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TMI Blog2016 (8) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... g Rule 8D; the AO having applied proportionate formula for allocating both, the interest as well as indirect administrative expenditure, for the purpose of disallowance u/s. 14A. 3. We have heard the parties, and perused the material on record. Before us, the assessee was able to exhibit on the basis of its balance-sheet as at the year-end (PB pages 1-33) the availability of sufficient interest-free capital so as to preclude allocation of interest bearing capital toward investment yielding tax-exempt income. We observe that while investment in shares and securities has increased from Rs. 21.06 lakhs (as at the beginning of the year) to Rs. 243.45 lakhs as at its' end, there has been, rather, a decline in the borrowed capital during the year, i.e., from Rs. 4352.15 lakhs (as at the beginning of the year) to Rs. 3518.86 lakhs at its end. That apart, as clarified by the ld. AR with reference to Schedule III to the balance-sheet, the bulk of it is in the form of secured loan/s towards working capital. The balancesheet reflects an adequate balance of net working capital, i.e., current assets less current liabilities, both as at the beginning and the close of the year, being at Rs. 52.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's block of assets. Shri Sunil Aggarwal, being the person managing the said unit was summoned by the Assessing Officer u/s. 131 of the Act, who attended in response thereto (on 19.10.2007), submitting tax audit report u/s. 44AB of the Act (qua the accounts of the said Unit), and also replied the queries raised by the Assessing Officer, who observed several discrepancies/inconsistencies in the accounts. Apart from statutory disallowances, viz. on account of penalty; late payment of employee's dues under ESIC & EPF etc., he observed that the company had incurred expenditure on material at Rs. 63.83 lakhs on sales of Rs. 56.43 lakhs, i.e., at 113%. Similarly, the proportion of expenditure on employees (Rs. 40.31 lakhs) was also very high in relation to sale/ volume of activity. No details of the material, purchased for Rs. 41.07 lakhs, stand furnished. In view of non-furnishing of any satisfactory answer to these queries, he, rejecting the assessee's books result (i.e., qua the Bhillai unit), disclosing loss of Rs. 47.13 lakhs, estimated its income at 5% of its' turnover. Further, the claim for deprecation was adjusted for the sale of plant and machinery for Rs. 128.40 lakhs durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company's Bhillai unit are being systematically sold. Operating and running a unit is vastly different from its liquidation, decision in respect of which vests, again, only with the Board of Directors of the company. Are there any Board resolutions authorising the sale of the company's fixed assets? Further, even if being realised at fair value, the property therein only belongs to the company, which is entitled to the fair value, i.e., apart from any action arising out of the unauthorized sale. Again, the unit incurring loss, it appears strange that there should at all be a dispute to claim the management rights. Be that as it may, the Revenue's stand is unexceptional. With regard to the invocation of section 145(3), we again do not find or observe any infirmity therein; the company or Shri Sunil Aggarwal failing to furnish any satisfactory reply to the several queries raised by the Assessing Officer in the matter. We may though clarify that the Bhillai unit being a unit of the assesseecompany, it's books of account form part of the accounts of the company. The provision of s. 145(3) would, accordingly, apply to the assessee's accounts, even as the same may result in the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities and trading in derivatives, as amongst one of its business, viz. soya crushing, oil refining, etc. (b) The company has during the year made more than 180 transactions of purchases, while the sale transactions, as stated, run into thousands., so that these are, in any case of the matter, much more. Equally importantly, many of them are within a time span of 10 to 15 days (of the purchase). In many cases, shares are sold within a day of the purchase, and toward which the Assessing Officer has also stated examples, viz. transaction in scrips of Reliance Industries, Steel Authority of India and United Western. It is clear therefore that the assessee has traded on the movement in the shares prices from day to day, dealing in the scrips on a dayto- day basis, rather than holding it as an investment. (c) The said activity entails sizable investment of the company's resources. By way of an example, the bank statement for 15 days for the month of April has been reproduced, to show and demonstrate that out of a total of 40 transactions, 30 are respect of purchase or sale of securities. It is also relevant to state that the assessee is also trading in derivatives as also and also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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