9911796707
TMI Blog2019 (8) TMI 1772X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of M/s. N.K. Proteins Limited [ 2017 (1) TMI 1090 - SC ORDER] would not apply. We do not find it to be a fit case where even gross profit rate of 5% be applied against the assessee as per Judgment of Hon ble Gujarat High Court in the case of Mayank Diamonds Pvt. Ltd., [ 2014 (11) TMI 812 - GUJARAT HIGH COURT] - In view of the above discussion, we set aside the Orders of the authorities below and delete the entire addition. - Decided in favour of assessee. Disallowance u/s 14A - AO disallowed proportionate interest expenses under Rule 8D - assessee submitted before assessing officer that there is no exempted income earned during the year and, therefore, the disallowance made by the assessing officer is wholly erroneous - HELD THAT:- It is clear that since assessee has not earned any exempt income during assessment year under appeal, therefore, there is no question of applicability of provisions of Section 14A of the I.T. Act in the matter. Similarly, in the case of Cheminvest Ltd. [ 2015 (9) TMI 238 - DELHI HIGH COURT] held that when no exempt income received or receivable in assessment year under appeal, no disallowance under section 14A is required. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve impounded material consists of files. More importantly the loose paper file SEL-XIV consists of 187 pages, out of which, pages from 1 to 169 and 173 to 187 are ledger copies of various transactions made by the company. Pages from 170 to 172 pertain to correspondence regarding search carried out by Commercial Tax Department. On perusal of these documents, it revealed that the company had made purchases from the family concerns of the employee of the assessee company Shri Shailesh Damor. All the concerns are operated from the residential address of Shri Shailesh Damor, 56, Poonam Nagar Society, Bhatar Road, Surat. The assessee was asked to file details of purchases with parties running from the aforesaid address namely R.J.D. Creation, SJD Organizers, JD Enterprise, MJD Enterprise, Nirmala Enterprise, Zenifer Enterprise etc., [referred to as Damor family] and corresponding sales thereto. The assessee was also requested to file details with supporting material including bills and invoices with respect to purchases made by the Damor family. The assessing officer in view of the documents on record, show caused the assessee as to why the purchases made from Damor family should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishment Act and Registration Certificate have been issued. Because of the survey, the parties are afraid to come before the Income Tax Department. That is why they may not be responding to the notices although they have asked for the adjournments. It would, therefore, prove the existence of the seller parties. Since the payments have been made through banking channel and that there is no evidence that amounts have returned back to the assessee would prove genuine purchases which are exported by the assessee. In some cases, on the bills no stamp affixed which is not a criteria to decide whether the purchase is genuine or not. The total finished goods exported in quantity is 1,73,63,638 Metres equal to export sales of ₹ 89.52 crores and as against this, the purchases made by the assessee from these noncooperative parties in quantity is only 50,58,416 Metres and in rupees it is ₹ 31,98,03,057/-. It was, therefore, submitted that in case these purchases are considered unaccounted, there would be effective gross profit rate @ 41.4% which would be very high-pitched and abnormal gross profit. In this line of business, such a huge earning of gross profit is impossible. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 44AD of the Income Tax Act. Therefore, A.O. treated the entire purchases of ₹ 38.81 crores made from Damor family as bogus cash credit under section 68 of the Income Tax Act. The addition of the same was accordingly made. 4. The assessee challenged the addition before the Ld. CIT(A). The written submissions of the assessee is reproduced in the appellate order, in which the assessee reiterated the same facts. Before the Ld. CIT(A), it was highlighted that all the payments are made through account payee cheques and no evidence has been brought on record that amount paid has come back to the assessee. The sellers are assessed to tax. The purchases are exported which is not disputed. No incriminating material was found during the course of survey because these were invoices and bills of purchases only which are recorded in the books of account. In textile business no educational qualification or technical knowhow is required and no further infrastructure like godown or Office is required as in the case of the assessee, delivery of the stock have been made at the door step of the assessee. Merely because no details of payment are recorded in the purchase bills is no ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, but, in some of the cases, replies have been received through DAK. The assessing officer did not accept reply of such parties send through DAK. The assessing officer noted that no names of Proprietor, Letter Pad, Phone Number and Copy of the ITR have been produced before him. The assessing officer again issued notices under section 133(6) of the Income Tax Act through Inspector of his office. But, Inspector has reported that no such business entities exists by their names and they are not at the concerned address. Some of the addresses could not be located or found by the Inspector. The Assessing officer, therefore, reported that assessee-company has taken shelter of Damor family only for reflecting the purchases as genuine in his books of account. The Department has received replies from the seller parties through DAK and from others, but, same were not accepted. 