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TMI Blog2016 (11) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... ital loss of ₹ 114 lacs instead of restricting the said capital loss to ₹ 10 lacs as described above by asking the seller Siyaram Exports India Private Limited to forfeit the advance, clearly defies all logic, rationality and principles of commercial expediency known to the business world which clearly indicates to irresistible as well one and only one conclusion that the whole transaction for purchase and sale of afore-stated land Were accommodating in nature whereby interests of both the purchaser and seller in receiving or giving sale consideration through consideration amounts recorded in books of accounts were duly looked by the assessee wherein seller was accommodated with making of higher payments on record and buyers were accommodated to give lesser price on record for the same parcel of land , and on the touchstone of preponderance of probabilities it reflects that the rest of the money purportedly exchange hands as ‘on-money’ which were not brought to tax on record . The transactions for sale and purchase of land were entered into by the assessee and once the Revenue has doubted the transactions as being not genuine for the reasons as set out above, then t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was observed by the AO from the schedules giving details of purchases and sales that in respect of sale of plywood/furniture, the assessee had incurred loss of ₹ 3,71,01,964/. The figures for sale/purchase as per return of income filed by the assessee are as under: Plywood/Furniture Sale : Rs.3,71,01,964/- Less: Purchase : ₹ 9,09,78,075/- Rs.5,38,76,111/- Less: Closing Stock : Rs.1,55,72,930/- Loss: : Rs.3,83,03,181/- It was observed by the AO that in these transactions for purchase/sale of plywood/furniture, the assessee has not taken physical delivery of goods but the delivery was directly given to the assessee s buyer and the transaction was routed through the assessee by which the assessee was receiving purchase bill from the supplier and was subsequently raising sales bill on the buyer. Thus, the assessee was liable only to the extent of commission or difference in price of material , the assessee was asked to explain that how losses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Board Industries Limited towards inferior quality of material supplied by the assessee to the said party. The AO observed that the assessee has not taken deliveries of these goods and in case if the assessee s supplier has supplied defective material, the assessee should raise debit notes in their favour since real transaction of purchase and sale of goods is between the assessee s suppliers and the purchaser M/s Premium Paper and Board Industries Limited and the assessee is only acting as conduit and thus not responsible for the defective material supplied by the suppliers and hence the loss suffered cannot be attributed to the assessee and hence the assessee s claim of rebate and claim of ₹ 1,86,79,300/- was disallowed by the AO and added to the income of the assessee vide assessment order dated 22.12.2010 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by the assessment order dated 22.12.2010 passed by the AO u/s. 143(3) of the Act, the assessee filed first appeal with the learned CIT(A) . 5. The assessee submitted before the learned CIT(A) that the assessee is engaged in the business of trading in various goods and commodities as also in investing as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined at ₹ 3,83,03,181/- instead of profit of ₹ 9,213/- both during assessment as well at the time of sending remand report to learned CIT(A). During remand report proceedings, it was submitted that complete details of purchase , sale and reconciliation statement was submitted by the assessee to the AO but the AO mistakenly overlooked to consider the vital details in the same. It was submitted that purchases being factual matter are recorded in the books of accounts which no body can alter the same and the same can be verified. The learned AO in remand report submitted to learned CIT(A) reiterated its findings as were in the assessment order and also observed that the assessee is now taking the plea of overlapping/regrouping done by the auditors which was incorrect in original audit report. The rectified page of audit report submitted now by the assessee vitiates the authenticity of original audit report and hence the AO stated in Remand Report that the AO has correctly passed the assessment order and the evidences now submitted be rejected and the appeal be decided on merits. The remand report was confronted to the assessee wherein the assessee submitted that the aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n correct figure of purchase is ₹ 5,20,96,701/- instead of ₹ 9,09,78,075/- which is reflected in audited financial statements which was pointed out to the authorities below and hence instead of loss of ₹ 3,83,03,181/- as claimed in return of income filed with the Revenue on trading of plywood/furniture, the assessee earned profit of ₹ 9,213/- . The learned counsel for the assessee drew our attention to the orders of learned CIT(A) page 6/para 5.2 wherein it is stated that as per audited balance sheet as at 31-03- 2008, the assessee earned profit of ₹ 9,213/- instead of loss of ₹ 3,83,03,181/- while as per schedules of purchase and sales , the AO noted that the assessee incurred loss of ₹ 3,83,03,181/- in the business of plywood/furniture. The learned counsel for the assessee drew our attention to page 36-39/paper book wherein attention was drawn of the authorities below to the error which crept in the figures of purchase due to inadvertent mistake of the auditors. The learned counsel for the assessee drew our attention to the statement of fact filed before learned CIT(A) which is placed in the file to reiterate its submissions. It was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions in its defense which shall be admitted by the AO and adjudicated on merits in accordance with law. Needless to say proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly. With respect to second issue of disallowance of claim of rebate of ₹ 1,86,79,300/- by the authorities below on account of defective material supplied by the assessee to its customer, we after considering the rival contentions and perusing the material on record are again of considered view keeping in view facts and circumstances of the case, that this matter also need to be set aside and restored to the file of the AO for de-novo determination of the issue on merits after examination, enquiry and verification by the AO as may be considered appropriate by the AO to determining the genuineness of the claim and also quantification of the loss allocable to the assessee for defective material supplied by the assessee to its suppliers in accordance with the terms of supplies. The assessee is directed to appear before the AO and produce all relevant and necessary evidences in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Rule 8D of Income Tax Rules, 1962. The assesssee submitted the details which worked out to disallowance of Rs. Nil u/r 8D(2)(i), ₹ 66,358/- u/r 8D(2)(ii) and ₹ 5,86,369/- u/r 8D(2)(iii) of Income Tax Rules, 1962, aggregating to disallowance of ₹ 6,52,727/- u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962, which was in-fact disallowed by the AO vide assessment order dated 30-12-2011 passed u/s 143(3) of the Act. 12. Aggrieved by the assessment order dated 30-12-2011 passed by the AO u/s. 143(3) of the Act, the assessee filed first appeal before learned CIT(A). 13. Before the learned CIT(A), the assessee contended that the assessee never bought the shares with motive of earning dividend income which is an exempt income. The assessee submitted that in few case it got the dividend which does not mean that the dividend earning was the motive of the assessee. The assessee submitted that no proximity is established between the expenditure incurred and the income not forming part of the total income. The assessee relied upon the decision of Hon ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited v. DCIT (2010) 328 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The assessee relied on decision of Mumbai Tribunal in the case of Sylvex Cables Company Private Limited v. DCIT in ITA no 8581/Mum/2011 as well on decision of Pr. CIT v. Empire Packaging Private Limited and decision of Hon ble Delhi High Court in the case of Joint Investment Private Limited v. CIT (2015) 372 ITR 694(Del HC) to contend that the disallowance u/s. 14A of the Act cannot exceed the dividend income earned by the assessee. The ld DR relied upon the orders of learned CIT(A). 16. We have heard the rival contentions and perused the material on record including case laws relied upon, we have observed that the assessee has earned dividend income of ₹ 79,975/- which was claimed exempt u/s. 10(34) of the Act. The assessee submitted that the assessee has not incurred any expenditure in relation to earning of income which does not form part of total income as per provisions of the Act. The disallowance of expenditure incurred by the assessee in relation to earning of income which does not form part of total income as per provisions of the Act has to be worked out in accordance with Section 14A(2) of the Act having regards to the accounts of the assessee. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taka High Court has held in the case of CCI Ltd. (supra) that the shares held as stock in trade should be excluded for the purpose of computing disallowance u/s 14A of the Act, since they cannot be said to be investment made for the purpose of earning dividend income. In the case of India Advantage Securities Ltd. (supra), the Hon'ble Bombay High Court has noticed that the CIT(A) took into account the words of the Rule and found that the figures as derived by the Assessing officer cannot be taken into consideration. The Ld CIT(A) had observed that, one can at best disallow the expenses which are incurred for earning dividend income and for that purpose, the figures under the head Investment could be taken and some charges apportioned for the purpose of computing expenses. The decision rendered by the Tribunal in the case of India Advantage Securities Ltd. (supra) was found to be neither perverse nor vitiated by any error of law apparent on the face of record by Hon'ble Bombay High Court. We further notice that the decision rendered in the case of CCI Ltd (supra) has been followed by the co-ordinate benches of Tribunal in the case of India Advantage Securities Ltd (ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... average investment for administrative expenses. On the other hand, the assessee in its COs for assessment years 2009-10 and 2010-11 has challenged the impugned orders of the learned CIT (A) in directing the AO to compute the disallowance under section 14A r.w. Rule 8D @0.5% of the total average investment for administrative expenses without assigning any reasons, when such disallowance ought to be made only in respect of 0.5% of average investments yielding tax free income. 3.3.3 We have heard both the learned D.R. for Revenue and the learned A.R. for the assessee. In the course of hearing, the learned A.R. for the assessee submitted that the assessee had earned exempt dividend income of ₹ 41,216/- in A.Y. 2009-10 and ₹ 40,003/- in A.Y. 2010-11 and that while the assessee had claimed that no expenditure had been incurred for earning this income in A.Y. 2009-10, ₹ 40,000/- was shown to have been incurred for earning the exempt income in A.Y. 2010-11 It was contended that in the light of the decisions of the Hon'ble Punjab Haryana High Court in the case of PR. CIT v. Empire Package (P.) Ltd. [IT Appeal No. 415 of 2015, dated 12-1-2016] and of the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads thus:- 7. In the instant case, the income from dividend has been shown at ₹ 1,11,564/-, the disallowance under section 14A read with Rule 8 D worked out by the Assessing Officer comes to ₹ 4,09,675/-. Thus, it is clear that the AO has disallowed the entire tax exempt income which is not permissible in view of the judgment of the Hon'ble Delhi High Court referred to above. The Hon'ble Delhi High Court held that the window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . The disallowance under section 14A read with Rule 8D as worked out by the Assessing officer is not in accordance with law and as such working is not sustainable. 8. In view of the above observations, I think it is appropriate to set aside the order of the learned CIT (A) on this issue and remit the matter to the file of AO with a direction to decide the issue afresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. Additionally, the tax effect involved is of ₹ 1,26,589/- only. 5. The view adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67 taxmann.com 42(Bom. HC) . We order accordingly. 17. Next Issue in this appeal is with respect to treatment by Revenue of short term capital loss incurred by the assessee on sale of land at Hasteda(Rajasthan) amounting to ₹ 1,14,27,420/- as arising out of sham transaction. On perusal of the details of capital gains/losses incurred by the assessee during the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act, it was observed by the AO that the assessee had incurred loss of ₹ 1,14,27,420/-- on sale of land at Hasteda, Tal, Chomu District, Jaipur which short term capital loss was set off against other capital gains earned by the assessee. The AO from the perusal of documents submitted in connection therewith observed that agreement to sale dated 10-03-2008 was entered into by the assessee with Siyaram Exports India Private Limited and the assessee wherein it is mentioned that the assignor i.e. Siyaram Exports India Private Limited shall transfer and assign to the assignee i.e. the assessee(or its nominees) 7.33 hectare of land with their appurtenances free from encumbrances for a price of ₹ 1,71,50,000/- . The assignee ( i.e. the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration being lesser amount . The theory of new township is cooked up and information is not from public sources but from so