TaxTMI 
TaxTMI 
2022 (1) TMI 145
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....earned AO but by taking a completely different view of the facts and holding that the business was set up but the business expenditures incurred by the appellant were for a Illegal Business. 3. Without prejudice to the above, the benefit of netting off of interest income against interest or other expenditure ought to have been granted. 4. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 5. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld. AO in levying interest u/s 234A/B/C/D of the Act. 6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld. AO in initiating penalty u/s 271(l)(c) of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all....
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....missioner of Income- tax (Range Head). The Addl.CIT vide his order dated 27.03.2014, disposed off the application of assessee and no relief was given to the assessee. The relevant part of order of Addl.CIT is extracted on page 5 of the assessment order. The AO on receipt of direction of Addl.CIT, Range-4, examined the activities of assessee undertaken from 30.09.2010 till 31.03.2011 as recorded on page no.10 to 15 of the assessment order. On the basis of observation of all the activities allegedly undertaken by the assessee, the AO was of the view that business of assessee was not setup during the Financial Year 2010-11, therefore, the expenses debited to Profit and Loss Account including Depreciation cannot be allowed as deduction for the year under consideration. The AO accordingly disallowed the entire expenses of Rs. 1.03 crore. 5. Aggrieved by the additions, the assessee filed an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee filed detailed written submissions. The submission assessee is recorded in para 5 of order of ld. CIT(A). The assessee in its submission submitted that assessee is a Special Purpose Vehicle Company and is set up is to provide best qual....
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....of C.D. Jewels and assessee. The goods finally arrived in Dubai on 20.11.2011 and reached in India in end November 2011. All the aforesaid imports were duly accompanied and supported by relevant legal documents, such as bill of entry, K.P. Certificate, Invoices etc. 7. The assessee further explained that at the time of execution of agreement, there was no ban of sourcing of rough diamonds from Zimbabwe. Even the article news print dated 15.10.2010 takes note of this fact. This article states that all the Kimberly Process (KP) approved the sale of portion of Marange goods in August and September, which of which went to Indian Buyer. However, further sales have been withheld pending K.P. review machine reported to be discussed at the organisations plenary, to be held in Jerusalem during November. Further, the notifications/circular issued by Ministry of Finance during the relevant period clearly stated that import of K.P. Certificate Zimbabwe rough diamonds were legally very much permissible. The copy of Government Circular was furnished. The assessee also explained that as per Foreign Trade Policy - 2009-14 it has been stated that import of rough diamonds shall be permitted once ....
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....e Panchnama draft by DRI 30.11.2011, the diamonds were seized as exact mining area in Zimbabwe could not be ascertained, nor any proof could be submitted. The contention of assessee that DRI has released its consignments as it was found to be explained, is misplaced and devoid of facts. The seized stock has been released against the bank guarantee and case of DRI is under progress. The ld.CIT(A) further held that the claim of assessee company about starting of business activity and making advance payments to C.D. Jewels in February, 2011 to show that assessee has started his business is not supported with proper documentation and evidence. During the Financial year 2010-11, relevant to the current Assessment Year, Zimbabwe diamonds were under UNA embargo. During this period, the assessee claimed that it has brought Zimbabwe Diamond through C.D. Jewels through its subsidiaries SRDSILF ZE for US 15millions amounts to illegal business transaction. 9. The ld CIT(A) further held that the explanation of section 37 laid down the condition that any expenditure incurred for any purpose which is an offence or it is prohibited by law shall not be deemed to have been incurred for the purpos....
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....ely SRDSIL FZE in United Arab Emirates (UAE). The assessee advanced loan to its UAE subsidiaries out of funds lying in its bank account in accordance of the procedure prescribed by RBI as is evident from the bank statement of assessee. Copy of which is placed at page no.78 of paper book. The assessee's subsidiary in turn placed an order for purchase of diamonds from C. D. Jewels and also made payment against the same have been received from the assessee. The ledger account of C. D. Jewels and bank statement of assessee's subsidiary and annual account of assessee's subsidiary in Dubai is placed on record. C. D. Jewels, in turn procured diamonds from MBABDA Diamonds Private Limited through Mineral Metal Trading Corporation of Zimbabwe. Copy of invoices of MBABDA is also placed on record. Ultimately, such diamonds purchased by C. D. Jewels was received by assessee's subsidiary in Dubai and in turn the same was imported by assessee in Nov, 2011 i.e. immediately succeeding year. 12. The ld. Senior Counsel submits that CESTAT passed order on 12.03.2020 wherein the transaction relation to procurement of diamonds through assessee's subsidiary have been discussed in length and found to b....
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....incurred by the assessee for an illegal business particularly in view of ban on sale of rough diamonds from Zimbabwe imposed by UNA under Kimberly Process. The learned Senior Counsel submits that it is an undisputed fact that during the year under consideration, the assessee has not purchased any diamonds worth a single rupee. The expenses claimed by assessee were on account of administrative expenses, preliminary and pre-operative expenses, written off, financial expenses and depreciation. The expenses such as organising Gala dinners for Zimbabwe Authorities and others giving Gifts etc., have been incurred broadly for developing relation with person in Zimbabwe anticipating that the same would bring business to assessee in future, such activities are neither an offence, nor prohibited by law, hence, the explanation under section 37 cannot be invoked in case of assessee to disallow expenses for such activities. There is no prohibition on inviting foreign guests, organising dinner for guests, giving gifts and perks to dignitaries so as to develop better business relation which in turn might be helpful to the business in further, hence such expenditure would not be covered by explana....
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....d of Zimbabwe was not sufficient for claiming exorbitant expenses. 17. We have considered the rival submission of both the parties and have gone through the orders of Lower Authorities carefully. The short controversy for our adjudication is whether the assessee is entitled for pre-operative administrative expenses, preliminary expenses, financial expenses and depreciation or not. It is an undisputed fact that during the period under consideration, the assessee has not imported a single piece of diamond, nor made any payment thereof, therefore, the invocation of explanation to section 37 by ld. CIT(A) is uncalled for. The assessee has placed on record the copy of Memorandum of Association (MOA) of Assessee Company. The assessee is a Special Purpose Vehicle company formed and registered in India as a Public Limited Company, engage in business of sourcing of rough diamonds globally. The assessee is to carry out its business as per MOA, for procuring, cleaving, sawing, cutting, polishing, processing, manufacturing, sorting, grading, buying, selling, handling, supplying, transporting, distributing, warehousing, trading, auctioning, tendering, bidding, importing, exporting, marketing....