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TMI Blog2024 (1) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of N.K proteins [2017] 250 Taxmann 22 wherein it has been held that in cases where the entire purchase transactions is found to be bogus, the addition could not be restricted to G.P additions. 3. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in admitting the new evidence in the form of DGCEI report under Rule 46A of the Income Tax Rules, 1962 without giving opportunity to the assessing officer. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing deduction u/s 80G on the amount of expenditure incurred by the assessee on CSR. 5. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the disallowance of loss of Mark to Market on forward contract, ignoring the CBDT Circular No. 3 of 2010 dated 23.03.2010, wherein, it is mentioned that, the loss so claimed by the assessee in the books of account is a notional loss and cannot be allowed and that decision of Hon'ble Supreme Court relied upon by the Ld.CIT(A) was rendered prior to the issuance of Circular by the CBDT. The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Ld. CIT(A). Ld. DR filed its written submissions vide letter dated 10.10.2023, for the sake of clarity it is reproduced below:- "1. Bogus purchases- i) Evidences were brought on record by AO and confirmed by the CIT(A) that assessee did not purchase from the three parties mentioned in the trading account. ii) Assessee stick to the contention that purchases were made from these parties and they retracted statement. Assessee never stated that it had purchased from other parties but bills were taken from these bogus. parties. Assessee never submitted the details of parties from whom it actually purchased the material. Assessee never accepted that entries in the books of accounts are false and known to be false. iii) Issue in dispute was whether purchases were genuine or Bogus? iv) Issue in dispute was never "how much amount of GP is suppressed by the Assessee" v) Neither department, not assessee appealed for the arbitration, or settlement or amicable solution of this issue in dispute. vi) Therefore, application of GP for Bogus purchases becomes irrelevant consideration as it neither relevant fact, facts in issue nor issue in dispute as per Evidence Act. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. In appellate order, Id. CIT(A) observed that the material has been duly received which was also accepted by AO in para 5.18 on page 13 of the assessment order. Further, Id. CITA) relying on orders passed by its predecessor and Id. CIT(A)-58 in the assessee's own case for earlier years, he restricted the disallowance to the extent of 6% of the bogus purchases. 3. In this regard, it is submitted that the impugned purchases of raw material are genuine which are duly supported by evidences. Further, the statement recorded during the search proceedings have been duly retracted later and the same was also denied by the promoter of the assessee company during the search action itself. No findings of search action apply to the transaction. carried out during the year under consideration except that the parties are same Further, the receipt of the material from the alleged bogus parties has been confirmed by the independent findings of DGCEI. Also, the purchases have been received and utilised for the purpose of manufacture of finished products for export. The manufacturing loss shown by the assessee is within the SION norms published by the DGFT. Also, the gross profit offere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies is another measure to judge the genuineness of purchases. If an assessee has introduced bogus bills without actually receiving the materials, then the natural tendency is to show higher manufacturing loss in order to adjust the quantity details and the same would result in showing lower gross profit rate. 5.10 The submissions made by the assessee with regard to the observations made by the AO are summarized below:- "a. The assessee has submitted the entire documentary evidences such invoices, purchase order, Goods receipt note, stock register showing receipt, bank statement, etc, to establish the genuineness of the purchases and no doubt raised by the AO. b. The acceptance of employee of Mr. P Nandkumar is general in nature without any reference to any material found during the search and the same was duly denied by the CMD Mr. Neeraj Raja Kocchar. c. Reliance on statement of one Mr. Chandra Shekhar Nair who allegedly was carrying out business of certain suppliers is incorrect since he was not a director in any of the said suppliers at the time of search and he has duly retracted the same before AO. Similarly, other suppliers have nowhere given clear statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial to the appellant. m. Further, we also rely on the findings of the DGCEI in the assessee's own case wherein after extensive search, they have concluded that the material has been duly received by the assessee. Kindly refer to conclusion of the DGCEI at page 136 of the CIT (A) order. n. Thus, it is submitted that assessee has duly purchased material from the suppliers. It is possible that the suppliers have themselves procured the material from open market and the same has been supplied to assessee. However, the said fact cannot lead to a conclusion that the purchases are bogus." 5.11 We notice that the AO himself has observed at paragraph 17 of the assessment order that the purchases have been made from open market against the bills obtained from entry providers. We also notice that the assessee has furnished all the relevant documents to prove the purchases, which are narrated in point (a) in the preceding paragraph. As observed earlier, the manufacturing loss declared by the assessee is a relevant factor to determine whether the assessee has received materials or not. We notice that the Ld CIT(A) has given a finding that the manufacturing loss declared by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng loss and the gross profit rate declared by the assessee compares well with industry standards. The assessee itself, in the alternative, has submitted that the addition towards incremental gross profit may be restricted to 2% of the value of purchases. In support of this contention, the Ld A.R also relied upon certain case laws (referred supra). 