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TMI Blog2017 (12) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Sr. Departmental Representative, he fairly conceded the position. As the issue is squarely covered in favour of the assessee we confirm the order of CIT(A) by deleting the disallowance of interest under Rule 8D(2)(ii) of the IT Rules made by the AO. Retention of disallowance under Rule 8D(2)(iii) i.e. administrative expenses the assessee has calculated the disallowance by calculating 5% of the salary of the CFO, 50 % of the salary of one accounts executive and 79.1% of bank charges paid to ABN Amro Bank through which the investment were routed. Further, the assessee suo moto has disallowed a sum of ₹ 2,26,732/-, the expenses relatable to exempt income. The learned counsel took us through the relevant expenditure booked in the profit and loss account and argued that there is no item which can be co-related with the investment giving exempt income. We find force in the arguments of the learned counsel, which is apparent from the records and hence, we delete the disallowance and allow this issue of assessee’s appeal. Disallowance of expenses relatable to exempt income under section 14A - Held that:- The assessee claimed that it has disallowed 5% of salary of CFO and 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id yea had gone through a detailed scrutiny and the then assessing officer after satisfying himself with regards to the expenses above S laths passed the order under section 143(3) of the income tax act. Accordingly, the 01(A) ought to have appreciated that the said reopening proceedings are invalid and bad in law on account of the fact: - a. That there was no 'reason to believe' that the income chargeable to tax had escaped assessment and a mere change in opinion cannot be a basis for reopening of the assessment proceedings. b. That merely based on information provided by DGIT Investigation which in turn was received from the sales tax department, and not on the basis of independent application of mind by the assessing officer himself, cannot be a basis for reopening. c. That merely based on general affidavits from above mentioned parties without the name of your petitioners being specifically mentioned cannot be basis to come to a conclusion that there is 'reason to believe' that income has escaped assessment. That the CIT(A) ought to have appreciated that your petitioners during the scrutiny proceedings have provided various documentations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprises 39,780 Bath Classic 4,89,172 Sampark Steels 17,53,309 Prayan Trading Co. 16,28,635 2,57,865 Karma Ispat 16,56,887 8,29,965 Total 1,25,07,876 36,92,101 50,37,821 11,55,450 5. In all these years, the AO received information from DGIT investigation Mumbai, who in turn received information from Maharashtra Sales Tax Department that the assessee has obtained bogus purchases from hawala dealers, who without actual sale of goods issuing mere bills and the assessee is obtaining these bills. It was the contention of the Revenue that these bills have been used for obtaining bogus purchase bills, so as to reduce the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act dated 17-01-2013 and 18-01-2013, whereby complete evidences were produced by him. The learned Counsel for the assessee before us now filed paper book for all these years and stated that complete stock tally is available. However, the learned Counsel conceded that to buy peace of mind he is ready to accept the percentage as consistently applied by the Tribunal in other cases. When a query was put to the learned Sr. Departmental Representative, he also fairly agreed for a reasonable percentage. 9. We find that Hon ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj), wherein it has applied the profit rate at the rate of 12.5% of the bogus purchases in similar circumstances. Accordingly, we also apply the profit rate of 12.5% of the bogus purchase and direct the AO to compute the income of all these AYrs. and not the entire bogus purchases are to be added. Accordingly, we allow these appeals of assessee partly. 10. In regard to another issue of Purchases disallowed by AO of capital asset in AY 2010-11 and 2011-12, the same finding will apply and AO will disallow 12.5% of the purchased price of these capital goods and balance will be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,67,336/- and under Rule 8D(2)(iii) at ₹ 31,99,755/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) deleted the disallowance made by AO under Rule 8D(20(ii) completely but retain the disallowance under Rule 8D(2)(iii) at ₹ 29,73,023/- by observing in Para 4.3.1 as under: - 4.3.1 The issue is considered. As explained, it is noted that assessee had made capital infusion of ₹ 200 crores during the year relevant to AY 2009-10 and as a result thereof on 04.02.2009 there remained no overdraft balance in assessee's bank account. The term loan too was paid off. Therefore, the source of all those investments, which were made prior to that date 104.02.20091 even by utilizing the loan fund, will have to be taken as on 04.02.2009 and onwards as if made out of its own fund. From the balance sheet it is noted that on 31.03.2010 the total share capital and reserves town fund) amounted to ₹ 231.52 crores; the outstanding Loan amounted to ₹ 14.56 crores; and the investment stood at ₹ 81.55 crores. Thus, it is noted that the own fund of the assessee was much higher than the investments. Further, the investment made after 04.02.2009 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IT Rules made by the AO. This issue of assessee s appeal is allowed and that of the Revenue is dismissed. 14. As regards to the retention of disallowance under Rule 8D(2)(iii) i.e. administrative expense. Of ₹ 29,73,023/-, the learned Counsel first of all stated that no satisfaction is recorded by the AO and once satisfaction is not recorded in term of rule 8D of the Rules, the disallowance is not permissible. For this he stated that the assessee has calculated the disallowance by calculating 5% of the salary of the CFO, 50 % of the salary of one accounts executive and 79.1% of bank charges paid to ABN Amro Bank through which the investment were routed. Further, the assessee suo moto has disallowed a sum of ₹ 2,26,732/-, the expenses relatable to exempt income. The learned counsel took us through the relevant expenditure booked in the profit and loss account and argued that there is no item which can be co-related with the investment giving exempt income. We find force in the arguments of the learned counsel, which is apparent from the records and hence, we delete the disallowance and allow this issue of assessee s appeal. 15. The next issue in ITA No.5552/M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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