TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 41
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment 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 (A) is erroneous and is not tenable on facts and in law." 4. The brief facts of the case show....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 held that the disallowance has been made by the Assessing Officer on account of search where the search party found that there are no manufacturing activ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k 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 and development center was operating from 286, Udyog Vihar-II, Gurgaon, which was not covered during survey or search. The ld. CIT (Appeals) also perused the tel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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-worth of the subsidiary has eroded and there is no chance of its recovery. Therefore, on the merits also, he allowed the claim. 9. The ld. Assessing Officer aggrieved by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....turing 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 deduction u/s 80 IB of the act was denied. iii. With respect to the expenditure on research and development disallowed by the learned assessing officer, it was stated that assessee has submi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urther 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 manufactured/developed it was stated that the software development was close from the year 2006 eight was not possible for the assessee to show any work force for the development of software at the time of survey in 2007. Therefore, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 memorandum of articles of the assessee company and stated that the above subsidiary company was formed for the purpose of providing telecommunication services i.e. paging services and the longs for extended due to commercial expediency. When such loans have ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansactions. 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 software unit at Goa. Though the total deduction available during the year 2001-02 was Rs. 8,89,258/-, but it was restricted it to the gross total income. The fact shows that the survey took place on 10 May 2007 along with the search and seizure operation and t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 profit and loss account, the details of the items on which excise duty has been charged, the entries in the Excise registers have been checked with the sales registers of the assessee which were found in agreement with each other. The learned CIT - A has with r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....38. 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 is no research and activities carried out by the assessee it may not be fruitful. However, for this reason disallowance of expenditure cannot be made. Further in the original assessment proceedings u/s 143 (3) of the act the learned assessing officer after pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee 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 recoverable because of the usual losses suffered by that particular company. The fact was also noted that the entire capital of that particular subsidiary company was eroded by the accumulated losses by more than 2.5 times of itself capital. Thus, it was a bona fide decis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eir 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 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. There is no change in the facts and circumstances of the case and the learned CIT - A has categorically held that assessee has disclosed the high....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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. 31,45,95,564/- made on account of disallowance of expenditure on Research Development. 3. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fficer 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 development expenditure. Thus, ground number 2 of the appeal is dismissed. 34. Ground number 3 of the appeal of the learned assessing officer is with respect to the disallowance of Rs. 5 lakhs out of 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 assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 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 learned assessing officer against the order of the Commissioner of income tax (A) -III, New Delhi dated 26/12/2013 for assessment year 2005 - 06, 39. 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. 58,02,210/- made on account of profit of circular transaction.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....round 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 profit at 1.09%. For the similar reasons, we uphold the order of the learned CIT - A and deleting the above disallowance/addition of Rs. 58,02,210 - and accordingly ground number 1 of the appeal of the learned AO is dismissed. 44. Ground number 2 of the appeal of the AO is with respect to the deletion of the disallowance of Rs. 28,18,12,226/- out of the research and development expenditure incurred by the assessee. This ground is identical to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 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 expend....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 7.29%. 2. That on the facts and in the circumstances of the case, Ld. CIT (A) erred in partly confirming the addition made on the basis of G.P. rate on allege....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 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. Assessee filed return in response to that notice on 25/2/2009 declaring nil income. Consequently the assessment order u/s 153A read with Section 143 (3) of the income tax act 1961 was passed on 29 December 2009 wherein the total loss of the assessee was determined at Rs. 440,37,13,323 against the returned loss of Rs. 4,585,086,012/- . Only addition, which was made to the total income of the assessee, was with respect to the similar additions that were made in the case of the assessee from assessment year 2002 - 03 to 2005 - 0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sactions 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% giving benefit of profit already disclosed at G.P. rate of 0.55% and he did not make any addition for the A.Y. 1999-00, fully considering the fact that the profit disclosed by the assessee at G.P. rate of 0.53% on the alleged circular trading transactions was more than the profit ratio of the trading business of the Company on the transactions other than the trading transactions of circular nature, which was of 0.39% only. Similarly for the year under consideration, the profit has been shown on alleged aggregate circular trading transactions at the G.P. rate of 0.24%, which is in addi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ear 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 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 3 of the appeal of the learned assessing officer is dismissed. 63. Ground number 4 is with respect to deletion ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 into by the assessee. Thus, the appeal of the assessee is dismissed. 67. Accordingly the appeal of the learned assessing officer as well as of the assessee for assessment year 2006 - 07 is dismissed. ITA number 2252/del/2014 For assessment year 2007 - 08 And ITA number 2253/Del/2014 For assessment year 2008 - 09 [Both by Assessee] 68. Facts for assessment year 2007 - 08 shows that assessee has filed return of income on 23/9/2008 declaring income of Rs. 3,114,472/- this return was processed u/s 13 (1) of the act on 27/7/2009. The assessment order u/s 13 (3) of the act read with Section 153A of the act was p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 addition for the A.Y. 1999-00, fully considering the fact that the profit disclosed by the assessee at G.P. rate of 0.53% on the alleged circular trading transactions was more than the profit ratio of the trading business of the Company on the transactions other than the trading transactions of circular nature, which was of 0.39% only. Similarly for the year under consideration, the profit has been shown on alleged aggregate circular trading transactions at the G.P. rate of 0.45%, which is in addition to the G.P. rate of 1.09% held by the CIT (A) to be fair, just and reasonable, which is contrary to the fact that for the A.Y. 1999-00, the then AO had fully accepte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id 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 facts and in the 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 0.47% and ther....