9911796707
TMI Blog2018 (11) TMI 1845X X X X Extracts X X X X X X X X Extracts X X X X ..... he draft assessment order. Since the facts are not identical to the facts of the case laws relied on by the assessee, moreover, the AO has to pass draft assessment order as per provision and was accordingly passed by him. The accompanying notices along with the draft assessment order are only procedural mistakes, it cannot tantamount to passing of final assessment order. Accordingly ground raised by the assessee is dismissed. ALP adjustment towards interest on advances - HELD THAT:- From the above ledger extract, it is clear that the assessee has given advance to its AE on 19/06/2013, 1807/2013 and 30/09/2013 and received back on 20/11/2013, 04/12/2013 and 05/12/2013. In the result, assessee has received more than that it has advanced. In our view, the advances given by the assessee to its AE are falls within the ambit of international transaction. But, assessee has taken conscious decision to advance without charging any interest. But, since, it falls within the definition of international transaction, the provision will attract accordingly. At the same time, we notice that TPO has charged interest for the whole year by Bench marking @ 14.45%. We find it to be a bit harsh on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chose to keep the turnover intact as per P L and tried to reduce the profit by showing this additional turnover as other deduction. In our considered view, it is not additional or real income and also not a deduction in real sense. Hence, the same is deleted. Accordingly ground raised by the assessee is allowed. Addition on the basis of statement recorded at the time of search - HELD THAT:- In the given case, AO has not brought on record any incriminating material or cogent material in support of the above addition. Merely relying on the declaration given by the MD is not proper, since the same was withdrawn by the assessee subsequently.Hence, the addition cannot be sustained in the absence of any cogent material on record. Therefore, ground raised by the assessee is allowed. Disallowance of interest expenses on sham transactions - HELD THAT:- As decided in own case [ 2018 (4) TMI 1742 - ITAT HYDERABAD] in our view, AO has not made any disallowance in purchases even though he satisfied himself that these are sham transactions. Further, he proceeded to disallow interest on purchases, which is not proper, even though, he proceeded to disallow the interest with improper data and impr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 132 of the Income-tax Act, 1961 was conducted in the business premises of the assessee on 13/12/2013. The assessee filed its original return of income belatedly u/s 139(4) of the Act on 18/05/2015 declaring a total income of ₹ 30,48,17,060/- comprising of business income of ₹ 24,71,83,826/- and income from other sources ₹ 5,76,33,234/-. The assessee however computed deemed total income u/s 115JB of the Act, 1961 amounting to ₹ 36,10,93,608/- and paid taxes accordingly. In the return of income, at col.5 of schedule BP, the assessee had claimed ₹ 60 crores as other exempt receipt credited to P& A/c. The return filed u/s 139(4) of the Act was selected for scrutiny under the compulsory guidelines issued by the CBDT and also under CASS. Accordingly, notice u/s 143(2) dated 18/05/2015 was issued and served on the assessee. Subsequently, the assessee filed a revised return of income on 31/03/2016, which was treated as invalid by the AO on the ground that the original return of income u/s 139(4) was filed after the due date. 2.1 A reference was made to the Transfer Pricing Officer (TPO) for determination of arm's length price in respect of the internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/-. This corporate guarantee to the AE for availing banking facilities from UCO Bank, Singapore, amount outstanding at ₹ 30,14,04,500/-. This corporate guarantee was given by the assessee on account of commercial & business expediency and has not incurred any cost for providing such corporate guarantee. As the transaction did not result in any income, expense or interest as envisaged under section 92 of the Income-tax Act,1961, in the opinion of assessee, determination of Arm's Length Price is not warranted. The transaction between the BS Limited and BS Global Resources Pte Ltd, Singapore is relating to the working capital advances and corporate guarantee by the assessee company in the subsidiary company. Hence, no arms length price is warranted for such type of transaction. 