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2021 (11) TMI 41
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.... (Appeals)-3, New Delhi, dated 21.08.2013 for assessment year 2002-03. 3. The Revenue has raised the following grounds of appeal:- "1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 8,28,506/- made on account of profit of circular transaction. 2. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs. 4,97,18,139/- made on account of disallowance of deduction claimed u/s 80IB of the I.T. Act 3. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the disallowance of Rs. 6,30,75,938/- made on account of disallowance of expenditure on Research & Development. 4. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs. 5,00,000/- made on account of travelling expenses incurred on the family members of the directors of the company. 5. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs. 8,61,90,935/- made on account of advances given to group company written off. 6. The order of the CIT (....
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.... i. With respect to the profit determined by the Assessing Officer of 1.5% on circular trading, the ld. CIT (Appeals) held that out of the total trading turnover of Rs. 141.19 crores the appellant has earned profit of Rs. 16.25 crores, which is 11.52%. He further noted that assessee has purchased goods worth Rs. 5.39 crores and made a sale of Rs. 5.52 crores to Balaji Electronics Pvt. Ltd., which has been duly confirmed by the other party under Section 133(6) of the Act. Thus, assessee has earned a profit of Rs. 12,64,500/- from the transactions with Balaji Electronics Pvt. Ltd., which is more than the amount of addition made by the Assessing Officer of Rs. 8,28,506/-. He further held that appellant has disclosed the profit of 11.52% on trading activity, the circular trading activity has not been held to be bogus and further the profit earned by the assessee on such circular trading is 2.8% which is more than the estimate of 1.5% estimated by the Assessing Officer. Thus, he deleted the above addition. ii. With respect to the disallowance of deduction under Section 80IB of the Act in the return of income filed in response to notice under Section 153A of the Act he h....
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....s were carried out consequent to which the assessee has made sales to various Public Sector Undertakings. It was further held by him that the search took place in 2007 and the manufacturing activities were closed in the year 2006. Therefore, it was not possible for the assessee to show the work force for development of software and other relevant evidences at the time of survey in May 2007. Thus, he categorically held that the survey team visited the place after one year of the closer of the unit. He further held that the case of the assessee was assessed under Section 143(3) wherein the Assessing Officer after duly examined the claim under Section 80IB of the Act was allowed. He further held that one of the employees whose statement has been used is also signatory to the excise records. He, therefore, allowed the claim of the assessee for deduction under Section 80IB of the Act. iii. With respect to the disallowance of research and development expenditure amounting to Rs. 6,30,75,938/- out of the total claim of Rs. 11,10,77,015/- he noted that the survey team did not find any infrastructure for R & D activities of the assessee. The ld. CIT (Appeals) noted that research an....
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....llowed the same for the reason that the subsidiary company has not treated the same as cessation of liability and, therefore, such unilateral action of the assessee with no corresponding entry by the subsidiary results into an abnormal claim not allowable under Section 37(1) of the Act. The ld. CIT (Appeals) deleted the above addition stating that no incriminating material is found during the search with relating to the above disallowance and, therefore, the above addition cannot be made. On the merits of the addition, he held that giving financial support for nurturing and developing a subsidiary fall in the categories of activities carried out during the course of business. He further noted that the subsidiary company was formed for providing telecommunication services with respect to the paging services. He further held that merely because the subsidiary company has not shown it as a cessation of liability it could not become an item of disallowance in the hands of the assessee. Thereafter he examined the financial strength of the subsidiary and noted that the subsidiary company has accumulated losses many times higher than the amount of share capital, which shows that the net-w....
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....arned here referred paragraph number 6.12 of the assessment order wherein the learned assessing officer has specifically stated that assessee has never been engaged in the business of manufacturing of cable or development of software at Goa unit. It was further argued that the learned assessing officer has recorded a categorical finding that during the financial year 2003 - 04 assessee company purchased the software of Rs. 19 crores from various parties and similarly for financial year 2004 - 058 purchased the software of 18.23 crores and against which the sale of Rs. 40 crores was disclosed. The learned DR further referred paragraph number 6.19 of the assessment order stating that the learned assessing officer has given a categorical finding that no manufacturing activity of software development was carried out at Goa unit, which was confirmed by the officers of the company. Further, the assessee did not have any infrastructural technical work force that could have developed sophisticated software at its manufacturing unit. The assessee has also failed to furnish the details of the work force and purpose of the software development and particulars of the end-user. Therefore, the d....
