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TMI Blog2024 (1) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... as found to have been made by the Assessing Officer. Accordingly, the assessee was questioned with regard to the same, to which the assessee submitted that no adverse material was found during survey; that the surrender made pertained to the profits which the assessee estimated to earned during the whole year, but due to exceptional adverse circumstances, the assessee was unable to earn the same; that during survey the difference in stock, which was found of Rs. 1.52 crores, was incorrect and the stock actually tallied with the books of the assessee; that therefore no separate surrender of Rs. 7 crores was made by the assessee. The Assessing Officer, however, was not convinced with the explanation of the assessee and held that the assessee has suo moto surrendered the impugned amount and the retraction was not based on any evidence or material; therefore, he added the same to the income of the assessee. 3. Further, he noted that the net profit shown by the assessee showed a major decline as compared to the preceding years. Noting certain anomalies in the books of accounts maintained by the assessee, he rejected the books of accounts of the assessee under Section 145(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (P) Ltd. Vs. ACIT decided in SLP(Civil), Diary No. 7469 dated 08.04.2019 wherein the Hon'ble Supreme Court in its decision held that mere retraction of statement at later point of time is unacceptable as the burden lies upon assessee to show that admission made by the director in his statement was wrong and such retraction had to be supported by a strong evidence showing that earlier statement was recorded under duress and coercion, which is binding and the assessee failed to substantiate its retraction through evidences. [iv] In addition to Ground No. 1, 2 & 3, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee company has paid total advance tax of Rs. 1,77,00,000/- during the F.Y. 2011-12 relevant to AY 2012-13 which is much comparable to the disclosure amount during survey action. Later on, the assessee has reduced the net profit based on the afterthought and claimed refund thereon." 7. Ground Nos. [i] to [iv] of the Revenue's appeal relate to the issue of the addition made of Rs. 7 crores by the Assessing Officer on account of disclosure made by the assessee during survey which was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that the said work in progress represents stock which was not recorded in the books of accounts. The AO held that the statements averred by the appellant in its submission thus, is just an afterthought and made-up story to eye wash the revenue from paying the tax liability on the admitted disclosure of Rs. 7 crores made during the course of survey. The AO also noted that on the basis of disclosure made during the course of survey, the appellant had also started to make the advance-tax payments which were due in the month of 15th September, 2011 and 15th December, 2011 proving that the company was running its business without any hurdle and the payment was made on the basis of income and disclosure made during the course of survey. The appellant before the AO had taken a plea that subsequent to the survey, the company passed through very difficult business conditions in second half year of the financial year but AO rejected the same as it had failed to bring on record any iota of evidence to prove that after survey operation, the company has faced any difficulty which causes he production/marketing of its products. The AO then went on to make an addition of Rs. 7 crore to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income as under:- F. Yr. 2010-11 Rs. 3,00,00,000/- F.Yr. 2011-12 Rs. 7,00.00.000/- Rs 10,00,00,000/- We have not paid any advance tax, either for F. Ys. 2010-11 or 2011-12. We promise to pay an amount of 1 Crore by way of SA. tax for A. Ys. 2011-12 within next 15 days and we shall pay advance tax on 15th September, December 2011 and March, 2012 on the income disclosed for FY. 2011-12. We also promise to furnish the details and documents as asked for, within the shortest possible time." (emphasis supplied) 4.4.1 Accordingly, a letter was issued to the AO dated 22.03.2022 specifically asking him to furnish a report based on the analysis of material available on record, to enumerate how the figure of Rs. 7 crore that was disclosed by the Chairman of the company at the time of survey arrived at. The said letter is reproduced as under:- "....2. During the course of appellate proceedings, it is found that the DCIT Circle-111(2), Baroda vide his order dated 27.03.2015 u/s 143/3) of the Act had made an addition of Rs. 7,00,00,000/- on account of disclosure made on account of difference in stock found during the course of survey u/s 133A on 17.08.2011. 