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TMI Blog2024 (5) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and arrived at the conclusion to make the disallowance. Contrary to this, assessee has furnished details of purchase transactions from several other unrelated parties which demonstrates that purchases have been made at higher rates from them as compared to the one from the related party. Also, it is undisputed that there is a loss scenario both, in the hands of the assessee and the one from whom purchases have been made which is a related party. Thus, from a tax advantage objective, there seems to be no incentive to inflate the purchase - We delete the addition made u/s. 40A(2)(b) - Decided in favour of assessee. Disallowance made u/s. 14A - As per AO assessee has held investment in shares of bodies corporate which were capable of yielding exempt income - HELD THAT:- We find that this issue is settled as no addition can be made u/s. 14A where assessee has not earned any exempt income in the year - As decided in M/S. ERA INFRASTRUCTURE (INDIA) LTD. [ 2022 (7) TMI 1093 - DELHI HIGH COURT] no disallowance is required to be made in the case of the assessee because it has not earned any tax-free income and allowed the appeal of the assessee by deleting the addition so made. Consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39,218/- under section 14A. 8. Ld. CIT(A)(NFAC) has erred in confirming addition of Rs. 2,58,64,275/- of advances outstanding during previous financial year. 4. In order to deal with the common ground in both the appeals, we take the facts from AY 2011-12. Assessee filed its return of income on 30.09.2011 reporting total income as loss of Rs. 2,33,13,760/- which was assessed at Rs. 1,83,04,823/- u/s. 143(3) vide order dated 24.03.2014. Subsequently, case was reopened u/s. 147 by issuing notice u/s. 148 on 27.03.2018. Return in response to notice u/s. 148 was filed on 14.04.2018 by reporting the same loss as done in the original return. Assessee had derived commodity income from the scrips of Zinc Future, Raw Jute Future, Sake Future, etc. traded through National Multi-commodity Exchange (NMCE) which the Ld. AO held it could be brought into the books of account by way of sham transactions. According to the Ld. AO, since the source of this credit was not from legitimate business, he treated the credit of Rs. 24,78,850/- as unexplained u/s. 68 to be taxed separately @ 30%. He further held that this income is not eligible to be set off against the business loss for which he relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 115BBE was introduced with effect from 0l.04.2013, it cannot be disputed that no deduction in respect of any expenditure or allowance can be allowed with respect to the said amount. But question is whether set off of any loss shall be allowed against the said undisclosed income. In order to decide the question it is crucial to decide the nature of such income. Contention for the revenue is that, it will not fall within any of the category of income under the classifications contained in section 14. In other words, such income cannot be treated as profits and gains of business or it cannot be considered as income from other sources . As the provisions of law which stood applicable for the relevant year of assessment, there is a specific bar with respect to allowing any deductions from such income, by virtue of section 115BBE, as it stood unamended. The amendment declining set off was introduced only with effect from 1.4.2017. Therefore, question whether set off permissible under section 72(2) read with section 32(2) of the Act would apply with respect to the said income, assumes importance. There again, the crucial aspect relevant for consideration is the nature of the said inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst income referred to in section 115BBE of the Income Tax Act. The matter has been carried to judicial forums and courts in some cases has taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. However, the current language of section 115BBE of the Income-Tax Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, the provision of the sub-section (2) of section 115BBE of the Income Tax Act has been amended as to expressly provide that no set off any loss shall be allowable in respect of income under the section 68 or section 69 or section 69A or section 69C or section 69D. The intention of the legislature in introducing the amendment, as stated in the explanatory note, is to avoid unnecessary litigation and to expressly provide that no set off of any loss shall be allowable in respect of income under section 68. Therefore, it has to be held that, as on the relevant date of the assessment, there was no bar existed with respect to allowing set off against the carried forward unabsorbed depreciation on fixed assets, with respect to income under section 68. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined u/s. 115BBE after AY 2016-17. In the present case before us, the year under consideration is AY 2011-12 and 2015-16 in which the claim of set off of loss is permissible. Accordingly, in terms of the CBDT Circular and respectfully following the decision of Hon ble High Court of Kerala (supra) we allow ground taken by the assessee in this respect for both the appeals before us. 8. Now, we take up appeal for AY 2015-16 in ITA No. 1001/Kol/2023 to deal with the other issues. Ground no. 6 is in respect of addition made u/s. 40A(2)(b) for excess payment made to related party amounting to Rs. 66,61,440/-. On this issue, Ld. AO observed that assessee holds 32.63% of shares in H. P. Ispat Pvt. Ltd. and is, therefore, covered within the meaning of related party u/s. 40A(2) of the Act. Ld. AO observed that fact of assessee being a related party has not been disclosed in the tax audit report as well as in the audited balance sheet. Further, from the details of purchase and sales along with quantity and items, furnished by the assessee, Ld. AO noted that assessee has made excess payment to the related party for purchase of scrap when compared to purchase of scrap made from unrelated pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of only one unrelated party to compare it with the purchases made by the assessee from the related party and arrived at the conclusion to make the disallowance. Contrary to this, assessee has furnished details of purchase transactions from several other unrelated parties which demonstrates that purchases have been made at higher rates from them as compared to the one from the related party. Also, it is undisputed that there is a loss scenario both, in the hands of the assessee and the one from whom purchases have been made which is a related party. Thus, from a tax advantage objective, there seems to be no incentive to inflate the purchase. Considering these facts on record, we delete the addition made by the Ld. AO towards disallowance u/s. 40A(2)(b) and allow the claim of the assessee. Thus, ground no. 6 is allowed. 11. Ground no. 7 is in respect of disallowance made u/s. 14A of Rs. 1,39,218/-. In this respect Ld. AO has observed that assessee has held investment in shares of bodies corporate which were capable of yielding exempt income. Before the Ld. AO, assessee claimed that it had not derived any exempt income from the investments and, therefore, there was no question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year itself. To corroborate this fact, copies of ledger accounts were furnished. The details of this advance and movement of their account is tabulated as under: 12.2. Assessee claimed that all the transactions with the parties are through banking channel and duly accounted in the books of account as depicted in their respective ledgers, placed on record. Thus, the assumption drawn by Ld. AO are devoid of any merit and factually incorrect. Ld. CIT(A) confirmed the addition by merely observing that there is absence of comprehensive supporting evidence by the assessee. Aggrieved, assessee is in appeal before the tribunal. 13. Ld. Counsel for the assessee reiterated the submissions made before the authorities below. He demonstrated the contentions made, by referring to the corroborative material placed on record in the paper book. 14. Per contra, Ld. CIT, DR relied on the orders of the authorities below. 15. We have gone through the documents placed on record and find that the presumption made by the Ld. AO that advances have been booked for purchase of material and production thereof is not justified when the money received has been returned back within a year for two parti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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