5.15 We find merit in the said contentions under the facts of the present case. We noticed earlier that the manufacturing loss declared by the assessee was less than the SION standards prescribed by DGFT. The gross profit rate declared by the assessee was more than the industry average. Hence, in the normal circumstances, no disallowance of purchases is called for. However, since some of the suppliers have stated that they have not supplied the materials and since the AO & DGCEI has opined that the assessee might have procured materials from others, it is possible that the assessee could have made some profit in such an exercise. Hence, in order to take care of revenue leakages, if any, some addition is called for. We notice that the addition has been restricted to 2% in the following cases:- (a) Suman Gupta vs. ACIT (ITA No.4774/Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1693 (Bang.) of 2019, dated 29-4-2020] and Coordinate Bench decision in the case of Naik Seafoods Pvt Ltd v. CIT [ITA No. 490/MUM/2021] wherein it was held that donations on account of CSR expenditure made to institutions registered u/s 80G are eligible for deduction u/s 80G of the Act. Further, Ld.AR of the assessee relied on the recent decision of Coordinate Bench in Synergia Lifesciences Pvt. Ltd. in ITA No. 938/Mum/2023 dated 20.06.2023. Therefore, Ld.AR of the assessee prayed that the order of the Ld. CIT(A) may kindly be upheld. 12. Considered the rival submissions and material placed on record, on perusal of the order of the Ld.CIT(A), we find that Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and deleted the disallowance of deduction under section 80G of the Act. While deleting the disallowance Ld. CIT(A) has followed the decisions of Bangalore ITAT in the case of Allegis Services (India) (P.) Ltd., v. CIT (supra) and the decision of Coordinate Bench in the case of Seafoods Pvt Ltd., v. CIT (Supra). We further observe that various courts have held that donation on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot to the decision of Hon'ble SC. Therefore, question of either following circular or decision of SC is mischievous. Such situation is contemplated under the doctrine of harmonious construction of statute, which requires court to interpret the provisions of law in a way not to make any part as redundant. In case of Vaibhavi Trading (P.) Ltd. v. DCIT [2018] 89 taxmann.com 132 (Mumbai - Trib.) the ITAT Mumbai 'F' bench held that Unrealized loss on foreign exchange transactions was a contingent liability because it was no ascertainable as to at what exchange rate transactions of foreign exchange would be realized, thus, such loss was in nature of mark to market basis which could be allowed only at time of actual realization of such loss. In the case of Bechtel India (P.) Ltd. v. ACIT (2017) 82 taxmann.com 30 Delhi Trib.) following was held.- Section 28(i), read with section 43(5) of the Income-tax Act, 1961- Business loss/deductions Allowable as (Forward exchange contracts) - Assessment year 2009-10- Whether where assessee, to avoid any unforeseen losses on account of downfall in foreign exchange rate, entered into forward contracts and sealed amount of foreign ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's own case in AY 2011-12. He deleted the disallowance 21. In this regard, it is submitted that the above issue is duly covered by the assessee's own case for AY 2011-12 wherein the CIT(A) order has been confirmed by the ITAT in their order dated 12.05.2023 at para nos 27-33 after considering the CBDT circular (supra)The copy of the order was duly submitted before the Hon'ble Bench and copy of the same is enclosed herewith at Annexure -2 Furtherwe rely on the following decision wherein the above position has been upheld and it has been held that CBDT circular cannot over rule the decision of the Supreme Court :- a. Tata Consultancy Services Ltd vs. CIT reported in 108 taxmann.com 41 (2019) b. Emmsons International Ltd. vs. ACIT in ITA NO. 4603/Del/2019 dated 14.10.2019 22. Also, it is submitted that the AO has taken contradictory stand wherein income arising on account of MTM has been duly taxed whereas loss has been disallowed It is submitted that the income of Rs. 40.99 Cr was offered to taxation in immediately preceding year i.e. AY 2019-20 which has not been disputed by the Department. This contradictory stand of the Department has also been pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasons mentioned in the impugned order or otherwise The Appellant submits that the aforesaid contention being erroneous and unsustainable on facts and in law. 2. On the facts and in the circumstances of the Appellant's case and in law, the Ld. CIT(A) erred in confirming the action of Ld. AO in holding that the purchases made by the Appellant from parties namely M/s. Ankit International, M/s. GSP International and M/S SPA Heights Pvt. Ltd are bogus and merely accommodation entries, for the reasons mentioned in the impugned order or otherwise The Appellant submits that the aforesaid contention being erroneous and unsustainable on facts and in law. 3. On the facts and in the circumstances of the Appellant's case and in law, the Ld. CIT(A) erred in confirming the addition made by the Ld. AO to the extent of 6% of alleged bogus purchases aggregating to Rs. 1,65,72,573/- made u/s 37 of the Act, for the reasons mentioned in the impugned order or otherwise. The Appellant submits that the aforesaid addition being erroneous and unsustainable on facts and prays that the same be deleted. 4. On the facts and in the circumstances of the Appellant's case and in law, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that assessee has earned the exempt income of Rs.. 71,03,332/- and made investments of Rs.. 30,33,47,000/-. The assessee was asked to furnish disallowance made under section 14A by issue of notice under section 142(1) of the Act. In response assessee has claimed that it has not incurred or claimed any expenditure for earning exempt income, therefore, no disallowance under section 14A was warranted. Assessing Officer observed that as per amended Rule 8D applicable w.e.f. 2nd June, 2016 provides for disallowance of 1% of the annual average value of the investments on income which does not form part of the total income. Accordingly, he held that the administration activities carried by the assessee are towards making investments and assessee was asked why the above Rule 8D should not be considered. 23. In response assessee submitted that assessee has not incurred any expenditure to earn the exempt income and further, it was submitted that assessee has made major investments in group companies which are strategic investments. After considering the submissions of the assessee, Assessing Officer rejected the same and proceeded to make the additions by relying on relevant case laws ..... X X X X Extracts X X X X X X X X Extracts X X X X
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