2023 (2) TMI 1268 - AT - Income Tax

Addition u/s 68 - Appellant had deposited cash during the demonetization period - Appellant had submitted that after the transaction pertaining to deposit of cash the relationship between the Appellant and M/s Gupta Suppliers Company had soured and therefore no adverse inference could be drawn against the Appellant on account of non-compliance of notice issued by the AO u/s 133(6) by M/s Gupta Suppliers Co. HELD THAT - The issue that requires verification in whether the money transferred by the Appellant to the bank account of M/s Gupta Suppliers Company has been withdrawn for making payment to farmers for purchase of the raw material and thereafter deposited in the bank account of the Appellant in cash as the currency note withdrawn would not have amounted to legal tender on account of demonetization. We remand this issue to the file of AO with Appellant is directed to furnish the details of bank account of M/s Gupta Suppliers Company in which payments were through banking channels along with the relevant extract of the bank statement of the Appellant exhibiting the aforesaid payments. AO is directed to obtain the bank statement of M/s Gupta Suppliers Company for the relevant period and/or from the concerned bank by exercising powers as per the provisions of the Act including Section 133(6) of the Act; In case the cash withdrawals made by M/s Gupta Suppliers Company from the aforesaid bank account are sufficient to account for deposit of cash made by M/s Gupta Suppliers Company into the account of the Appellant then the AO is directed to delete the addition u/s 68 to the extent of such cash withdrawals and as regards the balance amount of addition made u/s 68 of the Act left (after deletion as aforesaid) if any the Assessing Officer is directed to consider the details/documents furnished by the Appellant and gather such further information/documents from M/s Gupta Suppliers Company or any other source as it may deem fit and decide the issue afresh as per law - Ground No. 3 raised by the Appellant is allowed for statistical purposes. Computation of Book Profits as per Section 115JB - increase of the Net Profits as per Profit Loss Statement of the Appellant being addition made u/s 68 for computing Book Profit u/s 115JB - HELD THAT - The accounts prepared by the Appellant have been certified by the Auditor as having been prepared in compliance with the provisions of the Companies Act 2013. Once the accounts including the profit and loss account are certified by the authorities under the Companies Act it is not open to the AO to contend that the Profit And Loss Account has not been prepared in accordance with the provisions of the Companies Act 2013. The Assessing Officer thereafter has the limited power of making increase and reductions as provided for in the Explanation to the Section 115JB - AO does not have the jurisdiction to go behind the Net Profit shown in the profit and loss account except to the extent provided in the Explanation to section 115JB as held by the Hon ble Supreme Court has in the case of Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT - Accordingly keeping in view the facts and circumstances of the present case Ground No. 4 raised by the Appellant is allowed. Addition u/s 14A r.w.r. 8D - expenditure incurred in earning exempt income - HELD THAT - We find merit in the contention advanced by Appellant that amount of disallowance u/s 14A cannot exceed the amount of exempt income as held in the case of DCIT Vs State Bank of Patiala 2018 (11) TMI 1565 - SC ORDER which was followed in the case of DCIT Vs. Reliance Ports and Terminals Ltd 2019 (11) TMI 1194 - BOMBAY HIGH COURT - The Hon ble Delhi High Court has in the case of Era Infrastructure India Ltd ( 2022 (7) TMI 1093 - DELHI HIGH COURT held that the amendments to Section 14A introduced by the Finance Act 2022 shall apply from Assessment Year 2022-23. Thus there is no change in law with respect to assessment years prior to 2022-2023. Accordingly for the Assessment Year 2017-18 before us the disallowance made by the AO under Section 14A of the Act read with Rule 8D of the Rules is restricted to INR 96, 031/- and the balance amount is deleted. Ground No. 5 raised by the Appellant is partly allowed. Addition made to the Net Profits for Section 14A while computing Book Profits u/s 115JB - HELD THAT - On perusal of Clause (f) of Explanation 1 to Section 115JB(2) of the Act it is clear that the computation under clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated under Section 14A of the Act read with Rule 8D of the Rules. Therefore the Assessing Officer erred in adding to the Net Profits while computing Book Profits under Section 115JB of the Act. Accordingly we remand this issue back to the file of Assessing Officer for determining the amount of expenditure deductible to earning exempt dividend income which is to be added to the Net Profits while computing Book Profit as per Clause (f) of Explanation 1 to Section 115JB(2) of the Act having regard to the provisions contained in Section 14A the Act (without resorting to the computation as contemplated under Rule 8D of the Rules).Ground No. 6 allowed for statistical purposes. TP Adjustment - TPO concluded that the rate at which product was transferred by the Appellant s 80IB Unit to a non-80IB Unit was lower than the rate at which the same product were sold to third party/non-AEs sales in few cases and therefore proposed upward transfer pricing adjustment passed u/s 92CA(3) - HELD THAT - Though the product has been sold to AEs at different prices on the same date no reason has been furnished for this variation in the rate. In the cases where rate at which sales were made to AE were less than the rate at which sales were made to non-AEs the TPO has proposed transfer pricing adjustment. Whereas in cases where the rate at which sale was made to AE was equal to or more than sale made to non-AE no transfer pricing adjustment was called for and therefore the TPO has accepted the same. In view of the aforesaid we do not find any reason to interfere with the transfer pricing adjustment made in the Final Assessment Order dated 28.07.2022. Accordingly Ground No. 7 raised by the Appellant is dismissed.

