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TMI Blog2016 (5) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, the AO did not accept assessee's contention and after discussing the issue in para 5-6 made disallowance of Rs. 3,54,957/-. 5. By the impugned order, CIT(A) deleted disallowance after observing as under :- "I have considered the above submissions. The appellant objected to the average investment arrived at by the Assessing Officer as per the formula provided in Rule 8D(ii). The Assessing Officer adopted the value of investment as Rs. 1,19,57,766/- as on 31.3.2009. It is the submission of the appellant that Rs. 59,43,220/- was the actual investment in shares and the balance was the investment into the joint venture business projects which is not the assets of the appellant and should not be taken into consideration. As per the formula in Rule 8D(ii) i.e. 'A' x 'B'/'C', 'B' represents the average value of the investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. 'C' represents the average of total assets as appearing in the balance sheet of the assessee on the first day and last day of the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusively for the purpose of business and was not in personal nature, there was no justification for disallowing the same. Accordingly, we confirm the order of CIT(A) on this issue. 11. The revenue is also aggrieved for deleting disallowance of interest of Rs. 4,61 ,376/-. The Assessing Officer had discussed this issue in para 8 of the assessment order, wherein he observed that the assessee had made advances to some parties from whom no interest has been charged. The assessee has been paying interest on the loans taken and hence Assessing Officer was of the view that interest attributable to interest free advances has to be disallowed at 12% per annum and accordingly Rs. 4,61,376/- was disallowed. 12. By the impugned order the CIT(A) deleted disallowance of interest after observing as under :- 6.3. I have carefully considered the above submissions. The opening capital as per the balance sheet as on 31 3.2008 was Rs. 8.4 cr and the closing balance Rs. 5.37 crores. which shows that the appellant had got huge surplus funds available in the form of capital. Hence the contention of the appellant that the loans are advanced out of personal capital is found to be acceptable Since the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirm the action of the CIT(A) following the decision of jurisdictional High Court in the case of Reliance Utilities Ltd., 313 ITR 34. 14. The revenue is also aggrieved for deleting adhoc disallowance of Rs. 1,00,000/- on telephone expenses, vehicle expenses etc. The AO was of the view that the element of personal in nature in respect of the above expenditure cannot be ruled out and hence made an adhoc disallowance of Rs. 1,00,000/-. 15. By the impugned order, CIT(A) deleted the same after observing as under :- 7.3. I have considered the above submissions of the appellant. During the course of assessment proceedings itself the appellant had furnished evidences in the form of vouchers pertained to each and every heads of expenditure. The Assessing Officer had not found out any discrepancy. The Assessing Officer had no material in his possession to show that personal element is involved in respect of the above expenditure. In view of the above, the adhoc addition made by the Assessing Officer is hereby deleted. 16. We have considered rival contentions and found that personal element in such expenses cannot be ruled out. Therefore, keeping in view the totality of facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the nature of construction carried out by the appellant'- Scope of work:- 1. Construction of box type drain from Charkop Road Akhil Hotel to Kadsiddeshwar Roadto Manori Creek RIC Ward, Kandivali(W). 2. M25 RCC wall with M 25 RCC slab at top to cover the same 3. Construction of S.W Drain at other side in C.C. at 28 THD 4. Raising and construction of road from starting point to end. The scope of work in respect of all the contracts are almost identical which involves construction of the drain and slab to cover the top along with raising and construction of road from the starting point to end. This scope also gives the construction programme. The appellant was given the time to complete the work within 12 months. Hence to carry out the above civil construction work the appellant had to necessarily purchase the building materials such as cement, steel etc. without which it is not possible to complete he contract awarded. 8.3.2 During the course of assessment proceedings itself it is the contention of the appellant that materials have been received at site and issued for the work. The payments were made only by way of account payee cheques and hence the purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t found appointed/deployed on the work. Section 6 talks about technical specifications. Clause 6.2.2 & 6.2.3. deals with the material used in the contract and samples and test of materials. As per sub clause 6 of 6.2.3, the Contract shall not use any material without prior testing and clearance by Engineer in charge. In cases where the material is use without testing is liable for rejection either partly or fully. Similar clause is appearing in General Specifications in clause 6.4.3. All the above clauses clearly indicates that the material used at site undergoes a stringent quality control and the entire work is being monitored by the Site Engineer appointed by the MCGM. 8.3.6. As and when the work is going on the appellant raises a running bill which would be then checked and verified by the Sub-Engineer which is then checked and verified by the Assistant Engineer before the same got forwarded to the Executive Engineer. After final checking by the Executive Engineer, the bills are furnished to the Accounts Department. Thus depends upon the stage of contract, running bills are raised and after duly certified by the MCGM Authorities, payments are sanctioned to the appellant. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which got tested for its quality. Depending upon the stage of work, running bills were prepared and payments received after certification by the Site Engineers. All these clearly prove that the contract work has been executed to the satisfaction of the MCGM Authorities and due payments were received against the executed contracts. The Assessing Officer without examining the facts discussed above had come to the conclusion based only on the presumption that because the names of e suppliers were put in the internet as "suspicious dealers", the purchases were bogus without purchase of material such as cement, steel, brick etc, the appellant could not have completed the contract assigned to it. The Assessing Officer had no material on record to show that how the contracts have been completed by the appellant without purchase of material from the above suppliers. The books of accounts of the appellant had been duly audited by the C.A and no discrepancy what so ever has been brought out in the Audit Report. In view of the above, the presumption of the Assessing Officer that the above 12 suppliers had issued only bogus bills without supplying the materials and hence they are non genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er it is crystal clear that the assessee actually purchased the material and all these purchases are bonafide purchases. He further stated that he is not in position to give some of the supporting of some of the bills right now. However the same can be produced and for which we gave the details in tabular form. This fact is mentioned in answer to question 8 of statement dated 02/05/2012. b. In reply to question no 15 the appellant has clearly stated that there may be some inflation of bills and if it is there money has been ploughed back into the business of the company in one way or other way. Thereby it has not suffered income tax It is pertinent to mention that the assessee has merely stated that there may be some inflation but not with 100% certainty. Hence the disclosure made without any corroborative evidence being found during the survey action cannot be made basis for addition. 2. Statement dated 02/05/2012 a) In reply to question no 7 the appellant herein stated that the records are being maintained by them which gives details of the material likely to be used and actual usage. b) In reply to question no 8 the appellant herein submitted all the necessary detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses or having found in possession of cash being received back or any undisclosed investment during the course of survey action to prove that appellants purchases for the impugned AY i.e. AY 2009-10 are bogus. iii) Thirdly the statement given pursuant to survey action on 04/01/2012 and 02/05/2012 have no relevance with the affairs of the AY 2009-10. iv) Fourthly the statement recorded u/s. 133A is not a sworn statement as the officer is not empowered to examine any person on oath u/s. 133A. Hence statement recorded u/s. 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition unless supported by any evidence as held by the Hon'ble Apex court in the following decision: CIT vs Khader Kahn Sons (2012) 25 Taxrnan. Corn 413 (SC) The copy of the Hon'ble Apex Court enclosed hereto for your honour's perusal and consideration. v) Lastly we would like to bring to your honours notice Hon'ble CBDT's instruction F No 286/2/200311TC (Inv) and further the decision of Hon'ble Murnbai Tribunal in the case of ACIT Circle 5 (7) v LA Pandya in ITA No.4417 to 4420/M/97 where in it has been held that the basis f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Trial balance and Profit & Loss Account of the above Survey Folders' of the respective entities. Nevertheless, while framing the assessment orders, due consideration may be given to the points discussed in this respect." The final finding of the ADIT is available in para 6.4 of the survey report which is reproduced as under:- "6.4. From the evidences gathered and the statements made by the assessee thereafter, it is evident that the assessee has indulged in bogus inflation of purchases. The survey has resulted a declaration of Rs. 22 crores as additional income whose break up is as under:- Financial Year In the hands of API Construction (Prop. Inervadan Jain) (in.Rs) Indra Construction Co. (Prop.Arvind Jain(ind.Rs.) 2009-10 3,00,00,000/- 1,00,00,000/- 2010-11 1,30,00,000/- (which has already been declared during the course of survey u/s.133A on 1.3.2011) 70,00,000/- (which has already been declared during the course of survey u/s.133A on 1.3.2011) 4 2011-12 12,00,00,000 4,00,00,000/- Total 16,30,00,000 5,70,00,000/- 8.3.13. The Assessing Officer for reasons best known to him had kept the survey report and statements recorded for more than 5 months wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease comment. Ans. again reiterate that Indra Construction