M/s. Rana Bar Ltd., New Delhi V. ITO, New Delhi

ITA 124/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7444 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 18-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRIT LAL SRDR
• Keywords: Rejection of books of accounts; Business income; Opportunity of being heard; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A; 145; 144; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.D. AGRAWAL. VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEM BER ITA NO. 124/DEL/2013 ASSESSMENT YEAR: 2008 -09 M/S RANA BAR LTD P LTD VS. THE ITO [PRESENTLY KNOWN AS RADIANT BAR LTD WARD 15(2 ) B-5, TAGORE MARKET NEW DELHI KIRTI NAGAR, NEW DELHI PAN : AABCR 9085 Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL KAPOOR, ADV SHRI ANKIT GUPTA, ADV DEPARTMENT BY : SHRI AMRIT LAL, SR-DR DATE OF HEARING : 18.05.2016 DATE OF PRONOUNCEMENT : 12.08.2016 O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)- XVIII, NEW DELHI DATED 26. 11.2012 IN FIRST APPEAL NO. 195/10-11 PERTAINING TO A.Y 2008-0 9. ITA NO. 124/DEL/2013 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ASSESSMENT MADE U/S 143(3) AND THE ADDITIONS/DI SALLOWANCE MADE BY THE ASSESSING OFFICER ARE ILLEGAL, BAD IN L AW & WITHOUT JURISDICTION. 2. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE A CTION OF THE AO IN MAKING ENQUIRIES AND MAKING ADDITIONS IN RESP ECT OF THE ISSUES WHICH WERE NOT COVERED BY THE AIR INFORMATIO N. THE ADDITION / DISALLOWANCES MADE ARE AGAINST THE CBDT INSTRUCTIONS AND THE ASSESSING OFFICER HAD NO JURISDICTION TO MA KE SUCH ADDITIONS. 3. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE ERRED ON FACTS, THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS WITHOUT POINTING OUT ANY ERROR IN THE REGULAR BOOKS OF ACCO UNT MAINTAINED BY THE APPELLANT. IN ANY CASE THE BOOKS HAVE BEEN ILLEGALLY AND WRONGLY REJECTED AND THE SAID REJECTI ONS OF BOOKS OF ACCOUNT CANNOT BE JUSTIFIED BY ANY MATERIAL ON RECO RD. 4. THE AO/ CIT(A) HAS ERRED IN FACT AND IN LAW IN TRE ATING THE CASH SALES AS INCOME FROM OTHER SOURCES AND ALSO ERRED I N NOT ALLOWING DEDUCTION U/S 80IC TO THE APPELLANT. 5. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLD THE ACTION OF T HE ASSESSING OFFICER IN NOT ALLOWING THE DEDUCTION U/S 80IC. THE CIT(A) HAS ALSO FAILED TO APPRECIATE THAT THE APPELLANT HAS FULFILL ED ALL THE CONDITION OF THE SAID SECTION AND THE DEDUCTION U/S 80IC IS ALLOWABLE OUT OF PROFITS OF ELIGIBLE UNIT. 6. THE CIT(A), IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE ERRED ON FACTS AND IN LAW IN UPHOLD THE ADDITIONS O F RS. 7,77,86,000/- U/S 68 IN RESPECT OF CASH SALES PROCE EDS DEPOSITED IN THE BANK ACCOUNT. HE HAS ALSO ERRED ON FACTS AND IN LAW IN DISALLOWING THE CASH SALES AND RECASTING THE TRADIN G ACCOUNT. ITA NO. 124/DEL/2013 3 7. THE CIT(A) ERRED ON FACTS AND IN LAW IN GIVING THE DIRECTION TO THE AO TO VERIFY THE GENUINENESS OF SALES MADE IN THE E ARLIER ASSESSMENT YEAR 2006-07 & 2007-08 IS ILLEGAL, BAD I N LAW AND WITHOUT JURISDICTION. THE SAID DIRECTION OF THE CIT (A) IS BEYOND JURISDICTION AND IS LIABLE TO BE DELETED 8. THE ADDITIONS / DISALLOWANCES MADE ARE UNJUST, UNL AWFUL, WITHOUT JURISDICTION AND ARE ALSO HIGHLY EXCESSIVE. THE CIT (A) HAS WRONGLY & ILLEGALLY UPHELD THE ADDITION OF RS.7,77,86,000/-. 9. THE ASSESSING OFFICER HAS, IN VIEW OF THE FACTS AN D CIRCUMSTANCES OF THE CASE ERRED ON FACTS AND IN LAW IN HOLDING TH AT 2% OF THE SALES I.E. 99,96,643/- CANNOT BE TREATED AS INCOME OF THE ELIGIBLE UNIT. THE OBSERVATION MADE IS WITHOUT ANY BASIS AND ARE U NCALLED FOR. 10. THE CIT(A) HAS, IN VIEW OF THE FACTS AND CIRCUMSTAN CES OF THE CASE ERRED ON FACTS AND IN LAW IN UPHOLDING THE DIS ALLOWING THE SUM OF RS. 6,08,143/- U/S 14A R.W.R. 8D MADE BY AO. 11. THE ADDITIONS MADE AND THE OBSERVATIONS MADE ARE UN JUST, UNLAWFUL AND BASED ON MERE SURMISES AND CONJUNCTURE S. THE ADDITIONS MADE CANNOT BE JUSTIFIED BY ANY MATERIAL ON RECORD. 12. THAT THE EXPLANATION GIVEN EVIDENCE PRODUCED, MATER IAL PLACED AND AVAILABLE ON RECORD HAS NOT BEEN PROPERL Y CONSIDERED AND JUDICIALLY INTERPRETED AND THE SAME DO NOT JUST IFY THE ADDITIONS/ ALLOWANCES MADE. 13. THAT THE IMPUGNED ASSESSMENT ORDER PASSED BY THE AS SESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTIC E AND THE SAME HAS BEEN PASSED WITHOUT AFFORDING REASONABLE AND ADEQUA TE OPPORTUNITY OF BEING HEARD. 14. THAT THE INTEREST U/S 234A, 234B, 234C & 234D HAS B EEN WRONGLY AND ILLEGALLY CHARGED AS THE APPELLANT COULD NOT HA VE FORESEEN THE DISALLOWANCES/ADDITIONS MADE AND COULD NOT HAVE INC LUDED THE SAME IN CURRENT INCOME FOR PAYMENT OF ADVANCE TAX. THE INTEREST CHARGED UNDER VARIOUS SECTIONS IS ALSO WRONGLY WORK ED OUT. ITA NO. 124/DEL/2013 4 GROUND NOS. 1 TO 5 3. APROPOS GROUND NOS. 1 TO 5, WE HAVE HEARD THE RI VAL CONTENTIONS AND HAVE PERUSED THE RELEVANT MATERIAL ON RECORD. T HE LD. AR SUBMITTED THAT THE LD. CIT(A) ERRED IN UPHOLDING TH E ADDITION IN RESPECT OF ISSUE WHICH WAS NOT COVERED BY THE AIR INFORMATI ON AND THE IMPUGNED ADDITION ON ACCOUNT OF TREATING THE CASH S ALES AS INCOME FROM OTHER SOURCES AND NOT ALLOWING THE DEDUCTION U /S 80IC OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT' FOR SHORT] IS AGAINST THE CBDT INSTRUCTIONS. THE LD. AR POINTED OUT THAT THE LD. CIT(A) ALSO ERRED IN UPHOLDING THE REJECTION OF BOO KS OF ACCOUNTS WITHOUT POINTING OUT ANY ERROR IN THE BOOKS OF ACCO UNTS MAINTAINED BY THE ASSESSEE, THUS THE IMPUGNED ADDITION IS NOT SUS TAINABLE IN LAW AND IN THE FACTS OF THE CASE. THE LD. AR ALSO POINTED O UT THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE APP ELLANT FULFILLED ALL THE CONDITIONS OF SECTION 80IC OF THE ACT AND THE S AME IS ALLOWABLE OUT OF PROFITS OF ELIGIBLE UNIT AND PROFITS INCLUDES PR OFITS FROM CASH SALES ALSO AS THERE IS NO DISTINCTION BETWEEN CASH AND CR EDIT SALES IN THE ACID TEST OF ALLOWABILITY OF DEDUCTION U/S 80IC OF THE A CT. 4. PER CONTRA, THE LD. DR OF THE REVENUE STRONGLY S UPPORTED THE ACTION OF THE A.O AND IT WAS CONTENDED THAT THE CAS H SALES WAS NOT ITA NO. 124/DEL/2013 5 PROVED AND HENCE THE A.O WAS QUITE JUSTIFIED IN MAK ING DISALLOWANCE IN THIS REGARD AND THE FIRST APPELLATE AUTHORITY UPHEL D THE ORDER OF THE A.O BY CONSIDERING ALL RELEVANT FACTS OF THE CASE A S WELL AS LEGAL PROPOSITIONS ON THE ISSUE, 5. ON CAREFUL CONSIDERATION OF THE ABOVE, WE NOTE T HAT AS PER THE CHART FILED BY THE ASSESSEE FROM A.Y 2005-06 TO 201 3-14 I.E. FOR NINE YEARS, WE OBSERVE THAT IT IS A NORMAL PRACTICE OF T HE ASSESSEE TO MAKE CASH AND CREDIT SALES. FROM THE ASSESSEES PAPER B OOK PAGE 122, WHICH WAS ALSO SUBMITTED BEFORE THE A.O AND THE LD. CIT(A ), IT IS APPARENT THAT THE ASSESSEE SUBMITTED ALL MONTH-WISE DETAILS OF CASH AND CREDIT SALES DURING F.Y. 2007-08 RELEVANT TO A.Y 2008-09 W HICH SHOWS THAT THE ASSESSEE MADE CASH SALES OF PRODUCT ANGLE OF RS. 14 ,71,08,377/- AND CASH SALES OF PRODUCT AND CUTTING OF RS. 31,61,800/ - WHICH COMES TO TOTAL SUM OF RS. 15,02,70,267/- AS CLAIMED BY THE A SSESSEE, THIS CHART SHOWS MONTH WISE CASH AND CREDIT SALES OUT OF WHICH CREDIT SALES HAVE BEEN ACCEPTED BUT CASH SALES HAVE BEEN DISPUTED BY THE A.O BY ALLEGING THAT THE SALES HAVE BEEN INFLATED IN THE M ONTH OF MARCH 2008 WHEREIN TOTAL CASH SALES RECORDED IS AROUND 50% OF TOTAL CASH SALES. THE A.O ALSO ALLEGED THAT CASH CREDITORS HAVE BEEN REGULARLY ITA NO. 124/DEL/2013 6 INTRODUCED IN THE BOOKS OF ACCOUNTS AS SALES, IN OR DER TO CLAIM DEDUCTION U/S 80IC OF THE ACT. 6. AT THIS JUNCTURE, AT THE VERY OUTSET, IT WOULD A LSO BE NECESSARY TO CONSIDER THE GROUND OF THE ASSESSEE WHEREIN IT HAS BEEN ALLEGED THAT HE BOOKS OF ACCOUNTS HAVE BEEN REJECTED WITHOUT ANY LEGAL BASIS. THE LD. AR POINTED OUT THAT IN PARA 4.1 THE A.O ALLEGED THAT THE ASSESSEE, DESPITE OF SEVERAL REQUESTS DID NOT SUBMIT DETAILS OF HDFC BANK, MUZAFFARNAGAR AND THE SAME WAS RECEIVED BY HIM THRO UGH AIR INFORMATION WHEREIN HUGE CASH WAS FOUND TO BE DEPOS ITED. THE LD. AR ALSO POINTED OUT THAT THE A.O NOTED THAT NO DETAILS OF CASH SALES ON TOTAL SALES OF RS. 99,91,440/- [EX UA] IS ON RECORD . THE LD. AR VEHEMENTLY POINTED OUT THAT ALL DETAILS REGARDING H DFC BANK A/C AND CASH SALES WERE SUBMITTED BEFORE THE A.O AND IT HAS NOT BEEN OBJECTED BY THE A.O AND THE LD. CIT(A) AND HE ALSO DREW OUR ATTENTION TOWARDS ASSESSEES PAPER BOOK PAGES 121 TO 123, 124 TO 125 AND 190 TO 197 TO SUPPORT THIS CONTENTION. 7. IN REPLY, THE LD. COUNSEL OF THE REVENUE SUPPORT ED THE ACTION OF THE A.O AND SUBMITTED THAT DESPITE OF SEVERAL REQUE STS, THE ASSESSEE DID NOT FILE COPY OF HDFC BANK ACCOUNT DETAILS AND CASH SALES DETAILS. ITA NO. 124/DEL/2013 7 THUS, THE A.O WAS QUITE CORRECT AND JUSTIFIED IN RE JECTING BOOKS OF ACCOUNTS OF THE ASSESSEE. THE LD. DR OF THE REVENU E ALSO POINTED OUT THAT THERE WAS NO OCCASION FOR THE A.O TO EXAMINE P APERS SUBMITTED IN THE PAPER BOOK INCLUDING PAGES 121 TO 125 AND 190 T O197. THEREFORE, THESE CANNOT BE CONSIDERED AS SUPPORTIVE TO THE CLA IM OF THE ASSESSEE. 8. AT THE OUTSET, WE MAY POINT OUT THAT AS PER SECT ION 145(3) OF THE ACT, THE A.O IS EMPOWERED TO REJECT BOOKS OF ACCOUN TS OF THE ASSESSEE IN CERTAIN CONDITIONS VIZ (I) WHERE THE A.O IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR (II) WHEREIN THE METHOD OF ACCOUNTING PROVIDED IN SUB-SE CTION (1) OF SECTION 145 OF THE ACT HAS NOT BEEN REGULARLY FOLLO WED BY THE ASSESSEE OR THE LD. CIT(A), (III) INCOME HAS NOT BEEN COMPUT ED IN ACCORDANCE WITH THE STANDARDS NOTIFIED UNDER SUB SECTION (2) O F THE SAID PROVISION, THEN ONLY THE A.O MAY MAKE ASSESSMENT IN THE MANNER AS PROVIDED IN SECTION 144 OF THE ACT AFTER REJECTING HT BOOKS OF ACCOUNTS OF THE ASSESSEE. 9. IN THE PRESENT CASE, FROM THE RELEVANT OPERATIVE PARA 3.1 AND 4.1 OF THE A.O, WE NOTE THAT THE A.O HAS NOT SHOWN HIS INTENTION BY ISSUING ANY SHOW CAUSE TO THE ASSESSEE BEFORE REJECTING THE BOOKS OF ACCOUNTS. ITA NO. 124/DEL/2013 8 WE ALSO OBSERVE THAT THE A.O HAS NOT LEVELED ANY AL LEGATION, AS PER MANDATE OF SECTION 145(3) OF THE ACT, TO ESTABLISH THAT ANY OF THE CONDITIONS THEREIN HAS BEEN FOUND IN THE CASE OF TH E ASSESSEE VALIDLY ENABLING THE A.O TO REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE. SINCE BOOKS OF ACCOUNTS HAVE BEEN REJECTED WITHOUT FOLLOWING DUE PROCEDURE AS MANDATED BY SECTION 145(3) OF THE ACT AND WITHOUT AFFORDING DUE OPPORTUNITY OF HEARING TO THE ASSESSE E. THUS, CONCLUSION OF THE AUTHORITIES BELOW IN REJECTING BOOKS OF ACCO UNTS IS SET ASIDE AND THIS ISSUE IS RETURNED TO THE FILE OF THE A.O FOR A FRESH ADJUDICATION AFTER ALLOWING OPPORTUNITY OF BEING HEARD FOR THE ASSESSE E. ACCORDINGLY, BY THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSES. 10. FIRST OF ALL, WE MUST POINT OUT THAT THE A.O HA S NOTED FACTUALLY INCORRECT FACTS FOR MAKING DISALLOWANCE AS TOTAL CA SH SALES CLAIMED IS OF RS. 15.02 CRORES WHEREAS THE TOTAL CASH SALES IN MA RCH 2008 WERE OF RS. 2,46,27,840/- + RS. 3,20,760/- - RS. 2,49,48,600/-, WHICH IS ONLY 16- 17% OF TOTAL CASH SALES. WE FURTHER OBSERVE THAT I T IS A REGULAR PRACTICE OF THE ASSESSEE TO MAKE HUGE CASH SALES WHICH IS AL SO APPARENT FROM THE CHART SUBMITTED BEFORE THE A.O WHEREIN HUGE CAS H SALES IN EARLIER AND SUBSEQUENT A.YS HAVE BEEN ACCEPTED BY THE A.O W ITHOUT ANY DISPUTE. THUS, WE ARE INCLINED TO HOLD THAT THE DI SALLOWANCE AND ITA NO. 124/DEL/2013 9 ADDITION MADE ON THE BASIS OF INCORRECT FACTS AND F LOUTING THE WELL ACCEPTED RULE OF CONSISTENCY CANNOT BE HELD AS SUST AINABLE AND THUS WE DISMISS THE SAME. AT THE SAME TIME, WE ALSO OBSERV E THAT IT IS THE CLAIM OF THE ASSESSEE THAT THE AMOUNT OF CASH SALES WAS DEPOSITED WITH HDFC BANK MUZAFFARNAGAR AND THE A.O ALLEGED THAT DE SPITE SEVERAL OPPORTUNITIES COPY OF THE BANK STATEMENT WAS NOT SU BMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AND THIS ALLEGATION WAS ALSO REITERATED BY THE LD. CIT(A) WHILE UPHOLDING T HE DISALLOWANCE. THUS THE MAIN THRUST OF THE REVENUE IS THAT HE A.O AND THE LD. CIT(A) COULD NOT GET OPPORTUNITY TO EXAMINE AND VERIFY THE CLAIM OF THE ASSESSEE REGARDING CASH SALES IN THE LIGHT OF DOCUM ENTARY EVIDENCE AND EXPLANATION OF THE ASSESSEE. WE MAY POINT OUT THAT THE TRIBUNAL CANNOT EXAMINE AND VERIFY THE FACTS WHICH WERE NOT CONFRONTED AND CONSIDERED BY THE AUTHORITIES BELOW DURING ASSESSME NT AND FIRST APPELLATE PROCEEDINGS. THUS, IN OUR CONSIDERED OPI NION THIS ISSUE REQUIRES AFRESH CONSIDERATION, EXAMINATION AND VERI FICATION AT THE END OF THE A.O. THUS THE SAME I.E. ISSUE OF CASH SALES IS RESTORED TO THE FILE OF THE A.O FOR AFRESH DE NOVO ADJUDICATION AFT ER AFFORDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO. 124/DEL/2013 10 11. NEXT QUESTION POSED TO US FOR ADJUDICATION IS T HAT WHETHER THE A.O WAS JUSTIFIED IN DENYING DEDUCTION U/S 80-IC OF THE ACT PERTAINING TO CASH SALES TREATING THE SAME AS INCOME FROM OTHE R SOURCES. THE LD. AR POINTED OUT THAT THERE IS NO CONDITION IN THE AC T THAT THE ASSESSEE WOULD NOT BE ELIGIBLE FOR DEDUCTION ON CASH SALES. THE LD. AR VEHEMENTLY POINTED OUT THAT THE A.O REGULARLY ALLOW ED DEDUCTION U/S 80IC OF THE ACT ON BOTH KINDS OF SALES EITHER CASH OR CREDIT AND THERE IS NO VALID REASON TO DENY THE SAME ONLY ON THE CASH S ALES FOR THE PERIOD UNDER CONSIDERATION. THE LD. AR ALSO SHOWED US DET AILS AND PARTICULARS SHOWING THAT THE CASH AND CREDIT SALES FOR ALL PURP OSES, INCLUDING DEDUCTION U/S 80IC OF THE ACT HAVE BEEN ACCEPTED IN EARLIER YEARS FROM A.Y 2005-06 TO 2007-08 AND ALSO IN THE SUBSEQUENT Y EARS. I.E FROM A.Y 2010-11 TO 2013-14 AND ALSO FILED COPIES OF ASSESSM ENT ORDERS FRAMED U/S 143(3) OF THE ACT FOR A.Y 2010-11, 2011-12 AND 2013-14 TO SHOW THAT THERE WAS CREDIT AND HUGE CASH SALES IN EARLIE R AND SUBSEQUENT A.YS AND DEDUCTION U/S 80IC OF THE ACT HAS BEEN CON SISTENTLY AND REGULARLY ALLOWED TO THE ASSESSEE WITHOUT ANY DISPU TE REGARDING CASH SALES. 12. THE LD. COUNSEL OF THE REVENUE STRONGLY SUPPORT ED THE ACTION OF THE A.O AS WELL AS THE ORDER OF THE LD. CIT(A). ITA NO. 124/DEL/2013 11 13. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIO NS, WE ARE OF THE VIEW THAT FROM PARA 4.2 OF THE ASSESSMENT ORDER, IT IS CLEAR THAT THE A.O FIRSTLY HELD THAT THE SALES HAVE BEEN INFLATED IN ORDER TO CLAIM DEDUCTION U/S 80IC OF THE ACT. THEREAFTER, IN THE SUBSEQUENT PART, THE A.O ALSO HELD THAT THE ASSESSEE HAS NOT BEEN ABLE T O EXPLAIN THE SOURCE OF CASH DEPOSITS IN HIS BANK ACCOUNT OF RS. 7,77,86 ,000/- AND HE ADDED THE SAME U/S 68 OF THE ACT AS UNEXPLAINED AND CONSE QUENTLY, HE DISMISSED CLAIM OF DEDUCTION U/ 80IC OF THE ACT ON THIS AMOUNT I.E. RS. 7,77,86,000/-. SINCE BY THE EARLIER PART OF THE O RDER WE HAVE HELD THAT THE REJECTION OF BOOKS OF ACCOUNTS WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145(3) OF THE ACT, THUS THE I MPUGNED CASH SALES CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND DEDUCTION U/S 80IC OF THE ACT CANNOT BE DENIED ON THE AMOUNT OF S UCH CASH SALES. HOWEVER, WE CANNOT IGNORE THAT THE A.O HAD NO OCCAS ION TO EXAMINE THE DETAILS AND DOCUMENTS FILED BY THE ASSESSEE AT PAGES 121 TO 125 AND 190 TO 197. CONSEQUENTLY, THE ACTION OF THE A.O IN REJECTING THE BOOKS OF ACCOUNTS AND TREATING CASH SALES AS INCOME FROM OTHER SOURCES AND DENYING DEDUCTION U/S 80IC OF THE ACT IS SET AS IDE AND THE A.O IS DIRECTED TO EXAMINE AND VERIFY THE CLAIM OF THE ASS ESSEE REGARDING CASH SALES, FOR DEDUCTION U/S 80IC OF THE ACT. WE ALSO DIRECT THE A.O TO VERIFY AND EXAMINE THE CASH SALES IN THE LIGHT O F COMMERCIAL TAX ITA NO. 124/DEL/2013 12 PAYMENT, RAW MATERIAL CONSUMED AND STOCK REGISTER V ERIFICATION, IF ANY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE AND AFTER PROVIDING DUE OPPORTUNITY OF HEARING FOR THE ASSESS EE. WITH THESE DIRECTIONS, GROUND NOS. 1 TO 5 OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NOS. 6 TO 9 14. APROPOS THESE GROUNDS, WE HAVE HEARD THE ARGUME NTS OF BOTH THE SIDES AND HAVE CAREFULLY PERUSED THE RELEVANT MATER IAL ON RECORD. THE LD. AR CONTENDED THAT AS PER THE A.O, THE ASSESSEE DID NOT MENTION THE BANK ACCOUNT WITH HDFC IN WHICH CASH HAS BEEN DEPOS ITED AND THIS INFORMATION WAS AVAILABLE TO HIM FROM AIR REPORT ON LY. THE LD. AR VEHEMENTLY ARGUED THAT THE A.O IGNORED THE FACT THA T THE ASSESSEE FILED COPY OF THE SAID STATEMENT OF ACCOUNT WITH HD FC BANK. THE LD. AR ALSO CONTENDED THAT THE ALLEGATION OF THE A.O TH AT ALL CASH BILLS HAVE BEEN PREPARED ARE ALSO NOT SUSTAINABLE BECAUSE IN THE ACCOUNTS DUTY IS SEGREGATED AND IF ONE PERSON IS DOING CASH BILLING THE NATURALLY ALL CASH BILLS WOULD BE PREPARED BY THAT PERSON. T HE LD. AR ALSO CONTENDED THAT IF ALL CASH BILLS HAVE BEEN PREPARED BY A PERSON, THEN IT CANNOT BE PRESUMED THAT THESE BILLS RELATING TO VAR IOUS DAYS HAVE BEEN ITA NO. 124/DEL/2013 13 PREPARED IN A DAY AND THUS IT ALSO CANNOT BE ASSUME D THAT THE SAME LACKS THE GENUINENESS OF REGULAR SALE INVOICE. THE LD. AR VEHEMENTLY POINTED OUT THAT THE CASH DEPOSIT TO A BANK 40 KM A WAY FROM THE ASSESSEES OFFICE CANNOT BE A VALID BASIS TO DOUBT CASH SALES AND TO MAKE DISALLOWANCE OF CASH SALES. THE LD. AR ALSO P OINTED OUT THAT THE ASSESSEE DEPOSITED PROCEEDS OF CASH SALES AS PER CO NVENIENCE AND SECURITY REASONS TO HDFC BANK AND SALES TAX ETC WAS ALSO PAID THEREON. THUS, IT CANNOT BE DOUBTED ONLY BECAUSE THE AMOUNT WAS NOT DEPOSITED INTO A NEARBY BANK ACCOUNT. THE LD. AR FURTHER CON TENDED THAT IN PARA 4.1(E) , THE A.O MADE BALD ALLEGATIONS WITHOUT BRIN GING OUT ANY EVENT OR COMPARABLE OF SIMILAR ENTITY BY WRONGLY HOLDING THAT THE ASSESSEE HAS SHOWN VERY HIGH GROSS PROFIT RATIO AND THE PROD UCTION FIGURES SHOWN IS VERY HIGH TAKING INTO ACCOUNT THE CONSUMPTION OF ELECTRICITY AND FUEL AND THE PERCENTAGE OF RAW MATERIAL OVER FINISHED GO ODS IS ALSO HIGHER THAT THE INDUSTRY AVERAGE. THE LD. AR VEHEMENTLY A RGUED THAT THE LD. CIT(A) WAS NOT CORRECT IN UPHOLDING THE CONCLUSION OF THE A.O WHEREIN 2% OF THE SALES, I.E. RS. 99,96,643/- HAS NOT BEEN TREATED AS INCOME ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. 15. THE LD. DR SUPPORTED THE ORDERS OF THE AO AS W ELL AS CIT(A) AND SUBMITTED THAT THE ASSESSEE IS SHOWING HUGE CASH SA LES WHICH WAS NOT ITA NO. 124/DEL/2013 14 GENUINE AND ALL WERE PREPARED BY A PERSON IN A SING LE DAY TO INFLATE SALES AND TO JUSTIFY CASH DEPOSIT TO BANK ACCOUNT W HICH WAS REVEALED BY THE AIR INFORMATION AND THE COPY OF SAME ACCOUNT WAS NOT SUBMITTED BEFORE THE AO THEN IT WAS QUITE JUST AND PROPER TO MAKE DISALLOWANCES AND ADDITIONS IN THIS REGARD. THE LD. DR ALSO POINTED OUT THAT THE AO RIGHTLY CONSIDERED THE LOW CONSUMPTIO N OF RAW MATERIALS, AND FUEL IN PROPORTION TO FINISHED GOODS AND WHEN T HE CASH WAS DEPOSITED IN BANK 40 KM AWAY LEAVING THE NEAR BANK THEN THE AO WAS QUITE CORRECT AND JUSTIFIED IN DISALLOWING THE CASH SALES. 16. THE LD. COUNSEL FOR THE ASSESSEE, PLACING REJOI NDER AGAINST THE ABOVE NOTED SUBMISSIONS OF THE LD. DR CONTENDED THA T WITHOUT BRINGING OUT ANY COMPARATIVE FIGURES OF FULL RAW MATERIAL CO NSUMPTION AND GROSS PROFIT RATIO OF SIMILAR INDUSTRY IN THE SIMILAR CON DITIONS I.E. RATES OF RAW MATERIALS & FUEL ETC., THE AO CANNOT ALLEGE THE SAM E AS EXCESSIVE AND DOUBTFUL. THE LD. COUNSEL POINTED OUT THAT CASH SAL ES WAS MADE DURING EARLIER AND SUCCEEDING YEARS WHICH HAVE BEEN CONSIS TENTLY ACCEPTED BY THE AO THIS THERE WAS NO VALID REASON TO DISALLOW S ALES AND DISALLOW TOTAL SALES. ITA NO. 124/DEL/2013 15 17. ON CAREFUL CONSIDERATION OF ABOVE, AT THE OUTSE T, WE OBSERVE THAT THE AUTHORITIES BELOW CATEGORICALLY NOTED THAT THE ASSESSEE DID NOT SUBMIT COPY OF BANK STATEMENT WITH HDFC BANK WITH W HICH THE IMPUGNED PROCEEDS OF CASH SALES WAS DEPOSITED. PER CONTRA, IT IS CONTENDED BY THE LD. COUNSEL OF THE ASSESSEE THAT T HE ASSESSEE SUBMITTED ALL RELEVANT DOCUMENTS INCLUDING COPY OF THE BANK STATEMENT WITH HDFC BANK DURING ASSESSMENT PROCEEDINGS. FURTH ER MOVE THE IMPUGNED CASH SALES CAN BE VERIFIED FROM THE RESPEC TIVE PURCHASERS AND OTHER RELATED OFFICES INCLUDING THE COMMERCIAL TAX DEPTT. THE DISALLOWANCE OF CASH SALES AND NOT TREATING THE AMO UNT 2% OF TOTAL SALES AS INCOME FROM ELIGIBLE UNIT HAVE BEEN MADE W ITHOUT CONSIDERING THE ENTIRE RELEVANT EVIDENCE AND EXPLANATION OF THE ASSESSEE AND THE ISSUE OF CASH SALES DETAILED VERIFICATION AND EXAMI NATION OF ALL RELATED DOCUMENTARY AND CIRCUMSTANTIAL EVIDENCE. THE AO SHA LL ALSO CONSIDER THE PERCENTAGE OF THE CONSUMPTION OF FUEL AND RAW M ATERIALS IN PROPOSITION TO FINISHED GOODS AND WILL ALSO TAKE IN TO CONSIDERATION THE PERCENTAGE OF GROSS PROFIT RATIO OF OTHER SIMILAR U NIT, IF ANY, IN THE SIMILAR FACTUAL CONDITIONS. WE MAY POINT OUT THAT W ITHOUT CONSIDERING THE RELEVANT EVIDENCE, DETAILS AND EXPLANATION ALON GWITH EARLIER AND SUBSEQUENT YEAR FINANCIAL RESULTS AND GP RATIO OF T HE ASSESSEE AND SIMILAR UNIT IN SIMILAR LOCATION THE AON CANNOT MAK E DISALLOWANCE AND ITA NO. 124/DEL/2013 16 ADDITION AND IT IS ALSO ON THE ASSESSEE TO JUSTIFY AND EXPLAIN THE SITUATIONS WHEREIN HUGE CASH SALES WAS MADE AND CAS H WAS DEPOSITED TO BANK ACCOUNT WHICH IS 40 KM AWAY FROM THE OFFICE OF THE ASSESSEE. THE ASSESSEE MAY ALSO SUBMIT ALL OTHER RELEVANT DET AILS PERTAINING TO TRANSPORTATION, COMMERCIAL TAX PAYMENT AND PURCHASE RS TO ESTABLISH ITS CLAIM OF CASH SALES. WITH THESE DIRECTIONS ISSUE IN VOLVED IN GROUND NOS. 6 TO 9 OF THE ASSESSEE ARE RESTORED TO THE FILE OF THE AO FOR DE NOVO ADJUDICATION. THE AO IS ALSO DIRECTED TO ADJUDICATE THE SAME AFTER AFFORDING DUE OPPORTUNITY OF HEARING TO THE ASSESSE E AND WITHOUT BEING PREJUDICED FROM THE EARLIER ASSESSMENT AND IMPUGNED FIRST APPELLATE ORDER OF THE CIT(A). ACCORDINGLY, GROUND NOS. 6 TO 9 OF THE APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 10 TO 13 OF ASSESSEE 18. APROPOS THESE GROUNDS, THE LD. COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS OF THE ASSESSEE DATED 10.8.2 011, AS REPRODUCED BY THE CIT(A) IN PARA 8 OF THE IMPUGNED ORDER, AND CONTENDED THAT THE ASSESSEE HAS OPENING BALANCE OF RS. 65 CRORES RESER VES AND SURPLUS, THE ASSESSEE INVESTED RS. 7.5 LACS IN THE SHARES OF GR OUP CONCERN I.E. RANA SPONG LTD. ORISSA TO ACQUIRE STAKE IN THAT COMPANY. THE LD. COUNSEL ITA NO. 124/DEL/2013 17 POINTED OUT THAT THE ASSESSEE HAS NOT EARNED ANY EX EMPT INCOME FROM THESE SHARES DURING THE RELEVANT PERIOD. TO SUPPORT THIS CONTENTION THE LD. COUNSEL PLACED RELIANCE ON THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CHEMINVEST LTD. VS. CIT-IV VIDE ITA NO. 749/2014 ORDER DATED 2 ND SEPTEMBER, 2015 AND CONTENDED THAT IF THERE IS NO EXEMPT INCOME THEN NO DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 CAN BE MADE. 19. THE LD. DR SUPPORTED THE ACTION OF THE AO AS WE LL AS FIRST APPELLATE ORDER OF CIT(A). HOWEVER, HE COULD NOT C ONTROVERT HIS FACTUM THAT THERE WAS NO EXEMPT INCOME FOR THE ASSE SEE OUT OF INVESTMENT IN SHARES AND RATIO OF DECISION OF HONB LE HIGH COURT (SUPRA) FAVOURS ASSESSEES CONTENTION. 20. ON CAREFUL CONSIDERATION OF ABOVE, WE NOT THAT IN PARA 23 OF DECISION OF HONBLE HIGH COURT, THEIR LORDSHIPS SP EAKING FOR THE JURISDICTIONAL HIGH COURT OBSERVED AS FOLLOWS :- (I) THE EXPRESSION DOES NOT FORM PART OF THE TOT AL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE A N ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE T OTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE O F DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID IN COME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCO ME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MO ODY (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDU CTION UNDER ITA NO. 124/DEL/2013 18 SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION US ED IS FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS THE EXPRESSION IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . THE DECISION IN RAJENDRA PRASAD MOODY CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED , THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTIO N 14A OF THE ACT. (II) THE INVESTMENT BY THE ASSESSEE IN THE SHARES O F MAX INDIA LTD. IS IN THE FORM OF A STRATEGIC INVESTMENT. SINC E THE BUSINESS OF THE ASSESSEE IS OF HOLDING INVESTMENTS, THE INTE REST EXPENDITURE MUST BE HELD TO HAVE BEEN INCURRED FOR HOLDING AND MAINTAINING SUCH INVESTMENT. THE INTEREST EXPENDITU RE INCURRED BY THE ASSESSEE IS IN RELATION TO SUCH INVESTMENTS WHICH GIVES RISE TO INCOME WHICH DOES NOT FORM PART OF TOTAL IN COME. IN THE PRESENT CASE, ADMITTEDLY AND UNDISPUTEDLY, T HE ASSESSEE EARNED NO EXEMPT INCOME FROM THE SHARES HELD IN RANA SPONG E LTD. ORISSA. THUS THE RATIO OF THE SAID DECISION OF HONBLE JURI SDICTIONAL HIGH COURT IS SQUARELY APPLICABLE IN FAVOUR OF THE ASSESSEE. T HUS, RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT NO DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 CAN BE MADE FOR A.Y 2008-09 AND ADDITION MADE BY THE AO IN THIS REGARD IS NOT SUSTAINABLE AND CONSEQUENTLY WE DISMISS THE SAME. ACCORDINGLY GROUND NOS. 10 TO 13 OF THE ASSESSEE ARE ALLOWED. 21. LAST GROUND NO. 14 IS REGARDING CHARGING OF INT EREST WHICH IS CONSEQUENTIAL IN NATURE. ITA NO. 124/DEL/2013 19 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ON GROUND NOS. 10 TO 13 AND ALLOWED FOR STATISTICAL PURPOSES ON OTHER GROUNDS. ORDER PRONOUNCED IN THE OPEN COURT ON 12.08.2016. SD/- SD/- (G.D. AGRAWAL) (CHANDRA MOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DATED : 12 TH AUGUST, 2016 VL/ COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT REGISTRAR, ITAT, NEW DELHI