Summary

Issues Involved:
1. Validity of the assessment order under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961.
2. Contravention of the Faceless Assessment Scheme, 2019.
3. Addition of INR 1,98,42,000 under Section 68 of the Act.
4. Computation of income under Section 115JB of the Act.
5. Disallowance of INR 1,19,90,747 under Section 14A of the Act read with Rule 8D.
6. Transfer pricing adjustment of INR 2,87,575.
7. Levy of interest under Section 234D of the Act.

Issue-wise Detailed Analysis:

Ground No. 1:
The order passed by the Assessing Officer under Section 143(3) read with Section 144C(13) of the Act was deemed general in nature and did not require adjudication.

Ground No. 2:
The draft assessment order under Section 144C was not pressed by the Appellant during the hearing, thus disposed of without further consideration.

Ground No. 3:
The addition of INR 1,98,42,000 under Section 68 of the Act was contested. The Assessing Officer noted significant cash deposits during the demonetization period. The Appellant claimed these funds were returned by M/s Gupta Suppliers Company, acting as an agent for raw material procurement. Despite providing details and a confirmation letter, the Assessing Officer was unconvinced due to non-compliance with notices under Section 133(6) by M/s Gupta Suppliers Company. The Tribunal remanded the issue to the Assessing Officer for further verification, directing the Appellant to furnish bank details and the Assessing Officer to obtain necessary bank statements to verify the genuineness of the transactions.

Ground No. 4:
The increase of Net Profits by INR 1,98,42,000 for computing "Book Profit" under Section 115JB was challenged. The Tribunal noted that once accounts are certified under the Companies Act, the Assessing Officer's power is limited to adjustments provided in the Explanation to Section 115JB. The Tribunal allowed the Appellant's ground, emphasizing that the Assessing Officer cannot go beyond the certified accounts.

Ground No. 5:
The disallowance of INR 1,19,90,747 under Section 14A read with Rule 8D was contested. The Assessing Officer observed the Appellant's dividend income and interest expenses, leading to the disallowance. The Tribunal restricted the disallowance to the amount of exempt income (INR 96,031) based on precedents, including the Supreme Court's decision in DCIT Vs State Bank of Patiala, rejecting the retrospective application of amendments introduced by the Finance Act, 2022.

Ground No. 6:
The addition of INR 1,19,90,747 to Net Profits for computing 'Book Profits' under Section 115JB was remanded to the Assessing Officer. The Tribunal directed the determination of expenditure related to earning exempt income without resorting to Rule 8D, aligning with Clause (f) of Explanation 1 to Section 115JB(2).

Ground No. 7:
The transfer pricing adjustment of INR 2,87,575 was upheld. The Tribunal found no merit in the Appellant's argument for adopting weekly averages and noted that the TPO's method of considering individual transactions was justified. The Tribunal dismissed the Appellant's ground, supporting the TPO's approach of making adjustments only where the rate differed unfavorably for the Revenue.

Ground No. 8:
The levy of interest under Section 234D was deemed consequential and disposed of accordingly.

Conclusion:
The appeal was partly allowed, with specific issues remanded for further verification and others decided in favor of the Appellant or upheld as per the Tribunal's detailed analysis. The order was pronounced on 08.02.2023.