BS Limited, Hyderabad V. Asst.Comissioner of Income Tax, Circle-2(3), Hyderabad

ITA 2187/Hyd/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1379 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 20-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Bogus purchase; Gift; Business income; Transfer pricing; Search and seizure; Opportunity of being heard; Principle of natural justice; Peak credit; International transaction; Earning of tax free income; Proportionate interest; Retrospective amendment; Fair market value; Wrong claim; Notional interest; Capital receipt; Commercial expediency; Retraction; Sham transactions; Revised return; Reassessment proceedings
• Section: 271(1)(c); 92C; 143(3); 92B; 115JB; 133(6); 37(1); 145; 132; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 218 7 /HYD/201 7 ASSESSMENT YEAR: 20 1 4 - 1 5 M/S BS LTD., HYDERABAD PAN AAACB 3170 F VS. ASST. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 2 ( 3 ), H YDERABAD. ( A PPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : S HRI J. SIRI KUMAR DATE OF HEARING : 0 8 - 1 0 - 201 8 DATE OF PRONOUNCEMENT : 29 - 11 - 201 8 O R D E R PER S . RIFAUR RAHMAN , A .M. : T H IS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 29 / 1 1/2017 RELATING TO AY 20 1 4 - 15 . 2 . BRIEF FACTS OF THE CASE ARE, A SEARCH AND SEIZURE OPERATION U/S 132 OF THE INCOME - TAX ACT, 1961 WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 13/12/2013. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME BELATEDLY U/S 139(4) OF THE ACT ON 18/05/2015 DECLARING A TOTAL INCOME OF RS. 30,48,17,060/ - COMPRISING OF BU SINESS INCOME OF RS. 24,71,83,826/ - AND INCOME FROM OTHER SOURCES RS. 5,76,33,234/ - . THE ASSESSEE HOWEVER COMPUTED DEEMED TOTAL INCOME U/S 115JB OF THE ACT, 1961 AMOUNTING TO RS. 36,10,93,608/ - AND PAID TAXES ACCORDINGLY. IN THE RETURN OF INCOME, AT COL.5 OF SCHEDULE BP, THE ASSESSEE HAD CLAIMED RS. 60 CRORES AS 2 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. OTHER EXEMPT RECEIPT CREDITED TO P& A/C. THE RETURN FILED U/S 139(4) OF THE ACT WAS SELECTED FOR SCRUTINY UNDER THE COMPULSORY GUIDELINES ISSUED BY THE CBDT AND ALSO UNDER CASS. ACCORDINGLY, NOTICE U/S 143(2) DATED 18/05/2015 WAS ISSUED AND SERVED ON T HE ASSESSEE. SUBSEQUENTLY, THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 31/03/2016, WHICH WAS TREATED AS INVALID BY THE AO ON THE GROUND THAT THE ORIGINAL RETURN OF INCOME U/S 139(4) WAS FILED AFTER THE DUE DATE. 2.1 A REFERENCE WAS MADE TO THE TRANSF ER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE IN RESPECT OF THE INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSESSEE COMPANY FOR THE FY RELEVANT TO AY 2014 - 15 WITH THE PRIOR APPROVAL OF THE CIT(CENTRAL), HYD. 2 . 2 ASSESSEE S PROFILE: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING A RANGE OF SERVICES TO POWER TRANSMISSION COMPANIES FOR SETTING UP TRANSMISSION LINES AND SUB - STATIONS. THE COMPANY HAS TWO MANUFACTURING FACILITIES WHICH ARE LOCATED NEAR HYDERABAD WITH AN ANNUAL IN STALLED CAPACITY OF 2,40,000 MTPA. COMPANY IS CERTIFIED WITH QUALITY MANAGEMENT (ISO 9001:2008), ENVIRONMENTAL MANAGEMENT (ISO 14001:2004) AND OCCUPATIONAL HEAL TH AND SAFETY (OHSAS 18001:2007) 2. 3 INTERNATIONAL TRANSACTIONS: AS PER 3CEB REPORT/TP DOCUMENT SUBMITTED, THE INTERNATIONAL TRANSACTIONS ARE AS UNDER: NAME OF THE AE DESCRIPTION IN RS. BS GLOBAL RESOURCES PVT. LTD. INTEREST FREE LOAN GIVEN 20,58,50,500 BS GLOBAL RESOURCES PVT. LTD. CORPORATE GUARANTEE 30,14,04,500 BS GLOBAL RESOURCES PVT. LTD. LOAN RECEIVED BACK 22,98,08,769 3 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 2. 4 EXAMINATION OF TP STUDY CONDUCTED BY ASSESSEE : THE ASSESSEE HAS CARRIED OUT THE ECONOMIC ANALYSIS AND HAS SUMMARIZED IT AS UNDER: NATURE OF INTERNATIONAL TRANSACTION AMOUNT (RS.) MAM WORKING CAPITAL ADVANCE GIVEN 20,58,50,500 OTHER METHOD CORPORATE GUARANTEE 30,14,04,500 - DO - REPAYMENT OF WORKING CAPITAL ADVANCE 22,98,08,769 - DO - 2. 5 ANALYSIS OF THE TRANSACTION: AS PER THE AUDITED STATEMENT OF ACCOUNTS THE FINANCIALS OF THE ASSES SEE ARE AS UNDER: DESCRIPTION AMOUNT (IN RS.) OPERATING REVENUE 1770,76,82,753/ - OPERATING COST 1624,32,43,610/ - OPERATING PROFIT 117,83,45,339/ - OP/TC 9.02% OP/SALES 8.27% 2. 6 ANALYSIS BY THE ASSESSEE: 1. ADVANCE PROVIDED TO AE: THE ASSESSEE PROVIDED THE AE WITH ADVANCES DURING THE YEAR UNDER CONSIDERATION FOR RS. 20,58,50,500/ - . THE ABOVE MENTIONED ADVANCES WERE PROVIDED IN THE NATURE OF WORKING CAPITAL A DVANCE ON ACCOUNT OF BUSINESS AND COMMERCIAL EXPEDIENCY. THE ASSESSEE HAS RECEIVED BACK ADVANCES OF RS. 22,98,08 7 69/ - DURING T H E YEAR ITSELF. FURTHER, THE ASSESSEE IS NOT CHARGING INTEREST ON ADVANCES GIVEN TO NON - AE. HENCE, THE TRANSACTION RELATING TO ADV ANCES TO AE IS WITHIN ARM'S LENGTH PRICE AND NO ALP ADJUSTMENT IS REQUIRED TO BE MADE. 2. CORPORATE GUARANTEE GIVEN TO AE: THE ASSESSEE HAS ALSO PROVIDED CORPORATE GUARANTEE TO THE AE FOR AVAILING BANKING FACILITIES 4 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. FROM UCO BANK, SINGAPORE, AMOUNT OUTSTA NDING AT RS.30,14,04,500/ - . THIS CORPORATE GUARANTEE TO THE AE FOR AVAILING BANKING FACILITIES FROM UCO BANK, SINGAPORE, AMOUNT OUTSTANDING AT R S .30,14,04, 500 / - . THIS CORPORATE GUARANTEE WAS GIVEN BY THE ASSESSEE ON ACCOUNT OF COMMERCIAL & BUSINESS EXPEDIE NCY AND HAS NOT INCURRED ANY COST FOR PROVIDING SUCH CORPORATE GUARANTEE. AS THE TRANSACTION DID NOT RESULT IN ANY INCOME, EXPENSE OR INTEREST AS ENVISAGED UNDER SECTION 92 OF THE INCOME - TAX ACT,1961, IN THE OPINION OF ASSESSEE , DETERMINATION OF ARM'S LENG TH PRICE IS NOT WARRANTED. THE TRANSACTION BETWEEN THE BS LIMITED AND BS GLOBAL RESOURCES PTE LTD, SINGAPORE IS RELATING TO THE WORKING CAPITAL ADVANCES AND CORPORATE GUARANTEE BY THE ASSESSEE COMPANY IN THE SUBSIDIARY COMPANY. HENCE, NO ARMS LENGTH PRICE IS WARRANTED FOR SUCH TYPE OF TRANSACTION. 2. 7 ANALYSIS BY THE TPO 1. LOANS AND ADVANCES PROVIDED OF RS. 20,58,50,500/ - AE NATURE OF TRANSACTION AMOUNT (RS.) ADDITION DURING THE YEAR TOTAL AMOUNT BS GLOBAL RESOURCES PVT. LTD. INTEREST FREE LOAN/ADVANCES 0 20,50,50,500/ - 20,58,50,500/ - 2. 8 THE TPO OBSERVED AS UNDER: IT IS STATED THAT THE COMPANY HAS MADE THE ADVANCES/LOAN TO BS GLOBAL RESOURCES PVT LTD DURING THE YEAR UNDER CONSIDERATION FOR ACQUISITIONS AND BUSINESS EXPANSION. THE TAXPAYER FURTHER STATED THAT THE ADVANCES WERE GIVEN ON THE CONDITION THAT THE ADVANCE WILL BE CONVERTED AS EQUITY AFTER COMPLETION OF TRANSACTION. THESE ADVANCES WILL NOT CARRY ANY INTEREST. THE TAXPAYER STATED THAT EVEN THOUGH THESE ADVANCES HAVE BEEN MADE FOR THE PURPOSE OF ACQUISITION AND FOR EXPANSION OF BUSINESS, THESE WERE CLASSIFIED AS ADVANCE WHILE PREPARING THE FINANCIAL STATEMENT. THE TAXPAYER RELIED ON VARIOUS CASE LAWS TO STATE THAT THE TRANSFER PRICING IS NOT APPLICABLE TO THE TRANSACTION OF INVESTMENT AND LOANS & 5 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. ADVANCES TO THE SUBSIDIARIES AS THERE IS NO INCOME GENERATED BY T HE ASSESSEE. IT IS CLEAR FROM THE ABOVE TABLE THAT THE PURPOSE OF ADVANCING AMOUNTS TO AE WAS NOT SERVED NOR HAS THE TAXPAYER CHARGED ANY INTEREST ON THE SAID AMOUNTS. THE TAXPAYER HAS NOT PROVIDED ANY ECONOMIC ANALYSIS TO THE BENCHMARK THE TRANSACTION BY ADOPTING ANY OF THE METHODS PRESCRIBED UNDER THE ACT. IN AN ARM'S LENGTH SITUATION AND INDEPENDENT PARTY WOULD EITHER INVEST IN AN EQUITY AND SEE TO IT THAT THE SHARES ARE ALLOTTED WITHIN A SPECIFIED PERIOD OR IF A LOAN OR ADVANCE HAS BEEN GIVEN IT WOULD EXPECT A SUITABLE INTEREST ON IT. IT IS IMMATERIAL WHETHER THE SOURCE OF THE LOAN IS INTEREST FREE OR INTEREST BEARING. UNDER ARM'S LENGTH SITUATION HOW MUCH INTEREST COULD BE EARNED IS TO BE SEEN. RBI DOES NOT REGULATE THE INTEREST RATE CHARGEABLE ON THE OUTBOUND LOANS, BUT LOANS RECEIVED FROM THE NON - RESIDENT DIRECT INVESTOR AS WELL AS LOAN EXTENDED TO THE SUBSIDIARIES / ASSOCIATES ABROAD HAS TO BE REPORTED IN A PRESCRIBED FORM. THE ADVANCE FROM INDIA AND INDIAN CURRENCY HAS BEEN SUBSEQUENTLY CONVERTED INTO THE CURRENCY OF THE GEOGRAPHIC LOCATION OF THE AE THE PLR OF THE INDIAN BANKS OUGHT TO BE APPLIED AS THE EXTERNAL CUP. THUS THE OUTBOUND LOANS ARE EFFECTIVELY RUPEE LOANS. IN CASE OF A RUPEE SOURCED LENDING TRANSACTION, THE LENDER IN ORDER TO MAXIMIZE ITS PROFITS WOULD TRY TO BENCHMARK ITS RETURNS WITH THE DOMESTIC INTEREST RATE RATHER THAN LIBOR. THE IDEAL INTEREST RATE ON OUTBOUND INTRA - GROUP LOANS WOULD BE THAT INTEREST RATE WHICH WOULD HAVE BEEN CHARGED BY INDEPENDENT PARTIES DEALING IN SIMILAR CIRCUMS TANCES AND DURING THE SAME PERIOD OF TIME. RBI DOES NOT PERMIT INDIAN ENTITIES TO LEND LOANS TO ANY ENTITY OTHER THAN THEIR WHOLLY OWNED SUBSIDIARIES AND THEREFORE THERE IS NO UNCONTROLLED TRANSACTION AVAILABLE. FURTHER THE INTEREST RATE EXPECTED B Y THE LE NDER IS EQUIVALENT TO THE OPPORTUNITY COST OF SUCH FUNDS. AS A HYPOTHETICAL CUP WOULD BE WHERE THE INDIAN ENTITY INVESTS IN BANK DEPOSITS, STOCKS, MUTUAL FUNDS OR REAL ESTATE, THE CORRESPONDING RETURN WOULD STILL BE THE EFFECTIVE INDIAN INTEREST RATE. AS REGARDS ADVANCES TO BS GLOBAL RESOURCES PVT LTD RS. 22,98,08,769/ - , THE TAXPAYER HAS STATED THAT THE ADVANCE HAS BEEN GIVEN OUT OF THE PROCEEDS OF FCCB WHICH WERE NON - INTEREST BEARING. ACCORDINGLY, AS THE MONEY WAS RAISED AS EQUITY WITH ZERO COUPON RATE OF INTEREST AND WAS INVESTED IN SUBSIDIARY WITHOUT ANY INTEREST. FOR THE REASONS MENTIONED ABOVE, THE CONTENTION OF THE TAXPAYER IS NOT ACCEPTABLE FOR THESE TRANSACTIONS ALSO. THUS, THIS AMOUNT IS ALSO CONSIDERED FOR THE PURPOSE OF BENCHMARKING. ACCORDINGLY, THE ASSESSEE WAS SHOW CAUSED AS TO WHY AN INTEREST @ 14.45% AS PER SBI PLR IS NOT CHARGED. IT IS SEEN FROM THE REPLY THAT THE ASSESSEE STATING THAT IT HAS EXTENDED INTEREST FREE LOAN ONLY ACCORDING TO 6 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. THE REQUIREMENT OF THE BUSINESS AND NOT CHARGED ANY IN TEREST. THE TAXPAYER ALSO RELIED UP ON SEVERAL CASE LAWS. THE ABOVE DISCUSSION ON INTEREST FREE LOAN HAS NOT BEEN CONSIDERED BY EITHER THE TAXPAYER OR IN CASE LAWS, HENCE, THE SUBMISSION OF THE TAXPAYER IS NOT ACCEPTABLE. IN VIEW OF THE ABOVE OBSERVATIONS, THE TPO COMPUTED THE ARMS LENGTH PRICE OF THE INTEREST AS UNDER: LOAN AMOUNT RS. 20,58,50,500/ - ARMS LENGTH OF THE INTEREST (20,58,50,500*14.45%) RS. 2,97,45,397/ - THUS THE ARM'S LENGTH PRICE OF THE INTEREST ON THE TRANSACTION IS RS. 2,97,45,397/ - AND THE SAME IS TREATED AS ADJUSTMENT U/S. 92CA OF I.T. ACT AND THE TOTAL INCOME OF THE TAXPAYER WILL BE ENHANCED ACCORDINGLY U/S 92CA(3) OF THE I.T. ACT. 2. 9 AS REGARDS CORPORATE GUARANTEE GIVEN TO ITS AE , THE TPO OBSERVED AS UNDER: IT IS NOTICED THAT THE TAXPAYER HAS EXTENDED CORPORATE GUARANTEE TO ITS AE AND THE CLOSING BALANCE AS ON 31.03.2014 IS RS. 30,14,04,500/ - . THE TAXPAYER SUBMITTED THAT THE CORPORATE GUARANTEE EXTENDED TO AE WITHOUT ANY CHARGE/FEE AND IN COMPLIANCE OF THE REQUIREMENT OF BUSINESS. THE ASSESSEE WAS SHOW CAUSED WHY A CORPORATE GUARANTEE FEE @ SBI (IS CHARGING FROM THE CLIENT IN THE SIMILAR SCENARIO) IS NOT CHARGED AND PROPOSED FOR ADJUSTMENT. THE ASSESSEE SUBMITTED ITS REPLY STATING THAT CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRA NSACTIONS AS PER INCOME TAX ACT AND ADOPTING THE SBI RATE CORPORATE GUARANTEE FEE IS NOT APPROPRIATE FOR THE CUP METHOD. THE TAXPAYER QUOTED VARIOUS CASE LAWS. THE ISSUE HAS BEEN CONSIDERED. IN AN ARM'S LENGTH SITUATION, A RISK FREE LOAN (OR A LOAN, WHICH CARRIES NO RISK OF DEFAULT) IS EQUIVALENT TO A RISKY LOAN WITH A LOAN GUARANTEE. THE SAME CAN BE ILLUSTRATED AS UNDER: RISK FREE LOAN == RISKY LOAN + LOAN GUARANTEE AS CAN BE SEEN FROM THE ABOVE EQUATION, THE GUARANTEE GIVEN BY THE TAXPAYER MADE A RISKY LOAN INTO A RISK FREE LOAN TO THE BANKER. WHEN ONE OF THE ASSOCIATED ENTERPRISES (GUARANTOR) PROVIDES GUARANTEE, THE BANKS TAKE INTO ACCOUNT THE CREDIT RATING OF SUCH ENTERPRISE BEFORE LENDING THE MONEY TO THE OTHER ASSOCIATED ENTERP RISE (BORROWER). AS A RESULT OF WHICH, THE BORROWER NOT ONLY BENEFITED BY WAY OF LOAN BUT ALSO SAVES COST AS THE SAME ARE PROVIDED AT A LESSER RATE OF INTEREST. HAD THERE 7 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. BEEN NO GUARANTEE, THE BORROWER EITHER MAY NOT OBTAIN A LOAN OR EVEN IF OBTAINED, AT A MUCH HIGHER RATE OF INTEREST IN LINE WITH ITS OWN CREDIT RATING. THE LEVEL OF GUARANTEE WILL BE INFLUENCED BY THE INTEREST SAVED BY THE BORROWER AND THE RISK ASSUMED BY THE GUARANTOR. THEREFORE, THE GUARANTOR INCURS COST ON ONE SIDE AND THE BORROWER SAV ES COST ON THE OTHER SIDE. 2. 10 THE TPO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, REFERRING TO THE PROVISIONS OF SECTION 92B BY THE FINANCE ACT, 2012 AND OECD GUIDELINES, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT CORPORATE GUARANTEE OF THE NATURE PROVIDED WILL NOT COME WITHIN THE MEANING OF INTERNATIONAL TRANSACTION IN TERMS WITH SECTION 92B OF THE ACT AND HE COLLECTED THE INFORMATION FR O M SBI BY ISSUE OF NOTICE U/S 133(6) , AS PER WHICH, LOANS UPTO RS. 5 CRORES, THE BANK GUARANTEE CHAR GES ARE 2.10% PER ANNU M , FROM RS. 5 TO 10 CRORES IS 1.60% AND ABOVE RS. 10 CRORES THE CHARGES ARE 1.30% PER ANNUM. HE, ACCORDINGLY, COMPUTED THE ALP OF CORPORATE GUARANTEE FEE AS UNDER: AMOUNT OF CORPORATE GUARANTEE EXTENDED TO AE RS. 3 0 , 14 , 04 ,500 CORPO RATE GUARANTEE FEE @ 1.30% RS. 39,18,258 THUS THE ARMS LENGTH PRICE OF CORPORATE GUARANTEE FEE IS RS. 39,18,258 / - AND THE SHORTFALL OF THE SAME AMOUNT IS TREATED AS AN ADJUSTMENT U/S 92CA OF THE ACT AND THE TOTAL INCOME OF THE ASSESSEE W AS ENHANCED BY RS. 39,18,258 / - U/S 92CA(3) OF THE ACT. 3. WHEN THE ASSESSEE OBJECTED THE SAME BEFORE THE DRP, THE DRP UPHELD THE ACTION OF THE TPO. CORPORATE MATTERS 4. APART FROM THE ADJUSTMENT TO INTERNATIONAL TRANSACTIONS, THE FOLLOWING DISALLOWANCE S W ERE ALSO MADE BY THE AO AS UNDER: 1. DISALLOWANCE OF RS. 60,00,00,000/ - 1.1 ON PERUSAL OF THE COMPUTATION OF INCOME, AS PER THE RETURN OF INCOME FILED U/ S 139(4), THE AO NOTICED THAT THE BUSINESS OF RS. 8 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 24,71,83,826/ - WAS DECLARED BY THE ASSESSEE AFTER CLAIMING EXEMPTION UNDER THE HEAD OTHER EXEMPT INCOME FROM NET PROFIT OF RS. 96,10,93,608/ - AS PER P&L A/C. WHEN THE AO ASKED TO FILE THE DETAILS OF SUCH EXEMPTION CLAIMED AND SUBSTANTIATE THE SAME, THE ASSESSEE VIDE ITS LETTER DATED 29/11/2016 STATED THAT THE DEDUCTION OF RS. 60 CRORES WAS CLAIMED TOWARDS CAPITAL RECEIPT, THEREFORE, THE SAME CANNOT BE TAXED. REJECTING THE SUBMISSI ON OF THE ASSESSEE, THE AO MADE THE ADDITION OF THE SAID AMOUNT ON THE GROUND THAT THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM FOR EXEMPTION BY WAY FILING ANY DOCUMENTARY EVIDENCE TO INDICATE THE NATURE OF RECEIPT. 1.2 WHEN THE ASSESSEE OBJECTED THE SA ME BEFORE THE DRP, THE DRP CONFIRMED THE ADDITION MADE BY THE AO. 2. ADDITION OF RS. 60,00,00,000/ - ON THE BASIS OF STATEMENT OF SRI RAJESH SATYANARAYANA AGARWAL (DIRECTOR) DATED 13/12/2013 2.1 THE AO OBSERVED THAT SHRI RAJESH SATYANARAYANA AGARWAL, DIR ECTOR OF THE ASSESSEE COMPANY ADMITTED INCOME OF RS. 60 CRORES ON THE DAY OF SEARCH IN A STATEMENT DATED 13/12/2013 RECORDED U/S 132(4) THAT HE VOLUNTARILY CAME FORWARD TO DISCLOSE THE ADDITIONAL UNDISCLOSED INCOME OF RS. 60 CRORES TO BUY PEACE WITH THE DE PARTMENT AND TO AVOID PROTRACTED LITIGATION. THE AO ALSO OBSERVED THAT THE ASSESSEE COMPANY THROUGH VARIOUS STATEMENTS RECORDED, WHICH WERE EXTRACTED BY THE AO IN HIS ORDER, AFFIRMED TIME AND AGAIN THE ADMISSION OF UNDISCLOSED INCOME AT RS. 60 CRORES FOR T HE FY 2013 - 14. SINCE THE ASSESSEE FAILED TO FURNISH ANY REPLY AGAINST THE SHOW CAUSE NOTICE GIVEN BY THE AO IN RESPECT OF THE TRANSACTIONS WITH THE PARTIES FOR RS. 60 CRORES, THE AO MADE THE ADDITION. 2.2 WHEN THE ASSESSEE OBJECTED BEFORE THE DRP, THE DRP CONFIRMED THE ADDITION. 9 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 3. AS REGARDS D ISALLOWANCE OF PROPORTIONATE AMOUNT INTEREST (BEING THE FINANCE COST) OF RS. 22,19,36,623/ - , THE AO HELD THAT THE TRADING TRANSACTIONS BETWEEN THE ASSESSEE AND THE ENTITIES ARE MERE PAPER TRANSACTIONS, NON GENUINE & SHAM. SINCE THE TRANSACTIONS HELD IN DIVERSION OF FUNDS TO THE EXTENT OF SUCH SHAM TRANSACTIONS, THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IS PROPORTIONATELY DISALLOWED BY THE AO AS UNDER: 1. TOTAL PAYMENTS MADE BY BS LTD. RS. 488,73,97,221 2. TOTAL RECEIPTS OF BS LTD FROM RELATED CONCERNS RS. 453,99,66,489 EXCESS PAYMENTS RS. 34,74,30,732 =============== THE AO THEREFORE DI SALLOWED THE EXCESS PAYMENT TOWARDS INTEREST OF RS. 28,54,23,451/ - . 3.1 WHEN THE ASSESSEE OBJECTED BEFORE THE DRP, AS PER THE DRP DIRECTIONS , THE AO COMPUTED THE DISALLOWANCE AT RS. 22,19,36,623/ - . 4. AS REGARDS I NTEREST DISALLOWANCE ON PAYMENTS TO M/S SILVER POINT INFRATECH LTD. - RS. 1,37,88,369 / - , THE AO OBSERVED THAT FOR AY 2012 - 13, AGAINST CONTRACT RECEIVED FROM THE ENTITIES (AS MENTIONED IN PAGE 26 OF AOS ORDER) AMOUNTING TO RS. 5,60,13,796/ - , WORK AMOUNTING TO RS. 5,34,76,748/ - WAS GIVEN ON SUBCO NTRACT TO SILVERPOINT INFRATECH LTD., FOR WHICH M/S BS LTD . HAS PAID RS. 1,13,83,335/ - IN AY 2012 - 13 AND RS. 4,10,23,613/ - IN AY 2013 - 14. APART FROM THE ABOVE, M/S BS LTD HAS MADE PAYMENTS OF RS. 5,79,00,000/ - IN AY 2013 - 14 AND THE AMOUNT IS STILL OUTSTAND ING AS ON DATE. THE AO ISSUED SHOW CAUSE LETTER TO THE ASSESSEE AND SINCE THERE WAS NO REPLY FROM THE ASSESSEE AND WAS UNABLE TO SUBSTANTIATE THE GENUINENESS OF THE TRANSACTIONS WITH M/S SILVER POINT INFRATECH LTD., THE AO HELD THAT THE PAYMENTS TO M/S SIL VER POINT INFRATECH LTD. WERE MADE WITHOUT ANY BUSINESS PRUDENCE & EXIGENCY THUS ENTAILING FINANCIAL COST TO THE ASSESSEE COMPANY. HE, THEREFORE, INTEREST @ 12.5% ATTRIBUTABLE TO SUCH AMOUNTS OF RS. 11,03,06,948/ - I.E. RS. 1,37,88,369/ - WAS CONSIDERED FOR DISALLOWANCE. 10 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 4.1 WHEN THE ASSESSEE OBJECTED BEFORE THE DRP, THE DRP CONFIRMED THE ADDITION MADE BY THE AO. 5. AS REGARDS THE A DDITION MADE TOWARDS LOSS INCURRED ON 4 TH QUARTER RS. 13,23,00,000/ - , THE AO ASKED THE ASSESSEE TO FURNISH FINANCIAL DETAILS OF THE COMPANY FOR THE PERIOD 01/01/2014 TO 31/03/2014 I.E. THE LAST QUARTER OF THE YEAR VIDE LETTER DATED 07/09/2016. SINCE NONE ATTENDED ON THE SAID DATE, THE AO ISSUED A SHOW CAUSE LETTER DATED 27/1 0/2016 TO THE ASSESSEE, TO SHOW CAUSE WHY THE LOSS OF RS. 13.23 CRORES PURPORTED TO BE INCURRED BY THE ASSESSEE COMPANY FOR THE LAST QUARTER ENDED 31/03/2014, SHOULD NOT BE DISALLOWED IN THE ABSENCE OF EVIDENCE FOR SUCH QUARTER. IN RESPONSE TO THE SAID SHO W CAUSE LETTER, THE ASSESSEE VIDE ITS LETTER DATED 29/11/2016 STATED THAT IN THE FOURTH QUARTER OF THE FY 2013 - 14 THE COMPANY HAS GOT LOSS AN AMOUNT OF RS. 13.23 CRORES IN THE REGULAR COURSE OF BUSINESS OPERATIONS AND THERE WAS A CANCELLATION OF WORK ORDER AGREEMENT WITH THE ONE OF ITS CUSTOMER WHICH RESULTED INTO LOSSES AND THE LOSS WAS INCURRED WAS IN THE REGULAR COURSE OF BUSINESS. THE AO HELD THAT SINCE THE ASSESSEE FAILED TO FURNISH EVIDENCES TO SUBSTANTIATE ITS CLAIM FOR THE SAID LOSS, THE SAME HAD TO DISALLOW AND ACCORDINGLY, HE DISALLOWED RS. 13.23 CRORES. 5.1 WHEN THE ASSESSEE OBJECTED THE SAME BEFORE THE DRP, THE DRP CONFIRMED THE ADDITION MADE BY THE AO. 6. THE AO HAS PASSED THE FINAL ORDER ACCORDINGLY ON 29/11/2017, AGAINST WHICH, THE ASSESSE E IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: EACH OF THE GROUNDS OF APPEAL IS MUTUALLY EXCLUSIVE OF, INDEPENDENT AND WITHOUT PREJUDICE TO OTHER. BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED - ASSESSING OFFICER (AO), LEARNED TRANSFER 11 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. PRICING OFFICER (TPO) AND THE HONOU RABLE DISPUTE RESOLUTION PANEL (DRP) - 1. ERRED IN NOT ISSUING DRAFT ASSESSMENT ORDER AS PER PROCEDURE LAID DOWN U/ S. 144C(1) OF THE ACT BY ISSUING THE NOTICE OF DEMAND U/ S. 156 OF THE ACT & PENALTY NOTICES U/S. 271 (L)(C) AND 271AAB ALONG WITH DRAFT A SSESSMENT ORDER DATED 30.12.2016, WHICH TANTAMOUNT TO PASSING OF FINAL ASSESSMENT ORDER. 2. ERRED IN MAKING REFERENCE BY THE AO SUFFERS FROM JURISDICTIONAL ERROR AS THE AO DID NOT RECORD ANY REASONS IN THE DRAFT ASSESSMENT ORDER BASED ON WHICH HE REACHED THE CONCLUSION THAT IT WAS 'EXPEDIENT AND NECESSARY' TO REFER THE MATTER TO THE TPO FOR COMPUTATION OF THE ARM'S LENGTH PRICE, AS IS REQUIRED UNDER SECTION 92CA(1) OF THE ACT. 3. ERRED IN MAKING ALP ADJUSTMENT OF RS. 2,97,45,397/ - TOWARDS INTEREST ON A DVANCES OF RS. 20,58,50,500/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS ALREADY RECEIVED AN AMOUNT OF RS.22,98,08,769/ - DURING THE YEAR ITSELF AND AN AMOUNT OF RS.2,39,58,269/ - IS OUTSTANDING TO THE AE. 3.1 ERRED IN RE - CHARACTERIZING THE NATURE OF TRANSACTION FROM 'WORKING CAPITAL ADVANCE' TO 'LOANS' WHI CH IS NOT PERMISSIBLE U/S. 145 OF THE ACT. 3.2 ERRED IN CALCULATING NOTIONAL INTEREST BY NOT FOLLOWING ANY METHOD AND THE PROCEDURE LAID DOWN U/ S.92C OF THE ACT RELATING TO COMPUTATION OF ALP ADJUSTMENT. 3.3 ERRED IN CHARGING INTEREST ON THE AMOUNT OF ADVANCES OF RS.20,58,50,500/ WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS RECEIVED BACK AN AMOUNT OF RS. 22,98,08,769/ - THE SAID AMOUNT DURING THE YEAR ITSELF. FURTHER THE COMPANY HAS RE CEIVED AN EXCESS AMOUNT OF RS. 2,39,58,269/ - WHICH WAS OUTSTANDING AT END OF THE YEAR AND THE AE HAS NOT CHARGED ANY INTEREST FOR THE SAID AMOUNT. 3.4 ERRED IN NOT APPRECIATING THE FACT THAT EVEN IF THE ABOVE TRANSACTION IS TO BE BENCHMARKED IT SHOULD BE BENCHMARKED USING CUP METHOD WHEREIN IT IS NOT JUSTIFIED IN CHARGING INTEREST BY THE ASSESSEE AS NO INTEREST IS CHARGED BY THE AE ON ADVANCES GIVEN BY THEM. 3.5 WITHOUT PREJUDICE TO THE ABOVE, ERRED IN EQUATING EQUITY INVESTMENT IN AE'S OUTSIDE INDIA WI TH THE INDIAN EQUITY INVESTMENT IN BANK DEPOSIT, STOCKS, MUTUAL FUNDS OR REAL ESTATE AND ADOPTING RATE OF 14.45% WITHOUT APPRECIATING THE FACT THAT THE TRANSACTIONS WERE ENTERED INTO BY THE TAXPAYER IN FOREIGN 12 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. CURRENCY IN RESPECT OF WHICH THE INTEREST RATE S AS APPLICABLE TO THE LOANS ADVANCED IN THE INTERNATIONAL FINANCE MARKETS ARE TO BE ADOPTED. 4. ERRED IN MAKING ADJUSTMENT U / S. 92CA(3) OF THE ACT FOR RS. 39,18,258/ - IN RESPECT OF TRANSACTION OF CORPORATE GUARANTEE PROVIDED TO DCO BANK, SINGAPORE ON BE HALF OF LOAN TO BS RESOURCE PTE LIMITED, SINGAPORE BY CHARGING RATE OF 1.30% ON OUTSTANDING AMOUNT OF RS. 30,14,04,500/ - ON HYPOTHETICAL AND NOTIONAL BASIS WITHOUT THERE BEING ANY MATERIAL ON RECORD. 4.1 ERRED IN MAKING THE ALP ADJUSTMENT U/S. 92CA(3) OF THE ACT FOR RS.39,18,258/ - IN RESPECT OF CORPORATE GUARANTEE WITHOUT ISSUING ANY SHOW CAUSE NOTICE AND WITHOUT ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4.2 ERRED IN TREATING THE TRANSACTION RELATING TO CORPORATE GUARANTEE AS INTERNATIONA L TRANSACTION U/S.92B OF THE ACT WITHOUT APPRECIATING THAT SUCH AN ASSISTANCE OR ACCOMMODATION DO NOT HAVE ANY BEARING ON ASSESSEE'S PROFITS, INCOME, LOSSES OR ASSETS, AND, THEREFORE, WILL BE OUTSIDE THE AMBIT OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 9 2B(1). 4.3 ERRED IN NOT APPRECIATING THE FACT THAT CORPORATE GUARANTEE WAS GIVEN BY APPELLANT AS A PROCEDURAL COMPLIANCE FOR AVAILING THE LOAN BY ITS SUBSIDIARY AND FOR THE OVERALL BENEFIT OF THE GROUP. IT WAS PROVIDED AS A PART OF THE PARENTAL OBLIGATIO N TO ITS SUBSIDIARIES AND IS IN NATURE OF SHAREHOLDER SERVICE. 4.4 ERRED IN NOT APPRECIATING THE FACT THAT PROVISION OF CORPORATE GUARANTEE WAS A PROCEDURAL COMPLIANCE FOR AVAILING THE LOAN. FURTHER, THE ISSUANCE OF CORPORATE GUARANTEE ON BEHALF OF AE DOES NOT INVOLVE ANY COST TO THE ASSESSEE. 4.5 ERRED IN NOT APPRE CIATING THE FACT THAT CORPORATE GUARANTEE WAS GIVEN BY ASSESSEE FOR ITS OWN COMMERCIAL EXPEDIENCY AND FOR THE OVERALL BENEFIT OF THE GROUP. IT WAS PROVIDED AS A PART OF THE PARENTAL OBLIGATION TO ITS NEW SUBSIDIARIES AND IS IN NATURE OF SHAREHOLDER SERVICE . 4.6 ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT DERIVED ANY BENEFIT BY GIVING GUARANTEE TO ITS AE. HENCE, NO ALP ADJUSTMENT IS WARRANTED IN THIS REGARD. 4.7 ERRED IN CALCULATING THE ALP OF THE CORPORATE GUARANTEE FEE USING 'CUP' AS T HE MOST APPROPRIATE METHOD AND BY APPLYING THE RATES OF SBI WITHOUT ANY BASIS AND WITHOUT COMPLYING WITH THE PROCEDURE LAID DOWN FOR COMPUTATION OF ARM'S LENGTH PRICE AS GIVEN IN THE PROVISIONS OF SECTION 92C OF THE ACT. 13 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 4.7.1 ERRED IN ADOPTING RATE WHIC H IS FIXED BY THE INDIAN BANKERS CONSIDERING THE VARIOUS FACTORS IN INDIA HOWEVER, THE SAID TRANSACTION ENTERED BY THE APPELLANT IS OUTSIDE INDIA. 4.7.2 ERRED IN NOT APPRECIATING THE FACT THAT CORPORATE GUARANTEES ARE TOTALLY DIFFERENT FROM BANK GUARANTE ES AND IN CASE OF BANK GUARANTEES THEY ARE HIGHLY SECURED AND LIQUID AND CASHABLE BY THE BENEFICIARY INSTANTLY WITHOUT ANY LEGAL ROUTE. 