DCIT, CC-III, Ludhiana V. M/s SEL Manufacturing Co. Ltd., Ludhiana

ITA 302/CHANDI/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6699 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 08-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENU AMITABH
• Assessee Lawyers: SSH ASHWANI KUMAR; KANIKA GUPTA; ADITYA KUM
• Keywords: Unexplained cash credit; Capital asset; Search and seizure; Double taxation relief; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Period of limitation; Source of fund; Question of law; Competent authority; Right to appeal; Time period of passing order; Revised return; Bonafide mistake; Rule 8D; Set aside; Capital Gains
• Section: 43B; 143(3); 153A; 14A; 250; 201; 251; 68; 132

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH , ! . .., # $, %& BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ./ ITA NO. 157/CHD/2018 / ASSESSMENT YEAR : 2010-11 M/S SEL MANUFACTURING CO. LIMITED, 274, G.T.ROAD, DHANDARI KHURD, LUDHIANA DCIT, CENTRAL CIRCLE-III, LUDHIANA ./PAN NO: AAHCS9189E APPEAL AGAINST THE ORDER OF CIT(A)-2, JALANDHAR DA TED 29.12.2017 ./ ITA NO. 158/CHD/2018 / ASSESSMENT YEAR : 2011-12 M/S SEL MANUFACTURING CO. LIMITED, 274, G.T.ROAD, DHANDARI KHURD, LUDHIANA DCIT, CENTRAL CIRCLE-III, LUDHIANA ./PAN NO: AAHCS9189E APPEAL AGAINST THE ORDER OF CIT(A)-2, JALANDHAR DA TED 29.12.2017 ./ ITA NO. 159/CHD/2018 / ASSESSMENT YEAR : 2012-13 M/S SEL MANUFACTURING CO. LIMITED, 274, G.T.ROAD, DHANDARI KHURD, LUDHIANA DCIT, CENTRAL CIRCLE-III, LUDHIANA ./PAN NO: AAHCS9189E APPEAL AGAINST THE ORDER OF CIT(A)-2, JALANDHAR DA TED 21.12.2017 ./ ITA NO. 160/CHD/2018 / ASSESSMENT YEAR : 2013-14 M/S SEL MANUFACTURING CO. LIMITED, 274, G.T.ROAD, DHANDARI KHURD, LUDHIANA DCIT, CENTRAL CIRCLE-III, LUDHIANA ./PAN NO: AAHCS9189E APPEAL AGAINST THE ORDER OF CIT(A)-2, JALANDHAR DA TED 29.12.2017 ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 2 ./ ITA NO. 161/CHD/2018 / ASSESSMENT YEAR : 2014-15 M/S SEL MANUFACTURING CO. LIMITED, 274, G.T.ROAD, DHANDARI KHURD, LUDHIANA DCIT, CENTRAL CIRCLE-III, LUDHIANA ./PAN NO: AAHCS9189E APPEAL AGAINST THE ORDER OF CIT(A)-2, JALANDHAR DA TED 21.12.2017 ./ ITA NO. 302/CHD/2018 / ASSESSMENT YEAR : 2012-13 DCIT, CENTRAL CIRCLE-III, LUDHIANA M/S SEL MANUFACTURING CO. LIMITED, 274, G.T.ROAD,DHANDASRI KHURD, LUDHIANA ./PAN NO: AAHCS9189E APPEAL AGAINST THE ORDER OF CIT(A)-2, JALANDHAR DA TED 21.12.2017 & ./ ITA NO. 303/CHD/2018 / ASSESSMENT YEAR : 2014-15 M/S SEL MANUFACTURING CO. LIMITED, 274, G.T.ROAD,DHANDASRI KHURD, LUDHIANA DCIT, CENTRAL CIRCLE-III, LUDHIANA ./PAN NO: AAHCS9189E APPEAL AGAINST THE ORDER OF CIT(A)-2, JALANDHAR DA TED 21.12.2017 / APPELLANT /RESPONDENT ! /ASSESSEE BY : S/SH. ASHWANI KUMAR & SH. ADITYA KUM AR, CA & MS. KANIKA GUPTA, CA ' ! / REVENUE BY : SMT. RENU AMITABH, CIT DR # $ % /DATE OF HEARING : 13.02. 2019 &'() % / DATE OF PRONOUNCEMENT : 28.02. 2019 %'/ ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE CAPTIONED CROSS APPEALS FOR DIFFERENT ASSESSMEN T YEARS HAVE BEEN PREFERRED BY THE ASSESSEE AND REVENUE AGAINST THE O RDER OF THE ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 3 COMMISSIONER OF INCOME TAX (APPEALS), JALANDHAR [HE REINAFTER REFERRED TO AS CIT(A)]. 2. FIRST, WE SHALL DEAL WITH THE APPEAL OF THE ASSES SEE IN ITA NO. 157/CHD/2018 FOR ASSESSMENT YEAR 2010-11. ITA NO. 157/CHD/2018 (A.Y. 2010-11): 3. IN THIS APPEAL THE ASSESSE/APPELLANT HAS TAKEN F OLLOWING GROUNDS OF APPEAL:- 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, JALANDHAR IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTIO N OF THE LD. ASSESSING OFFICER IN FRAMING ASSESSMENT U/S 153 A DESPITE THE FACT THAT NO INCRIMINATING MATERIAL WAS FOUND D URING THE COURSE OF SEARCH. 2. THAT LD. CIT(A) GRAVELY ERRED IN HOLDING THAT TH E ASSESSMENT FRAMED BY THE LD. ASSESSING OFFICER WAS NOT BEYOND THE PERIOD OF LIMITATION PRESCRIBED UNDER TH E ACT. 3. THAT LD. CIT(A) WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ADDITION MADE AT RS. 39,70,08,480/- REPRESENTIN G PROCEEDS OF GDR ISSUED BY THE APPELLANT AS UNEXPLAI NED CREDIT BY RESORT TO PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT. 4. THAT LD. CIT(A) HAS RELIED ON A LOT OF IRRELEVA NT DATA MARSHALLED BY THE LD. ASSESSING OFFICER WHILE UPH OLDING THE ABOVE MENTIONED ADDITION OF RS. 39,70,08,48 0/-. 5. THAT LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING T HE ASSESSMENT DESPITE THE FACT THAT PRINCIPLES OF NATU RAL JUSTICE WERE GROSSLY VIOLATED BY THE LD. ASSESSING OFFICER IN FRAMING OF ASSESSMENT. 6. THAT LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN NOT CONSIDERING THE APPELLANT'S REQUEST FOR NOT MAKING ANY DIS ALLOWANCE U/S 14A WHICH WAS INITIALLY MADE BY THE APPELLANT W HILE FILING THE RETURN OF INCOME. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 4 4. GROUND NO.1 : VIDE GROUND NO.1 THE ASSESSEE HAS TAKEN A LEGAL ISSUE AGITATING THAT ORDER PASSED U/S 250(6) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') BY THE LD. CIT(A) IS AGAINST LAW A ND FACTS ON THE FILE AND THAT CIT(A) WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE ASSESSING OFFICER IN FRAMING ASSESSMENT U/S 153A OF THE ACT AND THE REBY MAKING IMPUGNED ADDITIONS INTO THE INCOME OF THE ASSESSEE, DESPITE THE FACT THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT A SEARCH ACTION WAS CARRIED OUT AT THE PREMISES AT THE ASSESSEE AND ITS GROUP CONCERNS ON 11.9.2013, HOWEVER, NO INCRIMINATING MATERIAL WAS F OUND DURING THE SEARCH ACTION. THAT FOR ASSESSMENT YEAR 2010-11, THE ORIGI NAL ASSESSMENT U/S 143(3) OF THE ACT WAS FRAMED BY THE ASSESSING OFFIC ER VIDE ORDER DATED 17.9.2012. SINCE ON THE DATE OF SEARCH, THE ORIGINA L ASSESSMENT ALREADY STOOD COMPLETED AND IN THE ABSENCE OF ANY INCRIMINA TING MATERIAL FOUND DURING THE SEARCH ACTION, THE ADDITION MADE BY THE ASSESSING OFFICER BY WAY OF REVISITING THE ISSUE WAS BAD IN LAW. THAT S INCE NO INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH ACTION AND HEN CE, NO ADDITIONS WERE WARRANTED UNDER THE ASSESSMENT CARRIED OUT U/S 153A OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED UPON VARIOUS JU DICIAL DECISIONS INCLUDING THE DECISION OF THE IN THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. MURLI AGRO PRODUCTS PVT LTD, (20 14) 49 TAXMAN.COM 172 (BOM.), ITA NO.36 OF 2009 AND IN THE CASE OF CIT V S. CONTINENTAL WAREHOUSING CORPORATION ITA NO. 523 OF 2013 REPORT ED IN (2015) 279 CTR 0389 (BOMBAY) AND OF THE HON'BLE DELHI HIGH COU RT IN THE CASE OF CIT VS. KABUL CHAWLA 234 TAXMAN 300 (DELHI) AND S UBSEQUENT DECISION OF THE DELHI HIGH COURT IN THE CASE OF PRINCIPAL C IT VS. MEETA GUTGUTIA ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 5 PROP M/S FERNS N PETALS, ITA 306/2017 AND OTHERS DECIDED VIDE ORDER DATED 25.5.2017. 6. THE LD. DR HAS ALSO BEEN FAIR ENOUGH TO ADMIT TH AT NO INCRIMINATING MATERIAL WAS FOUND IN THE CASE DURING THE SEARCH AC TION AND THAT THE FACTS AND ISSUE INVOLVED ARE SQUARELY COVERED BY THE AFOR ESAID DECISIONS. WE FIND FORCE IN THE CONTENTION OF THE LD. AR. ADM ITTEDLY, THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION STOOD COMPLETED O N THE DATE OF SEARCH. NO INCRIMINATING MATERIAL, WHATSOEVER, IN RELATION TO THE SHARE APPLICATION MONEY/GDR WAS FOUND. IT HAS BEEN TIME AND AGAIN H ELD BY THE VARIOUS HIGH COURTS THAT IF NO INCRIMINATING MATERIAL IS FO UND DURING THE SEARCH ACTION, THE ADDITION IN THE CASE OF ALREADY CONCLUD ED ASSESSMENT CANNOT BE MADE WHILE FRAMING ASSESSMENT U/S 153A OF THE ACT. RELIANCE IN THIS RESPECT CAN BE PLACED IN THE CASE OF CIT VS. CONT INENTAL WAREHOUSING CORPORATION ITA NO. 523 OF 2013 REPORTED IN (2015) 279 CTR 0389 (BOMBAY) AND OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KABUL CHAWLA 234 TAXMAN 300 (DELHI). WE FIND THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE AFORESAID DECIS IONS. THE VIEW TAKEN IN THE AFORESAID DECISIONS HAS BEEN FURTHER AFFIRMED B Y THE DELHI HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. MEETA GUTGUTIA PR OP M/S FERNS N PETALS, ITA 306/2017 AND OTHERS DECIDED VIDE ORDER DATED 25.5.2017. THE AFORESAID CASE LAWS CAN BE WELL APPLIED TO THE FACT S AND CIRCUMSTANCES OF THE CASE IN HAND. IN VIEW OF THIS, WE HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LD. ASSES SING OFFICER IN FRAMING U/S 153A OF THE ACT. THE ASSESSMENT FRAMED UNDER S ECTION 153A FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS HEREBY QUASH ED. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 6 SINCE THE ISSUE TAKEN ON MERITS OF THE CASE THOUGH RENDERED ACADEMIC IN NATURE FOR ASSESSMENT YEAR 2010-11, HAVE ALSO B EEN RAISED IN SUBSEQUENT ASSESSMENT YEARS ALSO, HENCE, WE PROCEED TO DECIDE THE SAME ALSO. 7. GROUND NO.2: AS REGARDS THE ISSUE RAISED VIDE GROUND NO.2, THE ASSESSEE HAS TAKEN A PLEA THAT THE ASSESSMENT FRAME D BY THE LD. ASSESSING OFFICER WAS BEYOND THE PERIOD OF LIMITATION PRESCRI BED. THE LD. COUNSEL FOR THE ASSESSEE IN THIS RESPECT HAS SUBMITTED THAT DUR ING THE ASSESSMENT PROCEEDINGS, WHICH WERE GOING ON TILL MARCH, 2016, THE ASSESSING OFFICER WITHOUT ANY INTIMATION TO THE ASSESSEE, PURPORTEDLY REFERRED THE TO MATTER TO JS (FT &TR) IN RESPECT OF GDR ISSUE OF THE ASSES SEE. DESPITE ASSESSEES REQUEST VIDE LETTERS DATED 5.1.2017 AND 19.1.2017, THE DETAILS OF SO CALLED REFERENCE WAS NEVER COMMUNICATED TO THE ASSESSEE. I T HAS BEEN SUBMITTED THAT THAT IN CASE THE ASSESSING OFFICER HAD TO T AKE THE BENEFIT OF EXTENDED PERIOD OF LIMITATION AS PRESCRIBED IN SECTION 153, THE ASSESSING OFFICER OUGHT TO HAVE COMMUNICATED THE DETAILS OF SUCH REFE RENCE TO THE ASSESSEE. IN THE ABSENCE OF ANY SUCH COMMUNICATION, THERE WAS NOTHING ON RECORD TO SUPPORT THE AVERMENT IN THE ASSESSMENT ORDER THAT T HE MATTER WAS REFERRED TO JS(FT &TGR). 8. THE LD. DR, ON THE OTHER HAND, HAS RELIED UPON THE FINDINGS OF THE CIT(A) ON THIS ISSUE. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. WE FIN D THAT THE LD. CIT(A) HAS CATEGORICALLY OBSERVED THAT THE PROVISIO NS OF INCOME TAX ACT EMPOWERS THE ASSESSING OFFICER TO MAKE A REFERENCE TO THE COMPETENT AUTHORITY FOR COLLECTING INFORMATION WITH REGARD TO THE TRANSACTIONS EXECUTED BY THE ASSESSEE OUTSIDE INDIA AND ON ACCOU NT OF THAT THE ASSESSING ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 7 OFFICER REFERRED THE MATTER TO THE JS(FT&TR) IN RES PECT OF THE GLOBAL DEPOSITORY RECEIPT (GDR) RECEIVED BY THE ASSESSEE F ROM FOREIGN ENTITIES. THE TIME FRAME FOR FRAMING ASSESSMENT WAS ACCORDING LY EXTENDED BY THE COMPETENT AUTHORITY. WE, THEREFORE, DO NOT FIND A NY MERIT ON THIS ISSUE AND THIS GROUND OF APPEAL OF THE ASSESSEE IS HEREBY DISMISSED. 10. GROUND NOS. 3, 4 & 5 : SO FAR AS THE ISSUE RAISED VIDE THESE GROUNDS, THE ASSESSEE HAS AGITATED ON MERITS OF THE ADDITIO NS MADE BY THE ASSESSING OFFICER IN RESPECT OF PROCEEDS OF GDRS IS SUED BY THE APPELLANT HOLDING THE SAME AS UNEXPLAINED CREDIT. 