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TMI Blog2019 (12) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. We find that the Ld. CIT(A) has given detailed reasons for his decision on merits in the aforesaid impugned appellate order dated 20.01.2016 of Ld. C1T(A). During appellate proceedings in Income Tax Appellate Tribunal ( ITAT , for short) no material has been brought for our consideration to persuade us to take a view different from the view taken by the Ld. CIT(A) in the impugned order on merit. After hearing the Ld. DR and after perusal of materials on record, and further, in view of the foregoing discussion, we decline to interfere with the aforesaid impugned appellate order of Ld. CIT(A); and this appeal filed by the assessee is dismissed. - ITA No. 1848/Del/2016 - - - Dated:- 5-12-2019 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER For the Appellant : None For the Respondent : Sh. Saras Kumar, Sr. DR ORDER PER ANADEE NATH MISSHRA, AM [A]. This appeal has been filed by the assessee against the order dated 20.01.2016 passed by Learned Commissioner of Income Tax(Appeals)-30, New Delhi [in short, Ld.CIT(A) ] pertaining to assessment year 2010-11. The Assessee has raised following grounds of appeal:- 1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dhanshree Developers Pvt. Ltd. This information was received by the DIT (Inv.), Delhi from DGIT (Inv.), Mumbai who in turn received the same from the VAT Department, Mumbai. According to the information received, M/s Dhanshree Develpers Pvt. Ltd. during the financial year 2009-10 relevant to assessment year 2010-11 has availed accommodation bills totaling to ₹ 72,50,159/- from the following persons who are engaged in providing bogus bills (hawala dealers):- S. No. Name of the hawala dealer PAN No. F.Y. in which Bills availed Amount of bill 1 Supreme Enterprise AKRPM9147P 2009-10 2007980 2 Newzone Multi trade Pvt. Ltd. AAECM7719B 2009-10 30758 3 Mahalaxmi Corporation/ Pragati Corporation AACPD7542C 2009-10 334409 4 Darshan Trade Corporation AVIPP602 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Account and how much is carried to Work In Progress. We are enclosing herewith chart showing the details o f purchases and amounts charged to Profit and Loss Account etc. It is our practice that only that percentage of purchases is charged to Profit and Loss Account on which revenue is declared and balance is included in the amount of Work in Progress at the end of the year. iv. iv. As such, it will he seen from the chart enclosed that ₹ 38,43,891/- is debited to Profit and Loss Account and Rs,29,94,307/- is included in the figure of Work in Progress os at the end of the year. The figure of ₹ 4,11,961/- which is VAT is considered separately. In this situation total figure of 72,50,159/- can in no circumstances be disallowed, while computing taxable income. We would like to request as follows: a. The. information received from Sales Tax Depart men1 w informed to our AR on 16.03.2013 which is at the fag end of the assessment proceedings for which we have very limited time to justify our case, as our office is at Mumbai and the Assessing Officer is stationed at Delhi. b. We are verifying that transactions and can revert only after conducting deep investigation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation vide his letter dated 08-12-2011 submitted to the Assistant Commissioner of Sale lax (1-28)(Inv.-B), Mumbai admitted that he had not done any genuine business and had issued only tax invoices. He also mentioned that he is willing to submit his affidavit regarding his business activity. His Sale Tax Registration, was also cancelled by the Mumbai VAT Department. A copy of affidavit dated 09-12-2011 submitted by him has also been received by this office. Similar information has also been received in respect of Sh. Kamlesh K. Seth Proprietor of M/s Ambica Trade Impex and in respect of other hawaia dealers. The information has been supplied by the Maharastra VAT Department to the DGI.T (Inv.), Mumbai and from there it has been disseminated to this office. 5.4 The information received from the Maharastra VAT Department is specific and not general or vague. The information contains the details of the beneficiaries party, in the present ease assessee M/s Dhanshree Developers (P) Ltd. (formerly known as M/s Pearls Dhanshree Infrastructure (?) Ltd.), PAN no. of the beneficiary, name of the hawala Dealer, TIN No. of the hawala dealer, PAN No. of the hawala dealer and the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . I have considered the reply filed by the assessee, 1 do not find any force in the reply submitted by the assessee, Provision of section 14A. are mandatory in nature. Section 14A of the Act .reads as under- Section 14A of the Act states:- For the purpose of the computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not from part of the total income under this Act. The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, p me Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not part of the total income under this Act. The provision of subsection (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. 