TaxTMI 
TaxTMI 
2021 (10) TMI 154
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncurred for the services rendered by the proprietary concern M/s Aam Bee Clothing (Prop. Smt. He ma Sharma)is on the assessee company. (iii) Whether on the facts and circumstances of the case, the Ld. CIT(A) 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 AamBee Clothing. (iv) Whether on the facts and circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs. 25,58,77,724/- made by the AO on account of deficit on settlement of forward contracts (Net) which is a speculation loss under the provisions of section 43(5) of the Income Tax Act, 1961 without appreciating the facts of the case. (v) Whether on the facts and circumstances of the case, the Ld. CIT (A) has erred in deleting the disallowance of product development expenses Rs. 11,63,14,122/- made by the AO by ignoring the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT 225 ITR 802. (vi) Whether section 14A(1) of the Income Tax Act, 1961 would stand attracted even if the tax-exempt income i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owance of expenditure incurred which is relatable to tax-exempt income even though no tax-exempt income under the Act has been earned during a particular year. (xi) Whether the CBDT Circular No 5 of 2014 is illegal and not in consonance with legislative intent behind Section 14A and the charging sections 4 and 5 of the Income Tax Act 1961 which 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 ". (xii) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. Assessee's Grounds of Appeal:- "1. 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 assuming jurisdiction u/s 153A and further erred in passing the impugned assessment order. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in assuming jurisdiction and framing the impugned assessment order u/s 153A, is bad in law and against the facts and circumstances of the case and the same is not sustainable on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and against the facts and circumstances of the case. 10. 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. 10,18,44,865/- allegedly on account of bogus purchases from M/s Akansha Fashion and M/s Jindal Fashion, 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. 11. 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. 10,18,44,865/- allegedly on account of bogus purchases from M/s Akansha Fashion and M/s Jindal Fashion, is bad in law and against the facts and circumstances of the case. 12. 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. 17,87,17,045/- allegedly as unexplained transactions recorded in seized document on account o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is also held on record and has also been considered by us. 3. 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. 4. Ld. Counsel for the assessee argued Ground No. 1, 2 and 15 and argued that the assessment order was passed u/s 153A even though there was no incriminating material found during the course of search for the impugned assessment year. This argument of the assessee was raised before Commissioner of Income Tax (Appeal) also but Commissioner of Income Tax (Appeal) did not agree with this argument and the relevant findings of Commissioner of Income Tax (Appeal), is at page-57 of the Appeal order dated 30.03.2019. Before us, Ld. Counsel for the assessee relied upon his submission filed before Commissioner of Income Tax (Appeal) which is at page 2958 to 2959. 5. Ld. CIT DR relied upon the findings recorded by Commissioner of Income Tax (Appeal) and also relied upon the assessment order. 6. We have considered the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appellate authority however held that the loss in question is not speculative loss. Since Commissioner of Income Tax (Appeal) allowed the part relief to the assessee, both i.e. the assessee and revenue are in appeal before us. 9. During the course of hearing, the assessee relied upon his submissions made at page 2292 to 2995, 3001 to 3045 and 3046 to 3089 of the paper book and the submissions made thereunder. On the other hand, CIT DR relied upon the assessment order passed by the Assessing Officer and relied upon CIT(A) Order in so far as disallowance was confirmed by CIT(A). As to the relief of Rs. 25,58,77,724/- allowed by CIT(A), CIT DR argued that the relief allowed by CIT(A) was not correct, as the loss cannot be said to be business loss and loss cannot be said to be the loss of the present year involved in the appeal. 10. We have heard the rival submissions and have gone through the assessment order and CIT(A)'s order. We have taken into account the arguments advanced on both the sides and have referred to the paper book filed by the assessee. As to the incriminating material found as a result of search, it is seen that foreign currency derivative contracts documents w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s when the currencies in question namely JPY (Japanese Yen) and CHF (Swiss Francs) had started appreciating against the USD and there was panic in the market, the contract was restructured in the month of January 2008 and March 2008 incorporating the following conditions:- a) Delinked the movement of currency namely JPY and CHF. The payout was restricted to USD 4,69,000 per month and funding of the same on the appointed date of every month. b) 60 months period of the contract, to commence from 23.01.2008. c) The cap on Points reduced from 80 to 78 (balance 5.99 big figures is to be achieved) on achieving which, all money paid by the company will be refunded back to the company. 