TaxTMI 
TaxTMI 
2022 (1) TMI 228
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....-12), CO No.87/Mum/2021, (Arising in ITA No. 7439/Mum/2019 for AY 2012-13), CO No.88/Mum/2021, (Arising in ITA No. 7532/Mum/2019 for AY 2013-14), CO No.89/Mum/2021, (Arising in ITA No. 7526/Mum/2019 for AY 2009-10), CO No.90/Mum/2021, (Arising in ITA No. 7527/Mum/2019 for AY 2010-11), CO No.91/Mum/2021, (Arising in ITA No. 7528/Mum/2019 for AY 2012-13), CO No.92/Mum/2021, (Arising in ITA No. 7530/Mum/2019 for AY 2013-14), ITA No.7409/Mum/2019, ITA No. 7526 to 7531/Mum/2019, ITA No. 7482/Mum/2019 Sri Rajesh Kumar, AM And Sri Amarjit Singh, JM For the Appellant : Shri Nirav Mehta, AR For the Respondent : Shri Vinay Sinha, CIT DR ORDER PER RAJESH KUMAR, AM: The above titled appeals have been preferred by the Revenue and different assessees against different orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2009- 10 to 2015-16. Since all these appeals pertain to the same group and also covered by the same search with most of the issues being, therefore all these appeals are being decided by this consolidated order for the sake of brevity and convenience. First of all we shall take up Revenue's appea....
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.... declared in the return of income filed originally. Thereafter statutory notices were issued and duly served upon the assesse. Finally the assessment under section 143(3) r.w.s. 153A of the Act was framed vide order dated 26.12.2016 at a total income of Rs. 3,68,63,798/- by making additions under section 14A of the Act of Rs. 23,03,070/- and on account of bogus purchases from M/s. Karma Ispat Ltd. 2,11,22,938/-. Aggrieved assesse challenged the assessment order before the ld CIT(A) on jurisdictional issue as well as on merit. 5. The ld. CIT(A) dismissed the appeal of the assesse on jurisdictional issue that AO has no jurisdiction to make addition to the total income in an unabated assessment year with incriminating materials seized during the search. The ld. CIT(A) after taking into consideration the contentions of the assesse dismissed the legal issue by observing and holding as under: "7.2 The submissions of the Learned Counsel have been carefully considered. It is the contention of the Learned Counsel that during the course of search no incriminating material was found. Therefore, the provisions of section 153A are not applicable nor does the AO has jurisdiction to m....
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.... quashed. 8. In view of above, it is evident that the findings and reasoning of Assessing Officer are not supported by any evidence or material found during the course of search proceedings. In support of its contentions the ld AR strongly relied on the following decisions a) Commissioner of Income-tax (Central)-III vs. Kabul Chawla [2015] 61 taxmann.com 412 (Delhi). b)The Hon'ble Delhi High Court further dealt with its decision in the case of CIT v/s Anil Kumar Bhatia (24 taxmann 98) c) CIT v. Continental Warehousing Corporation (Nhava Shava) Ltd. [SLP (Civil) No. 18446/2018] dated 09.07.2018 d) CIT v. Continental Warehousing Corporation (Nhava Shava) Ltd. & Other [374 ITR 645 (Bom)] e) PCIT v. Meeta Gutgutia [96 taxmann.com 468 SC] f) PCIT v. Meeta Gutgutia [395 ITR 526 (Del)] g) PCIT v. Meeta Gutgutia [96 taxmann.com 468 SC] h) PCIT v. Meeta Gutgutia [395 ITR 526 (Del)] j)CIT Vs. Saumya Construction Pvt Ltd (Tax appeal No. 24 of 2016) dated 14th March 2016,(Guj) k)Pr. Commissioner of Income Tax-3 V/s Anil Bholabhai Patel Dated- 30/08/2017.(Guj) 9. The AR also submitted that no additio....
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.... course recording of statement u/s 132(4) of the Act Shri Ramesh Mansukhani Director of Man Group who has in principle agreed that the purchases were unsubstantiated. The ld DR contended that this is enough incriminating to make the additions. The ld DR submitted that taking into account the circumstances evidences and statements of directors of Karma Ispat Ltd , statement of the Chairman of Man Group, the AO made the additions and therefore the legal ground raised by the assesse was rightly dismissed. 13. We have heard the rival contentions of both the parties and perused the materials as placed before us including the decisions as cited above. The undisputed facts are that on the date of search the assessment for the current assessment year was not pending and therefore it has attained finality and thus it was unabated on the date of search. It was also undisputed that except the statement recorded u/s 132(4) of the Act of director of Karma Ispat Ltd as well as Director of Man Group of Industries there was no incriminating materials which was seized during search to back the additions. Therefore the AO has no jurisdiction to make addition in an unabated assessment year without....
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....ar ratio has been laid down by the various Hon'ble High Courts in the decisions as cited by the ld AR. 14. We also find merit in the contentions of the ld AR no addition can be made on the basis of statement recorded during search or post search enquiries. In the following decisions the Hon'ble Gujrat High Court has held that if no incriminating material is gathered during the course of search, then addition cannot be made even on the basis of statement of director recorded post search proceedings. (a) Pr. Commissioner of Income Tax Vadodara-1 V/s RSA DIGI Prints Dated- 06/09/2017. (b) Principal Commissioner Of Income Tax V/s Sanghvi Fincap Ltd. Dated-20/02/2018. (c) Principal Commissioner of Income Tax- 2 V/s Kamlesh Prahladbhai Modi. Dated- 18/04/2018. (c) Sunrise Finlease (P.) Ltd. reported in 89 taxmann.com 1. The case of Assessee is far better wherein no evidence in support of additions have been found either during search proceedings or during post search proceedings. Hence order passed u/s 153A is bad in law and deserves to be quashed. 14.1. Further we find merit in the contentions of the ld A.R. that statement recorded during sea....
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....9. The grounds raised by the assesse in the cross objections are reproduced below: "1. On the facts and in the circumstances of the case, the CIT(A) erred in confirming addition to the extent of 25% of on money receipts of Rs. 742.20 lacs worked out on the basis of seized material. The addition is not justifiable and deserves to be deleted in toto. 2. On the facts and in the circumstances of the case, the CIT(A) erred in confirming addition on account of disallowance under section 14A of the Act of Rs. 62,887/-. The disallowance is not justifiable and deserves to be deleted. 3. The respondent craves leave to add, alter, amend and/or withdraw any ground or grounds of cross objections either before or during the course of hearing of the same." 20. On the facts and in the circumstances of the case, the CIT(A) erred in confirming addition on account of disallowance under section 14A of the Act of Rs. 62,887/-. The disallowance is not justifiable and deserves to be deleted. 21. The issue raised in the first ground of appeal is against the order of CIT(A) partly upholding the order of AO on the issue of on-money by directing to apply 25% as against the 10....
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.... 1709 7404 6 Less: Purchase wrongly accepted as bogus purchase 914 7 Total receipt as per letter dated 31/03/2015 6489 8 Less Receipt of JCM Group i.e. Man Infraprojects Limited 2500 9 Total receipt of RCM Group 3990 23. The A.O. has worked out total receipts on the basis of said alleged "Excel Sheet" which is extracted as under for ready reference: Rs. In lacs Sr. No. Name of the parties A.Y. 2015-16 A.Y. 2014-15 A.Y. 2013-14 A.Y. 2012-13 Total 1 Man Industries (India) Limited 640.49 747.57 397.10 418.25 2203.4 2 M/s M Concepts Retail LLP 0.14 0.15 4.32 46.65 51.56 3 M/s Merino Shelter Pvt. Ltd. 95.72 85.00 306.24 163.20 650.16 4 M/s Man Global Limited 589.64 171.17 410.75 426.00 1597.56 Total 1325.99 1003.89 1118.41 1054.40 4502.69 24. The A.O. after comparing receipt worked out as a....
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....dition determined in case of appellant as follows : Particulars A.Y. 2015-16 A.Y. 2014-15 A.Y. 2013-14 A.Y. 2012-13 Total Disclosure of gross on money receipts by MAN Group 1325.99 1003.89 1053.40 1054.41 4437.68 Less: Contra entries as per submission dated 31.03.2015 to Investigation wing. 202.51 269.58 (107.18) 82.80 447.71 Less: On money receipt considered in Merino Shelters Pvt Ltd 95.72 85.00 306.24 163.20 650.16 Less: On money receipt considered in M Concepts Retail LLP 0.14 0.15 4.32 46.96 51.57 Less: On money (Scrap) to be considered in Man Industries (India) Limited 96.45 - 3.00 19.25 116.90 Balance on money Receipt to be considered in Man Global Ltd 932.97 649.16 847.02 742.20 3171.35 8.16 I have examined the contention of the AO that entire cash receipts on account of on money should be treated as taxable income without allowing any expenditure there from. I have also examined various documents, replies, rejoinders, charts and final submissions etc. given during the appellate proceedings and taken....
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....Rs. 2,12,99,000/- on protective basis respectively. The ld. AR referred to the appellate order and pointed out that ld. CIT(A) has held that only profit embedded in alleged on money cash receipts is to be taxed which was a perfect finding by the ld CIT(A) and further directed the AO to estimate the profit rate @25%. The department is in appeal challenging the relief allowed by ld CIT(A) to the assessee by allowing 75% of the on money towards expenses with allegation that the nature and allowability of the expenses found in excel sheets could not be verified besides challenging the expenses in cash do not qualify for deduction under section 40A(3) of the Act. The ld AR invited the attention of the bench to the statement of Shri Ramesh Chandra Mansukhani and submitted that in first statement only, Shri Ramesh C Mansukhani spoke about inconsistencies, duplicity and irregularity found in Excel sheets prepared and maintained by Mr. Vinod Tiwari. The ld AR submitted that in first statement only Shri Ramesh C Mansukhani made it clear that entries reported in Ms Excel sheet inter alia included expenditure of Man group and additional income would be offered after claim of expenditure in due....
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.... higher side in view of the fact that the profit earned by the assessee against its Real estate project is 4.45% as noted at page no. 9 by CIT(A) in the appellate order. The ld AR therefore prayed before the bench that considering the same, profit ratio of 25% estimated by the CIT(A) is exorbitant and may be restricted to only profit actually being earned by the Assessee company. 28. The ld DR, per contra, submitted before the bench that the order of ld. CIT(A) is wrong as the ld CIT(A) has wrongly allowed the relief of 25% of the on Money to the assesse towards the expenses by holding that only profit can be brought to tax and not the entire on money. The ld AR submitted that incriminating material/documents were found during the course of search on the assesse in the form of hard disk and excel sheets which contained the jottings/notings qua cash transactions by the group entities including the assessee. The ld AR submitted that once the incriminating material is found during search then there is question of allowing any deduction from that on money towards expenses incurred as assesse has already accounted for the expenses in the regular books. The ld DR therefore prayed that....
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....e and rival contentions and certainly agree with the findings of ld CIT(A) that entire on money can not be taxed and it is only profit embedded in on money is to be taxed . We note that assessee's average profit from real estate business from AY 2012-13 to 2015-16 is 4.45%. Now the contentions of the assesse is that the estimation of income in respect of on money has to based on some realistic basis that has to be on the basis of profit ratio of the assessee and should not be estimated arbitrarily as done by the CIT(A). Before arriving at final conclusion we would like to discuss the decisions relied by the ld AR which are discussed as under: (i) In the case of CIT(A) Vs. Abhishek Corporation in ITA No. 15 of 2003 , Hon'ble Gujrat High Court has upheld the order of the tribunal wherein it has been held that in case of on money only profit has to be added to the income of the assesse and not the entire undisclosed receipt (ii) In the case of Commissioner of Income-tax v. Samir Synthetics Mill (supra), the Hon'ble Gujarat High Court has held as under: "Where assessee could not even be able to reconcile production, sales and closing stock although specific o....
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.... at by the Tribunal with a new figure of net profit. This without in any manner showing that the estimate arrived at by the Tribunal in the impugned order is perverse. It is a settled position of law that in estimated net profit arrived at by the authorities is a question of fact and if the material on record does support the estimate arrived at by the Tribunal then it does not give rise to any substantial question of law (see CIT v/s. Piramal Spinning and Weaving Mills Ltd. 1979 (10) TMI 45 - BOMBAY High Court). In this case, we find that the net profit estimated at 17.08% is a very possible view on the facts found. No substantial question of law Tribunal directing the Assessing Officer to allow deduction towards remuneration and interest, even in case of estimated net profit - Held that:- There can be no quarrel with the submissions of Mr. Kotangale. In any event, the Assessing Officer would need to redetermine the book profits of the respondent-assessee as a consequence of the impugned order of the Tribunal. At that stage the ceiling provided under Section 40(b) of the Act would also be considered while allowing deduction on account of remuneration and interest paid to ....
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....he ends of justice if a rate of 12.50% is applied on the on money. Accordingly the order of the ld CIT(A) is modified and AO is directed to apply profit rate of 12.50% on the on money. Consequently the ground no 1 in the assesse cross objection is partly allowed. 31. In the revenue appeal, the part deletion of addition to the extent of 75% of the on money is challenged besides challenging the allowability of cash expenses u/s 40A(3). Since we have allowed the ground 1 raised in the cross objection by the assesse, the appeal of the revenue becomes infructuous and is accordingly dismissed. 32. The issue raised in the 2rd ground in the cross objection by the assesses against the confirmation of addition of Rs. 62,887/- as made by the AO u/s 14A of the Act towards earning of exempt Income without any incriminating material found during search. 33. The issue is similar to one as decided by us in ground no, 3 in CO: 81/Mum/2021 A.Y. 2011-12 (supra) wherein we have decided that AO has no jurisdiction to make addition in absence of incriminating materials in an unabated year. Therefore our decision in ground no. 3 in CO: 81/Mum/2021 would, mutatis mutandis, apply to ground no. 2 i....
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....of the bogus purchases as against the 100% addition made by the AO. Since we have allowed the appeal of the assessee on the legal issue by holding that the jurisdiction of the AO to make addition is invalid. Consequently the appeal of the revenue becomes infructuous and is accordingly dismissed. 40. The issue raised in ground no. 1 in CO 87 & 88/Mum/2021 is similar to one as decided by us in ground no. 1 in CO 82/Mum/2021 A.Y.20012-13. Therefore our decision in ground no. 1 in CO: 82/Mum/2021 A.Y.20012-13 would ,mutatis mutandis, apply to ground no. 1 in CO 87 & 88/Mum/2021 and accordingly the order of CIT(A) is modified and AO is directed to apply a profit rate of 12.50% on the on money. The ground 1 in the above two cross objections in AY 2012-13 to 2013-14 is allowed. 41. The issue raised in ground no . 1 in revenue appeals no. ITA No.7539 & 7432 /Mum/2019 is similar to one as decided by us in ground no. 1 in 7533/Mum/2019 A.Y.20012-13. Therefore our decision in ground no. 1 in 7533/Mum/2019 A.Y.20012-13 would, mutatis mutandis, apply to ground no. 1 in ITA No.7539 & 7432 /Mum/2019 and accordingly the appeals of the revenue in AY 2012-13 & 2013-14 become infructuous and ar....
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....vided in the clause (a) to (ha) of the Explanation appended to section 115JB of the Act. The ld AR argued that no adjustment has been prescribed or provided in section 115JB of the Act as regards to the on money receipts, bogus commission etc. as added by the by A.O. to the book profits. The AO has no power to tinker with the accounts of the assessee and hence the adjustment made by the A.O. to the book profit are erroneous and may kindly be deleted. In defence of his arguments the ld AR relied on the following judicial pronouncements: A)Apollo Tyres Ltd. Vs Cit [2002] 255 Itr 273 (Sc), B)Malayala Manorama Co. Ltd. Vs.Cit, [2008] 300 Itr 251 (Sc), C)The Cit Vs M/S Nhpc Ltd. 2018 (4) Tmi 47 - P&H 46. The ld AR therefore prayed that the order of CIT(A) being very reasoned and in accordance with the ratio laid down in various decisions as referred to above and may kindly be upheld on this issue by dismissing the appeal of the assessee. 47. The ld DR on the hand submitted that the AO has correctly made addition to the book profit in respect of on money received by the assesse which was shown in the books of accounts. Thus the books of accounts prepared ....
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....led assets as per the provision of Companies Act and Accounting standard - 6. It is not out of place to submit that the coordinate bench in the case of Rishiroop Rubber International Ltd has allowed the A.O. to rewrite the book profit under section 115JB of the Act in following two cases namely i) if it is discovered that profit & Loss account is not drawn up in accordance with Part II and Part III of Schedule IV to the companies Act, however, the Assessing Officer cannot disturb the Net Profit as shown by the assessee where there are no such allegation, fraud, misrepresentation but only a difference of opinion as to whether particulars amount should be property shown in the profit and loss account or in the Balance sheet, ii) if accounting policies, accounting standards not adopted for preparing such accounts and method, rate of depreciation which have been incorrectly adopted for preparation of profit and loss account laid before the Annual General meeting. In our considered view none of the aforesaid conditions laid down by the tribunal gets fulfilled in the case of the assessee. Therefore we are inclined to uphold the order of ld CIT(A) by dismissing the appeal of the revenue. ....
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.... sheets i.e. 3990 lacs was duly taxed in the case of Man Group of entities including alleged receipt of Rs. 169.86 added on protective basis by the A.O. Therefore the ld CIT(A) has given a finding of fact that the protective addition of Rs. 1,69,86,000/- being on money received has been confirmed substantively in the case of M/s Man Global Limited for A.Y. 2015 - 16. Therefore, this addition made on protective basis is deleted. 52. After hearing the rival contentions and perusing the material on records in the appellate order including the charts of on money calculation filed by the assesse, calculated by the AO and reworking thereof by ld CIT(A), we note that the substantive addition has been confirmed @ 12.50% of the on money in the hand Man Global Ltd in AY 2015-16 and thus the protective addition was rightly deleted by the ld CIT(A). We further note that in on money as reworked by ld CIT(A) has been accepted both by the assesse as well as revenue and we have directed the AO to assess the on money @ 12.50%. Therefore we are inclined to uphold the order of ld. CIT(A) by dismissing the appeal of the revenue. ITA No. 7526/Mum/2019 & CO No. 89/MUM/2021 Assessment Year: 2009-20....
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....of the search carried out u/s 132 in the case of the assessee, no material or evidence was found to justify addition made by Assessing Officer on account of Commission payment. The material relied upon by the A.O. i.e. letter of M/s Kala Gas Services is not incriminating material. The letter was part of CLB Petition filed in October-2012 and is certainly a public Document. At the time of original assessment proceedings, the alleged letter is part of Public document. The then A.O. has determined the assessed income under section 143(3) of the Act after both the petitions of CLB were filed, which proved beyond doubt that alleged letter is not incriminating material. In addition to this the ld AR submitted that a superior authority, the Ld. CLB has after considering the alleged letter has rendered the order in favor the assessee company and has held that it has not siphoned off any funds. All the funds which interalia included commission payment were incurred for the business purpose only which left no scope for any adverse inference to be drawn in this regards. It is therefore submitted that the ld. Assessing Officer has simply gone beyond the scope of the provisions of section 153A ....
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....d no. 1 as well. Accordingly we set aside the order of CIT(A) on this issue by holding that AO has no jurisdiction u/s 153A to make additions without incriminating materials found during search. Resultantly all additions made by the AO are directed to be deleted. Ground no. 1 is allowed. 63. The issues raised in ground no. 2 & 3 are on merit of the additions made towards unaccounted scrap sales of Rs. 19,00,000/- and disallowance of Rs. 20,00,000/- u/s 14A of the Act. Since we have allowed the appeal of the assesse on jurisdictional/legal issue, the ground no. 2 and 3 are not being adjudicated. 64. The cross objection of the assesse is allowed ITA No. 7527/Mum/2019 65. The revenue has three grounds in its appeal. In 1st ground the revenue has challenged the deletion of disallowance of commission paid overseas whereas in the 2rd ground the revenue has challenged deletion of scrap sales. Since we have allowed the appeal of the assessee on the legal/jurisdictional issue by holding that the AO has no jurisdiction to make addition without incriminating materials in an unabated assessment year and consequently additions made will not survive. Consequently the appeal of the re....
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....ke addition in respect of scrap sale of Rs. 3,00,000/-. At the time of hearing the ld AR did not press this ground for the reason that telescoping has been allowed by the ld CIT(A) against the additional income offered in the return of income filed in response to notice u/s 153 A of the Act and therefore the ground no. 2 is dismissed as not pressed. 72. The issue raised in the ground no.3 is against the order of CIT(A) upholding the addition of Rs. 5,00,000/- as made by the AO u/s 14A of the Act. 73. During the course of proceedings u/s 153A of the Act, the A.O. noted that the assessee has earned exempt income of Rs. 5,46,19,353/- on account of dividend on Shares and Mutual funds during the year while the assessee has disallowed suo-motto Rs. 1,61,24,031/- under section 14A of the Act which is not in accordance with Rule 8D of the Act whereas the disallowance in the original return of income was Rs. 1,66,24,031/-. Accordingly the AO called upon the assesse as to why the Rule 8D should not be invoked to calculate the disallowance. The AO however rejected the disallowance made by the assesse and was calculated by the AO at Rs. 1,76,24,031/- and Rs. 15,00,000/- was disallowed an....
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.... may allowed towards the proportionate interest expenditure disallowed in return of income. 78. After hearing both the sides and perusing the material on records, we find that the assessee's own interest free funds are far more than the investments in shares and mutual funds and therefore the presumption is that the assesse has made investments out of own funds and not interest bearing funds. The case of the assesse is squarely covered by the decision of jurisdictional High court in the case of CIT v. Reliance Utilities and Power Ltd and HDFC Bank Ltd Vs. DCIT(supra) wherein it has been held that where the assesse own funds are more than the investments made in securities yielding exempt income, then the presumption has to be made that assesse has invested in the said securities out of own funds. Therefore the order of ld CIT(A) is set aside on this issue and AO is directed to delete the disallowance. We would like to make it clear that this is ground raised before us and therefore we are allowing relief to the assesse over and above that. Ground no. 3 is allowed. 79. The cross objection by the assesse is allowed. ITA No. 7530/Mum/2019 (Revenue Appeal) 80. The revenue h....
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....axation which is not permitted under the Act. We have also perused the records before us along with the working of on money done by the ld CIT(A) and do not find any infirmity in the appellate order. We are therefore upholding the order of ld CIT(A) by dismissing the ground no 1 raised by the revenue. 84. The issue raised in the 2nd ground of appeal is against the order of ld CIT(A) allowing the addition on account of scrap sale to be adjusted against the additional income offered to tax in return of income filed under section 153A of the Act thereby allowing telescoping thereof. 85. The facts in brief are that the A.O. has made addition of Rs. 3,00,000/- on account of under-invoicing of scrape sales. The addition is confirmed by the CIT(A) vide para 9.2. of the appellate order however considering the additional income of Rs. 5,00,000/- offered to tax in return of income filed in response to notice issued under section 153A of the Act, the CIT(A) has allowed the benefit of telescoping to the assesse in para no. 9.3 of the appellate order. It is pertinent to state that the additional income was offered to tax to just buy peace of mind and was not for any particular issue. Havi....
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.... with the agencies releasing the supply orders and therefore assessee must have local agents/intermediaries in order to procure order and enhance assessee's presence in the region. Therefore, the Company had appointed M/s Alpine Enterprise LLC as its agent to provide various services as stated herein above. The agent has been providing various marketing services from many years and the assesse has been paying commission on export sales to M/s Alpine Enterprise L.L.C. regularly based on terms and conditions agreed with it. The payments were made out of commercial expediency. The assesse also submitted that similar expenses by way of commission expenditure was consistently allowed in the earlier assessment years even in the scrutiny proceeding and therefore on the principle of consistency also these are allowable as there is no change in facts and circumstances in the current year vis a vis earlier years. However, the AO disallowed the commission on the ground that that M/s Kala Gas Company has vide its letter dated 5th May 2011 stated that it did not know the two companies M/s Alpine Enterprise LLC and M/s Sun Overseas Trading and have had no business relationship with them of any n....
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....s and assist in bidding to procure order, to collect project completion certificates, renders logistic support for ensuring safe delivery of pipes, as the case may be. The ld CIT(A) also appreciated the fact that the assesse was not having contact or physical presence in countries in Middle East and in most of the cases, the assesse does not have direct contacts with the agencies releasing the orders and assesse must have local agents/intermediaries in order to procure orders and enhance assessee's presence in the region. Therefore, the assesse had appointed M/s Alpine Enterprise LLC as its agent to provide various services as stated herein above. The agent has been providing various marketing services from many years and the assesse has been paying commission on export sales to M/s Alpine Enterprise L.L.C. regularly based on terms and conditions agreed with it. The payments were made out of commercial expediency. The ld CIT(A) also recorded a finding that the commission paid was within the standard norms of the industry and even the company law Board in a petition by the Director Mr. J. C. Mansukhani has held that the assesse has not siphoned off money by paying these commission a....
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.... who is in dispute with the Chairman of the Company. The Company Law Board decided the issue in favour of the assesse and the operative part is reproduced as under for your ready reference purpose: "The respondent have categorically replied in their surrejoinder to the each and every averment. The moneys which the petitioner alleged to be siphoned off was not utilized by the 3rd respondent individually for his sole benefit or to his family members but spent for the benefit of the Company and its business affairs. Hence, I do not find any substance in the allegation and the same are after thought and completely base less. Accordingly the issue is answered." 91. It is clear from the above that Company Law board had specifically held that the Assessee is not involved into any siphoning off the funds and all payment including payments towards the commission alleged by the brother of the Chairman of the assessee company Mr. J. C. Mansukhani was spent for the benefit of the assessee and its business affair. Hence there is no scope to doubt the commission payment on the basis of letter of M/s Kala Gas Company already dealt by "CLB" in petition of Mr J.C. Mansukhani. It is also....
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....e agreement was executed for the ease of the assessee's business transactions in UAE. Man Overseas Metals DMCC is having requisite skills and abilities and the assessee has hired its services for the ease of its business transaction. M/s Man Overseas Metals DMCC is not commission agent of the Assessee. Detailed description of its services were mentioned in service agreement. The major demand for the company's project is from Gulf countries and it is very important to have presence in that region to secure new orders, help in execution of orders and strengthening relationship with customers which will be helpful in getting more business opportunities in the region. Many companies have set up offices / branches in Dubai for the very same region being a hub for business activities and controlling the business for the entire Middle East. As a result, to ensure smooth business operation and prompt and satisfying customer service, the services are hired. Hence the payment was made for these services as per the agreement executed in this regard. However the AO was not satisfied with the explanation of the assesse and disallowed the service charges of Rs. 48,84,570/-. 94. The ld CIT(A) ....
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....e of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. In this case the AO has not verified whether the service charges paid was for commercial expediency. 11.6 I also agree with the view taken by the Delhi High Court In CIT vs. Dalms Cement (Bhart) Lid. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much Is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, I have to see the payment of service charges from the ....
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....eting including travelling within UAE etc. There is no iota of evidence to show that the payment of service represented only accommodation entry or was only a paper transaction. There is also no evidence to show that the amount of service charges came back to the assessee in any form. Since the assessee has given full details of service charges, i.e. service agreement, payment details etc., the transactions of payment of service charges as well as the aspect of rendering services by Man Overseas Metals DMCC were fully verifiable. As per the binding agreement the assessee has paid Service charges. The payments were made after making compliance of all RBI and FEMA regulations in this regard. We also note that that total turnover of the Assessee for A.Y. 2013-14 is of Rs. 15,40,91,99,878/- and the payment is just Rs. 48,84,570/-. Hence % of alleged charges comes to just 0.03%. Considering the materiality aspect there is no scope to doubt the genuineness and commercial expediency of the impugned service charges. If the assessee could offer Rs. 1540/- Crores of turnover and profit of Rs. 142/- crores then it is hypothetical, to assume that the assessee has taken accommodation entry of R....
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....ually paid by the Assessee. Further it is also not a case wherein the assessee has recovered withholding tax from the bond holder. The payment made by the assessee is its business decision and accordingly the payment in question should be allowed. 101. After hearing the parties and material placed before us, we note that the assesse has redeemed FCCB and paid total premium of 1,12,05,07,097/- by grossing up the amount by withholding tax. In other words the TDS deducted and deposited by the assesse on behalf bondholders was treated as part of that. Besides we note that claim was in accordance with section 195A of the Income Tax Act, 1961 as the Company paid withholding tax of Rs. 12,40,33,655/- by the grossing up the amount of premium and paid Rs. 112,05,07,097/- as premium on redemption of FCCB to bondholder. We also note that it has been provided in the section 195A itself which is extracted below: "In a case other than that referred to in sub-section (1A) of section 192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then....
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....ound our decision on the grounds of appeal are as follows. 104. The issue raised in ground no .1 is similar to one as decided by us revenue's appeal in ITA No.7430/Mum/2019 A.Y.2013-14 (supra) upholding the order of ld CIT(A) on this issue. Therefore our decision would, mutatis mutandis, apply to ground 1 of this as well. Accordingly the ground no. 1 is dismissed by upholding the order of ld CIT(A). 105. The issue raised in ground no .2 is similar to one as decided by us in in revenue's appeal in ground no. 2 in ITA No.7539 & 7432/Mum/2019 in para 42 to 48 supra upholding the order of ld CIT(A) on this issue. Therefore our decision would, mutatis mutandis, apply to ground of this as well. Accordingly the ground no. 2 is dismissed by upholding the order of ld CIT(A). ITA No. 7531/Mum/2019 (Revenue's appeal) A.Y. 2015- 16 & ITA No.7409/MUM/2019 (Assessee's appeal) A.Y. 2015-16 ITA No.7531/Mum/2019 106. The grounds raised by the Revenue are as under: "1. Whether on the facts and circumstances of the case and in the law, the Ld. CIT(A) erred in deleting the addition of Rs. 6,40,49,000 as alleged receipt of on money without appreciating the fact that the AO had d....
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....ITA No.7539 & 7432/Mum/2019 from para no.42 to 48 (supra) by upholding the order of ld CIT(A). Therefore our decision would, mutatis mutandis, apply to ground no.3 of this appeal as well. Accordingly the ground no.3 is dismissed by upholding the order of ld CIT(A). 110. The issue raised in 4th ground of appeal is against the deletion of addition of Rs. 4,57,46,796/- by ld CIT(A) as made by the on account G.P. addition on purchase from M/s Harmony Exim Pvt. Ltd. 111. The facts in brief are that during the course of assessment the A.O. has observed that during the year the assessee has made total purchases of Rs. 1,45,44,11,852/- (net amount of Rs. 1,38,51,53,187/- + MVAT Rs. 6,92,58,665) from M/s Harmony Exim Pvt. Ltd. Out of total purchase, Rs. 9,14,75,919/- is for manufacturing purposes whereas remaining purchases of Rs. 136,29,35,993/- were for trading purposes. During the course of search proceedings, a survey was also conducted at office premises of Harmony Exim Pvt. Ltd. and statement of Shri Ajay Singhal who provided entries to the assessee was recorded on 11.10.2014. Mr. Ajay Singhal admitted in his statement that he was issuing bogus bills to Man Industries (I) Ltd. f....
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....r: "9.6 The fact that the assessee had made purchases for manufacturing and for trading purposes is not disputed by the AO. While the purchases for manufacturing to the extent of Rs. 9,14,75,919/- have been admitted as bogus by both the parties, this is not so with the trading purchases. Both, Shri. Ajay Singhal, Shri. Sachin Surekha have confirmed that these are genuine sales made to the appellant. The appellant has also confirmed that these purchases are genuine. The purchases have been recorded in the books and corresponding sales have also been recorded which should not been proved to be false. The AO has rejected the books' of account of the assessee only on the presumption that the purchases are non-genuine. While it is admitted that the assessee did indulge in getting some accommodation entries, it cannot be presumed that the entire purchases made by the assessee are bogus. Specially, when the corresponding sales are also recorded and profit also declared, on the same. As the estimation of additional profit on the alleged bogus purchases is merely on presumptions and suspicions, the same cannot be upheld. In the other case where GP has been estimated, there was ....
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....actually delivery of goods. As against that vide statement dated 13/12/2016, he has accepted that sales of Rs. 145,44,11,852/- were genuine sales to Man Industries (India) Limited. Hence both statements are contradictory and cannot be relied upon. 116. The ld AR submitted that the Assessee has duly furnished the confirmation of account of M/s Harmony Exim Pvt. Ltd accepting to have made sales to the assessee and has received consideration through the regular banking channel. In addition to this, the ld AR stated that the ld. A.O. failed to provide an opportunity to cross examine Mr. Ajay Singhal before drawing adverse inference against the assessee on the basis of impugned statements. Any addition on the basis of third party statement without giving an opportunity of being heard is bad in law and deserved to be deleted as has been held in catena of judicial rulings which includes following namely (i) Hon'ble Gujarat High Court in case of commissioner of Income Tax Vs. Chartered Speed Pvt. Ltd vide Tax Appeal No: 126 of 2015 dated 3/03/2015, (ii) CIT vs. Eastern Commercial Enterprises 210 ITR 103 and (iii) Commissioner of Income Tax Vas. Sunita Dhadda 2018 (3) TMI (1610. Then ld ....
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.... purchase transaction from M/s Harmony Exim Pvt. Ltd., which clearly proved prejudicial mindset of A.O. Confirmation of account of Harmony Exim Pvt. Ltd wherein they have duly accepted to have sold goods to the assesse was also produced. The ld AR submitted that following documents were filed to prove the purchases by the assessee: (i) Copies of bank statements (ii) Copies of VAT returns of the Assessee as well as Vendor of the goods in question. (iii) Copies of lorry receipts, transportation receipts etc. furnished by the Assessee. (iv) Copy of stock registers (v) Copies of inspection report and consumption report (vi) The fact that the purchases were consumed in manufacturing process and resultant finished goods were sold fully. Stock purchased for trading was sold out fully and resultant profit was offered to tax. (vii) Mostly importantly, the detailed explanation furnished by Shri Ramesh Chandra Mansukhani vide statement on oath recorded on 09/12/2016. 117. The ld AR contended that sole reliance to statement of the Chairman recorded during the course of search proceeding cannot constitute basis since it was alrea....
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....xim Pvt. Ltd. 8. Invoice copies in respect of purchase made by M/s Harmony Exim Pvt. Ltd corresponding to sale made to the assessee" 120. Thus it is clear from the above that materials purchased was sold and stock tally was also produced before the AO as well as CIT(A). The AO has relied on solely on the statement recorded during search and survey without bringing any substantive evidences on records. As is clear from the evidences filed by the assessee, the AO has not pointed out any defect or deficiency in those evidences. We find merit in the arguments of the ld AR that statements recorded on oath during the survey cannot be the sole basis for taking adverse view against the assesse and has no evidentiary value as held by the Hon'ble Apex Court in the case CIT vs Khader Khan Son (Supra). Similarly the statement made u/s 132(4) also has no evidentiary value unless some materials is there on the record to corroborate the same. The case of the assesse find support from the case Commissioner of Income-tax, Karnataka Vs. Shri Ramdas Motor Transport Ltd. (Supra) wherein it has been as under "Section 132, read with section 37(1) of the Income-tax Act, 1961 - Search....
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....sued for production / manufacturing of spiral pipes iii. Copy of inspection report was also filed before AO iv. Copy of lorry receipt in respect of goods transported from Mumbai to Anjar v. Stock register showing month wise receipt and consumption of HR Coil. 124. We also note on the basis of records before us that the assesse had purchased the said materials 2093.335 MT of HR coil amounting to Rs. 9,14,75,919 (i.e. 89743813 + CST 1732106) for manufacturing of Spiral Pipes at its Anjar Plant. The said material was utilized for manufacturing of Spiral Pipes in respect of sales order received from following parties for their project called "SAUNI YOJNA": 1. NCC Limited 2. SPML Limited 124.1 We also note that the corresponding sales were duly credited to Profit & Loss account of current year and resultant profits were duly offered to tax which leaves no scope for any adverse inference to be drawn in this regard. However the AO was not satisfied with the explanation of assesse and disallowed and added the entire purchases made for manufacturing purposes of Rs. 9,14,75,919/- to the income of the assesse. 125. The ld CIT(A), in the ap....