11. BRIEF FACTS OF THE CASE, AS EXTRACTED FROM THE ORDER OF THE CIT(A), ARE THAT THE APPELLANT IS A LIMITED COMPANY ENGAGED IN THE B USINESS OF MANUFACTURING AND TRADING OF YARN, GARMENTS, TOWEL, KNITTED CLOTH AND RUNNING A DYEING HOUSE ETC. A SEARCH AND SEIZURE OP ERATION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 WAS CONDUCTED IN TH E CASE OF THE APPELLANT ON 11.09.2013. IN PURSUANCE TO THE SEARCH OPERATION, PROCEEDINGS UNDER SECTION 153 A OF THE ACT WERE INITIATED BY TH E ASSESSING OFFICER VIDE NOTICE DATED 24.03.2014, REQUIRING THE APPELLANT TO FURNISH RETURN OF INCOME IN RESPECT OF ASSESSMENT YEARS FALLING WITHI N THE SIX ASSESSMENT YEARS, IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN W HICH SEARCH WAS CONDUCTED. IN RESPONSE TO THE SAID NOTICE, THE APP ELLANT FILED RETURN OF INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION AS U NDER: AY PROFIT/LOSS AS PER RETURN DATE OF FILING US 153 A 2010-11 PROFIT OF RS. 45,15,11,920 05.03.2015 2011-12 PROFIT OF RS. 60,85,81,130 02.03.2015 2013-14 LOSS OF RS.29,03,51,706 02.03.2015 12. THE ASSESSMENT WAS COMPLETED VIDE ORDER DATED 3 0.01.2017, PASSED UNDER SECTION 143(3) R.W.S. 153A OF THE ACT, AND IN COME OF THE APPELLANT ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 8 HAS BEEN ASSESSED AT RS. 84,85,20,400/-, RS. 431,02 ,21,140 AND RS.241,64,40,090 FOR AY 2010-11, 2011-12 AND 2013-1 4 RESPECTIVELY. THE ASSESSING OFFICER HAS MADE ADDITIONS RS. 39,70,08,4 80/-, (II) RS. 370,16,40,000/- AND (III) RS. 241,64,40,094/- RESPE CTIVELY, ON ACCOUNT OF GLOBAL DEPOSITORY RECEIPTS (GDR) PROCEEDS ) ISSUED BY THE APPELLANT, AS UNEXPLAINED CREDIT BY RESORTING TO PROVISIONS OF SE CTION 68 OF THE INCOME TAX ACT, 1961, ON THE GROUND THAT THE APPELLANT WAS UNABLE TO PROVE THE IDENTITY, GENUINENESS AND CREDIT WORTHINESS OF THE INVESTORS AND THE FINANCIAL TRAIL OF THE MONEY HAVING BEEN PAID BY SU CH INVESTORS IN THE FORM OF INVESTMENT IN GDR. 13. BEING AGGRIEVED BY THE ABOVE ADDITIONS MADE BY THE AO, THE ASSESSE PREFERRED APPEAL BEFORE THE CIT(A). THE LD. CIT( A), HOWEVER, CONFIRMED THE ADDITIONS SO MADE BY ASSESSING OFFICE R OBSERVING AS UNDER: 5.13 I HAVE CAREFULLY CONSIDERED DETAILED SUBM ISSIONS MADE BY THE APPELLANT INCLUDING JUDICIAL CITATIONS GIVEN THEREIN AND FIND THAT IT IS NOT DISPUTED THAT TOTAL FUNDS TO THE TUNE OF RS. 651.15 CRORE HAVE BEEN RAISED BY THE AP PELLANT IN THE YEARS UNDER CONSIDERATION IN THIS APPEAL THROUG H ISSUE OF GDRS. THE APPELLANT HAS CONTENDED THAT A LIST OF T HE LEAD MANAGERS FOR EACH OF THE SERIES OF GDRS HAS BEEN FU RNISHED BEFORE THE AO, WHICH SUBSTANTIATE THE QUANTUM OF FU NDS RAISED FROM OUTSIDE INDIA. THE APPELLANT HAS DISCHARGED TH E ONUS PLACED UPON HIM UNDER SECTION 68 OF THE IT ACT, AS REGARDS THE FLOW OF FUNDS IN THE ACCOUNT OF THE APPELLANT IS CO NCERNED. IT IS SUBMITTED THAT THESE FUNDS HAVE BEEN RAISED BY THE LEAD MANAGERS TO THE ISSUE FROM VARIOUS INVESTORS WHO AR E BASED OUTSIDE INDIA AND AFTER DEDUCTING THEIR COMMISSION THE NET FUNDS ARE TRANSFERRED TO THE APPELLANT COMPANY. 5.14 THE APPELLANT WAS ASKED TO FURNISH THE NAME AND ADD RESS OF THE INVESTORS, WHO SUBSCRIBED TO THE ISSUE OF GD RS ISSUED BY THE COMPANY. THE DETAILS WERE EXAMINED BY THE AO AND IT IS FOUND THAT IN EACH OF THE SERIES OF GDRS ISSUED BY THE APPELLANT ONLY A HANDFUL OF THE INVESTORS HAVE SUBS CRIBED TO THE GDR ISSUE. AO HAS GONE THROUGH THE INCRIMINATIN G MATERIAL COLLECTED IN THE COURSE OF SEARCH (DETAILS GIVEN IN ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 9 PAGE NO. 3 OF THE ASSESSMENT ORDER) AND MADE ELABOR ATE ENQUIRIES IN THE COURSE OF ASSESSMENT PROCEEDINGS W HICH REVEAL THAT EACH OF THE GDR ISSUE MADE BY THE APPELLANT CO MPANY WAS IN FACT A PRIVATE PLACEMENT OF GDRS. THE LIST O F SUBSCRIBERS TO EACH OF THE GDR ISSUE HAS BEEN GIVEN IN THE ASSESSMENT ORDER AND WAS ALSO FILED BY THE APPELLAN T IN THE COURSE OF PRESENT PROCEEDINGS. IT IS SEEN FROM THE SAME THAT NOT MORE THAN SEVEN PERSONS HAVE SUBSCRIBED TO THE ISSUE OF GDRS. 5.15 THE APPELLANT WAS ASKED IN THE COURSE OF ASSESSMENT PROCEEDINGS TO FURNISH THE DETAILS OF THESE SUBSCRI BERS TO THE GDR ISSUE BY FURNISHING EVIDENCE TO PROVE THEIR IDE NTITY, GENUINENESS AND CREDITWORTHINESS OF THE INVESTORS A LONG WITH THE FINANCIAL TRAIL OF THE MONEY WHICH HAS BEEN REC EIVED FROM THESE INVESTORS INTO THE ACCOUNTS OF THE APPELLANT. THE APPELLANT HAS FAILED TO FURNISH ANY EVIDENCE ON EIT HER OF THESE PARAMETERS ON THE GROUND THAT GDR ISSUE WAS A PUBLI C ISSUE AND THEREFORE, THERE IS NO ONUS PLACED UPON HIM TO FURNISH THE DETAILS OF THESE INVESTORS. 5.16 IT WOULD BE PERTINENT AT THIS STAGE TO EXAMINE THE PROVISIONS OF SECTION 68 OF THE IT ACT, WHICH ARE R EPRODUCED AS UNDER: - 'CASH CREDITS. 68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANAT ION OFFERED BY HIM I S NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATIS FACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR: PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY (NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED), AND THE SUM SO CREDITED CONSISTS OF SHARE APPLICATION MONEY, SHARE CAPITAL, SHARE PREMIUM OR ANY SUCH AMOUNT BY WHATEVER NAME CALLED, ANY EXPLANATIO N OFFERED BY SUCH ASSESSEE-COMPANY SHALL BE DEEMED TO BE NOT SATISFAC TORY, UNLESS (A) THE PERSON, BEING A RESIDENT IN WHOSE NAME SUCH CRE DIT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALSO OFFERS AN EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH SUM SO CREDITED; AND (B) SUCH EXPLANATION IN THE OPINION OF THE ASSESSING OF FICER AFORESAID HAS BEEN FOUND TO BE SATISFACTORY: PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRS T PROVISO SHALL APPLY IF THE PERSON, IN WHOSE NAME THE SUM REFERRED TO THERE IN IS RECORDED, IS A VENTURE CAPITAL FUND OR A VENTURE CAPITAL COMPANY A S REFERRED TO IN CLAUSE (23FB) OF SECTION 10. ' 5.17 THE INTENTIONS OF THE LEGISLATURE FOR MAKING T HIS AMENDMENT IN THE PROVISIONS OF SECTION 68 OF THE IT ACT IS CLEAR ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 10 FROM THE MEMORANDUM EXPLAINING THE FINANCE BILL 201 2, RELEVANT EXTRACTS OF WHICH IS RE-PRODUCED AS UNDER: 'C. MEASURES TO PREVENT GENERATION AND CIRCULATION OF UNACCOUNTED MONEY SECTION 68 OF THE ACT PROVIDES THAT IF ANY SUM IS F OUND CREDITED IN THE BOOKS OF AN ASSESSEE AND SUCH ASSESSEE EITHER (I) DOES NOT OFFER ANY EXPLANATION ABOUT NATURE AND SOURCE OF MONEY- OR (II) THE EXPLANATION OFFERED BY THE ASSESSEE IS FOU ND TO BE NOT SATISFACTORY BY THE ASSESSING OFFICER, THEN, SUCH AMOUNT CAN BE TAXED AS INCOME OF THE ASS ESSEE. THE ONUS OF SATISFACTORILY EXPLAINING SUCH CREDITS REMAINS ON THE PERSON IN WHOSE BOOKS SUCH SUM IS CREDITED. IF SUCH PERSON FAILS TO OFFER AN EXPLANATION OR ;HE EXPLANATION IS NOT FOUND TO HE S ATISFACTORY THEN THE SUM IS ADDED TO THE TOTAL INCOME OF THE PERSON. CER TAIN JUDICIAL PRONOUNCEMENTS HAVE CREATED DOUBTS ABOUT THE ONUS O F PROOF AND THE REQUIREMENTS OF THIS SECTION, PARTICULARLY, IN CASE S WHERE THE SUM WHICH IS CREDITED AS SHARE CAPITAL, SHARE PREMIUM ETC. JUDICIAL PRONOUNCEMENTS, WHILE RECOGNIZING THAT THE PERNICIOUS PRACTICE OF CONVERSION OF UNACCOUNTED MONEY THROUGH MASQUERA DE OF INVESTMENT IN THE SHARE CAPITAL OF A COMPANY NEEDS TO BE PREVENTE D, HAVE ADVISED A BALANCE TO BE MAINTAINED REGARDING ONUS OF PROOF TO BE PLACED ON THE COMPANY. THE COURTS HAVE DRAWN A DISTINCTION AND EM PHASIZED THAT IN CASE OF PRIVATE PLACEMENT OF SHARES THE LEGAL REGIM E SHOULD BE DIFFERENT FROM THAT WHICH IS FOLLOWED IN CASE OF A COMPANY SE EKING SHARE CAPITAL FROM THE PUBLIC AT LARGE. IN THE CASE OF CLOSELY HELD COMPANIES, INVESTMENTS ARE MADE BY KNOWN PERSONS. THEREFORE, A HIGHER ONUS IS REQUIRED TO BE PLACED ON SUCH COMPANIES BESIDES THE GENERAL ONUS TO ESTABLISH IDENTITY AND CREDIT WORTHINESS OF CREDITOR AND GENUINENESS OF TRANSACTI ON. THIS ADDITIONAL ONUS, NEEDS TO BE PLACED ON SUCH COMPANIES TO ALSO PROVE THE SOURCE OF MONEY IN THE HANDS OF SUCH SHAREHOLDER OR PERSONS M AKING PAYMENT TOWARDS ISSUE OF SHARES BEFORE SUCH SUM IS ACCEPTED AS GENUINE CREDIT. IF THE COMPANY FAILS TO DISCHARGE THE ADDITIONAL ON US, THE SUM SHALL BE TREATED AS INCOME OF THE COMPANY AND ADDED TO ITS I NCOME. IT IS, THEREFORE, PROPOSED TO AMEND SECTION 68 OF T HE ACT TO PROVIDE THAT THE NATURE AND SOURCE OF ANY SUM CREDITED, AS SHARE CAPITAL, SHARE PREMIUM ETC., IN THE BOOKS OF A CLOSELY HELD COMPAN Y SHALL BE TREATED AS EXPLAINED ONLY IF THE SOURCE OF FUNDS IS ALSO EX PLAINED BY THE ASSESSEE COMPANY IN THE HANDS OF THE RESIDENT SHARE HOLDER, HOWEVER, EVEN IN THE CASE OF CLOSELY HELD COMPANIES, IT IS P ROPOSED THAT THIS ADDITIONAL ONUS OF SATISFACTORILY EXPLAINING THE SO URCE IN THE HANDS OF THE SHAREHOLDER, WOULD NOT APPLY IJ THE SHAREHOLDER IS A WELL REGULATED ENTITY, I.E. A VENTURE CAPITAL FUND, VENTURE CAPITAL COMPAN Y REGISTERED WITH THE SECURITIES EXCHANGE BOARD OF INDIA (SEBL). THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 201 3 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2013-14 AND SUBSEQUENT YEARS. ' 5.18 THUS, IT IS CLEAR FROM THE READING OF ABOVE ME MORANDUM TO THE PROVISIONS OF FINANCE ACT THAT IN CASE OF PR IVATE PLACEMENT OF SHARES, THE LEGAL REGIME SHOULD BE DIF FERENT FROM THAT WHICH IS FOLLOWED IN CASE OF A COMPANY SEEKING SHARE CAPITAL FROM THE PUBLIC AT LARGE. IN THE PRESENT CA SE THE FACTS ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 11 MAKE IT APPARENT THAT IT WAS A PRIVATE PLACEMENT UN DER THE GUISE OF A PUBLIC ISSUE OF GDRS. AO IS UNDER AN OBLIGATIO N BY VIRTUE OF THE PROVISIONS OF THE IT ACT AND A DUTY IS CAST UPON HIM TO INVESTIGATE THE SOURCES OF FUNDS AS THE APPELLANT C OMPANY HAS FAILED TO DISCHARGE THE ONUS PLACED UPON IT. 5.19 AO HAD TO MAKE A REFERENCE IN THE COURSE OF ASSESSM ENT PROCEEDINGS THROUGH THE COMPETENT AUTHORITY I.E. JS FT&TR TO THE AUTHORITIES LOCATED OUTSIDE INDIA FOR OBTAINING INFORMATION REGARDING THE BANK ACCOUNTS, SOURCES OF INCOME, CRE DIT OF THE WORTHINESS ETC OF THE SUBSCRIBERS TO THE GDR ISSUE. THE INFORMATION RECEIVED BY THE AO THROUGH THE COMPETEN T AUTHORITY AFTER THE COMPLETION OF ASSESSMENT PROCEE DINGS WAS FORWARDED TO THE APPELLANT BY THE UNDERSIGNED VIDE LETTER DATED 18.12.2017. IN THE COURSE OF PRESENT PROCEEDINGS. T HE APPELLANT HAS SUBMITTED THAT PRIMA-FACIE IT APPEARS THAT NO A DVERSE FINDING HAS BEEN GIVEN BY ANY FOREIGN JURISDICTION. THE PURPOSE WAS TO OBTAIN INFORMATION WITH REGARD TO THE IDENTI TY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSAC TIONS. THE APPELLANT HAS ADMITTED IN THE WRITTEN SUBMI SSIONS FILED BEFORE THE AO AND ALSO IN THE COURSE OF PRESENT PRO CEEDINGS THAT NO COPY OF BANK ACCOUNT WAS FURNISHED FOR INVE STEC BANK, ZURICH WITH REGARD TO THE FUNDS RECEIVED FROM SERIE S-II AND FOR SERIES- III OF GDR ISSUE. AO HAS FURTHER STATED THAT APPELLANT HAS FAILED TO PROVIDE THE FINANCIAL TRAIL OF THE GD R PROCEEDS IN SO FAR AS THE DEBIT APPEARING IN THE BANK ACCOUNTS OF THE INVESTORS WAS NOT CORRESPONDINGLY FOUND CREDITED IN THE BANK ACCOUNT OF THE APPELLANT. 5.20 AO HAS FOLLOWED THE PRINCIPLES OF NATURAL JUSTICE A ND FORWARDED DETAILS, OF CERTAIN BANK ACCOUNTS ALLEGED LY RECEIVED FROM THE COMPETENT AUTHORITY IN RESPECT OF CERTAIN INVESTORS WHO HAD MADE INVESTMENT IN THE GDR ISSUE OF THE APP ELLANT COMPANY- LEMON DIVERSIFIED FUND; KII LTD., EMERGING INDIA FOCUS FUNDS AND SPARROW ASIA DIVERSIFIED OPPORTUNIT IES FUND. AO HAS HELD THAT AMOUNTS DEBITED FROM THE BANK ACCO UNT OF THE AFORESAID INVESTORS, WERE NOT FOUND CORRESPONDINGLY CREDITED IN THE BOOKS OF THE APPELLANT. THUS, I FIND THAT APPEL LANT HAS FAILED TO FURNISH ANY INFORMATION IN THIS REGARD, THOUGH T HE PRIMARY ONUS LIES UPON HIM. 5.21 AO HAS AFTER EXAMINATION OF THE EVIDENCE FIL ED BY THE APPELLANT AND RECEIVED THROUGH THE COMPETENT AUTHOR ITY FROM OUTSIDE INDIA HELD THAT INVESTEES OF THE APPELLANT COMPANY DID NOT HAVE SUFFICIENT SOURCES TO MAKE SUCH INVESTMENT IN THE GDR OF THE APPELLANT COMPANY. IT IS SEEN FROM THE ORDER THAT INCOME ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 12 TAX RETURNS OF THE INVESTORS FOR DIFFERENT YEARS RE FLECT A NEGATIVE RETURNED INCOME (LOSSES) AND ALSO SHOW THAT THESE A RE 100$ COMPANIES, WHICH MEANS THAT ALL THESE ENTITIES HAVE A SHARE CAPITAL OF ABOUT 100$. THUS, IT IS HELD BY THE AO T HAT CONSIDERING THE PAID-UP SHARE CAPITAL, THE QUANTUM OF INVESTMENTS MADE BY THEM IN THE GDRS OF THE APPELLA NT COMPANY IS NOT COMMENSURATE TO THE PROFITABILITY OF THESE ENTITIES. 