called reliable sources which has no credence. The transaction defies logic and the balance sheet does not show any stress sign and at best the assessee could have lost advance payment of ₹ 10 lacs if the assessee was not able to carry forward the sale transaction and complete the sale by 31-12-2008 as there was no need for sale and to incur loss of ₹ 1.14 crores and instead loss could have been only ₹ 10 lacs. Thus, the AO held based on the series of events mentioned above and also conduct of entire transaction that the transaction is a sham transaction and loss generated is not genuine and loss of capital ₹ 1,14,27,420/- on this transaction was disallowed by the AO vide assessment order dated 30-12-2011 passed by the AO u/s 143(3) of the Act. 18. Aggrieved by the assessment order dated 30-12-2011 passed by the AO u/s. 143(3) of the Act, the assessee filed first appeal with the learned CIT(A). 19. The assessee reiterated its submissions before learned CIT(A) as were submitted before the AO which are not repeated. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appreciate and the assessee had to fulfill obligation to pay balance sales consideration. The said land was sold by the assessee vide two separate sale deeds both 16-01-2009 for total consideration ₹ 58.40 lacs to Smt. Anju Yadav and secondly to Smt. Savitri Yadav and Smt. Nirmala Yadav. The balance consideration of ₹ 161.50 lacs for the purchase of land was paid by the assessee to Siyaram Exports Private Limited after selling the land on 16-01-2009 to Smt. Anju Yadav and secondly to Smt. Savitri Yadav and Smt. Nirmala Yadav. The two sale deeds are placed in paper book/page 29-58.The assessee incurred loss of ₹ 1,14,27,420/- in the said purchase and sale of land. It was submitted that all the facts were brought to the knowledge of the authorities below but they erred in holding that the said transaction is not genuine and is a sham transaction. It was submitted that by entering agreement to sale dated 10-03-2008 wherein the assessee paid ₹ 10 lacs as initial consideration to Siyaram Exports India Private Limited, the assessee acquired valuable rights in the capital asset and the assessee relied upon decision of Hon ble Bombay High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance consideration of ₹ 161.50 lacs on or before 31-12-2008, the said amount of ₹ 10 lacs paid as an advance will be forfeited by the sellers M/s Siyaram Exports India Private Limited. The assessee had stated that the land was purchased on 10-03-2008 with an objective of selling it within a short period of time and making capital gains as it was expected that there will be huge increase in valuation of land as there was some reliable information that some new township is being developed by some private builder in Hasted. But, no evidence is brought on record even before us to substantiate the basis of the so called reliable information which induced assessee to purchase the land. The said agreement to sale dated 10-03-2008 is placed in paper book/page 26-28 filed with the Tribunal. The assessee sold the said land admeasuring 7.33 hectares vide two separate sale deeds both dated 16-01-2009 to Smt Anju Yadav and secondly to Smt Savitri Yadav and Smt. Nirmala Yadav for total consideration of ₹ 58.40 lacs. The assessee , thereafter, made balance payment of ₹ 161.50 lacs in the month of January 2009 starting from 17th January 2009 to Siyaram Exports India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for purchase and sale of afore-stated land Were accommodating in nature whereby interests of both the purchaser and seller in receiving or giving sale consideration through consideration amounts recorded in books of accounts were duly looked by the assessee wherein seller was accommodated with making of higher payments on record and buyers were accommodated to give lesser price on record for the same parcel of land , and on the touchstone of preponderance of probabilities it reflects that the rest of the money purportedly exchange hands as on-money which were not brought to tax on record . The transactions for sale and purchase of land were entered into by the assessee and once the Revenue has doubted the transactions as being not genuine for the reasons as set out above, then the onus shifts back to the assessee to prove by cogent evidences and explanations that the transactions for purchase and sale of land were in fact genuine which the assessee in the instant case failed to do so. Thus, these transactions for purchase and sale are not proved by the assessee to be genuine transactions and are held by us to be sham and colorable devices and short term capital loss of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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