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TMI Blog2021 (10) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... first appellate authority which in our considered opinion are more or less on the same lines as adopted by the assessing officer. We do not concur with such observations and findings recorded by the first appellate authority and we thus hold that the addition as long term capital gain and made in the assessment order and confirmed by the first appellate authority do not stand to the test of law and are not justified on the facts and circumstances of the case and hence we delete the above said both the additions and allow the grounds of appeal of the assessee. Bogus of job work - HELD THAT:- Contention of CIT(A) that evidence filed by the assessee selfserving documents and circumstantial evidence leads to the conclusion of A.O. that Sh. Mohinder Kumar Garg was an old employee of the assessee company cannot take the case of revenue anywhere. It would be enough for us to say that voluminous documentary evidences filed by the assessee to which we have made elaborate reference above are clearly establishing the genuineness of the job work expenses. In the face of direct documentary evidences, how can the so called circumstantial evidences be relied. Documentary evidences filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly are as under:- 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction u/s 153A and further erred in passing the impugned assessment order. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in assuming jurisdiction and framing the impugned assessment order u/s 153A, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the addition of ₹ 1,55,38,830/- made by Ld. AO on account of capital gain and ₹ 39,96,76,340/- as business income in terms of section 45(2) and section 28 respectively, more so when the stock was not sold in the year under appeal as per the case of Ld. AO himself. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in not deleting the addition of ₹ 1,55,38,830/- made by Ld. AO on account of capital gain and ₹ 39,96,76,340/- as business income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of ₹ 15,41,15,599/- allegedly on account of bogus purchases from M/s Akansha Fashion M/s Jindal Fashion, is bad in law and against the facts and circumstances of the case. 11. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of ₹ 26,48,09,191/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s Super Connection, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 12. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of ₹ 26,48,09,191/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s Super Connection, is bad in law and against the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO on account of bogus expenses placing reliance on the documents furnished by the assessee which failed to prove that the expenditure was incurred wholly and exclusively for the purpose of business. ii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that the onus to prove that the expenses of ₹ 11,93,649/- have been incurred for the services rendered by the proprietary concern M/s Palwal Enterprises (Prop. Smt. Hema Sharma) is on the assessee company. iii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that at the time of search no evidence was found to prove that the expenses incurred in respect of fabrication job alleged to be undertaken by M/s Palwal Enterprises. iv) Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the disallowance of product development /sampling expenses ₹ 13,73,86,146/- made by the AO by ignoring the decision of the Hon'ble Supreme court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT 225 ITR 802. v) Whether section 14A(1) of the Income Tax Act, 1961 would stand att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r disallowance of expenditure incurred which is relatable to tax-exempt income even though no tax-exempt income under the Act has been earned during a particular year. x) Whether the CBDT Circular no 5 of 2014 is illegal and not in consonance with legislative intent behind Section 14A and the charging sections 4 and 5 of the Income Tax Act, 1961 which lay down that total income under the Act would include income from all sources whether "received", "deemed to be received", "accrued" or "deemed to accrue". xi) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 2. We shall now proceed to dispose of the appeals as under: 3. Assessee has filed paper book in 4 Volumes having Pages 1 to 1734, which were referred by Ld. AR extensively during the course of hearing of the above appeals. Brief synopsis has also been filed by Ld. Counsel for the assessee in both the appeals running into 8 pages, which is also held on record and has also been considered by us. 4. The case of the assessee represented by Dr. Rakesh Gupta and that of revenue represented by Ms. Parmita Biswas. Arguments were extensively h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that partial stocks were sold in the previous year relevant to AY 2017-18 and it is in that year appropriate income was offered to tax and which has also been accepted by Revenue. On the other hand, Ld. CIT(DR) relied upon the findings recorded by AO and CIT(A) and urged that the income was correctly taxed in this year and orders passed by the lower authorities may be confirmed. 9. We have considered the submissions made on behalf of the appellant and Revenue and we have taken into account the orders passed by the lower authorities. We have read and referred the pages of the paper book as contained in this regard. 10. It would be appropriate at this stage to reproduce the written submissions filed before the first appellate authority for and on behalf of the appellant-assessee: 11. Ld. AO has made the addition of ₹ 1,55,38,830/- vide discussion made in para-7 at pages 45-61 of the assessment order on the ground that assessee has converted its capital asset into stock in trade and therefore, as per the provisions of section 45(2) of the Income Tax Act,1961, capital asset will be deemed to have been transferred on the date of conversion and liability to capital gain tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y securities shall be determined on the basis of the first-in-first-out method. Explanation.-For the purposes of this sub-section, the expressions "beneficial owner", "depository" and "security" shall have the meanings respectively assigned to them in clauses (a), (e) and (l) of sub-section (1) of section 2 of the Depositories Act, 1996. 16. It can be seen that capital asset so converted is deemed to be transferred at the time of conversion and its fair market value at the time of conversion is deemed to be the sale consideration for the purpose of determining the capital gain. But this has further been provided in this section itself that the liability to capital gain tax is deferred till the year in which the stock is sold. Similarly, business profits can be taxed in the year in which sale of stock takes place. 17. Your good self would also kindly see from the entire discussion made by Ld. AO in the impugned assessment order that stock in trade was admittedly not sold in the year under appeal. Therefore, as per the plain provision of section 45(2), there would not be any liability to tax either in respect of capital gain or in respect of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purchased on various dates as stated above for its own use in garment business, which was earlier shown as fixed assets in the books of accounts of the assessee company, later in the F.Y. 2007-08, the company (OCL) intended to use these land for development of IT park and the cost of such Land was transferred as stock in trade…..……….." 2.6 "In the case of the assessee's company income is recognized in the year in which property is being sold by the company as per provision of section 45(2) of the Income Tax Act, 1961. The assessee company converted the land in question from capital asset to business asset in A.Y. 2008-09. As per provision of section 45(2) capital gain tax up to the date of conversion and further business profits if any generated on sale of the asset is required to be shown in the computation of tax in the year in which asset is sold and accordingly tax liability channelized in that year. During assessment year 2014-15 and 2015-16 no part of commercial units have been sold by the assessee company, therefore no income has been recognized during these years…." 23. Question to be addressed here is that when the conversion of capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in this year merely on the basis of statement of the main promoter when section 45(2) itself provides for the taxability in the year of sale of stocks. Moreover, Mr. Sudhir Dhingra stated in his statement to offer income in previous year relevant to AY 2015-16 as can be seen from para (v) of CIT(A)'s order page 121 and not in the year under appeal. In our considered opinion, obtaining completion certificate of the project from the Appropriate Authority as on 8.5.2013 does not ipso facto give rise to any business income. We have also read/seen& considered the objections raised by the first appellate authority which in our considered opinion are more or less on the same lines as adopted by the assessing officer. We do not concur with such observations and findings recorded by the first appellate authority and we thus hold that the addition of ₹ 1,55,38830/- as long term capital gain and ₹ 39,96,76,340/- made in the assessment order and confirmed by the first appellate authority do not stand to the test of law and are not justified on the facts and circumstances of the case and hence we delete the above said both the additions and allow the grounds of appeal of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sent for job work for M/s Sai Exports. During the course of survey, statement of Sh. Pawan Arya of M/s Orient Craft Ltd. was also recorded on oath in which he stated that M/s Sai Export used to do some job work for M/s Orient Craft Ltd. but he was unable to furnish any particular detail and he was even unable to name of the owner and address of M/s Sai Export and further that auditor of Sh. Mohinder Kumar Garg and the assessee company with the same. 27. Arguments were made by Ld. Counsel on the basis of evidences referred at page 1709-1716 of the paper book. It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the job worker M/s Sai Export has raised invoice and payment have been made through account payee cheques and tax having been deducted at source and documents at page 507-514, 565-1463 the paper book establish the existence of the job worker and the job work carried out by M/s Sai Exports. We have also seen the statement of Mr. Mohinder Kumar Garg and Sh. Rajiv Poddar placed enclosed in the paper book, which also establish the job work done by M/s Sai Export. We have also referred to sample copy of muster roll of the all the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly establish that job work expense claimed by the assessee to have been paid to M/s Sai Exports are quite genuine and established. In the result, the grounds of appeal in the appeal of the assessee are allowed& the addition of ₹ 7,28,980/- is hereby deleted. 29. Ground No. 7 & 8 of the assessee's appeal are in respect of disallowance of ₹ 7,98,79,360/- made by the A.O. and confirmed by CIT(A) and are in respect of the expenses claimed to be incurred by the assessee company on account of job work done by M/s Shri Ram Exports. Assessing Officer at page 36-39 of his order held such expense as bogus which was upheld by CIT(A) vide discussion made at page 105-110. 30. It was submitted by the Ld. Counsel with the help of various evidences referred at page 1716-1721of the paper book& It was argued that M/s Shri Ram Exports was one of the job workers engaged by the assessee for doing various job work such as bundling, cutting, stitching, thread cutting, finishing etc., which are integral part of the garments manufacturing and further submitted that these job work activities are such without which it was not possible to manufacture the garments and therefore export sales coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Ram Export has raised invoices on the assessee company and payment have been made by the assessee company to the job worker through account payee cheques and tax having been deducted at source and documents at page 507-514, 565- 1463 of the paper book establish the existence of the job worker and the job work carried out by M/s Shri Ram Exports. We have also seen the evidences referred in the paper book, which also establish the job work done by M/s Shri Ram Export. We have also referred to the copies of the relevant documents filed before the lower authorities from the Worker's personal Files (PB 588-774) such as Adhar Card, Application form, appointment letter, joining report, ESI Card, Family photos, PF Form -11,16 & 2 as per PF rules, ID proof, Medical test report etc. and sample copy of muster roll of the all the employees(PB 775-843) , employed by the job worker for two months for all the years involved and so also we have seen salary sheet for two months on sample basis(844-1236), on account of payment of wages and actuarial certificate. Similarly pages 1257-1310of the paper book is the sample copy of bonus register showing actual payment proof of bonus to the employees o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9 &10 of the assessee's appeal are in respect of disallowance of ₹ 15,41,15,599/- made by the A.O. and confirmed by CIT(A) and are on account of not-genuine purchases of fabric made by the appellant from M/s Jindal Fashion and M/s Akanshha Fashion. Assessing Officer at page 2-18 of his order held such purchases were not genuine which was upheld by CIT(A) vide discussion made at page 63-90. 36. Ld. Counsel for the assessee first of all argued that there was no incriminating material found as a result of search in respect of impugned disallowance. Further, it was submitted by the Ld. Counsel with the help of various evidences referred at page 1692- 1699of the paper book& it was argued that appellant is into the business of garments manufacturing in which fabric is the main raw material and input. The appellant has purchased fabric from the above said firm during the year under appeal, which is evident from the chart enclosed in the paper book (PB 173(i) to 173(ii).Ld. CIT(DR) relied upon the findings contained in the assessment and first appellate order. 37. It is seen that page 2-18 of the assessment order does not refer any incriminating material found as a result of sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was drawn, we find that the action of CIT(A) in confirming the impugned addition was not justified. 40. In view of the exhaustive pleadings and evidences filed by the assessee and considered by us, the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Comprehensive evidences have been brought on record by the assessee which prove that purchases of the fabric were made by the assessee. Without purchases of the fabric, the business of the assessee involving such large export would not have been possible. Both the suppliers are unrelated parties and assessed to income tax. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1696-1699 and reproduced above and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would show that the payments have been made to M/s SCIPL & other these companies through banking channel. It was also submitted that sales made by M/s SCIPL to the assessee has been accepted in the assessment of M/s SCIPL. Copy of assessment order of M/s SCIPL for A.Y. 2013-14 has been enclosed inthe paper book. On the other hand, Ld. CIT(DR) has relied upon the findings recorded in the assessment order and in the order passed by CIT(A). 43. We have considered the entire material including the orders passed by the lower authorities. We have taken ourselves to the pages of the synopsis and paper book filed. We have considered the rival submissions. It is seen that the assessment order does not refer any incriminating material found as a result of search in respect of purchase of fabric made by the appellant from M/s Super Connection India P. Ltd. & other companies. Only evidence which have been referred in the assessment order was that statements of the directors namely Sh. Akshay Dhanda and Sh. Ajay Nagpal were recorded on 22.06.2015, which show that they did not have knowledge of the affairs of the company and that Sh. Sudhir Dhingra, director of the appellant company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an aggregate amount of ₹ 28,33,20,906/-, which is evidenced by the copies of purchase invoices, copy of statement of account in respect of said entities in the books of appellant company at (PB 2641-2642, 2643-2822, 1671-1738, 1746-1764which are already enclosed in the paper book for A.Y. 2013-14 in assessee's own case), and also statement of account in the books of said entities i.e. six companies at (PB 1821-1874 & 1884-1902which are already enclosed in the paper book for A.Y. 2013-14), which would show that the payments have been made to said entities through banking channel. It is further important to submit that sale made by the said entities to the assessee company has been accepted in the assessment of said companies. Copy of assessment order of said six entities are enclosed in the paper book at PB 1491-1617 together with copy of acknowledgment of return, computation of income, audited balance sheet, profit & loss account together with all annexure are also enclosed at PB 200-227 & 228-299. PB 179-199 is the copy of acknowledgment of return, computation of income, audited balance sheet, profit & loss account and tax audit report for A.Y. 2013-14 of M/s Super Connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f procedure Volume II of foreign trade policy, published by the Ministry of Commerce (which is already enclosed in the paper book for A.Y. 2013-14). PB 1959 is the detail of comparison between other garment exporter and the appellant company for material consumption as a percentage of sales (which is already enclosed in the paper book for A.Y. 2013-14). 