Company and API Construction might have taken accommodation entries from the concerns of Mr.Mafatlal Shah and also from some other concerns for generation of cash for business needs. Q.9. . Do you know 21 about these fictitious concerns, some of which are being run by Mr.Mafatlal Shah(Serial No.1 to 19). S.No Name of the concern Sl. No. Name of the concern 1 Ajay Stone 20 Simplex Enterprise 2 AtmassEnterprises 21 Carbon Enterprises 3 Bharat Traders 22 Sandeep Steels 4 Geeta Enterprises 23 Sam Enterprises 5 Jai Trading Co. 24 VSK Enterprises 6 Jinal Enterprises 25 Shree Enterprises 7 KK Enterprises 26 Makwell Traders 8 Krish Enterprises 27 Foram Traders 9 Neelam Enterprises 28 Jain Trading Corporation 10 Nidhi Impea india 29 Geeta Sales Corporation 11 Raj Guru Corporation 30 Deep Enterprises 12 Rima Enterprises 31 K.K.TradersKaran Enterprises 13 Saj Enterprises 32 Karan Enterprises 14 Sambhav Traders 33 Proman Agencies Pvt. Ltd. 15 Shree Sai Enterprises 34 Shree Enterprises 16 Sundesha Enterprise 35 Simplex Corporation 17 Vardhman Traders 36 Padma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out even doing the basic enquiries, he had jumped into the conclusion that the entire purchases are bogus. 8.3.17. The analysis done by me shows that Out of 12 parties alleged to have issued bogus bills,' only 4 concerns are figuring in the list of above 39 alleged fictitious concerns which are as under:- i) M/s.Sam Enterprises ii) M/s. Forum Traders iii) M/s.Shree Sai Enterprises iv) M/s.Shree Enterprises The claim of the appellant even at the assessment stage was that the payments to all the 12 parties were made by way of account payee cheques which the AO was very much aware. However I am unable to understand why the AO ( Addl.Commissioner) failed to trace how the cheques have been cleared. He did not obtain the copies of the bank accounts where the cheques got cleared and try to analyse whether immediately after clearing, cash was withdrawn only to pay it back to the appellant. I wonder what prevented the AO to carry out such enquiries. Thus the Addl.Commissioner had miserably failed to carry out the basic ,necessary investigations before coming to such a conclusion. 8.3.18 I also failed to understand why the AO was keeping the Survey Report which was se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power under section 133A, section 132(4) enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Act. On the other hand, whatever statement is recorded under section 133A is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law; (iii) The expression "such other materials or information as are available with the Assessing Officer" contained in section 158BB would include the materials gathered during the survey operation under section 133A ; (iv) the material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment; and (v) the word "may" used in section 133A(3)(iii) of the Act, viz., "record the statement of" any person which may be useful for, or relevant to, any proceeding under this Act" makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. 3. This decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer did not accept the plea of the assessee that excess stock during the course of survey had been reconciled. He relied upon the statement given during the course of survey under section 133A of the Act and concluded that the explanation/retraction by the assessee was an afterthought and had no element of truth. The Commissioner (Appeals) deleted the addition holding that the Assessing Officer did not make any independent enquiry and further that the Assessing Officer had not made out a case that the amount surrendered during the survey operation had not been included in the final books of account. The appeal filed against this order by the Revenue before the Tribunal was dismissed. On further appeal: Held dismissing the appeal, that for a statement to have evidentiary value, the survey officer should have been authorised to administer an oath and to record a sworn statement. While section 132(4) of the Act specifically authorizes an officer to examine a person on oath, section 133A did not permit the same. Moreover, the word "may" used in section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t alone recorded during the course of survey. 8.3.23. The appellant relied on the following decisions in support of his contention that the purchases are genuine:- (i) Hon'ble Gujarat High Court decision in the case of CIT vs. President Industries reported in (2002) 124 Taxman 654(Guj) (ii) Eland International (P)Ltd. vs. DCIT ITA NO.3423/0e1/2007 , ITAT Delhi 'C' Bench. (iii) Hon'ble Supreme Court decision in the case of Parimisetti Seetharamamma vs. CIT reported in 57 ITR 532(SC) (iv) Hon'be Supreme Court decision in the case of CIT vs. Chari N Chari reported in 57 ITR 400(SC) (v) Commissioner of Income Tax vs Leader Valves P Ltd (vi) Balaji Textile Industries (P) vs Third income Tax Officer (vii) Diagnostics vis. CIT reported in 334 ITR 111 Culcutta (viii) Gujarat Sanjay Oilcake Industries vs CIT reported in 316 ITR 274 (ix) Gujarat DCIT vs Adinath Industries reported in 252 ITR 476 (x) CtT vs M K Bras reported in 163 ITR 249 (Guj) (xi) 134 TT J 167 Delhi CTR Volume 50 Part VI page 39 I have gone through the above decision which supports the case of the appellant. In view of the above, the addition made by the Assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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