2.7 Analysis by the TPO 1. Loans and advances provided of ₹ 20,58,50,500/- AE Nature of transaction Amount (Rs.) Addition during the year Total amount BS Global Resources Pvt. Ltd. Interest free loan/advances 0 20,50,50,500/- 20,58,50,500/- 2.8 The TPO observed as under: "It is stated that the company has made the advances/loan to BS Global Resources Pvt Ltd during the year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction available. Further the interest rate expected by the lender is equivalent to the opportunity cost of such funds. As a hypothetical CUP would be where the Indian entity invests in bank deposits, stocks, mutual funds or real estate, the corresponding return would still be the effective Indian interest rate. As regards advances to BS Global Resources Pvt Ltd ₹ 22,98,08,769/-, the taxpayer has stated that the advance has been given out of the proceeds of FCCB which were non-interest bearing. Accordingly, as the money was raised as equity with zero coupon rate of interest and was invested in subsidiary without any interest. For the reasons mentioned above, the contention of the taxpayer is not acceptable for these transactions also. Thus, this amount is also considered for the purpose of benchmarking. Accordingly, the assessee was show caused as to why an interest @ 14.45% as per SBI PLR is not charged. It is seen from the reply that the assessee stating that it has extended interest free loan only according to the requirement of the business and not charged any interest. The taxpayer also relied upon several case laws. The above discussion on interest free loan has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantor incurs cost on one side and the borrower saves cost on the other side." 2.10 The TPO after considering the submissions of the assessee, referring to the provisions of section 92B by the Finance Act, 2012 and OECD guidelines, did not accept the contention of the assessee that corporate guarantee of the nature provided will not come within the meaning of international transaction in terms with section 92B of the Act and he collected the information from SBI by issue of notice u/s 133(6), as per which, loans upto ₹ 5 crores, the bank guarantee charges are 2.10% per annum, from ₹ 5 to 10 crores is 1.60% and above ₹ 10 crores the charges are 1.30% per annum. He, accordingly, computed the ALP of corporate guarantee fee as under: Amount of corporate guarantee extended to AE ₹ 30,14,04,500 Corporate guarantee fee @ 1.30% ₹ 39,18,258 Thus the arm's length price of corporate guarantee fee is ₹ 39,18,258/- and the shortfall of the same amount is treated as an adjustment u/s 92CA of the Act and the total income of the assessee was enhanced by ₹ 39,18,258/- u/s 92CA(3) of the Act. 3. When the assessee objected the same before the DRP, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iversion of funds to the extent of such sham transactions, the interest expenditure incurred by the assessee company is proportionately disallowed by the AO as under: 1. Total payments made by BS Ltd. ₹ 488,73,97,221 2. Total receipts of BS Ltd from Related concerns ₹ 453,99,66,489 Excess Payments ₹ 34,74,30,732 The AO therefore disallowed the excess payment towards interest of ₹ 28,54,23,451/-. 3.1 When the assessee objected before the DRP, as per the DRP directions, the AO computed the disallowance at ₹ 22,19,36,623/-. 4. As regards interest disallowance on payments to M/s Silver Point Infratech Ltd. - ₹ 1,37,88,369/-, the AO observed that for AY 2012-13, against contract received from the entities (as mentioned in page 26 of AO's order) amounting to ₹ 5,60,13,796/-, work amounting to ₹ 5,34,76,748/- was given on subcontract to Silverpoint Infratech Ltd., for which M/s BS Ltd. has paid ₹ 1,13,83,335/- in AY 2012-13 and ₹ 4,10,23,613/- in AY 2013-14. Apart from the above, M/s BS Ltd has made payments of ₹ 5,79,00,000/- in AY 2013-14 and the amount is still outstanding as on date. The AO issued show cause le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down u/ s. 144C(1) of the Act by issuing the notice of demand u/ s. 156 of the Act & penalty notices u/s. 271 (l)(c) and 271AAB along with Draft assessment order dated 30.12.2016, which tantamount to passing of Final Assessment Order. 2. Erred in making reference by the AO suffers from jurisdictional error as the AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the TPO for computation of the arm's length price, as is required under section 92CA(1) of the Act. 3. Erred in making ALP adjustment of ₹ 2,97,45,397/- towards interest on advances of ₹ 20,58,50,500/- without appreciating the fact that the assessee has already received an amount of ₹ 22,98,08,769/- during the year itself and an amount of ₹ 2,39,58,269/- is outstanding to the AE. 3.1 Erred in re-characterizing the nature of transaction from 'Working Capital Advance' to 'Loans' which is not permissible u/s. 145 of the Act. 3.2 Erred in calculating notional interest by not following any method and the procedure laid down u/ s.92C of the Act relating to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholder service. 4.4 Erred in not appreciating the fact that provision of corporate guarantee was a procedural compliance for availing the loan. Further, the issuance of Corporate Guarantee on behalf of AE does not involve any cost to the assessee. 4.5 Erred in not appreciating the fact that corporate guarantee was given by Assessee for its own commercial expediency and for the overall benefit of the group. It was provided as a part of the parental obligation to its new subsidiaries and is in nature of shareholder service. 