VIDEOCON INDUSTRIES LTD, MUMBAI V. DCIT RG 3(3)(2), MUMBAI

ITA 1310/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8363 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 02-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 11-03-2016
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: ARVIND SONDE
• Keywords: Bogus purchase; Depreciation; Transfer pricing; International transaction; Earning of tax free income; Retrospective amendment; Initiation of penalty proceedings; Corroborative evidences; Accommodation entries
• Section: 92B; 133A; 234B; 14A; 115JB; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH K, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.1310/M/2016 ASSESSMENT YEAR: 2011-12 M/S. VIDECON INDUSTRIES LTD.,171-C, MITTAL COURT, NARIMAN POINT, MUMBAI 400 021 PAN: AABCV4012H VS. THE DEPUTY COMMISSIONER OF INCOME TAX, RANGE 3(3)(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI ARVIND SONDE, A.R. REVENUE BY : SHRI N.K. CHAND, D.R. DATE OF HEARING : 17.01.2017 DATE OF PRONOUNCEMENT: 24.02.2017 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST FINAL ASSESSMENT ORDER DATED 21.01.16, PASSED BY LD. DCIT-3 (3)(2), MUMBAI (HEREINAFTER REFERRED TO AS THE AO) UNDER SECTION 143( 3) R.W.S. 144C(13) IN PURSUANCE OF DIRECTION GIVEN BY THE DISPUTE RESOLUTI ON PANEL (DRP) UNDER SECTION 144C(5) VIDE ORDER DATED 23.12.15. IN VARIOUS GROUNDS OF APPEAL, THE ASSESSEE HAS RAISED FOLLOWING ISSUES: I) TRANSFER PRICING ADJUSTMENT OF RS.46,94,26,016/- I N RESPECT OF GUARANTEE COMMISSION AND FEE FOR LETTER O F UNDERTAKING (GROUND NO.1.1 TO 1.4). II) DISALLOWANCE OF SUM OF RS.110,33,96,481/- MADE UNDER SECTION 14A READ WITH RULE 8D (GROUND NO.2.1 TO 2.5) ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 2 III) ADDITION ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB (GROUND NO.3.1 AND 3.2). IV) DISALLOWANCE ON ACCOUNT OF ALLEGED BOGUS PURCHAS ES COMPRISED OF FOLLOWING:- UTILIZATION OF MATERIAL AS- AMOUNT (RS.) TREATMENT IN ACCOUNTS PLANT & MACHINERY/MOULDS 23,79,82,268 ADDITION TO PLANT AND MACHINERY TRAIL RUN 13,94,92,838 CHARGED TO CAPITAL WIP ACCOUNT TRAIL PRODUCTION 6,83,99,170 CHARGED TO CAPITAL WIP ACCOUNT MACHINERY SPARES 14,97,74,663 SHOWN AS INVENTORY IN BALANCE SHEET RAW MATERIAL & CONSUMABLES 3,50,24,425 CHARGED TO PROFIT AND LOSS ACCOUNT 63,06,73,365 (GROUND NO.4.1 TO 4.6) V) CREDIT OF TDS AMOUNTING TO RS.51,00,532/- (GROUND NO.5) VI) SHORT PERIOD FOR ADVANCE TAX AMOUNTING TO RS.15 C RORE (GROUND NO.6) VII) CHARGING OF INTEREST UNDER SECTION 234B AND 234C (GROUND NOS.7 & 8) VIII) INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) (GROUND NO.9) 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CONSUMER ELECTRONICS AND HOME APPLIANCES, EXPLORATION CRUDE OIL AND GAS, INVESTMENT IN SHARES, SECURITIES AND PROPERTIES, LEASE AND FINANCE AND OTHE R INCIDENTAL ACTIVITIES. 3. THE BRIEF FACTS QUA THE ISSUE RELATING TO TRANSFER PRICING ADJUSTMENT OF RS.45,45,85,468/- IN RESPECT OF GUARAN TEE COMMISSION ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 3 AND RS.1,48,45,548/- IN RESPECT OF FEE FOR LETTER OF UNDERTAKING ARE THAT, THE ASSESSEE COMPANY HAS GIVEN GUARANTEE/LETTER OF UNDERTAKING FOR CREDIT FACILITIES AVAILED BY ITS AES AND RECOVERE D GUARANTEE COMMISSION FROM ITS AE IN THE FOLLOWING MANNER:- NAME OF THE AE GUARANTEE IN INR FROM TO GUARANTEE COMMISSION PROPORTION GUARANTEE COMMISSION UPTO 31ST MARCH 2011 IN INR FOR THE PERIOD AFTER 31ST MARCH 2011 IN INR VIDEOCON GLOBAL ENERGY HOLDING LIMITED CORPORATE GUARANTEE 6,77,10,00,000 1/4/2010 17/9/2010 84,63,750 84,63,750 - VENUS CORPORATION CORPORATE GUARANTEE) 13,54,20,00,000 1/4/2010 31/3/2012 6,77,10,000 3,38 ,55,000 3,38,55,000 VIDEOCON HYDROCAR -BON HOLDING LIMITED (LETTER OF UNDERTAKING 18,05,60,00,000 7/3/2011 6/3/2012 4,51,40,000 30,91 ,781 4,20,48,219 12,13,13,750 4,54,10,531 7,59,03,219 4. OUT OF THE TOTAL AMOUNT OF GUARANTEE COMMISSION RECO VERED OF RS.12,13,13,750/-, THE ASSESSEE POINTED OUT THAT THE GU ARANTEE COMMISSION INCOME CHARGED BY THE ASSESSEE COVERS THE PERIOD BEYOND 31.03.11 AND THEREFORE, THE GUARANTEE COMMISSION WAS ALLOCATED ON TIME PROPOSITION BASIS. THE SUM OF RS.4,54,10,531/- W AS THE GUARANTEE COMMISSION RELATABLE TO ASSESSMENT YEAR 2011- 12 AND THE BALANCE AMOUNT OF RS.7,59,03,219/- WAS THE GUARANTEE COMMISSION RELATABLE TO THE ASSESSMENT YEAR 2012-13. THE ASSESSEE HAD, THUS, DISCLOSED THE GUARANTEE COMMISSION OF RS.0.25%. THE L D. TPO, ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY TRANSFER P RICING ADJUSTMENT IN RESPECT OF GUARANTEE COMMISSION SHOULD N OT BE DONE AT THE RATE OF 3% AND ALSO WHY THE SAME RATE SHOULD NOT BE CHARGED IN CASE OF LETTER OF UNDERTAKING GIVEN BY VIDEOCON INDUS TRY LTD. TO ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 4 STANDARD CHARTERED BANK IN RESPECT OF SECURED TERM LO AN FACILITY TO VIDEOCON HYDROCARBON HOLDINGS LTD. IN RESPONSE, THE ASSESSEE SUBMITTED AND STATED AS UNDER: VIL HAS GIVEN CORPORATE GUARANTEES TO THE FINANCIA L INSTITUTIONS/ BANKS/ LENDING INSTITUTIONS IN RESPEC T OF LOANS OR CREDIT FACILITIES EXTENDED BY THEM TO THE ASSOCIATE D ENTERPRISES OF VIL FOR WHICH VIL HAS RECOVERED 0.25% GUARANTEE COMMISSION. PROVISION OF GUARANTEE WAS NOT INTERNATIONAL TRANSA CTION. HOWEVER, OUT OF ABUNDANT CAUTION ASSESSEE COMPANY H AS RECOVERED 0.25% AS GUARANTEE COMMISSION FROM ITS AE S WHICH HAS BEEN OFFERED TO THE TAX. AS SUBMITTED EARLIER IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE CORPORATE GUARANTEE PROVIDED B Y THE VIL DOES NOT FALL WITHIN THE DEFINITION OF INTERNATIONA L TRANSACTION AS PER THE DEFINITION OF INTERNATIONAL TRANSACTION PRE VAILING AT THE TIME OF PROVIDING CORPORATE GUARANTEE. HOWEVER, TPO IN EARLIER YEARS HAS TAKEN A VIEW THAT THE FINANCE ACT 2012 IN TRODUCED EXPLANATION TO SEC 92B WITH RETROSPECTIVE EFFECT FR OM 01.04.2002 AND AS PER THE EXPLANATION CORPORATE GUA RANTEE IS A TYPE OF CAPITAL FINANCING TRANSACTION AND WITHIN THE MEANING OF DEFINITION OF INTERNATIONAL TRANSACTIONS UNDER 92B. 5. APART FROM THAT THE ASSESSEE ALSO SUBMITTED A DETAIL ED ANALYSIS AND REASONING TO JUSTIFY FIRSTLY; IT IS NOT AN INTERNATIONAL TRANSACTION AND THEREFORE NO BENCH MARKING IS REQUIRED; SECONDLY, THE RATE OF 3% AS GUARANTEE COMMISSION IS NOT CORRECT ON THE FACTS OF TH E CASE; AND LASTLY, CHARGING OF 0.25% OF GUARANTEE COMMISSION IS JUSTI FIED FROM INTERNAL CUP. HOWEVER, THE LD. TPO, AFTER DETAILED ANAL YSIS AND DISCUSSION, HELD THAT THE ARMS LENGTH GUARANTEE COMMISS ION/FEE SHOULD BE CALCULATED AT THE RATE OF 3%. THE RELEVANT OBSERVATIONS IN THE FINDING OF THE TPO ARE APPEARING FROM PAGES 29 TO 32 OF HIS ORDER. THE CALCULATION OF 3% WAS APPLIED BY THE TPO IN THE F OLLOWING MANNER:- ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 5 UNCONTROLLED PRICE: AS DISCUSSED ABOVE AND AS GIVEN IN THE SHOW CAUSE N OTICE, THE GUARANTEE FEE IS CALCULATED AT A RATE OF 3% P.A. ON AMOUNT BASED ON THE NUMBER OF DAYS THE GUARANTEE WAS OUTSTANDING DURING THE FY 2010-11. COMPUTATION OF ARMS LENGTH PRICE: OUTSTANDING GUARANTEE AMOUNT TOTAL FEES TO BE CHARGED AMOUNT OF RS.902.80 OUTSTANDING FOR 342 DAYS @ 3% 38,06,60,054 AMOUNT OF RS.902.80 OUTSTANDING FOR 23 DAYS @ 3% 1,70,66,630 ARMS LENGTH GUARANTEE FEE RS.39,77,26,684 BASED ON THIS CALCULATION TPO CALCULATED THE ARMS LE NGTH PRICE IN THE CASE OF VENUS CORPORATION LTD. IN THE FOLLOWING MANNER: THE ASSESSEE HAS RECOVERED GUARANTEE FEES FOR TWO YEARS UPFRONT AT 0.25% PER ANNUM OF RS.6,77,10,000. ACCORDINGLY, 50% OF SAID GUARANTEE FEES CHARGED BY ASSESSEE IS ADJUSTED AGAI NST ARMS LENGTH PRICE CALCULATED ABOVE. BALANCE 50% OF GUARA NTEE COMMISSION CHARGED BY ASSESSEE WILL BE CARRIED FORW ARD NEXT YEAR AND WILL BE ADJUSTED AGAINST NEXT YEARS ALP OF GUA RANTEE FEE. HENCE THE DIFFERENCE BETWEEN ALP OF GUARANTEE COMMI SSION AND COMMISSION ACTUALLY CHARGED IS TO BE ADJUSTED AS CO MPUTED BELOW: ARMS LENGTH GUARANTEE FEE RS.39,77,26,684 GUARANTEE FEE RECEIVED RS.3,38,55,000/- DIFFERENCE BETWEEN ARMS LENGTH PRICE AND PRICE CHARGED BY THE ASSESSEE RS.36,38,71,684/- THUS, THE ABOVE AMOUNT OF RS.36,38,71,684/- IS TREATED AS TRANSFER PRICING ADJUSTMENT BEING THE DIFFERENCE BE TWEEN THE ARMS LENGTH GUARANTEE FEE RECEIVABLE AND THE ACTUAL GUAR ANTEE FEE RECEIVED BY THE ASSESSEE FROM ITS AE, VENUS CORPORA TION LIMITED FOR THE FY 2010-11. ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 6 IN THE CASE OF VIDEOCON GLOBAL ENERGY LTD. THE DECISI ON WAS MADE IN THE FOLLOWING MANNER: RECEIPT OF GUARANTEE FEES (RS.84,63,750) FROM VIDE OCON GLOBAL ENERGY HOLDINGS LTD, BRITISH VIRGIN ISLANDS (VGEHL) OUTSTANDING GUARANTEE AMOUNT AS ON 1/4/2010 RS.7098.00 MILLION NO. OF DAYS THE GUARANTEE IS OUTSTANDING DURING THE FY 2010- 11 (01-04-2010 TO 17-09-2010) 170 DAYS ARMS LENGTH GUARANTEE COMMISSION/FEE 3% P.A. ARMS LENGTH GUARANTEE FEE @ 3% P.A ON THE OUTSTANDING CORPORATE GUARANTEE FOR 170 DAYS RS.9,91,77,534/- PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE: THE GUARANTEE FEE CHARGED BY THE ASSESSEE TO THE AE IS RS.8463,750. HENCE THE DIFFERENCE BETWEEN ALP OF G UARANTEE COMMISSION AND COMMISSION ACTUALLY CHARGED IS TO BE ADJUSTED AS COMPUTED BELOW: ARMS LENGTH GUARANTEE FEE CALCULATED ABOVE RS.9,91,77,534/- GUARANTEE FEE RECEIVED RS.84,63,750/- DIFFERENCE BETWEEN ARMS LENGTH PRICE AND PRICE CHARGED BY THE ASSESSEE RS.9,07,13,784/- THUS, THE ABOVE AMOUNT OF RS.9,07,13,784/- IS TREATED AS TRANSFER PRICING ADJUSTMENT BEING THE DIFFERENCE BE TWEEN THE ARMS LENGTH GUARANTEE FEE RECEIVABLE AND THE ACTUAL GUAR ANTEE FEE RECEIVED BY THE ASSESSEE FROM ITS AE, VIDEOCON GLOB AL ENERGY HOLDINGS LTD, BRITISH VIRGIN ISLANDS FOR THE FY 201 0-11. ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 7 6. AS REGARDS THE LETTER OF UNDERTAKING IN THE CASE OF VIDEOCON HYDROCARBON HOLDINGS LTD., COMMISSION ALLOWANCE, THE ADJUSTMENT WAS MADE IN THE FOLLOWING MANNER: OUTSTANDING GUARANTEE AMOUNT RS.18,056.00 MILLION NO. OF DAYS THE GUARANTEE IS OUTSTANDING DURING THE FY 2010-11 (07-03-2011 TO 31.3.2011) 25 DAYS ARMS LENGTH GUARANTEE COMMISSION/FEE 1.5% P.A. ARMS LENGTH GUARANTEE FEE @ 2.0497% P.A. ON THE OUTSTANDING CORPORATE GUARANTEE FOR 24 DAYS 1,78,08,658 PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE: THE GUARANTEE FEE CHARGED BY THE ASSESSEE TO THE AE IS RS.451,40,000 FOR FULL YEAR. ASSESSEE HAS GIVEN SA ID UNDERTAKING ON 7 TH MARCH 2011 AND ACCORDINGLY CHARGED GUARANTEE FEES FOR THE PERIOD 7 TH MARCH 2011 TO 6 TH MARCH 2012. GUARANTEE FEES FOR 25 DAYS CHARGED BY ASSESSEE WILL BE ADJUSTED AGAINST A LP GUARANTEE FEES CALCULATED ABOVE AND BALANCE RS.420,48,219/- W ILL BE CARRIED FORWARD TO NEXT YEAR. ACCORDINGLY, HENCE NO ADJUSTMENT IS REQUIRED IN THI S CASE. ARMS LENGTH GUARANTEE FEE RS.1,78,08,658/- GUARANTEE FEE RECEIVED (PROPORTIONATE) RS.29,68,110/- DIFFERENCE BETWEEN ARMS LENGTH PRICE AND PRICE CHARGED BY THE ASSESSEE RS.1,48,40,548/- THUS, THE ABOVE AMOUNT OF RS.1,48,40,548/- IS TREA TED AS TRANSFER PRICING ADJUSTMENT BEING THE DIFFERENCE BETWEEN THE ARMS LENGTH GUARANTEE FEE RECEIVABLE AND THE ACTUAL GUARANTEE F EE RECEIVED BY THE ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 8 ASSESSEE FROM ITS AE, VIDEOCON GLOBAL ENERGY HOLDIN GS LTD, BRITISH VIRGIN ISLAND. [ADJUSTMENT OF RS.1,48,40,548/-] 7. THE AFORESAID ADJUSTMENTS AGGREGATING TO RS. 46,94, 26,016/- HAS BEEN CONFIRMED BY THE LD. DRP ALSO. 8. BEFORE US, LD. COUNSEL MR. ARVIND SONDE REITERA TING THE SAME SUBMISSION MADE BY THE ASSESSEE BEFORE THE TPO AS WE LL AS BEFORE THE DRP, SUBMITTED THAT IN THIS CASE THE ASSESSEE HAS ALREAD Y RECOVERED 0.25% OF GUARANTEE COMMISSION FROM ITS AE DESPITE THE FACT THAT ASSESSEE HAS BEEN CONTENDING THAT NO GUARANTEE COMMISS ION WAS ACTUALLY PAYABLE BY THE AE AND ALSO THAT PROVIDING CORP ORATE GUARANTEE OR LETTER OF CREDIT DOES NOT FALL WITHIN THE AMBIT OF INTE RNATIONAL TRANSACTION PREVAILING AT THE TIME OF PROVIDING CORPORA TE GUARANTEE. HERE IN THIS CASE, THE LOAN ON WHICH THE ASSESSEE HAS GIVEN GUARANTEE TO ITS AE WERE PRIMARILY COVERED BY PLEDGED SECURITIE S, HYPOTHECATION OR DEBTORS BALANCES AND OTHER ASSOCIATES OF THE AE WHI CH IS EVIDENT FROM THE DETAILS OF LOAN VIS A VIS THE SECURITIES THER EOF APART FROM CORPORATE GUARANTEES PROVIDED BY THE ASSESSEE. TO DEM ONSTRATE THIS POINT, THE DETAILS PROVIDED WERE AS UNDER:- PARTICULARS AMOUNT IN MILLION RUPEES SECURITY CHARGE ON PRESENT AND FUTURE ASSETS OF THE AE (ASSETS NET OFF CURRENT LIABILITIES AS ON 31.3.2011 @ 45.14) 8958.03 HYPOTHECATION OF RECEIVABLES OF AE 6217.63 APPROXIMATE VALUE OF SECURITY (EXCLUDING GUARANTEE GIVEN) 15,175.66 LOAN FOR WHICH GUARANTEE GIVEN (AMOUNT IN MILLION RUPEES) BY ASSESSEE AS ON 31.3.2011 9028.00 VALUE OF SECURITY COVERING LOAN 1.68 TIMES VIDEOCON GLOBAL ENERGY HOLDING LTD. GUARANTEE OF US D 150 MILLION PARTICULARS AMOUNT IN MILLION RUPEES SECURITY ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 9 MARGIN DEPOSIT OF USD 30 MILLION @ 46.44 (AS ON 1.9.2010) 1393.20 LOANS AND ADVANCE (JOINT VENTURE INTEREST AS ON 1.9.2010) (230.89 MILLIONS) 10722.53 APPROXIMATE VALUE OF SECURITY (EXCLUDING GUARANTEE GIVEN) 12,115.73 LOAN FOR WHICH GUARANTEE GIVEN 150 MILLION AT 46.44 AS ON 1/9/2010RUPEES) BY ASSESSEE AS ON 31.3.2011 6966.00 VALUE OF SECURITY COVERING LOAN 1.739 TIMES REGARDING LETTER OF UNDERTAKING GIVEN TO VIDEOCON HYDR O CARBON LTD., HE POINTED OUT THAT STATE BANK OF INDIA HAS CHARGED BANK GUARANTEE COMMISSION BY GIVING 50% CONCESSION TO ASSE SSEE (I.E. 50% OF 1.75%) WHICH COMES TO 0.875%. IF ADJUSTMENT ON ACCOUNT OF ENTITY RISK, CURRENCY RISK AND COUNTRY RISK IS GI VEN THEN IT COMES DOWN APPROXIMATELY 0.44%. THUS, AT THE MOST THE CORPORA TE GUARANTEE COMMISSION CAN BE TAKEN AT 0.4% TO 0.5%. IN SUPPORT OF THIS CONTENTION, HE HAS RELIED ON VARIOUS DECISION S WHEREIN THIS TRIBUNAL HAS HELD THAT GUARANTEE COMMISSION RATE OF 0. 5% CAN BE ACCEPTED AS ALP. THE LIST OF SUCH DECISIONS IS AS UN DER: (I) HINDALCO INDUSTRIES LTD. VS. ADDL. CIT 62 TAXMAN.COM 181 (MUM ITAT) (II) MANUGRAPH INDIA LTD. VS. DCIT 62 TAXMANN.COM 347 MUM ITAT) (III) ADITYA BIRLA MINCAS WORLDWIDE LTD. VS. DCIT 56 TAXMANN.COM 317 (MUM ITAT) (IV) MYLAN LABORATORIES LTD. VS. ACIT 155 ITD 1123 (HYD I TAT) (V) EVEREST KANTO CYLINDER LTD. VS. ACIT (LTU) MUMBAI 56 TAXMANN.COM 361 (MUM ITAT) (VI) ACIT VS. NIMBUS COMMUNICATION 145 ITD 582 (MUM ITAT ) (VII) COX & KINGS LTD. VS. DCIT, ITA NO.1354/MUM/2014 (MUM ITAT) AND (VIII) ARSHIYA INTERNATIONAL LIMITED VS. DCIT, ITA NO. 659/MUM/2013 (MUM ITAT). HE POINTED OUT THAT IN THE EARLIER DECISION OF EVEREST K ANTO CYLINDER LTD. VS. ACIT REPORTED IN (2012) 34 TAXMANN 19, THIS ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 10 TRIBUNAL HAS UPHELD THE GUARANTEE COMMISSION RATE OF 0 .5% WHICH NOW STANDS CONFIRMED BY THE HON'BLE BOMBAY HIGH COURT. THUS, AT THE MOST EVEN AN ADJUSTMENT IS CALLED FOR THE SAME SHO ULD BE BETWEEN 0.25% AND 0.50%. 9. ON THE OTHER HAND, THE LD. CIT, DR SHRI N. K. CHAND HAS GIVEN A DETAIL WRITTEN SUBMISSIONS AND A NOTE ON CONCEP T OF CORPORATE GUARANTEE AND AS TO WHY IT FALLS WITHIN THE AMBIT AND SCOPE OF THE DEFINITION OF INTERNATIONAL TRANSACTION AS DEFINED IN TERMS OF SECTION 92B. HE EVEN TRIED TO DISTINGUISH THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF BHARTI AIRTEL LTD. VS. ACIT 161 TTJ 428 (ITAT DEL.) AND OTHER DECISIONS WHEREIN IT H AS BEEN FOLLOWED. IN A VERY PAINSTAKING MANNER HE HAS HIGHLI GHTED THE INFIRMITIES IN THE SAID DECISION AND AS TO WHY THIS DE CISION DOES NOT HAVE BINDING PRECEDENCE AT ALL. HE ALSO POINTED O UT THAT THE ITAT, MUMBAI BENCH IN THE CASE OF EVEREST KANTO CYLIND ER LTD., (SUPRA) HAS CATEGORICALLY HELD THAT IT IS AN INTERNATIO NAL TRANSACTION AND IN THE ASSESSEES OWN CASE THE ASSES SEE HAS TREATED IT AS INTERNATIONAL TRANSACTION. 10. HOWEVER, WE ARE NOT ENTERING INTO SEMANTICS O F THIS ARGUMENT AS TO WHETHER CORPORATE GUARANTEE IS AN INTE RNATIONAL TRANSACTION OR NOT, BECAUSE BEFORE US, THE LD. COUNS EL MR. SONDE HAS MAINLY RAISED THE ISSUE THAT, BENCHMARKING IF AT A LL IS REQUIRED TO BE DONE, THEN SAME SHOULD BE DONE BY TAKING THE CORP ORATE GUARANTEE COMMISSION RATE BETWEEN 0.25% AND 0.50% AND IN SUPPORT OF WHICH HE RELIED ON VARIOUS DECISIONS. HE HAS NOT STRESSED ON THIS ISSUE, WHETHER CORPORATE GUARANTEE IS A N INTERNATIONAL TRANSACTION OR NOT. WHENCE ASSESSEE BEFORE US IS NOT PURSUING THE MATTER, WE ARE ALSO NOT INCLINED TO ADJUDIC ATE THE ISSUE. ON MERITS, LD. CIT DR TRIED TO JUSTIFY THE CHAR GING OF ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 11 CORPORATE GUARANTEE COMMISSION @ 3% AND SUBMITTED THAT TH ERE ARE VARIOUS DECISIONS WHEREIN CORPORATE GUARANTEE CO MMISSION OF 2% TO 3% HAVE BEEN ACCEPTED. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT IT IS AN UNDISPUTED F ACT THAT THE ASSESSEE HAS GIVEN CORPORATE GUARANTEES TO FINANCIAL INSTITUTION/BANKS IN RESPECT OF LOAN OR CREDIT FACILITI ES EXTENDED TO ITS TWO AES AND LETTER OF UNDERTAKING TO THE LENDERS IN T HE CASE OF ANOTHER AE. FOR PROVIDING SUCH CORPORATE GUARANTEE IT HAS RECOVERED 0.25% AS GUARANTEE COMMISSION. IN SUPPORT O F CHARGING OF 0.25%, THE ASSESSEE, FIRST OF ALL, CONTENDED THAT THE LOANS FOR WHICH THE ASSESSEE HAS GIVEN GUARANTEE ARE PRIMARILY COVERED BY PLEDGED SECURITIES, HYPOTHECATION OF DEBTORS BALANCES AND OTHER ASSETS OF THE AE, THEREFORE, IT CANNOT BE SAID THAT THE E NTIRE SECURITY OF THE LOAN WAS BASED ON CORPORATE GUARANTEE GIVEN BY THE ASSESSEE. THE DETAILS OF LOANS VIS--VIS THE SECURIT Y THEREOF HAD ALREADY BEEN REPRODUCED ABOVE. IT HAS ALSO BEEN BROU GHT ON RECORD THAT STATE BANK OF INDIA HAS CHARGED BANK GUARANTEE COMM ISSION TO ASSESSEE BY GIVING 50% CONCESSION ON THE RATE OF 1.75% WHICH WORKS OUT TO APPROXIMATELY 0.875%. IF VARIOUS FACTORS AND RISK INVOLVED ARE EVALUATED WHICH IS QUITE NORMAL UNDER THE FOREIGN GUARANTEE LIKE, COUNTRY RISK, CURRENCY RISK AND ENTITY RISK ETC., THEN CHARGING OF CORPORATE GUARANTEE COMMISSION WOULD FALL DOWN BELOW 0.5%. THUS, THIS CONSTITUTES A KIND OF INTERNAL C UP AVAILABLE TO THE ASSESSEE TO BENCHMARK THE TRANSACTION OF GIVING CORPORATE GUARANTEE/LETTER OF UNDERTAKING. MOREOVER, THERE ARE CA TENA OF DECISIONS WHEREIN THIS TRIBUNAL HAS HELD THAT CORPORAT E GUARANTEE COMMISSION AROUND 0.50% CAN BE ACCEPTED AS ALP. ACC ORDINGLY, WE HOLD THAT THE CORPORATE GUARANTEE COMMISSION FEE WHI CH IS TO BE RECOVERED FROM AE SHOULD BE 0.50% WHICH WOULD ME ET THE ARMS ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 12 LENGTH REQUIREMENT. THUS, UNDER THE FACTS AND CIRCUMSTA NCES OF THE CASE, WE DIRECT THE TPO/ASSESSING OFFICER TO TAKE THE CORPORATE GUARANTEE FEE @ 0.50% AND MAKE THE ADJUSTMENT ACCORDING LY. THUS, THE ISSUE OF CORPORATE GUARANTEE AS RAISED VIDE GROUND NOS. 1.1 TO 1.5 IS TREATED AS PARTLY ALLOWED. AS STATED ABOV E, WE ARE NOT DECIDING THE ISSUE, WHETHER THE TRANSACTION OF CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION OR NOT BECAUSE THE LD . COUNSEL FOR THE ASSESSEE HAD ONLY HARPED UPON THE ISSUE ON M ERITS AND HENCE THE VARIOUS CONTENTIONS RAISED BY THE CIT DR ARE LEFT OPEN. 12. THE NEXT ISSUE RELATES TO DISALLOWANCE OF RS. 110. 34 CR. MADE U/S. 14A READ WITH RULE 8D. 13. THE BRIEF FACTS QUA THE DISALLOWANCE MADE U/S. 14 A READ WITH RULE 8D ARE THAT, THE ASSESSEE HAD EARNED DIVID END INCOME OF RS.49,14,724/- FROM VARIOUS INVESTMENTS MADE. THE ASS ESSING OFFICER NOTED THAT THOUGH THE ASSESSEE HAD EARNED EXEMP T INCOME IN THE FORM OF DIVIDEND, HOWEVER IT HAS NOT CLAIMED S UCH INCOME AS EXEMPT FROM TAX AND HAS BEEN SHOWN AS MISCELLANEOUS I NCOME. DESPITE THE FACT THAT NO EXEMPT INCOME HAS BEEN CLAIMED, THE LD. ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE AS TO WHY THE DIVIDEND INCOME SHOULD NOT BE CONSIDERED AS EXEMPT AND EXPENDI TURE ATTRIBUTABLE FOR EARNING OF SUCH EXEMPT INCOME SHOULD N OT BE COMPUTED IN ACCORDANCE WITH SECTION 14A READ WITH RULE 8D. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, THE ASSESSEE HA D SUBMITTED AS UNDER: II. DIVIDEND INCOME OF RS.49,14,724/- HAS BEEN SHO WN IN THE INVESTMENT DIVISION. OUR INVESTMENTS AS PER SCH . 6 OF OUR BALANCE SHEET ARE OF RS.39,66,70,91,020. OUR SHARE CAPITAL OF RS.347,95,82,540 AND RESERVES & SURPLUS OF RS.79,65,27,57,457 TOTAL UP TO RS.83,13,23,39,997/- WHICH AMOUNT IS MORE THAN OUR INVESTMENTS. ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 13 HENCE, IT IS SUBMITTED THAT PROVISIONS OF SEC. 14A OF THE I. T. ACT, 1961, ARE NOT APPLICABLE IN OUR CASE AS HELD B Y B'BAY H.C. IN RELIANCE UTILITIES & POWER LTD., 313 ITR 340 (BO M) & FOLLOWED IN GODREJ & BOYCE LTD., ITAT, MUM, NO. 1629/MUM/09. WE HAVE INADVERTENTLY NOT CLAIMED EXEMPTION U/S 10( 34) OF THE ACT, IN RESPECT OF DIVIDEND INCOME OF RS. 49,14 ,724/- INCLUDED IN ACCOUNTS OF OUR INVESTMENT DIVISION. YO U ARE REQUESTED KINDLY ALLOW THE SAME AND OBLIGE. HOWEVER, THE ASSESSING OFFICER REJECTED THE ASSESSEE S CONTENTION AND HELD THAT, SINCE ASSESSEE ITSELF HAS NOT CLAIMED D IVIDEND INCOME AS EXEMPT AND HAS INCLUDED AS PART OF MISCELLA NEOUS INCOME, THEREFORE, IT WILL NOT BE TREATED AS EXEMPT. HE WAS OF THE OPINION THAT, SINCE THE ASSESSEE HAS MADE INVESTMENTS, THEREFORE, DISALLOWANCE U/S 14A R.W. RULE 8D HAS TO BE MADE. F URTHER ASSESSEE HAS LED NO EVIDENCE BEFORE HIM TO SHOW THAT OWN FUNDS HAVE BEEN UTILIZED FOR PURCHASE OF SHARES. HE AFTER REFERRING TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCEE MANUFACTURING CO. REPORTED IN 328 ITR 81 WOR KED OUT THE DISALLOWANCE AT RS.110,83,11,205/- WHICH WAS MADE IN THE FOLLOWING MANNER: I. EXPENSES DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME (STT) RS. 19,76,756 II. A:EXPENSES NOT DIRECTLY RELATED TO EXEMPT INCOME (INTEREST) I.E. 7510159874 (I.E. 7530354322 20194448 = 7510159874 B: AVERAGE VALUE OF INVESTMENT ON THE OPENING AND CLOSING DAY OF THE PREVIOUS YEAR I.E. (31384435959 + 30236594717)/2=30810515338 C: AVERAGE VALUE OF ASSETS ON THE OPENING AND CLOSING DAY OF THE PREVIOUS YEAR I.E. (219551428554 [phone])/2=242986769713 7510159874 X30810515338 242986769713 RS. 95,22,81,872 ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 14 = 952281872 III. 0.5% OF AVERAGE VALUE OF INVESTMENT ON THE OPENING AND CLOSING DAY OF THE PREVIOUS YEAR I.E. 0.5% OF B-154052577 RS.15,40,52,577 AGGREGATE OF I+INTEREST INCOME+III RS.110,83,11,205 FROM THE SAID DISALLOWANCE HE REDUCED THE AMOUNT OF DI VIDEND INCOME SHOWN BY THE ASSESSEE UNDER THE HEAD MISCELLAN EOUS INCOME OF RS.49,14,724/- AND NET ADDITION OF RS.110,3 3,96,481/- WAS MADE AND SIMILAR DISALLOWANCE WAS MADE TO THE COM PUTATION OF BOOK PROFIT/S. 115JB. THIS DISALLOWANCE HAS BEEN CONFIRMED BY THE DRP ALSO. 14. BEFORE US THE LD. COUNSEL, SHRI ARVIND SONDE SU BMITTED THAT FIRST OF ALL, WHEN THERE IS NO EXEMPT INCOME I.E. W HEN THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME AND ASSES SING OFFICER HAS ALSO NOT ALLOWED/ACCEPTED ANY EXEMPT INCO ME, THEN THERE IS NO QUESTION OF ANY DISALLOWANCE U/S. 14A IN RELATION TO THAT INCOME. IN SUPPORT, HE RELIED ON THE FOLLOWING DEC ISIONS: I) CIT VS. DELITE ENTERPRISES ITA NO. 110/2009 ( BOMBAY HC); II) CHEMINVEST LIMITED VS. CIT (ITA NO. 749/2014) 3 78 ITR 33 (DELHI HC); III) CIT VS. CORRTECH ENERGY PVT. LTD 223 TAXMAN 130 (GUJARAT HC); IV) CIT (11) KANPUR VS. M/S. SHIVAM MOTORS (P) LTD . 272 CTR 277 (ALLAHABAD HC); V) CIT V. LAKHANI MARKETING LNC. [2014] 272 CTR 2 65 (PUNJAB AND HARYANA HC); VI.) CIT VS. WINSOME TEXTILE INDUSTRIES LTD. 319 I TR 204 (PUNJAB AND HARYANA HC); VII) CIT-IV VS. HOLCIM INDIA PRIVATE LIMITED ITA N O. 486/2014 & ITA NO. 299/2014] (MUMBAI ITAT) VIII) AVSHESH MERCANTILE P. LTD. VS. ACIT [ITA NO. 5779/MUM/2006] 148 TTJ 607 IX) JINDAL STEEL & ALLOYS LTD. VS. ACIT [ITA NO. 96 11MUM/2009] MUMBAI ITAT) ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 15 X) ACIT VS. LAFARGE INDIA HOLDINGS PVT. LTD 19 SOT 121 (MUMBAI ITAT) XI) ACIT VS. M BASKARAN [ITA NO. 1717/MAD/2013] 1 52 ITD 844 (CHENNAI ITAT) 15. THAT APART, HE POINTED OUT THAT THE ASSESSEE HAD HUGE SURPLUS FUND IN THE FORM OF SHARE CAPITAL AND RESE RVE AND SURPLUS WHICH AGGREGATED TO RS.8313,23,39,997/- WHI CH IS FAR EXCESS THAN THE INVESTMENTS MADE WHICH STOOD AT RS.3966,70,91,020/-. THUS, IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTIL ITIES & POWER LTD. 313 ITR 340 (BOM); CIT VS. HDFC BANK LTD. 366 ITR 505 (BOM); AND AGAIN IN HDFC BANK VS. DCIT REPORTED IN (2016) 67 TAXMAN.COM 42 (BOM), IF ASSESSEE HAS SURPLUS FUN DS WHICH FAR EXCEEDS THE INVESTMENTS, THEN NO DISALLOWANCE U/S 14A C AN BE MADE. REGARDING DISALLOWANCE OF INDIRECT EXPENSES, H E POINTED OUT THAT THE ASSESSEE HAD HUGE STRATEGIC INVESTMENTS BOTH ON DOMESTIC INVESTMENT AS WELL AS FOREIGN INVESTMENT WHIC H WERE PURELY FOR THE BUSINESS PURPOSE. APART FROM THAT, THER E WERE CERTAIN INVESTMENTS ON WHICH NO TAX FREE INCOME WAS RE CEIVED. THUS, OUT OF TOTAL INVESTMENT OF RS.3966,70,91,020/- T HE INVESTMENTS AGGREGATING TO RS.3946,46,16,195/- WERE EI THER STRATEGIC INVESTMENTS OR WERE CAPABLE OF EARNING TAXABLE INCOME; AND ONLY THE INVESTMENT TO THE TUNE OF RS.20.25 CR. (APP ROX.) WERE LEFT WHERE TAX FREE DIVIDEND WERE RECEIVED. IF DISAL LOWANCE HAS TO BE WORKED OUT UNDER RULE 8D(2)(III), THEN IT WILL COME DO WN TO APPROX. RS. 5,12,943/-. IN SUPPORT OF THIS, HE HAS FILED THE SUMMARY OF INVESTMENTS AND WORKING OF DISALLOWANCE SEPARATELY. F URTHER, IN SUPPORT OF THE CONTENTION THAT NO DISALLOWANCE U/S. 14A SHOULD BE MADE IN RESPECT OF STRATEGIC INVESTMENT. HE RELIED ON TH E FOLLOWING CASE LAWS: ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 16 I) M/S JM FINANCIAL LIMITED ITA NO.4521/M/2012 (MUM ITAT); II.) GARWARE WALL ROPES LIMITED ITA NO. 5408/MUM/2 012 (MUM ITAT); III) INTERGLOBE ENTERPRISES LTD VS DCIT ITA NOS, 1362 /DE1/2013, 1032/DEL/2013 AND 1580/DE1/2013 (DELHI ITAT); IV) M/S. BINANI INDUSTRIES LIMITED ITA NO.L44/KO1/2 013 (KOL ITAT); V) EIH ASSOCIATED HOTELS LIMITED ITA NO.1503 & 1624/MD S/2012 (MADRAS ITAT); 16. ON THE OTHER HAND, THE LD. CIT DR, SHRI N. K. CHAN D HAS GIVEN A DETAILED WRITE UP AND NOTE WHEREIN HE HAS HIGH LIGHTED THE INTENTION AND PURPOSE OF SECTION 14A AND MEMORANDUM OF UNDERSTANDING AS PROVIDED IN FINANCE BILL 2001 BY WH ICH SECTION 14A WAS INSERTED W.R.E.F. AND HOST OF VARIOUS PROPO SITION THAT THE INTENTION AND PURPOSE OF SECTION 14A WAS TO ENLARGE THE SCOPE OF APPORTIONMENT OF VARIOUS EXPENDITURE IRRESPECTIVE OF THE FACT WHETHER THE BUSINESS OR ACTIVITIES OF ASSESSEE IS DIVI SIBLE OR INDIVISIBLE. IN HIS DETAILED WRITE UP HE HAS HIGHLIG HTED THE CONCEPT AND THE SCOPE OF SECTION 14A AND HOW THE DISALLOWANCE GETS TRIGGERED WHEREVER INVESTMENTS ARE MADE WHICH ARE CAPA BLE OF EARNING EXEMPT INCOME. ON THE ISSUE OF STRATEGIC INV ESTMENT ALSO HE HAS RELIED ON CERTAIN DECISIONS OF THE TRIBUNAL, S OME OF WHICH ARE EARLIER TO THE DECISION RELIED UPON BY THE ASSESSE E. 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE RELEVANT MATERIAL PLACED ON RECORD AS WELL AS THE FINDING GIVEN IN THE IMPUGNED ORDER, AT THE OUTSET WE ARE OF THE OPINI ON THAT THE BASIC PREMISE ON WHICH THE DISALLOWANCE UNDER SEC. 14A GETS TRIGGERED IS THAT, THERE HAS TO BE AN INCOME TO THE ASSES SEE WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND ASSESSEE CLAI MS ANY DEDUCTION IN RESPECT OF EXPENDITURE ATTRIBUTABLE TO EARNIN G OF SUCH INCOME. IF ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOM E OR HAS MADE IT PART OF TOTAL INCOME LIABLE FOR TAX, THEN PROVIS IONS OF SEC ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 17 14A DOES NOT GET TRIGGERED. THIS BASIC POSTULATE IS NOT SATISFIED IN THE PRESENT CASE, BECAUSE NEITHER THE ASSESSEE HAS CLAI MED IT AS EXEMPT INCOME NOR ASSESSING OFFICER HAS ALLOWED ANY EXEMPT INCOME WHICH WAS IN THE FORM OF DIVIDEND INCOME OF RS.49,14,724/-. ONCE THE REVENUE ITSELF HAS TREATED TH E EXEMPT INCOME AS PART OF THE TOTAL INCOME WHICH HAS BEEN HELD TO BE TAXABLE, THEN THE DISALLOWANCE OF EXPENDITURE UNDER SEC . 14A DOES NOT GETS TRIGGERED, ESPECIALLY IN LIGHT OF THE JUDGMENTS OF VARIOUS HIGH COURTS AS REFERRED TO ABOVE ESPECIALLY IN THE CA SE OF CHEMINVEST LIMITED, (SUPRA); CORRTECH ENERGY PVT. LTD, (SUPRA); CIT VS. SHIVAM MOTORS PVT. LTD, (SUPRA); LAKHANI MARK ETING LNC, (SUPRA); AND HOLCIM INDIA PRIVATE LIMITED, (SUPRA). E VEN IF WE IGNORE THIS PROPOSITION COMPLETELY, ON MERITS ALSO, AS POINTED BY THE LD. COUNSEL FOR THE ASSESSEE HERE IN THIS CASE NO DISALLOWANCE OF INTEREST EXPENDITURE U/R 8D(2)(II) CAN BE MADE BEC AUSE, ASSESSEE HAD HUGE SURPLUS FUNDS OF MORE THAN RS.8313 CRORES IN THE FORM OF RESERVES & SURPLUS AND SHARE CAPITAL AS COMPARED TO INVESTMENT OF RS.3966 CRORES MADE BY THE ASSESSEE. THE RATIO AND THE PRINCIPLE LAID DOWN BY THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF RELIANCE UTILITIES LTD., (SUPRA) AND HDFC BAN K, (SUPRA) ARE CLEARLY APPLICABLE, WHEREIN THEIR LORDSHIPS HAVE REI TERATED SEVERAL TIMES THAT IF THE ASSESSEE HAS SURPLUS FUNDS IN THE FOR M OF RESERVES & SURPLUS OR SHARE CAPITAL, THEN PRESUMPTION IS THAT INVESTMENT WOULD HAVE BEEN MADE FROM SURPLUS FUNDS/IN TEREST FREE FUNDS AND NOT FROM THE BORROWED FUNDS. ACCORDING LY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE OF INTEREST EXPENDITU RE AS WORKED OUT UNDER RULE 8D (2)(II). NOW COMING TO ISSU E OF DISALLOWANCE OF INDIRECT EXPENDITURE U/R 8D (2)(III), WE AGREE WITH LD. COUNSEL THAT THE INVESTMENTS FROM WHERE INCOME IS TA XABLE OR THE INVESTMENTS WHICH ARE FOR BUSINESS OR STRATEGIC REA SONS NEED ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 18 TO BE REMOVED FROM THE WORKING OF THE AVERAGE VALUE OF INVESTMENTS AS CONTEMPLATED IN RULE 8D(2)(III). THE LA TER PROPOSITION HAS BEEN CONSISTENTLY HELD IN CATENA OF CA SES BY THIS TRIBUNAL AS REFERRED TO BY LD. COUNSEL BEFORE US. TH US, RESPECTFULLY FOLLOWING THE RATIO WE ALSO HOLD ACCORDINGLY. FURTHER LD. COUNSEL HAS GIVEN THE WORKING OF DISALLOWANCE UNDER RULE 8D (2)(III) IN LIGHT OF VARIOUS JUDICIAL DECISIONS AND PROPOSITIONS WHICH NEEDS VERIFICATION. ACCORDINGLY, WE DIRECT THE AO TO EXAMINE THE SAME AND COMPUTE THE DISALLOWANCE OF INDIRECT EXPENDITURE. S INCE OUR DECISION ON DISALLOWANCE OF INTEREST IS BASED ON DIRE CT JURISDICTIONAL HIGH COURT DECISIONS, THEREFORE, WE DO NOT DEEM FIT TO GO INTO THE VARIOUS PROPOSITIONS MADE BY THE LD. CI T, DR IN HIS WRITTEN NOTES WHICH IS MORE ON INTENTION AND PURPOSE FOR INSERTION OF SECTION 14A. ON THE ISSUE OF INDIRECT EXPENDITURE AL SO, WE ARE FOLLOWING THE DECISIONS OF THE COORDINATE DECISIONS A S RELIED UPON BEFORE US. ACCORDINGLY, GROUND NO. 2.1 TO 2.5 IS TREA TED AS ALLOWED. THE ALTERNATIVE GROUNDS TAKEN VIDE GROUND NOS. 2.4 AN D 2.5 HAVE BECOME PURELY ACADEMIC AND THEREFORE, NO SEPARATE AD JUDICATION IS REQUIRED. 18. AS REGARDS THE ISSUE RAISED IN GROUND NOS. 3.1 A ND 3.2 THAT DISALLOWANCE U/S. 14A SHOULD BE ADDED AS PART OF THE BOOK PROFIT, THE SAME TOO IS NOW A SETTLED PROPOSITION THAT IF ANY DIS ALLOWANCE UNDER SEC. 14A IS MADE IN THE NORMAL COMPUTATION, THEN THE SAME WOULD BE ADDED TO THE BOOK PROFIT U/S. 115 JB. ACCORDI NGLY, WE ORDER THAT, WHATEVER DISALLOWANCE IS MADE UNDER RULE 8 D, THE SAME SHOULD BE ADDED TO THE BOOK PROFIT. 19. THE NEXT ISSUE RELATES TO VARIOUS ADDITIONS MADE ON ACCOUNT OF PURCHASES FROM CERTAIN DEALERS WHICH HAS B EEN TREATED ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 19 AS BOGUS AND SUMS AGGREGATING RS.63,06,73,365/- HAS BEEN ADDED TO THE INCOME OF THE ASSESSEE. 20. THE RELEVANT FACTS AND BACKGROUND QUA THIS ISSUE ARE THAT, AN INFORMATION WAS RECEIVED TO THE ASSESSING OFFICER V IDE LETTER DATED 15.05.2014 FROM THE ASSISTANT DIRECTOR OF INCOME-TA X (INV.), UNIT-ILL, KOLHAPUR, ALLEGEDLY INDICATING THAT CERTAIN C ONCERNS FROM WHOM PURCHASES HAS BEEN SHOWN DID NOT ACTUALLY SELL MATERIAL BUT ONLY ISSUED BILLS, THAT IS, WERE PROVIDING ACCOMMO DATION ENTRIES. BASED ON THE REPORT OF THE ADIT (INV.), UNIT IL L, KOLHAPUR, THE AO OBSERVED THAT DURING ENQUIRIES CONDUCTED BY THE A DIT (INV), UNIT-ILL, KOLHAPUR IN THE CASE OF M/S. JAGDIS H TRADING CO. AND M/S. MAHALAXMI DISTRIBUTORS, IT WAS GATHERED THAT THES E TWO ENTITIES AND CERTAIN OTHER ENTITIES BASED AT SANGLI WERE INSTRUMENTAL IN PROVIDING ACCOMMODATION ENTRIES TO VARIO US BUSINESS HOUSES / INDUSTRIES /SMALL BUSINESSMEN SPRE AD ALL ACROSS MAHARASHTRA. SHRI SURESH AMRUTLAL PAREKH, PROP RIETOR OF M/S. JAGDISH TRADING COMPANY, RESIDENT OF 542, VISHW AS BUNGLOW, AMBEDKAR ROAD, SANGLI WAS THE MASTER MIND B EHIND THESE HAWALA TRANSACTIONS RUN FROM SANGLI AND SHRI DI NESH AMRITLAL PAREKH, THE YOUNGER BROTHER OF SHRI SURESH AM RUTLAL PAREKH AND PROPRIETOR OF M/S. UNNATI ENTERPRISES, AND SHRI SUSHANT RAJENDRA LADDA, PARTNER OF M/S. MAHALAXMI DIS TRIBUTORS WERE ALSO INVOLVED IN PROVIDING ACCOMMODATION ENTRIES FROM SANGLI. THE ISSUE OF TRANSACTION WITH THESE DEALERS H AD ALSO COME UNDER CONSIDERATION IN THE AYS 2009-10 AND 2010-11 IN THE ASSESSEES OWN CASE WHICH WAS BASED ON SURVEY ACTION U/S. 133A CONDUCTED ON 22.01.2013 BY DDIT (INV.), UNIT-1(3), M UMBAI, WHEREIN IT WAS REPORTED ABOUT MODUS OPERANDI OF THE HAWALA DEALERS, THAT WHENEVER A BUSINESSMAN WAS IN NEED OF A NY ACCOMMODATION ENTRY IN THEIR BOOKS OF ACCOUNT, THEY USED TO ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 20 COMMUNICATE WITH THESE DEALERS AND SEND MONEY THROUGH B ANKING CHANNELS, I.E., THROUGH RTGS/CHEQUES IN THE NAME OF ONE OR MORE ENTITIES OPERATED BY THESE HAWALA OPERATORS. THESE OPE RATORS THEN USED TO WITHDRAW THE MONEY FROM THE BANK AND AFTER CHA RGING THEIR COMMISSION SENT BACK THE CASH TO SUCH BUSINESSMAN . THE BILLS OF CORRESPONDING AMOUNT OF RTGS/CHEQUES ETC. WE RE THEN ISSUED BY THESE DEALERS IN THE NAME OF SUCH PARTY WITH OUT SUPPLY OF ANY GOODS OR MATERIAL. IT WAS FURTHER MENTIONED THAT SHRI SURESH A. PAREKH, SHRI DINESH PAREKH AND SHRI SUSHA NT LADDDA WITH THE HELP OF THEIR ALLIES AND USING DIFFERENT BAN K ACCOUNTS IN THE NAMES OF DIFFERENT ENTITIES, PROVIDED ACCOMMODATION ENTRIES TO VARIOUS PERSONS. THE DETAILS OF ENTITIES USED ALONG WITH THE DETAILS OF PROPRIETORS/PARTNERS HAVE BEEN ILLUSTRATED AT PAGE 29 OF THE ASSESSMENT ORDER. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CARRIED OUT SIMILAR TRANSACTION WITH FOLLO WING HAWALA DEALERS: (I) PURAM TRADING COMPANY (II) MAHALAXMI DISTRIBUTORS (III) SWASTIK ENTERPRISES (IV) SURESH LIGHT HOUSE (V) JAGDISH TRADING COMPANY (VI) MANEK ENTERPRISES (VII) G.M. TRADERS (VIII) SARVESH ENTERPRISES (IX) TRISHUL ENTERPRISES (X) SAI ENTERPRISES (XI) CRYSTAL ENTERPRISES 21. BEFORE US, LD. CIT DR, SHRI N.K. CHAND FOR THE A SSISTANCE OF THE BENCH HAS FILED WRITTEN SUBMISSION ALONG WITH C OPY OF STATEMENT OF THE KEY PERSON, MR. SURESH A. PAREKH WHIC H WAS RECORDED BY THE DIT (INV.) AND ALSO MADE REFERENCE TO THE CROSS EXAMINATION OF SURESH A. PAREKH IN PURSUANCE OF TRIB UNAL ORDER IN THE AY 2009-10. HE POINTED OUT THAT THE ASSESSING OFFI CER IN HIS ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 21 ORDER HAS REFERRED TO STATEMENT OF SHRI SURESH A. PAREK H RECORDED ON 28.03.2014 BY DDIT (INV.), KOLHAPUR AND IN HIS S PECIFIC REPLY TO QUESTION NO.12, HE ADMITTED THAT HE IS IN THE BUSINESS O F PROVIDING ACCOMMODATION BILLS WITHOUT DELIVERY OF GOODS AND THI S ACTIVITY WAS BEING CARRIED OUT BY HIM FROM SANGLI. HE ALSO RE FERRED TO QUESTION NO. 13 AND 14 WHICH WAS APPEARING AT PAGES 3 2 AND 33 OF THE ASSESSMENT ORDER. THE RELEVANT QUESTIONS FOR THE SAKE OF READY REFERENCE ARE REPRODUCED HEREUNDER: Q.12. AS ADMITTED BY YOU ON EARLIER OCCASIONS, YOU WERE INDULGED IN PROVIDING OF ACCOMMODATION BILLS/ ENTRI ES TO VARIOUS BUSINESS HOUSES/ BUSINESS CONCERNS/ ENTITIES/PERSONS WITHOUT ACTUAL DELIVERY OF THE GOO DS BY CHARGING YOUR COMMISSION. IN THIS REGARD, DURING TH E COURSE OF PRESENT ENQUIRIES YOU WERE REQUESTED TO PROVIDE COMPLETE DETAILS OF THE OTHER PERSONS WHO WERE WITH YOU IN P ROVIDING OF ACCOMMODATION. BILLS/ENTRIES, COMPLETE NAMES, AN D BANK ACCOUNT DETAILS OF VARIOUS ENTITIES FROM WHICH SUCH ACCOMMODATION BILLS WERE GIVEN, TOTAL TURNOVER OF S UCH ACCOMMODATION BILLS PROVIDED ETC. ACCORDINGLY, YOU HAVE FURNISHED SUCH DETAILS, PLEASE EXPLAIN THE DETAILS SUBMITTED. ANS. AT THE OUTSET, I ADMIT THAT I HAD INDULGED IN THE ACTIVITY OF PROVIDING ACCOMMODATION BILLS/ENTRIES TO VARIOUS BUSINESS HOUSES/ BUSINESS CONCERNS/ ENTITIES /PERSONS SPREAD ALL OVER MAHARASTRA WITHOUT DELIVERY OF THE GOODS. I US ED TO RUN SUCH ACTIVITIES FROM SANGLI. FOR THIS PURPOSE VARIO US BANK ACCOUNTS IN THE NAMES OF DIFFERENT PERSONS I.E. FRI ENDS, THEIR EMPLOYEES, THEIR FAMILY MEMBERS ETC. WERE OPENED AN D UTILIZED. MY YOUNGER BROTHER SHRI DINESH AMRUTLAL P AREKH AND ONE SHRI SUSHANT RAJENDRA LADDA HAD ALSO WORKED WITH ME. IN ADDITION TO IN THE ACTIVITY OF PROVIDING ACC OMMODATION ENTRIES TOGETHER WITH ME, THESE PERSONS HAVE INDEPE NDENTLY ALSO CARRIED OUT SUCH ACTIVITIES. AS SUCH THE TOTAL QUANTUM (TURNOVER) OF PROVIDING ACCOMMODATION ENTRIES BY ME AND MY ALLIES INCLUDES MY OWN TURNOVER, TURNOVER OF SHRI D INESH PAREKH, TURNOVER OF SHRI SUSNANT LADDA. AT THIS JUN CTURE, I SUBMIT THAT ALL THE DETAILS PROVIDED BY ME ARE PREP ARED WITH THE HELP OF SHRI DINESH PAREKH AND SHRI SUSHANT LAD DA AND THE STATEMENT GIVEN BY ME IS ALSO GIVEN 'WITH THEIR CONSENT, IN THEIR PRESENCE AND AS SUCH IT IS EQUALLY BINDING ON THEM. I ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 22 AM SUBMITTING A SEPARATE LIST AS PER ANNEXURE A G IVING THE DETAILS OF ENTITIES THEIR PROPRIETOR/PARTNER/DIRECT OR ETC, BANK ACCOUNTS AND TOTAL TURNOVER OF ACCOMMODATION BILLS PROVIDED THROUGH SUCH ENTITIES. Q. 13. PLEASE EXPLAIN THROUGH WHICH ENTITIES / COMM ON ENTITIES THE BUSINESS OF PROVIDING ACCOMMODATION BI LLS WAS CARRIED OUT BY YOU, SHRI DINESH PAREKH AND SHRI SUS HANT LADDA. ANS. I AM SUBMITTING HEREWITH THE ENTITY WISE/COMMO N ENTITY WISE & PERSON WISE BIFURCATION AS PER ANNEXURE 'B'. Q.14. ON THE BASIS OF YOUR ABOVE STATEMENT, PLEASE SUBMIT DETAILS OF ENTITY WISE & FINANCIAL YEAR WISE BIFURC ATION OF THE TURNOVER BETWEEN YOU AND THE OTHER TWO PERSONS. ANS. SIR, I WOULD LIKE TO CLARIFY HERE THAT WE HAVE TRIED HARD TO WORK OUT THE BENEFICIARY WISE DETAILS OF ACCOMMO DATION BILLS /ENTITIES PROVIDED BY US THROUGH EACH BANK AC COUNT HELD BY EACH ENTITY. HOWEVER, SINCE THE MATTER IS VERY O LD, WE COULD ASCERTAIN CERTAIN ENTRIES AND AS SUCH THESE E NTRIES HAVE BEEN SHOWN BY US AS SUSPENSE ENTRIES. WE ARE S TILL WORKING ON THE SAME SO AS TO GIVE YOU THE COMPLETE BENEFICIARY WISE LIST OF ACCOMMODATION ENTRIES PROV IDED BY US. WE ASSURE YOU THAT SUCH LIST OF BENEFICIARIES W ILL BE SUBMITTED AT THE EARLIEST BY CLEARING THE ENTIRE SU SPENSE ENTRIES. MEANWHILE, IN ORDER TO WORK OUT THE DETAIL S OF TURNOVER OF ACCOMMODATION ENTRIES ACHIEVED BY EACH ONE OF US EITHER INDEPENDENTLY OR IN COMMON, WE HAVE AGREE D TO ACCEPT THE FOLLOWING BASIS: 1. THE TURNOVER OF ACCOMMODATION BILLS INDEPENDENTL Y CARRIED OUT BY EACH PERSON HAS BEEN IDENTIFIED AND THE SAME HAS TO BE TAKEN SEPARATELY. 2. THE TURNOVER OF ACCOMMODATION BILLS CARRIED OUT IN COMMON BETWEEN ME AND SHRI DINESH PAREKH AND WHERE BENEFIC IARIES HAVE BEEN IDENTIFIED, SUCH TURNOVER HAS TO BE SHARE D BY ME AND MY YOUNGER BROTHER SHRI DINESH PAREKH IN THE RA TIO OF 50:50. ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 23 3. THE TURNOVER OF ACCOMMODATION BILLS CARRIED OUT IN COMMON BETWEEN ME AND SHRI DINESH PAREKH AND WHERE BENEFIC IARIES HAVE NOT BEEN IDENTIFIED, SUCH TURNOVER OF SUSPENSE ENTRIES HAS TO BE SHARED BY ME AND MY YOUNGER BROTHER SHRI DINESH PAREKH IN THE RATIO OF 75:25. 4. THE TURNOVER OF ACCOMMODATION BILLS CARRIED OUT BY SHRI SUSHANT LADDA IN M/S. PARAM TRADING COMPANY AND M/S . SWASTIK ENTERPRISES HAS BEEN IDENTIFIED. THE TURNOV ER WHICH HAS INDEPENDENTLY CARRIED OUT BY HIM IS TAKEN AS HI S TURNOVER AND THE TURNOVER WHICH HAS INDEPENDENTLY C ARRIED OUT BY ME IS TAKEN AS MY TURNOVER, THERE IS NO COMM ON TURNOVER IN ORDER TO SHARE THE SAME. THE TURNOVER O F M/S. PARAM TRADING COMPANY AND SWASTIK ENTERPRISES CARRI ED OUT BY SHRI SUSHANT FROM DENA BANK ITWARI BRANCH, N AGPUR IS PURELY OF SUSHANT LADDA. ME AND MY BROTHER, SHRI DINESH HAS NOT GIVEN ANY ACCOMMODATION BILLS FROM NAGPUR. FURTHER, THE TURNOVER OF M/S. MOHALAXMI DISTRIBUTOR AND M/S. SARVESH ENTERPRISES IS PURELY OF SUSHANT LADDA. 5. THE TURNOVER OF ACCOMMODATION BILLS CARRIED OUT BY SHRI SUSHANT LADDA IN RESPECT OF THE ENTITIES M/S. RHEEM TRADELINK PVT. LTD, M/S. SAMARTH ENTERPRISES AND M/ S. VIDHI ENTERPRISES FROM DENA BANK ITWARI BRANCH, NAGPUR IS PURELY OF SUSHANT LADDA. THE TURNOVER IN RESPECT OF THESE THREE ENTITIES OTHER THAN FROM NAGPUR IS PURELY OF SHRI D INESH PAREKH. BASED ON THE ABOVE LINES, I AM SUBMITTING HEREWITH THE REQUISITE DETAILS SHOWING THE TURNOVER ACHIEVED BY ME, SHRI DINESH PAREKH AND SHRI SUSHANT LADDA, WHICH IS AS P ER ANNEXURE 'C' (PAGES 1-3). 22. FURTHER, IN REPLY TO QUESTION NOS. 15 AND 16 HE E XPLAINED THE MODUS OPERANDI ADOPTED BY HIM FOR GIVING ACCOMMOD ATION BILL AND ALSO HIS COMMISSION THEREON. THE RELEVANT QUESTIO N NOS. 15 AND 16 FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER: Q.15. VIDE QUESTION NUMBER 11, YOUR ATTENTION WAS B ROUGHT TO VARIOUS STATEMENTS GIVEN BY YOU AND OTHERS ON EA RLIER OCCASIONS BEFORE THE DDS IT(INV). YOU ARE ONCE AGAI N REQUESTED TO EXPLAIN THE PROCEDURE/MODUS OPERENDI O F ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 24 PROVIDING ENTRIES TO VARIOUS BUSINESS HOUSES/BUSINE SS MEN/ENTITIES/PERSONS WITH A HYPOTHETICAL EXAMPLE, S AY FOR A BILL OF RS.100/-. ANS. FOR GIVING AN ACCOMMODATION BILL OF RS.100/- T O A BUSINESSMAN, I WOULD PROVIDE THE BILL OF RS.100/- T O SUCH BUSINESSMAN EITHER DIRECTLY FROM THE ENTITIES UNDER MY CONTROL OR FROM ENTITIES CONTROLLED BY MY ALLIES. T HE SAID BUSINESSMAN WOULD THEN BOOK BOGUS PURCHASE FOR RS.1 00/- AND HE WOULD THEN PAY RS.100/- IN THE ACCOUNT OF TH E HAWALA PARTY (SUCH AS PARAM, SWASTIK ETC.) THROUGH RTGS. THEN AFTER WITHDRAWING THE PAYMENT ON THE SAME DAY OR AT TIMES, THE NEXT DAY, KEEPING MY COMMISSION AND THE COMMISSION OF MY ALLIES, IF ANY, I USED TO RETURN T HE BALANCE AMOUNT IN CASH TO SUCH BUSINESSMAN. Q.16. DOES THIS MEAN THAT THE BENEFICIARIES TO WHOM YOU HAVE PROVIDED ACCOMMODATION BILLS HAVE BOOKED BOGUS PURCHASES TO THE EXTENT OF AMOUNT OF ACCOMMODATION ENTRIES PROVIDED BY YOU AND YOUR ALLIES? YES, THESE ARE ONLY ACCOMMODATION ENTRIES IN THE BO OKS OF THE BENEFICIARIES AS IN RESPECT OF SUCH BILLS NEITH ER ME NOR MY ALLIES HAD SOLD ANY GOODS TO THEM NOR WAS THERE ANY PHYSICAL MOVEMENT OF GOODS. BASED ON SUCH REPLY, THE ASSESSING OFFICER HAD CONC LUDED THAT SHRI SURESH A. PAREKH HAD RECEIVED THE CHEQUES/RTGS FROM THE CORPORATE HOUSES IN THE RESPECTIVE BANK ACCOUNT MAINTAIN ED IN THE NAMES OF VARIOUS ENTITIES AND AFTER THE RECEIPT OF R TGS/CLEARANCE OF CHEQUE, CASH WAS WITHDRAWN AND HANDED OVER TO THE RESPECTIVE CORPORATE HOUSES AFTER DEDUCTING THEIR COMMISSION. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS AS KED TO PROVIDE COMPLETE DETAILS OF TRANSACTION WITH THE ABOVEM ENTIONED PARTIES AND THE FITMENT IN THE BOOKS OF ACCOUNT WAS ALSO ASKED TO RECONCILE. FURTHER, THE ASSESSEE WAS ALSO SHOW CAUSED AS TO WHY THE PURCHASES MADE FROM THESE HAWALA DEALERS SHOULD N OT BE TREATED AS BOGUS AND ADDED TO THE TOTAL INCOME. IN RESPO NSE, THE ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 25 ASSESSEE SUBMITTED FULL ITEM WISE DETAILS OF PURCHASES, DETAILS OF UTILIZATION OF THESE PURCHASES, TREATMENT OR THESE PURCH ASES IN THE BOOKS OR ACCOUNT, CONFIRMATION OR SHRI SURESH AMRITLA L PAREKH DATED 7/1/2013 AND AFFIDAVIT DATED 8/1/2013 CONFIRMING SUPPLY OF THESE MATERIALS AND SUBMITTED THAT IT HAD RECEIVED MA TERIALS AS PER THE INVOICES OF THE PARTIES AND HAD MADE THE PAYMEN TS BY CHEQUE/RTGS FOR THE SAME. SUMMARY OF MATERIALS USED B Y ASSESSEE DURING F.Y. 2010-11 ALONG WITH THE TREATMENT IN THE BOOKS OF ACCOUNTS WAS AS FOLLOWS: UTILISATION OF MATERIAL AS - AMOUNT (RS.) TREATMEN T IN ACCOUNTS PLANT & MACHINERY/MOULDS 23,79,82,268 ADDITION TO P LANT AND MACHINERY TRIAL RUN 13,94,92,838 CHARGED TO CAPITAL WIP ACCOUNT TRIAL PRODUCTION 6,83,99,170 CHARGED TO CAPITAL W IP ACCOUNT MACHINERY SPARES 14,97,74,663 SHOWN AS INVENTORY I N BALANCE SHEET RAW MATERIAL & CONSUMABLES 3,50,24,425 ------------------- 63,06,73,365 CHARGED TO PROFIT & LOSS ACCOUNT. THE AO DID NOT ACCEPT THE SUBMISSIONS OF APPELLANT AND HELD THAT THE ARGUMENT OF THE APPELLANT THAT IT HAS RECEIVED MATERI AL FROM THE AFORESAID PARTIES WAS NOT ACCEPTABLE ON THE BASIS O F THE INVESTIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT, P UNE; INVESTIGATION WING OF MUMBAI; AND ALSO THE INVESTIGATIO N CARRIED OUT BY THE ADIT (INV.), KOLHAPUR. HE WAS OF THE OPIN ION THAT THE AFORESAID ENTITIES WERE WHOLLY AND EXCLUSIVELY INVOLV ED IN PROVIDING THE ACCOMMODATION ENTRIES AND NO PHYSICAL GOODS AS CLA IMED BY THE ASSESSEE WERE SUPPLIED TO ANY CORPORATE HOUSES INC LUDING THE ASSESSEE COMPANY. 23. IT HAS BEEN BROUGHT ON RECORD BEFORE US THAT IN THE ASSESSEES OWN CASE FOR THE AYS. 2009-10 AND 2010-11 , SIMILAR ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 26 ISSUE HAD COME UP FOR CONSIDERATION WHEREIN THE TRIBU NAL VIDE ORDER DATED 06.02.2015, HAD SET ASIDE THE ADDITION/DIS ALLOWANCE ON ACCOUNT OF PURCHASES MADE FROM THE SAID DEALERS WI TH A CLEAR DIRECTION TO ADJUDICATE THE ISSUE AFRESH AFTER GIVING CROSS EXAMINATION OF SHRI SURESH A. PAREKH. IN PURSUANCE TH EREOF, A FRESH STATEMENT OF SHRI SURESH A. PAREKH WAS RECORDE D ON 12.03.2015 AFTER SUMMONS WERE ISSUED TO HIM U/S. 131 BY THE AO AND ASSESSEE WAS GIVEN OPPORTUNITY TO CROSS EXAMINE HIM IN THE PRESENCE OF SENIOR OFFICERS OF THE ASSESSEE COMPANY. IN HIS STATEMENT BEFORE THE ASSESSING OFFICER, SHRI SURESH A . PAREKH FIRST OF ALL ADMITTED TO THE MODUS OPERANDI OF HIS BUSINESS/ TRANSACTION BUT STATED THAT HE HAD SOURCED THE MATERIAL FROM GREY M ARKET FROM THE DEALERS WHERE HE DID NOT GET THE BILL. IT IS AFTER THE MATERIAL HAS BEEN SUPPLIED TO M/S. VIDEOCON INDUSTRIES LTD., AURANG ABAD (ASSESSEE) BY THE SUPPLIERS OF THE GREY MARKET THAT BILL S ARE PREPARED IN THE NAMES OF VARIOUS ENTITIES CONTROLLED BY HIM. HE ALSO CONFIRMED BEFORE THE ASSESSING OFFICER THAT PROPR IETORS OF THE SAID CONCERNS WERE HIS FAMILY MEMBERS AND FRIENDS. THUS, HE CATEGORICALLY ADMITTED THAT HE HAD ACTUALLY PROCURED THE MATERIAL FROM GREY MARKET WITHOUT SALE BILL AND THE SAID MATERIA L PROCURED FROM THE GREY MARKET WAS SUPPLIED TO M/S. VIDEOCON IN DUSTRIES LTD. ALONG WITH THE SALE INVOICES OF HIS CONCERNS IN VARIOUS YEARS. WHEN THE MATERIAL WAS SUPPLIED TO THE ASSESSEE, HE HAS RECEIVED THE PAYMENTS BY WAY OF CHEQUE/RTGS IN THE NAMES OF RE SPECTIVE PARTIES AND AFTER THE CLEARING OF CHEQUES/RTGS IN THE RESPECTIVE BANK ACCOUNTS, CASH HAS BEEN WITHDRAWN AND THE PAYMENT HAS BEEN MADE SUBSEQUENTLY TO THE GREY MARKET SUPPLIERS FR OM WHOM HE HAD DULY PROCURED /PURCHASED THE GOODS. IN HIS RE PLY, SHRI SURESH A. PAREKH HAD STATED THAT HE HAS RECEIVED ORAL O RDERS FOR SUPPLY OF MATERIAL FROM VIDEOCON INDUSTRIES LTD., AUR ANGABAD AND ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 27 AS PER THEIR REQUIREMENT HE SUPPLIED MATERIAL FROM GRE Y MARKET. HOWEVER, THE ASSESSING OFFICER NOTED THAT THERE IS NO SP ECIFIC WRITTEN PURCHASE ORDER BY THE ASSESSEE COMPANY SPECIFY ING THE TYPE OF MATERIAL, QUANTITY, PRICE ETC. HE FURTHER OB SERVED THAT ASSESSEE BEING A REGISTERED COMPANY HAS MADE SUBSTANTI AL PAYMENTS TO THE ENTITIES MANAGED AND CONTROLLED BY SHRI SURESH A. PAREKH FOR WHICH NO DOCUMENTARY EVIDENCE HAS BEEN MAINTAINED BY THE ASSESSEE WHILE PLACING PURCHASE ORD ERS. THE ASSESSING OFFICER ALSO MADE COMPARISON OF THE DOCUM ENTATION AND PROCEDURES FOLLOWED BY THE ASSESSEE COMPANY IN RESPE CT OF HAWALA DEALERS AND THAT OF THE OTHER CONCERNS WHICH HAVE NOT BE EN DOUBTED BY THE ASSESSING OFFICER, I.E., THE PURCHASES FROM WHOM HAVE BEEN ACCEPTED. THE ASSESSING OFFICER HAS ALSO ELABORATELY DISCUSSED AND COMMENTED UPON THE LACK OF PROPER DOC UMENTATION IN THE CASE PERTAINING TO HAWALA DEALERS AND NOTED THAT THERE ARE NO DETAILS OF MODE OF TRANSPORTATION OF VEHICLE NOS. ETC . ON THE DOCUMENTS IN RELATION TO THE HAWALA ENTITIES. IN FACT, AS PER THE ASSESSING OFFICER THERE IS A PATTERN IN THE EVIDENCE IN THE FORM OF ENTRY WHICH IS MADE AT THE TIME OF GATE PASS. HIS MAIN CONCLUSION WAS THAT NEITHER SHRI SURESH A. PAREKH HAS SUBSTANTIATED THE DELIVERY OF GOODS IN QUESTION NOR THE ASSESSEE COMPAN Y HAS BEEN ABLE TO ADDUCE ANY CREDIBLE EVIDENCE OF THE ACTUAL REC EIPT OF GOODS. A REFERENCE HAS ALSO BEEN MADE ON THE STATEMENT OF MAN AGING DIRECTOR RECORDED ON 23.01.2013 WHEREIN HE STATED THAT HE IS UNABLE TO VERIFY THE THINGS AS THE RECORDS WERE IN AURA NGABAD FACTORY. HE ALSO REFERRED TO THE STATEMENT OF ACCOUNTS MA NAGER OF THE ASSESSEE COMPANY, SHRI RAJESH METHI WHO WAS UNABL E TO EXPLAIN THE DISCREPANCY AS POINTED OUT BY THE INVESTIGATI ON PARTY ON THE PATTERN OF EVIDENCE MADE IN RESPECT OF HAWALA E NTITIES. IN THE WRITTEN SUBMISSION, THE LD. CIT, DR HAS ALSO POIN TED OUT TO ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 28 THE VARIOUS DISCREPANCIES WHICH HAS BEEN RAISED BY TH E ASSESSING OFFICER, WHICH FOR THE SAKE OF READY REFERENCE HIS S UBMISSIONS ON THIS ASPECT IS REPRODUCED HEREIN BELOW: 16. ON PERUSAL OF INVOICES SUBMITTED FOR SUPPLY OF GOODS IN THE NAME OF AFORESAID PARTIES ARE IN BULK QUANTITY OF VARIOUS ITEMS AND ON ANALYSIS IT IS THAT THE PRIMARY DETAIL S OF PURCHASE ORDER & DATE ARE NOT MENTIONED IN THE TAX INVOICE. ALSO THERE IS NO MENTION IN RESPECT OF TRANSPORTAT ION DETAILS' I.E., DELIVERY TERMS. ALL THE INVOICES PRODUCED BEF ORE HAVE NO PROPER SEALS OF THE ASSESSEE COMPANY EVIDENCING THA T THE MATERIAL HAS REALLY BEEN RECEIVED IN THE FACTORY PR EMISES. MORE IMPORTANTLY, CERTAIN DELIVERY CHALLANS HAVE AL SO BEEN ATTACHED TO THE BILLS, HOWEVER, ONE OF THE DELIVERY CHALLANS HAVE ACKNOWLEDGMENT OF RECEIPT OF MATERIAL EITHER O F THE COMPANY OR THE SUPPLIER. MORE SO THERE ARE MATERIAL S OF VARIOUS SPECIFICATIONS, HOWEVER, NO SUCH SUPPORTING EVIDENCES OF SPECIFIC SPECIFICATION FOR SUPPLY OF M ATERIAL HAS BEEN ATTACHED TO THE BILLS / DELIVERY CHALLANS. THE RE IS NO SINGLE INITIAL/ STAMP SHOWING DATE AND TIME OF RECE IPT, ETC. FROM THE STATEMENT OF SHRI RAJESH METHI, ACCOUNTS M ANAGER OF M/S. VIDEOCON INDUSTRIES LTD., IT IS SEEN THAT I N RESPECT OF PURCHASES SHOWN FROM OTHER THAN HAWALA PARTIES, THE RE ARE PROPER DOCUMENTARY EVIDENCES VIZ., TAX INVOICE, DEL IVERY CHALLAN, GATE ENTRY STAMP (I.E. STAMP OF THE GUARD ON DUTY, DATE OF CHALLAN, CHALLAN NO., ENTRY NO., TIME IN, S .I ON DUTY, REG. NO. 16.1 IN THIS REGARD, ATTENTION IS INVITED TO THE DI SCUSSION BY THE ASSESSING OFFICER IN PARA 8.17 AT PAGES 56 ONWA RDS IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS ANA LYZED NATURE OF DOCUMENTATION IN RESPECT OF A NUMBER OF H AWALA ENTITIES. A.O HAS ALSO GIVEN COMMENTS IN RESPECT OF THE DOCUMENTATION. THEREAFTER, AT PAGE 61 AND 62 OF THE ASSESSMENT ORDER, HE HAS POINTED OUT THAT WHAT IS M ISSING AND WHY THE BILLS DO NOT APPEAR TO BE GENUINE CONSI DERING THE CASE OF A BIG COMPANY WHICH IS EXPECTED TO HAVE STANDING OPERATING PROCEDURE RELATING TO PURCHASES AND DOCUMENTATION THEREOF. 16.2 DURING THE COURSE OF SURVEY AT AURANGABAD, CER TAIN DOCUMENTS WERE IMPOUNDED AS PER ANNEXURE A, WHICH W ERE CONFRONTED VIDE QUESTIONNAIRE DT. 11/11/2014. THE A .O HAS ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 29 DISCUSSED THE SAME IN PAGE 71 ONWARDS OF THE ASSESS MENT ORDER. A NUMBER OF DOCUMENTS HAVE BEEN COMMENTED UP ON IN THE TABLES AT PAGES 71 ONWARDS UPTO 84 PAGES. TH EY RELATE TO ANNEXURE A/1 (PAGES 1 TO 660), ANNEXURE A /2 (PAGES 1 TO 666) AND ANNEXURE A-3 (PAGES 1 TO 664) AND ANNEXURE A-4 (PAGES 1 TO 623). THE A.O HAS CLEARLY BROUGHT OUT ABYSMAL LACK OF DOCUMENTATION. IT MAY BE NOTED THAT QUANTITY IN RESPECT OF GOODS IS 10 METRIC TONNES (P AGE 74 OF THE ASSESSMENT ORDER). SIMILAR DESCRIPTION IS FOUND AT THE OTHER PAGES. HOWEVER, THERE ARE NO EVIDENCE OF VEHI CLE NUMBERS WHICH CARRIED THIS MUCH MATERIAL. 16.3 THE ASSESSING OFFICER SUBSEQUENTLY AT PAGE 84 OF THE ASSESSMENT ORDER DISCUSSES ANNEXURE A-6 WHICH IS PURCHASE MADE FROM OTHER THAN THE HAWALA DEALERS AT PAGES 85, 85, 86, THE ASSESSING OFFICER HAS DEMONST RATED THAT THE DOCUMENTATION IN RESPECT OF THE PARTIES OT HER THAN THE HAWALA PARTIES APPEARS TO BE COMPLETE AND PROPE R. THUS HE HAS POINTED OUT A STARK CONTRAST IN THE NATURE O F DOCUMENTATION AND HAS CLEARLY POINTED OUT THAT THE DOCUMENTATION IN RESPECT OF HAWALA PARTIES IS NOT I N THE NORMAL COURSE OF BUSINESS. HE HAS BLADE INFERENCES ON IMPOUNDED MATERIAL AT PAGES 86-87 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS MADE CONCLUSIONS I N PARA 8.17 AND 8.18. IN PARA 9, AT PAGE 89 OF THE ASSESSM ENT ORDER, HE HAS TABULATED NON- GENUINE PURCHASES IN R ESPECT OF 8 CONCERNS AMOUNTING TO RS.63.06 CRORES. IN PARA 10 TO 14 HE HAS CLASSIFIED THE VARIOUS TRANSACTIONS INTO DIFFERENT CATEGORIES. 16.4 IN PARA 15 (PART OF PARA 9.1 OF THE FINAL ASSE SSMENT ORDER), THE ASSESSING OFFICER HAS WORKED OUT THE DISALLOWANCE DEPENDING UPON THE NATURE OF PURCHASES AND DISALLOWANCES TO BE MADE. 17. THEREFORE, THE FACT OF ADMISSION OF NON-SUPPLY OF GOODS BY THE PROPRIETORS / PARTNERS OF THE AFORESAID ENTI TIES IN THE DEPOSITION GIVEN BEFORE THE SALE-TAX AUTHORITIES HA VE BEEN PROVED THAT THEY NEVER SUPPLIED THE GOODS BUT ONLY ISSUED SALE BINS FOR COMMISSION. IMPORTANTLY, THIS FACT WA S BROUGHT TO THE NOTICE OF SHRI SURESH A. PAREKH, WHILE RECOR DING HIS STATEMENT ON OATH (Q.NO.13) FOR WHICH HE HAS SIMPLY STATED THAT HE HAS PROCURED THE MATERIAL FROM GREY MARKET AND ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 30 MATERIAL WAS SUPPLIED TO THE COMPANY IN THE NAME OF AFORESAID HAWALA PARTIES. HOWEVER, IN SUPPORT OF PU RCHASE OF GOODS SHRI PAREKH HAS NOT SUBMITTED ANY EVIDENCE S. THIS DEMONSTRATES THAT HE HAS NOT PURCHASED ANY MATERIAL , BUT ISSUED BOGUS SALES BILLS WITHOUT SUPPLY OF MATERIAL . HENCE, THERE IS NO MENTION IN RECEIPT OF RECEIPT OF MATERI AL BY THE ASSESSEE COMPANY. IT IS ALSO IMPORTANT TO MENTION T HAT THE ASSESSEE COMPANY HAS ALSO NOT BEEN ABLE TO SHOW EVIDENCES OF RECEIPT OF GOODS AT THE FACTORY PREMIS ES. IT IS COMMON KNOWLEDGE THAT THE TRANSPORTERS CARRY MULTIP LE COPIES OF GOODS BEING TRANSPORTED THROUGH THE CARRI ER AND ONE COPY IS MEANT FOR THE PARTY RECEIVING THE GOODS . IN THIS CASE, THE ASSESSEE COMPANY HAS FAILED TO SHOW ANY C REDIBLE EVIDENCE RELATING TO TRANSPORTATION OF MATERIAL OR RECEIPT AT THE FACTORY. 18. DURING THE COURSE OF RECORDING OF THE STATEMENT (MARCH 2015) OF SHRI SURESH A. PAREKH, THE PRINCIPAL OFFIC ER OF THE ASSESSEE COMPANY I.E., M/S. VIDEOCON INDUSTRIES LTD ., WAS ALSO PRESENT AND HE HAS BEEN ALLOWED TO CROSS EXAMI NE THE REPLY SHRI SURESH A. PAREKH FOR SUPPLY OF GOODS, FO R WHICH SHRI C.P. SAROJ, PRINCIPAL OFFICER OF THE COMPANY, SIMPLY STATED THAT THE COMPANY HAS RECEIVED THE MATERIAL A ND AFTER VERIFICATION OF THE SAME PAYMENTS HAVE BEEN MADE. HOWEVER, HE HAS NOT DEMONSTRATED WITH ANY EVIDENCES HOW THE SUPPLY HAS BEEN MADE BY THOSE BOGUS ENTITIES AN D WHAT SUPPORTING DOCUMENTS THE COMPANY IS MAINTAINING FOR PLACING THE ORDERS AND THE RECEIPT OF GOODS AT THE FACTORY/ BUSINESS PREMISES. THE ONLY EXPLANATION GIVEN BY HI M IS THAT THE COMPANY HAS PROCURED MATERIAL THROUGH SHRI SURESH A. PAREKH, SANGLI AND THEY NEVER DOUBTED ABO UT THE ACCOMMODATION ENTRIES IN THE NAME OF THE AFORESAID PARTIES AS IN THE BILLS PROVIDED CONTAIN THE SALE-TAX REGIS TRATIONS. THOUGH THE PRINCIPAL OFFICER ARGUED THAT IT HAS REC EIVED THE MATERIAL, NO EVIDENCE TO DEMONSTRATE THE SAME HAS B EEN FILED EXCEPT DETAILS OF SALE INVOICES AND THE PAYME NT DETAILS. NO DOCUMENTARY EVIDENCES TO JUSTIFY THE PURCHASE OR DER DETAILS I.E., THE NAME AND DESIGNATION OF THE EMPLO YEES OF THE COMPANY, WHO PLACED THE PURCHASE ORDERS WITH SUPPORTING DOCUMENTS I.E., QUOTATION, MARKET ENQUIR Y CONDUCTED FOR PROCUREMENT, ETC. DETAILS OF GATE PAS SES EVIDENCING THE RECEIPT OF MATERIAL I.E., DATE AND T IME, PLACE, STAMPS AND SEALS ON SUCH INVOICES, ETC HAVE BEEN FI LED. ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 31 19. IN VIEW OF THE ABOVE DISCUSSION, IT CAN BE SUM MARIZED AS UNDER; (I) THE ASSESSEE HAS NOT RECEIVED ANY MATERIAL AGAI NST THE TAX INVOICES RECEIVED FROM HAWALA DEALERS MANAGED A ND CONTROLLED BY SHRI SURESH A. PAREKH, SANGLI. (II) THE ABOVE FACT HAS BEEN ACCEPTED AT VARIOUS ST AGES, BY THE HAWALA PARTY THAT IT WAS PROVIDING ONLY ACCOMMO DATION ENTRY AND NOT DOING ANY REAL BUSINESS. (III) THE STATEMENT OF THE HAWALA PARTY THAT IT HAS SUPPLIED GOODS TO THE ASSESSEE COMPANY IS NOT SUPPORTED BY A NY DOCUMENTARY EVIDENCES OR SUBSTANTIATED WITH PROPER BOOKS. THEREFORE AS PER THE PREPONDERANCE OF THE PROBABILI TY THE CONTENTION OF THE HAWALA PARTY AND THE ASSESSEE COM PANY CANNOT BE ACCEPTED THAT THE MATERIAL HAS BEEN SUPPL IED. (IV) THE IMPOUNDED MATERIAL REGARDING VOUCHERS AND OTHER DOCUMENTS PERTAINING TO PURCHASE CLEARLY SHOWS THE DIFFERENCE AND DISCREPANCIES BETWEEN THE GENUINE PU RCHASE AND BOGUS PURCHASE AS HAS BEEN OBSERVED ABOVE. (V) FURTHER, NO SINGLE EVIDENCE OF DELIVERY HAS BEE N SUBMITTED AT ANY POINT OF TIME BY EITHER THE HAW AL A PARTY OR THE ASSESSEE COMPANY EVEN THOUGH SPECIFICALLY BE EN ASKED FOR. EVEN DURING THE COURSE OF SURVEY NO EVID ENCE WAS FOUND AT THE PREMISES OF THE ASSESSEE, WHEREAS IN OTHER GENUINE PURCHASES, ALL SUCH EVIDENCES WERE FO UND OR SUBMITTED BY THE ASSESSEE. 24. IN VIEW OF THE AFORESAID FINDING THE ASSESSING OF FICER MADE FOLLOWING ADDITIONS/DISALLOWANCES ON ACCOUNT OF BOGU S PURCHASES: (I) DISALLOWANCE OF RS.8,98,22,987/- ON ACCOUNT OF DEPRECIATION ON PLANT AND MACHINERY AND MOULDS; (II) REDUCED WRITTEN DOWN VALUE OF PLANT AND MACHIN ERY AND MOULDS BY RS. 33,20,80,461/- BY HOLDING THAT THE AS SESSEE DOES NOT HAVE EVIDENCE IN RESPECT OF PURCHASE OF SA ID PLANT ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 32 AND MACHINERY AND MOULDS AND ASSESSEE HAS NEVER PROCURED AND PUT THEM INTO USE; (III) A SUM OF RS.20,78,92,008 WAS REDUCED FROM THE BOOK VALUE OF CAPITAL WORK-IN-PROGRESS BY HOLDING THAT T HE ASSESSEE COULD NOT PRODUCE COGENT EVIDENCE TO SUBST ANTIATE THE CLAIM OR PURCHASES ACCOUNTED UNDER 'CAPITAL WOR K-IN- PROGRESS ON ACCOUNT OR TRIAL RUN AND TRIAL PRODUCTI ON'; (IV) DISALLOWANCE OR RS. 3,50,24,425 ON ACCOUNT OR RAW MATERIAL AND CONSUMABLES PURCHASED AND DEBITED TO P &L ACCOUNT ON THE GROUND THAT THESE PURCHASES WERE BOG US; (V) REDUCED THE VALUE OF INVENTORY TO THE TUNE OF R S. 14,97,74,663 BY TREATING IT AS SUSPICIOUS NON GENUI NE PURCHASES FROM THESE DEALERS. 25. BEFORE US THE LD. COUNSEL, MR. SONDE AFTER RE FERRING TO THE VARIOUS OBSERVATIONS MADE BY THE ASSESSING OFFICER, S UBMITTED THAT THE MOST CRUCIAL POINT WHICH NEEDS TO BE APPRECIATED HERE IN THIS CASE IS THE STATEMENT OF SHRI SURESH A. PAREKH IN THE SECOND R OUND OF PROCEEDINGS, I.E., WHEN HIS STATEMENT WAS RECORDED BY THE AO AND WAS CROSS EXAMINED IN PURSUANCE OF THE DIRECTION GIVEN BY THE TRIBUNAL IN THE EARLIER YEARS. HE POINTED OUT THAT IT IS AN UNDISPUT ED FACT THAT HE HAS CATEGORICALLY ADMITTED THAT THE ASSESSEE COMPANY HAS PLACED ORDER TO SHRI SURESH A. PAREKH WHO WAS IN THIS BUSINESS OF SUPPLYING OF ELECTRONIC ITEMS FOR LAST TWENTY YEARS. HE HAS ALSO A DMITTED THAT HE HAS SOURCED THE MATERIAL FROM THE GREY MARKET AND AFTER PR OCURING THE SAID MATERIAL, THE SAME WERE SENT TO THE FACTORIES OF THE ASSE SSEE COMPANY BY THE SUPPLIERS OF GREY MARKET DIRECTLY AND ONCE THE BILL WAS RECEIVED THE PAYMENT WAS MADE THROUGH ACCOUNT PAYEE CHEQUES/RTGS . FURTHER, DURING HIS CROSS EXAMINATION, SURESH PAREKH CONFIRMED THAT HE DEALS IN ELECTRONIC ITEMS I.E., CABLE, AV, LCD, MO NITOR, PC, CORRUGATED SHEET PLY, ABS, MASTER BATCH., POLYPROPYLENE , ETC., IN BULK ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 33 AND THAT THERE IS A HUGE DEMAND IN THE MARKET FOR SUPP LY OF THE AFORESAID ITEMS. HE SUPPLIED THE AFORESAID, ITEMS THROU GH THE CONCERNS LIKE SWASTIK ENTERPRISES, G M TRADERS, PARAM TRADING CO., SARVESH ENTERPRISES, MAHALAXMI DISTRIBUTORS, SURESH LIGHT HOUSE , JAGDISH TRADING CO LTD, MANEK ENTERPRISES ETC. TO VARIOUS CORP ORATE HOUSES INCLUDING M/S. VIDEOCON INDUSTRIES LTD., AURANGABAD, MAHARASHTRA. HE FURTHER STATED THAT SINCE HE IS HAVING HUGE EXPERIEN CE OF MORE THAN 20 YEARS IN ACQUISITION AND SUPPLY OF ABOVE MENTIONED ITEMS TO VARIOUS CORPORATE HOUSES, THEREFORE, HE USE TO RECEIVE TELEPH ONIC OR ORAL ORDERS FROM THE PURCHASE DEPARTMENTS OF THE FACTORIES, SPECIFY ING THE SPECIFICATIONS OF THE PRODUCTS AND THEIR QUANTITY REQUI RED URGENTLY. ACCORDING TO THEIR REQUIREMENT, HE SOURCED THE SUPPLIE RS FROM THE GREY MARKET AND SUPPLIED THE ITEMS AS PER THEIR REQUIREMENT ALONG WITH THE BILLS OF THE AFORESAID CONCERNS AND ACCORDINGLY, REC EIVED THE PAYMENTS. THE PARTIES FROM WHOM HE PURCHASED THE MATERIALS IN G REY MARKET DO NOT PROVIDE ANY SALE BILL; THEREFORE, HE HAS REGULAR IZED THE SAID SUPPLY OF THOSE GOODS BY RAISING INVOICES THROUGH THE AFORES AID CONCERNS AGAINST WHICH THE PAYMENTS HAVE BEEN RECEIVED, BY CHEQ UES/RTGS. BY UTILIZING THE PAYMENTS RECEIVED, FROM THE CORPORATE HOUS ES, HE PAYS, THE SUPPLIER, WHO SUPPLIED THE GOODS IN GREY MARKET W ITHOUT BILL. WITH REGARD TO THE TRANSPORTATION COST AND OTHER RELATED EXPEN DITURE FOR DELIVERING THE GOODS AT SITE OR DESIRED PLACE OF THE CO RPORATE HOUSES, SURESH PAREKH CLARIFIED THAT THE TRANSPORTATION COSTS WER E TO BE BORNE BY THE SUPPLIERS AS THE ORDER WAS PLACED AT A FIXED R ATE, WHICH INCLUDED THE OVERHEAD EXPENSES FROM SOURCE TO DESTINATI ON. HE HAD SUBMITTED THAT THE PRACTICE OF PURCHASING MATERIALS FROM G REY MARKET IS NOT UNCOMMON AND IS PREVALENT SINCE LONG. IT IS FO LLOWED ACROSS COTTON MARKET, CLOTH MARKET, SAND MARKET AND SO ON. HE EMPHASIZED THAT JUST BECAUSE SOMEONE DOES NOT USE OR PREPARE WRITTEN PURCHASE ORDER WHILE PURCHASING THE MATERIALS, IT DOES NOT MA KE RELEVANT ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 34 PURCHASE VOID OR BOGUS. HE SUBMITTED THAT A PURCHASE IS NOT VOID FOR WANT OF PURCHASE ORDER. 26. WITH REGARD TO THE SPECIFIC CONTENTION OF THE ASSESSI NG OFFICER AS RAISED IN THE ASSESSMENT ORDER AND COUNTER SUBMISSIONS /REBUTTAL OF THE ASSESSEE AS PLACED BEFORE US ARE REPRODUCED HERE UNDER FOR BETTER APPRECIATION OF FACTS:- 1. CONTENTION OF THE AO THE AO HAS STATED THAT IN THE STATEMENT RECORDED ON OATH U/S. 131OF THE ACT ON 1803-2014 BEFORE ADIT (INV.) KOLHAPUR, SHRI SURESH AMRITLAL PAREKH HAS CATEGORICALLY ADMITTED THAT HE ONLY ISSU ED BOGUS PURCHASE BILLS AND HAS NOT SUPPLIED ANY MATERIAL TO ANY BUSI NESS HOUSE AND THAT THE CASH HAS BEEN WITHDRAWN AND HAS BEEN HANDED OVE R TO THE BENEFICIARIES AFTER DEDUCTING THEIR COMMISSION. (PAGE NO. 29 AND Q. 12 ON PAGE NO. 32 OF THE ASSESS MENT ORDER) SUBMISSION OF THE APPELLANT WHILE SETTING ASIDE THE MATTER TO THE FILE OF AO FO R AY 2009-10 & 2010- 11, HON'BLE ITAT DIRECTED THE AO TO GIVE OPPORTUNIT Y OF CROSS EXAMINING SHRI SURESH PAREKH TO PRINCIPAL OFFICER OF THE APPE LLANT COMPANY. ACCORDINGLY, AO HAD SUMMONED MR. SURESH A. PAREKH A ND RECORDED HIS STATEMENT U/S. 131 OF THE INCOME TAX ACT 1961 ON 12 /3/2015, WHEREIN HE HAS EXPLAINED /CLARIFIED HIS EARLIER STATEMENT B EFORE ADIT (INV.). IN THE STATEMENT BEFORE ADIT, MR. SURESH A. PAREKH HAD STATED THAT HE HAD PROVIDED ACCOMMODATION BILLS TO VARIOUS ENTITIES WI THOUT DELIVERY OF GOODS. THIS STATEMENT WAS SPECIFICALLY CONFRONTED BY AO ON 12.03.2015 (Q. NO. 8 & 9 ON PAGE NO. 45 AND 46 OF THE ASSESSMENT ORDER ), WHEREIN HE HAS EXPLAINED AND CLARIFIED THAT THE STATEMENT GIVEN ON 18.03.2014 WAS CORRECT AS ALL THE CONCERNS MENTIONED THEREIN HAD I SSUED ONLY BILLS AND NOT SUPPLIED ANY MATERIAL. HE HAS CLEARLY EXPLAINED THAT THE MATERIAL WAS PROCURED AND DELIVERED FROM GREY MARKET SUPPLIE RS WHO DID NOT ISSUE SALE BILLS. MR. SURESH A. PARIKH HAD, IN THE CERTIFICATE DATED 07.01.2013 AND AFFIDAVIT DATED OR.01.2013, EVEN BEF ORE HIS STATEMENT BEFORE ADIT KOLHAPUR ON 18.03.2014 CONFIRMED SUPPLY OF MATERIAL AND IN Q.NO.11 IN STATEMENT DATED 12.03.2015 BEFORE THE AO, HE HAS AGAIN REITERATED AND RECONFIRMED THE SAID CERTIFICATE DAT ED 07.01.2013 AND EXPLAINED THE MODUS OPERANDI OF HIS ACTIVITIES. FRO M ABOVE, IT IS VERY CLEAR THAT HE PROCURED MATERIAL FROM GREY MARKET AN D GAVE BILLS OF OTHER ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 35 PARTIES WHO HAD NOT SUPPLIED ANY MATERIAL. HE ALSO CONFIRMED THAT HE HAD HUGE EXPERIENCE IN ACQUISITION AND SUPPLY OF EL ECTRONIC MATERIALS AND IN RESPONSE TO ORAL PURCHASE ORDERS AND AS PER REQUIREMENT, HE SOURCES THE SUPPLIER IN THE GREY MARKET WHO SUPPLIE S THE ITEMS AND RECEIVES THE PAYMENTS VIA THE ENTITIES CONTROLLED B Y HIM. (REFER TO QUESTION NO. 8 AND 9 OF STATEMENT U/S. 13 1 OF THE ACT ON 12/3/2015 PAGE NO. 45 - 46). 2. CONTENTION OF THE AO THE AO HAS STATED THAT IN REPLY TO Q. NOS. 15 & 16, IN STATEMENT DATED 18-03-2014, SURESH PAREKH HAD CATEGORICALLY EXPLAIN ED THE MODUS OPERANDI ADOPTED BY HIM FOR GIVING ACCOMMODATION BI LLS AND ALSO HIS COMMISSION THEREON. ACCORDING TO THE AO, FROM THE R EPLY OF SHRI SURESH PAREKH, IT IS AMPLY CLEAR THAT HE HAD RECEIVED THE CHEQUES/RTGS FROM THE CORPORATE HOUSES, IN THE RESPECTIVE BANK ACCOUN TS MAINTAINED IN THE NAME OF HAWALA ENTITIES AND AFTER RECEIPT OF RTGS/C LEARANCE OF CHEQUE, CASH WAS WITHDRAWN AND HANDED OVER TO THE RESPECTIV E CORPORATE HOUSE AFTER DEDUCTING THEIR COMMISSION. THIS ACCORDING TO THE AO CLEARLY ESTABLISHES THAT NO DELIVERIES OF PHYSICAL GOODS WE RE MADE. (PAGE NO.36 OF THE ASSESSMENT ORDER) SUBMISSION OF THE APPELLANT MR. SURESH PAREKH HAS CONFIRMED BEFORE AO ON 12.3.2 015 THAT HE DEALS WITH A NUMBER OF CORPORATE HOUSES. IN CERTAIN INSTA NCES AS PER THE CLIENT REQUIREMENT NO GOODS HAVE BEEN SUPPLIED, WHERE HE H AD MERELY RECEIVED RTGS/CHEQUE AND RETURNED CASH AFTER DEDUCT ING COMMISSION. AS REGARDS THE SUPPLIES TO VIDEOCON GROUP I.E., M/S . VIDEOCON INDUSTRIES LTD., M/S. VALUE INDUSTRIES LTD., AND M/S. VIDEOCON REALTY INFRASTRUCTURE PVT. LTD., HE HAS CO NFIRMED THAT PHYSICAL GOODS WERE SUPPLIED WHICH WERE PROCURED FROM GREY M ARKET AND BILLS WERE FROM PARTIES OTHER THAN THE ACTUAL SUPPLIERS. THIS FACT, WAS FIRST CONFIRMED BY HIM IN THE AFFIDAVIT GIVEN, ON 08-03-2 013 AND REITERATED IN HIS STATEMENTS DATED 12.03.2015 BEFORE THE AO. AS R EGARDS, THE DETAILS OF SUPPLIERS FROM WHOM MR. SURESH AMRITLAL PAREKH H AD PURCHASED THE MATERIAL IN THE GREY MARKET, HE COULD NOT GIVE SUCH DETAILS AS BY THEN THE PAPERS HAD BEEN SEIZED BY THE SALES TAX DEPARTM ENT/INCOME TAX DEPARTMENT DURING THEIR INQUIRY IN THE YEAR 2012 & 2014. THE QUESTION NO 15 & 16 WERE AGAIN CONFRONTED BY THE AO VIDE' Q. 17 DATE D 12.03.2015 WHEREIN HIS EARLIER STATEMENT WAS EXPLAI NED WITHOUT ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 36 RETRACTING THE EARLIER STATEMENT. (REFER REPLY TO Q UESTION NOS. 17 (WRONGLY MENTIONED AS 16) ON PAGE NO. 54 OF THE ASS ESSMENT ORDER). AS APPELLANT HAD RECEIVED MATERIAL, WHICH IS CONFIR MED BY SURESH PAREKH IN HIS AFFIDAVIT AS WELL AS IN STATEMENT U/S 131 BEFORE THE AO, AND ALSO BY MR. RAJESH METHI, ACCOUNTANT AT THE FAC TORY DURING SURVEY PROCEEDINGS, THE QUESTION OF RECEIVING ANY CASH DOE S NOT ARISE. 3. CONTENTION OF THE AO: THE AO HAS STATED THAT THE ASSESSEE COMPANY HAS SHO WN HUGE VOLUME OF TRANSACTIONS WITH THE ENTITIES MANAGED AND CONTR OLLED BY SHRI SURESH AMRITLAL P A REKH , PROPRI E TOR O F M / S . JAGD I SH TRADING COMP A N Y . (PAGE NO 38 OF THE ASSESSMENT ORDER) SUBMISSION OF THE APPELLANT: I T I S SUB M I T T E D T H AT T O TA L P U RCH A S E S O F R S .63.07 CROR E S F ROM T HESE EN T I T IES I S O NLY 0 . 79% OF TOTAL PURCHASES OF RS . 7996 . 14 CRORES DURING FY 2010-11 . IT CONSIST OF VARIOUS ITEM S , TH E D E T A IL S A ND UTIL IZA TI ON O F W H I R-H H A VE B EEN D U L Y SU BMI TT ED TO THE SURVEY PARTY AS WELL AS TO THE AO. ANALYSIS OR PURCHASE TRANSACTIONS/BILLS FROM CONCER NS MANAGED BY SHRI SURESH A PAREKH MADE BY THE AO: (PAGE NO. 57 OF THE ASSESSMENT ORDER). 4. CONTENTION OF AO: THE PRIMARY DETAILS OF PURCHASE ORDER & DATE ARE NO T MENTIONED IN THE TAX INVOICE. (PG. 57 OF THE ASSESSMENT ORDER). SUBMISSION OF THE APPELLANT: IT IS CLARIFIED BY SURESH PAREKH THAT HE HAS RECEIV ED ORAL/VERBAL PURCHASE ORDER. TOTAL PURCHASES MADE BY THE APPELLA NT DURING FY 2010- 1 1 WERE RS. 7996.14 CRORES. IT IS NOT THE CASE OF THE AO THAT THERE ARE PURCHASE ORDERS IN EACH AND EVERY PURCHASE OTHER TH AN THE PURCHASES OF RS. 63.07 CRORES. THERE ARE NUMBER OF INSTANCES OTHER THAN THESE PURCHASES OF RS. 63.07 CRORES, WHERE APPELLANT HAS PURCHASED MATERIAL WITH ORAL ORDERS AND MATERIAL HAS BEEN RECEIVED. TH E MERE ABSENCE OF A PURCHASE ORDER DOES NOT MAKE GENUINE PURCHASES MADE BY THE APPELLANT AS BOGUS. 5. CONTENTION OF THE AO THERE ARE NO DETAILS OF 'TRANSPORTATION'. SUBMISSION OF THE APPELLANT: MR. SURESH PAREKH HAS ADMITTED AND EXPLAINED THAT T HE TRANSPORTATION ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 37 COSTS AND OTHER RELATED EXPENDITURE FOR DELIVERING THE GOODS AT THE DELIVERY STATION WAS TO BE BORNE BY THE SUPPLIER AS THE ORDER IS PLACED AT A FIXED RATE, WHICH INCLUDED ALL THE OVERHEAD EXPEN SES FROM SOURCE TO DESTINATION. THEREFORE, THERE ARE NO TRANSPORTATION DETAILS AVAILABLE ON THE BILLS WHICH WERE TAKEN FROM THE CONCERNS OTHER THAN THE ACTUAL SUPPLIER. THE DETAILS WERE OBVIOUSLY NOT PUT AS THE DELIVERY WAS MADE BY THE GREY MARKET SUPPLIERS AND NOT THE PROVIDERS OF THE BILLS. (REFER REPLY TO QUESTION NOS. 6 AND 14 (PAGE NO. 45 AND 51 OF THE ASSESSMENT ORDER) RAJESH METHI ACCOUNTANT OF APPELLANT COMPANY HAS AL SO CONFIRMED DURING SURVEY PROCEEDINGS AT THE FACTORY ON 22.03.2 013 THAT THE APPELLANT'S PURCHASES ARE ON FOR (FREE ON ROAD, CHI TEGAON) BASIS AND THEREFORE APPELLANT DID NOT MAINTAIN LORRY RECEIPTS FOR GOODS RECEIVED. REFER QUESTION NO. 13 DURING SURVEY ON 221 1/20 I] AT PAGE 63 ASSESSMENT ORDER). 6. CONTENTION OF THE AO ALL THE INVOICES PRODUCED HAVE NO PROPER SEALS OF T HE ASSESSEE COMPANY EVIDENCING THAT THE MATERIAL HAS REALLY BEEN RECEIV ED IN THE FACTORY PREMISES. CERTAIN DELIVERY CHALLANS HAVE ALSO BEEN ATTACHED TO THE BILLS, WHICH HAVE NO ACKNOWLEDGMENT OF RECEIPT OF MATERIAL EITHER OF THE COMPANY OR THE SUPPLIER. SUBMISSION OF THE APPELLANT WITH REGARD TO EVIDENCE FOR SUPPLY OF MATERIAL, THE APPELLANT HAS ALREADY SUBMITTED THE COPIES OF INVOICES HAVING REF ERENCE OF DELIVERY CHALLANS, GATE STAMP ETC WHICH WERE IMPOUNDED BY TH E SURVEY PARTY. THUS ALL THE INVOICES, DELIVERY CHALLANS HAVE STAMP S OF THE GATEKEEPER WHICH HAS BEEN VERIFIED BY THE SURVEY PARTY ALSO. I T IS NOT THE CASE OF THE AO THAT THERE IS ONLY ONE STAMP OF THE GATE KEE PER ON ALL THE PURCHASES. HAVING MORE THAN ONE STAMP AND DIFFERENT STAMPS ON DIFFERENT BILLS ON DIFFERENT DAYS IS NORMAL PRACTIC E AND DOES NOT MAKE A PURCHASE BOGUS. FURTHER, MATERIAL UTILIZATION DETAI LS OF THE SAID PURCHASES HAVE ALREADY BEEN SUBMITTED BY THE APPELL ANT. 7. CONTENTION OF THE AO THE AO STATED THAT MR. SURESH A PAREKH HAS SIMPLY S TATED THAT HE HAS PROCURED THE MATERIAL FROM GREY MARKET AND MATERIAL WAS SUPPLIED TO THE COMPANY IN THE NAME OF AFORESAID HAWALA PARTIES . HOWEVER, IN SUPPORT OF PURCHASE OF GOODS MR. SURESH A PAREKH HA S NOT SUBMITTED ANY EVIDENCES. ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 38 (PAGE 61 OF THE ASSESSMENT ORDER) SUBMISSION OF THE APPELLANT AS REGARDS, THE DETAILS OF SUPPLIERS FROM WHOM HE H AD PURCHASED THE MATERIAL IN THE GREY MARKET, MR. SURESH A PAREKH ST ATED THAT HE DID NOT HAVE SUCH DETAILS AS THE SAME WERE TAKEN BY THE SAL ES TAX DEPARTMENT/INCOME TAX DEPARTMENT DURING THEIR INQUI RY IN THE YEAR 2012 & 2014. AS REGARDS TRANSPORTATION COST AND EVI DENCE IN RESPECT OF SUPPLY OR MATERIALS, HE EXPLAINED THAT EXPENDITURE ON DELIVERY OR GOODS ARE BORNE BY ACTUAL SUPPLIERS IN GREY MARKET TO WHO M HE HAD PAID CASH. (REFER REPLY TO QUESTION NOS. 14 AND 17 (WRONGLY ME NTIONED (IS 16) ON PAGE NO. 51 AND 54 OF THE ASSESSMENT ORDER). 8. CONTENTION OF THE AO THE AO HAS STATED THAT A PERUSAL OF THE PURCHASE BI LLS SUBMITTED FROM THE VARIOUS DEALERS INDICATE THE USE OF SAME GATE E NTRY STAMP I.E. STAMP HAVING ONLY CHALLAN NUMBER AND SIGNATURE OF A PERSO N. WHILE IN OTHER PURCHASES, THE GATE ENTRY STAMP IS DIFFERENT AND MO RE ELABORATE AND IS HAVING VARIOUS FIELDS. (PAGE NO. 66 OF THE ASSESSMENT ORDER) SUBMISSION OF THE APPELLANT THE APPELLANT GENERALLY MAINTAINS 2 TO 3 SETS OF GA TE ENTRY STAMPS IN ORDER TO HANDLE CONTINGENCIES OF EMERGENCY OR NUMBE R OF CONSIGNMENT ENTERING THE PREMISES AT THE SAME TIME. IT IS NOT T HE CASE OF THE ASSESSING OFFICER THAT IN ALL OTHER CASES ONE SINGL E GATE ENTRY STAMP WAS USED. 9. CONTENTION OF THE AO: THE AO STATED THAT THERE IS NO EVIDENCE REGARDING R ECEIPT OF MATERIAL OTHER THAN THE AFFIDAVIT FILED BY SHRI SURESH A. PA REKH IN SUPPORT OF SUPPLY OF GOODS. (PAGE NO. 71 AND 75 OF THE ASSESSMENT ORDER) SUBMISSION OF THE APPELLANT THE APPELLANT HAS SUBMITTED THE WRITTEN CONFIRMATIO N AND AFFIDAVIT OF SURESH PAREKH TO THE EFFECT THAT HE HAS SUPPLIED MA TERIAL TO APPELLANT. MR. .SURESH PAREKH ALSO CONFIRMED BEFORE THE AO IN HIS STATEMENT U/S. 131 DATED 12.03.2015, THAT MATERIALS WERE PURCHASED FROM GREY MARKET AND DELIVERED BY THOSE SUPPLIERS TO THE APPELLANT. HOWEVER BILLS OF DIFFERENT PARTIES (OTHER THAN ACTUAL SUPPLIERS) WER E GIVEN AS THE SUPPLIERS OF GREY MARKET DID NOT GIVE SALE BILLS AN D HENCE, THE OTHER ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 39 DETAILS WERE NOT AVAILABLE ON THESE BILLS. APPELLAN T ALSO SUBMITTED TO THE AO, THE PARTY WISE DETAILS OF NATURE OF MATERIAL PU RCHASED, COPIES OF LEDGER ACCOUNTS, PAYMENT DETAILS ETC. THE APPELLANT ALSO SUBMITTED MATERIAL UTILIZATION, ITEM WISE DETAILS OF PURCHASE S MADE FROM THE CONCERNS OF MR. SURESH PAREKH. THE INVOICES/BILLS H AVE BEEN TAKEN/ IMPOUNDED BY SURVEY PARTY ON 22.03.2013 AT THE FACT ORY PREMISE OF THE APPELLANT. AS REGARDS, THE DETAILS OF SUPPLIERS OF PARTIES FRO M WHOM MR. SURESH A. PAREKH HAD PURCHASED THE MATERIAL IN THE GREY MARKE T, THE DETAILS OF THESE PURCHASES WERE SEIZED BY THE SALES TAX DEPART MENT / INCOME TAX DEPARTMENT DURING THEIR INQUIRY IN THE YEAR 2012 & 2014. (REFER REPLY TO QUESTION NOS. 17 (WRONGLY MENTIONED AS 16) (PAGE NO. 54 OF THE ASSESSMENT ORDER). 10. CONTENTION OF THE AO THE AO HAS STATED THAT THE DISCREPANCIES, IN THE BI LLS OF VARIOUS DEALERS WITH THAT OF OTHER BILLS, WERE ALSO SHOWN BY THE SU RVEY TEAM WHILE RECORDING THE STATEMENT OF SHRI RAJESH H. METHI, AC COUNTS MANAGER AT THE AURANGABAD FACTORY, HOWEVER NO CONVINCING REPLY TO EXPLAIN THE DISCREPANCIES WAS GIVEN. THIS FACT WAS DULY CONFRON TED TO SHRI VENUGOPAL N. DHOOT, CHAIRMAN & MANAGING DIRECTOR OF THE COMPANY IN THE SURVEY PROCEEDINGS AT FORT OFFICE, MUMBAI. NO E XPLANATION IN THIS REGARD WAS GIVEN. (PAGE NO. 87 OF THE ASSESSMENT ORDER) SUBMISSION OF THE APPELLANT IN THIS REGARD, MR. C.P SAROJ, THE PRINCIPAL OFFICE R, CLARIFIED THAT A SURVEY ACTION U/S.133A OF THE ACT WAS CARRIED OUT AT THE F ACTORY PREMISES AT AURANGABAD AS WELL AS AT THE OFFICE PREMISES IN MUM BAI. THE STATEMENT OF SHRI VENUGOPAL N. DHOOT WAS RECORDED AT THE OFFI CE PREMISES MUMBAI AND IN THOSE PROCEEDINGS AT THAT POINT OF TIME, MR. C.P SAROJ WAS ALSO PRESENT. IN THE STATEMENT, VARIOUS QUESTIONS WERE P UT BY THE DEPARTMENT IN RESPECT OF THE AFORESAID PURCHASE- TRANSACTIONS MADE BY THE ASSESSEE COMPANY. AT THAT POINT OF TIME THE REQUISITE DETAIL S WERE NOT AVAILABLE AT THE OFFICE PREMISES IN MUMBAI WHERE THE STATEMENT O F SHRI V. N. DHOOT WAS RECORDED AS THE SAME WERE MAINTAINED AT FACTORY PREMISES AT AURANGABAD. THEREFORE, THE MANAGING DIRECTOR HAS STATED, THAT THE TRANSACTIONS WITH THE AFORESAID, PARTIES ARE NOT IM MEDIATELY VERIFIABLE. THE NECESSARY DETAILS AS CALLED FOR HAVE BEEN DULY RECONCILED WITH NECESSARY SUPPORTING AND SUBMITTED BEFORE INVESTIGA TION WING AS WELL AS IN THE ASSESSMENT PROCEEDINGS. ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 40 THEREFORE, THE PURCHASES SHOWN FROM THE AFORESAID P ARTIES ARE GENUINE, THE MATERIAL OF WHICH HAVE BEEN RECEIVED THROUGH SH RI SURESH PAREKH, ALONG WITH THE BILLS OF THESE PARTIES AND PAYMENT F OR WHICH HAVE BEEN MADE BY CHEQUES/RTGS BY THE APPELLANT COMPANY. APART FROM ABOVE REBUTTAL, RELIANCE WAS PLACED ON FOLL OWING JUDGMENTS: (I) RAMESH KUMAR & CO. VS. ACIT, ITA NO. 2959/MUM/2014; (II) ACIT VS. RAMILA PRAVIN SHAH, ITA NO. 5246/MUM/2013; (III) GANPATRAJ A SANGHAVI VS. ACIT, ITA NO. 2826/MUM/2013 ; (IV) HIRALAL CHUNILAL JAIN VS. ITO, ITA NO.4547/MUM/2014 ; (V) CIT VS. NIKUNJ EXIMP ENTERPRISES (P) LTD. 35 TAXMANN. COM 384 (BOM) (VI) ACIT VS. M/S. G. V. SONS, ITA NO. 2238, 2239 & 2240 OF 2012 (ITAT MUM); (VII) DCIT VS. RAJEEV G. KALATHIL 67 SOT 52 (ITAT MUM); (VIII) BALAJI TEXTILE INDUSTRIES (P) LTD. VS. THIRD ITO 49 IT D 177 (ITAT MUM); HE ALSO MADE DISTINCTION OF VARIOUS DECISIONS WHICH WAS RELIED BY THE LD. DR. 28. WE HAVE CAREFULLY CONSIDERED THE ENTIRE GAMUT OF FACTS, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE RIVAL SUBMISSIONS MADE BY THE PARTIES BEFORE US VIS-A-VIS TH E MATERIAL PLACED ON RECORD. THE ASSESSEE COMPANY IS ONE OF THE LEADING MANUFACTURING AND TRADING COMPANY OF CONSUMER ELECTRO NICS, HOME APPLIANCES AND OTHER WHITE GOODS ETC. DURING THE FY 20 10-11 THE ASSESSEE HAD MADE PURCHASES TO THE TUNE OF APPROXIMATE LY RS. 8000 CRORES. OUT OF WHICH PURCHASES AGGREGATING TO RS.63.07 CRORES HAVE BEEN ADDED BY THE AO ON THE GROUND THAT THESE ARE BOGUS PURCHASES MADE FROM HAWALA DEALERS ESPECIALLY FROM SURESH A. PAREKH. IT IS AN ADMITTED FACT, WHICH IS BORNE OUT FROM THE VARIOUS INV OICES AND ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 41 INFORMATION RECEIVED THAT SHRI SURESH A. PAREKH ALONG WITH HIS FAMILY MEMBERS HAD MADE VARIOUS ENTITIES THROUGH WHICH HE IS PROVIDING ACCOMMODATION BILLS. DURING THE COURSE OF INITIAL INV ESTIGATION BY THE SALES TAX DEPARTMENT AS WELL AS BY THE INVESTIGATION W ING OF THE INCOME-TAX DEPARTMENT, HE HAD ADMITTED THAT HE IS PROVID ING BOGUS BILLS AND ACCOMMODATION ENTRIES FOR PURCHASE OF VARIO US MATERIALS AND ALSO EXPLAINED THE MODUS OPERANDI OF HIS BUSINESS TRANSACTION. SINCE THE STATEMENT WAS TAKEN ON THE BACK OF THE ASSESSEE, THE T RIBUNAL HAD DIRECTED THE DEPARTMENT/AO TO RECORD FRESH STATEMENT OF S HRI SURESH A. PAREKH WHEREIN HE WAS GIVEN OPPORTUNITY TO BE CRO SS EXAMINED BY THE ASSESSEE. DURING THE COURSE OF FRESH STATEMENT/ CRO SS EXAMINATION BY THE AO IN THE IMPUGNED ASSESSMENT PROCEEDINGS AS DISCUSSED ABOVE, SHRI SURESH A. PAREKH HAD CATEGORICALLY CONFI RMED THAT HE DEALS IN VARIOUS ELECTRONIC ITEMS IN BULK AND THAT THERE IS HUGE DEMAND IN THE MARKET FOR SUPPLY OF THE AFORESAID ITEMS. HE HAD A LSO GIVEN THE NAME OF CONCERNS THROUGH WHICH HE HAD SUPPLIED VARIO US ITEMS TO VARIOUS CORPORATE HOUSES INCLUDING M/S. VIDEOCON IND USTRIES LTD., AURANGABAD. IN HIS STATEMENT, HE HAS STATED THAT ON TELEPH ONIC OR ORAL ORDERS HE USED TO SOURCE THE SUPPLIERS IN THE GREY MA RKET AS PER THE SPECIFICATION OF THE PRODUCTS AND DIRECTION OF THE PURC HASE DEPARTMENT OF THE ASSESSEE COMPANY AND THE SUPPLIERS FROM THE GR EY MARKET SUPPLIED THESE ITEMS DIRECTLY TO THE ASSESSEE COMPANY. SINCE THESE SUPPLIERS OPERATE IN GREY MARKET, THEREFORE, TO REGUL ARIZE THE SAME, HE USED TO GIVE SALE BILLS TO THE ASSESSEE COMPANY BY R AISING INVOICES THROUGH HIS CONCERNS AGAINST WHICH THE PAYMENT WAS REC EIVED BY HIM AND THE SAME HAS BEEN DISTRIBUTED TO THE SUPPLIERS OF THE MATERIAL IN THE GREY MARKET. IN HIS CROSS EXAMINATION HE HAS ALSO EXPLAINED AND CLARIFIED HIS EARLIER STATEMENT AND ADMITTED THAT WHAT HAS BEEN SAID IS CORRECT BUT HE ADMITTED AND CLARIFIED THAT MATERIAL HAS BE EN ACTUALLY PROCURED AND DELIVERED FROM THE GREY MARKET TO THE ASSE SSEE COMPANY. ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 42 IN THE EARLIER STATEMENT ALSO HE HAS CONFIRMED THE SUPP LY OF MATERIAL IN HIS SWORN AFFIDAVIT DATED 08.01.2013 FILED BEFORE ADIT, KOLHAPUR. HE HAS ALSO ADMITTED TO DEAL IN NUMBER OF CORPORATE H OUSES AND HE IS IN THE BUSINESS OF SUPPLY OF ELECTRONIC ITEMS AND MAT ERIAL FOR SEVERAL YEARS. HOWEVER, WHEN CONFRONTED TO SPECIFIC SUPPLIES MADE TO VIDEOCON INDUSTRIES GROUP, HE DULY CONFIRMED THAT PHYSICAL GOOD S WERE ACTUALLY SUPPLIED WHICH WERE PROCURED FROM GREY MARKET AND B ILLS FOR PURCHASES OTHER THAN ACTUAL SUPPLIERS WERE GIVEN TO TH E ASSESSEE. THIS ASPECT OF THE MATTER HAS BEEN CONFIRMED BY HIM TWICE, ONCE IN HIS AFFIDAVIT DATED 08.03.2013 AND OTHER IN HIS STATEMENT BEF ORE THE AO ON 12.03.2015. THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASES, THAT IS, THE PURCHASE OF MATERIALS HAVE ACTUALLY BEEN SUPPLIED TO THE ASSESSEE HAD GIVEN THE ITEM WISE DETAILS AND UTILISATIO N OF SUCH MATERIALS IN THE MANUFACTURING AND HOW THE SAME HAS BE EN INVENTORISED IN THE BOOKS OF ACCOUNT. IT HAS BEEN POINTE D OUT THAT THE ASSESSEE HAD ALSO MADE PURCHASES BASED ON ORAL ORDE RS FROM OTHER PARTIES ALSO AND WHEN MATERIAL HAS BEEN RECEIVED AND ONCE THE MATERIAL PURCHASED FROM ANY SUPPLIER ENTERS THE GATE PREMISE OF THE FACTORY, GATE PASS IS PREPARED AND ENTRIES IN REGULAR BOOKS OF ACCOUNT HAVE BEEN MADE. MR. SURESH A. PARIKH HAS ALSO ADMITTE D THAT THE TRANSPORTATION GOODS AND OTHER RELATED EXPENDITURE FOR DELIVERING THE GOODS AT DELIVERY SITE HAS BEEN DRAWN BY THE SUPPLIER S AS THE ORDER IS PLACED AT A FIXED RATE WHICH IS EVIDENT FROM THE BILLS , COPY OF INVOICES SUPPLIED BY SHRI SURESH A. PAREKH. THE MATERIAL PRO OF FOR SUPPLY OF MATERIAL IS BY REFERENCE TO COPY OF INVOICES WHICH M ENTIONS DELIVERY CHALLANS AND THEN THERE IS GATE PASS STAMP WHEN IT ENTER S THE FACTORY PREMISES AND THIS GATE PASS STAMP HAS BEEN IMPOUNDED B Y THE SURVEY PARTY WHICH HAS BEEN REFERRED TO BY THE AO. IT HAS ALS O BEEN BROUGHT ON RECORD THAT MORE THAN ONCE, STAMP ON DIFFERENT BILLS ON DIFFERENT DATES HAS BEEN PLACED WHICH IS NORMAL PRACTICE AND N O ADVERSE ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 43 INFERENCE CAN BE MADE THAT THESE PURCHASES ARE BOGUS Q UA THE ASSESSEE. APART FROM THAT, THE ASSESSEE HAS GIVEN THE D ETAILS OF NATURE OF MATERIAL PURCHASED, COPY OF LEDGER ACCOUNT, PAYME NT DETAILS, MATERIAL UTILISATION OF THE ITEM WISE DETAILS OF PURCHA SES MADE FROM THE CONCERNS OF SHRI SURESH A. PAREKH. THE REVENUE IS HARPING GREATLY ON THE FIRST STATEMENT OF SHRI SURESH A. PAREKH WHEREIN HE HAS ADMITTED THAT HE IS PROVIDING ACCOMMODATION BILLS AND CHARGING COMMISSION ON THEM WITHOUT ACTUAL SUPPLY OF GOODS; AND NEITHER SHRI SU RESH A. PAREKH NOR THE ASSESSEE COULD ADDUCE ANY EVIDENCE TH AT ACTUALLY MATERIAL HAS BEEN SUPPLIED TO THE ASSESSEE. FROM THE R ECORDS AS WELL AS THE HEADS UNDER WHICH ADDITION HAS BEEN MADE BY TH E AO IT IS SEEN THAT THE ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES HAS BEEN MADE ON THE UTILISATION OF FOLLOWING MATERIALS AND THE TREATMENT IN ACCOUNTS: UTILIZATION OF MATERIAL AS- AMOUNT (RS.) TREATMENT IN ACCOUNTS PLANT & MACHINERY/ MOULDS 23,79,82,268 ADDITION TO PLANT AND MACHINERY TRAIL RUN 13,94,92,838 CHARGED TO CAPITAL WIP ACCOUNT TRAIL PRODUCTION 6,83,99,170 CHARGED TO CAPITAL WIP ACCOUNT MACHINERY SPARES 14,97,74,663 SHOWN AS INVENTORY IN BALANCE SHEET RAW MATERIAL & CONSUMABLES 3,50,24,425 CHARGED TO PROFIT AND LOSS ACCOUNT TOTAL 63,06,73,365 29. FROM THE AFORESAID ADDITIONS IT IS QUITE OSTENSIBLE THAT FIRSTLY IT HAS BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND M AJORITY OF THE MATERIAL PURCHASED ARE EITHER PART OF ADDITION TO TH E PLANT AND MACHINERY OR IT HAS BEEN CHARGED TO CAPITAL WIP ACCOUN T OR SHOWN AS INVENTORY IN THE BALANCE SHEET. THERE IS NO IMMEDIATE EFFECT ON INFLATION OF EXPENDITURE WHICH CAN LEAD TO AN IMPRESS ION THAT ASSESSEE ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 44 HAS TRIED TO SUPPRESS ITS PROFIT BY ENTERING INTO ALLEGE D BOGUS TRANSACTIONS WITH HAWALA DEALERS, WHICH IS GENERALLY RESORTED TO BY TRADERS AND SUCH SUPPRESSION OF PROFIT IS OFTEN OFFSET BY APPLYING SOME GP RATE TO FACTOR IN THE PROFIT ELEMENT. THE REVENUE CAN NOT RESORT TO APPROBATE AND REPROBATE ON THE STATEMENT OF SHRI SURESH A. PAREKH, THAT IS, IT CANNOT CHOSE TO RELY UPON THE FIRST SET OF STAT EMENTS RECORDED IN THE YEAR 2013/2014 AND IGNORED HIS SWORN AFFIDAVI T AND THE SECOND STATEMENT ON OATH WHICH WAS RECORDED POST DIRECTION OF TH E TRIBUNAL AND CROSS EXAMINATION CONDUCTED BY THE AO HIMSELF IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. EVEN IF WE AGREE THAT PURCH ASES HAVE BEEN MADE BY THE ASSESSEE THROUGH SHRI SURESH A. PARE KH WHO HAS ARRANGED THE SUPPLY OF MATERIAL FROM GREY MARKET AND H AVE ISSUED ACCOMMODATION BILL, BUT IN THAT CASE ALSO SO FAR AS TH E ASSESSEE IS CONCERNED, THE PURCHASES CANNOT BE TREATED AS BOGUS, B ECAUSE THE ASSESSEE HAD MADE THE PAYMENT THROUGH CHEQUES IN LIEU OF WHICH MATERIAL HAS BEEN SUPPLIED TO THE ASSESSEE. THE SUPP LY OF MATERIAL IS EVIDENCED FIRSTLY , FROM THE INVOICES/BILLS AND STAMPED GATE PASSES AND SECONDLY, WHICH IS MOST IMPORTANT THAT THE MANUFACTURING AND CONSUMPTION DETAILS OF THE ITEM WISE MATERIAL PURCHAS ED FROM SHRI SURESH A. PAREKH HAVE BEEN DULY ENTERED IN THE BOOKS OF ACCOUNT AND CONSUMPTION OF THE SAME HAS NEITHER BEEN DISTURBED NOR DOUBTED. THERE COULD BE SOME DISCREPANCY ABOUT THE TRANSPORTATION BILLS FROM THE SUPPLIERS OF GREY MARKET OR TRANSPORTATION CANNOT BE PROVED BY DOCUMENTARY EVIDENCE BY SHRI SURESH A. PAREKH, HOWEV ER, THE OTHER EVIDENCES SHOWING THE MATERIAL PURCHASED HAS BEEN DU LY RECORDED IN THE BOOKS OF ACCOUNT AND ALSO THE DETAILS OF MATERIAL U TILISATION USED FOR MANUFACTURING, PLANT AND MACHINERY AND INVENTORY ETC. HAS NOT BE DISCARDED OR DOUBTED, ONLY GOES TO SHOW THAT MATERIAL H AS BEEN PURCHASED AND UTILIZED, ALBEIT THROUGH ROTATION MODE DONE BY SHRI SURESH A. PAREKH. HE HAS CATEGORICALLY STATED IN HIS STATEMENT THAT ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 45 EXPENDITURE ON DELIVERING OF GOODS ARE BORNE BY THE A CTUAL SUPPLIERS IN GREY MARKET THEN ONUS IS NOT ON THE ASSESSEE, BECAUSE, WHEN THE MATERIAL PURCHASED HAS BEEN RECORDED BY THE ASSESSEE IT ITS BOOKS OF ACCOUNT AND NEITHER THE MANUFACTURING ACCOUNT NOR THE OTH ER ENTRIES MADE IN THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED, TH EN THESE ITEMS SHOWN IN THE BOOKS OF ACCOUNT CANNOT BE DISCARDED. AO HAS NOT BROUGHT ON RECORD THAT THE DETAILS OF ITEMS PURCHASED FR OM SHRI SURESH A. PAREKH IS NOT APPEARING IN THE BOOKS OF ACC OUNT WHEN THE ASSESSEE HAS SPECIFICALLY RAISED THIS ISSUE BEFORE TH E AO. EITHER THE ENTIRE STATEMENT OF SHRI SURESH A. PAREKH SHOULD BE AC CEPTED OR IT SHOULD BE DISCARDED IN ITS ENTIRETY. ONLY ONE PART OF THE STATEMENT GIVEN AT INITIAL STAGE CANNOT BE SOLELY RELIED UPON F OR MAKING THE ADDITION AND THE SECOND PART OF THE STATEMENT WHICH HAS B EEN MADE BEFORE THE AO HIMSELF DURING THE COURSE OF THE ASSESS MENT PROCEEDINGS WHEN IT WAS SUBJECT TO CROSS EXAMINATION CANNOT BE DISR EGARDED OR REJECTED BY THE REVENUE. AS STATED EARLIER, HERE, IN TH IS CASE, UNLIKE IN THE OTHER CASES OF BOGUS PURCHASES THE ASSESSEES TRADI NG ACCOUNT IS NOT AFFECTED DIRECTLY BECAUSE THE MATERIAL PURCHASED H AVE BEEN UTILISED FOR ADDITION TO THE PLANT AND MACHINERY AND HAS BEEN C HARGED TO CAPITAL WIP ACCOUNT AND ONLY A PART OF IT HAS BEEN SHO WN AS INVENTORY IN THE BALANCE SHEET AND RAW MATERIAL CONSUMABLES WH ICH HAS BEEN CHARGED TO THE P&L ACCOUNT. THERE IS NO DIRECT IMPACT O F SUPPRESSION OF PROFIT, AT LEAST ON THE AMOUNT WHICH HAS BEEN CHARGE D TO CAPITAL WIP ACCOUNT OR ADDITION MADE TO PLANT AND MACHINERY. THUS, WE ARE OF THE OPINION THAT THE ENTIRE PURCHASE CANNOT BE DISALLOWED BY THE DEPARTMENT SOLELY ON THE BASIS OF FIRST STATEMENT OF SHRI SURESH A. PAREKH. AS REGARDS THE SUBMISSION AND CONTENTION OF TH E LD. CIT, DR THAT THERE IS LACK OF DOCUMENTATION IN RESPECT OF PURCHAS ES MADE FROM THE HAWALA OPERATORS BECAUSE SUPPLY OF GOODS COULD NO T BE PROVED, IN THIS REGARD, ONE HAS TO SEE THE OTHER ATTENDED FACTS AND C IRCUMSTANCES ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 46 ALSO WHICH ARE THAT, THE PURCHASE OF MATERIALS ARE BA CKED BY FIRSTLY, ENTRY IN THE GATE PASS AT FACTORY PREMISES; AND SECONDLY, ENTRY IN THE BOOKS OF ACCOUNT AND MANUFACTURING ACCOUNT SHOWING ITE M WISE MATERIAL PURCHASE, MATERIAL CONSUMED, ADDITION IN THE PLANT AND MACHINERY, INVENTORY OF PARTS ETC. ONCE THE FACTUM OF M ATERIAL CONSUMED IN THE MANUFACTURING OR INVENTORY IS NOT DISP UTED THEN NO ADDITION OF PURCHASES CAN BE MADE EVEN IF THE MATERIA L HAVE BEEN PURCHASED THROUGH THE HAWALA OPERATOR. THE CRUCIAL POI NT TO SEE HERE IS THAT, THE SOURCE OF PURCHASES HAVE GONE THROUGH BOOK S OF ACCOUNT AND IN LIEU OF PAYMENTS MADE MATERIAL HAS BEEN PURCH ASED WHICH ARE PROVEN FROM ITEM WISE INVENTORY PREPARED AND ENTERED IN THE BOOKS OF ACCOUNT AND IS REFLECTED FROM MATERIAL CONSUMED IN M ANUFACTURING OR CREDITED TO CAPITAL WIP, ETC.,( WHICH STANDS UNREBUTTED O R UNDISPUTED), THEN NO ADVERSE INFERENCE QUA THE PURCHASES CAN BE MA DE, BECAUSE INSTEAD OF REGISTERED DEALERS ASSESSEE HAS MADE PURC HASE FROM GREY MARKET. 30. AS REGARD THE OTHER DISCREPANCIES AS HIGHLIGH TED BY LD. CIT DR BY REFERRING TO AOS ORDER QUA THE DELIVERY PART, THE S AME LOSES ITS CREDIBILITY WHENCE IT HAS BEEN SHOWN THAT MATERIAL PURC HASES ARE APPEARING IN THE BOOKS OF ACCOUNT AND CONSUMPTION OF THE SAME HAS NOT BEEN DOUBTED. AO SHOULD HAVE CARRIED FURTHER THIS I NFORMATION TO EXAMINE THE ENTRIES IN THE BOOKS OF ACCOUNT AND THE CONS UMPTION DETAILS. AS REITERATED ABOVE AT VARIOUS PLACES, THE FA CTUM OF PURCHASE SO FAR AS THE ASSESSEE IS CONCERNED CANNOT BE DISPUTED WHEN THE HAWALA PERSON HIMSELF HAD ADMITTED THAT HE HAD ARRANGED THE PURCHASES FROM GREY MARKET AND GOT THEM SUPPLIED. THIS STATEMENT BEFORE THE AO CANNOT BE DISCARDED AT ALL. THUS, IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE A DDITION ON ACCOUNT OF SO CALLED ALLEGED BOGUS PURCHASES CANNOT BE ADDED AS ITA NO.1310/M/2016 M/S. VIDECON INDUSTRIES LTD. 47 INCOME OF THE ASSESSEE AND THE SAME AS DIRECTED TO BE DELETED. 31. SO FAR AS THE ISSUE RELATING TO NON-GRANTING O F CREDIT OF TAXES OR SHORT CREDIT OF TDS/ADVANCE TAX, WE DIRECT THE AO TO EXA MINE THE MATTER AND AFTER VERIFYING THE RECORDS GRANT THE CRED IT OF TDS/ADVANCE TAX PROPERLY. 32. AS REGARDS THE CHARGING OF INTEREST U/S. 234B A ND 234C ARE CONCERNED, THE SAME ARE ADMITTED TO BE CONSEQUENTIAL AN D HENCE, SAME ARE DISMISSED. 33. THE LAST GROUND RELATING TO INITIATION OF PENALTY PROCEEDING IS AGAIN PREMATURE AND, THEREFORE, IT SEEMS TO BE INFRUCTUO US AND THE SAME IS DISMISSED. 34. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.02.2017. SD/- SD/- (R.C. SHARMA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 24.02.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.