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TMI Blog2017 (7) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet placed on record. Investment as on 31.3.2011 was 39.66 crores, whereas as on 31.3.2011 it was 31.46 crores. However, there is increase in capital and free reserve as on 31.3.2012 as compared to capital reserves on 31.3.2011. Under these facts and circumstances, relying on the decision of the Hon ble Jurisdictional High Court in the case of Reliance Utilities [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] we can reasonably presume that investment was out of own funds and no disallowance of interest is warranted. Disallowance of administrative expenses u/s. 14A r.w.r. 8D(2)(iii) - Hon ble ITAT [ 2017 (4) TMI 1092 - ITAT MUMBAI] has set-aside the matter to ld. AO with the directions to exclude investments giving taxable income and strategic investments and also to verify the working of disallowance under Rule 8D(2)(iii) in light of various judicial propositions - issue restored back to the file of the AO for deciding afresh in terms of the direction given by the tribunal in order dated 24.02.2017. We direct accordingly. Disallowance u/s. 14A to the book profit u/s.115JB - Restrict the addition u/s.15JB to the extent of disallowance of administrative expenses worked out in terms of direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the TPO. 4. At the outset, it was submitted by the ld. AR that the issue is covered by the decision of Hon'ble Tribunal in the assessee's own case for the immediately preceding A.Y. 2011-12. It has been held by Tribunal that since SBI has charged bank guarantee commission to assessee by giving 50% concession on the rate of 1.75% which works out to approximately 0.875%, considering factors and risk like country risk, currency risk and entity risk etc., guarantee commission would fall down below 0.5%. This constitutes kind of internal CUP. Moreover, there are catena of decisions wherein the Tribunal has held that corporate guarantee commission around 0.50% can be accepted as ALP. The ITAT restricted the TP adjustment to 0.5% p.a. 5. We have carefully gone through the order of the tribunal dated 24.2.2017 in ITA No. 1310/M/2016 for AY 2011-12, wherein at pg. 11, the tribunal observed as under: 11. After considering the rival submissions and on perusal of the impugned orders, we find that it is an undisputed fact that the assessee has given corporate guarantees to financial institution/banks in respect of loan or credit facilities extended to its two AEs and letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pertinent to mention that no new guarantee were given to new AE during the year and the guarantee during the year was in continuation of the old guarantee only. The ld. DR also fairly conceded that the issue is covered by the order of the tribunal dated 24.2.2012. 7. Grievance of the assessee also relates to the disallowance of ₹ 1,65,49,73,234/- u/s.14A r.w.r. 8D. 8. We have gone through the orders of the authorities below and found that the ld. AO made disallowance u/s. 14A r.w.r. 8D as follows: Direct Expenses Rs. Nil Interest ₹ 1,48,17,64,776 Administrative expenses ₹ 17,74,39,093 ₹ 1,65,92,03,869 Less: suo-moto disallowed by the assessee ₹ 42,30,635/- Disallowance u/s. 14A r.w.r. 8D ₹ 1,65,49,73,234 9. DRP relying on the earlier year direction upheld the additions made by the ld. AO. 10. The ld. AR placed on record the order of the tribunal dated 24.4.2017 for the A.Y. 2011-12, wherein the issue has been dealt by the tribunal at pgs. 17 and 18 as under: 17. After considering the rival submissions and on perusal of the relevant material placed on record as well as the finding given in the impugned order, at the outset we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investments as contemplated in rule 8D(2)(iii). The later proposition has been consistently held in catena of cases by this Tribunal as referred to by ld. Counsel before us. Thus, respectfully following the ratio we also hold accordingly. Further ld. Counsel has given the working of disallowance under rule 8D (2)(iii) in light of various judicial decisions and propositions which needs verification. Accordingly, we direct the AO to examine the same and compute the disallowance of indirect expenditure. Since our decision on disallowance of interest is based on direct Jurisdictional High Court decisions, therefore, we do not deem fit to go into the various propositions made by the Ld. CIT, DR in his written notes which is more on intention and purpose for insertion of section 14A. On the issue of indirect expenditure also, we are following the decisions of the coordinate decisions as relied upon before us. Accordingly, ground no. 2.1 to 2.5 is treated as allowed. The alternative grounds taken vide ground nos. 2.4 and 2.5 have become purely academic and therefore, no separate adjudication is required. 18. As regards the issue raised in ground nos. 3.1 and 3.2 that disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh in terms of the direction given by the tribunal in order dated 24.02.2017. We direct accordingly. 16. The addition of amount disallowed u/s. 14A to the book profit u/s.115JB is consequential to ground of appeal no. 2. Similar grounds have been dealt by the tribunal in para 18 on page 18. Respectfully following the same we direct the AO to restrict the addition u/s.15JB to the extent of disallowance of administrative expenses worked out in terms of direction given by the tribunal in its order dated 24.2.2017. We direct accordingly. 17. Next grievance of assessee relates to the addition on account of bogus purchases. 