3. From t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 and Rs. 7 crores for FY 2011-12. The assessee has also made disclosure during the course of survey w's 133A at Jewel Consumer Care Pvt. Ltd vide its letter dated 17.08.2011. Therefore, statement on oath u/s 131(1A) of the IT. Act 1961 recorded on 17.08.2011 of Shri Goradia in the case of Jewel Consumer Care Pvt. Ltd. and letter dated 17.08.2011 are submit herewith for your kind perusal and necessary action." 4.4.3 There was no whisper of any specific material on record in the form of any impounded documents or details of inventory of stock at the time of survey as compared to the entry in the books of accounts in the said reply. The assessment order is also silent about this aspect except the fact that it mentions finding of excess stock on the date of survey of Rs. 1.52 crore based on which the appellant had made a disclosure of Rs. 7 crore for the entire year. Other than the mention, the AO has not given any detail of what was the stock and nature thereof which varied from the corresponding entry in the Books of a/c. It is found that during the course of assessment proceedings also, the appellant had categorically denied any evidence regarding finding of such excess sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso pleaded that the survey was conducted on 17/08/2011 much before the end of the FY. At that time an estimate for the Income of the year was made. It emphasized that no incriminating material was found during the course of survey for the period 01.04.2011 to 17.08.2011, hence the disclosure of Rs. 7 crore was purely an estimate. However, due to increased costs, finance costs and foreign exchange fluctuation losses coupled with failure to achieve targeted sales adversely affected the companies bottom line. It gave calculation chart showing that a foreign exchange fluctuation loss in this assessment year vis-à-vis foreign exchange gain in AY 2011-12 is taken into consideration then its income exceeded Rs. 7 crore. The AO has not rebutted these submissions in the assessment order. The appellant has presented audited accounts. At no point of time the AO has objected to the completeness or correctness of the Books of accounts. The expenditure in the form of input costs, finance costs and foreign exchange fluctuation losses have not been questioned and thereby accepted. No evidence is available on record to suggest that there was suppression of income by the appellant amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... survey in the form of any incriminating document or discrepancy in the inventory of the stock taken vis-à-vis that recorded in the regular books of accounts. Although there is mention of quantification of stock on the date of survey of Rs. 1.52 crore but there is no evidence to suggest that the same was not disclosed/recorded in the books of account. No query related to any discrepancy found during the course of survey is found to have been made while recording the statement of Shri Amir Goradia. Further, there is no calculation/computation by the AO that how the purported disclosed figure of Rs. 7 crore for the AY 2013-14 made by the Chairman of the company in response to the last query 'do you have anything else to say of the statement u/s 131(1A) recorded on the date of survey was arrived at. The AO has not brought any material on record to justify that why the audited financials of the appellant and the expenditures especially Finance cost. Forex fluctuation losses, etc were incorrect. In the absence of any cogent/credible/incriminating evidence collected at the time of survey the entire disclosure made by the appellant in the form of a plain statement and letter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its he had expected to earn during the year, which had drastically fallen on account of unprecedented circumstances which was evidenced by the audited financial statements of the assessee. Accordingly, he held that since there was no basis with the Assessing Officer except the disclosure made by the assessee during survey which was duly explained, the addition on account of the disclosure so made was not sustainable and he deleted the same. 10. The only pleading made by the ld. DR before us was that since the assessee had suo moto made disclosure of Rs. 7 crores during survey, he could have retracted it only on the basis of some evidences; and in the absence of the same, the addition in the hands of the assessee of the disclosure so made was justified in view of the decision of the Hon'ble Apex Court in the case of Bannalal Jat Construction (Pvt.) Ltd Vs. ACIT, in SLP (Civil), Diary No.7469 dated 08.04.2019. The ld. Counsel for the assessee, on the other hand, heavily relied on the findings of the ld. CIT(A). 