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.... on sales made to Balaji Electronics and the learned assessing officer is determined profit of only 1.5%, which is less than the profit already disclosed by the assessee therefore the addition deserves to be deleted. He further referred to the order of the learned CIT - A and stated that it is categorically held that the circular trading was not considered to be a bogus transaction by the assessing officer. ii. With respect to the claim of deduction u/s 80 IB of the act it was stated that the issue has already been examined by the learned assessing officer while making an original assessment u/s 143 (3) of the income tax act wherein the assessing officer after detailed examination is allowed the claim of the assessee Under that Section. Further, the excise records, copies of the returns were also verified wherein existence of plant and machinery at the factory premises at Solan and Goa are clearly depicted. Further, it was stated that the sales have been made to the public sector undertaking such as BSNL and MTNL and Gail. It was therefore stated that it cannot be said that there is no money featuring activity carried on by the assessee. With respect to the software manufa....
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.... there is no instances available with the assessing officer that any expenditure is incurred by the assessee, which is not wholly and exclusively incurred for the purposes of the business. He therefore submitted that the disallowance made by the learned assessing officer deserves to be deleted and the learned CIT - capital has correctly deleted the same. v. With respect to the advance to a subsidiary company which has been written off by the assessee he placed reliance on the decision of the honourable Supreme Court in case of S A Builders versus CIT 208 ITR 1 and stated that assessee has infused funds into the subsidiary company and Simon tenuously arranged term loan from IDBI for that company by giving its corporate guarantee. It was therefore stated that there was a drastic change in the mobile industry when the tariffs were reduced which became a disaster for the paging industry and therefore the subsidiary company could not prosper as a business and was in no position to pay back the assessee as well as the guarantee obligation and therefore the assessee has incurred this loss which was required to be return of on prudential basis. He further referred to the memorandu....
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....e Assessing Officer. We find that as such the Assessing Officer could not show any legal bar of making purchases and sales from the same party. Further Balaji Electronics Pvt. Ltd. in response to notice under Section 133(6) of the Act has confirmed the transactions. Further, for assessment year 1998-99 it is shown that the assessee accepted the GP ratio of 1.09% only for the reason that in that case the transaction with the circular trading parties resulted into profit of just 0.53%. In the present case, the Assessing Officer has made a profit of 1.5% whereas the assessee has itself shown the profit of 2.28%. Therefore, the estimate of the profit made by the Assessing Officer is far less than the income of such circular income disclosed by the assessee. In view of this, we do not find any reason to disturb the order of the ld. CIT (Appeals). Accordingly, the order of the ld. CIT (Appeals) deleting the addition of Rs. 8,28,506/- is confirmed and ground No. 1 of the appeal is dismissed. 14. The second ground is with respect to disallowance of deduction under Section 80IB of the Act of Rs. 4,97,18,139/-. We find that assessee has claimed the above deduction with respect to its soft....
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....the unit and the products manufactured which were supplied to the public sector undertaking. It was further stated that orders of the public sector undertaking force various supply of goods or the manufactured goods of the assessee and therefore it cannot be the case as suggested by the learned assessing officer that these are merely stamped after importing it from the various countries. During the course of remand proceedings before the learned CIT appeal the Excise register 23A and Excise register 23C, the challan for payment of excise duty and acknowledgement of Excise return filed with the Excise authorities were also verified and no adverse comment was made these records contain the details of the production of the goods and the dispatches from factory premises. It has resulted into sales the assessee has also submitted the party was details of the sales to womb goods manufactured at those units were also sold. The learned assessing officer in remand proceedings is also accepted that these are sold to the public sector undertakings and two other reputed customers. In the remand report assessing officer has categorically held that the assessee has also filed the unit -wise prof....
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....11,077,050/- out of which the capital expenditure of Rs. 497,81,944 and revenue expenditure of Rs. 61,295,106 was claimed. The learned AO out of the above expenditure allowed the claim of the assessee to the extent of Rs. 48,001,112/- and disallowed 6,30,75,938. The learned CIT appeal deleted the same. The facts show that the research and development Centre was operating from Gurgaon and which was not covered either under survey or in search. Therefore, it cannot be said that there was evidence available with the revenue that no activities were carried out at that particular place. Whereas the assessee has shown the correspondence exchanged between the appellant and Department of science and technology government of India and further there is an evidence in the form of meeting with the Ministry of science on the projects undertaken by the appellant in the minutes of the meetings cannot be said to be merely a paperwork and general research. In fact the assessee is also having recognition letter from the Ministry of science with respect to the research and development activity of the assessee. In fact himself has allowed part of the expenditure therefore it cannot be said that there ....