18. We have considered rival contentions and found that the ld. AO made additions on account of purchases from suspicious parties based on accounting of purchases in the books: (a) Disallowance of ₹ 4,60,97,102/- being depreciation on additions to plant and machinery and moulds (para 32, page 64 of the Assessment order) (b) Consequently ld. AO reduced the WDV of plant and machinery and moulds by ₹ 14,73,76,300/-. (c) Reduction of the book value of CWIP by ₹ 20,30,26,020/- by holding the purchases as bogus. (d) Reduction of the value of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss examined by the assessee. During the course of fresh statement/cross examination by the AO in the impugned assessment proceedings as discussed above, Shri Suresh A. Parekh had categorically confirmed that he deals in various electronic items in bulk and that there is huge demand in the market for supply of the aforesaid items. He had also given the name of concerns through which he had supplied various items to various corporate houses including M/s. Videocon Industries Ltd., Aurangabad. In his statement, he has stated that on telephonic or oral orders he used to source the suppliers in the grey market as per the specification of the products and direction of the purchase department of the assessee company and the suppliers from the grey market supplied these items directly to the assessee company. Since these suppliers operate in grey market, therefore, to regularize the same, he used to give sale bills to the assessee company by raising invoices through his concerns against which the payment was received by him and the same has been distributed to the suppliers of the material in the grey market. In his cross examination he has also explained and clarified his earlier stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment details, material utilisation of the item wise details of purchases made from the concerns of Shri Suresh A. Parekh. The revenue is harping greatly on the first statement of Shri Suresh A. Parekh wherein he has admitted that he is providing accommodation bills and charging commission on them without actualsupply of goods; and neither Shri Suresh A. Parekh nor the assessee could adduce any evidence that actually material has been supplied to the assessee. From the records as well as the heads under which addition has been made by the AO it is seen that the addition on account of alleged bogus purchases has been made on the utilisation of following materials and the treatment in accounts: Utilization of material as- Amount (Rs.) Treatment in Accounts Plant & Machinery/Moulds 23,79,82,268 Addition to Plant and Machinery Trail Run 13,94,92,838 Charged to Capital WIP account Trail Production 6,83,99,170 Charged to Capital WIP account Machinery Spares 14,97,74,663 Shown as Inventory in Balance Sheet Raw Material & Consumables 3,50,24,425 Charged to Profit and Loss account Total 63,06,73,365 29. From the aforesaid additions it is quite ostensible that firstly it has been accounted f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grey market then onus is not on the assessee, because, when the material purchased has been recorded by the assessee it its books of account and neither the manufacturing account nor the other entries made in the books of account have not been rejected, then these items shown in the books of account cannot be discarded. AO has not brought on record that the details of items purchased from Shri Suresh A. Parekh is not appearing in the books of account when the assessee has specifically raised this issue before the AO. Either the entire statement of Shri Suresh A. Parekh should be accepted or it should be discarded in its entirety. Only one part of the statement given at initial stage cannot be solely relied upon for making the addition and the second part of the statement which has been made before the AO himself during the course of the assessment proceedings when it was subject to cross examination cannot be disregarded or rejected by the revenue. As stated earlier, here, in this case, unlike in the other cases of bogus purchases the assessee's trading account is not affected directly because the material purchased have been utilised for addition to the plant and machinery an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m grey market and got them supplied. This statement before the AO cannot be discarded at all. Thus, in the totality of the facts and circumstances of the case, we hold that the addition on account of so called alleged bogus purchases cannot be added as income of the assessee and the same as directed to be deleted. 22. We have carefully gone through the order of the tribunal and found that Shri Suresh A Parekh had admitted that transportation of goods and other related expenditure for delivering the goods at delivery site has been drawn by the suppliers as the order is placed at fixed rate which is evident from the bills, copy of invoices supplied by Shri Suresh A. Parekh. 23. It was contented by the ld. AR that the revenue cannot resort to approbate and reprobate on the statement of Shri Suresh A. Parekh, that is, it cannot chose to rely upon the first set of statements recorded in the year 2013-14 and ignore his sworn affidavit and the second statement on oath which was recorded post direction of the Tribunal and cross examination conducted by the AO himself in the course of the assessment proceedings. In his cross examination, Shri Suresh A. Parekh has also explained and clari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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