TaxTMI 
TaxTMI 
2022 (11) TMI 885
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....d/2018 filed by the assessee namely Tirupati Proteins Pvt. Ltd. is against the order of the CIT(A)-7, Ahmedabad dated 12/03/2018 for AY 2011-12. Since these appeals filed in the case of assessees belonging to the same group involve some common issues, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience. 2. First we take up ITA No.328/Ahd/2017 for AY 2011-12 in the case of N.K. Proteins Pvt. Ltd. and the grounds of appeal raised therein are as under: 1. On the facts and in the circumstances of the case, the CIT(A) has erred in not accepting Appellant's plea that the order passed by the Ld.CIT(A) is bad in law and void ab initio. 2. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have accepted that assessment order was barred by limitation. 3. On the facts and in the circumstances of the case, the learned CIT(A) is not correct in observing that the Assessing Officer had right reasons to believe that special audit was required in the given case. 4. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred by confirming the Assessing Offic....
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.... of stocks or merely multiple transactions of the same stocks were done with a view to artificially inflate turnover, Special Audit of the books of accounts of the assessee-company for the year under consideration was ordered under Section 142(2A) of the Act by the competent authority. Due to financial irregularities and default in payments to investors, the NSEL was investigated by various Government agencies. In this connection, the assessee-company being member of NSEL and its group concerns were also surveyed under Section 133A of the Act by the Investigation Wing of the Income-tax Department on 22.08.2013. After taking into consideration the survey report as well as Special Audit Report and the submission made on behalf of the assessee on the relevant issues, the following observations/findings, as summarized in paragraph No. 7.19 of the assessment order, were recorded by the Assessing Officer:- "a. The assessee group is closely linked with NSEL. b. Though NKPL claimed to a broker for NSEL in effect all transactions done by it were done for the entities of the NKP group only. Thus the charade of being a broker was created only to mask the true nature of the t....
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....ee before the learned CIT(A) in writing in support of its case that the amount in question being finance charges/interest was deductible as business expenditure and the Assessing Officer was not justified in treating the same as speculative loss:- "5. Regarding addition on account of trading transactions on NSEL platform and loss incurred at Rs. 14,42,91,136/-. 5.1 The Assessing Officer in para 4 of the assessment order has referred trading practice of the commodities on NSEL i.e. National Spot Exchange Ltd. It is stated that as per the mechanism the sellers of a particular commodity brings their goods to the godown operated by National Spot Exchange and get receipt online for such goods and thereafter they can sell the receipt to the buyer online, the buyer will pay the amount and on producing the receipt they can get the material. It is stated that the buyer can also sell the receipt to other buyer. According to him there is supposed to be a settlement cycle for the commodities to be traded on NSEL. It is stated by the AO that the buyer was supposed to pay the money to the seller for the entire lot to be purchased by him on the date of settlement of the cycle. H....
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.... (-)77345466 Total:- (-}447769621 Keeping in view the background of para 5.2 of the assessment order, the Assessing Officer proposed to disallow the above loss on the ground that the transactions were not supported by the delivery of goods. The appellant had, therefore, explained before the AO that :- i) the transactions were entered into through NK Proteins, broker of the NSEL and that transactions are basically in the nature of financial transactions. ii) The appellant had entered into sale and purchase of both. The sale and purchase invoices with quantity details, VAT charged were submitted and it was also explained that the VAT was paid by the appellant. iii) it was explained that the transactions were entered into with a view to avail finance for the business requirements of the appellant and that the loss represented the cost to garner funds to run business, which is reflected as trading loss as above. iv) It was explained that the assessee company was in the need of finance and trading facility available on NSEL attracted the appellant to enter into such transactions, so that the appe....
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....tract. VII) For the above purpose, NK Proteins also maintains margin account of certain percentage of value of transaction on NSEL. VIII) The Assessing Officer has not accepted the above contentions vide para 7.16 to 7.20 of the order. The main reasons given by him are summarized as under i) The transactions are fictitious for purchase & sale on NSEL platform, without actual delivery of goods. (para 7.14) ii) There was no real transaction of purchase and sale but the transactions were given to obtain the funds from the investor on short term basis. (para 7.15 & 7.16) iii) If the appellant's contention that it is a finance transaction, is accepted, it represents interest element which is not reflected in the accounts. It is stated by the AO that if it is a finance transaction as stated by the assessee, the tax should have been deducted at source on the interest and as per provisions of section 40(a)(ia) the payment is required to be disallowed in absence of deduction of tax. It is stated that apart from furnishing the details of payment out of funds received from NSEL, the assessee has not given fund flow statement. (para 7.17) ....
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.... payment received at Rs.100 is the cost of finance of Rs. 100 for the period of 36 days. Copies of bills representing one such trading cycle are enclosed which is explained as above. Slide / chart explaining above cycle and fund-flow arising there from is enclosed. It was with reference to the above contention explained before the AO that the transactions are of the nature to garner funds for business and that the difference being the trading loss is in fact the cost. It was explained that the appellant had obtained the funds for the purpose of its business, and hence, the cost is admissible as business expenditure. In the light of the above facts, the AO's observation that there was no actual transfer of goods i.e. purchase or sales is not material for admissibility of the claim. What is important is that it represents cost for the use of the funds as explained herein above which is for the purpose of business, and hence, it is admissible. It may be seen that the AO has also noticed this fact inasmuch as he has accepted that the transactions were made to obtain funds from investors on short term basis which support appellant's contention, (para 7....