4.6 Erred in not appreciating the fact that the Assessee has not derived any benefit by giving guarantee to its AE. Hence, no ALP adjustment is warranted in this regard. 4.7 Erred in calculating the ALP of the corporate guarantee fee using 'CUP' as the most appropriate method and by applying the rates of SBI without any basis and without complying with the procedure laid down for computation of arm's length price as given in the provisions of section 92C of the Act. 4.7.1 Erred in adopting rate which is fixed by the Indian Bankers considering the various factors in India however, the said transaction entered by the appellant is outside India. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have withdrawn declaration of ₹ 60 Crares because we have not identified any discrepancies in our transactions as was appreciated and at the same time department had also not identified any differences in transactions in post search proceedings. 6. Erred in making an addition of ₹ 60,00,00,000/- on the basis of statement of Sri Rajesh Satyanarayan Agarwal (Director) dated 13.12.2013 without appreciating the fact that the same was first included in gross receipts and subsequently withdrawn by the director. 6.1 Erred in making addition of ₹ 60,00,00,000/- without issuing any show cause notice proposing such addition. 6.2 Erred in not appreciating the fact that the director has admitted ₹ 60,00,00,000/ as additional undisclosed income due to some misnomer, confusion and mis-apprehension that certain discrepancies might be there and to take care of the discrepancies if any. But as no such discrepancies or inconsistency were found later on, therefore no addition was required to be made in this behalf. 6.3 Erred in making addition of ₹ 60,00,00,000/- only on the basis of statement recorded without their being any corroborative incriminating documents or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that all the disbursements and receipts are made through the banking channel and have direct nexus with the business activity of the assessee. The assessee has complied with the provisions of section 37(1) of the act. Bank Loan sanctioned for specific purpose and the same is compiled by assessee. 7.6 Erred in not appreciating the fact that the funds granted by the bank are for specific business purpose on the basis of feasibility and technical study wherein the stock and debtors were considered for granting the funds and it cannot be presumed that the same were utilized for paper transactions. Purchases with the similar parties in the earlier years also. 7.7 Erred in disallowing the interest expenditure without appreciating the fact that the purchases and sales with the above referred parties were made in the earlier assessment years also wherein they are accepted and assessment were completed without any disallowances. Interest bearing funds are utilized for the regular business operations for which the loan is sanctioned. 7.8 Erred in not considering the fact that the interest cost is relating to the funds applied by the assessee for normal business operations for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iating the fact that the VAT/Service tax obligations have been duly complied with by assessee and the concerned Government authorities have accepted these transactions. Therefore, if one arm of the government has accepted the transactions, the other arm of the government must also respect the same. 8 Erred in disallowing proportionate amount of Interest (being the finance cost) of ₹ 1,37,88,369/- by concluding that the sub contract expenditure of ₹ 11,03,06,948/- to Silver point Infratech Limited is non-genuine. 8.1 Erred in not appreciating the fact that the assessee has received contract works from various parties and the same is sub contracted to Silver point Infratech Limited. The assessee has received advances from the respective parties and from such advances payments were made to Silver point Infratech Limited. 8.2 Erred in not appreciating the fact that the assessee is operating in a infrastructure business of power transmission wherein mobilization advances are common and it has received certain amount as advance from parties which is pending as on 31.03.2014. 8.3 Erred in not appreciating the fact that the sub contract expenditure incurred by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account the transactions relating to 12 months period from April to March of the particular financial year. 10 Erred in initiating penalty proceedings u/s. 271(1)(c) r.w.s 274 and 271AAB r.w.s 274 of the Income Tax Act. The appellant may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal. 6.1 Before hearing, the bench asked the ld. AR to specify the grounds of appeal, which are contested, reason being there are so many sub-grounds. Ld. AR submitted that he will press only the main grounds and press the argument placed before the Bench. The bench will adjudicate only the main grounds of appeal and not its sub-grounds. 