48. Therefore, purchases made by the assessee from M/s, Fashionable Attire P Ltd, M/s Fashionara Apparel P Ltd, M/s Modernistic Attire P Ltd, M/s Starline clothing P Ltd, M/s Trendy Attire P Ltd & M/s Super Connection India P. Ltd were the genuine purchases and the addition made may therefore please be deleted. Adverse observations made by Ld. A.O. are met as under:- 1. Ld. AO has mentioned at pages 5.1.2 of the assessment order that the bank account of the supplier M/s Trendy Attire P. Ltd. revealed that it transferred payments on the same day of receipt and according to Ld. A.O. the said supplier as entry providing company to the appellant. In reply, it was submitted that in so far as the appellant is concerned since purchases were made by the appellant from M/s Trendy Attire P. Ltd., the payments were made against the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y fact he has proceeded to assess the income on the basis of return filed by the assessee company. Therefore, the observation made by Ld. AO that the purchases made by the assessee company is bogus and is baseless and without any basis, material or evidence. 4. Ld. A.O. has mentioned in para 5.6.2 of the assessment order that statements of the directors namely Sh. AkshayDhanda and Sh. Ajay Nagpal were recorded on 22.06.2015, which show that they did not have knowledge of the affairs of the company. In reply, it was submitted that assessee was not made aware at any point of time during assessment proceeding that any statement of these two persons were recorded nor the copies of such statements were supplied to the assessee. So much so copies of such statements have not been made part of the assessment order even though it has been mentioned that they are enclosed as Annexure B and Annexure C at PB 1903, 1906-1907 (which is already enclosed in the paper book for A.Y. 2013-14 in assessee's own case).Therefore such statements have to be excluded from consideration in view of Hon'ble Supreme Court decision in the case of Kishnichand Chellaram vs. CIT 125 ITR 713. Moreover, no opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the statements of Mr. Dhanda and Mr. Nagpal do not establish that the sales made by M/s SCIPL to the assessee was not genuine, more so when such sales by M/s SCIPL and purchases by the appellant are supported by above mentioned comprehensive evidences and payments having been received / paid through banking channel and more so when the sales made by M/s SCIPL have been accepted by income tax department itself in the assessment of SCIPL, it is submitted above. 7. Ld. A.O. has mentioned in para 5.6.3,6.4, 6.5, of the assessment order that bulk of purchases were made by M/s SCIPL from the entities controlled by Sh. Sanjay Jindal and since amount remitted were withdrawn in cash it shows that ultimate beneficiary was the appellant company and entities controlled by Sh. Sanjay Jindal were mere entry providers. In reply, it was submitted that these observations of Ld. A.O. are mere surmises and conjectures and there is no cause and effect relationship. If purchases have been made from various entities of Sh. Sanjay Jindal how could that fact alone be taken as the basis to hold that purchases made by the appellant from such entities of Sh. Sanjay Jindal are not genuine. Similarly, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect and allegations against the appellant are denied and it is requested that the purchases made by the appellant in the year under appeal may please be accepted. 49. In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1702-1708 reproduced also above by us and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rejected. 54. Ground no. 18 of the assessee's appeal relating to interest u/s 234B is consequential in nature. Departmental Appeal No. ITA 5038/Del/2019 55. Grounds of appeal preferred by Revenue have been reproduced by above. 56. Grounds of appeal no. (i) to (iii) are in connection with the addition of ₹ 11,93,649/- made by the AO in respect of job work done through M/s Palwal Enterprises which was deleted by CIT(A). 57. AO has discussed this issue at page 39-44 of the assessment order whereas CIT(A) has discussed this issue at page 110-113 of the appeal order. 58. Ld. CIT(DR) relied upon the finding recorded in the assessment order and Ld. Counsel for the assessee relied upon the findings recorded by CIT(A) and has also relied upon the submissions made before CIT(A) placed at page 1721- 1726 of the paper book. 59. We have considered the entire material before us including the paper book, synopsis, and orders passed by the lower authorities. It is seen that the job work charges incurred in relation to this job worker was being allowed in the assessment order passed under section 143(3) for AY 2012-13. Job worker is assessed to tax also. We have taken ourselves to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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