4.7.3 ERRED IN NOT BRINGING ANYTHING ON THE RECORD WITH REGARD TO TERMS AND CONDITIONS AND CIRCUMSTANCES UNDER WHICH T HE BANKS HAVE BEEN CHARGING GUARANTEE COMMISSION AT THE RATE OF 1.3%. THE CHARGING OF A GUARANTEE COMMISSION DEPENDS UPON TRANSACTION TO TRANSACTION AND MUTUAL UNDERSTANDING BETWEEN THE PARTIES. 4.7.4 ERRED IN COMPARING BANK RATES QUOTED BY SBI AS CUP WI THOUT APPRECIATING THE FACT THAT THE ASSESSEE IS NOT CARRYING BANKING BUSINESS. HENCE, THE COMPARABLE TAKEN BY THE TPO IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 4.7.5 ERRED IN NOT APPRECIATING THE FACT THAT THE RATES TAKEN BY THE TPO ARE QUOTATIONS AND NOT AN ACTUAL UNCONTROLLED 'TRANSACTION' WHICH CAN BE COMPARED TO THE ASSESSEE. 4.8 ERRED IN NOT APPRECIATING THAT THE CREDIT RATING OF THE COUNTRY OF AE (SINGAPORE) IS HIGHER THAN THE COUNTRY OF ASSESSE E COMPANY (INDIA), THEREBY IMPLYING NO BENEFIT IS DERIVED IN THE FORM OF LOW INTEREST RATES. 4.9 ERRED IN CALCULATING THE GUARANTEE FEE ON THE ENTIRE AMOUNT OF THE GUARANTEE INSTEAD OF RESTRICTING THE AMOUNT TO THE EXTENT OF THE WITHDRAWAL OF GUARANTEED AMOUNT BY THE AES. 4.10 WITHOUT PREJUDICE, OUGHT TO HAVE APPLIED REASONABLE PERCENTAGE OF FEE OF CORPORATE GUARANTEE INSTEAD OF 1.3% WHICH IS VERY HIGH AND UNREASONABLE. CORPORATE TAX MATTERS: 5. ERRED IN MAK ING DISALLOWANCE OF RS. 60,00,00,000/ - BY DENYING THE DEDUCTION CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. 5.1 ERRED IN MAKING THE ADDITION OF RS. 60,00,00,000/ - BY DISALLOWING DEDUCTION CLAIMED BY THE ASSESSEE WITH OUT ISSUING ANY SHOW CAUSE NOTICE PROPOSING THE ADDITION. 14 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 5.2 ERRED IN NOT APPRECIATING THE FACT THAT THE RETURN FILED BY THE COMPANY CONSISTS OF RS.60 CRORES INCLUDED IN GROSS RECEIPTS AS ADDITIONAL REVENUE AND LATER THE ASSESSEE HAS WITHDRAWN THE SAME DUE TO NON IDENTIFICATION OF ANY DISCREPANCIES. FROM THE ABOVE, IT IS CLEAR THAT NET INCOME OF RS. 30.48 CRORES IS RESULT OF BOOKS OF ACCOUNT AND AFTER WITHDRAWAL / REDUCTION OF AN AMOUNT OF RS. 60 CRORES BEING THE AMOUNT WRONGLY INCLUDED IN THE GRASS RECEIP TS. 5.3 ERRED IN NOT APPRECIATING THE FACT THAT WE HAVE WITHDRAWN DECLARATION OF RS.60 CRARES BECAUSE WE HAVE NOT IDENTIFIED ANY DISCREPANCIES IN OUR TRANSACTIONS AS WAS APPRECIATED AND AT THE SAME TIME DEPARTMENT HAD ALSO NOT IDENTIFIED ANY DIFFERENCES IN TRANSACTIONS IN POST SEARCH PROCEEDINGS. 6. ERRED IN MAKING AN ADDITION OF RS. 60,00,00,000/ - ON THE BASIS OF STATEMENT OF SRI RAJESH SATYANARAYAN AGARWAL (DIRECTOR) DATED 13.12.2013 WITHOUT APPRECIATING THE FACT THAT THE SAME WAS FIRST INCLUDED IN GR OSS RECEIPTS AND SUBSEQUENTLY WITHDRAWN BY THE DIRECTOR. 6.1 ERRED IN MAKING ADDITION OF RS. 60,00,00,000/ - WITHOUT I SSUING ANY SHOW CAUSE NOTICE PROPOSING SUCH ADDITION. 6.2 ERRED IN NOT APPRECIATING THE FACT THAT THE DIRECTOR HAS ADMITTED RS.60,00,00 ,000/ AS ADDITIONAL UNDISCLOSED INCOME DUE TO SOME MISNOMER, CONFUSION AND MIS - APPREHENSION THAT CERTAIN DISCREPANCIES MIGHT BE THERE AND TO TAKE CARE OF THE DISCREPANCIES IF ANY. BUT AS NO SUCH DISCREPANCIES OR INCONSISTENCY WERE FOUND LATER ON, THEREFORE NO ADDITION WAS REQUIRED TO BE MADE IN THIS BEHALF. 6.3 ERRED IN MAKING ADDITION OF RS. 60,00,00,000/ - ONLY ON THE BASIS OF STATEMENT RECORDED WITHOUT THEIR BEING ANY CORROBORATIVE INCRIMINATING DOCUMENTS OR EVIDENCES FOUND BY IT WHICH COULD SUPPORT THE ABOVE SAID STATEMENT RECORDED. 6.4 ERRED IN NOT REFERRING TO THE CBDT INSTRUCTION NO. F.NO. 286/2/2003 - IT (INV. II ) DATED 10.03.2003 WHICH HAS CLEARLY STATED THAT NO ADDITION TO INCOME SHALL BE MADE DURING THE COURSE OF SEARCH U/S. 132 OR SURVEY U/ S. 13 3A OF THE ACT, WITHOUT BRINGING ON RECORD ANY CORROBORATIVE MATERIAL EVIDENCE IN SUPPORT OF THE ADMISSION MADE BY THE ASSESSEE. 6.5 ERRED IN MAKING ADDITION OF RS. 60,00,00,000/ - WITHOUT APPRECIATING THE FACT THAT THE INCOME ADMITTED AT THE TIME OF SEARC H HAS BEEN WITHDRAWN AS THERE WERE NO DISCREPANCIES OR INCONSISTENCY FOUND LATER/ SUBSEQUENT TO THE SEARCH OPERATION. 15 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 6.6 WITHOUT PREJUDICE TO ABOVE, THE AO OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAS OFFERED THE INCOME TO AVOID ANY PROTRACT ED LITIGATION AND TO BUY PEACE WITH THE DEPARTMENT, BUT HOWEVER THE AO HAS MADE OTHER ADDITIONS WITHOUT ADOPTING THE METHOD OF TELESCOPING OF THE ADMITTED INCOME AGAINST OTHER ADDITIONS CONTEMPLATED WHICH IS NOT CORRECT AND NOT JUSTIFIABLE. 7. ERRED IN D ISALLOWING OF PROPORTIONATE AMOUNT OF INTEREST (BEING THE FINANCE COST) OF RS. 22,19,36,623/ - BY CONCLUDING THAT THE PURCHASES WITH VARIOUS PARTIES SUCH AS VEDIKA STEELS PRIVATE LIMITED, SB METALS PVT LTD, ADARSH GLOBAL TRADERS AND SERVICES PRIVATE LIMITED , RESOURCE METALS & MINERALS PRIVATE LIMITED & UNITED MINERAL RESOURCES PRIVATE LIMITED ARE PAPER TRANSACTIONS AND NON - GENUINE. DRP DIRECTIONS ARE NOT FOLLOWED: 7.1 ERRED IN NOT FOLLOWING THE DIRECTIONS OF DRP IN PARA 2.8 WHEREIN THE HONOURABLE DRP HAS DIRECTED TO COMPUTE THE INTEREST AFTER EXAMINING PAYMENTS AND RECEIPTS WITH THE ALLEGED PARTIES IN THE CASH FLOW / FUND FLOW STATEMENT. 7.2 ERRED IN CALCULATING DISALLOWANCE BY CONSIDERING ONLY PURCHASES WITHOUT TAKING INTO ACCOUNT THE RECEIPTS. THE ACT ION OF THE AO IS AGAINST THE DIRECTIONS OF DRP. 7.3 OUGHT TO HAVE CONSIDERED THE INTEREST CALCULATION SUBMITTED BY THE ASSESSEE WHEREIN THE RECEIPTS AND PAYMENTS FROM THE ALLEGED PARTIES WERE CONSIDERED AND THE INTEREST DISALLOWANCE WAS CALCULATED. TRANSACTIONS ARE AUDITED 7.4 ERRED IN NOT APPRECIATING THE FACT THAT THE TRANSACTION RELATING TO PURCHASES AND SALES ARE ENTERED INTO DURING THE COURSE OF REGULAR BUSINESS WITH PROPER DOCUM ENTATIONS AND THE SAME ARE VERIFIED AND AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT. 7.5 ERRED IN NOT APPRECIATING THE FACT THAT ALL THE DISBURSEMENTS AND RECEIPTS ARE MADE THROUGH THE BANKING CHANNEL AND HAVE DIRECT NEXUS WITH THE BUSINESS ACTIVITY OF T HE ASSESSEE. THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF SECTION 37(1) OF THE ACT. BANK LOAN SANCTIONED FOR SPECIFIC PURPOSE AND THE SAME IS COMPILED BY ASSESSEE. 7.6 ERRED IN NOT APPRECIATING THE FACT THAT THE FUNDS GRANTED BY THE BANK ARE FOR SPEC IFIC BUSINESS PURPOSE ON THE BASIS OF FEASIBILITY AND TECHNICAL STUDY WHEREIN 16 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. THE STOCK AND DEBTORS WERE CONSIDERED FOR GRANTING THE FUNDS AND IT CANNOT BE PRESUMED THAT THE SAME WERE UTILIZED FOR PAPER TRANSACTIONS. PURCHASES WITH THE SIMILAR PARTIES IN THE EARLIER YEARS ALSO. 7.7 ERRED IN DISALLOWING THE INTEREST EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE PURCHASES AND SALES WITH THE ABOVE REFERRED PARTIES WERE MADE IN THE EARLIER ASSESSMENT YEARS ALSO WHEREIN THEY ARE ACCEPTED AND ASSESSMENT WERE COMPLETED WITHOUT ANY DISALLOWANCES. INTEREST BEARING FUNDS ARE UTILIZED FOR THE REGULAR BUSINESS OPERATIONS FOR WHICH THE LOAN IS SANCTIONED. 7.8 ERRED IN NOT CONSIDERING THE FACT THAT THE INTEREST COST IS RELATING TO THE FUNDS APPLIED BY THE ASS ESSEE FOR NORMAL BUSINESS OPERATIONS FOR WHICH LOAN IS SANCTIONED AND IT MAY INCLUDE ALL THE EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT DURING THE COURSE OF BUSINESS AND THE SAME ARE PAID DURING THE YEAR. 7.9 ERRED IN OBSERVING THAT ONLY THE INTEREST BEARING FUNDS ARE UTILIZED ONLY FOR PURCHASES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS RESERVES AND SURPLUS OF RS. 4,399,661,415/ - 7.10 ERRED IN CONCLUDING A MAJOR PORTION OF PURCHASE AS BOGUS AND DISALLOWING THE PROPORTIONATE INTEREST COST W ITHOUT REJECTING THE BOOKS AND RESULTS (PROFIT) AS ADMITTED IN THE RETURN OF INCOME. 7.11 ERRED IN DISALLOWING THE INTEREST BY DISBELIEVING CERTAIN PORTION OF PURCHASE BUT TAKING INTO ACCOUNT THE ENTIRE PROFIT WHICH INCLUDES PROFIT RELATABLE TO SO CALLED BOGUS PURCHASES. 7.12 ERRED IN DISALLOWING THE INTEREST EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE MANNER THE ASSESSEE SHOULD CONDUCT HIS BUSINESS IS BEST LEFT TO THE DISCRETION OF THE ASSESSEE AND THE ASSESSING OFFICER CANNOT SIT IN THE ARM CHA IR OF THE BUSINESSMAN TO DECIDE, HOW THE FUNDS SHOULD HAVE BEEN UTILIZED. 7.13 ERRED IN CALCULATING THE DISALLOWANCE OF INTEREST EXPENDITURE ON THE BASIS OF PROPORTION OF THE PURCHASES WITHOUT CONSIDERING THE AGEING OF DEBTORS AND CREDITORS. THE PERIOD OF TRANSACTION BETWEEN PURCHASE AND SALE WITH THE PARTIES IS VERY SHORT WHICH SHOWS THAT NO INTEREST BEARING FUNDS WERE USED. 17 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 7.14 WITHOUT PREJUDICE, THE LD. AO HAS TAKEN TWO DIVERGENT VIEWS ON THE ISSUE THAT: 7.14.1 THE ENTIRE TRADING ACTIVITY BETWEEN THE ALLEGED COMPANIES AS SHAM AND IN DISALLOWING INTEREST ALLEGEDLY RELATING TO BOGUS PURCHASES. 7.14.2 ACCEPTED THE PROFIT ARRIVED AT BASING ON THE ENTIRE SALES TURNOVER ADMITTED IN P&L A/ C BY THE ASSESSEE. 7.15 ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS PURCHASED WITH THE ABOVE ALLEGED PARTIES AND SOLD TO THE OUTSIDE PARTY AND ACCORDINGLY PROFIT ARRIVED IS OFFERED TO TAX. 7.15.1 ERRED IN DISALLOWING THE PROPORTIONATE EXPENDITURE OF INTEREST WITHOUT APPRECIATING THE FACT THAT THE SAID SALES RELATED TO PURCHASES ARE OFFERED AS INCOME AND HENCE THE ENTIRE PURCHA SES CANNOT BE TREATED AS BOGUS. 7.15.2 ERRED IN MAKING PROPORTIONATE DISALLOWANCE OF INTEREST WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS ALREADY OFFERED PROFIT AND PAID TAX ON THE RELATED PURCHASES WHICH IS HIGHER THAN CERTAIN PERCENTAGE OF THE ABOVE EXPENDITURE WHICH COULD HAVE DISALLOWED. 7.15.3 ERRED IN NOT APPRECIATING THE FACT THAT THE VAT / SERVICE TAX OBLIGATIONS HAVE BEEN DULY COMPLIED WITH BY ASSESSEE AND THE CONCERNED GOVERNMENT AUTHORITIES HAVE ACCEPTED THESE TRANSACTIONS. THEREFORE , IF ONE ARM OF THE GOVERNMENT HAS ACCEPTED THE TRANSACTIONS, THE OTHER ARM OF THE GOVERNMENT MUST ALSO RESPECT THE SAME. 8 ERRED IN DISALLOWING PROPORTIONATE AMOUNT OF INTEREST (BEING THE FINANCE COST) OF RS. 1 ,37,88,369 / - BY CONCLUDING THAT THE SUB CONTRA CT EXPENDITURE OF RS. 11 ,03,06,948 / - TO SILVER POINT INFRATECH LIMITED IS NON - GENUINE. 8.1 ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS RECEIVED CONTRACT WORKS FROM VARIOUS PARTIES AND THE SAME IS SUB CONTRACTED TO SILVER POINT INFRATECH LIMIT ED. THE ASSESSEE HAS RECEIVED ADVANCES FROM THE RESPECTIVE PARTIES AND FROM SUCH ADVANCES PAYMENTS WERE MADE TO SILVER POINT INFRATECH LIMITED. 8.2 ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE IS OPERATING IN A INFRASTRUCTURE BUSINESS OF POWER TR ANSMISSION WHEREIN MOBILIZATION ADVANCES ARE COMMON AND IT HAS RECEIVED CERTAIN AMOUNT AS ADVANCE FROM PARTIES WHICH IS PENDING AS ON 31.03.2014. 18 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 8.3 ERRED IN NOT APPRECIATING THE FACT THAT THE SUB CONTRACT EXPENDITURE INCURRED BY THE ASSESSEE IS IN ITS REGULAR COURSE OF BUSINESS ACTIVITY AS A MATTER OF BUSINESS EXPEDIENCY AND HAS DIRECT NEXUS WITH THE BUSINESS. 8.4 ERRED IN DISALLOWING THE INTEREST EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE MANNER THE ASSESSEE SHOULD CONDUCT HIS BUSINESS IS BES T LEFT TO THE J DISCRETION OF THE ASSESSEE AND THE ASSESSING OFFICER CANNOT SIT IN THE ARM CHAIR OF THE BUSINESSMAN TO DECIDE, HOW THE FUNDS SHOULD HAVE BEEN UTILIZED. 8.5 ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE IS HAVING SIMILAR KIND OF SUB CONTRACT EXPENDITURE WITH THE SAME PARTY IN THE EARLIER YEARS WHEREIN THE SAME WAS ALLOWED. 8.6 ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE HAS ALREADY ADMITTED PROFIT OF RS.25,37,318 / - IN RESPECT OF TRANSACTION WITH THE SILVER POINT INFRATECH LIMITED AND THE SAME WAS OFFERED TO TAX. 8.7 ERRED IN OBSERVING THAT THE ASSESSEE HAS USED ONLY THE INTEREST BEARING FUNDS FOR THE PAYMENT TO SILVER POINT INFRATECH LIMITED. 9 ERRED IN MAKING ADDITION OF RS. 13,23,00,000/ - ALLEGING THAT THE ASSESSEE HAS CLAIMED LOSS IN FOURTH QUARTER MERELY ON SUSPICION AND SURMISES WHICH IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 9.1 ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT CLAIMED ANY LOSS, AS ALLEGED, IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. HENCE, NO DISALLOWANCE CAN BE MADE. 9.2 ERRED IN NOT FOLLOWING THE PROVISIONS OF THE ACT, WHEREIN THERE ARE NO PROVISIONS AS TO SEPARATELY ASSESS QUARTER WISE RESULTS. 9.3 ERRED IN NOT APPRECIATING THE FACT THAT DURING THE YEAR THE ASSESSEE HAS MADE EXPENDITURE ON PROJECT WHICH WAS CANCELLED AND THE SAME WAS PART OF BUSINESS OF THE ASSESSEE. HENCE, THE SAME CANNOT BE DISALLOWED FOR THE YEAR UNDER CONSIDERATION. 