11. We have heard both the parties and have gone through the orders of the authorities below. The issue before us is whether the surrender made by the assessee of Rs. 7 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.DR was unable to controvert the above. 15. Therefore, the assessee's explanation for not returning the disclosure of Rs. 7 crores is a reasonable and plausible explanation which, we hold, has been rightly accepted by the ld. CIT(A). 16. We have also noted that the ld. CIT(A) found that identical disclosure made in the preceding year of Rs. 3 crores was returned by the assessee as profits of the said year which was accepted by the Assessing Officer in the assessment proceedings. The ld. CIT(A), therefore, has, we hold, rightly held that having accepted the disclosure of the assessee as representing profits of the year in the preceding year, the Assessing Officer could not have taken a different stand in the impugned year for treating the disclosure as an independent disclosure of income and not relating to the profits of the assessee for the year. 17. In the absence of any incriminating material found during survey to form the basis for the surrender made by the assessee and the assessee duly explaining the basis of its surrender and the reason for not disclosing the same in the return filed, duly backed with evidence, We do not find any infirmity in the order of the ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant along with other material on record on this issue. The AO found that the appellant has shown steady decline in net profit rate of 0.51% for AY 2012-13, 4.87% for AY 2011-12 and 6.24% for AY 2010-11. Before him the main argument of the appellant to explain this decline was the increase of finance cost as compared to in the immediately preceding assessment year and also on account of heavy volatility in the foreign currency rates of the dollar, the company has incurred a foreign exchange loss of Rs. 278 lacs. The AO stated that there is substantial increase in repairs and maintenance of machinery, factory expenses, legal and professional expenses, etc. Books were produced for verification. He stated that of the bills and vouchers of the expense viz. communication, travelling and conveyance, printing and stationery, postage and courier, office expenses, vehicle running and hiring expenses, legal and professional, freight and forwarding, sales discount, business promotion, and other selling expenses are not properly vouched and not fully verifiable. Expenses have also been incurred on cash basis which are also not verifiable. Cash vouchers were also made which do not have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed." 21. We have noted from the above that ld. CIT(A) has found the Assessing Officer's act of rejecting the books of accounts of the assessee and estimating its net profits to have been made without any basis at all. With respect of the issue of rejection of the books of accounts of the assessee, ld. CIT(A) has noted that the Assessing Officer has made some general comments without bringing on record any specific instance of what books of accounts are incorrect and incomplete. He noted that these are audited books of accounts and merely on account of claiming certain expenditures in cash, the same cannot be rejected. He observed that the Assessing Officer has brought no material to justify the rejection of books of accounts. With respect to the fall in net profits which the Assessing Officer had noted from the preceding year, the ld. CIT(A) noted that the assessee had justified the fall with a reasonable expenditure evidenced by its audited books of accounts of the assessee. He noted that the gross profit of the assessee in fact had increased in the impugned year as compared to the preceding year but there was a fall in net profit on account of unprecedented circumstances res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of earning exempt income under Section 14A of the Act. The said ground reads as under:- "[vi] On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition of Rs. 1,21,905/- to Rs. 4,204/- made on account of disallowance under Rule 8D r.w.s. 14A by ignoring the fact that the assessee has failed to provide one to one nexus between the interest free fund vis-à-vis its investment from which income earned is exempted." 24. The findings of the ld. CIT(A) deleting the addition are at paragraph Nos. 6.2 to 6.4 of the order as under:- "62 I have carefully considered the impugned assessment order and its effect and written submissions made by the appellant along with other material on record regarding this issue. The Appellant has not earned any exempt income during the year under consideration the AO has made disallowances as per sec 14A r/w rule 8D(ii) of Rs. 1,17,701/- + Rule 8D(iii) of Rs 11,499/- The appellant has suo motu disallowed a sum of Rs. 7,295/-. The appellant has submitted with respect to the disallowance u/s 8D(ii) that it had sufficient interest free funds in the form of Share Capital and Reserve and Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the learned ITAT favouring the assessees. 