9. From the above, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed the expenses incurred for earning of exempt income, in view of the provisions of the section 14A read with Rule 8D of the Income Tax Rules, hence, I am satisfied that the assessee has furnished inaccurate particulars of his income, accordingly penalty proceedings are initiated u/s 271(1) (c) of the I.T. Act, 1961 separately. With this remarks, the total income of the assessee company is computed as under: Income returned as per revised return Add: -Addition on account of bogus purchases (as discussed above) ₹ 72,50,159/- -Addition as per para 6 above ₹ 1,15,523/- -Disallowance u/s 14A of the Act (as discussed above) ₹ 90,42,612/- Total ₹ 8,27,24,554/- Assessed at an income of ₹ 8,27,24,554/-. Give credit for prepaid taxes. Tax accordingly. Charge interest U/s 234A 234B of the act as applicable. Penalty proceeding u/s 271(1)(c) of the I.T. Act, 1961 have been initiated separately as discussed above. Issue necessary forms. [C] The assessee filed appeal before the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rewith details of non- genuine/bogus bills availed by the assessee M/s Dhanshree Developers Pvt. Ltd. This information was received by the DIT (Inv.), Delhi from DGIT (lnv.), Mumbai who in turn received the same from the VAT Department, Mumbai. According to the information received, M/s Dhanshree Developers Pvt, Ltd. during the financial year 2009-10 relevant to assessment year 2010-11 has availed accommodation bills totaling to ₹ 72,50,159/- from the following persons who are engaged in providing bogus bills (hawala dealers):- S. No. Name of the hawala dealer PAN no. F. Y, in which bills availed Amount of bill 1 Supreme Enterprise AKRPM9147P 2009-10 2007980 2 Newzone Multi trade Pvt. Ltd. AAECM7719B 2009-10 30758 3 Mahalaxmi Corporation/ 'PragatiCorporation AACPD7542C 2009-10 334409 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT paid on the same and how much was charged to Profit and Loss Account and how much is carried to Work In Progress. We are enclosing herewith chart showing the details of purchases and amounts charged to Profit and Loss Account etc. It is our practice that only that percentage of purchases is charged to Profit and Loss Account on which revenue is declared and balance is included in the amount of Work in Progress at the end of the year. iv. As such, it will be seen from the chart enclosed that ₹ 38,43,891/- is debited to Profit and Loss Account and ₹ 29.94,307/- is included in the figure of Work in Progress as at the end of the year. The figure of Its 4 11,961/- which is VAT is considered separately. In this situation total figure of 72,50,159/- can in no circumstances be disallowed while computing taxable income. We would like to request as follows: a. The information received from Sales Tax Department is informed to our AR on 16. 03.2013 which is at the fag end of the assessment proceedings for which we have very limited time to justify our case, as our office is at Mumbai and the Assessing Officer is stationed at Delhi. b. We are verifying that transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly, Sh. Hashmukh H. Panchal proprietor of M/s Darshan Trade Corporation vide his letter dated 08-12-2011 submitted to the Assistant Commissioner of Sale Tax (I- 28)(Inv.-B), Mumbai admitted that he had not done any genuine business and had issued only tax invoices. He also mentioned that he is willing to submit his affidavit regarding his business activity. His Sale Tax Registration was also cancelled by the Mumbai VAT Department. A copy of affidavit dated 09-12-2011 submitted by him has also been received by this office. Similar information has also been received in respect of Sh. Kamlesh K. Seth Proprietor of M/s Ambica Trade Impex and in respect of other hawala dealers. The information has been supplied by the Maharastra VAT Department to the DGTT (Inv.), Mumbai and from there it has been disseminated to this office. 5.4 The information received from the Maharastra VAT Department is specific and not general or vague. The information contains the details of the beneficiaries party, in the present case assessee M/s Dhanshree Developers (P) Ltd. (formerly known as M/s Pearls Dhanshree Infrastructure (P) Ltd.), PAN no. of the beneficiary, name of the hawala dealer, TIN No. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kalathi ITA No. 6727/Mum/2012 Shri Ganpatraj A Sanghavi V ACIT ITA No. 2826/Mum/2013 4. Reliance is placed on decision of Bombay High Court in case of Babulal Borana V 1TO 282 I.TR 251 wherein the Bombay High Court held that where the identity of the persons from whom goods are purchases has been explained, payment are made by account payee cheques, transactions are recorded in books, no addition can be made. 5. The learned AO has not rejected sales in case of the appellant. The learned AO has accepted the books results. Simply on the basis of information from the sales tax Department, the learned AO directly proceeded to disallow the purchases. Reliance is placed on the decision of Bombay High Court in case of Nikunj Eximp Enterprises (P) Lid reported in 216 Taxman 171 wherein the Hon High Court held that once sales are accepted, the purchases cannot be treated as ingenuine in those cases where the appellant had submitted all details of purchases and payments were made by cheques, merely because the sellers/suppliers could not be produced before the AO. 6. In AC IT v, Kishanlal Jewels (P.) Ltd. (2012) 147 TTJ 308 (Del) (Trib.) it is held that the assessee while furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court held no substantial question of law. On SLP by revenue the Court held that if the AO wants to use. some statement made before him, then on request by the assessee, is bound to put the deponent for cross .examination. 