4.2. Copy of the remand report was provided to the assessee who has reiterated the submissions that purchases are genuine which are routed through the banking channel and all the purchases are exported, which have not been doubted. The statement of parties have been recorded in which they have confirmed to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive details submitted by the assessee have not been disputed by the Assessing officer. Merely because email of Shri Viral Vora who is also a professional Chartered Accountant have been mentioned in the ITR of Damor family, is no ground to disbelieve the explanation of assessee. No incriminating material was found during the course of survey to suggest non-genuine purchases. During the course of survey, only bills and invoices were found which have already been entered into the books of account of assessee. No findings have been given in the assessment order to suggest that incriminating document have been found during the course of survey indicated to bogus purchases. Merely because details of payment are not mentioned in the purchase bills is no ground to reject the explanation of assessee. All the documents and the transactions have been verified by the bank also. The books of account of assessee have not been rejected by the authorities below. No specific defects have been pointed-out in maintenance of the books of account. Since books of account have been accepted and audited by the auditor also, therefore, purchases cannot be doubted. No evidence have been brought even during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, submitted that issue is covered by order of ITAT, Ahmedabad Bench in the case of assessee for the assessment year 2010-2011 on identical facts. He has also relied upon Order of ITAT, Delhi Bench in the case of Bhatia Diamonds Private Limited vs., Income Tax Officer in ITA No.2822/Del./2018 for the assessment year 2013-2014 Dated 24th June, 2019, in which, on identical facts, the addition have been deleted. He has, therefore, submitted that there is no evidence on record to prove that purchases made by assessee were bogus. He has submitted that in the case of Mayank Diamonds Private Limited (supra), the Director of the assessee company was examined under section 131 of the Income Tax Act, in which he has explained that there were no bill issued by the purchase parties. In such circumstances, the Hon ble Gujarat High Court directed to apply gross profit rate of 5% against the unaccounted purchases. He has, however, submitted that in the case of assessee there is no such evidence on record. He has also relied upon sample copy of invoices of other independent assessees filed on record to show the practice of direct delivery of goods to the assessee consumers from the suppliers by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re identical in assessment year under appeal as have been considered in A.Y. 2011-2012. In the present case also, two of the parties have denied making any sales to the assessee. No entries of such sales have been recorded in the books of account. Two parties have admitted to have made sales to the assessee and filed reply under section 133(6) of the I.T. Act, 1961, supported by bill and Affidavit, on which, no adverse inference have been drawn by the A.O. All the payments of purchases have been made through banking channel which have not been doubted by the authorities below. The assessee also filed the quantitative details of opening stock, purchase goods, manufacture, sales made and closing stock at Page-25 of the PB which also supports the explanation of assessee that he has made genuine purchases which have been sold later on. These facts clearly show that there was no basis for the authorities below to consider it to be a case of bogus purchases. It is also an admitted fact that statement of Shri Rajendra Jain was not provided to assessee nor statement was subjected to cross-examination on behalf of the assessee. He has also retracted from his earlier statement. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account. The sellers are also assessed to tax and have declared the transaction in their returns which have been accepted by the Revenue Department. The seller party have also replied to the notice under section 133(6) of the Income Tax Act. The assessing officer did not reject books of account of assessee under section 145 of the Income-Tax Act. If the aforesaid addition is confirmed, according to explanation of assessee, it would give gross profit rate of 41.4 % which is impossible to earn in this line of trade. The assessing officer accepted in the remand report that assessee maintained stock quantitative details, in which, no deficiency have been pointed-out. The assessing officer analysed the KYC documents of bank statements of Damor family and their bank statements and nothing adverse was found against them or against the assessee. The assessee produced complete details before the authorities below in which no deficiency have been pointed-out. The assessee need not to prove source of the source i.e., purchase made by the purchaser parties i.e., Damor concerns. The assessee also established common practice in Textile Sector in Surat for supply of goods at door step ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed proportionate interest expenses under Rule 8D of the Rules of ₹ 2,24,741/-. The assessee submitted before assessing officer that there is no exempted income earned during the year and, therefore, the disallowance made by the assessing officer is wholly erroneous. The Ld. CIT(A) also did not accept the contention of assessee and confirmed the addition. 