12. It was submitted by Ld. Counsel that the assessee company had accounted for the aforesaid payouts as "Advance" in the books of account and as on 22nd January 2013 the amount appearing as at Rs. 140 crore odd amounts. In the Financial year 2012-13 the entire amount was charged to the profit and loss account. During the financial year 2012-13 the entire amount was charged to the Profit and Loss account as business loss since the period as per the agreement has expired in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... repayment of such working capital loans. Thus, the loss incurred by the assessee company were in respect of the forward contracts entered into by the assessee company during the course of carrying on its business and thus these are the normal business losses of the assessee company. These were hedging against the exposure to foreign exchange risk present in the underlying business contracts. Learned first appellate authority also has discussed this issue at great length in its order of appeal and has held that such loss is in the nature of business loss and is not speculation loss. He has relied upon the order passed by his predecessor in assessee's own case in earlier years viz. AY 2010-11 to 2012-13 and extensively extracted from such order of AY 2011- 12 passed by his predecessor. It has not been shown to us as to why such loss is not normal business loss in the facts and circumstances of the present case when assessee is exporter of ready-made garments and home furnishings, imports from outside India and has raised foreign currency loans and is exposed to foreign currency exchange fluctuations. Hedging contracts entered into are not considered speculation and specific exclusio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal Box Co of India Ltd. vs. Their workmen 73 ITR 53 (SC) which lay down the guiding principles as to when a loss can be said to have been incurred. Thus, even on this score the loss which is the subject matter of appeal before us is the loss which is allowable in the previous year relevant to AY 2013-14. 15. Thus on the totality of the facts and circumstances of the case, we hold that the addition made by the assessing officer aggregating to Rs. 140,86,93,664/- and involved in assessee's appeal and appeal of the revenue is decided in favor of the assessee. Grounds of appeal of the assessee's appeal numbering 3 to 5 are allowed and ground of appeal number (iv) of Revenue's appeal is dismissed. 16. Ground No.6 and 7 of the assessee's appeal are in respect of addition of Rs. 1,29,01,751/- 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 5-13 of his order held such expense as bogus which was upheld by CIT(A) vide discussion made at page 58-64. 17. Ld. Counsel for the assessee first of all argued that there was no incriminatin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se of survey proceedings Sh. Rajiv Kumar Poddar was unable to provide any details regarding work done by M/s Sai Exports for the assessee and he was also unable to produce any copy of vouchers, challans and goods sent for job work for M/s Sai Exports. During the course of survey, statement of Sh. Pawan Arya of M/s Orient Craft Ltd. was also recorded on oath in which he stated that M/s Sai Export used to do some job work for M/s Orient Craft Ltd. but he was unable to furnish any particular detail and he was even unable to name of the owner and address of M/s Sai Export and further that auditor of Sh. Mohinder Kumar Garg and the assessee company with the same. 19. In our considered view that from the findings recorded in the assessment order even if they are taken as correct though it has been contested by the assessee, it can be said that there is no incriminating material found as a result of search in respect of job work carried out by M/s Sai Export. We have gone through the statement of Mr. Mohinder Kumar Garg and we do not find anything adverse even in the statement of Sh. Mohinder Kumar Garg proprietor of M/s. Sai Exports. Even otherwise, the statement cannot be regard....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut by the said job worker, quantitative reconciliation and direct correlation of the job work charges paid with the production/ sales. Copies of invoices raised by the job worker were also filed on specimen basis (PB 858-865). The payments were made through account payee cheques as is evident from the copy of account of the job worker place at (PB 866-878) and copies of bank books were also filed (PB 879-892), tax was deducted at source and TDS accounts were filed PB 893-900 & 901 Voluminous documents proving the existence and job work carried out by M/s Sai Exports were filed by the assessee along with its reply dated 01.12.2017 filed to Ld. A.O. (PB 598-907). 22. In fact following pleadings and documentary evidences were filed to Ld. A.O. during the course of assessment proceeding, which establish the genuineness of the M/s Sai Exports and job work carried out by the said firm for the appellant company. PB 157-179, 606-634 is the Copy of income tax return, computation of income, Audited Balance sheet, Profit & Loss account and Tax audit report for A.Y. 2013-14 of the job worker M/s Sai Exports. PB 234-255 are the copies of statements of Mr. Mohinder Kuma....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of appellant to show that payment has been made through account payee cheque for fabrication charges paid to the said job worker. PB 1307-1337 is the Copy of income tax return, computation of income, Audited Balance sheet, Profit & Loss account and Tax audit report for A.Y. 2012-13 of the job worker M/s Sai Exports, which are already enclosed in the paper book for A.Y. 2012-13 in assessee's own case. PB 4730-4755 is the Copy of income tax return, computation of income, Audited Balance sheet, Profit & Loss account and Tax audit report for A.Y. 2011-12 of the job worker M/s Sai Exports,which are already enclosed in the paper book for A.Y. 2011-12 in assessee's own case. PB 4756-4757 is the copy acknowledgment of return and computation of income for A.Y. 2010-11 of the job worker M/s Sai Export,which is already enclosed in the paper book for A.Y. 2011- 12 in assessee's own case. 23. Ld. Counsel thus submitted that above evidences clearly speak for the genuineness of the charges incurred by the appellant company to the job worker involved and therefore, it is prayed that the disallowance made by Ld. A.O. by treating such job work charges as not genuine ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded any details regarding the work done by M/s Sai Exports or could have produced vouchers etc. of M/s Sai Exports. Fact of the matter was that during the course of assessment proceedings such voluminous evidences were furnished to Ld. A.O. as explained above which establishes the fact of the job work being carried out by M/s Sai Exports for the appellant company. 4. Ld. A.O. has mentioned that in his statement recorded during the course of survey Sh. PawanArya AVP, Production of the appellant company could not furnish any particular details of the job work done by M/s Sai Exports nor could he tell the name of the owner or address of M/s Sai Exports. In reply, it was submitted that for a person of the stature of vice president, it is not possible to know the name & address of all job workers. It is not clear even from the observation of Ld. A.O. as to which particular detail could not be explained by Mr. PawanArya. According to Ld. A.O. himself, Mr. PawanArya mentioned that he knew Sh. Mohinder Kumar Garg as production head. It is relevant to submit at this stage that Mr. Mohinder Kumar Garg on the date of survey i.e. 29.04.2015 was also working as production....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has raised invoice and payment have been made through account payee cheques and tax having beendeducted at source and documents at page 598 to 907 of 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 at page234 to 255 of 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, employed by the job worker for two months for all the years involved and so have we seen salary sheet for two months on sample basis, on account of payment of wages. Similarly pages 741 to 771 is the sample copy of bonus register showing actual payment proof of bonus to the employees of job workers and paper book page 772 to 777 is the sample copy of Leave register of the employee of the job workers. Similarly paper book page 778 to 795 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 800 to 807,826-845, 846-857, 858-865, 866- 892, 893-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T(A) vide discussion made at page 64-69. 29. 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 and therefore the assessment of the year under appeal was one which had attained finality and therefore in view of the decision of CIT vs. Kabul Chawla380 ITR 573 (Delhi)and Principal CIT vs. Best Infrastructure India P. Ltd. in ITA No. 11-22/2017 dated 01.08.2017 the disallowance could not have been made. Further, it was submitted by the Ld. Counsel with the help of various evidences referred at page 2974 to 2976 of 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, Ld CIT(DR) relied upon the findings recorded in the assessment and first appeal order. 30. We have considered the enti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y only. Therefore, we agree with the argument of Ld. Counsel that the impugned disallowance could not be made in the assessment order passed u/s 153A / 143(3) as the return having been filed on 29.11.2013 has attained finality. Therefore in view of the decision of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla380 ITR 573 (Delhi) the impugned addition is liable to be deleted and is deleted on this ground itself. 32. But since CIT (A) has discussed the impugned disallowance on merit also and arguments were made on the basis of evidences referred at page 2972 to 2978 of the paper book, we deem it appropriate to deal with the disallowance on merit also. At this stage, it would be appropriate to reproduce the written submissions filed by the assessee before the first appellate authority so that the evidences may be appreciated in this regard: 33. It has been submitted that appellant in engaged in the manufacturing and export of readymade fashion garments mainly to USA and Europe. Garment production process involves several steps, which are listed at page 7-8 of the assessment order, Shri Ram Export was one of the job worker engaged by the appellant for doing var....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the firms for 2 months for all the respective years under consideration. PB 1142-1465 is the Sample copy of Salary sheet for 2 months each of all the years under consideration of payment of wages on sample basis PB 1466-1478 is the copy actuarial certificate. PB 1479-1496 is theSample copy of Bonus register maintained as per requirement of 'The payment of Bonus Act' showing actual payment proof of bonus to employees. PB 1497-1502 is the Sample copy of Leave register maintained as per legal requirement. PB 1503-1518 is the copy of Month wise PF / ESI deduction and deposit along with sample copy of 2 months challans for each year along with ledger account of PF. PB 1519-1531 is the Copy of License to work at factory under Factory Act 1948. PB 1532-1549 Copy of invoices raised by Shri Ram Export for the job work charges in the name of the appellant company. PB 1550-1558 & 1565-1577 is the Copy of complete Bank statement along with complete bank book for relevant year. PB 1559-1564 & 1578-1584 is copy of bank book showing that the payments were made through account payee cheques, TDS deducted. PB ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Dhingra& Co. who happens to be Auditor of the appellant company also. In reply, it was submitted that this objection of Ld. A.O. also does not have substance as this is the contractual arrangement between Sh. Subhash Chand Gupta Prop. of M/s Shri Ram Export and M/s V K Dhingra& Co. and also due to constant personal touch of the auditor, if that very audit firm is engaged by the business constituent, there is nothing unusual. 3. Next observation of A.O. at page 13-14 of the assessment order is that email id on income tax return of Sh. Subhash Chand Gupta and on the return of the appellant company is that of an employee of the appellant company. In reply, it was submitted that the job work done by Shri Ram Export was exclusively for the appellant and therefore employee of the assessee company helped the proprietor Sh. Subhash Chand Gupta to file his return of income in that process, if email id of the employee of the assessee company was also mentioned on the return of Sh. Subhash Chand Gupta, it does not prove that job work were not by Sh. Subhash Chand Gupta. 4. Ld. A.O. has mentioned at page 13-14 of the assessment order that statement of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nths challan of each year along with ledger account of PF, other evidences of the paper book at pages 1503 to 1518, 1519-1531, 1532-1549, 1550- 1558 & 1565-1577, 1559-1564 & 1578-1584, 1590-1613, 1559- 1564, 1578-1584 and 1585-1589 all are the evidences of M/s Shri Ram Export clearly establish that genuineness of job work charges incurred by the assessee company through M/s Shri Ram Export and therefore the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable even on merit. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper book pages 2976 to 2978 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. 38. CIT(A) have 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 selfserving documents and circumstantial evidence leads to the conclusion of A.O., are bald assertion. It would be enough for us to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is seen that page 16-31 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 consecutive serial numbers and the payments made to the said concern were always in the round figures and that the bank account of the supplier revealed that it received payments and on the same day or within a short span of time, the funds were used to be transferred to other entities and further mentions that the names of certain parties to whom the payments have been made by the said concern and the names of such parties have been mentioned by the Ld. AO at page 18 of the assessment order and that several adverse things regarding the above supplier based upon some alleged enquiries made. 42. We have considered the entire facts and circumstances as referred in both th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... annexures already enclosed in the paper book in assessee's own case for A.Y. 2011-12 at PB 417-419, 420-469, 1044-1045, 1050-1060, 1061- 1158, &2313-3832. It is submitted, as submitted in the said reply also, that purchases have been made from the said concern and payments against the said purchases have been made by account payee cheques. PB 426-429 & 450-453 is the copy of ledger account in the books of M/s Jindal Fashion & M/s Akansha Fashion to show that sale of fabric to the appellant company and made payment through banking channel for A.Y.2013-14, which is already enclosed in the paper book for A.Y. 2011-12 in assessee's own case. PB 490-501 & 554-567 is the copy of ledger account in the books of assessee company for A.Y. 2013-14 to show that purchases of fabric were made from M/s Jindal Fashion & M/s Akansha Fashion through banking channel, which is already enclosed in the paper book for A.Y. 2011-12 in assessee's own case PB 292-293 is the copy of letter dated 08.12.2017. PB 1236-1327 is the detailed chart showing the sales made by the assessee company and the garments produced in which the material / fabric purchased from M/s Jindal Fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....PB 2321-2322 is the details of sale of pieces on sample basis along with consumption of fabric in meters and standard input / output norms, (which is already enclosed in the paper book for A.Y. 2011-12 in assessee's own case). PB 2330 is the detail of reconciliation of purchase quantity and value of opening stock of fabric, purchase, consumption, cost of fabric sold and closing stock, (which is already enclosed in the paper book for A.Y. 2011-12 in assessee's own case). PB 2336-2340 detail of comparison between other garment exporter and the appellant company for material consumption as a percentage of sales, (which is already enclosed in the paper book for A.Y. 2011-12 in assessee's own case). PB 2341-2377 is the standard input / output norms as prescribed under handbook of procedure volume-II of Foreign Trade Policy published by Ministry of Commerce, (which is already enclosed in the paper book for A.Y. 2011- 12 in assessee's own case). 48. In other words, Ld. Counsel submitted that the fact that the purchases were made from the above said concern was proved and established by the assessee from the detailed description contained in the above sai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ust in the air & it is requested that such adverse observation may please be ignored. 2. Ld. AO has mentioned at pages 17-19 of the assessment order that the bank account of the supplier revealed that it received payments and on the same day or within a short span of time, the funds were used to be transferred to other entities. In reply, it was submitted that in so far as the appellant is concerned since purchases were made by the appellant from M/s Jindal Fashion, M/s Akansha Fashion, the payments were made against the purchases and if the said concern in turn made payments to its vendors for various purposes, 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. 3. Ld. AO has mentioned the names of certain parties to whom the payments have been made by the said concern and the names of such parties have been mentioned by the Ld. AO at page 18 of the assessment order. Ld. AO has further mentioned that enquiries were conducted and Tamil Nadu Merchantile Bank was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....11-12 in assessee's own case that the said supplier was selling the fabric not only to the appellant company but to various other concerns also and total supplies purchased by the assessee constitutes only a miniscule percentage of the total supplies made by him in AY 2013-14. It is so seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the purchases of fabric made by the appellant from M/s Jindal Fashoin and M/s Aksnsha Fashion are genuine purchases, which is evident from voluminous documentary evidences filed by the assessee company & considered by us. Payment have been made through account payee cheques and documents at page 417 to 419, 420-469, 1044- 1045, 1050-1060, 1061-1158, 2313-3832, 554-567, 292-293 & 1236-1327 of the paper book which establish the purchases made by the assessee. 51. In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable even on merit. Comprehensive evidences have been brought on record by the assessee which prove that purchases of the fabric were made by the assessee. Without purchases of the fabr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessment of the year under appeal was one which had attained finality and therefore in view of the decision of CIT vs. Kabul Chawla380 ITR 573 (Delhi)and Principal CIT vs. Best Infrastructure India P. Ltd. in ITA No. 11-22/2017 dated 01.08.2017 the disallowance could not have been made. Further, it was submitted by the Ld. Counsel with the help of various documentary evidences referred at page 2986 to 2992 of the paper book& it was argued that 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 evidenced by the copies of purchase invoices, copy of statement of account of M/s SCIPL in the books of in the assessee company as enclosed at PB 2071-2195 & 2826-2936, 1617-1670, and also statement of account in the books of M/s SCIPL is also enclosed at PB 1765-1820, which would show that the payments have been made to M/s SCIPL through banking channel. It was also submitted that sales made by M/s SCIPL to the assessee has been accepted in the assessment of M/s SCIPL. Copy of assessment order of M/s SCIPL for A.Y. 2013-14 is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... having been filed on 29.11.2013 has attained finality. Therefore in view of the decision of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla380 ITR 573 (Delhi) the impugned addition is liable to be deleted and is deleted on this ground itself. 57. But since CIT(A) has discussed the impugned disallowance on merit also and arguments were made on the basis of evidences referred at page 2986 to 2992 of the paper book, we deem it appropriate to deal with the disallowance on merit also. 58. It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the purchases of fabric made by the appellant from M/s Super Connection India P. Ltd. are genuine purchases, which is evident from voluminous documentary evidences filed by the assessee company and payment have been made through account payee cheques and documents at page 1617-2460, 2463-2936 of the paper book establish the genuineness of the purchases made by the assessee. CIT(A) after considering the submissions of the assessee upheld the disallowance. At this stage, it would be of help if submissions made by the assessee and documentary evidences filed in this regard are repro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... books of appellant showing opening stock of fabric purchase, consumption, cost of fabric sold and closing stock. PB 1911-1958 is the detailed chart showing the standard input/output ratio, as prescribed by the Standard Input/Output Norms under hand book of procedure Volume II of foreign trade policy, published by the Ministry of Commerce. PB 1959 is the detail of comparison between other garment exporter and the appellant company for material consumption as a percentage of sales. 61. Therefore, it was pleaded that purchases made by the assessee from M/s SCIPL were the genuine purchases and the addition made may therefore please be deleted. 62. Adverse observations made by Ld. A.O. are met as under:- 1. Ld. A.O. has mentioned in para 6.2 of the assessment order that 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 suppl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ht help from the appellant company to maintain its books of accounts and if in that process employee of the appellant company if helped M/s SCIPL to maintain its books of accounts at the premises of the appellant company only for the sake of mutual convenience and because of cost considerations mountain cannot be made out of the mole hills. In other words inferences drawn by Ld. A.O. from the statements of Mr. Dhanda and Mr. Nagpal do not establish that the sales made by M/s SCIPL to the assessee was not genuine, more so when such sales by M/s SCIPL and purchases by the appellant are supported by above mentioned comprehensive evidences and payments having been received / paid 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. 4. Ld. A.O. has mentioned in para 6.4, 6.5, 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 Jind....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... production garments, which have been exported by the assessee company to various parties. 63. In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable even on merit. Assessee has proved that the material was purchased from the vendor involved here in various years and payment 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 vendor can also not 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 2988 to 2992 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence of incriminating material is concerned, there is nothing found in search in respect of this issue as is clear from the assessment order. We have already held that this is a case of unabated assessment and hence, no disallowance or addition could be possible without there being any incriminating material found as a result of search in view of the relied upon decision quoted above. Hence, we do not have any hesitation to hold that the disallowance made by AO under section 14A could not have been made and confirmed by CIT(A) and hence it is deleted. 68. In any case, there is exempt income only to the extent of Rs. 85,656/-and for this reason also, disallowance under section 14A could not have exceeded this amount in view of the decision of Delhi High Court in the case of Joint Investment Ltd. 372 ITR 694 and hence we uphold the order of CIT(A) to this extent. But, Since we have deleted the entire amount of disallowance made by AO, hence even the disallowance sustained by CIT(A) to the extent of Rs. 85,656/- is also not sustainable. In the result, ground no. 14 of the assessee's appeal is allowed and grounds no. (vi) to (xi) of the departmental appeal are dismissed. ....