5.22 AO HAS FURTHER MADE ENQUIRIES IN THE MATTER AN D FOUND OUT FROM SEBI THAT ORDERS HAVE BEEN PASSED AGAINST FEW ENTITIES - M/S KII LTD, M/S PAN ASIA ADVISORS LTD., M/S CRED O CAPITAL ETC. WHO HAVE INVESTED FUNDS THROUGH THE GDRS ISSUE D BY THE APPELLANT. SEBI HAS PASSED THE DIRECTIONS UNDER SEC TION 11(1), 11(4) AND 11B OF THE SEBI ACT 1992 FOR MARKET MANIP ULATION USING GDR ISSUES. THE NAMES OF OTHER ENTITIES AGAIN ST WHICH ACTION HAS BEEN TAKEN BY THE SEBI AND WHO ARE INVOL VED IN THE GDR ISSUES OF THE APPELLANT ARE AS UNDER: - I FUNDABILIS GMBH, MUNTERGASSE, 12,800, ZURICH, SWITZERLAND II ASSET LOGI LTD., AUFDER, MAUER 9, CH 8001, ZURIC H, SWITZERLAND III CALIXIS AG, DUFIURSTRASEE 101, ZURICH 8008, SWI TZERLAND IV KII LTD. V. CREDO INDIA THEMATIC FUND LTD. (CREDO GROUP) VI INVESTEC BANK SWITZERLAND AG 5.23 IT WAS HELD BY THE AO THAT THE ENTITIES INVOLVED I N THE GDR ISSUE OF THE APPELLANT COMPANY WERE SUSPICIOUS/ FICTITIOUS ENTITIES AS PER SEBI AND THEREFORE, THE PROVISIONS OF SECTION 68 ARE CLEARLY ATTRACTED IN THIS CASE. THE APPELLANT H AS IN RESPONSE TO THIS SUBMITTED THAT SEBI HAS MERELY SUSPECTE D THE TRANSACTIONS UNDERTAKEN BY THE AFORESAID ENTITIES A ND HAS NOWHERE SUSPENDED THE SAID ENTITIES FROM UNDERTAKIN G ANY ACTIVITIES/TRANSACTIONS AND THE SAID ORDER TOO WAS ONLY AN INTERIM ORDER. AFTER CONSIDERING ALL THIS FACTORS, I FIND THAT THE FACT OF HAVING RAISED CAPITAL THROUGH A PRIVATE PLA CEMENT WHICH HAVE BEEN CAMAFLOUGED AS A PUBLIC ISSUE STANDS EXPO SED. I DO NOT FIND FORCE IN THE CONTENTIONS OF THE APPELLANT THAT SIMPLY ON ACCOUNT OF THE FACT THAT MONEY HAS BEEN RECEIVED TH ROUGH BANKING CHANNEL, THE ONUS WHICH IS CAST UPON THE AP PELLANT STANDS DISCHARGED. 5.24 IT IS PERTINENT TO NOTE THAT VOLUME OF THE GDR ISSUES MADE BY THE COMPANY IN DIFFERENT YEARS AND THE SUBS EQUENT CANCELATION AND CONVERSION INTO EQUITY SHARES CREAT ED DOUBTS ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 13 ABOUT THE GENUINENESS OF THE TRANSACTION. THE APPEL LANT HAS IN THE WRITTEN SUBMISSIONS FILED ADMITTED THAT IN TERM S OF THE PROVISIONS OF SECTION 68 OF THE ACT, THE PRIMARY ON US TO EXPLAIN THE NATURE AND SOURCE OF THE AMOUNT SO FOUND TO BE CREDITED IS ON THE ASSESSEE. THE EXPRESSION 'NATURE' ENCOMPASSE S BRINGING ON RECORD EVIDENCE ABOUT NATURE OF THE RECEIPT, BE IT LOAN, ADVANCE, SHARE APPLICATION MONEY, ETC. THE EXPRESSI ON 'SOURCE' ENVISAGES ESTABLISHING THE IDENTITY AND CREDITWORTH INESS OF THE SOURCE/ PERSON FROM WHOM THE AMOUNT IS RECEIVED. TH E APPELLANT HAS HOWEVER FURNISHED ONLY SKELETON INFOR MATION AND FAILED TO PROVE THE IDENTITY OF THE CREDITOR, CREDI T WORTHINESS OF THE CREDITOR AS WELL AS GENUINENESS OF THE TRANSACT ION. THE ULTIMATE SUBSCRIBERS TO THE GDR ISSUE WERE FOUND TO BE ONLY SEVEN PARTIES/ENTITIES AND THEREFORE, THE CLAIM OF HAVING MADE A PUBLIC ISSUE OF GDR ISSUE STANDS NOT PROVED. FURTHE R, THE FLOW OF FUNDS FROM THOSE ENTITIES TO THE BANK ACCOUNT OF THE APPELLANT COULD NOT BE PROVED BY THE APPELLANT. THESE ENTITIE S ARE ALSO FOUND TO BE NOT CREDIT WORTHY ON ACCOUNT OF THESE E NTITIES BEING HUNDRED DOLLARS COMPANIES HAVING INCURRED LOSSES AS PER THEIR TAX RETURNS WHICH HAVE BEEN COLLECTED BY THE AO. 5.25 FURTHER, THE FACT WHICH HAS BEEN BROUGHT ON RE CORD BY THE ASSESSING OFFICER WITH REGARD TO THE CANCELLATION O F GDRS ISSUED IN DIFFERENT SERIES, IS AS UNDER: - GDR-I SERIES-ISSUED ON 14.12.2009 CANCELLATION - 100% BETWEEN 11.03.2010 TO 26.03.201 0 GDR-II SERIES- ISSUED ON 04.05.2010 CANCELLATION- 99.99% BETWEEN 23.06.2010 TO 06.08.20 10 GDR-II SERIES- ISSUED ON 09.09.2010 CANCELLATION-99.95% BETWEEN 26.10.2010 TO 20.12.201 0 GDR-II SERIES- ISSUED ON 01.06.2012 CANCELLATION- 77% BETWEEN 03.07.2012 TO 25.03.2014 5.26 THE CONTENTION OF THE APPELLANT MADE IN THE CO URSE OF PRESENT PROCEEDINGS THAT THE HIGH PERCENTAGE OF CAN CELLATION OF GDRS IS AND CANNOT BE AN INDICATOR OF THE GENUINENE SS OF THE TRANSACTIONS. IT IS SUBMITTED THAT IT IS A MARKET D ECISION TAKEN BY THE INVESTORS FOR WHICH NO ADVERSE INFERENCE CAN BE DROWN AGAINST THE APPELLANT. I HAVE CONSIDERED THE CONTEN TIONS OF THE APPELLANT AND DO NOT AGREE WITH THE SAME AS IT IS A N INDICATOR OF THE REALITY. IT MAY NOT BE CONCLUSIVE EVIDENCE IN I TSELF BUT CAN ONLY BE USED AS AN INDICATOR OF THE STATE OF AFFAIR S. THE GDRS AFTER CANCELLATION ARE CONVERTED INTO SHARES OF THE COMPANY AND DATA FOR THE SAME SHOWING GDR REDEMPTION FOR DIFFER ENT SERIES ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 14 OF GDRS ISSUED HAS BEEN COMPILED FROM ANNEXURE-J WH ICH REVEALS THE FOLLOWING RESULTS :- SERIES D. P. NAME D.P. ID CLIENT I.D SERIES- 1 HSBC BANK LTD. INDIA IN300142 10641890 HSBC MUMBAI INS 00142 10672895 ICICI BANK LTD IN301348 20006082 STANDARD CHARTERED BANK IN301524 10023704 SERICS-2 CITIBANK NA IN300054 10067517 DEUTSCHE BANK AG IN300167 10009079 ICICI BANK LTD IN301348 20013093 SERIES- 3 CITIBANK NA IN300054 10013912 DEUTSCHE BANK AG IN300167 10067517 SERIES -4 DBS BANK LTD. IN303307 10000158 DEUTSCHE BANK AG IN300167 10104412 5.27 IT IS SEEN FROM THE ABOVE TABLE THAT ALL THE G DRS AFTER BEING CANCELLED AND CONVERTING THEM INTO THE SHARES OF THE APPELLANT COMPANY HAVE GOT TRANSFERRED TO THE DP AC COUNTS OF 11 BENEFICIARIES, WHO HAVE PURCHASED THESE SHARES A T A FRACTION OF THE COST OF ISSUE OF GDRS. FURTHER, IT IS SEEN T HAT THE VOLUME OF THESE SHARES BEING TRADED IS APPARENT FRO M THE DATA WHICH IS CAPTURED FOR BULK DEALS EXECUTED FOR THE S HARES OF THE APPELLANT COMPANY AT BOTH NSE &BSE AND IS REPRODUCE D AS UNDER:- ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 15 ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 16 ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 17 5.28 IT IS SEEN FROM THE ABOVE DATA THAT BULK SHAR ES HAVE BEEN TRANSFERRED/ PURCHASED BY LESS THAN 10 INVESTORS WH O ARE ASSOCIATED WITH THE APPELLANT COMPANY OR BY THE DIR ECTORS OF THE COMPANY. FURTHER, I FIND FROM THE DETAILS OF SH AREHOLDING OF THE PROMOTER FAMILY GIVEN BY THE AO IN THE ASSESSME NT ORDER PAGE 55 TO 60 THAT IT HAS INCREASED FROM 98.30 LAC SHARES TO 2.77 CRORE SHARES AS A RESULT OF THE CONVERSION OF GDRS INTO SHARES. IT IS ALSO SEEN FROM THE DETAILS AVAILABLE IN THE FINANCIAL MARKET THAT NOT EVEN A SINGLE FINANCIAL INSTITUTION OR MUTUAL FUNDS HAS PURCHASED SHARES/ GDRS OF THE APPELLANT C OMPANY. FURTHER, UTILIZATION OF GDR PROCEEDS FOR THE PURPOS ES FOR WHICH FUNDS WERE RAISED COULD NOT BE ESTABLISHED WITH EVI DENCE BY THE APPELLANT IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT HAS STATED THAT ADVANCE PAYMENTS WERE MAD E FOR PROCUREMENT OF CAPITAL ASSETS TO THE FOLLOWING PART IES OUT OF THE PROCEEDS RECEIVED ON ACCOUNT OF ISSUE OF GDR'S:- (I) FEATHER STONE UNIVERSAL LTD (IT) AUTUMN STAR INTERNATIONAL LIMITED (III) MIDLAND OVERSEAS TRADING LTD 5.29 ALL THE THREE COMPANIES/ENTITIES TO WHOM PAYMENTS H AVE BEEN MADE FOR PROCUREMENT OF CAPITAL ASSETS COULD N OT BE TRACED BY THE AO. EFFORTS WERE MADE IN THE COURSE OF PRESE NT PROCEEDINGS BY MAKING SEARCH ON THE INTERNET ABOUT THE STRENGTH OF THESE ENTITIES BUT NO SUCH COMPANY COUL D BE FOUND IN ANY OF THE JURISDICTION WITH IN INDIA (ON THE WE B SITE OF MINISTRY OF CORPORATE AFFAIRS) AND OUTSIDE INDIA. T HE APPELLANT COMPANY ALSO FAILED TO FURNISH ANY EVIDENCE WITH RE GARD TO THE PAYMENTS MADE IN THE ACCOUNT OF THESE COMPANIES AND THE RESULTING ASSETS PURCHASED FROM THEM AND SUPPLIED T O THE APPELLANT COMPANY. 5.30 FURTHER, I FIND THAT AO HAS IN THE ORDER, SPECIFICA LLY STATED THAT A SPECIAL INVESTIGATION AUDIT REPORT WA S PROCURED FROM STATE BANK OF PATIALA, WHEREIN IT WAS SPECIFIC ALLY POINTED OUT THAT UTILIZATION OF THE ENTIRE GDR PROCEEDS FOR ACQUISITION OF CAPITAL ASSETS AND FOR BUSINESS EXPANSION PURPO SES COULD NOT BE PROVED WITH EVIDENCE. AO HAS FURTHER STATED THAT GDR PROCEEDS WERE UTILIZED FOR MAKING REAL ESTATE INVES TMENT IN DUBAI. 5.31 AO HAS FURTHER STATED IN THE ORDER (PAGE 31 OF THE ORDER) THAT AUDITOR HAS ALSO NOT CERTIFIED THE UTILIZATION OF GDR PROCEEDS IN THE REPORT. THE APPELLANT IN THE COURSE OF PRESENT ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 18 PROCEEDINGS HAS FAILED TO CONTROVERT THE FINDINGS G IVEN BY THE ASSESSING OFFICER ON THIS ISSUE AND COULD NOT BRING ANY EVIDENCE ON RECORD TO SUPPORT HIS CONTENTIONS THAT FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINE SS. THE APPELLANT HAS MADE BALD STATEMENTS THAT GDR PROCEED S WERE UTILIZED BY THE APPELLANT PURELY FOR THE PURPOSE OF PURCHASING CAPITAL ASSETS AND FOR UNDERTAKING BUSINESS EXPANSI ON. HOWEVER, IN THE ABSENCE OF ANY EVIDENCE BEING FURNI SHED BY THE APPELLANT TO SUBSTANTIATE HIS CONTENTIONS AND COUPL ED WITH THE FACT THAT NONE OF THE COMPANIES TO WHOM FUNDS WERE STATED TO HAVE BEEN PAID ARE FOUND TO BE EXISTING, I FIND THA T AO WAS JUSTIFIED IN HOLDING THAT GDR PROCEEDS RECEIVED BY THE APPELLANT HAVE NOT BEEN UTILISED FOR THE BUSINESS P URPOSES. AO HAS BROUGHT EVIDENCE ON RECORD THAT FUNDS HAVE BEEN USED FOR THE PURPOSES OF PURCHASING ASSETS (REAL ESTATE) IN THE NAME OF CONCERNS CONTROLLED DIRECTLY/INDIRECTLY BY THE FAMI LY MEMBERS OF THE PROMOTERS OF THE COMPANY. 5.32 THUS, CONSIDERING ALL THESE FACTORS, 1 HOLD THAT APPELLANT HAS FAILED TO ESTABLISH THE IDENTITY, CREDITWORTHIN ESS OF THE INVESTORS-SUBSCRIBERS TO THE GDR ISSUE AND GENUINEN ESS OF THE TRANSACTIONS, AND THE ASSESSING OFFICER WAS JUSTIFI ED IN INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT FOR BRINGIN G TO TAX THE GDR PROCEEDS FOR THE THREE YEARS. ACCORDINGLY, I CO NFIRM THE ADDITION OF RS. 39,70,08,480 FOR AY 2010-11 MADE BY THE AO, RS. 370,16,40,000 FOR AY 2011-12 AND RS. 241,64,40,094 FOR AY 2013-14 UNDER S. 68 OF THE IT ACT I.E. FOR ALL T HE THREE YEARS UNDER CONSIDERATION. 14. BEING AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A ), THE ASSESSE HAS COME IN APPEAL BEFORE US. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE AL SO GONE THROUGH THE RECORD. A PERUSAL OF THE ORDER OF THE ASSESSING OF FICER AS WELL AS THAT OF THE CIT(A) REVEALS THAT BOTH THE AUTHORITIES BELOW HAVE MADE THE IMPUGNED ADDITIONS ON THE BASIS OF SUSPICION ONLY. DESPITE B EST EFFORTS MADE AND EVEN CALLING FOR INFORMATION FROM FOREIGN AUTHORITI ES I.E. FROM THE AUTHORITIES OF THE COUNTRIES TO WHICH THE SUBSCRIBE R OF THE GDRS BELONG ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 19 THROUGH FOREIGN TAX DIVISION, THE AO COULD NOT EXTR ACT ANY RELIABLE EVIDENCE TO SHOW THAT THE AFORESAID SUBSCRIPTION TO THE GDRS WAS OUT OF THE OWN FUNDS OF THE ASSESSE. THE ENTIRE CASE HAS B EEN BUILT AGAINST THE ASSESSEE BY THE ASSESSING OFFICER ON CERTAIN ASSUMP TIONS, WHICH THE LD. CIT(A) IN THE LATER PART OF THE IMPUGNED ORDER HAS TAKEN/ASSUMED AS IF THE SAME WERE ESTABLISHED FACTS, WHEREAS IT IS NOT SO. THE ASSESSING OFFICER SOUGHT DETAILS THROUGH THE COMPETENT AUTHORITY (JS FT&TR) CBDT, MINISTRY OF FINANCE, DELHI UNDER THE INDO-SWITZERLA ND, DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA), INDO-US DTAA, INDO-UAE DTAA AND INDO-MAURITIUS DTAA TO VERIFY THE IDENTITY, GENUINE NESS AND CREDIT WORTHINESS OF THE INVESTORS AND FINANCIAL TRAIL OF THE GDR PROCEEDS RECEIVED FROM THE ALLEGED INVESTORS. HOWEVER, IN TH E INFORMATION RECEIVED FROM THE FOREIGN AUTHORITIES, NO INCRIMINATING MATE RIAL OR ADVERSE FACT HAD BEEN FOUND AGAINST THE ASSESSE. 16. THE LD. COUNSEL FOR THE ASSESSE HAS SUBMITTED A ND DEMONSTRATED FROM THE RECORD THAT THE APPELLANT WENT PUBLIC BY LISTIN G ITS EQUITY SHARES ON THE BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EXCHANGE I N THE YEAR 2007. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT THEREAFT ER, IN THE YEAR 2009, THE COMPANY, IN ORDER TO FINANCE THE EXPANSION PLANS AN D TO EXPAND ITS MARKET REACH GLOBALLY, OFFERED ITS SHARES TO NON-RESIDENTS . THUS, IN ORDER TO RAISE CAPITAL DENOMINATED IN FOREIGN CURRENCY AND TO VEN TURE INTO PRIVATE MARKETS OVERSEAS, THE APPELLANT RAISED FOURS SERIE S OF GDR ISSUES OVER A PERIOD OF THESE YEARS AND RAISED CAPITAL OF 651 CRO RES. IT IS SUBMITTED THAT EACH GDR REPRESENTED ONE HUNDRED EQUITY SHARES OF P AR VALUE OF RS.10 AND SUCH UNDERLYING SHARES OF THE GDR WAS DULY LISTED O N THE LUXEMBURG ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 20 STOCK EXCHANGE AND TRADED ON THE EURO MTF MARKET. I T IS SUBMITTED THAT GDR ISSUE IS CONSIDERED TO BE A 'PRIVATE PLACEMENT' IN CASES WHERE NO OFFERING CIRCULAR IS PLACED BEFORE THE OVERSEAS EXC HANGE, THE APPROVAL OF OVERSEAS EXCHANGE IS NOT OBTAINED AND LISTING FEES IS NOT PAID I.E. WHEN THE ISSUE IS NOT LISTED ON THE STOCK EXCHANGE. HOWEVER, IN THIS CASE THE APPELLANT HAD COMPLIED WITH REQUIREMENTS AND THE GD RS WERE DULY LISTED ON STOCK EXCHANGE. THAT THE APPELLANT RAISED FOUR S ERIES OF GDR ISSUE OVER A PERIOD OF THREE YEARS AND RAISED THE CAPITAL. 17. THE COUNSEL FOR THE ASSESSEE HAS FURTHER SUBMIT TED THAT IN THE COURSE OF ASSESSMENT AS WELL AS APPELLATE PROCEEDING, THE PROCESS INVOLVED IN THE ISSUANCE OF GDRS, ROLE OF THE OVERSEAS DEPOSITORY B ANK, LEAD MANAGERS/UNDERWRITERS TO THE ISSUE WAS DULY EXPLAIN ED. IT IS SUBMITTED THAT THE GDR ISSUE MAY BE IN THE FORM OF A 'PRIVATE PLACEMENT' OR A 'PUBLIC ISSUE' IS DEPENDENT UPON THE TERMS OF THE ISSUE AS AGREED BY THE ISSUING COMPANY WITH THE LEAD MANAGERS. THE DETAILS OF GDR ISSUED BY THE APPELLANT ALONG WITH PARTICULARS OF THE DEPOSITORY BANK, LEAD MANAGER WHO MANAGED THE GDR ISSUES IN DIFFERENT YEARS , I.E. AY 2010-11, 2011-12 AND 2013-14 HAS BEEN PROVIDED TO THE AO. IT WAS EXPLAI NED THAT GDRS WERE NOT DIRECTLY ISSUED TO INVESTORS BUT WERE ISSUED IN THE NAME OF THE DEPOSITORY BY THE COMPANY AND DELIVERED TO THE DOME STIC CUSTODIAN BANK AND THE ULTIMATE ISSUANCE TO THE INVESTORS WAS THER EAFTER COORDINATED/MANAGED BY THE LEAD MANAGERS. THE COMPA NY DULY ISSUED THE SHARES IN THE NAME OF THE DEPOSITORY. THAT IN TERMS OF THE GDR OFFERING CIRCULAR AND THE TERMS OF ENGAGEMENT WITH THE LEAD MANAGER, THE INVESTORS WERE TO MAKE PAYMENT IN RESPECT OF THEIR INVESTMENT IN GDR TO THE LEAD MANAGERS IN US DOLLARS AND THE SAME WAS IN TURN TO BE REMITTED TO THE ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 21 ISSUING COMPANY I.E., THE APPELLANT, AFTER DEDUCTIO N OF LEAD MANAGER FEES. THUS, THE ENTIRE AMOUNT WAS RECEIVED BY THE APPELLA NT COMPANY THROUGH NORMAL BANKING CHANNELS BY MEANS OF ONLINE FUND TRA NSFERS FROM THE ACCOUNTS OF ITS LEAD MANAGERS AND IN SOME CASES THR OUGH THEIR OFFSHORE ADVISORS. IN VIEW OF THE ABOVE EXPLANATION SUBMITTE D BY THE LD. COUNSEL FOR THE APPELLANT WHICH IS DULY CORROBORATED WITH T HE RELEVANT DOCUMENTS/EVIDENCE, THE ASSUMPTION OF THE LOWER AUT HORITIES THAT IT WAS IN FACT A PRIVATE PLACEMENT OF SHARES IS NOT ESTABLISH ED ON THE FILE IN ANY MANNER. 18. SO FAR AS THE OBSERVATION OF THE ASSESSING OFF ICER THAT THERE WAS DIFFERENCE BETWEEN THE AMOUNT WITHDRAWN BY THE INVE STORS FROM THEIR ACCOUNT AND THAT HAS BEEN RECEIVED BY THE APPELLANT , THE LD. COUNSEL FOR THE APPELLANT HAS EXPLAINED THAT SINCE THE AMOUNT W AS NOT DIRECTLY TRANSFERRED BY THE INVESTEES TO THE APPELLANT COMPA NY, RATHER THE SAME WAS ROUTED THROUGH LEAD MANAGERS, AFTER DEDUCTING THEIR FEE, HENCE IT WAS LIKELY THAT THERE WAS A DIFFERENCE OF THE AMOUNT WITHDRAWN BY THE INVESTORS AND THAT WAS RECEIVED BY THE APPELLANT. IN VIEW OF ABOV E EXPLANATION, WE DO NOT THINK THAT THE SAME CAN BE A VALID GROUND TO DOUBT THE INVESTMENTS IN GDRS BY THE FOREIGN ENTITIES. 19. SO FAR AS THE ISSUE RELATING TO THE UTILIZATION OF THE FUNDS IS CONCERNED, THE LD. COUNSEL FOR THE APPELLANT HAS SU BMITTED THAT THE FUNDS RAISED BY THE APPELLANT BY ISSUING GDRS WERE UTIL IZED FOR BUSINESS, CAPITAL EXPANSION AND MEETING WORKING CAP ITAL REQUIREMENTS. HE IN THIS RESPECT HAS RELIED UPON VARIOUS DOCUMENTS/FINA NCIAL STATEMENTS ALSO. HOWEVER, WITHOUT FURTHER GOING INTO THIS QUESTION, WE ARE OF THE VIEW THAT ISSUE IN THIS APPEAL IS NOT RELATING TO THE UTILIZA TION OF THE FUNDS. EVEN IF IT ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 22 IS ASSUMED THAT THE ASSESSE COMPANY HAS MISUTILIZED ITS FUNDS THAT, IN OUR VIEW, CAN NOT BE SAID TO BE AN INCOME TAX DISPUTE. THE ISSUE IN THIS APPEAL IS RELATING TO THE ESTABLISHMENT OF SOURCE OF FUNDS . THOUGH THE CASE OF THE ASSESSE IS THAT THE FUNDS WERE UTILIZED FOR BUSINESS, CAPITAL EXPANSION AND MEETING WORKING CAPITAL REQUI REMENTS, HOWEVER, IN OUR VIEW, THE OBSERVATIONS OF THE OF THE LOWER AUTHORI TIES ON THE UTILIZATION OR MISUTILIZATION OF FUNDS, IS NOT RELEVANT TO THE ISS UE UNDER ADJUDICATION, HENCE, WE DO NOT DEEM FIT TO GO DEEP ON THIS POINT . 20. FURTHER, THE COUNSEL FOR THE APPELLANT HAS SUBM ITTED THAT THE ASSESSEEE/APPELLANT HAD MADE ALL OUT EFFORTS AND SU BMITTED THE REQUISITE EVIDENCES NOT ONLY TO PROVE THE GENUINENESS OF THE TRANSACTIONS BUT ALSO THE FINANCIAL TRAIL OF THE MONEY HAVING BEEN PAID BY TH E INVESTORS. THE APPELLANT FILED COPY OF ITS BANK STATEMENTS IN WHIC H GDR PROCEEDS WERE RECEIVED ALONG WITH CONFIRMATIONS FROM THE LEAD MAN AGER AND THE INVESTORS, ESTABLISHING THE COMPLETE FINANCIAL TRAI L IN RESPECT OF EACH OF THE GDR ISSUE. THUS, THE APPELLANT DISCHARGED THE INITI AL ONUS BY PROVIDING COMPLETE PARTICULARS OF THE LEAD MANAGERS AND THE I NVESTORS AND THE AMOUNT OF PROCEEDS RECEIVED FROM THE GDR ISSUE. IT HAS BEE N FURTHER SUBMITTED THAT THE APPELLANT CANNOT BE EXPECTED TO PROVIDE CO PIES OF BANK STATEMENTS AND DETAILS OF NET WORTH OF THE INVESTORS, WHO ARE NON-RESIDENTS, IN ORDER TO ESTABLISH THEIR CREDITWORTHINESS. THAT EVEN IT WAS NOT PRACTICALLY FEASIBLE TO PRODUCE SUCH INVESTORS WHO WERE NON-RESIDENTS AND N OT EVEN IN DIRECT CONTACT WITH THE APPELLANT. IT IS SUBMITTED THAT TH E APPELLANT HAS RAISED THIS MONEY THROUGH A PUBLIC ISSUE, THE INSTRUMENT BEING LISTED ON A STOCK EXCHANGE OVERSEAS, WHEREIN THERE IS NO INTERACTION BETWEEN THE APPELLANT AND THE INVESTOR. IN FACT, MOST OF THE INVESTORS HA VE OFF LOADED THEIR GDRS ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 23 AND NOW THOSE SHARES ARE IN THE EQUITY MARKET (LIST ED ON THE INDIAN STOCK EXCHANGE). THUS, TO EXPECT THE APPELLANT TO PRODUCE THE SAID ENTITIES AND/OR PRODUCE THEIR ORIGINAL BANK STATEMENTS WAS NOT POSS IBLE. 21. REGARDING THE ISSUE OF CREDITWORTHINESS OF THE INVESTORS AND FURTHER THE ONUS ON THE APPELLANT TO ESTABLISH THE SOURCE O F THE SOURCE, THE COUNSEL FOR THE APPELLANT HAS SUBMITTED THAT GDR ISSUE WAS A PUBLIC ISSUE, IN CASE OF PUBLIC COMPANIES, SINCE THE SHARES ARE LISTED ON STOCK EXCHANGE AND TRADED ON A REAL TIME BASIS, THE COMPANY CANNOT BE EXPECTED TO PROVIDE DETAILS OF THE SHAREHOLDERS. THE COUNSEL FOR THE AP PELLANT IN THIS RESPECT HAS ALSO PLACED RELIANCE ON VARIOUS JUDICIAL DECI SIONS TO CONTEND THAT NO ADDITION COULD BE MADE U/S 68 OF THE IT ACT AS THE MONEY WAS RAISED BY THE COMPANY THROUGH GDR ISSUE FROM OVERSEAS INVESTORS B Y WAY OF PUBLIC ISSUE, FOR WHICH SUFFICIENT DETAILS HAVE BEEN FILED BEFORE THE AO. THAT THE ONUS PLACED UPON THE APPELLANT HAS BEEN DISCHARGED BY WAY OF FURNISHING EVIDENCE. EVEN THE APPELLANT HAS FURNISHED COPY OF CONFIRMATIONS PROCURED FROM THE LEAD MANAGERS IN SUPPORT OF THE GDR ISSUE, WHICH CLEARLY SUPPORTS THE GENUINENESS OF THE TRANSACTION. FURTHE R, THE AMOUNTS RECEIVED BY THE APPELLANT WERE DULY REFLECTED IN THE BANK ST ATEMENT. IT IS STATED THAT ALL THE CONCERNS FROM WHOM THE APPELLANT HAD RECEIV ED GDR INVESTMENTS WERE COMPANIES REGISTERED UNDER THE RELEVANT LAWS O F THEIR STATE; REGULAR INCOME-TAX ASSESSEES OF THE RELEVANT COUNTRIES. FUR THER, THE AMOUNTS RECEIVED BY THE APPELLANT WERE DULY REFLECTED IN TH E REGULAR BOOKS OF ACCOUNTS AND THE FINANCIAL STATEMENTS OF THE SAID C ONCERNS/PARTIES DULY FURNISHED. EVEN THAT THE THAT THE INVESTORS IN THE APPELLANT COMPANY WERE LARGE FUND HOUSES AND HAD MADE INVESTMENTS IN WELL- KNOWN AND REPUTED ENTITIES AND ALL THE FUNDS WERE REGISTERED AS EITH ER FII'S OR FUNDS WITH ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 24 SEBI AND THEIR DETAILS WERE ALSO AVAILABLE WITH THE REGULATORS. 22. FURTHER ON THE ISSUE OF ONUS ON THE APPELLANT TO ESTABLISH THE SOURCE OF THE SOURCE AFTER THE AMENDMENT TO SECTION 68 OF THE ACT VIDE FINANCE ACT 2012 BY WAY OF INSERTION OF PROVISO TO THE SAID SECTION THE LD. COUNSEL HAS SUBMITTED THAT NO ADDITION CAN BE MADE IN THIS CASE U/S 68 OF THE IT ACT. IT IS EXPLAINED THAT THE SAID PROVISO APPLIES ONLY IN RESPECT OF CLOSELY HELD PRIVATE COMPANIES AND EXCLUDES PUBLIC COMPANIE S FROM ITS PURVIEW. THUS, A PUBLIC COMPANY IS NOT STATUTORILY REQUIRED TO ESTABLISH THE SOURCE OF SOURCE. IT IS STATED THAT ADDITIONAL ONUS HAS BE EN PLACED ONLY ON PRIVATE LIMITED COMPANIES OWING TO THE FACT THAT IN CASE OF PRIVATELY HELD COMPANIES, THE INVESTMENTS MADE IN SUCH COMPANIES A RE KNOWN AND THUS SUCH COMPANIES ARE REQUIRED TO PROVE THE SOURCE OF MONEY IN THE HANDS OF SUCH SHAREHOLDER OR PERSONS MAKING PAYMENT TOWARDS ISSUE OF SHARES BEFORE SUCH SUM IS ACCEPTED AS GENUINE CREDIT. THAT THE AM ENDED PROVISIONS OF SECTION 68 OF THE ACT ARE NOT AT ALL APPLICABLE IN THE CASE OF THE APPELLANT, BEING A LISTED COMPANY IN WHICH PUBLIC WAS SUBSTANT IALLY INTERESTED. 23. THE LD. COUNSEL FOR THE ASSESSE HAS FURTHER SUB MITTED THOUGH THE AO HAD SOUGHT INFORMATION ABOUT THE FOREIGN INVESTORS THROUGH COMPETENT AUTHORITY I.E. JS FT&TR TO THE AUTHORITIES LOCATED OUTSIDE INDIA FOR OBTAINING INFORMATION REGARDING THE BANK ACCOUNTS, SOURCES OF INCOME, CREDIT OF THE WORTHINESS ETC. OF THE SUBSCRIBERS T O THE GDR ISSUE, HOWEVER, THE INFORMATION RECEIVED BY THE AO DID NOT POINT OU T ANY ADVERSE FINDING GIVEN BY ANY FOREIGN JURISDICTION. THE APPELLANT PR OVIDED ALL THE INFORMATION WHICH IT WAS SUPPOSED TO PROVIDE. THOUG H THE AO IN THE ASSESSMENT ORDER HAS POINTED OUT SOME DISSATISFACT ION ABOUT THE SUFFICIENCY OF INFORMATION RECEIVED FROM FOREIGN A UTHORITIES THROUGH ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 25 COMPETENT AUTHORITY , HOWEVER, THAT ITSELF CANNOT B E GROUND TO TAKE ANY ADVERSE VIEW AGAINST THE ASSESSE. 24. SO FAR AS ISSUE RELATING TO SOME INFORMATION RE CEIVED FROM SEBI OF MARKET MANIPULATION BY A FEW ENTITIES SOME OF WHOM HAD INVESTED FUNDS THROUGH THE GDRS ISSUED BY THE APPELLANT, THE LD. C OUNSEL HAS EXPLAINED THAT THE SEBI HAS MERELY SUSPECTED THE TRANSACTIO NS UNDERTAKEN BY THE AFORESAID ENTITIES AND HAS NOWHERE SUSPENDED THE SA ID ENTITIES FROM UNDERTAKING ANY ACTIVITIES/TRANSACTIONS AND THE SAI D ORDER TOO WAS ONLY AN INTERIM ORDER. THAT NO ALLEGATION WHATSOEVER WAS M ADE BY SEBI IN RESPECT OF THE GDR ISSUE MADE BY THE APPELLANT COMPANY. FUR THER THAT THE ALLEGATION OF MARKET MANIPULATION HAS NO RELEVANCY WITH ISSUE OF THE CREDITWORTHINESS OF THE INVESTORS. 25. SO FAR AS THE ISSUE OF CANCELLATION OF GDRS IS CONCERNED, THE ASSESSING OFFICER HAS POINTED OUT THAT GDRS HAVE B EEN CANCELLED AND THAT THE PERCENTAGE OF SUCH CANCELLATION IS VERY HIGH. I N THIS RESPECT, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE CAN CELLATION OF GDRS IS THE MARKET DECISION OF THE INVESTORS. THAT ASSESSE E HAD ALREADY FURNISHED THE DETAILS AS IN WHOSE NAMES THE GDRS WERE CONVER TED TO SHARES BY VIRTUE OF CANCELLATION WHERE THE DP ID AND CLIENT I D OF THE PERSONS WAS AVAILABLE. THAT SINCE SHARES WERE AVAILABLE WITH THE DEPOSITORY, HENCE, THE ASSESSEE DID NOT HAVE THE NAMES OF SUCH PERSONS . DESPITE PROVIDING OF THE DETAILS, THE ASSESSING OFFICER DID NOT GET IT VERIFIED FROM THE DEPOSITORY AS TO WHO THOSE PERSONS WERE. 26. THOUGH, THE LD. CIT(A), FROM THE DATA CAPTURED FROM THE STOCK EXCHANGE, MENTIONED THAT THESE SHARES HAVE BEEN GO T TRANSFERRED TO THE DP ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 26 ACCOUNT OF ELEVEN BENEFICIARIES WHO HAVE PURCHASED THESE SHARES AT A LOW COST, HOWEVER, THERE IS NO EVIDENCE ON THE FILE THA T THOSE 11 PARTIES WHO HAVE PURCHASED THE SHARES, AS ALLEGED BY THE REVENU E, ARE THE DIRECTORS OR PROMOTERS OF THE ASSESSEE COMPANY. ON THE OTHER HAN D IT IS THE CASE OF THE ASSESSE THAT THESE SHARES NEVER REVERTED TO THE COM PANY OR TO ANY OF THE PROMOTERS OF THE COMPANY. UNDER THE CIRCUMSTANCES, ADVERSE INFERENCE IN THIS RESPECT CANNOT FORMED ON THE BASIS MERE ASSUMP TIONS OF THE REVENUE AUTHORITIES. FURTHER, WE NOTE THAT THERE IS A CONT RADICTORY OBSERVATION OF THE ASSESSING OFFICER AND THAT OF THE CIT(A) IN THI S RESPECT. THE ASSESSING OFFICER HAS OBSERVED THAT THE PROMOTERS I.E SALUJA FAMILY WAS HOLDING 57.27% OF THE SHARES AS ON MARCH 2009 AND THAT AFT ER GDRS ISSUE CAME, THAT THE HOLDING OF SALUJA FAMILY CAME DOWN TO 19.4 5%. THE ASSESSING OFFICER HAS TRIED TO INFER THAT BECAUSE THE SHAREHO LDING OF THE PROMOTER HAD COME DOWN AFTER THE GDRS ISSUE, IT WAS NOT A COMPA NY IN WHICH THE PUBLIC WAS INTERESTED AND, HENCE, THE PROVISO TO SE CTION 68 OF THE ACT WAS TO BE APPLIED. ON THE OTHER HAND, LD. CIT(A) HAS OB SERVED THAT FROM THE DETAILS OF SHAREHOLDING OF THE PROMOTER FAMILY GIVE N BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PAGES 55 TO 60 THAT IT HAD INCREASED FROM 95.30 LACS SHARES TO 2.77 CRORES SHARES AS A RESULT OF THE CONVERSION OF GDR INTO SHARES. HOWEVER, A PERUSAL OF THE DETAILS / CHART, AS REPRODUCED IN PAGES 55 TO 60 OF THE ASSESSMENT ORDER REVEALS T HAT THOUGH AFTER CONVERSION, THE NUMBER OF SHARES HAD INCREASED WHIC H WAS OBVIOUS, HOWEVER, THE PERCENTAGE OF HOLDING I.E. FROM 57.27 % BEFORE THE ISSUE OF GDRS HAD DECREASED TO 8.37%, THOUGH THE NUMBER OF SHARES INCREASED TO 2.77 CRORES. IT IS A MATTER OF FACT THAT ONCE THE G DRS WERE CANCELLED FOR CONVERSION TO THE SHARES, THE NUMBER OF SHARES WILL INCREASE. UNDER THE ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 27 CIRCUMSTANCES, THE OBSERVATION OF THE LD. CIT(A) TH AT SHAREHOLDING HAS INCREASED IS AGAINST THE FACTS ON THE FILE. MOREOV ER, IT IS LIKELY THAT ONCE THE GDR IS ISSUED, THE SHAREHOLDING OF THE PROMOTER IS LIKELY TO DECREASE. 27. IN VIEW OF THE ABOVE DISCUSSION, THE REVENUE HA S FAILED TO PROVE THAT THE TRANSACTION RELATING TO THE GDRS ISSUE WAS A S HAM TRANSACTION OR THAT IT WAS MONEY OF THE ASSESSEE WHICH WAS ROUTED THROU GH FOREIGN CHANNELS THROUGH GDRS. DESPITE OF THE FACT THAT ALL THE INF ORMATION WHICH THE ASSESSE WAS SUPPOSED TO PROVIDE WAS PROVIDED BY THE ASSESSEE AND ALSO THAT THE INFORMATION REGARDING THE INVESTORS WAS ALSO RE CEIVED BY THE ASSESSING OFFICER FROM THE FOREIGN ENTITIES THROUGH COMPETENT AUTHORITY, NO ADVERSE FACT HAS BEEN POINTED OUT AGAINST THE ASSESSEE. IN VIEW OF THIS, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUT HORITIES IN MAKING THE IMPUGNED ADDITION ON ASSUMPTION OF FACTS AND THEREB Y ON THE BASIS OF SUSPICION ONLY. IN VIEW OF THIS, THIS ISSUE IS ALL OWED IN FAVOUR OF THE ASSESSEE AND THE ADDITIONS, IF ANY, MADE ON THIS GR OUND ARE ORDERED TO BE DELETED. 28. GROUND NO.5 : VIDE GROUND NO.5 THE ASSESSEE HAS AGITATED THE ACTION OF THE CIT(A) IN FRAMING / UPHOLDING THE AS SESSMENT OBSERVING THAT THE PRINCIPLES OF NATURAL JUSTICE HAVE BEEN GROSSLY VIOLATED BY THE ASSESSING OFFICER. THE MAIN PLEA OF THE ASSESSEE I N THIS RESPECT IS THAT THE ASSESSEE HAS NOT BEEN AFFORDED OPPORTUNITY OF BEING HEARD AND TO CONTROVERT / REBUT THE ALLEGATIONS OF THE ASSESSING OFFICER. THE TIME PERIOD TO FRAME THE ASSESSMENT INCLUDING THE EXTENDED PERI OD WAS EXPIRING ON 30.1.2017. HOWEVER, THE LD. ASSESSING OFFICER AT T HE FAG END OF THE LIMITATION PERIOD I.E. 27.1.2017 ISSUED A LENGTHY Q UESTIONNAIRE TO THE ASSESSEE AND ASKED THE ASSESSEE TO FURNISH DETAILED REPLY AND EXPLANATION IN ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 28 THIS RESPECT. EVEN THE ASSESSING OFFICER PROCEEDED TO FRAME THE IMPUGNED ASSESSMENT ON THE BASIS OF INCOMPLETE AND VAGUE INF ORMATION AND WITHOUT EVEN INDEPENDENTLY VERIFYING AND CONSIDERING THE RE PLY OF THE ASSESSEE ON THIS ISSUE. 29. THE ASSESSEE MAKING ALL OUT EFFORTS TRIED TO RE BUT / REPLY TO THE ALLEGATIONS AND FURNISHED THE REQUIRED DETAILS VIDE REPLY DATED 30.1.2017, HOWEVER, IN THE EVENING, THE ASSESSING OFFICER, WI THOUT GOING THROUGH THE REPLY AND EVIDENCES FURNISHED BY THE ASSESSEE, FRAM ED THE ASSESSMENT. THE LD. COUNSEL HAS ALSO INVITED OUR ATTENTION TO PARA 1.1 AND PARA 8 OF THE ASSESSMENT ORDER WHEREIN IT HAS BEEN MENTIONED BY T HE ASSESSING OFFICER; THAT HE HAD SOUGHT INFORMATION FROM OFFICE OF JS(FT &TR) AND THAT THOUGH SOME INFORMATION HAS BEEN RECEIVED, HOWEVER, SUBSTA NTIAL INFORMATION WAS STILL AWAITED. THE CONTENTION OF THE LD. COUNSEL IN THIS RESPECT IS THAT SINCE THE ASSESSING OFFICER WAS NOT IN POSSESSION OF SUBS TANTIAL INFORMATION, THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO TAKE ANY ADVERSE INFERENCE. 30. THE LD. DR ON THE OTHER HAND, HAS SUBMITTED THA T AFTER FRAMING OF THE ASSESSMENT, CERTAIN MORE INFORMATION WAS RECEIV ED DURING THE APPELLATE PROCEEDINGS BEFORE THE CIT(A) THAT THIS INFORMATION WAS SUPPLIED TO THE ASSESSING OFFICER AS WELL AS THE COMMENTS OF THE AS SESSEE WERE DULY TAKEN. HENCE, THE GRIEVANCE OF THE ASSESSEE, IF ANY, ON TH IS ISSUE, STOOD RE- ADDRESSED IN THE APPELLATE PROCEEDINGS. WE DO NOT AGREE WITH THE ABOVE CONTENTION OF THE LD. DR ON THIS ISSUE. THE ASSES SING OFFICER HIMSELF HAS OBSERVED THAT THE SUBSTANTIAL INFORMATION FROM THE FOREIGN TAX DIVISION WAS AWAITED. THE ASSESSEE WAS ASKED TO FURNISH VOL UMINOUS DETAILS AND EVIDENCES AT THE FAG END OF THE LIMITATION PERIOD O N 27.1.2017 TO WHICH THE ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 29 ASSESSEE COULD REPLY WITH VOLUMINOUS PAPERS AND EVI DENCES ON 30.1.2017, HOWEVER, THE ASSESSMENT WAS FRAMED ON 30.1.2017 ITS ELF. THE FACTS ITSELF SPEAKS THAT THE ASSESSING OFFICER DID NOT APPLY HIS MIND TO THE REPLY FILED BY THE ASSESSEE. EVEN THE INFORMATION RECEIVED BY T HE ASSESSING OFFICER, AS PER HIS OWN VERSION, WAS PARTIAL INFORMATION AND S UBSTANTIAL INFORMATION WAS AWAITED. IN VIEW OF THIS, THE ASSESSMENT FRAME D BY THE ASSESSING OFFICER WAS NOT PASSED ON THE PROPER APPRECIATION O F THE EVIDENCES. EVEN OTHERWISE, IN VIEW OF OUR OBSERVATION MADE ABOVE, E VEN DESPITE INFORMATION RECEIVED DURING THE APPELLATE PROCEEDIN GS, NO ADVERSE VIEW IS ESTABLISHED. MOREOVER, WE HAVE ALREADY DISCUSSED T HE ISSUE IN DETAIL IN OUR FINDINGS GIVEN ABOVE WHILE ADJUDICATING GROUND NOS. 3 AND 4 ABOVE. IN VIEW OF THIS, IT IS HELD THAT PRINCIPLES OF NATURAL JUST ICE ALSO STOOD VIOLATED AS THE ASSESSING OFFICER DID NOT GIVE PROPER OPPORTUNITY T O THE ASSESSEE TO REBUT THE ALLEGATIONS AND THE ASSESSMENT WAS FRAMED IN A HURRY AS THE LIMITATION PERIOD TO FRAME THE ASSESSMENT WAS EXPIRED. THE AS SESSMENT FRAMED BY THE AO WAS THUS BAD IN LAW BECAUSE OF DENIAL OF PROPER OPPORTUNITY TO THE ASSESSE, NO SUBSTANTIAL INFORMATION AVAILABLE AGAIN ST THE ASSESSE AS WELL AS ON ACCOUNT OF VIOLATION OF PRINCIPLES OF NATURAL JU STICE. 31. GROUND NO. 6 : VIDE GROUND NO.6, THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE INCOME TAX ACT WHICH WAS INITIALLY MADE BY THE APPELLANT WHILE FILING THE RE TURN OF INCOME. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT A SEARCH OPERA TION WAS CONDUCTED AT THE BUSINESS PREMISES OF THE APPELLANT COMPANY ON 11.09 .2013. DURING THE SEARCH PROCEEDINGS THE APPELLANT / ASSESSEE MADE A STATEMENT THAT IN A KEEN DESIRE TO PURCHASE PEACE OF MIND AND TO AVOID LITIGATION AND MULTIPLICITY OF PROCEEDINGS, THE ASSESSEE HEREBY O FFER A SUM OF RS. 80 ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 30 CRORE AS ADDITIONAL INCOME OVER AND ABOVE THE BOOK RESULTS, TO COVER VARIOUS DISCREPANCIES SUCH AS CASH, STOCK, ASSETS, DEDUCTIONS, DISALLOWABLE EXPENSES ETC; OUT OF WHICH, A SUM OF RS. 4.54 CROR ES, RS. 7.09 CRORESAND RS.23.28 CRORES FOR A.Y. 2010-11, 2011-12 AND 2012- 13 RESPECTIVELY WERE OFFERED/MADE AS DISALLOWANCE OF EXPENDITURE INCURRE D FOR EARNING OF TAX EXEMPT INCOME UNDER THE PROVISIONS OF U/S 14 A OF T HE I.T. ACT IN THE RETURN OF INCOME FILED IN RESPONSE TO THE NOTICE UN DER SECTION 153A OF THE IT ACT. HOWEVER, SUBSEQUENTLY IN THE COURSE OF ASSE SSMENT PROCEEDINGS, THE APPELLANT FILED A LETTER WITH THE ASSESSING OF FICER DATED 30.01.2017 SUBMITTING THAT THE DISALLOWANCE OFFERED/ MADE IN T HE RETURN ON SECTION 14A NEED NOT BE DISALLOWED AS THE SAME WAS NOT CAL LED FOR AND THAT APPROPRIATE ADJUSTMENT BE MADE IN THIS REGARD. HOWE VER THE AO DID NOT TAKE COGNIZANCE OF THE ABOVE CONTENTION OF THE ASSE SSE AND FRAMED ASSESSMENT AS PER DISALLOWANCE OFFERED U/S 14A IN T HE RETURN OF INCOME. 32. IN THE APPELLATE PROCEEDINGS BEFORE THE LD. CI T(A), THE APPELLANT SUBMITTED THAT AO HAS FAILED TO TAKE COGNIZANCE OF THE SAID LETTER DATED 30.11.2017. COPY OF THE LETTER WAS AGAIN FILED BEFO RE THE CIT(A) AND IT WAS SUBMITTED THAT THE INVESTMENT MADE WAS OUT OF APPEL LANTS OWN SOURCES. IT WAS SUBMITTED THAT THE APPELLANT COMPANY HAD SHARE CAPITAL, SHARE APPLICATION MONEY AND RESERVES AND SURPLUS WHICH WA S MUCH MORE THAN THE AMOUNT OF INVESTMENT MADE AS CAN BE SEEN FROM THE T ABLE BELOW: AY DISALLOWANCE U/S SURPLUS INVESTMENTS 2010-11 4.54 CRORES 495.55 CRORES 158.90 CRORES 2011-12 7.09 CRORES 997.37 CRORES 214.23 CRORES 2013-14 23.28 CRORES 1435.86 CRORES 556.44 CRORES IT WAS SUBMITTED THAT APPELLANT HAD BORROWED FUNDS IN FORM OF WORKING ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 31 CAPITAL AND TERM LOANS FROM BANKS. THAT THE FUNDS RAISED BY THE ASSESSEE COMPANY HAD BEEN USED ONLY FOR THE PURPOSES FOR WHI CH THEY HAD BEEN GRANTED AND THE CHANCES OF DIVERSION OF FUNDS FOR A NY OTHER PURPOSE WERE MINISCULE CONSIDERING THE STRINGENT STANDARDS OF MO NITORING AND DOCUMENTATION PRESCRIBED. THAT NO PART OF THE INTER EST EXPENSES WAS RELATABLE TO THE INVESTMENTS IN EQUITY INSTRUMENTS/ SHARE APPLICATION MONEY. IT WAS THEREFORE SUBMITTED THAT SINCE NO INTEREST- BEARING FUNDS WERE USED IN MAKING INVESTMENTS THUS, NO INTEREST EXPENDITURE WAS INCURRED IN EARNING EXEMPT DIVIDEND INCOME. THE APPELLANT HAS F URTHER CONTENDED THAT AS NO EXPENDITURE (NEITHER ON ACCOUNT OF INTEREST N OR OTHERWISE) HAD BEEN INCURRED FOR INVESTMENTS BEING MADE FOR EARNING EXE MPT INCOME, THE EXPENDITURE ON BORROWED FUNDS COULD NOT BE DISALLOW ED, EITHER, IN WHOLE OR IN PART BY RESORTING TO THE PROVISIONS UNDER SECTIO N 14A READ WITH RULE 8D OF THE INCOME TAX RULES. THE APPELLANT HAS FURTH ER PLACED RELIANCE ON THE ORDERS PASSED BY THE HON'BLE CHANDIGARH BENCH O F THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF THE APPELLANT FOR AY 2009-10. ITSELF ON IDENTICAL ISSUE. 33. THE LD. CIT(A), HOWEVER REJECTED THE ABOVE STAT ED CONTENTIONS RAISED BY THE ASSESSE OBSERVING AS UNDER: 1 HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE APPELLANT, ASSESSMENT ORDER PASSED BY THE AO AND FIND THAT THE ISSUE OF DISALLOWANCE AGITATED BY THE APPELLANT DOES NOT ARI SE OUT OF THE ORDER PASSED BY THE AO.I DO NOT FIND THE DISCUSSION PERTAINING TO THIS ISSUE FROM THE ASSESSMENT ORDER AND FURTHER , APPELLANT HAS ALSO FAILED TO POINT OUT THIS FACT WITH REFEREN CE TO THE ORDER. SECOND ISSUE, WHICH ARISES FOR CONSIDERATION IS WHE THER CIT-A CAN TAKE UP AN ISSUE FOR CONSIDERATION ON WHICH NO ADDITION HAS BEEN MADE BY THE AO AND ALSO ON WHICH NO DISCUSSION IS THERE IN THE ORDER ITSELF. THUS, LEGALLY NO CLAIM CAN BE ENT ERTAINED AT THIS STAGE. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 32 6.7 THUS, I HOLD THAT A SETTLED ISSUE CANNOT BE DISTURB ED AT THIS STAGE OF THE PROCEEDINGS. IN VIEW OF THESE FACTS, A PPEAL FILED ON THIS GROUND IS DISMISSED . 34. BEFORE US, THE LD. COUNSEL FOR THE ASSESSE HAS SUBMITTED THAT THE LD.CIT(A) HAS WRONGLY AND ILLEGALLY REJECTED THE AD DITIONAL CLAIM PUT BY THE ASSESSE BEFORE HIM. HE IN THIS RESPECT HAS PLAC ED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F NATIONAL THERMAL POWER CO. LTD. VS. CIT 229 ITR 383. THE LD. COUN SEL HAS ALSO SUBMITTED THAT THERE WAS NO BAR TO THE ASSESSE TO C LAIM REFUND OR TO PUT ADDITIONAL CLAIM BEFORE THE APPELLATE AUTHORITIES, IF THE ASSESSE UNDER WRONG NOTION OR MISTAKEN BELIEF HAD OFFERED THE INC OME FOR TAXATION, TO WHICH, IT OTHERWISE NOT LIABLE TO PAY. THE LD. DR O N THE OTHER HAND HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES O N THIS ISSUE. 35. WE HAVE CONSIDERED THE RIVAL CONTENTIONS ON THI S ISSUE. THE FACTS BEFORE THE HONBLE SUPREME COURT IN THE CASE OF NA TIONAL THERMAL POWER CO. LTD.(SUPRA) WERE THAT THE ASSESSEE IN THAT CAS E OFFERED THE INTEREST AMOUNT FOR TAXATION AND THE ASSESSMENT WAS COMPLETE D ON THAT BASIS. BEFORE THE LD. CIT(A), THE ASSESSEE THOUGH , HAD TA KEN A NUMBER OF GROUNDS OF APPEAL, HOWEVER, THE INCLUSION OF THE SA ID AMOUNT OF INTEREST WAS NOT CHALLENGED. THE INCLUSION OF THE SAID AMOU NT OF INTEREST WAS NOT OBJECTED TO EVEN IN THE GROUNDS OF APPEAL AS ORIGIN ALLY FILED BEFORE THE TRIBUNAL. HOWEVER, THE ASSESSEE BY WAY OF SUBSEQUE NT LETTER RAISED THE ADDITIONAL GROUND IN RELATION TO THE SAID INCLUSION OF INTEREST INTO THE INCOME OF THE ASSESSEE. IN THE ABOVE CIRCUMSTANCES , THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS WHERE ON THE FACTS F OUND BY THE AUTHORITIES BELOW A QUESTION OF LAW ARISES (THOUGH NOT RAISED BEFORE THE ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 33 AUTHORITIES) WHICH BEARS ON THE TAX LIABILITY OF TH E ASSESSEE, WHETHER THE TRIBUNAL HAS JURISDICTION TO EXAMINE THE SAME? TH E HONBLE SUPREME COURT WHILE ANSWERING THE SAID QUESTION OBSERVED TH AT UNDER SECTION 254 OF THE INCOME TAX ACT, THE POWER OF THE TRIBUNAL IN DE ALING WITH THE APPEALS IS EXPRESSED IN THE WIDEST POSSIBLE TERMS; THE POWE R OF THE TRIBUNAL UNDER SECTION 254 IS NOT RESTRICTED ONLY TO DECIDE THE GR OUNDS WHICH ARISE FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S); THAT BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS OBJECTION BEFORE THE TRIBUNAL AND THE TRIBUNAL IS N OT PREVENTED FROM CONSIDERING QUESTIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS ALTHOUGH NOT RAISED EARLIER. WHILE ANSWERING THE QUESTION I N AFFIRMATIVE, THE HONBLE SUPREME COURT CONCLUDED THAT THE TRIBUNAL H AS JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARISES FROM THE FAC TS AS FOUND BY THE AUTHORITIES BELOW AND HAVING A BEARING ON THE TAX L IABILITY OF THE ASSESSEE. 36. THE FACTS OF THE CASE IN HAND ARE ON BETTER FOO TING. IN THE CASE IN HAND, THOUGH THE ASSESSEE OFFERED THE ADDITIONAL IN COME ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT FOR TAXATION IN TH E RETURN OF INCOME, HOWEVER THE ASSESSE HAS TAKEN THE PLEA OF EXCESS AM OUNT OFFERED DURING THE ASSESSMENT PROCEEDINGS ITSELF, BUT THE LD. AO FAILE D TO ADJUDICATE THIS ISSUE. DURING THE FIRST APPEAL BEFORE CIT(A) ALSO, THE ASSESSE HAS SPECIFICALLY TAKEN THIS PLEA, HOWEVER THE LD. CIT(A ) HAS DECLINED TO ACCEPT THIS PLEA, WHICH IN THE LIGHT OF THE DECISION OF TH E HONBLE SUPREME COURT(SUPRA) WAS SUPPOSED TO BE CONSIDERED. THE FU LL BENCH OF THE HONBLE BOMBAY HIGH COURT IN THE CASES OF AHMEDABAD ELECTR ICITY COMPANY LTD. VS. CIT AND GODAVARI SUGAR MILLS LTD. VS. CIT BY WAY OF A COMMON ORDER DATED 30.04.1992 (1993) 199 ITR 351 HAS OBSER VED THAT THE BASIC ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 34 PURPOSE OF AN APPEAL PROCEDURE IN AN INCOME TAX MAT TER IS TO ASCERTAIN THE CORRECT TAX LIABILITY OF THE ASSESSEE IN ACCORDANCE WITH LAW. THEREFORE, AT BOTH THE STAGES, EITHER BY THE APPELLATE COMMISSION ER OR BEFORE THE APPELLATE TRIBUNAL, THE APPELLATE AUTHORITY CAN CON SIDER THE PROCEEDINGS BEFORE IT AND THE MATERIAL ON RECORD BEFORE IT FOR THE PURPOSE OF DETERMINING THE CORRECT TAX LIABILITY OF THE ASSESS EE. THE APPELLATE AUTHORITIES, OF COURSE, CANNOT TRAVEL BEYOND THE PR OCEEDINGS AND EXAMINE NEW SOURCE OF INCOME, FOR THAT PURPOSE OTHER SEPARA TE REMEDIES ARE PROVIDED TO THE DEPARTMENT UNDER THE INCOME TAX ACT . THE HONBLE FULL BENCH OF THE BOMBAY HIGH COURT OBSERVED THAT APART FROM THE ABOVE, THERE WAS NOTHING IN SECTION 254 OR SECTION 251 WHICH WOU LD INDICATE THAT THE APPELLATE AUTHORITIES ARE CONFINED TO CONSIDERING O NLY THE OBJECTIONS RAISED BEFORE THEM OR ALLOWED TO BE RAISED BEFORE THEM EIT HER BY THE ASSESSEE OR BY THE DEPARTMENT, AS THE CASE MAY BE. THEY CAN CO NSIDER THE ENTIRE PROCEEDINGS TO DETERMINE THE TAX LIABILITY OF THE A SSESSEE. 37. FURTHER THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD. (2012) 349 ITR 336 (BOM.) HAS OBSERVED THAT THE ASSESSEE IS ENTITLED TO RAISE NOT MERELY ADDITIONAL LEGAL SUBMISSIONS BEFORE THE APPELLATE AUTHORITIES, BUT IS ALSO ENTITLED TO RAISE ADDITIONAL CLAMS BEFORE THEM. THE APPELLATE AUTHORITIES HAVE JURISDICTION TO DEAL NOT MERELY WITH ADDITIONAL GRO UNDS, WHICH BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTANCES OR LAW, BUT WITH ADDITIONAL GROUNDS WHICH WERE AVAILABLE WHEN THE RE TURN WAS FILED. THE WORDS COULD NOT HAVE BEEN RAISED MUST BE CONSTRUE D LIBERALLY AND NOT STRICTLY. THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW PLEA IN AN APPEAL AND EACH CASE MUST BE CONSIDERED ON IT S OWN FACTS. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 35 38. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CA SE OF SHRI CHANDRASHEKHAR BAHIRWANI ITA NO.7810/M/2010 AND 65 99/M/2011 VIDE ORDER DATED 17.06.2015 WHILE DECIDING THE QUESTION AS TO WHETHER THE INCOME CANNOT BE ASSESSED LESS THAN THE RETURNED IN COME HAS OBSERVED AS UNDER: 5. NOW COMING TO THE FINDING OF THE LD. CIT(A), TH AT INCOME CANNOT BE ASSESSED LESS THAN THE RETURNED IN COME, THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED BEFORE U S THAT THE ACTION OF THE LD. CIT(A) IN REJECTING THE CLAIM OF THE ASSESSEE ON THIS GROUND WAS NOT JUSTIFIED. HE HAS FURTHER RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIG H COURT IN THE CASE OF GUJARAT GAS LTD. VS. JCIT (2 000) 245 ITR 84. IN THE SAID CASE, THE WORDS OF THE CIR CULAR NO.549, PARA 5.12, DT. 31ST OCTOBER, 1989, PROVIDIN G THAT THE ASSESSED INCOME UNDER SECTION 143(3) SHALL NOT BE LESS THAN THE RETURNED INCOME WAS CONSIDERED BY THE HON BLE HIGH COURT AND IT WAS HELD THAT AS PER PROVISO TO S ECTION 119 OF THE ACT, THE BOARD CANNOT ISSUE INSTRUCTIONS TO THE INCOME TAX AUTHORITY TO MAKE A PARTICULAR ASSESSMEN T OR TO DISPOSE OF A PARTICULAR CASE IN A PARTICULAR MAN NER AS WELL AS NOT TO INTERFERE WITH THE DISCRETION OF THE COMMISSIONER IN EXERCISE OF HIS APPELLATE FUNCTIONS . IT WAS FURTHER HELD THAT THE AO, WHILE EXERCISING HIS QUASI JUDICIAL POWERS, WAS NOT BOUND BY THE SAID CIRCULAR AND SHOULD HAVE EXERCISED HIS POWERS INDEPENDENTLY. TH E HONBLE HIGH COURT, THEREFORE, DIRECTED THE AO TO M AKE THE ASSESSMENT WITHOUT KEEPING IN MIND THE SAID CIR CULAR. IT MAY BE FURTHER OBSERVED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS & SHAREHOLDER S PVT. LTD. ITA NO.3908 OF 2010 DECIDED ON 21.06.12, WHIL E RELYING UPON THE VARIOUS DECISIONS OF THE HONBLE S UPREME COURT AND OTHER HONBLE HIGH COURTS HAS HELD THAT E VEN IF A CLAIM IS NOT MADE BEFORE THE AO, IT CAN BE MADE B EFORE THE APPELLATE AUTHORITIES. THE JURISDICTION OF THE APPELLATE AUTHORITIES TO ENTERTAIN SUCH A CLAIM IS NOT BARRED . THE HONBLE HIGH COURT HAS FURTHER OBSERVED THAT THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LIMITED V. CIT (2006) 157 TAXMAN 1, RELATI NG TO THE RESTRICTION OF MAKING THE CLAIM THROUGH A REVIS ED RETURN WAS LIMITED TO THE POWERS OF THE ASSESSING AUTHORITY AND THE SAID JUDGMENT DOES NOT IMPINGE ON THE ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 36 POWER OR NEGATE THE POWERS OF THE APPELLATE AUTHORI TIES TO ENTERTAIN SUCH CLAIM BY WAY OF ADDITIONAL GROUND. E VEN OTHERWISE, THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE CLAIM OF THE ASSESSEE IN EXERCISE OF HIS APPELLATE JURISDICTION UNDER SECTION 250 OF THE ACT. MOREOVE R, IF THE ASSESSEE IS, OTHERWISE, ENTITLED TO A CLAIM OF DEDU CTION BUT DUE TO HIS IGNORANCE OR FOR SOME OTHER REASON COULD NOT CLAIM THE SAME IN THE RETURN OF INCOME, BUT HAS RAI SED HIS CLAIM BEFORE THE APPELLATE AUTHORITY, THE APPELLATE AUTHORITY SHOULD HAVE LOOKED INTO THE SAME. THE AS SESSEE CANNOT BE BURDENED WITH THE TAXES WHICH HE OTHERWIS E IS NOT LIABLE TO PAY UNDER THE LAW. EVEN A DUTY HAS AL SO BEEN CAST UPON THE INCOME TAX AUTHORITIES TO CHARGE THE LEGITIMATE TAX FROM THE TAX PAYERS. THEY ARE NOT TH ERE TO PUNISH THE TAX PAYERS FOR THEIR BONAFIDE MISTAKES. IN VIEW OF OUR ABOVE OBSERVATIONS, IT IS HELD THAT THE ASSE SSEE IS NOT LIABLE TO PAY CAPITAL GAINS TAX, THOUGH ORIGINA LLY HE HAD SUBJECTED HIMSELF TO THE SAID TAX AS PER HIS RE TURN OF INCOME. THE AO IS DIRECTED TO PROCESS THE CLAIM OF REFUND IN THIS RESPECT AS PER PROVISIONS OF THE LAW. 39. IN VIEW OF THE ABOVE SETTLED POSITION OF LAW IT IS HELD THAT THE ASSESSEE IS ENTITLED TO RAISE THIS ADDITIONAL LEGAL GROUND. 40. NOW COMING TO THE MERITS OF THE CASE. FIRST OF ALL, IT IS PERTINENT TO MENTION HERE THAT DISALLOWANCE U/S 14A OF THE ACT I S NOT MADE ON ACCOUNT OF ANY ADDITIONAL INCOME FOUND EITHER IN CASH OR IN KIND OR OTHERWISE IN RESPECT OF ANY DOCUMENTS OR ENTRIES IN THE ACCOUNT BOOK. IT IS, IN FACT, A NOTIONAL DISALLOWANCE OUT OF THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE ON THE FOOTING THAT OUT OF THE TOTAL EXPENDITURE, S OME OF THE EXPENDITURE MIGHT HAVE BEEN ATTRIBUTABLE TO THE ACTIVITY OF MAK ING INVESTMENT FROM WHICH THE ASSESSEE HAS EARNED TAX EXEMPT INCOME. T HIS IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE AFORESAID DISALLOWAN CE MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT IS OTHERWISE ATTRIBUTABLE / RELATING TO THE INCRIMINATING DOCUMENTS FOUND DURING THE SEARCH ACTION OR THAT THE ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 37 AFORESAID SURRENDER CAN BE RELATED TO PART OF ANY O THER INCOME OF THE ASSESSEE. EVEN OTHERWISE IT HAS BEEN HELD TIME AND AGAIN BY VARIOUS COURTS OF LAW THAT A RETRACTED SURRENDER OF INCOME WITHOUT ANY CORROBORATIVE OR ANY RELATABLE EVIDENCE OF ANY UNDISCLOSED INCOME OF THE ASSESSEE CANNOT BE MADE SOLE BASIS FOR ADDITION TO THE INCOME OF THE A SSESSEE. MOREOVER, THE AMOUNT OFFERED AS DISALLOWANCE RELATING TO THIS ISS UE IS ON ACCOUNT OF NOTIONAL DISALLOWANCE OF EXPENDITURE WHICH MAY BE A TTRIBUTABLE TO EARNING OF TAX EXEMPT INCOME OF THE ASSESSEE. UNDER THE CIR CUMSTANCES, EVEN IF AN ASSESSEE SURRENDERS SOME AMOUNT AS DISALLOWANCE U/S 14A OF THE ACT OR OTHERWISE HAS OFFERED CERTAIN AMOUNT UNDER THE PROV ISIONS OF SECTION 14A OF THE ACT, HOWEVER LATER ON, THE ASSESSEE DEMONSTR ATES THAT AS PER THE SETTLED LAW THE SAID DISALLOWANCE OF EXPENDITURE HA S WRONGLY BEEN OFFERED / AGREED TO AND THAT AS PER THE SETTLED LAW HIS DISAL LOWANCE ACTUALLY SHOULD BE OF A LOWER AMOUNT, IN OUR VIEW, THAT ASPECT CAN BE LOOKED INTO EVEN AT THE APPELLATE STAGE. THIS TRIBUNAL IS NOT OF A PENA L JURISDICTION TO PUNISH THE LITIGANTS FOR THEIR MISTAKES. EVEN THE INCOME T AX AUTHORITIES ARE SUPPOSED TO CHARGE LEGITIMATE TAX FROM THE ASSESSEE AND IF AN ASSESSEE OFFERS A HIGHER OR MORE AMOUNT OF TAX, OF WHICH HE OTHERWISE IS NOT SUPPOSED TO PAY, HE CAN CERTAINLY PUT A CLAIM THAT AS PER LAW HE IS REQUIRED TO PAY A LOWER AMOUNT OF TAX ON ANY ISSUE. THERE I S NO DENIAL OR REBUTTAL TO THE PLEADINGS OF THE ASSESSEE THAT THE ASSESSEE WAS HAVING OWN SUFFICIENT FUNDS TO MAKE THE INVESTMENTS WHICH MAY YIELD TAX E XEMPT INCOME. THE ISSUE IS NOW SQUARELY COVERED BY THE VARIOUS DECISI ONS OF THE HIGH COURTS INCLUDING THAT OF THE DECISION OF THE HON'BLE JURI SDICTIONAL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD VS. CIT, J ALANDHAR (SUPRA), CIT VS. KAPSONS ASSOCIATES (2016) 381 ITR 204 (P&H) AN D THE LATEST DECISION ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 38 OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. JANAK GLOBAL RESOURCES PVT LTD ITA NO. 470/CHD/2018 ORDE R DATED 16.10.2018, HOLDING THAT THAT IF THE ASSESSEE IS POSSESSED OF SUFFICIENT OWN INTEREST FREE FUNDS TO MEET THE INVESTMENTS / INTEREST FREE ADVAN CES, THEN, UNDER THE CIRCUMSTANCES, PRESUMPTION WILL BE THAT INTEREST FR EE ADVANCES / INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE OUT OF O WN FUNDS / INTEREST FREE FUNDS. RELIANCE IN THIS RESPECT CAN ALSO BE PL ACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCL ES (P) LTD VS. CIT 379 ITR 347 (SC) AND ALSO ON THE LATEST DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUS TRIES LTD. [2019] 410 ITR 466 (SC). 41. MOREOVER, THE ASSESSEE HAS TAKEN A SPECIFIC ST AND THAT NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR M AKING INVESTMENTS ETC. AND THAT NO DISALLOWANCE U/S 14A OF THE ACT IS ATTR ACTED. NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAS RECORDED ANY S ATISFACTION FROM THE ACCOUNTS OF THE ASSESSEE THAT THE ASSESSEES ABOVE CONTENTION IS NOT CORRECT. 41. EVEN THE DIFFERENT HON'BLE HIGH COURTS OF THE C OUNTRY HAVE BEEN UNANIMOUS TO HOLD THAT NO DISALLOWANCE IS ATTRACTED U/S 14A IN CASE THE ASSESSEE HAS NOT EARNED ANY INCOME NOT FORMING PART OF THE TOTAL INCOME AND THAT THE DISALLOWANCE U/S 14A CAN NOT EXCEED TH E TOTAL TAX EXEMPT INCOME EARNED BY THE ASSESSE DURING THE YEAR. RELI ANCE IN THIS RESPECT CAN BE PLACED ON VARIOUS DECISIONS OF THE HON'BLE HIGH COURTS INCLUDING THAT OF THE HON'BLE JURISDICTIONAL HIGH COURT OF PUNJA B AND HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILES (2009) 319 ITR 204 (P&H) AND IN THE CASE OF CIT FARIDABAD V. LAKHANI MARKETING INC 226 TAXMANN 45 (P&H); ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 39 HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS. ITO (2015) 378 ITR 33 (DELHI) AND OF THE HON'BLE GUJARAT HIG H COURT IN THE CASE OF CORRTECH ENERGY P. LTD. (2014) 45 TAXMAN.COM 116 AND FURTHER OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS . M/S SHIVAM MOTORS (P) LTD (2014) 272 CTR (ALL) 277. 42. IN VIEW OF THE PROPOSITION OF LAW LAID DOWN IN THE ABOVE REFERRED TO DECISIONS AND ALSO CONSIDERING THE OVERALL FACTS A ND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, IT WILL BE PROPER TO RESTRICT TH E DISALLOWANCE U/S 14A OF THE ACT, , FOR THE RESPECTIVE ASSESSMENT YEARS UPTO THE TOTAL TAX EXEMPT INCOME EARNED BY THE ASSESSE IRRESPECTIVE OF THE AM OUNT OF DISALLOWANCE OFFERED/S 14A IN THE RETURN OF INCOME. 43. HOWEVER, SINCE WE HAVE ALREADY, WHILE ADJUDICAT ING GROUND NO.1 OF THE APPEAL FOR ASSESSMENT YEAR 2010-11 HAVE HELD TH AT THE ADDITIONS MADE IN THE ABSENCE OF ANY INCRIMINATING MATERIAL IN AN ASSESSMENT MADE U/S 153A OF THE ACT, AS PER SETTLED POSITION OF LAW, AR E NOT SUSTAINABLE AND THUS THE ASSESSMENT FRAMED U/S 153 A HAS BEEN SET ASIDE, HENCE UNDER THE CIRCUMSTANCES, THE INCOME ASSESSED AS PER THE ORIGI NAL ASSESSMENT FRAMED/FINALIZED FOR AY 2010-11 WILL REMAIN SUSTAIN ED AS SUCH INCLUDING THE DISALLOWANCE, IF ANY MADE U/S 14A OF THE ACT, S UBJECT TO MODIFICATION BY ANY DECISION OF ANY APPELLATE AUTHORITY ON ANY ISSUE IN AN APPEAL / RECTIFICATION APPLICATION IN RESPECT OF ORIGINALLY FRAMED ASSESSMENT ORDER DATED 17.09.2017. ITA NO. 158/CDH/2018 (A.Y. 2011-12) 44. IN THIS APPEAL, THE ASSESSEE HAS RAISED FOLLOWI NG GROUNDS OF APPEAL:- ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 40 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, JALANDHAR IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD T HE ACTION OF THE LD. ASSESSING OFFICER IN FRAMING ASSE SSMENT U/S 153A DESPITE THE FACT THAT NO INCRIMINATING MAT ERIAL WAS FOUND DURING THE COURSE OF SEARCH. 2. THAT LD. CIT(A) GRAVELY ERRED IN HOLDING THAT TH E ASSESSMENT FRAMED BY THE LD. ASSESSING OFFICER WAS NOT BEYOND THE PERIOD OF LIMITATION PRESCRIBED UNDER TH E ACT. 3. THAT LD. CIT(A) WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ADDITION MADE AT RS. 370,16,40,000/- REPRESENTING PROCEEDS OF GDR ISSUED BY THE APPELLAN T AS UNEXPLAINED CREDIT BY RESORT TO PROVISIONS OF SECTI ON 68 OF THE INCOME TAX ACT. 4. THAT LD. CIT(A) HAS RELIED ON A LOT OF IRRELEVA NT DATA MARSHALLED BY THE LD. ASSESSING OFFICER WHILE UPHOLDING THE ABOVE MENTIONED ADDITION OF RS. 370,16,40,000/-. 5. THAT LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING T HE ASSESSMENT DESPITE THE FACT THAT PRINCIPLES OF NATU RAL JUSTICE WERE GROSSLY VIOLATED BY THE LD. ASSESSING OFFICER IN FRAMING OF ASSESSMENT. 6. THAT LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN NOT CONS IDERING THE APPELLANT'S REQUEST FOR NOT MAKING A NY DISALLOWANCE U/S 14A WHICH WAS INITIALLY MADE BY TH E APPELLANT WHILE FILING THE RETURN OF INCOME. 45. GROUND NO.1 : IN GROUND NO.1, THE ASSESSEE HAS TAKEN A PLEA TH AT THE ASSESSMENT FRAMED U/S 153A OF THE ACT IN THIS CASE WAS BAD IN LAW AS NO INCRIMINATING MATERIAL WAS FOUND IN SEARCH ACTION C ARRIED AT THE PREMISES OF THE ASSESSEE ON 11.9.2013. ADMITTEDLY, THE ASSE SSMENT YEAR INVOLVED IN THIS APPEAL IS ASSESSMENT YEAR 2011-12. NO ARGUMENT HAS BEEN ADDRESSED BY THE LD. COUNSEL FOR THE ASSESSEE TO THE FACT THAT T HE ORIGINAL ASSESSMENT PROCEEDINGS ON THE DATE OF SEARCH STOOD COMPLETED O R THAT THE SAME WAS NOT ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 41 ABATED ON THE DATE OF SEARCH. IN VIEW OF THIS, WE DO NOT FIND ANY MERIT IN THIS GROUND AND THE SAME IS ACCORDINGLY DISMISSED. 46. GROUND NO.2 : GROUND NO.2 IS ON THE LIMITATION POINT OF FRAMIN G THE ASSESSMENT U/S 153A OF THE ACT. IN VIEW OF OUR FINDINGS GIVEN ABOVE ON GROUND NO.2 OF THE ASSESSEES APPEAL IN ITA NO.157/CHD/2018 FOR ASSESSMENT YEAR 2 010-11, WE DO NOT FIND ANY MERIT ON THIS ISSUE. 47. GROUND NOS. 3 & 4 : THESE GROUNDS ARE IDENTICAL TO GROUND NOS. 3 & 4 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010 -11 IN ITA NO. 157/CHD/2018. IN VIEW OF OUR FINDINGS GIVEN ABOVE WHILE DECIDING GROUND NOS. 3 & 4 OF THE APPEAL FOR ASSESSMENT YEAR 201-0- 11, THESE GROUNDS OF APPEAL ARE DECIDED IN FAVOUR OF THE ASSESSEE AND TH E ADDITIONS MADE BY THE ASSESSING OFFICER ON THIS ISSUE ARE ORDERED TO BE D ELETED. 48. GROUND NO.5 : VIDE THIS GROUND THE ASSESSEE HAS AGITATED TH E ACTION OF THE CIT(A) IN FRAMING / UPHOLDING THE AS SESSMENT OBSERVING THAT THE PRINCIPLES OF NATURAL JUSTICE HAVE BEEN GROSSLY VIOLATED BY THE ASSESSING OFFICER. THIS ISSUE HAS ALSO BEEN DELIBE RATED UPON BY US VIDE GROUND NO.5 OF THE ASSESSEE APPEAL IN ASSESSMENT YE AR 2010-11 AND OUR FINDINGS ARRIVED AT WILL ACCORDINGLY APPLY TO THIS GROUND OF APPEAL. 49. GROUND NO. 6 : THE ISSUE RAISED V IDE GROUND NO.6 OF THE APPEAL REGARDING DISALLOWANCE U/S 14A OF THE INCOME TAX ACT IS SIMILAR TO THAT OF GROUND NO.6 RAISED IN ITA NO. 157/CHD/2018 RELA TING TO ASSESSMENT ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 42 YEAR 2010-11. IN VIEW OF OUR FINDINGS GIVEN ABOVE, THE DISALLOWANCE U/S 14A IS RESTRICTED TO THE EXTENT OF TAX EXEMPT INCOM E EARNED BY THE ASSESEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.159/CHD/2018 (A.Y. 2012-13) 50. THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS APPEAL READS AS UNDER:- THAT ORDER PASSED U/S 250(6) OF THE INCOME T AX ACT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, JALANDHAR IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN NEGATING THE REQUEST OF THE APPELLANT FOR RESTRICTI NG; THE DISALLOWANCE U/S 14A TO THE EXTENT OF EXEMPT INCOME AT RS. 3,76,02,590/- AS AGAINST DISALLOWANCE MADE AT RS. 10,73,48,728/-. 51. WE FIND THAT THE ISSUE RAISED ABOVE IS SIMILAR TO THAT OF GROUND NO. 6 RAISED IN ITA NO. 157/CHD/2018 RELATING TO ASSESSME NT YEAR 2010-11. IN VIEW OF OUR FINDINGS GIVEN ABOVE, THE DISALLOWANCE U/S 14A IS RESTRICTED TO THE EXTENT OF TAX EXEMPT INCOME EARNED BY THE ASSES EE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THIS GROUND IS ACCORDINGL Y ALLOWED IN FAVOUR OF THE ASSESSE. ACCORDINGLY, THIS APPEAL OF THE ASSESSEE IS ALLOWE D. ITA NO.160/CHD/2018 (A.Y. 2013-14) 52. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL:- 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, JALANDHAR IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD T HE ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 43 ACTION OF THE LD. ASSESSING OFFICER IN FRAMING ASSE SSMENT U/S 153A DESPITE THE FACT THAT NO INCRIMINATING MAT ERIAL WAS FOUND DURING THE COURSE OF SEARCH. 2. THAT LD. CIT(A) GRAVELY ERRED IN HOLDING THAT TH E ASSESSMENT FRAMED BY THE LD. ASSESSING OFFICER WAS NOT BEYOND THE PERIOD OF LIMITATION PRESCRIBED UNDER TH E ACT. 3. THAT LD. CIT(A) WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ADDITION MADE AT RS. 241,64,40,094/- REPRESENTING PROCEEDS OF GDR ISSUED BY THE APPELLAN T AS UNEXPLAINED CREDIT BY RESORT TO PROVISIONS OF SECTI ON 68 OF THE INCOME TAX ACT. 4. THAT LD. CIT(A) HAS RELIED ON A LOT OF IRRELEVA NT DATA MARSHALLED BY THE LD. ASSESSING OFFICER WHILE UPHOLDING THE ABOVE MENTIONED ADDITION OF RS. 241,64,40,094/-. 5. THAT LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING T HE ASSESSMENT DESPITE THE FACT THAT PRINCIPLES OF NATU RAL JUSTICE WERE GROSSLY VIOLATED BY THE LD. ASSESSING OFFICER IN FRAMING OF ASSESSMENT. 6. THAT LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN NOT CONS IDERING THE APPELLANT'S REQUEST FOR NOT MAKING A NY DISALLOWANCE U/S 14A WHICH WAS INITIALLY MADE BY TH E APPELLANT WHILE FILING THE RETURN OF INCOME. 7. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN NOT ADJUDICATING THE GROUND RELATING TO NOT ALLOWING THE SET OFF OF LOSS DECALED IN THE RETURN AT RS. 29,01,51,7 06/-. 53. WE FIND THAT ALL THE GROUNDS RAISED IN THIS APP EAL (EXCEPT GROUND NO. 7) ARE EXACTLY SIMILAR TO THAT OF THE GROUNDS RAISE D BY THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 IN ITA NO. 157/CDH/2018, WH EREIN, ALL THE ISSUES HAVE BEEN DELIBERATED UPON BY US AT LENGTH AND IN V IEW OF OUR FINDINGS GIVEN AGAINST EACH OF THE RESPECTIVE ISSUE SEPARATE LY, THE GROUNDS ARE DISPOSED OF ACCORDINGLY. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 44 54. GROUND NO. 7 : VIDE GROUND NO. 7, THE ASSESSEE HAS PLEADED THA T THE LD. CIT(A) HAS FAILED TO ADJUDICATE THIS ISSU E RELATING TO NOT ALLOWING THE SET OFF OF LOSS DECLARED IN THE RETURN AT RS. 29,01,51,706/-. 55. THE LD. DR HAS ALSO FAIRLY ADMITTED THAT THIS G ROUND HAS NOT BEEN ADJUDICATED BY THE LD. CIT(A). 56. THIS ISSUE IS ACCORDINGLY RESTORED TO THE FILE OF THE CIT(A) WITH A DIRECTION TO ADJUDICATE THE SAME IN ACCORDANCE WITH LAW AFTER CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE AND THE RELEVAN T EVIDENCES SO FURNISHED BY THE PARTIES. ACCORDINGLY, THIS GROUND OF APPEAL STANDS ALLOWED. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ITA NO.161/CHD/2018 (A.Y. 2014-15) 57. THE ASSESSEE IN THIS APPEAL HAS RAISED THE FOLL OWING GROUNDS OF APPEAL:- 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, JALANDHAR WAS NOT JUSTIFIED TO ARBITRA RILY UPHOLD THE ADDITION BY ESTIMATING THE PROFIT AT 25% AS AGAINST DECLARED BY THE APPELLANT AT 3.54% 2. THAT LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN NOT ENTERTAI NING THE CLAIM OF THE APPELLANT REGARDING DISALLOWANCE OF RS . 30,34,94,742/- U/S 14A DESPITE THE FACT THAT THE SP ECIFIC REQUEST WAS MADE BY THE APPELLANT BEFORE THE LD. ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 3 THAT THE LD. CIT(A) FAILED TO ADJUDICATE GROUND RAISED BY THE APPELLANT WITH REGARD TO THE DISALLOW ANCE U/S 43B AMOUNTING TO RS. 79,61,619/-. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 45 58. GROUND NO.1 : VIDE THIS GROUND, THE ASSESSEE HAS AGITATED THE A CTION OF THE CIT(A) IN ESTIMATING THE GROSS PROFIT AT 25% AS AGAINST DECALED BY THE ASSESSEE AT 3.54% ON ACCOUNT OF SHORTAGE OF ST OCK. THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE IN THIS RESPECT IS THAT WH ILE ESTIMATING THE INCOME OF THE ASSESSEE ON ACCOUNT OF SHORTAGE OF STOCK, T HE ASSESSING OFFICER HAS TREATED THE TOTAL VALUE OF THE SHORT STOCK AS UNDIS CLOSED INCOME OF THE ASSESSEE. IT HAS BEEN FURTHER SUBMITTED THAT AMOUN T OF RS. 63,80,140/- WHICH REPRESENTED THE GROSS PROFIT EARNED ON THE VA LUE OF SHORT STOCK WAS ALREADY DISCLOSED IN THE REVISED RETURN OF INCOME FILED ON 28.2.2015. IT HAS BEEN FURTHER SUBMITTED THAT STOCK FOUND SHORT WAS OUT OF THE PURCHASES MADE IN THE NORMAL COURSE OF BUSINESS FROM ACCOUNT ED INCOME AS THE SAME WAS ALREADY DECLARED IN THE PURCHASES SHOWN IN THE BOOKS OF ACCOUNT. THE ASSESSEE HAS FURTHER SUBMITTED THAT DIFFERENCE IN T HE AMOUNT OF STOCK AS PER THE BOOKS OF ACCOUNT AND AS PER PHYSICAL VERIFICATI ON WAS WORKED OUT TO 2.31% OF THE TOTAL VALUE OF STOCK SHOWN IN THE BOOK S OF ACCOUNT. 59. THE LD. CIT(A) THOUGH ACCEPTED THE CONTENTION O F THE ASSESSEE THAT THE TOTAL UNACCOUNTED SALES MADE OUTSIDE BOOKS OF A CCOUNT CANNOT BE TREATED AS UNEXPLAINED INCOME OF THE ASSESSEE. HE A LSO ACCEPTED THE CONTENTION OF THE ASSESSEE THAT NO ADDITION WAS WA RRANTIED ON ACCOUNT OF UNACCOUNTED PURCHASES IN THIS CASE AS THE UNACCOUNT ED SALES WERE MADE OUT OF THE DULY ACCOUNT FOR PURCHASES BY THE ASSESSEE. HOWEVER, HE ESTIMATED THE UNACCOUNTED PROFIT @ 25% AS AGAINST 10% GP RATE APPLIED BY THE ASSESSING OFFICER. THE ASSESSE, THOUGH, HAD DECLARE D THE GP RATE AT 3.54%. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 46 60. WE FIND FROM THE IMPUGNED ORDER THAT THE LD. CI T(A) HAS NOT POINTED OUT ANY EXTRA FACTS AND CIRCUMSTANCES OF THE CASE T O ENHANCE THE ESTIMATION OF THE GP RATE FROM 10% TO 25%. IN VIEW OF THIS, T HE ACTION OF THE CIT(A) IN THIS RESPECT IS SET ASIDE AND WE DIRECT THAT THE ADDITION OF UNACCOUNTED PROFIT TO BE COMPUTED @ 10% AS WAS APPLIED BY THE A SSESSING OFFICER ON THE AMOUNT OF UNACCOUNTED SALES IN RESPECT OF STOC K SHORTAGE FOUND IN THE COURSE OF SEARCH. THIS GROUND IS ACCORDINGLY PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. 61. GROUND NO.2 : THE ISSUE RELATING TO DISALLOWANCE U/S 14A OF THE ACT IS SIMILAR TO THAT HAS BEEN RAISED BY THE ASSES SEE IN ASSESSMENT YEAR 2010-11 IN ITA NO. 157/CHD/2018. IN VIEW OF OUR FIN DINGS ARRIVED AT WHILE ADJUDICATING ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 THE DISALLOWANCE U/S 14A IS RESTRICTED TO THE EXTENT OF TAX EXEMPT INCOME EARNED BY THE ASSESEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 62. GROUND NO.3 : VIDE GROUND NO.3, THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT THE LD. CIT(A) HAS FAILED TO ADJUD ICATE THIS GROUND RAISED BY THE ASSESSEE WITH REGARD TO THE DISALLOWANCE U/S 43B AMOUNTING TO RS. 79,61,619/-. 63. SINCE THE ISSUE RAISED VIDE THIS GROUND HAS N OT BEEN ADJUDICATED BY THE LD. CIT(A) AND FURTHER ON NOTING THE SUBMISSION S OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE ALSO WANTS TO FU RNISH THE RECEIPTS OF PAYMENT ETC., THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 47 ADJUDICATION AFRESH ON THIS GROUND. ACCORDINGLY, TH IS GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES. THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 64. NOW, COMING TO APPEALS RAISED BY THE REVENUE. ITA NO. 302/CHD/2018 (A.Y. 2012-13):- 65. THE REVENUE IN ITS APPEAL HAS RAISED THE FOLLOW ING GROUNDS:- 1. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 79,75,547/- MADE BY TH E ASSESSING OFFICER U/S 36(I)(III) ON ACCOUNT OF PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE ON NON-BUSINESS INTEREST FREE ADVANCES MADE BY THE ASSESSEE. 2. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND FACTS I N DELETING THE ADDITION OF RS. 39,84,576/- ON ACCOUNT OF DELAYED DEPOSIT OF EMPLOYEES CONTRIBUTION TO ESIC, FP AND EPF BY IGNORING PROVISIONS OF SECTION 36(I)(IV) OF THE I.T. ACT 1961 AND CBDT CIRCULAR NO. 22/2015 DAT ED 17.12.2015 3. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROU NDS OF APPEAL ON OR BEFORE IS HEARD AND DISPOSED OFF. 66. GROUND NO.1 : THE FIRST GROUND TAKEN BY THE REVENUE IS REGARDI NG THE ACTION OF THE CIT(A) IN DELETING THE ADDITION M ADE BY THE ASSESSING OFFICER INTO THE INCOME OF THE ASSESSEE UNDER THE P ROVISIONS OF SECTION 36(1)(III) OF THE I.T. ACT. 67. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS GIVEN ADVANCES TO M/S SHIV NARAYAN INVESTMENTS PRIVATE LIMITED AND R YTHM TEXTILES & APPAREL PARK LIMITED. THE ASSESSING OFFICER, THEREF ORE, DISALLOWED A SUM OF RS. 79,75,547/- (CALCULATED @12% ON THE AMOUNTS ADVANCED) OUT OF ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 48 INTEREST ACCOUNT. THE LD. CIT(A) HOWEVER, DELETED T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER OBSERVING AS UNDER:- IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES LTD AND ALSO OF HONORABLE JURISDICTIONAL HIGH COURT IN THE CASE OF KAPSONS ( SUPRA) (WHICH IS AFTER THE DECISION OF ABHISHEK INDUSTRIES ) WHERE IT HAS BEEN HELD (THAT NO DISALLOWANCE COULD BE MAD E UNDER THIS SECTION IF AVAILABILITY OF SUFFICIENT IN TEREST FREE FUNDS IN THE BUSINESS HAS BEEN ESTABLISHED. ACCORDI NGLY, TAKING THESE FACTS AND JUDICIAL DECISIONS INTO ACCO UNT, AO IS BEING DIRECTED TO DELETE THE DISALLOWANCE OF RS . 79,75,547 MADE ON THIS ACCOUNT. THUS, APPEAL FILED BY APPELLANT ON THIS GROUND IS ALLOWED. 68. THE LD. DR HAS ASSAILED THE ORDER OF THE CIT(A) WHILE RELYING UPON THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. 69. HOWEVER, THE LD. COUNSEL FOR THE ASSESSE HAS SU BMITTED THAT THE SAID ADVANCES WERE RECEIVED BACK DURING THE YEAR UNDER A PPEAL ONLY AS THE SAME WERE GRANTED FOR TEMPORARY PURPOSES. THAT OTHERWIS E ALSO, NO SPECIFIC NEXUS HAS BEEN ESTABLISHED BY THE ASSESSING OFFICER TO CORRELATE THE FACT THAT AMOUNTS ADVANCED ARE OUT OF BORROWED FUNDS. TH E RESERVES AND SHARE CAPITAL OF THE APPELLANT COMPANY WAS MUCH HIGHER TH AN THE AMOUNTS ADVANCED. THAT AS PER THE BALANCE SHEET OF THE ASSE SSEE COMPANY, THE TOTAL OF SHARE CAPITAL AND RESERVES OF THE ASSESSEE COMP ANY AS ON 31.03.2012 WERE RS. 1073.36 CRORES, WHEREAS, THE AMOUNT OF INT EREST FREE ADVANCES WAS NIL AT THE YEAR END AS THE SAME WERE RECEIVED BACK. THAT UNDER THESE CIRCUMSTANCES, THERE WAS NO JUSTIFICATION ON THE PA RT OF THE ASSESSING OFFICER TO MAKE THE IMPUGNED DISALLOWANCE. THE LD . COUNSEL HAS PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES LTD. REPORTED IN 379 ITR 340, WHEREIN, THEI R LORDSHIPS HAVE HELD ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 49 THAT, IF THE FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN THE AMOUNTS ADVANCED, NO DISALLOWANCE OF INTEREST IS WARRANTED. RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF THE HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF CIT VS. KAPSONS ASSOCIATES 381 ITR 204, WHERE IN, THEIR LORDSHIPS HAVE HELD THAT THE APPELLANT HAD SUFFICIENT I NTEREST FREE ADVANCES FROM ITS DIRECTORS, SHAREHOLDERS, MEMBERS AND THEI R FAMILIES TO COVER THE INTEREST FREE ADVANCES MADE BY THE APPELLANT, THE I NTEREST ON THE BORROWINGS TO THE EXTENT INTEREST FREE ADVANCES IS NOT TO BE DISALLOWED. 70. WE FIND THAT THE LD. CIT(A) WHILE DELETING THE IMPUGNED ADDITION HAS FOLLOWED THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF HERO CYCLES LTD. 379 ITR 340 (SC) AND OF THE HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KASPONS ASSOCIA TES, 381 ITR 203 (P&H) AND FURTHER THIS ISSUE IS SQUARELY COVERED B Y THE RECENT DECISION OF THE COORDINATE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. JANAK GLOBAL RESOURCES PVT LTD ITA NO. 470/CHD/201 8 ORDER DATED 16.10.2018, WHEREIN, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY CONSIDERING THE DECISION OF THE HON'BLE APEX COU RT IN THE CASE OF HERO CYCLES VS. CIT 379 ITR 347 (SC) AND ALSO FINDINGS ARRIVED IN THE CASE OF AVON CYCLES LTD. VS. CIT IN ITA NO.277 OF 2013.MORE OVER THE ISSUE NOW IS SQUARELY COVERED BY THE LATEST DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUS TRIES LTD. [2019] 410 ITR 466 (SC). HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN T HE ORDER OF THE CIT(A) ON THIS ISSUE. THE GROUND RAISED BY THE REV ENUE, THUS, STANDS DISMISSED. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 50 71. GROUND NO.2 : VIDE GROUND NO.2 OF THE APPEAL, THE REVENUE HAS AGITATED THE ACTION OF THE CIT(A) IN DELETING THE D ISALLOWANCE OF RS. 39,84,576/- ON ACCOUNT OF EMPLOYEES CONTRIBUTION OF ESIC, FP AND EPF U/S 36(1)(III) OF THE ACT. 72. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF RS. 39,84,576/- ON ACCOUNT OF LATE PAYMENT OF CONTRIBUTION TO EMPLOYEES PROVIDENT FUND AND ESI BY RESORTING TO THE PROVISIONS OF SECTION 36(1)(V) OF THE ACT. THE DISA LLOWANCE WAS MADE AS THE PAYMENTS WERE NOT MADE BEFORE THE STIPULATED DA TES. 73. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED T HAT THE DETAILS OF THE DATE OF PAYMENT MADE TOWARDS PROVIDENT FUND AND ESI BY THE ASSESSEE HAVE BEEN DULY GIVEN TO THE ASSESSING OFFICER, WHIC H HAVE BEEN REPRODUCED IN THE ASSESSMENT ORDER AT PAGE 5. FROM THE DETAIL S, IT APPEARED THAT PAYMENTS WERE MADE BY THE ASSESSEE BEFORE THE DUE D ATE OF FILING OF RETURN FOR THE YEAR UNDER CONSIDERATION. IT WAS ALSO SUBMI TTED THAT THIS ISSUE HAS BEEN CONSIDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS LAKHANI INDIA LTD. REPORTED IN 188 TAXMAN PAGE 132, WHEREIN, THEIR LORDSHIPS HAVE HELD THAT THE ASSESSEE IS ENTI TLED TO CLAIM DEDUCTION IN RESPECT OF PAYMENT OF CONTRIBUTION TOWARDS PROVIDEN T FUND WHICH WAS PAID BEYOND STIPULATED DATE, ON ACTUAL PAYMENT BASIS AS PER THE PROVISIONS OF SECTION 43B OF THE INCOME TAX ACT, 1961. IT HAD BEE N FURTHER STATED THAT THE ISSUE OF ALLOWANCE OF SUCH EXPENDITURE HAS ALSO BEEN SETTLED BY THE HONORABLE SUPREME COURT IN THE CASE OF CIT VS ALO M EXTRUSIONS LTD., ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 51 319 ITR 306, WHEREIN, THEIR LORDSHIPS HAVE HELD THA T SUCH EXPENDITURE IS ALLOWABLE EXPENDITURE. THE ASSESSEE HAD ALSO STATED THAT IN A LATEST JUDGMENT BY THE ITAT, CHANDIGARH BENCH, IN THE CASE OF MODGILL HOSIERY EXPORTS PVT. LTD. IN ITA NO. 661/CHANDI/2012 THE S IMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGEMENT OF CIT VS LAKHANI INDIA LTD. 74. THE LD. CIT(A) CONSIDERING THE ABOVE SUBMISSION S OF THE ASSESSEE ALLOWED THE APPEAL OF THE ASSESSEE OBSERVING AS UND ER:- 7.3 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE APPELLANT AND HAVE ALSO GONE THROUGH THE DECISIONS CITED BY THE APPELLANT ON THIS ISSUE AND FIND THAT APPELL ANT HAD FILED ITS RETURN OF INCOME ON 28.09.2012 AND THEREF ORE, ALL THE PAYMENTS MADE ON ACCOUNT OF EMPLOYEE'S CONTRIBU TION TO ESI, EPF UP TO THIS DATE HAD TO BE ALLOWED BY TH E AO. I HAVE GONE THROUGH THE DETAILS OF PAYMENTS MADE BY T HE APPELLANT AS GIVEN IN THE ASSESSMENT ORDER AND FIND THAT ALL THE PAYMENTS HAVE BEEN MADE BY THE APPELLANT ON ACCOUNT OF EPF AND ESI BEFORE THE DUE DATE OF FILIN G OF RETURN OF INCOME. THEREFORE, CONSIDERING THESE FACT S AND PLACING RELIANCE ON THE JUDGMENT OF THE HONORABLE SUPREME COURT ON THIS ISSUE, THE DISALLOWANCE MADE BY THE AO IS DELETED. THE APPEAL FILED BY THE APPELLAN T ON THIS GROUND IS ALLOWED. 8. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. 75. BEFORE US, THE LD. DR, HAS SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED THE PROOF THAT THE EMPLOYEES HAVE MADE PA YMENTS TOWARDS PF & ESIC FROM THE DUE DATE OF FILING OF THE RETURN FOR THE YEAR UNDER CONSIDERATION. HOWEVER, WE FIND THAT THE LD. CIT(A ) HAS GIVEN A ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 52 CATEGORICAL FINDING THAT HE HAS GONE THROUGH THE DE TAILS OF PAYMENTS MADE BY THE APPELLANT AND HAS FOUND THAT ALL THE PAYMENT S HAVE BEEN MADE BY THE APPELLANT ON ACCOUNT OF EPF AND ESIC BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. SINCE THE LD. CIT(A) HAS GIVEN A FACTUAL FINDINGS, AFTER GOING THROUGH THE DETAILS, HENCE, AT THIS STAGE, WE DO NOT FIND IT A FIT CASE TO REFER THE MATTER TO THE FILE OF THE ASSESSING OF FICER TO VERIFY THE DETAILS OF PAYMENTS. IN VIEW OF THIS, WE DO NOT FIND ANY ME RIT IN THE APPEAL OF THE REVENUE ON THIS ISSUE ALSO. 76. GROUND NO.3 RAISED BY THE REVENUE IS GENERAL IN NATURE AND NEE DS NO ADJUDICATION. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ITA NO: 303/CHD/2018 (A.Y. 2014-15). 77. IN THIS APPEAL THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER:- WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND FACTS I N DELETING THE ADDITION OF RS. 2,17,51,819/- MADE BY THE ASSESSING OFFICER U/S 36(I)(III) ON ACCOUNT OF PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE ON NON-BUSINESS INTEREST FREE ADVANCES MADE BY THE ASSESSEE. 78. THIS GROUND IS IDENTICAL TO THAT HAS BEEN TAKEN BY THE REVENUE IN THE APPEAL FOR ASSESSMENT YEAR 2012-13 IN ITA NO. 302/C HD/2018. 79. IN VIEW OF OUR FINDINGS GIVEN ABOVE, WE DO NOT FIND ANY MERIT IN THIS APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY D ISMISSED. ITA NOS. 157 TO 161 & 302 -303-C-2018 M/S SEL MANUFACTURING CO LTD., LUDHIANA 53 THE APPEAL OF THE REVENUE IS HEREBY DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON 28.02.2019. SD/- SD/- ( . . , # $ / B.R.R. KUMAR) %& / ACCOUNTANT MEMBER ( / SANJAY GARG ) / JUDICIAL MEMBER DATED : 28.02.2019 .. '+ ,- .- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , % 2 , 34516 / DR, ITAT, CHANDIGARH 6. 15 7$ / GUARD FILE '+ # / BY ORDER, 8 ' / ASSISTANT REGISTRAR