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TMI Blog2022 (10) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... l filed by the Revenue are dismissed. Addition u/s 14A r.w.r.8D - CIT-A restricted addition - Assessing Officer has made disallowance under section 14A r.w.r 8D(2) on the ground that the funds invested in the exempt income earning assets could not be segregated from the funds invested in the business of the assessee - HELD THAT:- Upon perusal of the assessee s submission and the decisions cited by the Ld.AR, we are of the considered view that there is no fallacy in the decision of the Ld.CIT(A) in restricting the disallowance only to the extent of exempt income earned by the assessee. In this context, this ground of appeal filed by the Revenue is dismissed. Estimating 8% of alleged unsupported project expenses by treating the same as bogus expenditure - As we have already given a detailed order in the above mentioned appeals of the Revenue on this ground by confirming the said addition on the basis of 8% estimation relying on the decision of Rattan SinghRathod [ 2013 (1) TMI 133 - ITAT MUMBAI] wherein the assessee s nature of business was also contracts and sub contracts, we are inclined to follow the decision and thereby the estimation of net profit rate @8%, in our view, is justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chases Amount of Addition on account of unexplained share application money Amount of addition u/s 14A 1 2007-08 Rs.31,86,24,370 Rs.1,98,418 Rs.279,93,647 Rs.28,35,00,000 - 2 2008-09 Rs.16,02,18,590 Rs.1,13,365 Rs.484,44,830 Rs.10,18,50,000 Rs.16,92,168 3 2009-10 55,65,94,160 Rs.89,903 Rs.608,05,507 Rs.54,00,00,000 Rs.30,35,452 4 2010-11 Rs.26,87,65,000 Rs.96,964 Rs.323,21,000 Rs.13,37,50,000 Rs.44,68,353 4. The assessee was in appeal before the Ld.CIT(A) as against the said additions / disallowances. The Ld.CIT(A) partly deleted the additions / disallowances restricting the addition to 8% on total bogus purchases by relying on the decision of Shri Rattan Singh Rathod vs JCIT 25(2), Mumbai in ITA No.37/Mum/2010 dated 13/07/2012, as per provisions of section 44AD of the Act. Both the Revenue as well as the assessee are in appeal before us as against the order of Ld.CIT(A). 5. Having heard the rival submissions, and perusal of the materials on record, we proceed to decide the appeals as below:- ITAs 3749, 3750, 3751 & 3752/Mum/2018 6. Starting with the appeals filed by the Revenue, as the facts are identical, we take ITA No.3750/Mum/2018 pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to furnish details as to the expenses claimed by the assessee company in respect of invoices pertaining to various expenses, especially payments made to seven parties aggregating to Rs.17,60,39,565/-, the details of which are tabulated as under:- Sr No. Name of the Party AY 2006-07 AY 2007-08 AY 2008-09 AY 2009-10 AY 2010-11 TOTAL 1 Motion Traders Pvt Ltd NIL NIL NIL 1,03,62,500 3,23,21,000 4,26,83,500 2 Meeti Trade Impex NIL 41,99,936 NIL NIL NIL 41,99,936 3 Maulik Enterprises NIL 43,00,160 NIL NIL NIL 43,00,160 4 Jigna Enterprise NIL 1,01,66,057 NIL NIL NIL 1,01,66,037 5 Sthapanna Trade Impex Private Ltd NIL 93,27,494 NIL 1,43,15,975 NIL 2,36,43,469 6 Saileela Trading Private Ltd NIL NIL 4,84,44,830 3,61,27,032 NIL 8,45,71,862 7 Manav Impex 64,74,581 NIL NIL NIL NIL 64,74,581 Total 64,74,581 2,79,93,647 4,84,44,830 6,08,05,507 3,23,21,000 17,60,39,563 Shri Viren Ahuja, director of the assessee company, in his statement recorded under section 132(4), has stated that there was no documents available to substantiate the above mentioned payments and that the statement of the person has declared the same as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred by the assessee. The assessee has also furnished details of payment made to the parties towards sub contract charges on account of work carried out for the Koyna Dam project which was undertaken by the company for one of its clients, M/s Soma Enterprise. The assessee company has also given details of the revenue earned in the said project which was also offered to tax for the impugned year. The Assessing Officer has made the impugned addition on the premise that there was no activities carried out at the factory premises of the assesse and held that the said expenses are bogus. The Ld.CIT(A), on appeal by the assessee had rejected the retraction statement of Shri Viren Ahuja recorded under section 132(4) on the basis that statement under section 132(4) was recorded without any force, coercion or undue pressure. The Ld.CIT(A) has also stated that the Investigation Wing, while carrying out enquiries pertaining to the concerned parties could not trace out some of the parties at the address and concluded that the specified entities were not traceable at the given addresses. It was also observed that the assessee company was unable to produce the parties for examinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses were bogus. The Ld.CIT(A) has also relied on the decision of Shri Rattan SinghRathod (supra) wherein it was held that in the case of contract, if the details furnished by the assessee are not reliable, then estimation of net profit @8% is justified. Following the principle laid down in the said decision, the Ld.CIT(A) has estimated the net profit at 8% as prescribed in section 44AD of the I.T. Act to be reasonable in the case of civil contractors. The justification given by the Ld.CIT(A) in deleting the said addition made on account of bogus purchase and also on the estimation of net profit @8% as per the provisions of section 44AD, is satisfactory. 