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TMI Blog2024 (5) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to acquire the said property, which was held for use on lease rent basis, also could not be doubted, particularly when a written agreement had been entered into between the assessee and Smt. Poonam Gupta for the purpose. Advance amount as per the agreement had been paid through bank cheques, and the bonafides of the purchaser s and the seller s intention also stood established by the fact that the required No Objection Certificate had duly been obtained from the Government Authorities; that thus, CIT(A) found that there was a nexus between the advance made and the business purpose of acquiring a property for the office of the assessee company in Delhi - suspicion, however strong could not take the place of evidence or proof; that the addition had been made by the AO on the presumption that the advance was extended for the personal use of Smt. Poonam Gupta, which presumption did not stand borne out by the entirety of the facts, or by any material placed on record by the AO - business expediency of the advance given and the intention of the assessee to purchase the premises could not be doubted in view of the facts on record; that the adverse inference drawn by the AO on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten submissions filed by the assessee before the ld. CIT(A), as reproduced. It is also not the case of the Department that there has been any change in the facts and circumstances of the case for the year under consideration vis- -vis the said earlier assessment years. It being so, there was no occasion for the AO for taking a divergent view from that taken by the Department in the earlier years in not making any deduction in this regard. CIT(A), it is seen, has duly taken into consideration all the above factors and has recorded elaborate findings of fact with regard thereto, and it is on the basis of thereof that the ld. CIT(A) has, and, in our considered opinion, rightly so, deleted the addition made by the AO wrongly. It is, therefore, that we find that the deletion ordered by the ld. CIT(A) requires no interference at our hands. Then, the order of the Tribunal on this issue, for A.Y. 2009-10, under exactly similar facts and circumstances as present for the year under consideration, stands confirmed by the Hon'ble High Court, vide its order [ 2023 (10) TMI 1143 - PUNJAB AND HARYANA HIGH COURT] passed during the pendency of the present appeal before us. The said order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO observed that an amount of Rs. 90,00,000/- had been given to Smt. Poonam Gupta but no interest was charged from her although the company was paying interest on its loans taken from various financial institutions and parties. The assessee was, therefore, asked vide order sheet entry dated 09.12.2014 about business expediency of the said advance and reasons for not charging interest on the said advance. The assessee vide its letter dated 24.12.2014 submitted as under : The company had given advance to the said party in the financial year 2008-09 relevant to the Assessment Year 2009-10 for the purchase of property at Vasant Kunj, New Delhi. The address of the property which was proposed to be purchased is as under: 1-B, Bhawani Kunj, Opposite Pocket D-l, Vasant Kunj, New Delhi The agreement to sell was entered on 2nd Sept, 2008 for the above said property admeasuring 10 Biswas, Mustatil no. 73, Kila No. 5/2 6/1 of village mehrauli, Tehsil Hauz Khas, New Delhi 110 070. The sale consideration was fixed at Rs. 4,55,00,000/- and an advance of Rs 90,00,000/- was paid on 2/9/2008 12/9/2008 for Rs. 10,00,000/- and Rs. 80,00,000/- respectively. The balance amount was to be paid by 30.11.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property is for the purpose of Business of the Assessee Company, no adverse inference may be drawn. 4.1 The Assessing Officer did not accept the reply of the assessee. The AO held that the assessee's contention that the said advance was given for the purchase of property and the deal regarding purchase of property could not be finalized due to shortage of funds being faced by the company, was not based on facts. The AO observed that on the one hand, the assessee company had invested approximately Rs. 34 crores in addition of fixed assets, i.e., in factory building and plant machinery, etc., during the year under consideration and on the other, it had stated that it could not arrange Rs. 3.65 crores for payment of balance amount of the purchase deal of the said property. The AO observed that no person would want to lose its hard-earned amount of Rs. 90 Lacs just because of lack of availability of funds even if it has to arrange the balance funds by taking loans; and that the priority of the person would be to first guarantee the custody of the advance already given and then invest its balance money in other projects/for other purposes. It was mentioned that assessee had ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without carrying any interest is to be disallowed under section 36(1)(iii) of the Income Tax Act, 1961; that such borrowings, to that extent cannot possibly be held to be for the purpose of business but are for supplementing the cash diverted, without deriving any benefit out of it; and that accordingly, the assessee will not be entitled to claim deduction of the interest on the borrowings to the extent those are diverted to sister concerns or other persons without interest. The advance of Rs. 90,00,000/- in the opinion of the AO, was given to Smt. Poonam Gupta for a purpose other than a business purpose. Accordingly, the AO made an addition of Rs. 10,80,000/-. 5. The CIT(A), by virtue of the impugned order, has deleted the addition, giving rise to Ground Nos. 1 and 2. 6. Challenging the impugned order, the ld. DR has contended that the Commissioner of Income Tax(Appeals) was not right in deleting the disallowance of interest made by the Assessing Officer under section 36(1)(iii) of the Act, 1961, without brushing aside the factual findings recorded by the Assessing Officer in the assessment order and the remand report; and that the order passed by the Commissioner of Income Tax(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10. The sales turnover decreased to Rs. 452.45 Cr in assessment year 2009-10, from that of Rs. 467.03 Cr in assessment year 2008-09. Thereby, the assessee company incurred a loss of Rs. 23.46 Cr in assessment year 2009-10, as compared to a profit of Rs. 15.60 Cr in assessment year 2008-09. Before the ld. CIT(A), as available from the ld. CIT(A) s order dated 01.09.2021, for assessment year 2014-15 (APB 89-101), the assessee furnished a copy of the aforesaid Agreement to Sell, dated 02.09.2008, and the relevant extract of the balance sheet/Profit Loss Account for assessment year 2009-10, which also shows the figures for assessment year 2008-09. In the first half of assessment year 2009-10, the production was of 46,849 MT and the sales were of 45,726 MT. In the second half, there was production of 21,163 MT and sales of 22,118 MT. Thus, there was a total production of 68,012 MT and total sales of 67,844 MT, in assessment year 2009-10. Since the assessee was facing an acute shortage of funds in the second half of assessment year 2009-10, it could not honour its commitment to pay the balance amount of Rs. 3,65,00,000/- to Smt. Poonam Gupta by 30.11.2008, the due date. As such, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious financial institutions and parties; that on query regarding the business expediency of the said advance and the reasons for non-charging of interest thereon, the assessee had filed reply, which was not acceptable; that the assessee's contention that the said advance was given for the purchase of property and the deal regarding purchase of property could not be finalized due to shortage of funds being faced by the company, was not based on facts; that the said advance was given in September, 2008 and was not received back till 30.06.2013, i.e., almost five years had elapsed and the assessee did not make effort to recover the advance; that though the assessee had a turnover of thousands of crores of rupees, the amount of Rs. 90 lacs was not a petty amount which was left in the lurch for no consideration at all, whereas the assessee had been incurring huge amounts on the interest costs to the banks; that from the argument of the assessee, that it had incurred losses in assessment year 2009-10, was a factor which might have prompted the assessee to search for funds all around and, under these circumstances, such huge amounts could not have been left with anybody; that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had been decided by the ld. CIT(A) in favour of the assessee. The relevant portion of the ld. CIT(A) s order dated 05.12.2017, for assessment year 2010-11 was extracted by the ld. CIT(A) while following the said order in deleting the disallowance. It is seen that in the said order for assessment year 2010-11, the ld. CIT(A) observed that he found that the AO s contention that the assessee company never had any intention to purchase the premises and that the Sale Agreement was executed merely as a tool to divert interest-free funds to Smt. Poonam Gupta, was based merely on presumptions and surmises; that Smt. Poonam Gupta was not related to the Directors of the company, or their relatives; that in fact, the assessee was a lessee of the premises, which the assessee company had hired for use as office premises; that thus, there was a preexisting business relationship between the assessee and Smt. Poonam Gupta; that the business purpose for seeking to acquire the said property, which was held for use on lease rent basis, also could not be doubted, particularly when a written agreement had been entered into between the assessee and Smt. Poonam Gupta for the purpose, advance amount as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve years, the advance got returned to the assessee, even though by the long-wound legal process. Accordingly, finding no force in the grievance of the Department in this regard for the year under consideration also, Ground Nos. 1 and 2 are rejected and the action of the ld. CIT(A) in deleting the disallowance made by the AO is upheld. 12. Apropos Ground Numbers 3 and 4, the ld. DR has contended that the ld. CIT (A) went wrong in concluding that the assessee had successfully explained the fall in GP rate, over-looking the aspect that the assessee devised a colorable mechanism to divert its profit to its subsidiary entity for claiming a higher deduction under Section 80IC of the IT Act; and that the ld. CIT (A) went wrong in holding that the AO, in his remand report, neither controverted, nor disproved the contentions of the assessee, whereas the AO had disputed the stance of the assessee with cogent reasons and material. 13. The ld. Counsel for the assessee, on the other hand, again placed strong reliance on the impugned order. Further, the ld. Counsel for the assessee has contended on this issue that for assessment year 2009-10, the appeal filed by the assessee against the ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny with all statutory books of account and supporting documents. It was also stated that the Assessing Officer has neither rejected the books of accounts nor pointed out any discrepancies in any of the books of accounts or registers relating to manufacturing, stock registers, scrap registers or bills and vouchers. The C1T (Appeals) had accepted the arguments raised on behalf of the assessee that the sale of semi finished goods made during the year was well documented and there was no excess scrap at all. Hence, the appeal filed by the assessee was allowed and the Assessing Officer was directed to delete the addition. 5. Aggrieved by the said order, the Revenue filed an appeal before the Tribunal. The Tribunal examined the issue and held that no reason was given by the Assessing Officer, as to why the value of semi finished goods sold to its sister concern should not be considered in the total production of the year for the purpose of determining the percentage of scrap generated. The Assessing Officer has neither rejected books of account nor brought out any evidences to support the suspicion that there was unaccounted manufacturing and sale of finished goods nor has AO made out an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer. 8. Learned counsel for the appellant-revenue has not been able to dispute the correctness of the aforesaid orders (Annexures R-2 to R-ll) passed under Section 143 (3) of the Income Tax Act, 1961. After 2009-2010, no addition has been made in the income of the appellant towards the sales of semi finished goods to M/s Jai Suspension Systems. 9. Keeping in view the above discussion, no ground is made out to interfere the impugned order as the same has been passed after appreciating the evidence in the right perspective. No substantial question of law arises for consideration. 10. Resultantly, finding no merits, present appeals i.e. ITA No.8531 of 2018 and ITA No.8532 of 2018 are dismissed. 13.1 From the aforesaid elaborate self-speaking order, it is evident and not disputed that for assessment years 2010-11 to 2014-15, no addition was made qua the semi-finished goods manufactured by the assessee and sold outside the books of account to its subsidiary. It is worth mentioning here that the said High Court order records the presence of counsel on behalf of the Department, i.e., the appellant before the Hon'ble High Court. 14. It is seen that the AO made addition of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % in AYs 2011-12 and 2010-11, respectively; that therefore, there was no justification in charging a 10% margin from the subsidiary entity, particularly in view of the fact that the subsidiary entity was utilizing the goodwill of the assessee for making sales to the OEM with whom the assessee company had an association of 40 years; that this was, in fact, the main reason for the decline in the GP of the assessee company in the year under consideration, as compared to the previous years; and that in view of all these facts, the explanation given by the assessee company regarding the margin of profit shown by the assessee on the lower side in comparison to the margin of profit shown by its subsidiary entity, M/s Jai Suspension Systems LLP, was not acceptable. The AO observed that the assessee had been asked to furnish a comparative chart of gross profit rate or net profit rate of the previous three years with reason for shortfall, if any; that in compliance, the assessee had filed a comparative chart of gross profit rate and net profit rate; that from this chart, it was noticed that there was a shortfall in GP rate by 1% in comparison to the GP rate of the previous assessment year; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under Section 80 IC of the IT Act, as there is a specific provision in the Act for making such an addition in the hands of an entity which is eligible for deduction under Section 80 IC of the IT Act, that is, Section 80 IC (7) read with Section 80 IA (10). The assessee contended that from a plain reading of Section 80 IA (10) of the Act, it was evident that there is a close connection between the assessee carrying on eligible business, i.e., M/s Jai Suspension Systems LLP, the subsidiary entity, to which this section applies, and any other person, i.e., the assessee company, Jamna Auto Industries Limited, the holding entity and if there is any business transacted between them, which produces more than ordinary profit to the eligible business, in this case, allegedly to M/s Jai Suspension Systems LLP, while computing the profits and games of M/s Jai Suspension Systems LLP can only make adjustment to the deductions claimed by Jai Suspension Systems LLP under Section 80 IC of the IT Act and not in the hands of the other company, that is, the assessee company; that therefore, the addition as made in the hands of the assessee company was illegal, since the Act empowers only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GP rate, for which, the AO had opined that the assessee had not been able to substantiate its claim of the decline in GP rate being due to the increase in the rates of power and fuel, and that the assessee had sold products to its subsidiary, M/s Jai Suspension Systems LLP, at the lower profit margin for the purpose of providing its profit to its subsidiary, which was claiming deduction u/s 80IC of the Act. The ld. CIT(A) observed that contrary to such findings of the AO, the assessee had submitted all necessary documents and evidences, such as fuel invoices and Ledger Accounts of power and fuel, etc., to substantiate its claim that the increase in the rates of power and fuel had contributed to the fall in GP, amounting to 1%; that the assessee had submitted that if the rates of power and fuel had remained constant and had not increased as a percentage of sales from 6.95% to 8.23%, the GP rate of the assessee for the year under consideration would have worked out to 11.78%, which would have been better than that of 11.52% for assessment year 2011-12 and that of 11.75% for assessment year 2010-11, which the AO had taken as a benchmark; and that the comparative charts showing as to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y it in the earlier assessment years. The ld. CIT(A) also observed that it had been contended on behalf of the assessee (para 6.10, at pages 43 to 54 of the impugned order), that since the very first year of its commencement of operations, i.e., from assessment year 2009-10, the assessee had always been selling products to M/s Jai Suspension Systems LLP at a cost plus 10% margin, which fact stood duly accepted by the Department, after scrutiny, in all the earlier assessment years, and that there had been no change whatsoever in the facts and circumstances of the case for the year under consideration. 17. Before us, the Department has not been able to successfully rebut the categorical findings of fact recorded by the ld. CIT(A) while deleting the addition, either on the legal issue, or on merits. The ld. DR has contended that the ld. CIT(A) is not right in concluding that the assessee has successfully explained the fall in GP rate of the assessee; that while doing so, the ld. CIT(A) has ignored the aspect of the assessee having devised a colorable mechanism to divert its profit to its subsidiary entity for claiming a higher deduction under the provisions of Section 80IC of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of power and fuel, and that the assessee had sold its products to its subsidiary at a lower profit margin in order to divert its profits to its subsidiary, which was claiming deduction u/s 80IC of the Act. The assessee, on the other hand, had filed material documentary evidences like Fuel Invoices and Ledger Accounts of power and fuel etc., in support of its contention that the increase in the rates of power and fuel was the reason for the fall of GP by 1%. 17.3 In the assessment proceedings, the assessee had been asked to submit the details of transactions entered into by it with its subsidiary entity, M/s Jai Suspension Systems LLP. The AO had further questioned the assessee as to why the margin of profit of the assessee company was less as compared to that of its subsidiary. In response, the assessee had explained before the AO in detail with regard to the fall in GP rate and also the reason for the lower GP rate of the assessee company, as compared to that of its subsidiary. Vide letter dated 09.12.2014, the assessee had placed a comparative chart of sales turnover, gross profit, GP rate, net profit and NP rate for assessment years 2010-11 to 201213. No further question was ask ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment year 2012-13 was Rs. 26/-, giving an increase of 37%. It was further stated that power rate had also increased substantially during the year; that it had been Rs. 4.15 per unit at the start of assessment year 2011-12 and had ended at Rs. 5.46 per unit; that for assessment year 2011-12, the average rate per unit of power was Rs. 4.60 and that of Rs. 5.27 for assessment year 2012-13, thereby giving an increase of 15%. It had been submitted that since all the ingredients of the power and fuel cost had increased, the consumption figure for the year under consideration had also risen substantially; that the rate of the major fuels, i.e., gas and furnace oil had risen by approximately 37%, which had had an impact on the overall power and fuel cost, which had risen, as a percentage of the sales, from 6.95% to 8.23%. The rise in cost of power and fuel, the assessee pointed out, worked out to approximately 18% in the year under consideration, as compared to assessment year 2011-12, and it was therefore, that the GP rate had fallen by approximately 1% as compared to the immediately preceding assessment year, i.e., assessment year 2012-13. The assessee submitted that all the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. at Rudrapur and in the replacement market all over India, except Haryana; and that due tax stood paid by the assessee on the non compete fees received. In support, the assessee had furnished the Non Compete Fee Agreements, Income Tax Return and Computation for assessment year 2009-10, extracts of the balance sheet, Profit Loss Account and Other Income for assessment year 2009-10, Income Tax Return and Computation in assessment year 2010-11 and extracts of the Balance Sheet, Profit Loss Account and Other Income, for assessment year 201011. The AO, however, did not bring anything on record to buttress his conclusion that the assessee company had diverted its profits to its subsidiary, which was claimed in deduction u/s 80IC. 19.3 The assessee further placed on record scrutiny assessment orders of both the entities for the earlier years to show that the assessee and its subsidiary had been engaged in the same business during the year under consideration as in those years, wherein no similar addition on account of alleged diversion of profit had been made. The assessee specifically contended that the assessee had not changed its method of charging margin from its subsidiary, such m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit as compared to the subsidiary. In juxtaposition to these observations in the Remand Report, it does not stand disputed that no query had been put to the assessee by the AO after he had submitted his afore-discussed detailed reply dated 18.03.2015, nor did the AO ask the assessee to furnish evidence to prove the increase in the rates of power and fuel, due to which, the GP rate had fallen during the year. On the other hand, the assessee had furnished the following documentary evidences to support its claim that it was the increase in rates of power and fuel during the year, which had led to the minor fall in GP during the year : (i) Breakup of power fuel for the AY 2012-13 (ii) Copies of ledger A/c of power of fuel for the AY 2012-13 (iii) Breakup of power fuel for the AY 2011-12 (iv) Copies of ledger A/c of power of fuel for the AY 2011-12 (v) Comparative chart showing %age of increase in power fuel for the assessment year 2012-13 in comparison to assessment year 2011-12 (vi) Comparative chart of rates per unit of power fuel i.e. electricity, HSD, furnace oil and Gas etc. for the assessment year 2011-12 and 2012-13 placed at page 561. (vii) Specimen copies of bills of electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which prevented the assessee to sell its products to the principal customers of M/s Jai Suspension Systems LLP, i.e., Tata Motors and Ashok Leyland at Rudrapur and the replacement market all over the country, except Haryana. The Non Compete Agreement for both the years make the position amply clear and therefrom, it is evident that it was agreed between the assessee and its subsidiary that the subsidiary would pay a one time non compete fee to the assessee and the assessee agreed that it would not supply or sell tapered leaf or parabolic springs to TML s Pant Nagar, Uttrakhand Unit and will also not set up any manufacturing unit in Uttrakhand. Evidently, the non compete fee of Rs. 15 Cr was received in assessment years 2009-10, and 2010-11, for five years. Thus, the assessee received, at an average, Rs. 3 Cr per year as non compete fee. This, as rightly contended by the assessee and as also rightly taken into consideration by the ld. CIT(A) while deleting the addition, if added to the margin of 10% charged from M/s Jai Suspension Systems LLP by the assessee, would result in an additional margin of around 1.78%, i.e. 11.78%, rather than 10%. The GP rate would, thus, work out to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction or manufacture of the articles, the value shall be determined in the manner specified in Rule 8, i.e., assessable value to be 110% cost of production as per the proviso to Rule 9. Further, it was also brought on record that the assessee company has been obtaining certificates from the qualified Cost Accountants regularly/periodically for valuation as per the Excise Rules, for fixing the rates to be charged on the cost plus 10% margin method for semi-finished goods sold to M/s Jai Suspension Systems LLP. Copies of such certificates were also placed on record before the AO vide Note alongwith letter dated 03.03.2015. 22.4 The adopting of the aforesaid method by the assessee stands duly accepted by the Department consistently over the years, under scrutiny assessment and no addition with reference thereto has been made. The documentary evidence furnished by the assessee in this regard stands tabulated in the written submissions filed by the assessee before the ld. CIT(A), as reproduced at pages 44 and 45 of the impugned order. 23. It is also not the case of the Department that there has been any change in the facts and circumstances of the case for the year under consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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