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....acts and there was no underlying commodities in these contracts. It is also seen from the findings of FMC, as mentioned earlier, that A.O has correctly drawn the conclusion that these were the trade contracts without any actual delivery of the goods. Shri Nilesh Patel, Director of the appellant has also admitted the said fact. The A.O has summarised the finding at para 7.19 page-17 of the assessment order. I completely agree with the findings of the A.O. The appellant has tried to defend itself by taking the argument such as the substance of transaction should be considered and not the form of the transaction. Further, the appellant has tried to blame NSEL that it was that promoted the appellant to enter into such trading transactions. The books of accounts audited by the special auditor also reflect that the appellant itself has considered these transactions as trading transactions and not financial transactions. The A.O has rightly held that the loss arising out of these transactions is a fictitious loss in nature. Therefore, the A.O has concluded that such transactions cannot be considered as part of its normal business and hence the loss incurred is nothing but an arrangement b....
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.... dismissed." 6. The learned Counsel for the assessee submitted that the assessee has suffered a loss of Rs.14,42,91,136/-, but the Assessing Officer disallowed the same stating therein that it is a speculative loss. The Ld.AR submitted that a reference was made for audit u/s.142(2A) only on the basis of some newspaper report and on that basis it was presumed that the assessee's case is required a special audit. The Ld.AR further submitted that the assessee incurred loss in respect of cotton wash oil. The Ld.AR submitted that the assessee entered into transactions with NSEL as broker which were basically of financial nature. The modus operandi followed by NSEL to enter into sales and purchase transactions and related to same invoices were prepared with quantitative details. The VAT is also charged on purchases and sales and wherever VAT is payable, it is actually paid by the assessee. The assessee-company has entered into the trading transactions with NSEL with a view to avail finance for the business requirements and the loss represents the interest cost reflected as trading loss in the financial statements. The Ld. AR submitted that there was no intention on the part of the ass....
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....54 ITR 148 (SC), Virtual 400 ITR 409 and 370 ITR 547 (SC). The Ld. A.R. also relied upon the decision of Great Eastern Shipping related to interest which was decided by the Apex Court. 7. The Ld. DR submitted that as regards ground No.4, there was no transfer of goods and the assessee could not explain as to why the route of exchange, i.e. NSEL has been taken. The DR relied upon the assessment order and the order of the CIT(A). The Ld. D.R. submitted that the borrowers and lenders entered into a pair of contracts for every deal and conceptually NSEL was set up as an online trading platform for a number of commodities and each commodity as its delivery locations at NSEL designated warehouse or accredited godowns. But as per information the said platform was misused. Client of M/s. N. K. Proteins Pvt. Ltd. submitted that M/s. N. K. Industries Ltd. executed T+3 contract in the electronic platform of NSEL whereby N. K. Industries Ltd. sold 100 kg. of castor seeds to another prospective investor/client of another broker of NSEL for Rs. 100/-. The another prospective investor client of NSEL in turn executes T+36 trade contract on the electronic platform of NSEL whereby it sells the ca....
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....ich the NSEL has maintained a settlement account with HDFC Bank in the name of N. K. Protein Ltd.. For the purpose of carrying out transaction with NSEL they use to keep 3.5% of the value of the transaction as margin money of this account which is released only after the transaction is over. But since the transaction was not materialized in end the settlement amount was received in consonance with these business transactions from NSEL and thus it cannot be treated as speculative loss and is a part of business loss. As rightly contended on behalf of the assessee-company, the exercise of re-characterization of transactions in the light of statement given by Shri Nilesh Patel should be restricted to only determination of correct taxable income. The relevant purchase and sales transactions were entered into by the assessee-company in order to avail the funds and, therefore, the loss incurred in the said transactions actually represented cost of such funds which was a business loss. The adverse inference drawn by the learned CIT(A) against the assessee on the basis of withdrawal of such loss partly was also not correct as the reasons for such withdrawal proposed by the assessee were dul....
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....ason to interfere with the impugned order of the learned CIT(A) confirming the disallowance made by the Assessing Officer on this issue. Ground No.5 of the assessee's appeal is accordingly dismissed. 10. As regards the next issue raised in Ground No.6 relating to disallowance of Rs.1,30,29,338/- made by the Assessing Officer and confirmed by the learned CIT(A) on account of transaction charges, the relevant facts are as follows. During the course of Special Audit, it was noticed that transaction charges were paid by the assessee-company for transactions on NSEL platform in connection to caster seeds, soya bean seeds, castor oil and cotton wash oil. Although it was submitted on behalf of the assessee that such transaction charges were not debited to the profit and loss account, the Assessing Officer found that the same were debited and included in the purchases. In this regard, it was explained by the assessee that it was not obligatory on its part as a broker to recover the transaction charges from the clients. It was also pointed out that as per the consistent practice followed by the assessee-company, the transaction charges were never recovered from the clients and the same, ....
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....on of recovery thereof from the client does not arise. According to him, the appellant has thus confirmed that it is liable to recover the transaction charges. This conclusion of the assessee is only his presumption. At the time of special audit, as the transaction charges were not separately debited in the P&L A/c., but it was debited as part of purchase cost, the concerned person had explained that it has not been debited to P& L A/c. However, it does not mean that it was conceded by him that charges are recoverable. The appellant submits that this contention of the Assessing Officer is not correct. It is the discretion of the businessman as to how the transactions are to be carried out. Whether the transaction charge paid by it to the Exchange are to be recovered or not, is the discretion of the assessee and the AO cannot ask the assessee to carry out the business as per his opinion. It is held by courts the revenue cannot justifiably claim to put itself in the arm-chair of businessmen and no businessmen can be compelled to maximize his profit. See CIT vs. Dalmia Cement 254 ITR 377 (Delhi). Further, it may be noticed that he has no-where established with any practice pr....
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....e client. Therefore, I agree with the contention of the A.O and hereby confirm the disallowance of Rs. 1,30,29,338/- on account of transaction charges debited to P & L A/c. by the appellant. Thus, this ground of appeal is dismissed." 12. The learned Counsel for the assessee invited our attention to page No.34 of the paper book to point out that the transaction charges of Rs.1,30,29,398/- were actually paid/incurred by the assessee-company. He submitted that the said charges incurred by the assessee represented additional cost of funds raised and utilized; and, since there was no requirement of TDS, it should have been allowed as deduction as rightly claimed by the assessee. He submitted that the factum and quantum of the expenditure incurred by the assessee towards transaction charges was not disputed by the authorities below and disallowance was made merely because the assessee did not recover the same from the clients. He contended that there was no obligation to recover the said charges from the clients and the assessee choose to bear the same as a matter of business expediency. In support of assessee's case on this issue, he relied on the submission made on behalf of the ass....
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....aid decision of Hon'ble jurisdictional High Court and having regard to the facts of the case as discussed above, we are of the view that the disallowance made by the Assessing Officer and confirmed by the learned CIT(A) on account of transaction charges is not justifiable and deleting the same, we allow Ground No.6 of the assessee's appeal. 15. As regards the issue raised in Ground No.7 relating to the disallowance of Rs.6,04,648/- made by the Assessing Officer and confirmed by the learned CIT(A), it is observed that the claim of the assessee for depreciation on the concerned plant was restricted by the Assessing Officer as well as by the learned CIT(A) to the extent of 50% on the ground that even though the said plant was ready to commence the operation, the actual production had started only after 30.09.2010. As rightly submitted by the learned Counsel for the assessee by relying on the relevant judicial pronouncements including the decision of Hon'ble Gujarat High Court in the case of ACIT Vs. Ashima Syntex Ltd, reported in [2001] 251 ITR 133 (Guj.), the assessee is entitled for depreciation at full rate as the concerned plant was ready to use on 27.09.2010 itself as agreed b....
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.....1,66,584/- made by the Ld. Assessing Officer u/s.36(1)(va) of the Act as the Employees contribution to PF and ESI were deposited before the due date of filing of return of income. 8. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in confirming addition u/s68 to the extent of Rs.52.01 crore out of Rs.244.98 crores added by the AO as unexplained expenditure. The same deserves to be deleted. He ought to have appreciated that this amount is acknowledge as payable and is paid in subsequent year and thus, there is no justification for the addition confirmed by him. 18. At the time of hearing before us, the learned Counsel for the assessee has not pressed Ground Nos. 1 to 3 raised by the assessee in this appeal; the same are accordingly dismissed as not pressed. 19. As regards Ground No.4 raised by the assessee in this appeal, it is observed that the issue involved therein relating to disallowance made by the Assessing Officer and confirmed by the learned CIT(A) on account of alleged speculative loss is similar to the issue raised in Ground No.4 of the appeal filed in the case of N.K. Proteins Pvt. Ltd. (supra) being....
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....rrespondence and MOU as referred to above. NKIL does not enjoy any banking facilities since it is BIFR Company as per BIFR Order dated 31-03-2014 [Page No. 112 of Paper Book- Para No. 15.1&15.2]. 5.4 The main terms as per MOU are as under: (1) NKPL shall purchase at the prevailing market rate during F, Y. 2010- 2011, (2) If the purchases are exported by NKPL than the price realized will belong to NKIL. In other words, if there is a profit it will belong to NKIL and if there is a loss the same will also belong to NKIL (3) NKPL shall charge 1% trade margin on average purchase price. (4) NKPL shall retain the export incentives that may be received as a result of the exports made by us and we shall bear all the export expenses as stated by you. (5) Any export incentives that may realize as a result of the exports in overseas market shall belong to NKPL (6) NKPL shall bear all the export expenses such as transportation from factory at Kadi to Kandla Port, storage charges for storing the castor oil and derivatives at Kandla port, if any. (7) Taxes and duties, ocean freight, if the contract is CIF etc. 5.5 Th....
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....ore are only direct expenses and that indirect expenses in the form of managerial remuneration and other administrative facilities are not considered. NKPL has competent staff for entering into export agreements and for its execution to maintain its brand name. If indirect cost is considered than NKPL has made only nominal profit and not as is seen from the figures mentioned in the notice." 20.1 The above explanation offered by the assessee was not found acceptable by the Assessing Officer for the following reasons:- "i) The contention of the assessee that the debit notes are received not on account of poor quality of FSG Oil sold to NKPL but in respect of Export Expenses incurred according to MOU dated 20.04.2010 entered between NKPL and NKIL, is not tenable. Because the statement of the assessee is in contravention as it has credited the sums in its books of account on account of poor quality of FSG Oil. Further, according to para 6 of the MOU it is clearly evident that the Export expenses are to be borne by the NKPL only. ii) The assessee contended that the debit notes were issued as per the MOU dated 20.04.2010 as per correspondence exchanged between NKIL a....
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....tances, two different stands cannot be taken in respect of any sum credited or debited in books of accounts to Standard Principals of Accounting. Therefore the dual stand taken by the assessee on account of debit notes of Rs. 32.79 crores cannot be sustained and accordingly liable to be rejected." 20.2 For the reasons given above, the Assessing Officer disallowed the assessee's claim on account of debit notes raised by NKPL and the amount of such debit notes was added by him to the total income of the assessee by treating the same as unexplained expenditure. 20.3 The disallowance made by the Assessing Officer by treating the amount of debit notes as unexplained expenditure was challenged by the assessee in an appeal filed before the learned CIT(A) and the following submissions in writing were made on behalf of the assessee before the learned CIT(A) in support of its case. "i) As explained before the AO, the debit notes are issued in terms of the MOD i.e. agreement between the parties. Merely because MOD is on plain paper it does not justify the rejection of the claim made by NKPL by issue of debit notes. The appellant submits a copy of the chart furnished by the spec....
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....he NKPL is as per the normal trade practice. The auditors have alleged that the debit note is merely shifting of profit from NKIL to MKPL and to keep assessee company under loss, is totally irrelevant. The auditor has to appreciate that there was no avoidance of tax from the transactions referred to above. The assessee company is having loss whereas NKPL is having taxable income chargeable at 30%. The auditors have stated that the debit note is dubious and colourable device to make the assessee company as sick company. However, he has to failed to appreciate that there is no benefit of having a sick company. Further, the assessee company is sick company under BIFR since 2002 as explained before the AO, and that therefore, the debit note referred to by him would not effect the said status of sick company. Also one fails to understand as to how the assessee group would stand to gain in terms of its overall income tax liability when there is an increase in loss in an already loss making entity, vis-a-vis an increase in profit in a profit making entity. Accordingly, the very argument of the Assessing Officer goes against his logic. iv) Having regard to the above explanation, t....
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....as been as per the MOU and the transaction of sale of caster oil to NKPL is strictly a commercial transaction. As NKPL was a star trading export house the appellant requested NKPL to buy from it for the purpose of exports as per the terms and conditions of the MOU. As per the MOU NKPL would purchase at market rate from NKIL and if these purchases are exported then the price realised will belong to the appellant i.e. the profit or loss would belong to the appellant. Apart from this, NKPL would be also charging 1% and trade margin on average purchase price and it would be also entitled to export incentives. However, the A.O has not accepted the contention of the appellant. According to the A.O, the perusal of books of accounts reflect that the appellant has credited its sums in its books of accounts on account of poor quality of FSG oil, therefore, the contention of the appellant that the debit notes were not received on account of poor quality of FSG oil to NKPL in respect of export expenses is not tenable. Further, according to the A.O the appellant has debit note received from NKPL towards the poor quality of FSG oil on 2872/2011 and 31/3/2011. The A.O at page-24 has reproduced th....
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....appellant has not entered into such kind of MOU with its other sister concern namely Tirupati Proteins for exports. The appellant has loaded the cost of rate difference, trade margins of 1% of the value of goods and VAT @5% resulting into raising of debit note amounting to Rs.32,79,68,772/- by NKPL. Further, considering that the debit note was issued at the fag end of the year that too on account of poor quality of FSG oil, I agree with the finding of the A.O that the MOU is an afterthought and confirm the addition of Rs.32,79,68,772/- on account of unexplained expenses debited to P & L A/c. Thus, the said addition is confirmed and the ground of appeal is dismissed." 21. The learned Counsel for the assessee submitted that exports were made by the assessee-company through N.K. Proteins Pvt. Ltd. and as per the agreement with them, invoices were regularly raised by the assessee-company with an understanding that the difference in actual realization from exports will be finally adjusted. He submitted that debit/credit notes were accordingly issued by NKPL for the difference between the amount of invoices raised by the assessee and the amount actually realized through exports and th....
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....xpenses as the debit note has been raised by the N. K. Proteins Ltd. for poor quality of FSG Oil on the assessee. The break-up of such expenses were given during the assessment proceedings by the assessee. It is not disputed fact that assessee has returned the loss whereas N. K. Proteins Ltd. has returned the profit and paid the taxes thereon on the said transaction which is a commercial transaction. As per the understanding between the assessee-company and the NKPL, invoices were being raised by the assessee on NKPL at the agreed rate for the goods to be exported through NKPL. At the time of actual export of the said goods, NKPL at many times used to realize a different rate than the rate charged by the assessee in the invoices for various reasons including the quality difference. Since the assessee company was accountable for these differences as per understanding with NKPL, NKPL raised debt/credit notes on the assessee-company to transfer the price difference. The said difference, going by the nature thereof, was adjusted by the assessee-company in the books of account against sales and the authorities below, in our opinion, were not justified to doubt the genuineness of the deb....
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.... year under consideration for giving the said advances and the disallowance of interest under Section 36(1)(iii) of the Act, therefore, was not warranted. It was also contended that the said advances had become doubtful as clearly stated in the balance-sheet and, therefore, there was no question of charging any interest on the said advances. This explanation of the assessee was not found acceptable by the Assessing Officer. He noted that the assessee-company on one hand paid interest @ 12 to 18% on the money borrowed and on the other hand the advances were given without any interest. He accordingly worked out the interest attributable to the said advances by applying the rate of 12% at Rs.1,45,18,708/- and made disallowance to that extent under Section 36(1)(iii) of the Act. 25. The disallowance made by the Assessing Officer on account of interest under Section 36(1)(iii) of the Act was challenged by the assessee in an appeal filed before the learned CIT(A) and the following submission was made on behalf of the assessee in support of its case that the disallowance made by the Assessing Officer on account of interest was not sustainable. "8.1 The Assessing Officer has st....
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....paid in respect of capital borrowed for the purposes of the business or profession. Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset 'for extension of existing business of profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction." Thus, as per said section 36(1)(iii), for allowance of a claim for deduction of interest paid in respect of capital borrowed is that following three conditions should be fulfilled. (i) The Assessee must have borrowed money (ii) The interest should have been payable (iii) Borrowing should be made for the purpose of business. Once these three conditions are satisfied the claim of interest payment simply cannot be rejected. In the present case the assessing officer has presumed that advances made to the 13 parties are for other than business purpose and on such assumption made impugned addition of interest without appreciating the circumstantial evi....
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....balances no interest was even likely to be recovered. Hence, there is no justification for calculating interest income on notional basis for such balances. Further to this, the balances of NK Developers, and NG Patel group entities were with reference to the advances given to them long back for the purchase of property. However, due to some disputes the properties could not be acquired and even the said funds could not be recovered. Hence, such balances are doubtful. As stated above, the funds were given for business purpose and hence having regard to the decision of SA Builders 288 ITR 1 (SC) no disallowance is justified. It may be noted that this balances are outstanding even in the earlier years and no adverse view has been taken by the Department. As no new facts are arisen in this year, considering the consistency required also the disallowance is not justified." 26. The learned CIT(A) did not find merit in the submission made on behalf of the assessee on this issue and proceeded to confirm the disallowance made by the Assessing Officer on account of interest for the following reasons given in paragraph No. 9.2 of his impugned order:- "9.2 I have ....
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....re was no question of utilization of borrowed funds for giving the said old advances. In support of this contention, he relied on the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Sridev Enterprises, reported in [1991] 59 Taxman 439 (Kar.), wherein it was held that since no additions had been made in earlier years, the opening debit balance could not be considered for making disallowance in the current year. 28. The learned DR, on the other hand, relied on the impugned order of the learned CIT(A) in support of Revenue's case on this issue. 29. We have heard both the parties and perused all the relevant material available on record. The assessee has not produced any cogent evidence to substantiate its claim that the advances in question were given for the purposes of business. He has also not furnished any details or given any reasons as to why the recovery of these advances had become doubtful as claimed. Since the business purpose of giving these advances was not established by the assessee on evidence, we are of the view that it was a clear case of diversion of interest bearing loans for non-business purpose and disallowance on account of interest attr....
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....ases against which said payments had been made was also furnished by the assessee. It was submitted that the amount of Rs. 244.98 crores thus was received on account of sale made to NSEL parties through NKPL and the said amount was substantially utilized for making payments of corresponding purchases. It was also contended that even though the transactions were paper transactions, yet the payments for the purchases were made and receipts for the same were received by account payee cheques which were duly reflected in the bank account. This submission of the assessee was not found acceptable by the Assessing Officer. According to him, all the NSEL transactions were of the same colour and nature and when the other transactions were settled through journal entries, there was no justifiable reason for the assessee to have received the amount of Rs.244.98 crores in question by cheques against the NSEL transactions of sale as claimed by it which by assessee's own admission were only paper transactions. He held that the assessee-company had never dealt with any goods through physical delivery as far as transactions on NSEL are concerned; and, therefore, its claim of having received a huge....
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....s, however, not accepted the said contention and made the addition. His observations are summarized as under:- i) With reference to the question asked to Nilesh Patel about the outstanding liability to NSEL, he had in his statement stated that as against the liability of Rs.935 crores referred to by the officials, the group had actually received and utilized Rs.275 crores from NSEL through Settlement Account over the period of years, the details of which were submitted by him. The amount so received from the settlement was broadly explained by him. ii) The Assessing Officer states that as per the explanation of Nilesh Patel the amount was utilized for expansion/capital expenditure of NKPL, towards capital expenditure of NKIL and towards joint venture with Adani Wilmar Ltd. The Assessing Officer states that the appellant had not given fund flow statement before the AO in the post-survey proceedings. It is stated by him that during the course of post-survey proceedings, the appellant had altered the explanation as above and it was found that the funds so withdrawn are utilized for the purpose of payment to the suppliers and for the purpose of incurring expe....
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....(A)-9. Shri Shaunak Majumdar, CA from M/s G.K.Chauksi & co. appeared as AR of the company and furnished a written reply in this regard. Vide the same the assessee has stated that the amount in question was received by them against the sales made by them in the trade cycle explained as under I) NK Inds. being client of NK Proteins executes T+3 contract on the electronic platform of NSEL, say for sale of 100 kg of castor oil to another client of another broker of NSEL for Rs. 100 per kg. II) The other prospective client/ investor referred to above who has purchased the quantity as above executes another transaction on NSEL for sale of said quantity on T+36 contract on the electronic platform whereby it sells entire quantity purchased as above to another client of NK Proteins (say NK Corporation) for Rs.110 per kg. III) NK Corporation carry out Intra group sale of same quantity to NK Inds., say for Rs.112 per kg. Thus, the entire quantity is set off for purchase of sale in the hands of each of the party. IV) NKIL on the first sale receives the sale consideration within 3 days i.e. on settlement of T+3 contract. As against this, NK ....
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.... a chart and the bank statement to show that NKC who has made the purchases from NSEL platform in the above trade cycle has made the payment to NKPL as broker. As the NKC has made the purchases from NSEL parties through NKPL being broker, they have made payment to NKPL by cheque, the amount so paid by NKC to NKPL during the year is Rs. 192.9 7crores. iii) The assessee has further given chart of payment made by NKPL to NSEL Settlement A/c. during the year which also includes the funds received from NKC. During the year under consideration, they have made payment of Rs. 134.01 crores to NSEL Settlement A/c from their bank account. 3.2 The above 3 charts are verified with reference to bank statement of the assessee, of NKC and of NKPL. The figures stated hereinabove in the chart are found to be correct. 4. During the course of remand proceedings, the assessee has further stated that they have received the funds of Rs.244.98 crores from NKPL-NSEL Client Account and they have made payment of Rs. 192.97crores as stated hereinabove to NKC and that therefore, there is credit balance of NKC in balance sheet of the assessee as at the close of the year. Against this....
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....t. 1.2 It was in this context explained in the appellate proceedings that in such trade cycle payment obligation arises to the party from whom the assessee has made purchases (in the present case NK Corporation from whom purchases are made) and that there cannot be any repayment to the NSEL Client A/c. from where the funds are received. This may be appreciated from the nature of trade cycle, explained before your honour that the amount has been received by appellant against the sales and it has to make payment against the purchases. The Assessing Officer has now considered this fact in para 2 of the Remand Report, and in para 3.1 and 3.2 of the Remand Report, it is stated under:- "3.1 The transactions so entered into were to raise temporary funds. However, there was no co-relation of sales and amount transferred from NKPL client A/c to the assessee's bank account. The assessee has explained that in the above trade cycle, the assessee has to make payment to NKC from whom they have made the purchases in the trade cycle. The amount has been paid against the sales made through NKPL as broker in NSEL and against that amount NSEL had made payment in the Settlement A....
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....er, on actual verification, it was found that the payment during the year to NKC is of Rs. 192.97 crores which is verified by the AO. He has also considered that after such payment there remains credit balance in the account of NKC. Thus, the liability for such purchases is recognized in the books. Further to this, it is also verified by the Assessing Officer that against this credit balance, in the subsequent year, the assessee company has made payment to NKC. Thus, the entire amount is utilized for payment to NKC against the purchases in the trade cycle. Accordingly, there was no justification for the addition made on this account. It may be noticed that the Assessing Officer has, however, observed that during the year under consideration the assessee made payment to NKC of Rs. 192.97 crores only and balance amount is not utilized for payment against the purchases. However, as accepted by him, the appellant has recognized balance amount payable to NKC in the books and also such balance amount has been paid in the subsequent year. Accordingly, this observation in the Remand Report that only Rs. 192.97 crores have been paid to NKC during the year may please be considered i....
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....ion added under Section 68 of the Act as unexplained cash credit was related to the trading transactions entered into by the assessee-company and the same was duly paid by the assessee. He submitted that the learned CIT(A) deleted the addition made by the Assessing Officer on account of the said amount to the extent the same was paid by the assessee during the year under consideration and sustained the balance addition on the ground that the same was not paid by the assessee-company. He invited our attention to page no. 4 of the assessment order to point out that this balance amount was repaid by the assessee-company in the subsequent year and the same, therefore, is liable to be deleted going by the basis on which addition was partly deleted by the learned CIT(A) himself. He contended that the addition made by the Assessing Officer on account of unexplained cash was partly sustained by the learned CIT(A) on the ground that there was no obligation for the assessee-company to repay the said amount. He contended that this basis itself is wrong and the fact that the balance amount was also paid by the assessee-company in the subsequent year is sufficient to establish that there was an....
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....the facts and in the circumstances of the case, the Ld.CIT(A) has erred in accepting the contentions of the Assessing Officer that he had reasons to believe that special audit was required in the given case. 3. On the facts and in the circumstances of the case, the ld.CIT(A) has erred by confirming the AO's decision that the loss of Rs.36,93,99,151/- is speculative in nature. 4. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred by confirming he AO's decision that the business loss of Rs.20,62,50,456/- on account of trading with related parties is nongenuine and speculative in nature. 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in confirming the disallowance made by the Ld. Assessing Officer of Rs.13,30,35,616/- on account of debit note received from N.K. Proteins Ltd. treating the same as unexplained expenditure. The impugned addition deserves to be deleted. [**]6. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in confirming the addition of Rs.66 crores made by the Ld. Assessing Officer and the s....
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....of Rs. 20,62,50,456/- and alleged that the said fosses are fictitious. Your good selves hove asked the assessee to show cause as to why the losses of Rs. 20,62,50,456/- be not disallowed being fictitious/paper transactions. In this regards, the assessee proceeds to explain as under: The said losses are as under: Sr. No. Losses on Amount 1 Castor Seed 57,00,456 2 Cotton Washed Oil (CWO) 20,05,50,000 2.1 At the outset, it is submitted that with respect to losses of Rs. 57 lacs as stated above, the contention of the Special Auditor that the said transactions are entered with Group Concerns is incorrect. On perusal of the details, it will be noticed that there are outside parties - Rajiv Petrochemical Pvt. Ltd and C.K.Shah Marketing Pvt. Ltd are also involved. 2.2 Now, it is submitted that every industry has its own market dynamics and it is best left to the businessman to take policy decisions. The business man is required to take certain business decisions, the outcome of which may be different in future. Moreover, the business man does not have control over the market fluctuations. He might not be aware that the transactions unde....
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.... accommodation/ paper trade rotation transactions. The Assessing Officer stated that thus as per Special Audit Report, the loss shown is fictitious /paper transactions without delivery with group/associated concerns, the details of loss is as under:- Group concerns Qty.(Kg) Amount Purchase Parties Rajiv Petrochemical Pvt. Ltd. 2667000 114755811 CK. Shah Marketing Pvt. Ltd. 82000 3949120 Tirupati Proteins Pvt. Ltd. 2458500 98340000 Total purchase (A) 5207500 217044931 Sales parties Rajiv Petrochemical Pvt. Ltd. 2458500 95266875 Tirupati Proteins Pvt. Ltd 2749000 116077600 Total sales (B) 5207500 211344475 Losses in transaction A-B (-)57,00,456 Group concerns Qty.(Kg) Rate Amount Purchase Parties(Group) Tirupati Proteins Pvt. Ltd. 10500000 721 757050000 N.K. Corporation 9000000 720 648000000 Total purchase= (A) 19500000 1405050000 Sales parties (Group) N.K. C....
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.... resulting into loss so far as caster seeds purchase/sale is concerned. This may be appreciated in view of the fact that during the purchase of caster seeds from Tirupati Proteins and sale thereof is as under:- Qty. (Kg) Value (Rs) Average rate/Kg. Purchase 24,58,500 9,83,40,000 Rs.40/- Sale 27,49,000 11,60,77,600 Rs.42.22 Thus, there is no basis for presumption that the transactions with group concerns are entered into only with an intention of creating loss or transferring any profit. 4.4 Without prejudice to the above contention as stated before the AO the group concerns, i.e. Tirupati Proteins Pvt. Ltd. or N.K. Proteins Pvt. Ltd, or N.K. Corporation with whom transaction of Cotton Wash Oil are entered into are liable to tax at the maximum marginal rate, and that they have shown profit in their returns. The appellant is liable to maximum and marginal rate? Thus, there is no loss of Revenue in such transactions, and that therefore, the disallowance made merely on the ground that it is with group concern and further on presumption basis that it is diversion of income is totally unjustified and unwarranted. In connection ....
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....ue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear chat not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers." 4.5 Apart from the above contention, it is submitted that the AO had never called upon the appellant to submit any details regarding delivery of such goods. Such transactions are reflected in stock. In the circumstances, the presumption made by him is only basis on the report of the Special Auditor who had also never called upon the appellant to give such details. Thus, the addition made in the present case is without providing adequate opportunity." 39.3 The learned CIT(A) did not find merit in the submission made by the assessee-company on this issue and proceeded to uphold the action of the Assessing Officer in treating the loss in question as speculative loss instead of trading loss for t....
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....see. He contended that the assessee-company in any case had entered into all these transactions at the prevailing market price and since the assessee-company is in a position to establish this position, the matter may be sent back to the Assessing Officer to give the assessee an opportunity to support and substantiate its claim. 41. The learned DR, on the other hand, did not raise any objection for sending the matter back to the Assessing Officer for verifying the claim of the assessee that all the transactions in question with associated concerns were effected by the assessee-company at the prevailing market rate. 42. We have heard both the parties and perused all the relevant material available on record. Keeping in view the submission made by both the sides, we consider it fair and proper and in the interest of justice to restore this issue to the file of the Assessing Officer with the direction to decide the same afresh after giving the assessee an opportunity to establish that all the transactions resulting in the business loss in question were made at the prevailing market price and it was not a case where the goods purchased at higher rate were sold by the assessee-com....
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..... Industries Ltd. is partly allowed. 47. Finally, we take up ITA No.1213/Ahd/2018 for AY 2011-12 in the case of Tirupati Proteins Pvt. Ltd. The Grounds of appeal are as under: 1. On the facts and in the circumstances of the case, the CIT(A) has erred in not accepting Appellant's plea that the order passed by the AO is bad in law and void ab initio. 2. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in accepting the contentions of the Assessing Officer that he had reasons to believe that special audit was required in the given case. 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in confirming the addition made by the Ld. Assessing Officer of Rs.108,97,00,000/- by treating the same as unexplained credit u/s.68 of the Act. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in confirming the addition of Rs.59,69,58,528/- made by the Ld. Assessing Officer on account of nongenuine purchase. The impugned addition deserves to be deleted. 5. In law2 and in the facts and circumstances of the appellant's ....
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....d cash credit which, in our opinion, was totally unjustified in the facts and circumstances of the case. As submitted by the learned Counsel for the assessee, similar amount was also received by the assessee in the previous year relevant to AY 2012-13 and the same was not considered as unexplained cash credit under Section 68 of the Act in the assessment completed by the Assessing Officer under Section 143(3) of the Act. It is also observed that a similar issue was involved in the case of N.K. Industries Limited for AY 2011-12 and the same has already been decided by us in favour of the assessee in the foregoing portion of this order deleting the similar addition made by the Assessing Officer and sustained by the learned CIT(A). Keeping in view the conclusion drawn in the case of N.K. Industries Ltd. (supra) and having regard to the facts of the case discussed above, we are of the view that the addition made by the Assessing Officer and confirmed by the learned CIT(A) on this issue under Section 68 of the Act is not sustainable and deleting the same, we allow Ground No. 3 of the assessee's appeal. 50. As regards Ground No.4 of this appeal relating to the addition of Rs.59.70 cro....
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.... in excess of sales actually made and by treating the same as non-genuine, he made an addition of Rs.59.70 crores to the total income of the assessee. 50.2 The addition of Rs.59.70 cores made by the Assessing Officer on account of alleged non-genuine purchases was challenged by the assessee in an appeal filed before the learned CIT(A) and the following submission was made on behalf of the assessee before the learned CIT(A) in support of its case on this issue. "6.1 This addition has been discussed in para 7 of the assessment order. It is stated by the AO that on scrutiny of the transaction of cotton wash oil on NSEL Platform through broker NKPL, entered into by the appellant. It is noticed that the appellant had shown total purchases of cotton wash oil from NKPL at Rs. 1350,43,10,147 (for 25,99,17,979 Kgs) whereas on verification of details from NSEL transaction of NKPL it was seen that the NKPL has shown sale of cotton wash oil of Rs.1290,73,51,619 (for 24,97,37,981 Kgs), According to the AO, since all the transactions are without delivery and paper transactions, the difference in purchase by assessee and sale of NKPL is not matching and thus, the appellant has shown e....
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....ions. However, according to him, in absence of profit for actual delivery of goods and confirmation of the parties, the register is not acceptable to him. ii) The appellant has not submitted proof for actual delivery of goods purchased from NKPL. iii) Assessee as well as Nilesh Patel has already accepted that NSEL transactions are only paper transactions and no actual delivery has taken place. Therefore, he questions delivery of goods sold through NSEL. iv) The appellant had submitted reconciliation before Auditors showing that the total purchase including purchases from NKPL was of 262172.60 MT and sales was also of 262172.60 MT which include the above figure of Rs.59 crores. However, the AO has stated that the appellant has given a different fact showing that it has made further sale of 2254.62 MT to others also outside NSEL. It is stated by the AO that all the transactions of NSEL are only paper transactions without actually delivery. v) It is stated by the AO that the bills and delivery challans submitted by the assessee are not reliable in absence of third party confirmation. He has alleged that the explanation given by the assessee was cont....
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....m NKPL which is referred to by the Assessing Officer, is with reference to transaction by way of trade cycle referred to above. However, it does not include the physical delivery of stock from NKPL which is sold on NSEL platform to the respective parties through NKPL. Thus, AO and the Auditors have ignored the actual delivery of stock of 10,180 MT purchased from NKPL. The appellant had explained that this physical stock was sold to different parties of NSEL and, that therefore, the sale to those parties was on account of this physical stock as also the stock on account of trade cycle referred to above. The AO has confused the transaction by way of trade cycle which is explained by the appellant and which is in respect of the finance raised by the appellant on NSEL and concluded that all the transactions on NSEL platform by way of sale by the appellant is with reference to such trade cycle for which there is no physical delivery. The appellant has produced before the AO the bills and delivery challans for sale of 10,180 MT of cotton wash oil referred to above, a copy of the same is again enclosed. It may be noted that as certified by the Auditors the total purchase by appellant is o....
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....livery of goods as claimed. The appellant on the other hand during the assessment as well as appellate proceedings .including vide its rejoinder to the remand report has stated that evidences in respect of the transactions entered into by it and the purchases and sales made to different parties had been furnished to the AO by way of a certificate stating that goods were actual delivered. On a perusal of all the material available on record, I find that the appellant submitted a certificate from Shree Rajkot Lodhika Sahkari Kharid Vechan Sangh Ltd. of Rajkot which stated that the Cotton Wash Oil had been delivered by the appellant to various parties and had been held in its storage area. However, no proof of actual delivery of the goods has been given by the appellant other than a certificate. There are no confirmations from the recipient parties either. In fact, even before the Special Auditor, no evidences were furnished by the appellant. Moreover, it is also pertinent to note here that the appellant as well as Shri Nilesh Patel, on behalf of NKPL have already accepted the fact that NSEL transactions were only paper transactions and no actual delivery of commodities had even taken....
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....see-company. The said sale recorded and recognized by the assessee-company in its books of account was accepted by the authorities below and we find merit in the contention raised by the learned Counsel for the assessee that the corresponding purchases cannot be disallowed when the sale was accepted. A confirmation of Shree Rajkot Lodhika Sahakari Kharid Vechan Sangh Ltd. was also filed by the assessee confirming delivery of CWO made to the concerned parties on various dates. Moreover, the quantitative details furnished by the assessee also revealed that the quantity of both purchases and sales was tallying with each other. It is thus clear that the purchase of 10180 MT of CWO for Rs.59.70 crores on delivery basis was actually established by the assessee on the basis of supporting evidence and since the corresponding sale of the same was not only proved but the same was also recorded and recognized as income in the books of account of the assessee-company, we are of the view that the purchase of 10,180 MT of CWO for Rs.59.70 crores cannot be said to be excessive as alleged by the authorities below. We, therefore, delete the addition made by the Assessing Officer and confirmed by th....
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....dingly allowed. 56. As regards the issue raised in Ground No. 7 relating to the disallowance of Rs.3,17,346/- made by the Assessing Officer and confirmed by the learned CIT(A) on account of interest expenses, it is observed that interest free advances were given by the assessee to five parties during the year under consideration. Since the assessee failed to establish that the said advances were given for the purpose of business, the interest attributable to the said advances as worked out at Rs.3,17,346/- was disallowed by the Assessing Officer. At the time of hearing before us, the learned Counsel for the assessee has invited our attention to the balance-sheet of the assessee-company placed at page No.141 of the paper-book to point out that own funds in the form of capital and reserves to the extent of Rs.420 crores were available with the assessee-company at the relevant time and the same were sufficient to give interest free advances in question. We, therefore, find merit in this contention of the learned Counsel for the assessee that the disallowance made by the Assessing Officer on account of interest and confirmed by the learned CIT(A) is not sustainable. The same is acco....