12. In Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) Supreme Court held that though the proceedings under the Income-tax Act are not governed by the strict rules of evidence, the department is bound to afford an opportunity to controvert and cross examine the evidence on which the department places its reliance. Opportunity of cross examination must be given. The consequence of breach of natural justice is that either the addition is void or mailer may have to he to be remanded to lower authorities. 13. In G. G. Diamond International v Dy. CAT (2006) 104 TTJ 809 (Mum.) (Trib.) it is held That it is not case of the Revenue that the assessee is not maintaining books of account. The purchases are recorded in the books of account. Payments are made by cheque to the immediate purchasers. They accepted and confirmed the sale. To hold otherwise, there should be some evidence in The possession of The Revenue. Suspicion, however strong, cannot take the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific information from the VAT Department, Mumbai, that the alleged purchases from 7 parties have been made from hawala dealers and therefore, same are not genuine. Therefore, the A.O. came to the conclusion that the appellant failed to prove the genuineness of purchases made from these alleged hawala dealers and made the addition of Rs, 72,50,159/-. (iii) During the appellate proceedings, the appellant has submitted that no material has been referred by the A.O. in assessment order and also no opportunity was given to cross-examine. This argument of the appellant is not acceptable since the A.O. has referred only 7 parties for bogus purchase, as against the total purchases of ₹ 116,84,02,349/- debited in the P L a/c. Further, in the assessment proceedings, the appellant was allowed the opportunity to substantiate its claim from 15.3.2013 to 28.3.2013 and therefore, contention of the appellant that no adequate opportunity was allowed, is not found to be correct. CONCLUSION: From the above, it is clear that the appellant failed to substantiate the claim of alleged bogus purchases from 7 hawala dealers amounting to ₹ 72,50,159/-, before the A.O. and as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the total income under this Chapter, no deduct ion shall he allowed in respect of expenditure incurred by the assessee in relation to income which does not from part of the total income under this Act. The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not par! of the total income under this Act. The provision of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. 9. From the above, it is evident that the provision of section 14A are mandatory in nature. The provisions are also applicable to a case where assessee claims that no expenditure was incurred in earning of the income, not includible in total income. Further, Rule 8D of the Income Tax Rules prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 271(1) (c) of the IT.Act,1961 separately. 6.2 During theappellate proceedings, Ld. AR has filed written submission/objections vide letter dated 16.10.2015. The relevant portion is reproduced as under:- 1. During the course of Assessment Proceedings, the learned AO observed that in the Balance Sheet for the year ended up to 31.3.2010, the appellant had made investment in equity shares in non-cumulative Redeemable Preference Shares of ₹ 1,24,60,24,010/-, According to him, as these investments yield income not includible in income of the appellant, the provisions of Section 14A are applicable. The appellant contended before the learned AO that there is no expenditure incurred for earning any tax free income and therefore the provisions of Section 14A are not applicable. The learned AO concluded in para 9 that the provisions of Section 14A read with Rue SB are mandatory, since the appellant had earned (tax free income in the form of dividend. The learned AO further observed that the appellant has not made any suo moto disallowance and claimed that there is no expenditure is incurred for earning any tax free income, the provisions of Section 14A have to be mandatorily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 1,05,55,50,000/- 2008-09 11,05,26,000/- 2009-10 7,47,50,000/- Total 1,24,08,26,000/- The above details show that the interest hearing funds were not used for making above investments. The investment was made in earlier years. 5. In so far as the interest paid during the year are concerned, the total interest paid and debited to P L A/c for the year under consideration is ₹ 44,01,000/-. This interest is paid on total loans of ₹ 52 crores of which more than ₹ 40 Crores were raised during the year whereas the investment in Preference shares of other companies is very old and made in earlier years. The borrowing funds have been used for business purpose of the appellant Company. 6. Section 14A of the Act is relevant and reproduced below:- 14.4, (1) For the purposes of computing the total income under this Chapter no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be unsatisfactory on examination of accounts, the assessing officer is entitled and authorized to compute the deduction under Rule 80 of the Rules. This pre-condition and stipulation as noticed below is also mandated in sub Rule (I) to Rule 8D of the Rules. 12. Rule 8D of the Rules, again for the sake of convenience, is reproduced below:- 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). The expenditure in relation to income which does not form part of the total income shall he the aggregate of following amounts, namely;- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act, In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of (he claim of the assessee in respect of such expenditure Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We may observe that Rule 8D(1) places the provisions of Section 14A.(2) and (3) in the correct perspective. As we have, already seen, while discussing the provisions of Sub-sections (2) and (3) of Section I.4.A, the condition precedent for the Assessing Officer to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in toted income in the manner indicated in sub-rule (2) of Ride 81) of the said Rules. 9. It is, therefore, dear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of Rule 8D, we find that the method for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction about the expenditure being incurred to earn exempt income. The learned AO neither has examined the books of accounts to arrive at. the satisfaction. On the contrary, the learned AO proceeded on the presumption that once there is exempt income, the provisions of Section 14A are mandatory. In our respectful submission, the above view of the learned AO is legally incorrect in view of the law laid down in various decisions. 12. In respect of interest expenditure, it is submitted that interest expenditure is directly attributable to exempt income. If there is no nexus, the disallowance u/s 14A would not be applicable, Bombay High Court in CAT vs. HDFC Bank Ltd., 366 1TR 505 held that where assessee s capital, profit reserves, etc., were higher than investment in tax free securities, it would have to be presumed that investment made by assessee would be out of interest free funds available with assessee and, consequently, no disallowance could be made u/s J4A. The Hon ble Bombay High Court in CTT vs. Reliance Utilities and Power Ltd. 313 1TR 340 (Bom) has held that if there are interest free, funds available with the assessee sufficient to meet its investment and, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us between funds borrowed and investment in shares yielding tax free income and the fact that the owned funds are much more than the amount invested in shares. As such the provisions of section 14A of Income Tax Act in our opinion are not attracted. Subsequent to the above, Ld. AR has filed further written submission vide letter dated 18.01.2016, which is reproduced as under- A letter of confirmation from the Model Cooperative Bank is attached wherein the Bank has confirmed the payment of dividend to the assessee company. Also find attached a copy of hank statement of the assessee company showing the entries for such dividend credited to the bank account. Dividend income is exempt u/s 10(34) of the Income Tax Act 1961 which reads as under 10(34) Any income by way of dividend referred to I section 115-0. Section 115-0 refers to Tax on distributed profits of domestic companies and is reproduced below : 115-0. [(I) Notwithstanding anything contained in any other provision of (his Act and subject to the provisions of this section, in addition to the incometax chargeable in respect of the total income of a domestic company for any assessment year, any amount decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies to the case of the appellant and therefore no disallowance can he made. As there is no exempt income earned section 14A. of the Income Tax Act 1961 cannot, be invoked and therefore, prayed that addition on account disallowance u/s 14A be deleted. 6.3 Findings:- The findings are as under: 6.4 I have carefully considered assessment order, written submissions, case laws relied upon and oral arguments of Ld. AR. The objections/arguments of the appellant are discussed as under:- (i) In the assessment proceedings, the appellant has stated that, dividend of ₹ 33,410/- was received on shares of M/s. Model Co, Operative Bank Ltd. and the shares were purchased by the assessee as a precondition for obtaining the loan from the bank. Therefore, it was submitted by the assessee that purchase of share is not an investment in order to earn the dividend income. However, this argument of the assessee did not find favour with the A.O., as the provision of section 14A are mandatory, since assessee claimed that no expenditure has been incurred in relation to this exempt income of dividend amounting to ₹ 33,410/-, Therefore, the A.O. invoked the provision of section 14A fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to engage and involve, in the business activities/decision making, without compensating them directly or indirectly. This implies that any investment decision for earning exempt income, suo-moto is not possible, as human intervention is always required. In view of the above facts and circumstances, the alleged claim of the appellant that no expenditure is incurred, is not acceptable. The expenditure incurred, in relation to exempt income, has to be determined as per Rule 8D of the I.T. Rules, 1962, as the appellant has failed to provide details of such expenditure incurred in relation to exempt income. Accordingly, the AO, is justified, in invoking Rule 81), to determine the amount of expenditure, in relation to the exempt income. CONCLUSION In view of the above, the arguments of the appellant are not acceptable and I do find any infirmity in the calculation made under rule 8D by the AO in determining the disallowance u/s 14A. Therefore, disallowance of ₹ 90,42,618/-, made by the AO u/s 14A, is hereby confirmed. Accordingly, ground no. 3, is hereby dismissed. 7. In the result, the appeal is dismissed. [D]. This present appeal has been filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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