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....this disallowance. Assessee has claimed the same as a business loss. The learned assessing officer disallowed for the reason that since the subsidiary company has not treated the same as assessee shall of liability and therefore such a unilateral action by the assessee company with no corresponding entry in the subsidiary company of writing it back this becomes an abnormal claim and cannot be allowed u/s 37 (1) of the act. The learned CIT - A deleted the about disallowance for two reasons. Firstly, there is no incriminating evidence found during the course of search with respect to the above issue and therefore it could not have been disallowed in framing assessment order u/s 153A of the act. Secondly, it was noted by the learned CIT - A that assessee has four different sources of the business income such as manufacturing, turnkey activities, trading businesses and finance businesses. The assessee has granted financial support to its subsidiary, which falls into the business of the finance business segment of the assessee. The fact also shows that the subsidiary company was engaged in the business of paging services and the loan and advances given to that company become not recover....
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.... the company. 5. The order of the CIT(A) is erroneous and is not tenable on facts and in law." 20. Both the parties confirmed that identical issue is wherein the appeal of the learned assessing officer for assessment year 2002 - 03, there is no change in the facts and circumstances of the case, their arguments are similar. 21. The facts clearly show that assessee filed its return of income at rupees nil onto/12/2003 claiming deduction u/s 80 IB of Rs. 142,79,914. The assessment u/s 143 (3) was passed on 24/3/2006 at the taxable income of Rs. 278,72,558 and deduction u/s 80 IB was allowed and the total income of the assessee was assessed at rupees nil. Subsequently a search took place on 10 May 2007 and thereafter an assessment order u/s 153A read with Section 143 (3) of the act was passed on 29 December 2009 determining the total income of the assessee at Rs. 76,673,261 wherein the similar addition/disallowance has were made as made in the case of the assessee for assessment year 2002 - 03. There is no change in the facts and circumstances of the issues. 22. The first ground of appeal is with respect to the deletion of the addition of Rs. 107,68,795/- made on acco....
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....f the foreign travel expenditure incurred on the family members of the directors of the company. This ground of appeal is identical to the ground number 4 of the appeal of the assessee for assessment year 2002 - 03. While adjudicating the ground, we have confirmed the order of the learned CIT - A in deleting the above disallowance. For similar reasons also we uphold the order of the learned CIT - A for this year and confirm his order of deleting the disallowance of Rs. 5 lakhs out of the travelling expenditure. Accordingly, ground number 4 of the appeal of the learned assessing officer is dismissed. 26. Accordingly, ITA number 6225/del/2013 filed by the learned assessing officer for assessment year 2003 - 04 is dismissed. ITA number 6226/del/2013 Assessment year 2004 - 05 27. ITA number 6226/Del/2013 is filed by the learned assessing officer for assessment year 2004 - 05 against the order of the learned CIT - A -III, New Delhi dated 23/9/2013. 28. The learned assessing officer has raised the following grounds of appeal:- "1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 42,94,272/- made on account of ....
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....f the case and the learned CIT - A has categorically held that assessee has disclosed the higher profit in the transaction of the circular trading then what was estimated by the learned assessing officer and therefore the addition made of Rs. 42,94,272 does not survive. We have also decided this issue while adjudicating ground number one of the appeal of the learned assessing officer for assessment year 2002 - 03. For the similar reasons, we uphold the order of the learned CIT - capital and deleting the above disallowance/addition of Rs. 4,294,272 - and accordingly ground number 1 of the appeal of the learned AO is dismissed. 33. Ground number 2 of the appeal of the AO is with respect to the deletion of the disallowance of Rs. 31,45,95,564/- out of the research and development expenditure incurred by the assessee. This ground is identical to the ground number 3 of the appeal of the learned assessing officer for assessment year 2002 - 03 wherein we have confirmed the order of the learned CIT - A in deleting the above disallowance. For the similar reasons we also, uphold the order of the learned CIT - A in deleting the disallowance of Rs. 31,45,95,564/- on account of research and ....
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....here is no qualification by the auditor with respect to non-availability of any vouchers or the details of the expenses. As the learned assessing officer has made the above disallowances on ad hoc basis without pointing out any defect in the details submitted before him which was also verified by him during the course of original assessment proceedings u/s 143 (3) of the act, the learned CIT - A deleted the about disallowance. Before us, the learned DR could not produce any material to show that the disallowance made by the learned assessing officer was based on any particular incident of or instances of expenditure debited by the assessee that are not incurred wholly and exclusively for the purposes of the business. In view of this we do not find any infirmity in the order of the learned CIT - A - the above disallowance. The order of the learned CIT - capital is confirmed and ground number 5 of the appeal of the learned assessing officer is dismissed. 37. Accordingly, ITA number 6226/del/2013 filed by the learned assessing officer for assessment year 2004 - 05 is dismissed. ITA number 765/del/2014 Assessment year 2005 - 06 38. ITA number 765/del/2014 is filed by the le....
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....onfirmed by both the parties that there is no change in the facts and circumstances of the case. They also confirmed that their arguments are also similar. 42. We have carefully considered the rival contentions and perused the order of the lower authorities. 43. Ground number 1 of appeal is with respect to the deletion of the addition of Rs. 58,02,210/- made on account of the profits of circular transactions. This ground is identical to ground number one of the appeal of the learned assessing officer for assessment year 2002 - 03. However, in this case the finding given by the learned CIT - A is that the assessee has disclosed loss on account of the circular transactions and therefore he has upheld the gross profit rate of 1.09% is decided in the case of the assessee for assessment year 98-99 and 1999 - 2000. There is no other change in the facts and circumstances of the case. We have also decided this issue while adjudicating ground number 1 of the appeal of the learned assessing officer for assessment year 2002 - 03. However, in the present case before us as assessee has disclosed clause in the circular transaction, the learned CIT - capital has correctly estimated the prof....
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....Income-Tax versus Aimil Limited, (2010) 321 ITR 508 (Del) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee's Provident Fund (EPD) and Employee's State Insurance Scheme (ESI) as deemed income of the employer under Section 2(24)(x) of the Act. Appeal is dismissed." 47. Therefore respectfully following the decision of the honourable Delhi High Court, we uphold the order of the learned CIT - A in deleting the disallowance of late payment of employee's contribution of provident fund according to the respective due dates prescribed Under the respective law but paid before the due date of filing of the return of income. In the result ground number 3 of the appeal of the learned assessing officer is dismissed. 48. Ground number 4 of the appeal of the learned assessing officer is with respect to the disallowance of Rs. 5 lakhs out of the foreign travel expenditure incur....
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.... facts and circumstances of the facts in this year also. In view of this we do not find any infirmity in the order of the learned CIT - A - the above disallowance. The order of the learned CIT - capital is confirmed and ground number 5 of the appeal of the learned assessing officer is dismissed. 50. In the result ITA number 765/del/2014 for assessment year 2005 - 06 filed by the learned assessing officer is dismissed. ITA No 816/del/2014 Assessment year 2005 - 06 (by assessee) 51. This appeal is filed by the assessee against the order passed by the learned CIT - A for the above assessment year wherein the learned CIT - A noted categorically that in the circular turned trading transactions assessee has disclosed the net loss and therefore by following the order for assessment year 1998 - 1999 and 1999 - 2000, He upheld the profit ratio of 1.09% which has not been agitated by the assessee before the higher forum. Therefore assessee is aggrieved with the adoption of the profit rate of 1.09% by the learned CIT - A. 52. The assessee has raised the following grounds of appeal in ITA No. 816/Del/2014 for Assessment Year 2005-06:- "1. That on the facts and in the ci....
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....at uniform rate. In this way, the addition confirmed to the extent of 1.09% of the transactions is over and above the profit already disclosed on the said transactions i.e. @ 7.29%. Therefore, there is no case for addition on this account." 53. In view of our decision in ground number 1 of the appeal of the learned assessing officer for this assessment year, we do not find any merit in the appeal of the assessee and therefore all the grounds of appeal are dismissed. 54. Accordingly, ITA number 816/del/2014 filed by the assessee for assessment year 2005 - 06 is dismissed. ITA 766/del/2014 (by AO) And ITA 817/del/2014 (by assessee) Assessment year 2006 - 07 55. These are the cross appeals filed by both the parties against the order passed by the Commissioner of income tax (appeals) - III, New Delhi dated 26/12/2013 for assessment year 2006 - 07. The briefly stated fact shows that assessee filed its return of income on 29/11/2006 declaring loss of Rs. 4,585,086,012/-. The income tax return was processed u/s 143 (1) of the act on 28/2/2008. Subsequently there was a search on 10/05/2007 and therefore the notice u/s 153A was issued to the assessee on 12/8/2008. Asses....
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....e circumstances of the case, Ld. CIT (A) erred in partly confirming the addition made on the basis of G.P. rate on alleged circular trading transactions holding incorrectly that 'with certain parties there is profit and on some transactions there is loss but the overall effect of these circular transactions has resulted into loss ' since his conclusion regarding overall loss in these transactions was based on his taking into consideration the trading results of transactions with only a few parties on selective basis ignoring the fact that if all such alleged circular trading transactions undertaken with all the parties are considered, there is a profit earned at G.P. rate of 0.24% and there is no truth in there being an overall loss in the alleged circular trading transactions. 3. That on the facts and in the circumstances of the case, Ld. CIT (A) erred in partly confirming the addition to the extent of 1.09% of the transactions, stating that in the A.Y. 1998-99 and 1999-00, profit had been added @ 1.09% by the A.O. u/s 147/143(3) of the Act, against which no appeal was filed by the assessee, whereas the facts are that the A.O. had made addition for the A.Y. 1998-99 @ 0.54....