28. The above conclusion is reached because next has not been established between expenditure disallowed and earning of exempt income, The respondents as earlier noted, have failed to substantiate their argument that assessee was required to maintain separate accounts. Their reliance on Honda Siel (Supra) to project such an obligation on the assessee, is already negated. The learned counsel for the revenue has failed to refer to any statutory provision which obligate the assessee to maintain separate accounts which might justify proportionate disallowance. 29. In the above context, the following saying of Adam Smith in his seminal work - The Wealth of Nations may aptly be quoted: "The tax which each individual is hound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid ought all to be clear and plain to the contributor and to every other person. Echoing what was said by the 18th century economist, it needs to be observed here that in taxation regime, there is no room for presumption and nothing can be taken to be implied. The tax an individual or a corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case and in law, the High Court is correct in upholding the Tribunal's view that expenditure on estimated basis cannot be reduced from dividends for deduction under Section 80M of the Act; and 5. Whether on the facts and in the circumstances of the case and in law, the High Court is correct in upholding the Tribunal's view in sustaining the deletion of the Transfer Pricing adjustment made to consultancy charges, especially when the TPO had adopted the same mark up in relation to its European associate, what the assessee itself had adopted in relation to its USA associate. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment 2002-03. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance under section 144 can be made out of interest expenditure in the facts of the present case. Accordingly, ground Non 2 and 3 of the Revenues appeal are rejected. 2.1 From the above portion, we noticed that the Tribunal has bifurcated the expenditure into two parts, the first related to investment of Rs. 5907.18 lakhs in foreign subsidiaries, it was held that the dividend income from such subsidiaries is taxable in India and that, therefore, section 14A would have no applicability. The remaining amount pertain to investment of Rs. 38 crores (rounded off) made in Indian subsidiaries. Is this respect, the Tribunal noted that the assessee had to its disposal, own interest-free funds many times over the investment in question. As per the balance-sheet as on March 31, 2005, the assessee had interests-free fund of Rs. 929.57 crores Such being the facts, the Tribunal, in our opinion, committed no error. No question of law, therefore, arises." 6.25 The Hon'ble Gujarat High Court in the case of PCTT Vs. Sintex India Ltd [2017] 82 taxmann.com 171 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the present case, we deem it pertinent to take note of the observations of the Delhi High Court recorded in para 29 of the judgment in the case of Maxopp Investment Limited [Supra). It reads as under: Scope of sub-sections (2) and (3) of Section 144. 29. Sub-section (2) of Section 144 of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, then AO record a finding that he was hot satisfied with the correctness of the expenditure shown by the assessee. In other words, he has to verify the account of the assessee, and if he was not satisfied with the correctness of the claim made by the assessee, then, after assigning reasons, he would proceed to compute the expenses on the basis of the method brought in the Rule 8D. In light of the above proposition, let us examine the facts in both the years and finding recorded by the A.O. The main contention of the assessee in both the years is that it has made investment in the mutual fund with "growth option". In the case of growth option, no dividends are declared by the mutual fund, and only income declared by an investor is in the form of capital gains. The capital gains derived by the assessee on mutual fund are taxable and not an exempt income derived by the assessee on mutual fund are taxable and not an exempt income derived from such investment. In the Asstt. Year 2009-2010, the assessee has offered a sum of Rs. 19.22 Crores on sale of such investment for taxation as short/long term capital gain. Similarly, in the Asstt. Year 2010-2011, a sum of Rs. 8.23 Crores has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the case, narrated hereinabove, it cannot be said that the learned Tribunal has committed any error in deleting the disallowance of expenditure of Rs. 54.39.916- incurred in respect of interest and administrative expenses under Section 14A of the Act. We are in complete agreement with the view taken by the learned: Tribunal. At this stage, decision of Division Bench of this Court in the case of Pr. CIT v. India Gelatine & Chemicals Ltd. [2015] 376 ITR 553/120161 66 taxmann.com 356 needs a reference. In the said decision, it is observed and held by the Division Bench of this Court that when the assessee had sufficient interest-free funds out of which concerned investments had been made, disallowance under Section 144 is not justified." 6.2.6 Respectfully bowing to the ratio of the orders of the Apex Court and various High Courts, Since the appellant had sufficient interest free funds at its command as against the investments that resulted in earning of exempt income, it should be considered that investments have been made out of interest free funds and no disallowance u/s. 14A r/w Rule 8D(ii) towards any interest expenditure can be made. Accordingly, the AO is directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D for making disallowance of administrative expenses, consultancy fees and management expenses etc. and therefore, such action of the AO is hereby confirmed. In view of this the disallowance of other expenditure (ie. the expenditure other than interest expenditure) as made by the AO in the case of appellant by applying the formula of rule 8D IT rule is hereby confirmed. Thus, the ground of appeal no.3 of the appellant is partly allowed." 6.3.1 The appellant did not agitate this issue before the ITAT in its appeal for AY 2011-12. Respectfully following the order of CIT(A)-1, Ahmedabad, I also confirm the entire disallowance made by the AO u/R 8D(iii) of Rs 11,499/-. However, the appellant has on its own made a suo motu disallowance u/s 14A of Rs 7,295/- and therefore the disallowance shall be reduced by the said amount. Addition of Rs 4,204/- is confirmed and Rs 7,295 is directed to be deleted. 6.4 In view of above, Ground of appeal 3 is therefore partly allowed." 25. We have noted from the above that the ld. CIT(A) deleted the disallowance noting that the assessee had sufficient owned funds for making investment for earning exempt income; and therefore following the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- "7.2 I have carefully considered the impugned assessment order and its effect and written submissions made by the appellant along with other material on record on this issue. During the course of assessment proceedings, the AO found from the balance sheet, that the appellant had given a short-term loan to its associate concern Amigo Dispensing Solutions Pvt. Ltd., for Rs. 44,82,560/- without charging any interest therein. The opening balance of the said loan was Rs 56,82,560/- while closing balance was Rs. 44,82,560/-. The AO claimed that such money was advanced out of the borrowed funds from bank on which it had suffered interest cost. He therefore made an addition of Rs. 6,26,176/-on account of interest free loans/ advances given to its associate concern by applying provisions of section 36(1)(iii) of the Act. Aggrieved the appellant is in appeal. 7.3 The appellant in its submission has not disputed the fact that it had given an interest-free advance to its sister concern M/s Amigo Dispensing Solutions Pvt. Ltd. It added that the said concern was engaged in packing of toothbrushes for the Appellant Company on a job work basis. The ancillary industry to the Company&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessor for AY 2011-12 and confirmed the addition. The Id. CIT(A) has failed to appreciate that the Appellant had sufficient interest free funds to cover the interest free advances to the Appellant's sister concern in relation to the above disallowance. The ld. CIT(A)-I has also failed to appreciate that the said interest free advances were provided by the Appellant to its sister concern for business purpose and with a clear commercial purpose and thus the conclusion that the said funds were applied for a non-business purpose was erroneous. The ld. CIT(A)-1 has also failed to appreciate that the issue on identical facts stands covered by the Hon. ITAT in favour of the Appellant for AY 2007-08 and AY 2008-09 vide ITA no. 2618/Ahd/2010 & 757/Ahd/2012 respectively." 3. We have heard the rival submissions on the issue. The disallowance of interest expenses of Rs. 3,72,000/- under s.36(1)(ii) of the Act is in controversy. 4. It is the case of the assessee that interest expenditure has been incurred on certain interest free advances to sister concern M/s. Amigo Dispensing Solutions Pvt. Ltd. The AO has alleged that the said advances have been made for non-business purposes and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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