book. It is seen by us that page 36-39 of the assessment order does ....
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....r book, which also establish the job work done by M/s Shri Ram Export. We have also referred to the copies of the relevant documents filed before the lower authorities from the Worker's personal Files (PB 588-774) such as Adhar Card, Application form, appointment letter, joining report, ESI Card, Family photos, PF Form -11,16 & 2 as per PF rules, ID proof, Medical test report etc. and sample copy of muster roll of the all the employees(PB 775-843) , employed by the job worker for two months for all the years involved and so also we have seen salary sheet for two months on sample basis(844-1236), on account of payment of wages and actuarial certificate. Similarly pages 1257-1310of the paper book is the sample copy of bonus register showing actual payment proof of bonus to the employees of job workers and paper book page 1311-1318is the sample copy of Leave register of the employee of the job workers. Similarly paper book page 1319-1330 is the copy of month wise PF and ESI deduction and deposit and sample copy of two months challan of each year along with ledger account of PF, other evidences of the paper book at pages 507-514, 482-484, 565-587, 461-481, 1331- 1343, 1344-1374, 1375-1....
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.... Ld. Counsel for the assessee first of all argued that there was no incriminating material found as a result of search in respect of impugned disallowance. Further, it was submitted by the Ld. Counsel with the help of various evidences referred at page 1692- 1699of the paper book& it was argued that appellant is into the business of garments manufacturing in which fabric is the main raw material and input. The appellant has purchased fabric from the above said firm during the year under appeal, which is evident from the chart enclosed in the paper book (PB 173(i) to 173(ii).Ld. CIT(DR) relied upon the findings contained in the assessment and first appellate order. 37. It is seen that page 2-18 of the assessment order does not refer any incriminating material found as a result of search in respect of purchase of fabric made by the appellant from M/s Jindal Fashion and M/s Akansha Fashion. Only evidence which have been referred in the assessment order was that ledger account of appellant in the books of the above said concern, i.e. M/s Jindal Fashion, M/s Akansha Fashion from whom the purchases were made, show that bills raised to the appellant by the said concern had mostly conse....
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....of the fabric were made by the assessee. Without purchases of the fabric, the business of the assessee involving such large export would not have been possible. Both the suppliers are unrelated parties and assessed to income tax. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1696-1699 and reproduced above and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Jindal Fashion and M/s Akansha Fashion. We do not want to burden our order by repeating the whole hosts of documentary evidences filed in this case which esta....
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....rder and in the order passed by CIT(A). 43. We have considered the entire material including the orders passed by the lower authorities. We have taken ourselves to the pages of the synopsis and paper book filed. We have considered the rival submissions. It is seen that the assessment order does not refer any incriminating material found as a result of search in respect of purchase of fabric made by the appellant from M/s Super Connection India P. Ltd. & other companies. Only evidence which have been referred in the assessment order was that statements of the directors namely Sh. Akshay Dhanda and Sh. Ajay Nagpal were recorded on 22.06.2015, which show that they did not have knowledge of the affairs of the company and that Sh. Sudhir Dhingra, director of the appellant company has provided personal guarantee for the loan raised by M/s SCIPL from Kotak Mahindra bank and also regarding Sh. Akshay Dhanda and Sh. Ajay Nagpal on the basis of their statements and further that bulk of purchases were made by M/s SCIPL from the entities controlled by Sh. Sanjay Jindal and since amount remitted were withdrawn in cash it shows that ultimate beneficiary was the appellant company and entities ....
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....84-1902which are already enclosed in the paper book for A.Y. 2013-14), which would show that the payments have been made to said entities through banking channel. It is further important to submit that sale made by the said entities to the assessee company has been accepted in the assessment of said companies. Copy of assessment order of said six entities are enclosed in the paper book at PB 1491-1617 together with copy of acknowledgment of return, computation of income, audited balance sheet, profit & loss account together with all annexure are also enclosed at PB 200-227 & 228-299. PB 179-199 is the copy of acknowledgment of return, computation of income, audited balance sheet, profit & loss account and tax audit report for A.Y. 2013-14 of M/s Super Connection India P Ltd. in support of this fact. 47. It was also submitted that a detailed submissions vide letters dated 11.12.2017 (PB 174-176), 12.12.2017 (PB 177-178) was made during the course of assessment proceeding a copy of which is enclosed in the paper book and which has been reproduced in the assessment order also, in which and along with which detailed justification was made with the help of several annexure that expor....
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....rchases made by the assessee from M/s, Fashionable Attire P Ltd, M/s Fashionara Apparel P Ltd, M/s Modernistic Attire P Ltd, M/s Starline clothing P Ltd, M/s Trendy Attire P Ltd & M/s Super Connection India P. Ltd were the genuine purchases and the addition made may therefore please be deleted. Adverse observations made by Ld. A.O. are met as under:- 1. Ld. AO has mentioned at pages 5.1.2 of the assessment order that the bank account of the supplier M/s Trendy Attire P. Ltd. revealed that it transferred payments on the same day of receipt and according to Ld. A.O. the said supplier as entry providing company to the appellant. In reply, it was submitted that in so far as the appellant is concerned since purchases were made by the appellant from M/s Trendy Attire P. Ltd., the payments were made against the purchases and if the said concern in turn made payments on the same day, how can that be held against the assessee. Therefore, to find this usual business phenomenon as something which is adverse to the appellant is beyond comprehension and therefore this observation of Ld. AO may please be ignored and rejected. 2. Ld. A.O. has mentioned in para 5.1.3 to ....
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....at statements of the directors namely Sh. AkshayDhanda and Sh. Ajay Nagpal were recorded on 22.06.2015, which show that they did not have knowledge of the affairs of the company. In reply, it was submitted that assessee was not made aware at any point of time during assessment proceeding that any statement of these two persons were recorded nor the copies of such statements were supplied to the assessee. So much so copies of such statements have not been made part of the assessment order even though it has been mentioned that they are enclosed as Annexure B and Annexure C at PB 1903, 1906-1907 (which is already enclosed in the paper book for A.Y. 2013-14 in assessee's own case).Therefore such statements have to be excluded from consideration in view of Hon'ble Supreme Court decision in the case of Kishnichand Chellaram vs. CIT 125 ITR 713. Moreover, no opportunity of cross examination has been allowed to the asseseee for that reason also such settlements have to be excluded from consideration. It has also come to the notice of the appellant that such statements were recorded at the back of the assessee and by calling these persons in the income tax department and therefore....
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....id through banking channel and more so when the sales made by M/s SCIPL have been accepted by income tax department itself in the assessment of SCIPL, it is submitted above. 7. Ld. A.O. has mentioned in para 5.6.3,6.4, 6.5, of the assessment order that bulk of purchases were made by M/s SCIPL from the entities controlled by Sh. Sanjay Jindal and since amount remitted were withdrawn in cash it shows that ultimate beneficiary was the appellant company and entities controlled by Sh. Sanjay Jindal were mere entry providers. In reply, it was submitted that these observations of Ld. A.O. are mere surmises and conjectures and there is no cause and effect relationship. If purchases have been made from various entities of Sh. Sanjay Jindal how could that fact alone be taken as the basis to hold that purchases made by the appellant from such entities of Sh. Sanjay Jindal are not genuine. Similarly, if the payment made by these entities from M/s Akansha Fashion and M/s Jindal Fashion are withdrawn in cash by the supplier, how could it establish that beneficiary was none other than the appellant and the suppliers were entry providers. In fact entire case made out by Ld. A.O. ....
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....in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1702-1708 reproduced also above by us and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conc....
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....) to (iii) are in connection with the addition of Rs. 11,93,649/- made by the AO in respect of job work done through M/s Palwal Enterprises which was deleted by CIT(A). 57. AO has discussed this issue at page 39-44 of the assessment order whereas CIT(A) has discussed this issue at page 110-113 of the appeal order. 58. Ld. CIT(DR) relied upon the finding recorded in the assessment order and Ld. Counsel for the assessee relied upon the findings recorded by CIT(A) and has also relied upon the submissions made before CIT(A) placed at page 1721- 1726 of the paper book. 59. We have considered the entire material before us including the paper book, synopsis, and orders passed by the lower authorities. It is seen that the job work charges incurred in relation to this job worker was being allowed in the assessment order passed under section 143(3) for AY 2012-13. Job worker is assessed to tax also. We have taken ourselves to the written submissions filed by the assessee before CIT(A) and we do not find any error in the order of CIT(A) on this score in view of these submissions and paper book pages referred therein. Thus, we dismiss the ground of appeal no. (i) to (iii) of the reven....