10. Learned Counsel for the Assessee submitted that since assessee had not earned any exempted income during assessment year under appeal, therefore, Section 14A of the I.T. Act is not applicable to assessment year under appeal so as to make proportionate disallowance. He has relied upon Judgment of Hon ble Supreme Court in the case of CIT, (Central-1) vs. Chettinad Logistics Pvt. Ltd., [2018] 95 taxmann.com 250 (SC) in which the Hon ble Supreme Court held that Section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year. Similar view is also taken by the Hon ble Jurisdictional Gujarat High Court in the case of CIT-1 vs. Corrtech Energy Pvt. Ltd., [2014] 45 taxmann.com 116 (Guj.) wherein also it has been held that where assessee has not sought any income exempt, there c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the addition. The assessee in regard to the claim of total bad debts submitted that import duty amounting to ₹ 12,67,980/- was on account of Yarn imported earlier for the amount of ₹ 3,16,99,500/- and, therefore, this was an additional import benefit and not a regular duty. This type of additional import duty can be set off against the Yarn sold in local market only and in the case of assessee this Yarn was used of ₹ 3,16,99,500/- as captive consumption for sale of exports of gray cloth. Since, they had not traded in local sales, therefore, they were not entitled to additional benefits import duty and, therefore, this amount was offered for taxation under the head export incentives receivable in F.Y. 2008-2009. The assessee filed copy of the P L A/c for F.Y. 2007-2008 wherein the amount of ₹ 12,00,742/- has been shown as income under the head additional import duty. Therefore, only difference amount of ₹ 67,238/- will be the amount which can be added. The Ld. CIT(A) examined the explanation of assessee and found to be correct and, therefore, amount of ₹ 12,00,742/- was excluded from the total addition of bad debts. The Ld. CIT(A), further not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities, but, it has in fact been claimed in respect of amounts receivable from the Government towards export incentive income. It was pointed-out that this export incentive income were offered in P L A/c in earlier years, however, in the current year on account of rejection thereof by the Government, the same has been written-off. He has submitted that assessing officer has failed to appreciate that assessee had offered excise duty refund as income separately on the face of its P L A/c of the earlier years as export incentive income and the same being rejected in the year under consideration. Therefore, claim has been made for bad debts/business loss. He has submitted that since assessee has already shown the amounts as irrecoverable in its accounts, therefore, there is no need to take any steps for recovery of the amounts in question. The issue is covered by the Judgment of Hon ble Supreme Court in the case of TRF Limited (supra). Learned Counsel for the Assessee submitted that the bad debt to the extent of ₹ 41,51,476/- has been erroneously sustained by the Ld. CIT(A) needs to be deleted because the same have been offered as income in subsequent year i.e., A.Y. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been supplied by the assessee. The assessee was requested to explain such a huge advance in the books of account. The assessing officer did not accept explanation of assessee and made the aforesaid addition. 24.1. The assessee filed various details before the Ld. CIT(A) along with documentary evidences to show that advances have been received from customers and time to time exports have been made. The details of exports along with invoices were filed to show that advances were genuine. The Ld. CIT(A) called for the remand report from the assessing officer, which the assessing officer has furnished before Ld. CIT(A). After examining claim of assessee, the Ld. CIT(A) found the claim of assessee to be verified. The remand report is reproduced in the appellate order which reads as under : The directions vide para (vii) was regarding the disallowance made of ₹ 29,17,91,322/- against advances from customers/debtors by AO. It was directed to examine the record to ascertain. Whether goods were supplied to the various customers during and subsequent year against the above said advances made. It is submitted that during the remand proceedings the director of the company produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that in the same year, further advance of ₹ 19.41 crore was received by the appellant company against which goods were claimed to be dispatched in subsequent financial year and in that year again advance of ₹ 17.24 crores received and goods dispatched in FY 2013- 14. So far the advances/debts of the other customers is concerned the AO reported that the verification has been made as claimed by the appellant that against the advances received of ₹ 9,76,42,264/- in FY 2011-12, the finished goods amounting to ₹ 9,78,75,059/- were dispatched and exchange loss of ₹ 2,32,795/- was booked in AY 2013-14. 6.4.6. In view of the above facts and circumstances, it is evident that the claim of the appellant regarding the advances received from the customers was found to be correct during the remand report proceedings. Hence, the AO had made the addition on account of advances received by the appellant on incorrect understanding of the facts and therefore the addition made by the AO of ₹ 29,17,91,322/- is deleted and the ground of appeal is allowed. 25. The Ld. D.R. merely relied upon the Order of the assessing officer and did not point-out any inf ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