7. As regards ground No. 1, the ld. AR of the assessee submitted that the AO erred in not issuing draft assessment order as per procedure laid down u/s 144C(1) of the Act by issuing the notice of demand u/s 156 of the Act & penalty notices u/s 271(1)(c) and 271AAB along with draft assessment order dated 30/12/2016, which tantamount to passing of final assessment order: 1. Vijay Television Pvt. Ltd. Vs. DRP, [2014] 369 ITR 113 (Mad.) 2. Capsugel Healthcare Ltd. Vs. ACIT, ITA No. 1356/Del/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the assessee to BS global was used for payment of LC and opening of new LC in favour of Atlantic Industrial & Trading Pte Ltd with whom both the companies has entered into a joint business agreement for supply of coal. The details of advances given to BS Global Resources Private Limited and the LC's in favour of Atlantic Industrial & Trading Pte Ltd are as under: Date of Payment Amount in USD Amount in INR Purpose 19.06.2013 8,00,000 4,70,88,000 Used for LC payment 18.07.2013 500000 2,98,75,000 Usedas margin money for opening LC 30.09.2013 20,00,000 12,57,40,000 Used as deposit with Coal mine d. Advances are given on account of business and commercial expediency: Advances were given on account of business and commercial expediency which results in overall growth of the company. The assessee is getting business from AE and the transaction has to be seen on commercial consideration as no motive to evade tax by shifting the income to tax heaven. The working capital advances are provided by the assessee to the AE in view of the overall growth of the company's. The assessee is deriving business from various parties in Singapore and to these parties the AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2011-12 reported in 81 taxmann.com 381 for AY 2011-12. Reliance is also placed on the order of Hon'ble Hyderabad ITAT in the case of Lanco Infratech Limited for AY 2011-12 in ITA No 221/H/2017. 7. Hence, zero rate of interest should be applied in respect of above said transaction with AE is justified and within ALP. 8. TPO has charged @ 14.45% which has no basis. The ALP of the transaction should be determined in accordance with the provisions of section 92C of the Act relating to Computation of Arms Length Price. The method should be decided as per the appropriateness of the transaction. It cannot be selected arbitrarily/randomly. The rate of 14.45% has no relevance and is adopted by following cherry picking approach which is against the provisions of the Act. In view of the above submissions, it is requested to kindly delete the ALP adjustment made in respect of advances." 12. The ld. DR, on the other hand, relied on the orders of revenue authorities. 13. Considered the rival submissions and perused the material on record. We observe that assessee has given short term advance to its AE and received back the advance before the end of the financial year. There is no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, ground raised by the assessee is allowed for statistical purposes. 14. As regards ground No. 4 regarding addition of ₹ 39,18,258/- in respect of corporate guarantee provided to AE, ld. AR submitted that the corporate guarantee given to AE does not fall within the scope of international transaction u/s 92B. He submitted that the corporate guarantee is provided to AE for commercial, business expediency and promoter obligation. Also, It is different from the bank guarantee. Further, he submitted that TPO has adopted the rate of SBI, whereas the assessee has extended the bank guarantee to the foreign AE. Therefore, he should have adopted rates available in the international market. He also submitted that TPO should have charged the rate on the actual loan, availed by the AE, not on the corporate guarantee extended by the assessee and the assessee has not incurred any cost for providing such guarantee. Without prejudice, to the above, he submitted that the AO ought to have applied reasonable rate of corporate guarantee fee percentage, say 0.20%. He relied on the following cases: 1. Bharati Airtel Ltd. Vs. ACIT, ITA No. 5816/Del/2012 2. Aban Offshore Ltd. vs. DCIT, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided by the assessee will fall within the expanded definition of international transaction. 14.1 With regard to quantum of guarantee fee to be charged, it is consistent view of the bench that the corporate guarantee provided by the assessee cannot be equated with a bank guarantee provided by third party banks. Therefore, the rate charged by banks cannot be applied to determine the 'ALP' for the guarantee provided by the assessee. The coordinate bench in the case of Four Soft (supra) referred to the decision of Mumbai ITAT in the case of Glenmark Pharmaceuticals, 43 Taxmann.com 141 (Mum. Trib.) wherein distinction was made between bank guarantee and corporate guarantee and 0.53% was held to be appropriate 'ALP' for guarantee commission. 14.2 Further, ld. AR submitted that the assessee has extended the corporate guarantee to the AE whereas AE has not utilized the full financial facility during the year, hence, the quantum cannot be determined in full value of corporate guarantee. We are in agreement with the assessee that corporate guarantee is contingent liability, relevant consequence depends upon future event. However, the quantum of exposure should be on the basis of actual ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of income. • In this regard, it is submitted that the action of the assessing officer is completely incorrect in making addition of ₹ 60 Crores to the income of the assessee without appreciating the fact that same represents the additional income offered during the search proceedings which is later withdrawn as no discrepancies were noticed in the books of account of the company. This fact was available before the assessing officer. However, the assessing officer, ignoring the facts available on record, went on to add the amount observing that the assessee company is not able to substantiate the claim of deduction. • Fact remains that the amount of ₹ 60 Crores is only towards alleged estimation of bogus transactions and does not represent the real income of the assessee. Once the additional income offered is withdrawn, the provisions of income tax act do not empower the assessing officer to tax an amount based on suspicion which does not represents the real income of the assessee. • Further, during the ITAT Appellate proceedings for AY 2013-14 in the assessee's own case which is heard in ITA No 2186/H/2017, the Ld. DR has stated that the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from what had been entered in the books of account. A mere bookkeeping entry cannot be income, unless income has actually resulted, and in the instant case, by the change of the terms the income which accrued and was received consisted of the lesser amounts and not the larger. This was not a gift by the assessee firm to the managed companies. The reduction was a part of the agreement entered into by the assessee firm to secure a long-term managing agency arrangement for the two companies which it had floated." (b) Order of Mumbai ITAT in the case of Lok Housing & Construction Limited vs ACIT reported in [2012] 27 taxmann.com 15(Mum) wherein the Hon'ble ITAT has held as under: "46. In the case of HM. Keshiparekh & Co. Ltd. (supra), the concept of real income was expounded by the Hon 'ble Bombay High Court which has been approved by the Hon'ble Supreme Court in the case of Poona Electric Supply Co. Ltd. v. CIT [1965]57 ITR 521. It was held by the Hon'ble Bombay High Court in the case of H.M. Keshiparekh & Co. Ltd. (supra) that the principle of real income is not to be so subordinated as to amount virtually to a negation of it when a surrender or concession or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult of the five relevant transactions in the immovable properties which is chargeable to tax in its hands for the year under consideration. The declaration of such income, which was not accrued to the assessee in the real sense in the original return thus represented a wrong statement which was corrected by the assessee by filing the revised return and the AO as well as the learned CIT(Appeals), in our opinion, was not justified in bringing to tax such hypothetical income in the hands of the assessee company on the basis of original return of income ignoring the revised return filed by the assessee. We, therefore, decide this issue in favour of the assessee on merit and delete the addition made by the 110 and confirmed by the learned CIT(Appeals) on this issue." (c) Order of Bombay High Court in the case of CIT Vs Lok Housing & Constructions Limited reported in [2015] 58 taxmann.com 179 (Bombay) which has later been upheld by Hon'ble Supreme Court reported in l20161 70 taxmann.com 2 (SC).The Hon'ble High Court has held as under: "12. On both counts, the Tribunal has in a detailed discussion of more than 40 paragraphs found that there is no substance in the objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment of the same. For passing on amounts to assessee, assessee might have raised bogus bills but at present, the parties are in dispute. The said company New Cyberabad City Projects P. Ltd., admittedly treated the amount paid to assessee as advance and assessee even though treated the receipts as revenue receipts and offered incomes, subsequently with revising accounts treated them as a liability in the books of accounts. Be that as it may, there are enquires made by A.O. about the transactions and AO has the following findings. "In view of the statement of Sri Prasad V. Potluri, Director of NCCPL, that no development activities were carried on by the assessee company and the fact that no evidence in the form of bills/vouchers were found at the business premises of the assessee at the time of survey, it was felt necessary to cause inquiries at field level to ascertain the truth. Accordingly, Sri Y. Prasad, Inspector of Income Tax was directed to visit the lands at Survey No.664 and 721 of Nadergul village and report the factual position. Accordingly, Sri Y. Prasad visited the lands at Sy.No. 664 & 721 of Nadergul village and submitted his report on 23.09.2011. As per the repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated under any other Act, like Money Laundering flet or whether there are any other violations committed in these transactions. Admittedly, there were bills were given [or the so called work which was not done and as seen from the statement of Mr. Prasad V. Potluri assessee also registered some properties in the name of the said company which are found to be not correct. Therefore, A.D. is directed to enquire about these aspects and arrive at the correct position of incomes as per law and facts of the case. However, in case, no escaped incomes are to be considered, A.D. is directed to accept the income returned, as reassessment proceedings are only for the benefit of Revenue. Keeping the principles laid down by Hon'ble Supreme Court(supra), we direct the AD. to accept the income returned in case further enquiries reveal that these transactions does not give rise to any concealed income. With these observations, assessee's grounds are partly allowed for statistical purposes." • As can be seen from the above, the Hon'ble jurisdictional ITAT has held that if the entry in the books of account of the assessee does not arrive at taxable income as per the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, assessee chose to keep the turnover intact as per P&L and tried to reduce the profit by showing this additional turnover as other deduction. In our considered view, it is not additional or real income and also not a deduction in real sense. Hence, the same is deleted. Accordingly ground raised y the assessee is allowed. 19. As regards ground No. 6 relating to addition of ₹ 60,00,00,000/- on the basis of statement recorded at the time of search, the assessee stated in its written submission as under: "The assessing officer has made an addition of ₹ 60,00,00,000/ - to the income of the assessee stating that the MD of the assessee company has admitted income of ₹ 60,00,00,0000/- on the day of search in a statement dated 13.12.2013 recorded u/s 132(4) of the IT Act. In this regard, it is submitted that the AO erred in making addition of ₹ 60,00,00,000/- only on the basis of statement recorded without their being any corroborative incriminating documents or evidences found by it which could support the above said statement recorded. It is submitted that the assessee company had offered to disclose additional income during the course of search assuming that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the provisions of income tax act, 1961. Further, during the ITAT Appellate proceedings for AY 2013-14 in the assessee's own case which is heard in ITA No 2186/H/2017, the Ld. DR has stated that the addition of ₹ 60 Crores was made in respect of discrepancies in finance cost for alleged purchases with group companies. The relevant extract of the above findings is as under "17.7 Further, ld. DR tried to apply the above decision of Shri Jagdish H. Patel i.e. 8% of total purchases of two AY s i.e. 2013 & 2014-15 which comes to ₹ 58.09 crores. He submitted that against the above, AO has already made the disallowance of ₹ 60 crores in A Y 2014-15. It is submitted that there is no relevance for this submission in this AY and moreover, AO has not made any disallowance in purchases in A Y 2013-14." It is submitted that the Hon'ble ITAT Hyderabad, in ITA No 2186/H/2017 have already deleted the addition made in respect of finance cost on alleged purchases from group companies vide Para 17.8. Once the very basis of the addition has been deleted by the Hon'ble IT AT for which the additional income was offered, once again addition made on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ch Subba Rao Vs ITO in 1657-58/H/2013 In view of the above, Hon'ble ITAT to kindly consider the same in favour of the assessee and delete the additions made in the assessment order." 20. Ld. DR, on the other hand, relied on the orders of revenue authorities. 21. Considered the rival submissions and perused the material on record. We notice that AO made the addition of ₹ 60 crores basing completely on the confession statement given by the MD of the assessee company. Apart from the above statement, there is no other evidence brought on record by the AO. AO found lot of materials during search relating to the discrepancies in the commercial transactions of the assessee. The same was investigated and made addition. AO has not brought on record any disputed transactions to substantiate or to support the additional income. It is fact that assessee makes certain declarations and subsequently the same were withdrawn once the search proceedings are over. The AO has to keep the evidence or cogent material to the extent of additional income declared by the assessee. The same view was given in CBDT Circular No. 286/2/2003-IT(Inv.), dt. 10/03/2003. At the time of completing assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Taxes, which took exception to the initiation of the proceedings on the basis of retracted statements." Hence, the addition cannot be sustained in the absence of any cogent material on record. Therefore, ground raised by the assessee is allowed. 22. As regards ground No. 7 relating to disallowance of interest expenses on sham transactions of ₹ 22,19,36,623/-, the ld. AR of the assessee submitted that similar issue was decided by the coordinate bench of this Tribunal in assessee's own case for AY 2013-14 (supra), wherein the coordinate bench held as under: "17. Considered the rival submissions and perused the material on record. During the course of assessment proceedings, the AO noticed that the assessee is making major purchases from related concerns and sells mostly to concerns namely, M/s Adarsh Global Traders Pvt. Ltd., M/s Resource Metals & Minerals Traders Pvt. Ltd., M/s United Mineral Resource P. Ltd., M/s SB Metals P. Ltd. and M/s Vedika Steels P. Ltd. AO has verified few transactions entered with these concerns and found certain discrepancies like non-existence of LR or way bills, uses of improper vehicles to transport, no physical movements of goods and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, AO cannot disallow any associate cost of purchase. 17.4 We find that assessee has entered into transaction with the alleged related parties and kept a margin, which will take care of the financial cost. Assessee has submitted a statement of profit in this transaction and finance cost involved in this transaction, as per which, the assessee had purchased at ₹ 377.64 crores and sold at ₹ 379.98 crores with the margin of ₹ 2.34 crores. (refer page 52 of paper book I). At the same time, assessee has also submitted the interest calculation on the basis of outstanding running balance of all the suppliers. (refer page 56 of paper book I), as per which, the financial costs are (-) 1.34 crores. We cannot accept the above calculation as the interest should be calculated on outstanding of each supplier not on the basis of consolidated outstanding. In our view, the assessee has made margin of 2.34 crores in this transaction and it is enough to cover the interest cost on these transactions. Even otherwise, as explained earlier, when AO accepted the turnover without disallowing any purchases, he cannot disallow only interest cost. 17.5 Coming to AO's observation that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to M/s Silver Point Infratech Ld. during this AY and it claims that these are part of commercial payments on the contract business. There are back to back payments received from contractors and paid to the sub-contractors. In this behalf, it has submitted a statement showing the relevant payments. (refer para 18.3). At the same time, we notice that this information was not submitted before the AO and DRP, but, ld. AR claims that these were submitted before DRP. Since these payments were not verified by the tax authorities, we find it appropriate to remit this issue back to AO to verify the claim of the assessee and if it is found that these are back to back payments, received from main contractor and paid to sub-contractor M/s Silver Point Infratech Ltd., the addition made on interest may be deleted. It is needless to say that assessee may be given proper opportunity of being heard. Therefore, ground raised by the assessee is allowed for statistical purposes." As the issue is similar in this AY, following the decision in AY 2013-14, we remit this back to the file of AO to decide the issue in line with the directions given in AY 2013-14. This ground is allowed for statistical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account of the assessee company and the return of income is filed accordingly. However, the assessing officer without appreciating the commercial aspects and hardship faced by the assessee company added an amount of ₹ 13.23 Crores based on surmises and suspicion. Fact remains that the assessee company has not debited the amount of ₹ 13.23 Crores to its P&L account. The assessing officer grossly erred in making an addition to the business income of the assessee which is not debited in books of account of the assessee company. It is submitted that the assessing officer has been grossly unjustified in making an addition of ₹ 13.23 Crores to the income of the assessee. On one hand, the assessing officer has accepted the books of account of the assessee company and accepted the returned profit, on the other hand, the assessing officer has made addition of ₹ 13.23 Crores on the basis of suspicion and surmises. The action of the assessing officer is not only self-contradictory but also against the provisions of Income Tax Act, 1961. In this regard, reliance is placed on the judgement of (a) CIT Vs Pact Securities & Financial Services Limited [2015] 61 taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