9.4 ERR ED IN DISALLOWING THE AMOUNT OF RS.13,23,00,000/ - ON MERE SUSPICION BASIS, WITHOUT FINDING ANY CORROBORATIVE MATERIAL TO SUPPORT THE DISALLOWANCE/ DISPROVING THE ASSESSEE CLAIM, IF ANY. 19 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 9.5 ERRED IN NOT APPRECIATING THE FACT THAT COMPANY HAD ENTERED INT O AGREEMENT FOR BUSINESS EXPEDIENCY AND THE EXPENDITURE INCURRED HAS DIRECT NEXUS WITH THE COMPANY. 9.6 ERRED IN NOT APPRECIATING THE FACT THAT THE INCOME OF THE ASSESSEE IS TO BE ASSESSED ON ANNUAL BASIS SINCE THE ASSESSEE IS FOLLOWING FINANCIAL YEAR FR OM APRIL 1ST TO MARCH 31 ST EVERY YEAR. SO IT IS MAINTAINING BOOKS OF ACCOUNTS ANNUALLY AND NOT QUARTERLY. AN ASSESSEE INCOME IS COMPUTED TAKING INTO ACCOUNT THE TRANSACTIONS RELATING TO 12 MONTHS PERIOD FROM APRIL TO MARCH OF THE PARTICULAR FINANCIAL YEAR. 10 ERRED IN INITIATING PENALTY PROCEEDINGS U / S. 271(1)(C) R.W.S 274 AND 271AAB R.W. S 274 OF THE INCOME TAX ACT. THE APPELLANT MAY ADD, ALTER OR MODIFY ANY OTHER POINT TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 6 .1 BEFORE HEARING, THE BENCH ASKED THE LD. AR TO SPECIFY THE GROUNDS OF APPEAL, WHICH ARE CONTESTED , REASON BEING THERE ARE SO MANY SUB - GROUNDS. LD. AR SUBMITTED THAT HE WILL PRESS ONLY THE MAIN GROUNDS AND PRESS THE ARGUMENT PLACED BEFORE THE BENCH. THE BENC H WILL ADJUDICATE ONLY THE MAIN GROUNDS OF APPEAL AND NOT ITS SUB - GROUNDS. 7 . AS REGARDS GROUND NO. 1, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE AO ERRED IN NOT ISSUING DRAFT ASSESSMENT ORDER AS PER PROCEDURE LAID DOWN U/S 144C(1) OF THE ACT BY ISSUI NG THE NOTICE OF DEMAND U/S 156 OF THE ACT & PENALTY NOTICES U/S 271(1)(C) AND 271AAB ALONG WITH DRAFT ASSESSMENT ORDER DATED 30/12/2016, WHICH TANTAMOUNT TO PASSING OF FINAL ASSESSMENT ORDER: 1. VIJAY TELEVISION PVT. LTD. VS. DRP, [2014] 369 ITR 113 (MAD .) 2 . CAPSUGEL HEALTHCARE LTD. VS. ACIT, ITA NO. 1356/DEL/2012 3 . ACIT VS. GETRAG HI TECH GEARS PVT. LTD., ITA NO. 823/CHD/2012. 20 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 8 . LD. DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF REVENUE AUTHORITIES AND FURTHER SUBMITTED THAT THE CASE LAWS RELIED UPO N BY THE ASSESSEE ARE NOT RELEVANT TO THE PRESENT CASE. 9 . CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE LD. AR SUBMITTED THAT THE DRAFT ASSESSMENT WAS COMPLETED WITH DEMAND NOTICE U/S 156 AND PENALTY NOTICES U/S 271. BY ISSUING SUCH NOTICES, THE ASSESSMENT ORDER BECOMES FINAL. VARIOUS COURTS HAVE HELD THAT SUCH ASSESSMENT ORDERS TO BE NULL AND VOID AB - INITIO. WE H AVE CAREFULLY CONSIDERED THE SUBMISSION AND CASE LAWS RELIED. IN ALL THE CASE LAWS RELIED ON BY THE ASSESSEE, THE COMMON MISTAKE MADE BY THE AO IN THOSE ASSESSMENTS WERE THAT AO PASSED THE FINAL ASSESSMENT ORDER INSTEAD OF DRAFT ASSESSMENT ORDER, THE COUR TS HAVE HELD THAT AS PER SECTION 144C(1), THE AO HAS NO RIGHT TO PASS FINAL ORDER PURSUANT TO THE RECOMMENDATIONS MADE BY THE TPO. ACCORDINGLY, THE ORDER PASSED BY THE AO, THUS, LACKS JURISDICTION. 9 .1 IN THE LIGHT OF THE ABOVE, IN THE PRESENT CASE, THE A O HAS PASSED THE DRAFT ASSESSMENT BUT SENT DEMAND NOTICE AND PENALTY NOTICES ALONG WITH THE DRAFT ASSESSMENT ORDER. SINCE THE FACTS ARE NOT IDENTICAL TO THE FACTS OF THE CASE LAWS RELIED ON BY THE ASSESSEE, MOREOVER, THE AO HAS TO PASS DRAFT ASSESSMENT O RDER AS PER PROVISION AND WAS ACCORDINGLY PASSED BY HIM. THE ACCOMPANYING NOTICES ALONG WITH THE DRAFT ASSESSMENT ORDER ARE ONLY PROCEDURAL MISTAKES, IT CANNOT TANTAMOUNT TO PASSING OF FINAL ASSESSMENT ORDER. ACCORDING LY GROUND RAISED BY THE ASSESSEE IS DI SMISSED. 1 0 . GROUND NO. 2 WAS NOT PRESSED BY THE LD. AR. 11. AS REGARDS GROUND NO. 3 RELATING TO ALP ADJUSTMENT OF RS. 2,97,45,397/ - TOWARDS INTEREST ON ADVANCES OF R S. 20,58,50,500/ - , LD. AR OF THE ASSESSEE SUBMI TTED AS UNDER: 21 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. A. THE TPO HAS CALCULATED THE INTEREST FOR WHOLE YEAR WITHOUT CONSIDERING THE DATE OF GIVING AND RECEIVING ADVANCES (PAGE 384 OF PAPERBOOK - LEDGER EXTRACT OF ADVANCES). B. THERE WAS NO MUTUAL AGREEMENT BETWEEN ASSESSEE AND AE TO PAY INTEREST ON THE SAID ADVANCES. HENCE, TRANSACTION OF ADVANCES CANNOT BE TERMED TO BE COVERED U / S.92B OF THE ACT AND NO ALP ADJUSTMENT IS REQUIRED TO BE MADE. C. IT IS SUBMITTED THAT BS GLOBAL RESOURCES PRIVATE LIMITED AND THE ASSESSEE HAS A COMMON SUPPLIER ATLANTIC INDUSTRIAL & TRADING PTE LTD. THE ADVANCE GIVEN BY THE ASSESSEE TO BS GLOBAL WAS USED FOR PAYMENT OF LC AND OPENING OF NEW LC IN FAVOUR OF ATLANTIC INDUSTRIAL & TRADING PTE LTD WITH WHOM BOTH THE COMPANIES HAS ENTERED INTO A JOINT BUSINESS AGREEMENT FOR SUPPLY OF CO AL. THE DETAILS OF ADVANCES GIVEN TO BS GLOBAL RESOURCES PRIVATE LIMITED AND THE LC'S IN FAVOUR OF ATLANTIC INDUSTRIAL & TRADING PTE LTD ARE AS UNDER: DATE OF PAYMENT AMOUNT IN USD AMOUNT IN INR PURPOSE 19.06.2013 8,00,000 4,70,88,000 USED FOR LC PAYMENT 18.07.2013 500000 2 , 98 , 75 , 000 USEDAS MARGIN MONEY FOR OPENING LC 30.09.2013 20,00,000 12,57,40,000 U S ED AS DEPOSIT WITH COAL MINE D. ADVANCES ARE GIVEN ON ACCOUNT OF BUSINESS AND COMMERCIAL EXPEDIENCY: ADVANCES WERE GIVEN ON ACCOUNT OF BUSINESS AND COMMERCIAL EXPEDIENCY WHICH RESULTS IN OVERALL GROWTH OF THE COMPANY. THE ASSESSEE IS GETTING BUSINESS FROM AE AND THE TRANSACTION HAS TO BE SEEN ON COMMERCIAL CONSIDERATION AS N O MOTIVE TO EVADE TAX BY SHIFTING THE INCOME TO TAX HEAVEN. THE WORKING CAPITAL ADVANCES ARE PROVIDED BY THE ASSESSEE TO THE AE IN VIEW OF THE OVERALL GROWTH OF THE COMPANY'S. THE ASSESSEE IS DERIVING BUSINESS FROM VARIOUS PARTIES IN SINGAPORE AND TO THESE PARTIES THE AE IS ALSO SUPPLYING MATERIAL. IN ORDER TO ACHIEVE OVERALL GROWTH OF THE COMPANY THE ASSESSEE IS GIVING ADVANCES FOR MEETING THE REGULAR ACTIVITY TO THE AE AND THE SAME ARE BEING RETURNED DURING THE YEA R ITSELF. 22 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. IN THIS REGARD, ASSESSEE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS IN [2007] 158 TAXMAN 74 (SC). E . RECEIPTS OF ADVANCES ARE MORE THAN THE AMOUNT OF ADVANCES G IVEN: - AS CAN BE SEEN FROM THE LEDGER EXTRACT SUBMITTED IN PAPER BOOK, THE ASSESSEE HAS RECEIVED THE ADVANCES OF RS.22,98,08,769/ - FROM ITS AE DURING THE YEAR FOR WHICH AE HAS NOT CHARGED ANY IN TEREST. THERE IS AN EXCESS AMOUNT OF RS.2,39,58,269/ - RECEIVED BY THE ASSESSEE AND THE SAME IS OUTSTANDING AS ON 31.03.2014 FOR WHICH AE HAS NOT CHARGED ANY INTEREST. HENCE, THE TRANSACTION IS WITHIN ALP. F . WITHOUT PREJUDICE TO THE ABOVE, EVEN IF TRANSFE R PRICING PROCEEDINGS ARE ATTRACTED, WE WOULD LIKE TO SUBMIT THAT THE ABOVE SAID TRANSACTION IS WITHIN ALP DUE TO FOLLOW I NG : 1. AS PER THE PROVISIONS OF SECTION 92C OF THE ACT, THE ALP OF THE TRANSACTION HAS TO BE COMPUTED BY APPLYING ANYONE OF THE METHOD CONTAINED IN THE ACT. 2. COMPARABLE UNCONTROLLED COST METHOD IS THE MOST APPROPRIATE METHOD. A S PER RULE10B(1) OF THE INCOME TAX RULES, PRICE CHARGED OR PAID FOR COMPARABLE UNCONTROLLED TRANSACTION IS COMPARED WITH PRICE CHARGED OR PAID FOR TRANSACTION WI TH AE AND ACCORDINGLY ALP ADJUSTMENT IS MADE. 3. IN THE PRESENT CASE, THE ASSESSEE HAS NOT CHARGED INTEREST IN RESPECT OF TRANSACTIONS WITH NON - AE. THE ASSESSEE HAS TRADE PAYABLES OF RS.4,07,28,66,450/ - FOR WHICH NO INTEREST IS CHARGED BY THE CONCERNED PA RTIES. THE ASSESSEE HAS TRADE RECEIVABLES OF RS.6, 77,56,83,287/ - IN RESPECT OF WHICH NO INTEREST HAS BEEN CHARGED. 4. AS SEEN FROM THE NOTE NO.9 OTHER CURRENT LIABILITIES (PAGE 69 OF ANNUAL REPORT), AN AMOUNT OF RS.22,32,38,764/ - IS SHOWN AS ADVANCE RECE IVED FROM CUSTOMERS. IN RESPECT OF THESE ADVANCES THE ASSESSEE HAS NOT PAID ANY INTEREST AND THE DETAILS OF ADVANCES ARE SUBMITTED IN PAGE 1140 OF PAPER BOOK 4. 5. APPLYING THE PRINCIPLES OF CUP, WHEN THE ASSESSEE IS CHARGING ZERO RATE OF INTEREST IN RESP ECT OF BUSINESS TRANSACTION WITH NON - AE THE SAME RATE HAS TO BE APPLIED IN RESPECT OF TRANSACTION WITH AE. 6. IN THIS REGARD, RELIANCE IS PLACED ON THE ORDER OF HON'BLE ITAT HYDERABAD IN THE CASE OF M/S LANCO INFRATECH LIMITED FOR AY 2011 - 12 REPORTED IN 8 1 TAXMANN.COM 381 FOR AY 2011 - 12. RELIANCE IS ALSO PLACED ON THE ORDER OF HON'BLE HYDERABAD ITAT 23 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. IN THE CASE OF LANCO INFRATECH LIMITED FOR AY 2011 - 12 IN ITA NO 221/H/2017. 7. HENCE, ZERO RATE OF INTEREST SHOULD BE APPLIED IN RESPECT OF ABOVE SAID TRANSAC TION WITH AE IS JUSTIFIED AND WITHIN ALP. 8. TPO HAS CHARGED @ 14.45% WHICH HAS NO BASIS. THE ALP OF THE TRANSACTION SHOULD BE DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C OF THE ACT RELATING TO COMPUTATION OF ARMS LENGTH PRICE. THE METHOD SHOULD BE DECIDED AS PER THE APPROPRIATENESS OF THE TRANSACTION. IT CANNOT BE SELECTED ARBITRARILY/RANDOMLY. THE RATE OF 14.45% HAS NO RELEVANCE AND IS ADOPTED BY FOLLOWING CHERRY PICKING APPROACH WHICH IS AGAINST THE PROVISIONS OF THE ACT. IN VIEW OF TH E ABOVE SUBMISSIONS, IT IS REQUESTED TO KINDLY DELETE THE ALP ADJUSTMENT MADE IN RESPECT OF ADVANCES. 12. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 13. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . WE OBSERVE THAT ASSESSEE HAS GIVEN SHORT TERM ADVANCE TO ITS AE AND RECEIVED BACK THE ADVANCE BEFORE THE END OF THE FINANCIAL YEAR. THERE IS NO DISPUTE WITH THE TRANSACTION AND IT IS ACKNOWLEDGED BY THE ASSESSEE THAT IT HAS NOT CHARGED OR RECEIVED ANY IN TEREST ON THIS TRANSACTION CONSIDERING THE FA C T THAT AT THE END OF THE YEAR, ASSESSEE OWES TO ITS AE TO THE EXTENT OF RS. 239,58,269/ - . ON CAREFUL PERUSAL OF THE LEDGER EXTRACT SUBMITTED BEFORE US, WHICH IS PLACED ON RECORD AT PAGE 384 OF PAPER BOOK. THE SUMMARY OF THE LEDGER EXTRACT IS GIVEN BELOW: DATE ADVANCE GIVEN ADVANCE RECEIVED BACK CUMULATIVE BALANCE NO. OF DAYS 19/06/2013 470,88,000 - 470,88,000 - 18/07/2013 298,75,000 - 769,63,000 30 DAYS 30/09/2013 1257,40,000 - 20,27,03,000 43 DAYS 20/11/2013 - 8,83,92,2002 11,43,10,998 51 DAYS 04/12/2013 - 248,39,012 8,94,71,986 14 DAYS 05/12/2013 - 11,65,77,755 (271,05,769) 1 DAY 03/02/2014 31,47,500 - (239,58,269) 59 DAYS 24 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. FROM THE ABOVE LEDGER EXTRACT, IT IS CLEAR THAT THE ASSESSEE HAS GIVEN ADVANCE TO ITS AE ON 19/06/2013, 1807/2013 AND 30/09/2013 AND RECEIVED BACK ON 20/11/2013, 04/12/2013 AND 05/12/2013. IN THE RESULT, ASSESSE E HAS RECEIVED MORE THAN THAT IT HAS ADVANCED. IN OUR VIEW, THE ADVANCES GIVEN BY THE ASSESSEE TO ITS AE ARE FALLS WITHIN THE AMBIT OF INTERNATIONAL TRANSACTION. BUT, ASSESSEE HAS TAKEN CONSCIOUS DECISION TO ADVANCE WITHOUT CHARGING ANY INTEREST. BUT, SINC E, IT FALLS WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION, THE PROVISION WILL ATTRACT ACCORDINGLY. AT THE SAME TIME, WE NOTICE THAT TPO HAS CHARGED INTEREST FOR THE WHOLE YEAR BY BENCH MARKING @ 14.45%. WE FIND IT TO BE A BIT HARSH ON THE ASSESSEE . AS PER THE ABOVE LEDGER SUMMARY, IT IS CLEAR THAT ASSESSEE HAS GIVEN LOAN FOR OVERALL PERIOD OF 139 DAYS. TPO SHOULD HAVE CALCULATED THE INTEREST FOR ALP ADJUSTMENT ONLY FOR THE 139 DAYS ON THE BASIS OF DAY - WISE OUTSTANDING. 13.1 COMING TO THE NEXT QUESTION , WHETHER THE BENCH MARKING OF INTEREST BASED ON SBI PLR IS PROPER , THE VARIOUS COURTS AND SPECIALLY HYDERABAD BENCH OF TRIBUNAL HAS ADJUDICATED IN MANY CASES THAT THE BENCH MARKING ON INTERNATIONAL TRANSACTION SHOULD BE BASED ON INTERNATIONAL BANK RATES R ELEVANT TO THE PARTICULAR TRANSACTION. IN THE GIVEN CASE, THE TRANSACTION IS IN USD, THE BENCH MARKING SHOULD BE ON LIBOR PLUS ONLY. 13.2 THEREFORE, WE DIRECT THE AO/TPO TO CALCULATE THE INTEREST FOR THE PERIOD OF 139 DAYS AND ON THE DAY - WISE OUTSTANDING BASIS COMMENCING FROM 19/06/2013 TO 04/12/2013 BY ADOPTING LIBOR + 200 BPS. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14. AS REGARDS GROUND NO. 4 REGARDING ADDITION OF RS. 39,18,258 / - IN RESPECT OF CORPORATE GUARANTEE PROVIDED TO AE, LD. AR SUBMITTED THAT THE CORPORATE GUARANTEE GIVEN TO AE DOES NOT FALL WITHIN THE SCOPE OF INTERNATIONAL TRANSACTION U/S 92B. HE SUBMITTED THAT THE CORPORATE GUARANTEE IS PROVIDED TO AE FOR COMMERCIAL , BUSINE SS 25 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. EXPEDIENCY AND PROMOTER OBLIGATION. ALSO, IT IS DIFFERENT FROM THE BANK GUARANTEE. FURTHER, HE SUBMITTED THAT TPO HAS ADOPTED THE RATE OF SBI, WHEREAS THE ASSESSEE HAS EXTENDED THE BANK GUARANTEE TO THE FOREIGN AE. THEREFORE, HE SHOULD HAVE ADOPTED RATES AVAILABLE IN THE INTERNATIONAL MARKET. HE ALSO SUBMITTED THAT TPO SHOULD HAVE CHARGED THE RATE ON THE ACTUAL LOAN, AVAILED BY THE AE, NOT ON THE CORPORATE GUARANTEE EXTENDED BY THE ASSESSEE AND THE ASSESSEE H A S NOT INCURRED ANY COST FOR PROVIDING SUCH GUARANTEE. WITHOUT P REJUDICE, TO THE ABOVE, HE SUBMITTED THAT THE AO OUGHT TO HAVE APPLIED REASONABLE RATE OF CORPORATE GUARANTEE FEE PERCENTAGE, SAY 0.20%. H E RELIED ON THE FOLLOWING CASES: 1. BHARATI AIRTEL LTD. VS. ACIT, ITA NO. 5816/DEL/2012 2. ABA N OFFSHORE LTD. VS. DCIT, ITA NO. 585/MDS/2015 3. VIDEOCON INDUSTRIES LTD. VS. ACIT, ITA NO. 6145/MUM/2012/ 55 TAXMANN.COM 263 4. MANUGRAPH INDIA LTD., VS. DCIT, [2016] 69 TAXMANN.COM 400 (MUM. TRIB) 5. RUSABH DIAMONDS VS. ACIT, 68 TAXMANN.COM 141 ( MUM. T RIB) 6. ASIAN PAINTS LTD. VS. ACIT, ITA NO. 7801/MUM/2010 7 . LANCO INFRATECH LTD. VS. DCIT, ITA NO. 450/HYD/2016 8. ASTER PVT. LTD., VS. DCIT, ITA NO. 220/HYD/2015. HE FURTHER, SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2013 - 14 IN ITA NO. 2186/HYD/2017 VIDE ORDER DATED 27/04/2018. HE SUBMITTED THAT IN THE ABOVE DECISION, THE BENCH HAS ADJUDICATED THE RATE AT 0.53%. HE PRAYED THAT IN THE SINGAPORE WHERE THE AE COMPANY IS INCOR PORATED, THE BANKS ARE CHARGING INTEREST RATE @ 0.15% ON BANK GUARA N T EE , THEREFORE, THE SAME MAY BE ADOPTED. 1 5. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 26 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 16. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF TH IS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2013 - 14 (SUPRA) WHEREIN THE AM IS PARTY), WHEREIN THE COORDINATE BENCH HELD AS UNDER: 14 . CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL FACTS ON RECORD AS WELL AS VARIOUS CASE LAWS SUBMITTED BY THE AS SESSEE. ASSESSEE HAS PROVIDED CORPORATE GUARANTEE TO ITS AE IN THE CURRENT AY WITHOUT CHARGING ANY FEES FOR PROVIDING CORPORATE GUARANTEE . THE TERM GUARANTEE WAS INSERTED IN THE DEFINITION OF INTERNATIONAL TRANSACTION BY INSERTING AN EXPLANATION IN THE F INANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01/04/2002. AFTER CONSIDERING VARIOUS CASE LAW SUBMITTED BY LD. AR, WE NOTICE THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF FOUR SOFT PVT. LTD., 44 TAXMANN.COM 479 (HYD.), AGREED WITH THE CONTENTI ON OF LD. DRS SUBMISSION THAT THE CORPORATE GUARANTEE OF THE NATURE PROVIDED BY THE ASSESSEE IS COVERED UNDER THE EXPANDED DEFINITION OF INTERNATIONAL TRANSACTION POST AMENDMENT TO INTERNATIONAL TRANSACTION. FURTHER, THE HYDERABAD BENCHES CONSISTENT WITH THE VIEW THAT CORPORATE GUARANTEE PROVIDED BY THE TAXPAYER PRIOR TO AMENDMENT ARE NOT INTERNATIONAL TRANSACTION. HENCE, IT MEANT THAT POST AMENDMENT, CORPORATE GUARANTEE PROVIDED BY THE TAXPAYER ARE INTERNATIONAL TRANSACTION. THEREFORE, CORPORATE GUARANTE E PROVIDED BY THE ASSESSEE WILL FALL WITHIN THE EXPANDED DEFINITION OF INTERNATIONAL TRANSACTION. 14.1 WITH REGARD TO QUANTUM OF GUARANTEE FEE TO BE CHARGED, IT IS CONSISTENT VIEW OF THE BENCH THAT THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE CANNOT B E EQUATED WITH A BANK GUARANTEE PROVIDED BY THIRD PARTY BANKS. THEREFORE, THE RATE CHARGED BY BANKS CANNOT BE APPLIED TO DETERMINE THE ALP FOR THE GUARANTEE PROVIDED BY THE ASSESSEE. THE COORDINATE BENCH IN THE CASE OF FOUR SOFT (SUPRA) REFERRED TO THE DECISION OF MUMBAI ITAT IN THE CASE OF GLENMARK PHARMAC EUTICALS , 43 TAXMANN.COM 141 (MUM. TRIB.) WHEREIN DISTINCTION WAS MADE BETWEEN BANK GUARANTEE AND CORPORATE GUARANTEE AND 0.53% WAS HELD TO BE APPROPRIATE ALP FOR GUARANTEE COMMISSION. 14.2 FURTHER, LD. AR SUBMITTED THAT THE ASSESSEE HAS EXTENDED THE CORPORATE GUARANTEE TO THE AE WHEREAS AE HAS NOT UTILIZED THE FULL FINANCIAL FACILITY DURING THE YEAR, HENCE, THE QUANTUM CANNOT BE DETERMINED IN FULL VALUE OF CORPORATE GUARANTEE. WE ARE IN AGREEMENT WITH THE ASSESSEE THAT CORPORATE GUARANTEE IS CONTINGENT LIABILITY, RELEVANT CONSEQUENCE DEPENDS UPON FUTURE EVENT. HOWEVER, THE QUANTUM OF EXPOSURE SH OULD BE ON THE BASIS OF ACTUAL EXPOSURE. IN THIS CASE, IT IS NOT CLEAR FROM THE 27 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. DOCUMENT SUBMITTED BEFORE US THE ACTUAL EXPOSURE. THEREFORE, WE FIND IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF TPO/AO TO DETERMINE THE ACTUAL EXPOSURE OF CONTINGEN T LIABILITY FOR THIS AY AND APPLY THE RATE OF 0.53% AS PER THE RATIO OF GLENMARK PHARMACEUTICALS (SUPRA) ON THE ACTUAL CONTINGENT LIABILITY. IT IS NEEDLESS TO SAY THAT ASSESSEE MAY BE GIVEN PROPER OPPORTUNITY OF BEING HEARD. ACCORDINGLY, GROUND RAISED BY T HE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE SAID DECISION, WE REMIT THIS ISSUE TO THE FILE OF TPO/AO TO DECIDE THE ISSUE IN LINE WITH THE ABOVE DIRECTIONS GIVEN IN AY 2013 - 14. THE ASSESSEE MADE SPECIFIC REFERENCE TO THE CHARGING RATE AT SINGAPORE @ 0.15%. WE FIND THAT THE ASSESSEE HAS A POINT SINCE THE BENCH MARKING IS GENERALLY BASED ON BANK RATES WHEN THE BANKS ARE CHARGING @ 0.15% ON BANK GUARANTEE, THE SAME SHOULD BE ADOPTED TO BENCH MARK. THEREFORE, T HE TPO IS D IRECTED TO COLLECT THE RATES PREVAILING IN SINGAPORE BANKS AND ADOPT THE SAME FOR BENCH MARKING. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 16. AS REGARDS GROUND NO. 5 RELATING TO ADDITION OF RS. 60 CRORES FOR ENTRY IN BOOKS, THE ASSESSEE IN ITS WRITTEN SU BMISSIONS, STATED AS UNDER: IT IS SUBMIT TED THAT DURING THE COURSE OF SEARCH PROCEEDINGS, THE MD OF THE ASSESSEE COMPANY HAD ADMITTED ADDITIONAL INCOME OF RS. 60 CRORES ON THE DAY OF SEARCH IN A STATEMENT DATED 13.12.2013 RECORDED UL S 132(4) OF THE IT A CT. THE ADDITIONAL INCOME WAS DECLARED IN THE BELIEF THAT THERE WERE CERTAIN DISCREPANCIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY. ACCORDINGLY, AN AMOUNT OF RS. 60 CRORES WAS CREDITED AS PART OF SALES IN THE BOOKS OF ACCOUNT TOWARDS ADDITIONAL INC OME DECLARED DURING THE SEARCH PROCEEDINGS. H OWEVER, ON LATER VERIFICATION, NO DISCREPANCIES WERE NOTICED AND THEREFORE, T HE ASSESSEE COMPANY WITHDRAWN THE ADDITIONAL INCOME OFFERED DURING THE SEARCH PROCEEDINGS WHILE FILING THE RETURN OF INCOME. IN DOI NG SO, THE ASSESSEE COMPANY REDUCED THE TOTAL PROFITS OF THE COMPANY BY RS. 60 CRORES. H OWEVER, DURING THE POST SEARCH ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE THE ADDITION OF RS. 60 CRORES TO THE INCOME OF THE ASSESSEE OBSERVING THAT THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO ESTABLISH THE CLAIM OF REDUCTION OF RS. 60 CRORES MADE IN RETURN OF INCOME. 28 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. IN THIS REGARD, IT IS S UBMIT TED THAT THE ACTION OF THE ASSESSING OFFICER IS COMPLETELY INCORRECT IN MAKING ADDITION OF RS. 60 CRORES TO THE INCOME OF THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT SAME REPRESENTS THE ADDITIONAL INCOME OFFERED DURING THE SEARCH PROCEEDINGS WHICH IS LATER WITHDRAWN AS NO DISCREPANCIES WE RE NOTICED IN THE BOOKS OF ACCOUNT OF THE COMPANY. THIS FACT WAS AVAILABLE BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER, IGNORING THE FACTS AVAILABLE ON RECORD, WENT ON TO ADD THE AMOUNT OBSERVING THAT THE ASSESSEE COMPANY IS NOT ABLE TO SU BSTANTIATE THE CLAIM OF DEDUCTION. FACT REMAINS THAT THE AMOUNT OF RS. 60 CRORES IS ONLY TOWARDS ALLEGED ESTIMATION OF BOGUS TRANSACTIONS AND DOES NOT REPRESENT THE REAL INCOME OF THE ASSESSEE. ONCE THE ADDITIONAL INCOME OFFERED IS WITHDRAWN, THE PROVIS IONS OF INCOME TAX ACT DO NOT EMPOWER THE ASSESSING OFFICER TO TAX AN AMOUNT BASED ON SUSPICION WHICH DOES NOT REPRESENTS THE REAL INCOME OF THE ASSESSEE. FURTHER, DURING THE ITAT APPELLATE PROCEEDINGS FOR AY 2013 - 14 IN THE ASSESSEE'S OWN CASE WHICH IS HEARD IN ITA NO 2186/H/2017, THE LD. DR HAS STATED THAT THE ADDITION OF RS. 60 CRORES WAS MADE IN RESPECT OF DISCREPANCIES IN FINANCE COST FOR ALLEGED PURCHASES WITH GROUP COMPANIES. THE RELEVANT EXTRACT OF THE ABOVE FINDINGS IS AS UNDER : '17.7 FURTHER, LD. DR TRIED TO APPLY THE ABOVE DECISION OF SHRI J AGDISH H. PATEL I.E. 8% OF TOTAL PURCHASES OF TWO A YS I.E. 2013 - 14 & 2014 - 15 WHICH COMES TO RS. 58.09 CT01'ES. HE SUBMITTED THAT AGAINST THE ABOVE, AO HAS ALREADY MADE THE DISALLOWANCE OF R S . 60 CRORES IN A Y 2014 - 15. WE FIND THERE IS NO RELEVANCE FOR THIS SUBMISSION IN THIS A Y AND MOREOVER, AO HAS NOT MADE ANY DISALLOWANCE IN PURCHASES IN A Y 2013 - 14.' HE REIN, IT IS SUBMIT TED THAT THE HON'BLE ITAT H YDERABAD, IN ITA NO 2186/ H /2017 HAVE ALREADY DELETED THE ADDITION MADE IN RESPECT OF FINANCE COST ON ALLEGED PURCHASES FROM GROUP COMPANIES VIDE PARA 17.8. ONCE THE VERY BASIS OF THE ADDITION HAS BEEN DELETED BY THE HON'BLE ITAT FOR WHICH THE ADDITIONAL INCOME WAS OFFERED, ONCE AGAIN ADDITION MADE ON THE BASIS O F SAME DISCREPANCIES, WHICH WERE LATER FOUND TO DO NOT EXIST; ADDITION SO MADE IS NOT CORRECT AND HENCE IT IS REQUESTED TO KINDLY DELETE THE SAME. IN THIS REGARD, RELIANCE IS PLACED ON THE FOLLOWING: (A) JUDGMENT OF HON'BLE SUPREME COURT OF INDIA IN TH E CASE OF SHOORJI VALLABHDAS & CO. 46 ITR 144 WHEREIN, THE HON'BLE APEX COURT OF INDIA HAS OBSERVED AS UNDER: 29 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 'INCOME - TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME - TAX J1CT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK - KEEPING, AN ENTRY IS MADE ABOUT A 'HYPOTHETICAL INCOME': WHICH DOES NOT MATERIALIZE . WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THER E IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOUNT. THIS WAS EXACTLY WHAT HAD HAPPENED IN INSTANT CASE. HERE THE AGREEMENTS WITHIN THE PREVIOUS YEAR REPLACED THE EARLIER AGREEMENTS AND ALTERED THE RATE IN SUCH A WAY AS TO MAKE THE INCOME DIFFERENT FROM WHAT HAD BEEN ENTERED IN THE BOOKS OF ACCOUNT. A MERE BOOKKEEPING ENTRY CANNOT BE INCOME, UNLESS INCOME HAS ACTUALLY RESULTED, AND IN THE INSTANT C ASE, BY THE CHANGE OF THE TERMS THE INCOME WHICH ACCRUED AND WAS RECEIVED CONSISTED OF THE LESSER AMOUNTS AND NOT THE LARGER. THIS WAS NOT A GIFT BY THE ASSESSEE FIRM TO THE MANAGED COMPANIES. THE REDUCTION WAS A PART OF THE AGREEMENT ENTERED INTO BY THE A SSESSEE FIRM TO SECURE A LONG - TERM MANAGING AGENCY ARRANGEMENT FOR THE TWO COMPANIES WHICH IT HAD FLOATED.' (B) ORDER OF MUMBAI ITAT IN THE CASE OF LOK HOUSING & CONSTRUCTION L IMITED VS ACIT REPORTED IN [2012] 27 TAXMANN.COM 15(MUM) WHEREIN THE H ON BLE IT AT HAS HELD AS UNDER: '46. IN THE CASE OF HM. KESHIPAREKH & CO. LTD. (SUPRA), THE CONCEPT OF REAL INCOME WAS EXPOUNDED BY THE HON 'BLE BOMBAY HIGH COURT WHICH HAS BEEN APPROVED BY THE HON 'BLE SUPREME COURT IN THE CASE OF POONA ELECTRIC SUPPLY CO. LTD. V. CIT [1965 ] 57 ITR 521. IT WAS HELD BY THE HON'BLE BOMBAY H IGH COURT IN THE CASE OF H.M. K ESHIPAREKH & CO. LTD. (SUPRA) THAT THE PRINCIPLE OF REAL INCOME IS NOT TO BE SO SUBORDINATED AS TO AMOUNT VIRTUALLY TO A NEGATION OF IT WHEN A SURRENDER OR CONCESSION O R REBATE IN RESPECT OF MANAGING AGENCY COMMISSION IS MADE, AGREED TO OR GIVEN ON THE GROUND OF COMMERCIAL EXPEDIENCY, SIMPLY BECAUSE IT TAKES PLACE SOMETIME AFTER THE CLOSE OF ACCOUNTING YEAR. IT WAS HELD THAT IN EXAMINING ANY TRANSACTION AND SITUATION OF THIS NATURE, THE COURT WOULD HAVE MORE REGARD TO THE REALITY AND SPECIALTY OF THE SITUATION RATHER THAN PURE THEORETICAL OR DOCTRINAIRE ASPECT OF IT. 47. A SOME WHAT SIMILAR ISSUE AGAIN AROSE BEFORE THE HON'BLE BOMBAY LLIGH COURT IN THE CASE OF CIT V. SHI VSAGAR ESTATES 30 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. (AGP) [1993 ] 204 ITR 1. IN THE SAID CASE, THE ASSESSEE HAD LEASED A PLOT ON RENT AND HAD MADE CERTAIN ADVANCES ON INTEREST TO M UNDER AN AGREEMENT. M WAS TO CONSTRUCT THE H OTEL ON THE SAID PLOT WHICH HE WAS UNABLE TO DO. A FRESH AGREEMENT, THEREFORE, WAS ENTERED INTO BETWEEN THE ASSESSEE AND M SUBSEQUENTLY UNDER WHICH THE ASSES SEE WAIVED RENT AND INTEREST AND RECEIVED BACK THE PLOT. IN THESE FACTS AND CIRCUMSTANCES, THE DOCTRINE OF REAL INCOME WAS HELD TO BE APPLICABLE BY THE HON'BLE BOMBAY H IGH COURT HOLDING THAT NO RENTAL OR INTEREST INCOME COULD BE CHARGED IN THE HANDS OF THE ASSESSEE ON THE BASIS OF EARLIER AGREEMENT WITH M. IN THE PRESENT CASE, THE ORIGINAL AGREEMENTS/TRANSACTIONS IN RESPECT OF IMMOVABLE PROPERTIES HAVE BEEN SUBSEQUENTLY CANCELLED/ TERMINATED AND AS A RESULT OF THE SAID CANCELLATION/TERMINATION, THE RELEVANT IMMOVABLE PROPERTIES HAVE BEEN RETURNED BACK TO THE ASSESSEE WHICH ARE DULY REFLECTED IN ITS BALANCE SHEET AS STOCK IN TRADE IN THE SUCCEEDING YEARS AS DEMONSTRATED BY THE LEARNED COUNSEL F OR THE ASSESSEE FROM THE RELEVANT BALANCE SHEET PLACED ON RECORD. AS FURTHER SUBMITTED BY HIM, THE ASSESSEE COMPANY IS STILL HOLDING THE SAID IMMOVABLE PROPERTIES AS STOCK IN TRADE. HAVING REGARD TO ALL THESE FACTS OF THE CASE, WE ARE OR THE VIEW THAT NO INCOME CAN BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE FROM THE RELEVANT TRANSACTIONS /AGREEMENTS IN RESPECT OF THE IMMOVABLE PROPERTIES AND THE ADDITION MADE BY THE AD AND CONFIRMED BY THE LEARNED CIT(APPEALS) ALLEGING ACCRUAL OF SUCH INCOME IN THE YEAR UNDER CONSIDERATION CANNOT BE SUSTAINED BY THE DOCTRINE OF REAL I NCOME. 48. KEEPING IN VIEW THE LEGAL POSITION EMANATING FROM THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND HAVING REGARD TO ALL THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT NO INCOME CAN BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE AS A R ESULT OF THE FIVE RELEVANT TRANSACTIONS IN THE IMMOVABLE PROPERTIES WHICH IS CHARGEABLE TO TAX IN ITS HANDS FOR THE YEAR UNDER CONSIDERATION. THE DECLARATION OF SUCH INCOME, WHICH WAS NOT ACCRUED TO THE ASSESSEE IN THE REAL SENSE IN THE ORIGINAL RETURN THU S REPRESENTED A WRONG STATEMENT WHICH WAS CORRECTED BY THE ASSESSEE BY FILING THE REVISED RETURN AND THE AO AS WELL AS THE LEARNED CIT(APPEALS), IN OUR OPINION, WAS NOT JUSTIFIED IN BRINGING TO TAX SUCH HYPOTHETICAL INCOME IN THE HANDS OF THE ASSESSEE COMP ANY ON THE BASIS OF ORIGINAL RETURN OF INCOME IGNORING THE REVISED RETURN FILED BY THE ASSESSEE. WE, THEREFORE, DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE ON MERIT AND DELETE THE ADDITION MADE BY THE 110 AND CONFIRMED BY THE LEARNED C IT ( A PPEALS) ON THIS I SSUE.' (C) ORDER OF BOMBAY HIGH COURT IN THE CASE OF CIT VS LOK HOUSING & CONSTRUCTIONS LIMITED REPORTED IN [2015] 58 TAXMANN.COM 179 (BOMBAY) WHICH HAS LATER BEEN UPHELD BY 31 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. HON'BLE SUPREME COURT REPORTED IN L20161 70 TAXMANN.COM 2 (SC).THE HON'BLE HIGH C OURT HAS HELD AS UNDER: '12. ON BOTH COUNTS, THE TRIBUNAL HAS IN A DETAILED DISCUSSION OF MORE THAN 40 PARAGRAPHS FOUND THAT THERE IS NO SUBSTANCE IN THE OBJECTIONS OF THE REVENUE. IF THE REVENUE IS TRYING TO SHOW THAT THE RELEVANT TRANSACTIONS WERE SHAM AND NOT REAL, THEN IT HAS TO BRING IN SATISFACTORY MATERIAL. THE TRIBUNAL FOUND IN PARAS 37 TO 4 0 OF THE IMPUGNED ORDER THAT THE INCOME WHICH WAS EARLIER DISCLOSED WAS NOT AS SUCH BECAUSE THE AGREEMENTS WERE TERMINABLE OR COULD HAVE BEEN CANCELLED. ONCE TH EY WERE CANCELLED, THE PROPERTIES HAVE REVERTED BACK TO THE ASSESSEE. THEY ARE DULY REFLECTED IN THE BALANCE SHEET AND AS ASSETS OF THE ASSESSEE. THERE WERE REVISED ACCOUNTS AND WHICH WERE ALSO SCRUTINIZED . THEY WERE FOUND TO BE IN ORDER AND MEETING THE AC COUNTING PRACTICE ADOPTED. THEREFORE, THE ACCOUNTING POLICY ALSO COULD NOT HAVE BEEN FAULTED. IN PARA 42 OF THE IMPUGNED ORDER, THE TRIBUNAL HELD THAT INCOME COULD NOT HAVE REALLY ACCRUED BECAUSE OF THE FACT THAT THESE AGREEMENTS WERE CANCELLED. THEN THE I SSUE OF THEIR CANCELLATION HAS BEEN GONE INTO, AND IN EXTENSIVE DETAILS. THE CORRECT LEGAL PRINCIPLES WERE APPLIED AND A FINDING OF FACT IS ARRIVED AT IN PARA 1B, THAT NO INCOME COULD BE SAID TO HAVE REALLY ACCRUED TO THE ASSESSEE AS A RESULT OF THE FIVE TRANSACTIONS IN THE IMMOVABLE PROPERTIES AND WHICH INCOME WAS CHARGEABLE TO TAX IN THE YEAR UNDER CONSIDERATION. ONCE INCOME HAD NOT ACCRUED TO THE ASSESSEE IN THE REAL SENSE, THEN THE ORIGINAL RETURN REPRESENTS WRONG STATEMENT WHICH WAS CORRECTED BY THE A SSESSEE BY FILING A REVISED RETURN . THEREFORE, NO HYPOTHETICAL INCOME OF THE ASSESSEE COULD HAVE BEEN BROUGHT TO TAX.' AS CAN BE SEEN FROM THE ABOVE, THE HON'BLE MUMBAI ITAT AND BOMBAY HIGH COURT HAVE HELD, WHICH IS LATER UPHELD BY HON'BLE SUPREME COURT OF INDIA, THAT ONLY THE REAL INCOME OF THE ASSESSEE CAN BE BROUGHT TO TAX UNDER THE PROVISIONS OF INCOME TAX ACT, 1961 AND THEREFORE, SINCE NO REAL INCOME HAS ACCRUED TO THE ASSESSEE COMPANY DURING AY 2014 - 15, THE ADDITION OF RS. 60 CRORES MAY PLEASE BE D ELETED. (D) ORDER OF H YDERABAD ITAT IN THE CASE OF M/ S SPR INFRASTRUCTURE (INDIA) LIMITED VS ACIT IN ITA NO 1173 & 1174/H/2014 WHEREIN THE H ON'BLE !TAT HAS HELD AS UNDER: '14. H OWEVER, THE ACTION OF THE A.O. IN TAXING THE ENTIRE RECEIPTS AS INCOME CANNO T BE UPHELD. AS FAR AS THE STATEMENT OF POTLURI V. PRASAD IS CONCERNED, IT WAS ADMITTED THAT THEY HAVE ENTERED INTO AN AGREEMENT FOR PURCHASE OF PROPERTY THROUGH ASSESSEE COMPANY FOR ACQUIRING LAND BANK IN H YDERABAD AND DEVELOPMENT OF THE SAME. FOR PASSING ON AMOUNTS TO ASSESSEE, ASSESSEE MIGHT HAVE RAISED BOGUS BILLS BUT AT PRESENT, THE 32 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. PARTIES ARE IN DISPUTE. THE SAID COMPANY NEW CYBERABAD CITY PROJECTS P. LTD., ADMITTEDLY TREATED THE AMOUNT PAID TO ASSESSEE AS ADVANCE AND ASSESSEE EVEN THOUGH TREATED THE RECEIPTS AS REVENUE RECEIPTS AND OFFERED INCOMES, SUBSEQUENTLY WITH REVISING ACCOUNTS TREATED THEM AS A LIABILITY IN THE BOOKS OF ACCOUNTS. BE THAT AS IT MAY, THERE ARE ENQUIRES MADE BY A.O. ABOUT THE TRANSACTIONS AND AO HAS THE FOLLOWING FINDINGS. 'IN VI EW OF THE STATEMENT OF SRI PRASAD V. P OTLURI, DIRECTOR OF NCCP L , THAT NO DEVELOPMENT ACTIVITIES WERE CARRIED ON BY THE ASSESSEE COMPANY AND THE FACT THAT NO EVIDENCE IN THE FORM OF BILLS/VOUCHERS WERE FOUND AT THE BUSINESS PREMISES OF THE ASSESSEE AT THE T IME OF SURVEY, IT WAS FELT NECESSARY TO CAUSE INQUIRIES AT FIELD LEVEL TO ASCERTAIN THE TRUTH. ACCORDINGLY, SRI Y. PRASAD, INSPECTOR OF INCOME TAX WAS DIRECTED TO VISIT THE LANDS AT SURVEY NO.664 AND 721 OF NADERGUL VILLAGE AND REPORT THE FACTUAL POSITION. ACCORDINGLY, SRI Y. PRASAD VISITED THE LANDS AT SY.NO. 664 & 721 OF NADERGUL VILLAGE AND SUBMITTED HIS REPORT ON 23 .0 9.2011. AS PER THE REPORT OF INSPECTOR, THE LANDS IN SY.NO.664 & 721 OF NADERGUL VILLAGE ARE AGRICULTURAL LANDS WHEREIN IS AGRICULTURAL AC TIVITY IS BEING CARRIED OUT EVEN ON THE DATE OF INSPECTION. SOME OF THE LANDS IN THESE SURVEY NO. ARE BARREN LANDS AND A VILLAGE BY NAME RANGANNAGUDA IS SITUATED IN THIS SURVEY NO. NO TRACE OF ANY DEVELOPMENT WORK WAS FOUND TO HAVE TAKEN BY TAKEN PLACE IN THESE SURVEY NOS.' 15. NOT ONLY THAT A . O . HAS SUMMONED THE VRO AND HIS STATEMENT WAS EXTRACTED IN PARAS 5 AND 6 OF THE ORDER WHICH ALSO INDICATE THAT THE SO - CALLED LAND SOLD TO M / S. NEW C YBERABAD CITY PROJECTS LTD., IS IN FACT OWNED BY VARIOUS AGRICULTURI STS AND THEY ARE CONDUCTING AGRICULTURAL OPERATIONS AND AS PER VIW RECORDS, NEITHER ASSESSEE NOR M / S. NEW C YBERABAD CITY PROJECTS L.TD., OR ANY OF ITS ASSOCIATES ARE OWNERS OF THE LANDS. AO. ALSO MADE AN ATTEMPT TO TRACE THE TRAIL OF MONEY RECEIVED BY ASSE SSEE COMPANY AND THE OUT FL OWS ARE TO VARIOUS INDIVIDUALS AND ALSO TO VARIOUS GROUP CONCERNS. HOWEVER, EXCEPT ANALYZING THE FL OW OF MONEY, AO. DID NOT ENQUIRE ABOUT THE ULTIMATE RECIPIENTS OF THE MONEY AND HOW THE FUNDS RECEIVED FROM M / S. NEW C YBERABAD CITY PROJECTS LTD., ARE UTILIZED. SINCE, THERE ARE FINDINGS ON RECORD BOTH BY A. O . AND BY LD. CIT(A) THAT NO SUCH TRANSACTIONS HAVE EVER OCCURRED AS SHOWN IN THE BOOKS OF ACCOUNT, THE PURPOSE OF RECEIPT OF MONEY AND ITS TRANSFER COULD BE ANY OTHER , OTHER THAN WHAT IS SHOWN ON RECORD. IN VIEW OF THIS, WE ARE NOT IN A POSITION TO UPHOLD THE ENTIRE RECEIPTS RECEIVED BY ASSESSEE AS INCOME. AT THE SAME TIME, WE ARE ALSO NOT IN A POSITION TO ESTIMATE THE INCOME ON THE GROSS RECEIPTS, SINCE ASSESSEE ITSEL F TREATED GROSS RECEIPTS AS ADVANCE IN THE REVISED ACCOUNTS AND ADMITTEDLY, THERE WAS NO WORK DONE BY ASSESSEE COMPANY. IN VIEW OF THIS, WE CANNOT UPHOLD THE ACTION OF AO. IN TREATING THE ENTIRE RECEIPTS AS INCOME AND AT THE SAME TIME, WE ALSO NOT IN A POS ITION TO GIVE 33 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. ANY FINDING THAT THE AUDITED ACCOUNTS REVISED BY ASSESSEE ARE TO BE ACCEPTED AS SUCH, IN THE ABSENCE OF ANY JUSTIFICATION OF THE SAME. THEREFORE, WHILE DISALLOWANCE OF ENTIRE EXPENDITURE MADE BY A O . CANNOT BE UPHELD AS SUCH, WE SET ASIDE THE ASSESSMENT TO THE FILE OF A O . TO MAKE FRESH ENQUIRIES AND SEE THE LATEST POSITION AND WHETHER THE AMOUNTS RECEIVED AND APPROPRIATED BY ASSESSEE CAN BE CONSIDERED AS INCOMES OF ASSESSEE. A O . IS DIRECTED TO ENQUIRE WHETHER ANY PROCEEDINGS ARE INITIATED UNDER ANY OTHER ACT, LIKE MONEY LAUNDERING FLET OR WHETHER THERE ARE ANY OTHER VIOLATIONS COMMITTED IN THESE TRANSACTIONS. ADMITTEDLY, THERE WERE BILLS WERE GIVEN [OR THE SO CALLED WORK WHICH WAS NOT DONE AND AS SEEN FROM THE STATEMENT OF MR. PRASAD V. P OTLUR I ASSESSEE ALSO REGISTERED SOME PROPERTIES IN THE NAME OF THE SAID COMPANY WHICH ARE FOUND TO BE NOT CORRECT. THEREFORE, A.D. IS DIRECTED TO ENQUIRE ABOUT THESE ASPECTS AND ARRIVE AT THE CORRECT POSITION OF INCOMES AS PER LAW AND FACTS OF THE CASE. HOWEVER, IN CASE, NO ESCAPED INCOMES ARE TO BE CONSIDERED, A.D. IS DIRECTED TO ACCEPT THE INCOME RETURNED, AS REASSESSMENT PROCEEDINGS ARE ONLY FOR THE BENEFIT OF REVENUE. KEEPING THE PRINCIPLES LAID DOWN BY HON'BLE SUPREME COURT(SUPRA), WE DIRECT THE AD. TO ACCEPT THE INCOME RETURNED IN CASE FURTHER ENQUIRIES REVEAL THAT THESE TRANSACTIONS DOES NOT GIVE RISE TO ANY CONCEALED INCOME. WITH THESE OBSERVATIONS, ASSESSEE'S GROUNDS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES.' AS CAN BE SEEN FROM THE ABOVE, THE HON'BL E JURISDICTIONAL ITAT HAS HELD THAT IF THE ENTRY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE DOES NOT ARRIVE AT TAXABLE INCO M E AS PER THE PROVISIONS OF INCOME TAX ACT, 1961, THEN THE RETURN INCOME OF THE ASSESSEE IS TO BE ACCEPTED. (A) JUDGMENT OF H ON'BLE SU PREME COURT IN THE CASE OF CIT VS HIND CONSTRUCTION L IMITED [19721 83 ITR 211 (SC) (B) JUDGMENT OF H ON'BLE SUPREME COURT IN THE CASE OF SANJEEV WOOLLEN MILLS VS C IT [ 2005 ] 279 ITR 434 IN VIEW OF THE ABOVE, IT IS REQUESTED THAT THE HON'BLE ITAT TO KINDLY CONSIDER THE SAME IN FAVOUR OF THE ASSESSEE AND DELETE THE ADDITIONS MADE IN THE ASSESSMENT ORDER. 17. THE LD. DR, ON THE OTHER HAND RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 18. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . WE NOTICE THAT ASSESSEE HAS DECLARED RS. 60 CRORES A S 34 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. ADDITIONAL INCOME SUBSEQUENT TO THE SEARCH CONDUCTED ON 13/12/2013. ACCORDINGLY, ASSESSEE DRAFTED ITS BALANCE SHEET AND P&L ACCOUNT B Y MAKING ADDITION OF RS. 60 CRORES IN THE TURN OVER OF THE COMPANY BY WHICH THE BOOK PROFIT ALSO INCREASED BY RS. 60 CRORES. AS PER THE BOOK RESULT, THE TURNOVER STOOD AT RS. 1770.38 CRORES BUT ACTUAL TURNOVER WAS RS. 1710.38 CRORES. SIMILARLY, THE BOOK PR OFIT DECLARED AT RS. 96.11 C R ORES WHEREAS ACTUAL PROFIT WAS RS. 36.11 CRORES. 18.1 SUBSEQUENT TO DECLARATION BY THE CHAIRMAN AND MD OF THE ASSESSEE COMPANY DURING THE SEARCH PROCEEDINGS, HE WITHDREW HIS DECLARATION BY SUBMITTING WITHDRAWAL DECLARATION ON 30/06/2014, BUT, ASSESSEE HAS FILED THE RETURN OF INCOME U/S 139(4) ON 18/05/2014 BY GIVING EFFECT TO THE ABOVE WITHDRAWAL AT THE TIME OF SUBMITTING RETURN OF INCOME. ASSESSEE HAS FILED THE RETURN OF INCOME BY KEEPING THE TURNOVER AS PER BALANCE SHEET AND REDUCED THE PROFIT OF RS. 60 CRORES BY REDUCING THE SAME AS OTHER DEDUCTION IN THE RETURN OF INCOME. THE SAME WAS NOTICED BY AO AND AO MADE THE ADDITION DUE TO THE FACT THAT ASSESSEE HAS FAILED TO SUBSTANTIATE BEFORE HIM. THE SAME WAS ACKNOWLEDGED BY DRP T HAT ASSESSEE HAS FAILED TO SUBSTANTIATE BEFORE AO AND THEREFORE THE SAME WAS CONFIRMED AS ADDITION. 18.2 BY CONSIDERING THE FACTS ON RECORD, WE NOTICE THAT THIS ADDITION OF RS. 60 CRORES BY AO IS NOT REAL INCOME OR ADDITIONAL INCOME. ASSESSEE WITHDREW THE ADDITIONAL INCOME DECLARED BY IT DURING SEARCH PROCEEDINGS. SINCE ASSESSEE HAS INCREASED THE TURNOVER IN ORDER TO DECLARE THE ADDITIONAL INCOME AND THE SAME WAS WITHDRAWN SUBSEQUENTLY. ASSESSEE SHOULD HAVE MODIFIED THE TURNOVER AND FILED THE RETURN OF INC OME, BUT, ASSESSEE CHOSE TO KEEP THE TURNOVER INTACT AS PER P&L AND TRIED TO REDUCE THE PROFIT BY SHOWING THIS ADDITIONAL TURNOVER AS OTHER DEDUCTION. IN OUR CONSIDERED VIEW, IT IS NOT ADDITIONAL OR REAL INCOME AND ALSO NOT A DEDUCTION IN REAL SENSE . HENCE , THE SAME IS DELETED. ACCORDINGLY GROUND RAISED Y THE ASSESSEE IS ALLOWED. 