14. From the above observation and respectfully following the above decision, we are of the considered view that there is no infirmity in the order of the Ld.CIT(A) and that ground of appeal No.1 & 1b raised by the Revenue are dismissed. 15. The Ld.CIT(A) was right in deleting the said addition pertaining to AYs 2007-08 & 2008-09 and that in A.Y. 2010-11 since the said amount was received as an advance for the project and that the same was not shown in the P&L Account, which warrants no disallowance. We uphold the order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the Assessing Officer has made addition. It is further stated that the assessee has furnished that the details of bank accounts from which the amounts were repaid to the parties. The Ld.CIT(A) has remanded this issue to the Assessing Officer for the purpose of verification of additional evidences whereby the Assessing Officer has verified the repayment details and has also issued notices under section 133(6) of the Act to the creditors and other parties from whom the asssessee has received funds for the purpose of repayment. The Ld.CIT(A) has further stated that there was no incriminating material found during search pertaining to share application money or loan amount received by the assessee company and also the fact that the statement of Shri Viren Ahuja was only on bogus purchases and was not on cash credits. It is observed that the assessee has also relied on the decision of Hon'ble jurisdictional High Court in the case of CIT vs Continental Warehousing Corporation (supra) wherein it was held that without any incriminating material obtained during search operation and which are contrary to the facts in the assessment or re-assessment, no addition could be made under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 167 ITD 33 (Mum) for the reason that the appeal is pending before the Hon'ble jurisdictional High Court. For the impugned assessment years 2007-08, 2008-09 and 2009-10, the Assessing Officer has made addition under section 14A on the ground that the expenses are not attributable to earning of the dividend income. The Assessing Officer has made the following addition under section 14A:- Assessment year Amount of disallowance u/s 14A 2008-09 Rs.16,92,168 2009-10 Rs.30,35,452 2010-11 44,68,353 22. The Ld.DR contended that the Ld.CIT(A) has erred in deleting the addition made under section 14A r.w.r 8D(2) of the Act by relying on the decision of Hon'ble ITAT in the case of M/s Future Corporate Resources Ltd vs DCIT (supra). The Ld.DR submitted that as the said decision has not attained finality and is a subject matter of appeal before the Hon'ble jurisdictional High Court, the Ld.CIT(A) ought not to have relied on the said decision for the impugned addition made under section 14A r.w.r.8D. The Ld. DR relied on the decision of the co-ordinate bench in the case of ACIT vs Williamson Financial Services Ltd in ITA No. 154 - 156/Gau/2019 dated 06/07/2022. The Ld.DR further state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Act remains and thus, the Ld.CIT(A) has restricted the disallowance to the extent of dividend income earned by the assessee company. The Ld.CIT(A) has also placed its reliance on the coordinate bench in the case of Future Corporate Resources Ltd vs DCIT (supra) which has reiterated the principle that disallowance under section 14A is to be restricted to the extent of exempt income earned by the assessee. The Ld.CIT(A) has also relied on the decision of Nimbus Communications Ltd vs ACIT (supra) and also in the case of Joint Investments P Ltd vs CIT (2015) 372 itr 694 (Del). The Ld.CIT(A) has computed the disallowance under section 14A for the impugned assessment years tabulated below:- Assessment Year Disallowance u/s 14A A.Y. 2008-09 Rs.80,160 A.Y. 2009-10 Rs.11,55,121 A.Y. 2010-11 Rs.11,36,000 27. From the above observation, it is evident that the Assessing Officer has made disallowance under section 14A r.w.r 8D(2) on the ground that the funds invested in the exempt income earning assets could not be segregated from the funds invested in the business of the assessee. Further to this, the Assessing Officer has also observed that the assessee has incurred interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own the outstanding amount of Rs. 74,43,585/- payable to the party whereas the said party had shown debit of only Rs. 3,27,938/-. Under these circumstances the purchases shown by the assessee cannot be said to be supported by proper evidence. As regards the sub-contract payment to related parties, AO has placed material on record to show that the said parties had been created only on 1.1.2007 but subcontract agreements were dated 1.9.2006. They had meager capital of Rs. 50.000/- each. The assessee had not made any payment to them during the year and entire payment made by cheque in the subsequent year immediately withdrawn in cash. It has not been explained as to how those parties had done work worth Rs. 30.00 lacs in each case with meager capital of Rs. 50,000/- when the work was labour intensive. Similar was the position of other sub-contract parties. Almost the entire amount remained outstanding at the end of the year and it was not explained as to how the parties did work worth Rs. 20- 30 lacs for the assessee during the year with almost no capital. The agreement with them was dated 1.4.2006 whereas the stamp paper was dated 30.6.2006. Obviously the sub-contract charges under t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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