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....of the learned CIT - A of upholding the addition to the extent of 1.09% of the turnover against the income estimated by the assessee at 1.5% of the turnover. In view of this, we dismiss ground number 1 of the appeal of the AO as well as the appeal of the assessee on this issue in ITA number 817/del/2014. 61. Ground number 2 of the appeal of the AO is with respect to the deletion of the disallowance of.Rs. 41,466,543 out of the research and development expenditure incurred by the assessee. This ground is identical to the ground number 3 of the appeal of the learned assessing officer for assessment year 2002 - 03 wherein we have confirmed the order of the learned CIT - A in deleting the above disallowance. For the similar reasons we also, uphold the order of the learned CIT - A in deleting the disallowance of.Rs. 41,466,543 on account of research and development expenditure. Thus, ground number 2 of the appeal of the learned assessing officer is dismissed.Rs. 41,466,543 made on account of expenditure on research and development expenditure. 62. Ground number 3 is with respect to the deletion of the disallowance of Rs. 5 lakhs made on account of travelling expenses incurred on t....
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....he assessee for assessment year 2006 - 07 in ITA number 817/Del/2014. The only grievance of the assessee is that that in the circular trading transactions the learned CIT - A reduce the addition made by the learned assessing officer at the rate of 1.5% of net profit to 1.09% of the net profit. The assessee is aggrieved by the order of the learned CIT - A wherein he has upheld the addition to the extent of Rs. one point to 09% of the profit. We find that identical issue is involved in the appeal of the assessee for assessment year 2005 - 06 wherein we have confirmed the order of the learned and CIT - A because of the reason that overall profit in circular trading transaction entered into by the assessee has resulted into loss. In earlier years in assessee's own case i.e. AYs 98 - 99 and 99 - 2000 the gross profit rate of one point to 09% on circular trading has been upheld by the learned CIT - A not been challenged by the assessee before the higher forum. Therefore we find no reason to deviate from that order and accordingly we confirm the order of the learned and CIT - A upholding the addition to the extent of profit at the rate of 1.09% on circular trading transactions entered int....
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....basis of G.P. rate on alleged circular trading transactions holding incorrectly that 'with certain parties there is profit and on some transactions there is loss but the overall effect of these circular transactions has resulted into loss '. Since his conclusion regarding overall loss in these transactions was based on his taking into consideration the trading results of transactions with only a few parties on selective basis ignoring the fact that if all such alleged circular trading transactions undertaken with all the parties are considered, there is a profit earned at G.P. rate of 0.45% and there is no truth in there being an overall loss in the alleged circular trading transactions. 5. That on the facts and in the circumstances of the case, Ld. CIT (A) erred in partly confirming the addition to the extent of 1.09% of the transactions, stating that in the A.Y. 1998-99 and 1999-00, profit had been added @ 1.09% by the A.O. u/s 147/143(3) of the Act, against which no appeal was filed by the assessee, whereas the facts are that the A.O. had made addition for the A.Y. 1998-99 @ 0.54% giving benefit of profit already disclosed at G.P. rate of 0.55% and he did not make any a....
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....d in confirming the addition of Rs. 2,91,05,752/-, made by the A.O. holding the purchases from OPM Trading Pvt. Ltd. (OPM) to be bogus purchases by not appreciating the fact that the A.O. had not provided opportunity to the assessee to cross examine Sh. Ashish Madan, Director of OPM, whose statement was relied upon by him to make the addition. 2. The Ld. CIT (A) erred in law and the circumstances of the case by confirming the addition made by treating purchases from OPM as bogus when complete details of purchases alongwith confirmation of account were made available to the A.O. Purchase consideration was duly paid through the banking channel and Sh. Ashish Madan, Director of OPM did not specifically denied the transactions of purchases and rather confirmed the transactions. 3. That on the facts and in the circumstances of the case, Ld. CIT (A) erred in partly confirming the addition to the extent of 1.09%, which was made by the A.O. @ 1.5% on account of G.P. rate on alleged circular trading transactions, ignoring the fact that the assessee had already declared profit on such alleged circular trading transactions at the G.P. rate of 0.47%. 4. That on the f....