35 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 19. AS REGARDS GROUND NO. 6 RELATING TO ADDITION OF RS. 60,00,00,000/ - ON THE BASIS OF STATEMENT RECORDED AT THE TIME OF SEARCH, THE ASSESSEE STATED IN ITS WRITTEN SUBMISSION AS U NDER: THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 60,00,00,000/ - TO THE INCOME OF THE ASSESSEE STATING THAT THE MD OF THE ASSESSEE COMPANY HAS ADMITTED INCOME OF RS. 60,00,00,0000/ - ON THE DAY OF SEARCH IN A STATEMENT DATED 13.12.2013 RECORDED U/S 132(4) OF THE IT ACT. IN THIS REGARD, IT IS SUBMITTED THAT THE AO ERRED IN MAKING ADDITION OF RS. 60,00,00,000/ - ONLY ON THE BASIS OF STATEMENT RECORDED WITHOUT THEIR BEING ANY CORROBORATIVE INCRIMINATING DOCUMENTS OR EVIDENCES FOUND BY IT WHICH COULD SUP PORT THE ABOVE SAID STATEMENT RECORDED. IT IS SUBMITTED THAT THE ASSESSEE COMPANY HAD OFFERED TO DISCLOSE ADDITIONAL INCOME DURING THE COURSE OF SEARCH ASSUMING THAT THERE ARE CERTAIN DISCREPANCIES IN THE BOOKS OF ACCOUNT OF THE COMPANY. HOWEVER, ON VERIF ICATION OF THE BOOKS, NO DISCREPANCIES WERE NOTICED IN THE BOOKS AND THEREFORE, NO ADDITIONAL INCOME WAS OFFERED IN THE RETURN OF INCOME FILED FOR AY 2014 - 15. HOWEVER, THE ASSESSING OFFICER WITHOUT APPRECIATING THE ABOVE FACTS ADDED THE AMOUNT OF RS. 60 C RORES TO THE RETURNED INCOME MERELY ON THE BASIS OF STATEMENT RECORDED DURING SEARCH PROCEEDINGS WITHOUT BRINGING ANY CORROBORATIVE MATERIAL ON RECORD. FACT REMAINS THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY HAVE BEEN ACCEPTED BY THE ASSESSING OFFI CER AND ALSO, THE AO HAS MADE CERTAIN ADDITION TOWARDS INTEREST DISALLOWANCE. FURTHER, NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF THE SEARCH PROCEEDINGS ON BASIS OF WHICH THE AO CAN CONCLUDE THAT THERE WAS ANY UNDISCLOSED INCOME. IT IS SUBMIT TED THAT THE ASSESSING OFFICER, WHILE MAKING THE ABOVE ADDITION, HAS REFERRED TO THE CERTAIN TRANSACTIONS WITH THE FOLLOWING PARTIES NAMELY (I) M/S ADARSH GLOBAL TRADES & SERVICES PRIVATE LIMITED (II) M/S TEJDEEP ENGINEERING ENTERPRISES PRIVATE LIM ITED (III) M/S TEJASWINI ENGINEERING PRIVATE LIMITED (IV) M/ S RESOURCE METALS & MINERAL TRADERS PRIVATE LIMITED (V) M/ S UNITED MIRTERAL RESOURCES PRIVATE LIMITED (VI) M/ S GANGA INDUSTRIAL CORPORATION LIMITED (VII) M/ S CAUVERY IRON & STEEL LIMITED 36 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. (VII) M/S CAUVERY IRON & STEEL LTD. (VIII) M/ S GERDEN STEEL INDIA LIMITED (IX) M/ S TULJA BHAVANI ISPAT PRIVATE LIMITED IN THIS REGARD, IT IS SUBMIT TED THAT THE DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS ENTERED INTO THE COMMERCIAL T RANSACTION WITH THE ABOVE PARTIES AND ALL THE TRANSACTIONS ARE RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY. DURING THE AY 2014 - 15, THE ASSESSEE COMPANY HAS MADE A TOTAL SALES OF RS. 352,30,85,845 AND PURCHASES OF RS. 348,55,27,588/ - AND MADE A PROFIT OF RS. 3,75,58,257/ - WHICH IS OFFERED TO TAX IN ITS RETURN O F INCOME. IT IS NOT OUT OF PLACE TO SUBMIT THAT THE ASSESSING OFFICER HAS ADDITIONALLY MADE AN ADDITION OF RS. 22,19,36 , 623/ - TO THE INCOME OF THE ASSESSEE TOWARDS INTEREST DISALLOWANCE O N THE TRANSACTIONS MADE WITH THE ABOVE REFERRED PARTIES WHICH IS ALSO AN ISSUE OF PRESENT APPEAL BEFORE YOUR HONOURS. THUS, MAKING ANOTHER ADDITION OF RS. 60 CRORES MERELY RELYING ON THE STATEMENT LEADS TO DOUBLE TAXATION OF INCOME WHICH IS AGAINST THE PRO VISIONS OF INCOME TAX ACT, 1961. FURTHER, DURING THE ITAT APPELLATE PROCEEDINGS FOR AY 2013 - 14 IN THE ASSESSEE'S OWN CASE WHICH IS HEARD IN ITA NO 2186/H/2017, THE LD. DR HAS STATED THAT THE ADDITION OF RS. 60 CRORES WAS MADE IN RESPECT OF DISCREPANCIES I N FINANCE COST FOR ALLEGED PURCHASES WITH GROUP COMPANIES. THE RELEVANT EXTRACT OF THE ABOVE FINDINGS IS AS UNDER '17.7 FURTHER, LD. DR TRIED TO APPLY THE ABOVE DECISION OF SHRI JAGDISH H. PATEL I.E. 8% OF TOTAL PURCHASES OF TWO AY S I.E. 2013 & 2014 - 15 W HICH COMES TO RS. 58.09 CRORES. HE SUBMITTED THAT AGAINST THE ABOVE, AO HAS ALREADY MADE THE DISALLOWANCE OF RS. 60 CRORES IN A Y 2014 - 15. IT IS SUBMITTED THAT THERE IS NO RELEVANCE FOR THIS SUBMISSION IN THIS AY AND MOREOVER, A O HAS NOT MADE ANY DISALLOW ANCE IN PURCHASES IN A Y 2013 - 14.' IT IS SUB MIT TED THAT THE HON'BLE ITAT HYDERABAD, IN ITA NO 2186/H/2017 HAVE ALREADY DELETED THE ADDITION MADE IN RESPECT OF FINANCE COST ON ALLEGED PURCHASES FROM GROUP COMPANIES VIDE PARA 17.8. ONCE THE VERY BASIS OF TH E ADDITION HAS BEEN DELETED BY THE HON B LE IT AT FOR WHICH THE ADDITIONAL INCOME WAS OFFERED, ONCE AGAIN ADDITION MADE ON THE BASIS OF SAME DISCREPANCIES, WHICH WERE LATER FOUND TO DO NOT EXIST; ADDITION SO MADE IS NOT CORRECT AND HENCE IT IS REQUESTED TO KINDLY DELETE THE SAME. IT IS SUBMIT TED THAT MAKING ADDITION TO THE INCOME OF THE ASSESSEE RELYING MERELY ON THE STATEMENT RECORDED WITHOUT 37 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. THERE BEING ANY CORROBORATIVE EVIDENCE ON RECORD IS AGAINST THE BASIC; PROVISIONS OF INCOME TAX ACT, 1961. THE ASSE SSING OFFICER OUGHT TO HAVE APPRECIATED THE FACT THAT ONLY REAL INCOME CAN BE TAXED UNDER INCOME TAX ACT, 1961. THE AO DURING THE COMPLETE POST - SEARCH ASSESSMENT PROCEEDINGS HAS NOT BEEN ABLE TO ESTABLISH ANY UNDISCLOSED INVESTMENT/ EXPENDITURE OF THE ASSE SSEE. BEING SO, MAKING ADDITION BY MERELY BASING ON STATEMENT RECORDED IS NOT ONLY INCORRECT BUT AGAINST THE LAW GOVERNING INCOME TAX IN INDIA. IN THIS REGARD, RELIANCE IS PLACED ON THE FOLLOWING: (I) CBDT CIRCULAR IN F NO 286/2/2003 - IT(INV) DATED 10.03. 2003 WHICH STATES AS UNDER 'INSTANCES HAVE COME TO THE NOTICE OF TH E BOARD WHERE ASSESSEES HAVE CLAIMED THAT THEY HAVE BEEN FORCED TO CONFESS THE UNDISCLOSED INCOME DURING THE COURSE OF THE SEARCH & SEIZURE AND SURVEY OPERATIONS. SUCH CONFESSIONS, IF NOT BASED UPON CREDIBLE EVIDENCE, ARE LATER RETRACTED BY THE CONCERNED A SSESSEES WHILE FILING RETURNS OF INCOME. IN THESE CIRCUMSTANCES, ON CONFESSIONS DURING THE COURSE OF SEARCH & SEIZURE AND SURVEY OPERATIONS DO NOT SERVE ANY USEFUL PURPOSE. IT IS, THEREFORE, ADVISED THAT THERE SHOULD BE FOCUS AND CONCENTRATION ON COLLECTIO N OF EVIDENCE OF INCOME WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR IS NOT LIKELY TO BE DISCLOSED BEFORE THE INCOME TAX DEPARTMENTS. SIMILARLY, WHILE RECORDING STATEMENT DURING THE COURSE OF SEARCH IT SEIZURES AND SURVEY OPERATIONS NO ATTE MPT SHOULD BE MADE TO OBTAIN CONFESSION AS TO THE UNDISCLOSED INCOME. ANY ACTION ON THE CONTRARY SHALL BE VIEWED ADVERSELY. FURTHER, IN RESPECT OF PENDING ASSESSMENT PROCEEDINGS ALSO, ASSESSING OFFICERS SHOULD RELY UPON THE EVIDENCES/MATERIALS GATHERED DU RING THE COURSE OF SEARCH/SURVEY OPERATIONS OR THEREAFTER WHILE FRAMING THE RELEVANT ASSESSMENT ORDERS' (II) JUDGMENT OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS S KHADER KHAN SON [2012] 25 TAXMANN.COM 413 (SC) (III) JUDGMENT OF HON'BLE TELEN GANA & ANDHRA PRADESH HIGH COURT IN THE CASE OF GAJJAM CHINNA YELLAPA VS ITO [2015] 59 TAXMAN 69 (IV) ORDER OF HYDERABAD ITAT IN THE CASE OF K CH SUBBA RAO VS ITO IN 1657 - 58/H/2013 IN VIEW OF THE ABOVE, HON'BLE ITAT TO KINDLY CONSIDER THE SAME IN FAVOU R OF THE ASSESSEE AND DELETE THE ADDITIONS MADE IN THE ASSESSMENT ORDER. 38 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 20. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 21. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . WE NOTICE THAT AO MADE THE ADDI TION OF RS. 60 CRORES BASING COMPLETELY ON THE CONFESSION STATEMENT GIVEN BY THE MD OF THE ASSESSEE COMPANY. APART FROM THE ABOVE STATEMENT, THERE IS NO OTHER EVIDENCE BROUGHT ON RECORD BY THE AO. AO FOUND LOT OF MATERIALS DURING SEARCH RELATING TO THE DIS CREPANCIES IN THE COMMERCIAL TRANSACTIONS OF THE ASSESSEE. THE SAME WAS INVESTIGATED AND MADE ADDITION. AO HAS NOT BROUGHT ON RECORD ANY DISPUTED TRANSACTIONS TO SUBSTANTIATE OR TO SUPPORT THE ADDITIONAL INCOME. IT IS FACT THAT ASSESSEE MAKES CERTAIN DECLA RATIONS AND SUBSEQUENTLY THE SAME WERE WITHDRAWN ONCE THE SEARCH PROCEEDINGS ARE OVER. THE AO HAS TO KEEP THE EVIDENCE OR COGENT MATERIAL TO THE EXTENT OF ADDITIONAL INCOME DECLARED BY THE ASSESSEE. THE SAME VIEW WAS GIVEN IN CBDT CIRCULAR NO. 286/2/2003 - I T(INV.), DT. 10/03/2003. AT THE TIME OF COMPLETING ASSESSMENT, IT IS THE DUTY OF AO TO MAKE THE ADDITION BASED ON INCRIMINATING MATERIAL FOUND DURING THE SEARCH AND NOT CONFINED TO RELY ON THE DECLARATION OF THE ASSESSEE. 21.1 IN THE GIVEN CASE, AO HAS NOT BROUGHT ON RECORD ANY INCRIMINATING MATERIAL OR COGENT MATERIAL IN SUPPORT OF THE ABOVE ADDITION. MERELY RELYING ON THE DECLARATION GIVEN BY THE MD IS NOT PROPER, SINCE THE SAME WAS WITHDRAWN BY THE ASSESSEE SUBSEQUENTLY. IN T HIS CONNECTION, WE REFER TO THE DECISION OF THE HONBLE HIGH COURT OF TELENGANA AND AP IN THE CASE OF GAJJAM CHINNA YELLAPPA VS. ITO, (ITTA NOS. 268, 273 & 308 OF 2003 AND OTHERS), DATED 6 TH NOVEMBER, 2014 WHEREIN THE HONBLE COURT HELD AS UNDER: 11. IN 1. T. T. A. NO. 112 OF 2003 (SEE CIT V. NARESH KUMAR AGARWAL [2014] 369 ITR 171/[2015] 53 TAXMANN.COM 306 CAP) THIS COURT DEALT WITH THE VERY ASPECT AND HELD THAT A RETRACTED STATEMENT CANNOT CONSTITUTE THE SOLE BASIS FOR FASTENING LIABILITY UPON THE ASSES SEE. 39 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 12. IN THE INSTANT CASE, THE APPELLANTS SPECIFICALLY PLEADED THAT THE STATEMENTS WERE RECORDED FROM THEM BY APPLYING PRESSURE, TILL MIDNIGHT, AND THAT THEY HAVE BEEN DENIED ACCESS OUTSIDE THE SOCIETY. THE ASSESSING OFFICER MADE AN EFFORT TO DEPICT TH AT THE WITHDRAWAL OR RETRACTION ON THE PART OF THE APPELLANTS IS NOT GENUINE. WE DO NOT HESITATE TO OBSERVE THAT AN ASSESSING OFFICER DOES NOT HAVE ANY POWER, RIGHT OR JURISDICTION TO TELL, MUCH LESS TO DECIDE, UPON THE NATURE OF WITHDRAWAL OR RETRACTION. HIS DUTY ENDS WHERE THE STATEMENT IS RECORDED. IF THE STATEMENTS ARE RETRACTED, THE FATE THEREOF MUST BE DECIDED BY LAW MEANING THEREBY, A SUPERIOR FORUM AND NOT BY THE VERY AUTHORITY, WHO IS ALLEGED TO HAVE EXERTED FORCE. 13. IT IS NOT AS IF THE RETRACTI ON FROM A STATEMENT BY AN ASSESSEE WOULD PUT AN END TO THE PROCEDURE THAT ENSUED ON ACCOUNT OF SURVEYOR SEARCH. THE ASSESSING OFFICER CAN VERY WELL SUPPORT HIS FINDINGS ON THE BASIS OF OTHER MATERIAL. IF HE DID NOT HAVE ANY OTHER MATERIAL, IN A WAY, IT REF LECTS UPON THE VERY PERFUNCTORY NATURE OF THE SURVEY. WE FIND THAT THE APPELLATE AUTHORITY AND THE TRIBUNAL DID NOT APPLY THE CORRECT PARAMETERS, WHILE ADJUDICATING THE APPEALS FILED BEFORE THEM. ON THE UNDISPUTED FACTS OF THE CASE, THERE WAS ABSOLUTELY NO 'BASIS FOR THE ASSESSING OFFICER TO FASTEN THE LIABILITY UPON THE APPELLANTS. OUR CONCLUSION FIND SUPPORT FROM THE CIRCULAR DATED MARCH 10, 2003, ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, WHICH TOOK EXCEPTION TO THE INITIATION OF THE PROCEEDINGS ON THE BASIS OF RETRACTED STATEMENTS. HENCE, THE ADDITION CANNOT BE SUSTAINED IN THE ABSENCE OF ANY COGENT MATERIAL ON RECORD. THEREFORE, GROUND RAISED BY THE ASSESSEE IS ALLOWED. 22. AS REGARDS GROUND NO. 7 RELATING TO DISALLOWANCE OF INTEREST EXPENSES ON SH AM TRANSACTIONS OF RS. 22,19,36,623/ - , THE LD. AR OF THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE WAS DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2013 - 14 (SUPRA), WHEREIN THE COORDINATE BENCH HELD AS UNDER: 17. CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE IS MAKING MAJOR PURCHASES FROM RELATED CONCERNS AND SELLS MOSTLY TO CONCERNS NAMELY, M/S ADARSH GLOBAL TRADER S PVT. LTD., M/S RESOURCE METALS & MINERALS TRADERS PVT. LTD., M/S UNITED MINERAL RESOURCE P. LTD., M/S SB METALS P. LTD. AND M/S VEDIKA STEELS P. LTD. AO HAS VERIFIED FEW TRANSACTIONS ENTERED WITH THESE 40 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. CONCERNS AND FOUND CERTAIN DISCREPANCIES LIKE NON - EX ISTENCE OF LR OR WAY BILLS, USES OF IMPROPER VEHICLES TO TRANSPORT, NO PHYSICAL MOVEMENTS OF GOODS AND NO VAT DETAILS OR SEAL/STAMPS ON THE SEIZED INVOICES. AO CAME TO THE CONCLUSION THAT THE TRANSACTIONS ENTERED WITH ALL RELATED CONCERNS WERE SHAM TRANSA CTIONS. 17.1 HOWEVER, WE NOTICED THAT AO HAS NOT REJECTED ANY PURCHASES OR MADE ANY ENQUIRY TO FIND THE FAIR MARKET VALUE OF TRANSACTIONS IN LINE WITH THE PROVISIONS OF SECTION 40A. INSTEAD OF REJECTING THE TURNOVER, HE PROCEEDED TO DISALLOW ONLY THE ASSO CIATED FINANCIAL COST. HE DISALLOWED THE INTEREST COST IN PROPORTION TO THE PURCHASES WITH RELATED AND UNRELATED PARTIES. 17.2 HOWEVER, DRP REMITTED THIS ISSUE OF DISALLOWANCE OF INTEREST BACK TO THE AO TO RECALCULATE THE INTEREST PROPERLY AND BY FOLLOWIN G CASH FLOW ON DAY TO DAY BASIS. 17.3 AO RECALCULATED THE INTEREST, AFTER DRPS DIRECTION, ON THE BASIS OF CALCULATING NO. OF DAYS OF EACH PURCHASE TRANSACTION AND DATE OF YEAR END I.E. 31/03/2013. IN OUR CONSIDERED VIEW, THIS IS NOT THE PROPER WAY OF CAL CULATING INTEREST ON THIS KIND OF TRANSACTION PARTICULARLY, AFTER ACCEPTING THE PURCHASES AND SALES AS PROPER TRANSACTION. DRP HAS GIVEN DIRECTION TO AO TO VERIFY THE TRANSACTION AND CALCULATE THE INTEREST ON DAY TO DAY BASIS. THE PROPER WAY TO CALCULATE INTEREST IN THIS TRANSACTION, ARE AS UNDER: IN ORDER TO CALCULATE INTEREST IN EACH TRANSACTION OF BUYING AND SELLING, PERIOD INVOLVED IN THIS TRANSACTION ARE: SCENARIO 1 : A BUYS GOODS FROM B AT THE COST OF RS. 100 ON (SAY) 1 0 /04/2012 AND SELLS THE SAME TO X ON 17/04/2013. IN THIS CASE, A INVESTED RS. 100/ - FOR A PERIOD OF 7 DAYS. (IN THIS CASE CASH TO CASH BASIS.) SCENARIO 2 : ON THE SAME EXAMPLE OF ABOVE, A BUYS GOODS FROM B WITH THE CREDIT PERIOD OF 15 DAYS AND SELLS THE SAME TO X ON CASH BASIS, THERE IS NO FINANCE COST TO MR. A AS THE TRANSACTION WAS DONE ON BUYERS CREDIT. SCENARIO 3 : ON THE ABOVE EXAMPLE, MR. A BUYS ON CASH BASIS AND SELLS THE SAME TO X ON ONE MOTH CREDIT , THEN, MR. A HAS FINANCIAL BURDEN OF 37 DAYS. FROM THE ABOVE, IT IS CLEAR THAT THE FINANCIAL COST DEPENDS UPON THE TERMS OF PAYMENT BETWEEN THE PARTIES. IN THE GIVEN CASE, AO HAS NOT UNDERSTOOD THE ABOVE ASPECT AND CALCULATED THE INTEREST FOR THE COMPL ETE YEAR FROM THE DATE OF PURCHASE IN EACH CAS E . THE PROPER WAY OF CALCULATING INTEREST ON OUTSTANDING BALANCE OF SUPPLIER ON DAY TO DAY BASIS. SINCE, AO HAS NOT 41 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. DISALLOWED ANY PURCHASES THAT MEANS THESE TRANSACTIONS ARE CONSIDERED TO BE GENUINE. THEREFOR E, AO CANNOT DISALLOW ANY ASSOCIATE COST OF PURCHASE. 17.4 WE FIND THAT ASSESSEE HAS ENTERED INTO TRANSACTION WITH THE ALLEGED RELATED PARTIES AND KEPT A MARGIN, WHICH WILL TAKE CARE OF THE FINANCIAL COST. ASSESSEE HAS SUBMITTED A STATEMENT OF PROFIT IN TH IS TRANSACTION AND FINANCE COST INVOLVED IN THIS TRANSACTION, AS PER WHICH, THE ASSESSEE HAD PURCHASED AT RS. 377.64 CRORES AND SOLD AT RS. 379.98 CRORES WITH THE MARGIN OF RS. 2.34 CRORES. (REFER PAGE 52 OF PAPER BOOK I). AT THE SAME TIME, ASSESSEE HAS A LSO SUBMITTED THE INTEREST CALCULATION ON THE BASIS OF OUTSTANDING RUNNING BALANCE OF ALL THE SUPPLIERS. (REFER PAGE 56 OF PAPER BOOK I), AS PER WHICH, THE FINANCIAL COSTS ARE ( - ) 1.34 CRORES. WE CANNOT ACCEPT THE ABOVE CALCULATION AS THE INTEREST SHOULD B E CALCULATED ON OUTSTANDING OF EACH SUPPLIER NOT ON THE BASIS OF CONSOLIDATED OUTSTANDING. IN OUR VIEW, THE ASSESSEE HAS MADE MARGIN OF 2.34 CRORES IN THIS TRANSACTION AND IT IS ENOUGH TO COVER THE INTEREST COST ON TH E S E TRANSACTION S . EVEN OTHERWISE, AS EXPLAINED EARLIER, WHEN AO ACCEPTED THE TURNOVER WITHOUT DISALLOWING ANY PURCHASES, HE CANNOT DISALLOW ONLY INTEREST COST. 17.5 COMING TO AOS OBSERVATION THAT ASSESSEE HAS DIVERTED FUNDS TO OTHER RELATED CONCERNS FOR MAKING HUGE INVE STMENT, WE FIND IN THE CONSOLIDATED STATEMENT SUBMITTED BY THE ASSESSEE THAT THE PEAK CREDIT OUTSTANDING WITH THESE CONCERNS ARE RS. 24.31 CRORES ON 06/08/2012. IN ORDER TO FIND OUT THE DIVERSION OF FUNDS, THERE WILL BE HUGE OUTSTANDING WITH THESE CONCERNS FOR CONSIDERABLE PERIOD OF TIME. IN THIS CASE, THESE ARE REGULAR BUSINESS TRANSACTIONS AND THERE IS NO SUCH HUGE OUTSTANDING WITH THESE CONCERNS. 17.6 COMING TO LD. DRS SUBMISSION, HE RELIED ON THE CASE LAW OF HONBLE GUJARAT HIGH COURT IN ITA NO. 410 O F 2017 IN THE CASE OF SRI JAGADISH H. PATEL, IN WHICH, IT WAS FOUND THAT ASSESSEE MADE BOGUS PURCHASES TO THE EXTENT OF RS. 5.66 CRORES. ACCORDINGLY, AO DISALLOWED 100% PURCHASES. HOWEVER, LD. CIT(A) HAS REDUCED TO 25% AND ITAT AT 8%. WHEREAS IN THE GIVE N CASE, AO HAS NOT DISALLOWED ANY PURCHASES. THEREFORE, THIS CASE CANNOT BE APPLIED TO THE CASE ON HAND. 17.7 FURTHER, LD. DR TRIED TO APPLY THE A B OVE DECISION OF SHRI JAGDISH H. PATEL I.E. 8% OF TOTAL PURCHASES OF TWO AYS I.E. 2013 & 2014 - 15 WHICH COMES TO RS. 58.09 CRORES. HE SUBMITTED THAT AGAINST THE ABOVE, AO HAS ALREADY MADE THE DISALLOWANCE OF RS. 60 CRORES IN AY 2014 - 15. WE FIND THERE IS NO RELEVANCE FOR THIS SUBMISSION IN THIS AY AND MOREOVER, AO HAS NOT MADE ANY DISALLOWANCE IN PURCHASES IN AY 20 13 - 14. 42 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 17.8. CONSIDERING THE ABOVE DISCUSSION, IN OUR VIEW, AO HAS NOT MADE ANY DISALLOWANCE IN PURCHASES EVEN THOUGH HE SATISFIED HIMSELF THAT THESE ARE SHAM TRANSACTIONS. FURTHER, HE PROCEEDED TO DISALLOW INTEREST ON PURCHASES, WHICH IS NOT PROPER, EVEN THOUGH, HE PROCEEDED TO DISALLOW THE INTEREST WITH IMPROPER DATA AND IMPROPER METHOD. THEREFORE, THE DISALLOWANCE MADE BY THE AO ON INTEREST IS DELETED. AS THE ISSUE IS SIMILAR IN THIS AY, FOLLOWING THE DECISION IN AY 2013 - 14, WE DIRECT THE AO TO DELETE THE DISALLOWANCE MADE ON THIS COUNT. THUS, THIS GROUND IS ALLOWED. 23. AS REGARDS GROUND NO. 8 RELATING TO DISALLOWANCE OF INTEREST EXPENSES PAID TO M/S SILVER POINT INFRATECH LTD. OF RS. 1,37,88,369/ - , THE LD. AR OF THE ASSESSEE SUBMITTED THAT THIS ISSU E IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2013 - 14, WHEREIN THE BENCH HAS HELD AS UNDER: 20. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . THE ASSESSEE MADE CERTAIN P AYMENTS TO M/S SILVER POINT INFRATECH LD. D URING THIS AY AND IT CLAIMS THAT THESE ARE PART OF COMMERCIAL PAYMENTS ON THE CONTRACT BUSINESS. THERE ARE BACK TO BACK PAYMENTS RECEIVED FROM CONTRACTORS AND PAID TO THE SUB - CONTRACTORS. IN THIS BEHALF, IT HAS SUBMITTED A STATEMENT SHOWING THE RELEVANT PA YMENTS. (REFER PARA 18.3). AT THE SAME TIME, WE NOTICE THAT THIS INFORMATION WAS NOT SUBMITTED BEFORE THE AO AND DRP, BUT, LD. AR CLAIMS THAT THESE WERE SUBMITTED BEFORE DRP. SINCE THESE PAYMENTS WERE NOT VERIFIED BY THE TAX AUTHORITIES, WE FIND IT APPROPR IATE TO REMIT THIS ISSUE BACK TO AO TO VERIFY THE CLAIM OF THE ASSESSEE AND IF IT IS FOUND THAT THESE ARE BACK TO BACK PAYMENTS, RECEIVED FR O M MAIN CONTRACTOR AND PAID TO SUB - CONTRACTOR M/S SILVER POINT INFRATECH LTD., THE ADDITION MADE ON INTEREST MAY BE DELETED. IT IS NEEDLESS TO SAY THAT ASSESSEE MAY BE GIVEN PROPER OPPORTUNITY OF BEING HEARD. THEREFORE, GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. AS THE ISSUE IS SIMILAR IN THIS AY, FOLLOWING THE DECISION IN AY 2013 - 14, WE REMIT THIS BACK TO THE FILE OF AO TO DECIDE THE ISSUE IN LINE WITH THE DIRECTIONS GIVEN IN AY 2013 - 14. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 43 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. 24. AS REGARDS GROUND NO. 9 RELATING TO THE ADDITION OF RS. 13,23,00,000/ - TOWARDS LOSS INCURRED ON 4 TH QUART ER, THE ASSESSEE IN ITS WRITTEN SUBMISSIONS, STATED AS UNDER: IT IS S UBMIT TED THAT THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 13.23 CRORES TO THE INCOME OF THE ASSESSING BEING THE DISALLOWANCE OF LOSS INCURRED IN 4TH QUARTER I.E., BETWEEN 01.01.201 4 TO 31.03.2014. IN THIS REGARD, IT IS SUBMIT TED THAT THE ASSESSING OFFICER HAS MADE THE ABOVE ADDITION MERELY ON THE BASIS OF SUSPICION AND SURMISES. THE ASSESSING OFFICER OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOM E FOR THE YEAR UNDER CONSIDERATION BASED ON THE BOOK PROFITS FOR THE COMPLETE FINANCIAL YEAR I.E. FY 2013 - 14. THE ASSESSING OFFICER HAS ACCEPTED THE BOOKS OF ACCOUNT OF THE ENTIRE FINANCIAL YEAR AND HAS FOUND NO DISCREPANCIES. HOWEVER, IGNORING THE SAME, T HE ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 13.23 CRORES TO THE INCOME OF THE ASSESSEE BASED ON SUSPICION AND SURMISES. IN THIS REGARD, IT IS SUBMIT TED THAT THE ASSESSEE COMPANY DURING FY 2012 - 13 AND FY 2013 - 14 HAVE UNDER TAKE THE TRANSMISSION WORK I N RESPECT OF ONE TENDER OF POWER GRID FOR WARDHA TO AURANGABAD TRANSMISSION LINE AND MAJOR WORK WAS DONE DURING LAST TWO QUARTERS OF FY 2013 - 14. THE ASSESSEE HAD BOOKED A REVENUE OF RS. 7,68,34,524/ - DURING FY 2012 - 13 AND RS. 26,85,08,810/ - DURING FY 2013 - 14. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS FACING HUGE LOSSES ON THE ABOVE MENTIONED WORK AS THE PRICES QUOTED AT THE TIME OF TENDER WERE VERY LOW. ALSO, THE JV PARTNER OF THE ASSESSEE COMPANY IN THE ABOVE MENTIONED PROJECT M/ S SPI C SMO WENT UNDER BIFR AND THE OVERALL RESPONSIBILITY OF THE PROJECT CAME TO THE ASSESSEE COMPANY. IN THIS REGARD, VARIOUS CORRESPONDENCES WERE MADE TO POWER GRID CORPORATION OF INDIA LIMITED, POWER MINISTER OF INDIA ETC TO APPROVE THE CLAIM OF COMPENSATION OF RS. 100.59 CRORES TO COMPENSATE FOR THE LOSSES SUFFERED ON THE PROJECT. HOWEVER, AS AT THE END OF THE FY 2013 - 14, THE AD DITIONAL COMPENSATION OF THE ASSESSEE COMPANY WAS NOT APPROVED BY POWER GRID CORPORATION OF INDIA LIMITED, THE COST INCURRED ON THE ABOVE MENTIONED PROJECT RESULTED LOSS FOR THE ASSESSEE COMPANY. THUS, THE LOSSES INCURRED ARE PURELY OUT OF COMMERCIAL REASO NS. WE WOULD LIKE TO SUBMIT THAT ALL THESE ENTRIES ARE ALREADY RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY AND THE RETURN OF INCOME IS FILED ACCORDINGLY. HOWEVER, THE ASSESSING OFFICER WITHOUT A PPRECIATING THE COMMERCIAL ASPECTS AND HARDSHIP FACED BY THE ASSESSEE 44 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. COMPANY ADDED AN AMOUNT OF RS. 13.23 CRORES BASED ON SURMISES AND SUSPICION. FACT REMAINS THAT THE ASSESSEE COMPANY HAS NOT DEBITED THE AMOUNT OF RS. 13.23 CRORES TO ITS P&L ACCOUNT. THE ASSESSING OFFICER GROSSLY ERRED IN MAKING AN ADDITION TO THE BUSINESS INCOME OF THE ASSESSEE WHICH IS NOT DEBITED IN BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY. IT IS SUBMIT TED THAT THE ASSESSING OFFICER HAS BEEN GROSSLY UNJUSTIFIED IN MAKING AN ADDITION OF RS. 13.23 CRORES TO THE INCOME OF THE ASSESSEE. ON ONE HAND, THE ASSESSING OFFICER HAS ACCEPTED THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY AND ACCEPTED THE RETURNED PROFIT, ON THE OTHER HAND, THE ASSESSING OFFICER HAS MADE ADDITION OF RS. 13.23 CRORE S ON THE BASIS OF SUSPICION AND SURMISES. THE ACTION OF THE ASSESSING OFFICER IS NOT ONLY SELF - CONTRADICTORY BUT ALSO AGAINST THE PROVISIONS OF INCOME TAX ACT, 1961. IN THIS REGARD, RELIANCE IS PLACED ON THE JUDGEMENT OF (A) CIT VS PACT SECURITIES & FINA NCIAL SERVICES LIMITED [2015] 61 TAXMANN.COM 192 (AP & TELENGANA) IN VIEW OF THE ABOVE, IT IS REQUESTED THAT THE HO N'BLE ITAT TO KINDLY CONSIDER THE SAME IN FAVOUR OF THE ASSESSEE AND DELETE THE ADDITIONS MADE IN THE ASSESSMENT ORDER. 25. LD. DR, ON THE OTHER HAND RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 26. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . WE OBSERVE THAT AO CALLED FOR THE IV QUARTER RESULTS AND NOTICED THAT ASSESSEE HAS INCURRED LOSS TO THE EXTENT OF RS. 13.23 C RORES DURING THIS QUARTER. HE ASKED FOR THE EXPLANATION TO SUBSTANTIATE THE LOSS INCURRED DURING THIS QUARTER. ASSESSEE COULD NOT SUBSTANTIATE THE SAME TO THE SATISFACTION OF AO AND ACCORDINGLY, HE MADE ADDITION. 26.1 WE NOTICE THAT AO HAS NOT FOUND ANY M ISSTATEMENT OR ANY WRONG CLAIM BY THE ASSESSEE IN THE RESULT SUBMITTED BY THE ASSESSEE FOR THE 4 TH QUARTER. AO NOTICED THE LOSS IN THE 4 TH QUARTER AND ASKED THE ASSESSEE TO SUBSTANTIATE THE LOSS. THIS LOSS IS INCURRED DURING REGULAR COURSE OF BUSINESS AND IT IS NOT THE CASE OF AO THAT THE LOSS WAS INCURRED DUE TO DISCREPANCIES IN THE RESULT FOR WHICH HE COULD HAVE APPLIED THE RULE PREPONDERANCE OF PROBABILITY. THERE IS NO 45 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. FINDING BY THE AO BUT JUST BECAUSE ASSESSEE INCURRED LOSSES IN THE 4 TH QUARTER, AO CANNOT INFER ANYTHING AND MAKE THE ADDITION. IN OUR VIEW, AO CANNOT BREAKDOWN THE RESULTS OF THE BUSINESS ON QUARTERLY BASIS WHEN HE ACCEPTED THE ANNUAL RESULTS AND HE HAS NOT FOUND ANY DISCREPANCIES IN THE ANNUAL RESULTS NOR REJECTED THE BOOK S OF THE ASSESSEE. AO CANNOT QUESTION THE RESULTS OF INDIVIDUAL PROJECTS AND DETERMINE THE RESULTS OF THE ASSESSEE SINCE THE RESULTS DECLARED BY THE ASSESSEE BASED ON THE OVERALL RESULTS OF ALL THE PROJECTS CARRIED ON BY THE ASSESSEE. BREAK DOWN THE RESULTS BASED ON PERIOD AND PROJECTS, WHEN THE OVERALL RESULTS DECLARED BY THE ASSESSEE ARE ACCEPTABLE AND PARTICULARLY NO DISCREPANCIES WERE NOTED IN THE RESULTS DECLARED BY THE ASSESSEE IN TERMS OF TURNOVER, EXPENDITURE ETC., ARE NOT PROPER. IN THE ABSENCE OF A NY MATERIAL IN SUPPORT OF THE RESULT DECLARED BY THE ASSESSEE FOR THE 4 TH QUARTER, MERELY BECAUSE ASSESSEE INCURRED LOSSES IN THE 4 TH QUARTER CANNOT BE REASON TO MAKE THE ADDITION OR AO CANNOT INFER MERELY BASED ON THE RESULTS DECLARED. THEREFORE, THE ADDI TION IS ACCORDINGLY DELETED. THIS GROUND IS ALLOWED. 2 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER , 2018 SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 29 TH NOVEMBER , 201 8 KV 46 ITA NO. 2 18 7 /HYD/201 7 M/S BS LTD., HYD. C OPY TO: - 1) M/S BS LTD., C/O P. MURALI & CO., CAS., 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 50 0 082 2) A C I T, CENTRAL CIRCLE 2 ( 3 ), H YD. 3 ) DRP - 1 , BENGALURU 4) PR. CIT 2, HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE