DY.CIT CENT. CIR-8(1) , MUMBAI V. M/S RAYMOND APPAREL LTD, MUMBAI

ITA 2333/MUM/2021

AI Insights

The case involves the revenue's appeal against the order of the Learned Commissioner of Income Tax (Appeals) which allowed certain commission expenses and deleted additions related to section 14A disallowance and bogus purchases. The revenue contended that the commission expenses were not genuine and the additions were based on proper inquiry. The Tribunal, referencing a similar case involving the assessee's sister concern, found that the commission expenses were for genuine services rendered and that the assessee had not made any purchases from the alleged bogus supplier, thus no disallowance was warranted.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 123889 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-10-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 13-12-2021
• Other Referred Cases: South Indian Bank Limited vs. CIT, ACIT v. Vireet Investments Private Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Earning of tax free income; Accommodation entries; Rule 8D
• Section: 132; 14A; 133(6); 143(2); 139(1); 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “D”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, HON'BLE JUDICIAL MEMBER ITA NO.2333/MUM/2021 (A.Y: 2011-12) DCIT – Central Circle – 8(1) Room No. 656, 6 th Floor Aayakar Bhavan, M.K. Road Mumbai - 400020 v. M/s. Raymond Apparel Limited New Glass Building Pokhran Road No. 1 Jekegram, Thane – 400606 PAN: AAKCS3399H (Appellant) (Respondent) Assessee by : Shri Madhur Agrawal Department by : Shri T. Shankar Date of Hearing : 06.10.2022 Date of Pronouncement : 30.12.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the revenue against order of Learned Commissioner of Income Tax (Appeals)–50, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 18.08.2021 for the A.Y. 2011-12. 2. During the course of search action under section 132, certain documents belonging to the assessee were found from the searched 2 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited premises. Accordingly, the case of the assessee has been centralized and notice u/s 153C of the Act was issued and duly served upon the assessee. In response assessee filed its return of income on 01.08.2013 declaring total income as ₹.4,03,25,439/-. Notice u/s. 143(2) of the Act was issued and served on the assessee. In response AR of the assessee attended and submitted the relevant information as called for. 3. Revenue has raised following grounds in its appeal: - “1. On the facts and circumstances of the case and law Ld. CIT(A) has erred in allowing the Commission Expenses of Rs. 93,376/-paid to M/s. Muzzafarpur Texttile Agency which had been disallowed by the A.O. based on the proper inquiry proving that the said Commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search. 2. On the facts and circumstances of the case and law Ld. CIT(A) has erred in allowing the Commission Expenses of Rs. 3,48,642/-paid to M/s. Bishwanath Prasad & Sons Agencies which had been disallowed by the A.O. based on the proper inquiry proving that the said Commission Expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search." 3. On the facts and circumstances of the case and law Ld. CIT(A) erred in deleting the addition made u/s 14A not considering the disallowance u/s. 14A r.w.r 8D which has been worked out as per the formula laid down in Rule 8D of the Income tax Rules and by following the CBDT Circular No. 5/2014 dated 11/02/2014 and restricted to such exempt income earned/claimed during the year. 4. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.2,94,23,588/-as bogus purchase in the case of M/s. Pantaloon Apparel Pvt. Ltd. as also confirmed by the Sales Tax Department that M/s. Pantaloon Apparel 3 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited Pvt. had not done any actual purchase/sales & only bills was issued without actual delivery of the material.” 4. At the outset, Ld. Counsel for the assessee submitted that the Ground Nos. 1 and 2 raised by the revenue are relating to commission expenses paid to various parties. These ground are similar to Ground Nos. 6 and 7 raised in the assessee’s sister concern i.e., M/s. Raymond Limited in ITA.No. 202/Mum/2018 for the A.Y.2009-10 and the appeal is heard on 03.10.2022 and pending for pronouncement. Ld. AR submitted that as facts are similar the decision rendered in assessee’s sister concern case will have coinciding effect in these grounds. Therefore, he relied on the order passed by Ld.CIT(A). 5. On the other hand, Ld.DR agreed with the submissions of the Ld.AR and he relied on the order passed by the Assessing Officer. 6. Considered the rival submissions and material placed on record, we observe that similar issue in assessee’s sister concern case in ITA.No. 202/Mum/2018 for the A.Y. 2009-10 was heard by the Coordinate Bench on 03.10.2022. The Coordinate Bench considered the issue and pronounced the order on 28.12.2022 in which one of the member is 4 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited co-author. Tribunal in the case of M/s. Raymond Limited vide order dated 28.12.2022 held as under: - “39. Considered the rival submissions and material placed on record, we observe from the findings of the Ld.CIT(A) that assessee has submitted details of proof of services before the Assessing Officer vide letter dated 22.11.2013 along with details/documentary evidences to prove the bonafide nature, business purpose and to prove that the services were actually rendered by the agencies appointed by the assessee. Assessee has filed the details before the Assessing Officer as under: - i) detailed note on Commission payments along with work-flow and showing genuine/ bona-fide nature of payment, ii) why the same was imperative for the appellant, iii) how commission incurred was for the business purpose of the appellant and iv) documentary evidences substantiating rendering of services by the agent to the appellant company 40. This is a factual issue and Ld.CIT(A) observed that the above facts clearly indicate that services have been rendered and commission have been paid for rendering of the services. He also observed that there is no evidence of any kind on record to prove that payment of commission is not genuine. Looking to the magnitude of the turnover of the company, the company has to appoint commission agents to sell its products throughout the country. Ld.CIT(A) observed that as far as calculation of commission, SAP system generates the details of commission for every quarter, the same is sent to the selling agents for verification. Post verification the bill for commission is raised by the selling agents. For the Service tax at applicable rate is charged on the above said bill and the said bill is raised and sent to the assessee company by the end of the month succeeding the completion of quarter. 41 Besides the above, Ld CIT(A) observed that the agents also render services to coordinate for collection of payment; raising the invoices on dealers; delivery of goods from warehouse to dealer etc., he observed that Assessing Officer has ignored documentary evidence, which is a part of paper book, filed during the course of assessment proceedings which substantiated rendering of service by the said agent. Further, Ld.CIT(A) observed from DIT(Inv.) report, it is not proved that services were not provided by the selling agents to the assessee nor it 5 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited proves that the agents have only provided accommodation entries to the assessee. According to him, Assessing Officer has merely attempted to prove the genuine payment of commission to hold it as a non-genuine payment of commission. After observing the findings of the Ld.CIT(A) and the various submissions made before us we are of the considered view that Ld.CIT(A) has appreciated the various documents submitted before him to prove that the various agents have actually done the various services as a commission agents and also there is no direct findings even in DIT(Inv.) report that various agents have not carried out any service to substantiate the findings of the Assessing Officer. Therefore, these findings of the Ld.CIT(A) is not being controverted before us by the revenue. Therefore, we are inclined to dismiss the ground raised by the revenue.” 7. Since facts being identical and respectfully following the above said decision, we do not find any infirmity in the finding of the Ld.CIT(A). Accordingly, ground No. 1 and 2 are dismissed. 8. With regard to Ground No. 3 which is in respect of Section 14A disallowance, Ld. AR submitted that this ground is similar to Ground No. 3 raised in the assessee’s sister concern i.e., M/s. Raymond Limited in ITA.No. 202/Mum/2018 for the A.Y.2009-10 and the appeal is heard on 03.10.2022 and pending for pronouncement. Ld. AR submitted that as facts are similar the decision rendered in assessee’s sister concern case will have coinciding effect in this ground. Therefore, he relied on the order passed by Ld.CIT(A). 6 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited 9. On the other hand, Ld.DR relied on the order of the Assessing Officer and requested to set-aside the order of the Ld.CIT(A) in this regard. 10. Considered the rival submissions and material placed on record, we observe that similar issue in assessee’s sister concern case in ITA.No. 202/Mum/2018 for the A.Y. 2009-10 was heard by the Coordinate Bench on 03.10.2022. The Coordinate Bench considered the issue and pronounced the order on 28.12.2022 in which one of the member is co-author. Tribunal in the case of M/s. Raymond Limited vide order dated 28.12.2022 held as under: - “23. Considered the rival submissions and material placed on record, we observe from the record that the assessee has made investments utilizing non-interest bearing own funds at ₹.1,12,698.37 lakhs and ₹.1,39,828.50 as on 31.03.2009 and 31.03.2008 respectively. It clearly shows that the total investments made are less than the average own funds available in the business. Therefore, the disallowance of interest expenditure proposed for this year is not as per the judicial precedents. Respectfully following the decision of Hon'ble Apex Court in the case of South Indian Bank Limited vs. CIT 1438 ITR 1(SC)). Further with regards to disallowance u/r 8D(2)(iii), it is well settled law that the disallowance has to be on those investments which actually yielded the exempt income. Ld. AR submitted a chart which is reproduced below: - Sr. No. Particulars As per Suo Moto disallowance As per Assessment Order As per CIT(A) order Before ITAT Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) (i) Direct Expenses- Rule 8D(2)(i) i.e. Depository (Rs 63,466) and PMS charges (Rs 40,08,534) 40,72,000 40,72,000 40,72,000 40,72,000 (ii) Interest Expenses- Rule 8D(2)(ii) 7 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited Sr. No. Particulars As per Suo Moto disallowance As per Assessment Order As per CIT(A) order Before ITAT Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) Amount (₹.) A Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year 0 82,43,73,000 41,07,73,000 0 B The average value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year 0 6,75,70,57,000 18,92,18,500 c The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year 0 28,22,31,59,500 28,22,31,59,500 AXB / C 0 AXB / C 19,73,67,533 AXB/ C 27,53,974 0 (ill) 0.5% of the average of the value of investment: Rule 8D(2)(lii) 0 0 (0.5%ofRs. 675,70,57,000) 3,37,85,285 (0.5% of Rs. 18,92,18,500) 9,46,093 (0.5%of Rs. 343,42,70,000) 1,71,71,350 Total disallowance U/S.14A (i)+(ii)+(ii i) 40,72,000 (i)+(ii)+(iii) 23,52,24,818 (i)+(ii)+(iii) 77,72,067 2,12,43,350 Less: Suo Motto Disallowance u/s 14A (40,72,000) (40,72,000) (40,72,000) (40,72,000) Further disallowance u/s 14A 0 23,11,52,818 37,00,067 1,71,71,350 Limb ii) CIT(A) considered the net interest expenditure Limb iii) Avg value of investments reduced since following 2 types of investments excluded: 1) strategic in nature 2) which were acquired from specific sources of interest free funds Limb ii) South Indian Bank to cover that when own funds more than investments that has yielded exempt income no interest disallowance is called for Limb iii) Sp Bench Delhi Vireet investments and ACB India Ltd (Del HC) that only those investments be considered which has yielded exempt income. Further, relief of PMS charges of Rs 40.08 lakhs as same is already disallowed by A in limb (i) 24. From the above information submitted by the assessee clearly indicates that the various investments were made by the assessee in earlier Assessment Years which is backed with the details of the non 8 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited interest borrowing funds available with the assessee in the respective years. Therefore, assessee has brought to our notice clearly that assessee has enough funds at their disposal to make various investments in the sister concerns as well as with the various investments. In our considered view with the information available on record it clearly indicates that the assessee has utilized non interest borrowing funds for making the various investments. Therefore, the Assessing Officer cannot invoke Rule 8D(2)(ii) of I.T. Rules to disallow the interest expenditure u/s. 14A of the Act. 25. This bench is consistently holding that, the disallowance u/s. 14A of the Act if any shall be restricted to the exempt income earned by the assessee. We find that the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27] held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s. 14A r.w. Rule 8D of the I.T Rules, 1962. Thus respectfully following the said decision, we restore the grounds raised by the revenue in respect of disallowance u/s. 14A while computing the book profits to the file of the Assessing Officer who shall decide in view of the decision of the Special Bench Vireet Investments Private Limited (supra). Therefore, we are directing the assessing officer to restrict the disallowance by adopting the value of investments which actually earned exempt income during the assessment year. Accordingly, the grounds raised by the revenue is dismissed” 11. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s sister concern case in ITA.No. 202/Mum/2018 for the A.Y. 2009-10, we dismiss the ground raised by the revenue. 12. With regard to Ground No. 4 which is in respect of bogus purchases from M/s. Pantaloon Apparel Pvt, ltd., brief facts relating to the issue are, a search and seizure action u/s. 132 of the Income Tax Act, 1961 (hereinafter in short "Act") was carried out at the offices of 9 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited Raymond Ltd. and residence of its directors, etc. (hereinafter referred as Raymond group) on 03.11.2011. The search action was concluded on 29.12.2011. The assessee had filed its return of income u/s. 139(1) on 19.09.2011 declaring total income at ₹.4,03,25,439/- having head wise details as follows. Further the assessee paid tax under MAT provisions on book profit of ₹ 19,46,53,579/- Sr.No. Particulars Amount (₹.) I. Income from Business and Profession 26,62,09,221/- II. Less: Brought Forward Losses (22,58,83,782) III Total Income 4,03,25,439/- 13. Based on the information received from Sales Tax Department, Mumbai, that the assessee has availed accommodation entries from M/s.Pantaloon Apparel Pvt Ltd., which is said to be providing accommodation entries without there being transportation of any goods, Assessing Officer, in order to verify the existence of the M/s Pantaloon Apparel Pvt. Ltd., issued notice u/s 133(6) of the Act were issued to the party requesting them to confirm the transaction with the assessee company through documentary evidence. Assessee was asked to prove the genuineness of the purchases made from M/s. Pantaloon Apparel Pvt., Ltd., and asked to provide new address and produce the parties for verification of purchases booked by the assessee from this party. In 10 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited response, assessee submitted that the assessee has not made any purchases from the said party and hence no disallowance is called for. 14. Not convinced with the submissions of the assessee, the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. Assessing Officer observed that the notices issued u/s. 133(6) of the Act to the party returned unserved and the assessee has not produced the party before him. Assessing Officer is of the opinion that the assessee failed to produce the parties before the Assessing Officer to prove the claim made by the assessee. Therefore, Assessing Officer treated entire purchases of ₹.2,94,23,588/- made from M/s. Pantaloon Apparel Pvt. Ltd., as non-genuine and added to the income of the assessee. On appeal the Ld.CIT(A) considering the evidences and various submissions of the assessee to delete the addition made by the Assessing Officer in respect of purchases made from M/s.Pantaloon Apparel Pvt., Ltd. 11 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited 15. At the time of hearing, Ld. AR reiterated the submissions made before the Ld.CIT(A) and relied on the order. On the other hand, Ld.DR relied on the order of the Assessing Officer. 16. Considered the rival submissions and material placed on record, we observe that Ld.CIT(A) considered this aspect of the matter elaborately and the averments in the Assessment Order and came to the conclusion that in Profit and Loss Account the assessee has not debited any purchase from the said party hence there cannot be any disallowance on account of purchases made from M/s. Pantaloon Apparel Pvt. Ltd., and deleted the addition made by the Assessing Officer. While holding so, the Ld.CIT(A) observed as under: - “9.4.1 I have considered the submissions of the appellant and perused the materials available on record. The appellant has requested to delete the disallowance made of Rs.2,94,23,588/- on account of bogus purchases. The appellant has made detailed submissions as above and the same are considered carefully. The appellant's main contention is that during the year under consideration, the appellant has not made any purchases from the party under consideration, i,e. M/s Pantaloon Apparel P Ltd and once no purchases have been debited against said party there cannot be any disallowance of the same. From the impugned assessment order it is observed that the Ld. AO has held that apparently, during the year the appellant has made purchases from M/s Pantaloon Apparel P Ltd at Rs.2,94,23,588/-, which is bogus and has disallowed the same and added back the same to the total income. Contrary to finding of the Ld. AO, the appellant has submitted that during the year no purchases were made from said party M/s Pantaloon Apparel P Ltd and once no purchases have been made from them then there cannot be any question of disallowance of same. I am 12 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited in agreement with the contentions of the appellant that if during the year in P&L account the appellant has not debited any purchase from said party M/s Pantaloon Apparel Ltd, then there cannot be any disallowance on account purchases made from them. If view of the above discussions, the Ld. AO is directed to verify the records and contention of the appellant that during the year in P & L account they have neither debited nor claimed any purchases made from M/s Pantaloon Apparel P Ltd and if the same is found to be correct, then the impugned disallowance of purchases from them at Rs.2,94,23,588/- shall be DELETED. The Ground No.4 raised in appeal is disposed off accordingly, as per above directions.” 17. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, which shows that there is no purchases made from M/s.Pantaloon Apparel P. Ltd. Therefore, where there are no purchases, there cannot be any claim. Hence, the addition made by Assessing Officer is improper. we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the addition made by the Assessing Officer in respect of purchases made from M/s. Pantaloon Apparel P. Ltd. Accordingly, Ground No. 4 raised by the revenue is dismissed. 18. In the result, appeal filed by the revenue is dismissed. Order pronounced in the open court on 30 th December, 2022 Sd/- Sd/- (SANDEEP SINGH KARHAIL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai /Dated 30.12.2022 Giridhar, Sr.PS 13 ITA NO.2333/MUM/2021 (A.Y: 2011-12) M/s. Raymond Apparel Limited Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum