The ACIT, Vapi Circle, Vapi V. Themis Medicare Ltd., Vapi

ITA 397/SRT/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7784 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 02-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained cash credit; Earning of tax free income; Additional evidence; Retraction; Rule 8D
• Section: 143(3); 133A; 14A; 115JB; 133(6); 69A; 13; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA NO.397/SRT/2017 (AY 2009-10) (H EARING IN VIRTUAL COURT) THE ASSISTANT COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI. VS THEMIS MEDICARE LTD., PLOT NO.69, GIDC, VAPI, GUJARAT 396191. APPLICANT RESPONDENT ASSESSEE BY MS . KINJAL BHUTA CA REVENUE BY SHRI RITESH MISHRA CIT ( DR ) DATE OF HEARING 02 . 0 7 .2021 DATE OF PRONOUNCEMENT 23 .0 8 .2021 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS),[CIT(A)] VALSAD, DATED 09.06.2017, WHICH IN TURN ARISE FROM THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT, 1961 FOR THE ASSESSMENT YEAR (AY) 2009-10. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 43,42,965/- MADE U/S 14A OF THE ACT, DESPITE THE FACT THAT THE ASSESSEE WAS UNABLE TO PROVE THAT THE INTEREST BEARING FUNDS WERE UTILISED ONLY FOR BUSINESS PURPOSES AND NOT FOR MAKING INVESTMENT IN THE ASSETS GENERATING EXEMPT INCOME. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,75,00,000/- DESPITE THE FACT THAT THE ASSESSEE NEITHER SUBMITTED ANY SUFFICIENT/COGENT EVIDENCE REGARDING CANCELLATION OF THE AGREEMENT WITH MDHPL NOR DID HE RETRACT FROM THE STATEMENT RECORDED U/S 131 ON 06.08.2008. ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 2 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,96,132/- ON THE BASIS OF ADDITIONAL EVIDENCE SUBMITTED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS WITHOUT CALLING FOR REMAND REPORT ON THE SAID ISSUE, WHICH IS IN CLEAR VIOLATION OF RULE 46A OF THE IT RULES. 4. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 34, 692/- ON THE BASIS OF ADDITIONAL EVIDENCE SUBMITTED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS WITHOUT CALLING FOR REMAND REPORT ON THE SAID ISSUE, WHICH IS IN CLEAR VIOLATION OF RULE 46A OF THE IT RULES. 5. THE APPELLANT CRAVES TO ADD, MODIFY OR ALTER ANY GROUNDS DURING THE COURSE OF APPEAL PROCEEDINGS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICALS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR (AY) 2009-10 ON 26.09.2009 DECLARING LOSS OF RS.14.23 CRORE UNDER REGULAR PROVISIONS OF THE ACT AND BOOK PROFIT (-) RS.9.37 CRORE UNDER SECTION 115JB OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT, THE LD.ASSESSING OFFICER (AO) NOTED THAT A SURVEY ACTION UNDER SECTION 133A OF THE ACT WAS CARRIED OUT IN THE OFFICE OF ASSESSEE ON 05.08.2008. THE SURVEY CONDUCTED ON THE ALLEGATION OF BOGUS PURCHASES. DURING THE SURVEY, CHIEF FINANCE OFFICER (CFO) AND COMPANY SECRETARY OF THE ASSESSEE COMPANY MADE A DISCLOSURE OF ADDITIONAL INCOME RS.4.03 CRORE, INCLUDING THE ADDITIONAL INCOME FOR YEAR UNDER CONSIDERATION OF RS.1.82 CRORE. THE OTHER DISCLOSURE FOR A.Y. 2006-07 TO 2009-10 WERE MADE IN THE FOLLOWING MANNER: ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 3 ASSESSMENT YEAR INCOME OFFERED [RUPEES] NATURE OF INCOME/ASSETS 2006 - 07 15,17,475 AMOUNT PERTAINS TO URCHASES MADE FROM MIS. KOMAL ENTERPRISE OF PRAKASH JAIN/ADANI. 2007 - 08 59,06,342 AMOUNT PERTAINS TO PURCHASE MADE FROM M/S. PERFECT STEEL INDUSTRIES & VIKAS TRADING & ENGINEERING CO. OF PRAKASH JAIN/ADANI. 2008 - 09 1,46,68,025 AMOUNT PERTAINS TO PURCHASES MADE FROM M/S. PERFECT STEEL INDUSTRIES, VIKAS TRADING & ENGINEERING CO., M/S. MITTAL TRADING CO., M/S. RASHABH ENTERPRISES, M/S. KIRAN SALES CORPORATION OF PRAKASH JAIN/ADANI. 2009 - 10 7,77,068 AMOUNT PERTAINS TO PURCHASE MADE FROM M/S.MITTAL TRADING CO. & M/S. KIRAN SALES CORPORATION OF PRAKASH JAIN/ADANI. 2009 - 10 1,75,00,000 AMOUNT PERTAINS TO THE AGREEMENT ENTERED INTO BY THEMIS MEDICARE LTD. WITH M/S. MAA DANTESHWARI HERBAL PRODUCTS P. LTD. DATED 02.07.2008. 3. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE LD.AO NOTED THAT ASSESSEE OFFERED ADDITIONAL INCOME OF RS.7.77 LAKHS IN THE COMPUTATION OF TOTAL INCOME AND NOT OFFERED REMAINING OF RS.1.75 CRORE [ RS.7.77 LAKHS + RS.1.75 CRORE = RS.1,82,77,068/-]. THE AO ASKED THE ASSESSEE TO JUSTIFY THE AS TO WHY THE ENTIRE UNDISCLOSED INCOME NOT OFFERED, THOUGH ADMITTED AS ADDITIONAL INCOME DURING THE SURVEY. THE ASSESSEE FILED ITS REPLY. IN THE REPLY, THE ASSESSEE STATED THAT THEY ENTERED INTO AN AGREEMENT WITH MAA DANTESHWARI HERBAL PRODUCTS LTD (MDHPL) AND OFFERED TO TAX THE AMOUNT WHICH WAS TO BE RECEIVED THROUGH THEM. THE SAID DEAL WAS NOT MATERIALISED ON ACCOUNT OF FAILURE ON THE PART OF MDHPL AS THEY FAILED TO SATISFY THE QUALITY NORMS AND THE ASSESSEE HAS NOT EARNED MARKETING FEES. SINCE, THE ASSESSEE HAS NOT REALISED THE MARKETING FEES AS PRESCRIBED IN THE AGREEMENT WITH MDHPL AND HENCE THE ASSESSEE HAS NOT EARNED SUCH INCOME. THE REPLY OF ASSESSEE WAS NOT ACCEPTED BY THE AO. THE .AO HELD THAT AGREEMENT EXECUTED BETWEEN ASSESSEE AND MDHPL PRESCRIBED ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 4 5 PRODUCTS TO BE SOLD AND MARKETED BY THE ASSESSEE, WHEREIN THE ASSESSEE COMPANY IN ITS SUBMISSION STATED ABOUT NON-FULFILMENT OF CONDITION BY MDHPL, ONE PRODUCT ONLY STEVIA . THE ASSESSEE HAS NOT DISCLOSED ABOUT THE FATE OF OTHER PRODUCTS. FURTHER, WITH REGARD TO NON-SATISFACTION OF QUALITY NORMS, THE ASSESSEE PRODUCED THE QUALITY TESTING REPORT AS FURNISHED BY THE MDHPL DATED 25.11.2011 AND THOSE GOT CARRIED OUT BY THE ASSESSEE OF ITS OWN IN CHROMADEX (U.S.A). ON THE BASIS OF AFORESAID OBSERVATION, THE AO CONCLUDED THAT THE PRODUCT WAS UP TO SPECIFICATION AS PER THE LAB REPORT. 4. THE AO AGAIN ISSUED SHOW CAUSE NOTICE AS TO WHY THE AMOUNT RS.1.75 CRORE OFFERED BY THE ASSESSEE DURING SURVEY SHOULD NOT BE BROUGHT TO FACTS. THE ASSESSEE AGAIN FILED ITS REPLY RETREATING THAT THE CONTRACT WITH THE MDHPL WAS NOT MATERIALISED, SO THE AMOUNT WAS NOT EARNED AND BEING OFFERED FOR TAXATION. THE AO NOT ACCEPTED THE CONTENTION OF ASSESSEE THAT ASSESSEE HAS NOT FILED ANY EVIDENCES AND FAILED TO GIVE ANY EXPLANATION FOR NOT OFFERING THE AMOUNT OF RS.1.75 CRORE FOR TAXATION AND ACCORDINGLY MADE ADDITION THEREOF. THE AO FURTHER NOTED THAT THERE WAS A STOCK DIFFERENCE OF RS. 196,132/- AND CASH DIFFERENCE TO THE TUNE OF RS.34,692/-, WAS ALSO FOUND DURING THE SURVEY. THE ASSESSEE COULD NOT RECONCILE THE DIFFERENCE AT THE TIME OF SURVEY NOR DURING THE ASSESSMENT. THE AO MADE ADDITION OF RS 196,132/- ON ACCOUNT OF STOCK DIFFERENCE. AND ADDITION OF RS.34,692/- ON ACCOUNT OF CASH DIFFERENCE WAS ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 5 ADDED TO THE INCOME OF THE ASSESSEE UNDER SECTION 69A OF THE ACT ON ACCOUNT OF UNEXPLAINED CASH CREDIT. 5. FURTHER, DURING THE ASSESSMENT, THE AO NOTED THAT ASSESSEE HAS CREDITED RS.1.51 CRORE AS DIVIDEND INCOME IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSE WAS ASKED TO EXPLAIN WHY THE PROVISION OF SECTION 14A SHOULD NOT BE APPLIED. THE ASSESSEE FILED ITS REPLY. IN REPLY, THE ASSESSEE STATED THAT THEY HAVE NOT MADE ANY MAJOR ADDITION FOR MAKING INVESTMENT FOR EARNING EXEMPT INCOME DURING THE YEAR. THE ASSESSEE HAS NOT KEPT SEPARATE STAFF OR INCURRED ANY DIRECT EXPENSES. THE ASSESSEE FURNISHED THE WORKING OF SUO MOTO DISALLOWANCES UNDER SECTION 14A OF RS. 4,00,201/- VIDE SUBMISSION DATED 21.11.2011. THE EXPLANATION OF THE ASSESSEE NOT ACCEPTED BY THE AO. THE AO HELD THAT THE ASSESSEE COMPANY FAILED TO SUBSTANTIATE WITH THE DOCUMENTARY EVIDENCE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING DIVIDEND INCOME AND INVESTMENT FOR EARNING EXEMPT INCOME NOT FROM BORROWED FUNDS. NO CASH FLOW STATEMENT IS FURNISHED TO PROVE THAT INVESTMENT FOR EARNING EXEMPT INCOME WAS NOT MADE OUT OF BORROWED FUNDS. THE AO INVOKED THE PROVISION OF RULE 8D AND MADE INTEREST DISALLOWANCES UNDER 8D 2(II) OF RS.39,42,764/- AND INDIRECT EXPENSES OF RS.4,00,201/-, THEREBY TOTAL DISALLOWANCE OF RS.43,42,965/- THE ASSESSEE SUO MOTO DISALLOWED RS.2,00,201/- THEREBY THE AO GRANTED SET-OFF. ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 6 6. ON APPEAL BEFORE THE LD.CIT(A), THE ASSESSEE FILED DETAILED WRITTEN SUBMISSION. THE SUBMISSION OF ASSESSEE IS DULY RECORDED PARA 3.3 ON PAGE NO.19 TO 43. AGAINST THE ADDITION OF RS.1.75 CRORE, THE ASSESSEE SUBMITTED THAT THE ASSESSEE ENTERED INTO AGREEMENT DATED 02.07.2008 WITH MDHPL FOR MARKETING OF THEIR HERBAL PRODUCT. THE ASSESSEE INCORPORATED CERTAIN TERMS AND CONDITIONS OF THE CONTRACT EXECUTED BETWEEN ASSESSEE AND MDHPL IN ITS SUBMISSIONS AND SUBMITTED THAT MDPHL AGREED THAT ASSESSEE WILL GIVE ALL SUPPORT FOR MARKETING AND DISTRIBUTION OF ITS ALL HERBAL PRODUCTS BY USING HIS MARKET EXPERIENCE, INTELLIGENCE, DISTRIBUTION NETWORK, CONTRACT OF DISTRIBUTION STOCKIST, RETAILER AND DOCTORS AS WELL AS ITS HOUSE PRODUCT MANAGEMENT EXPERTISE. AND ACCORDINGLY, MDHPL AGREED TO PAY RS.1.75 CRORE AS MARKETING FEES AGREEMENT WITH THEM. THE ASSESSEE ALSO REFERRED AND RELIED UPON THE STATEMENT OF ITS OFFICIAL AND ON THE BASIS OF STATEMENT IT WAS SUBMITTED THAT WHEN THE STATEMENT WAS GIVEN, MARKETING FEES OF RS.1.75 CRORE HAVE NOT ACCRUED. THE ASSESSEE JUST ENTERED INTO AGREEMENT IN JULY 2008. THERE IS NO PURCHASE BY ASSESSEE OF THEIR PRODUCTS; AND IF THERE IS NO PURCHASE, NO QUESTION OF RECONCILING THEIR PRODUCT. FURTHER, THE OFFER OF FUTURISTIC INCOME CANNOT BE TREATED AS A BINDING ON THE ASSESSEE, IF THE INCOME DOES NOT ACCRUES BY MISTAKE. THE ASSESSEE ALSO STATED THAT THE STATEMENT IS NOT BINDING UPON THE ASSESSEE AS IT WAS A WRONG ADMISSION. ON THE ADDITION OF CASH DIFFERENCE OF RS.34,692/-, THE ASSESSEE SUBMITTED THAT ACCORDING TO ASSESSEE, THERE WAS NO UNEXPLAINED ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 7 CASH DIFFERENCE AT THE TIME OF SURVEY. ENTIRE CASH HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS. THE AO HAS NOT FURNISHED THE DETAILS OF CASH DIFFERENCE DURING THE ASSESSMENT. IT IS NOT KNOWN FROM THE ASSESSMENT ORDER WHETHER ACCORDING TO THE AO, IF THE CASH DIFFERENCE WAS FOUND IN SHORT OR IN EXCESS. THE ADDITION IS MADE WITHOUT GRANTING ADEQUATE OPPORTUNITY ON THE ISSUE. ON THE ISSUE OF DIFFERENCE IN STOCK THE ASSESSEE STATED THAT IN REPLY TO THE SHOW CAUSE NOTICE BEFORE AO THE ASSESSE EXPLAINED THAT THE SAID DIFFERENCE WAS RECORDED BY THE SURVEY TEAM THAT IT PERTAINS TO VIVID MARGI INVESTMENT P LTD, A SISTER CONCERN OF THE ASSESSEE. THE AO DISALLOWED ON THE GROUND THAT THE SISTER CONCERN OF THE ASSESSEE IS NOT ASSESSED IN HIS RANGE AND FACTS ARE NOT ASCERTAINABLE. 7. ON THE ISSUE OF DISALLOWANCES UNDER SECTION 14A OF THE ACT, THE ASSESSEE SUBMITTED THAT THEY HAVE RECEIVED DIVIDEND INCOME OF RS.1.51 CRORE DURING THE RELEVANT FINANCIAL YEAR. IN RESPONSE TO THE QUESTIONNAIRES OF AO, THE ASSESSEE PROPOSED DISALLOWANCE UNDER SECTION 14A OF THE ACT OF RS.4,00,201/- . THE AO DISREGARDED THE SUBMISSION OF ASSESSEE BY TAKING VIEW THAT ASSESSEE HAS NOT BEEN ABLE TO PROVE WITH DOCUMENTARY EVIDENCE THAT DIVIDEND BUILDING INVESTMENT HAD NOT BEEN MADE FROM BORROWED FUNDS AND THE COMPUTATION OF ASSESSEE IS NOT ACCORDING TO PROVISION OF RULE 8D. THE AO MADE INTEREST DISALLOWANCE OF RS.39,42,764/- AND INDIRECT EXPENSES BEING 0.50% OF AVERAGE INVESTMENT. THE ASSESSEE STATED THAT ALL INVESTMENT IS MADE FROM INTEREST FREE ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 8 FUNDS AVAILABLE WITH THE ASSESSEE, WHICH WAS NOT ACCEPTED BY THE LD.AO. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITY AND POWER LIMITED 313 ITR 340 [BOM]. ON THE LEGAL PREMISES THAT ASSESSEE HAS BOTH NON-INTEREST BEARING FUNDS AND INTEREST BEARING FUNDS, THE INVESTMENT MADE BY ASSESSEE SHOULD BE PRESUMED TO BE MADE FIRST FROM NON-INTEREST BEARING FUNDS. THE ASSESSEE SPECIFICALLY STATED THAT ITS SHARE CAPITAL AND RESERVE AS ON 31.03.2009 WAS OF RS.89.04 CRORE AND THE ASSESSEE MADE INVESTMENT OF RS.7.69 CRORE ONLY. THUS, THE COMPUTATION OF DEDUCTION UNDER SECTION 14A OF THE ACT FURNISHED BY ASSESSEE WAS CORRECT. 8. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE, DELETED THE ADDITION OF RS.1.75 CRORE BY TAKING VIEW THAT RS.1.75 CRORE WAS RECEIVABLE FROM MDHPL IN THE CURRENT YEAR, THE ASSESSEE HAS SHOWN THAT THERE WAS NO MATERIALISATION OF DEAL WITH THE MDHPL AND THE ASSESSEE HAS NOT REALISED THE SALE FORECAST FOR THAT YEAR, ACCORDINGLY ADDITION OF RS.1.75 CRORE IS NOT SUSTAINABLE. FOR ADDITION ON ACCOUNT OF DIFFERENCE IN CASH, THE LD.CIT(A) HELD THAT ASSESSEE HAS FILED COPY OF PETTY CASH BOOK BALANCE AS ON 05.08.2008, WHICH INDICATES THAT BALANCE WAS RS.1,15,026/- AND CONSIDERING THE BALANCE, THE ADDITION OF RS.34,692/- WAS DELETED. ON THE ADDITIONS OF RS. 1,96,132/-, THE LD CIT(A) HELD THAT IN THE STOCK STATEMENT OF VIVID MARGI INVESTMENT P LTD, THE STOCK IS DULY ACCOUNTED. FOR OTHER ADDITION UNDER SECTION 14A, THE LD.CIT(A) HELD THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 9 WITH IT FOR MAKING INVESTMENT OF EARNING EXEMPT INCOME, THEREFORE, NO INTEREST DISALLOWANCES UNDER SECTION 14A READ WITH RULE 8D RULE 2(II) IS WARRANTED. AGGRIEVED BY DELETING THE ADDITIONS, THE REVENUE HAS FILED PRESENT APPEAL BEFORE THIS TRIBUNAL. 9. WE HAVE HEARD THE SUBMISSION OF LEARNED COMMISSIONER OF INCOME-TAX DEPARTMENTAL REPRESENTATIVE (LD. CIT-DR) FOR REVENUE AND THE LD.AUTHORISED REPRESENTATIVE (AR) FOR THE ASSESSEE. WITH THEIR ASSISTANCE, WE HAVE ALSO GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. GROUND NO.1 RELATES TO DELETING THE ADDITION OF RS.43,42,695/- [THE FIGURE IS WRONGLY MENTIONED IN GROUND OF APPEAL, THE LD.CIT(A) DELETED ONLY DISALLOWANCE OF RS.39,42,764/-]. THE LD.CIT-DR FOR THE REVENUE SUBMITS THAT HE SUPPORTED THE ORDER OF THE LD.AO. THE ASSESSEE HAS NOT FILED ANY CASH FLOW STATEMENT TO PROVE THAT THE INVESTMENT FOR EARNING THE EXEMPT INCOME, WAS MADE FROM ITS OWN FUNDS OF THE OR FROM THE INTEREST BEARING FUNDS BORROWED BY THE ASSESSEE. 10. ON THE OTHER HAND, THE LD.AR OF THE ASSESSEE SUBMITS THAT DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.1.51 CRORE. DURING THE ASSESSMENT, THE AO ISSUED SHOW CAUSE NOTICE FOR MAKING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. THE ASSESSEE IN ITS REPLY MADE SUBMITS SUO MOTO DISALLOWANCE UNDER RULE 8D 2(III) OF RS.4,00,201/-. ON INTEREST DISALLOWANCE, THE ASSESSEE SUBMITTED THAT THEY HAVE SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, THEREFORE, NO INTEREST ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 10 DISALLOWANCE WAS WARRANTED. THE ASSESSEE HAS SHOWN THAT SHARE APPLICATION AND INTEREST FREE FUNDS AVAILABLE WITH ITS ASSESSEE WERE FAR IN EXCESS WITH THE INVESTMENT COMPARATIVE TO HIS INVESTMENT MADE DURING THE YEAR. THE ASSESSEE WAS HAVING SHARE CAPITAL IN RESERVE AND SURPLUS OF RS.89.04 CRORE AS ON 31.03.2009, COPY OF BALANCE SHEET OF ASSESSEE IS FILED ON RECORD. DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE MADE INVESTMENT OF RS.8.05 CRORE ONLY. THUS, THE INTEREST FREE RESERVE AND SURPLUS AVAILABLE WITH THE ASSESSEE ARE IN FAR EXCESS WITH THE INVESTMENT MADE BY THE ASSESSEE. THE LD.AR SUBMITS THAT THE LD.CIT(A) AFTER CONSIDERING THE FACTUAL MATRIX AND LEGAL POSITION HELD BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LIMITED. THE LD.AR RELIED UPON THE FOLLOWING DECISION: CIT V/S RELIANCE UTILITIES POWERS LTD. (313 ITR 340) BOM E.D.SASOON & CO LTD. V/S CIT (26 ITR 27) SC, PULLANGODE RUBBER PRODUCE CO.LTD V/S STATE OF KERALA (91 ITR 18 SC, D.R.CONSTRUCTION V/S ITO (ITA NO.2735/AHD/2010. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE MATTERS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS NOTED ABOVE, THE AO MADE DISALLOWANCE UNDER RULE 8D 2(II) OF RS.39,42,764/- AND DISALLOWANCE UNDER RULE 8D2(III) OF RS. 400,201/-. THE LD. CIT(A) DELETED DISALLOWANCES AFTER APPRECIATING THE FACT THAT RESERVE AND SURPLUS AVAILABLE WITH THE ASSESSEE ARE IN FAR EXCESS THAN THE INVESTMENT MADE BY ASSESSEE AND BY RELYING UPON THE DECISION OF CIT VS. ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 11 RELIANCE UTILITIES POWER LTD., (SUPRA). THE HONBLE BOMBAY HIGH COURT IN RELIANCE UTILITIES & POWERS LTD (SUPRA) HELD IF THERE ARE FUNDS AVAILABLE BOTH, INTEREST FREE AND INTEREST BEARING, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. WE FIND THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE IN FAR EXCESS THAN THE INVESTMENT MADE BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. CONSIDERING THE AFORESAID FACTUAL MATRIX, WE DO NOT FIND ANY LEGALITY OR INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A), WHICH WE AFFIRM. IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. 12. GROUND NO.2 RELATES TO DELETING THE ADDITION OF RS.1.75 CRORE. THE LD. CIT- DR FOR THE REVENUE SUBMITS THAT A SURVEY UNDER SECTION 133A WAS CARRIED OUT ON THE OFFICE PREMISES OF THE ASSESSEE. DURING THE SURVEY, THE CFO AND COMPANY SECRETARY OF ASSESSEE COMPANY DISCLOSED THE ADDITIONAL INCOME OF RS.1.82 CRORE. HOWEVER, WHILE FILING THE RETURN OF INCOME, THE ASSESSEE HAS OFFERED ONLY RS.7.77 LAKHS AS ADDITIONAL INCOME AND THEREBY NOT INCLUDING RS.1.75 CRORE, THOUGH IT WAS ADMITTED AS ADDITIONAL INCOME FOR THE YEAR UNDER CONSIDERATION. THE STATEMENT OF OFFICIAL OF THE ASSESSEE WAS RECORDED ON OATH. THE ASSESSEE HAS NOT MADE ANY RETRACTION OF STATEMENT OF ITS OFFICIAL. THE ASSESSEE DURING THE ASSESSMENT TOOK A PLEA THAT THE ASSESSEE ENTERED INTO AGREEMENT WITH MDHPL FOR MARKETING OF THEIR PRODUCT. THE ASSESSEE ALSO TOOK PLEA THAT NO INCOME WAS ACCRUED OR ARISE. THE ASSESSING OFFICE DURING ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 12 THE ASSESSMENT AS BROUGHT SUFFICIENT MATERIAL ON RECORD TO SHOW THAT THE PLEA OF ASSESSEE WAS AFTERTHOUGHT. THE LD. CIT-DR PRAYED FOR RESTORING THE ORDER OF LD.AO BY REVERSING THE ORDER OF LD.CIT(A). 13. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD.CIT(A). THE LD. AR SUBMITS THAT ASSESSEE WHILE DISCLOSING ADDITIONAL INCOME CLEARLY DISCLOSED THAT THE AMOUNT OF RS.1.75 CRORE PERTAINS TO THE AGREEMENT ENTERED BY THE ASSESSEE WITH MDHPL ON 02.07.2008. THE ASSESSEE IN ITS BRAKE UP OF THE UNDISCLOSED INCOME HAS DISCLOSED THE ADDITIONAL INCOME DUE TO AN AGREEMENT ENTERED WITH MDHPL ON 02.07.2008. THE STATEMENT MADE DURING THE SURVEY WAS DEPEND UPON THE OUTCOME OF AGREEMENT WITH MDHPL, THUS, THE STATEMENT WAS A PREMATURE. IN FACT THE AGREEMENT WAS NOT MATERIALISED. THE AGREEMENT WAS TERMINATED MUTUALLY BY THE PARTIES. NO INCOME WAS ACCRUED OUT OF THE SAID AGREEMENT TO THE ASSESSEE. THE LD.AR FOR THE ASSESSEE SUBMITS THAT COPY OF CONTRACT AGREEMENT WITH MDHPL IS FILED ON RECORD. THE ASSESSEE BEFORE THE AO CLEARLY EXPLAINED THAT THE CONTRACT WITH THE MDHPL WAS NOT MATERIALISED AS THEIR PRODUCT WAS NOT SATISFYING THE QUALITY NORMS. THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE. THE LD.CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT NO SUCH INCOME WAS ACCRUED OUT OF THE CONTRACT BETWEEN THE ASSESSEE AND THE MDHPL. THE LD.AR FOR THE ASSESSEE SUBMITS THAT ONCE IT IS ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 13 PROVED THAT NO INCOME IS ACCRUED OUT OF THE CONTRACT THAT MDHPL, THE ASSESSEE HAS NO OCCASION TO INCLUDE SUCH INCOME WHICH IS NEVER EARNED BY THE ASSESSEE. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. WE FIND THAT THE AO MADE ADDITION SOLELY ON THE BASIS OF STATEMENT OF OFFICIAL OF ASSESSEE, RECORDED DURING THE SURVEY ACTION. WE FIND THAT WHILE GIVING THE BRAKE UP OF ADDITIONAL INCOME, THE OFFICIAL OF THE ASSESSEE CLEARLY STATES THAT AMOUNT OF RS.1.75 CRORE PERTAINS TO THE AGREEMENT ENTERED BY ASSESSEE WITH MDHPL ON 02.07.2008. THE SURVEY WAS CARRIED OUT ONLY AFTER 33 DAYS OF EXECUTION OF MARKETING AGREEMENT OF ASSESSEE WITH MDHPL. THE ASSESSEE OFFERED ONLY AMOUNT OF RS.7.77 LAKHS, BRAKE UP OF WHICH PERTAINS TO PURCHASE MADE FROM MITTAL TRADING AND KIRAN SALES CORPORATION. THE ADDITIONAL INCOME OF RS.7.77 LAKHS OFFERED BY ASSESSEE IS ACCEPTED WITHOUT ANY VARIATION. THE AO MADE ADDITION OF RS.1.75 CRORE ONLY. THE LD.CIT(A) WHILE CONSIDERING THE CONTENTION OF ASSESSEE AND HELD THAT THERE IS NO PAYMENT BY MDHPL OF RS.1.75 CRORE. THAT MDHPL IS HAVING A TOTAL TURNOVER OF RS.47,16,255/- ONLY. ON THE BASIS OF EXAMINATION OF ACCOUNTS OF MDHPL, THE LD.CIT(A) HELD THAT THE ACCOUNTS OF MDHPL SUPPORTS THE CONTENTION OF THE ASSESSEE THAT MARKETING AGREEMENT COULD NOT MATERIALISED. THE LD.CIT(A) FURTHER HELD THAT AS PER THE MARKETING AGREEMENT, THE FEES OF RS.1.75 CRORE WAS RECEIVABLE, WHICH WAS NOT MATERIALISED. THUS, THE ADDITION IS NOT SUSTAINABLE. ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 14 15. WE FURTHER FIND THAT THE STAND OF ASSESSEE RIGHT FROM THE BEGINNING IS THAT THE ADDITIONAL INCOME OF RS.1.75 CRORE WAS NOT ACCRUED AS THE AGREEMENT WITH MDHPL WAS NOT MATERIALISED. THE AO HAS NOT ISSUED ANY NOTICE UNDER SECTION 133(6) OR SUMMON UNDER SECTION 131 TO MDHPL TO VERIFY THE VERACITY OF THE FACTS TO PROVE IT CONTRARY. THE AO HAS NOT INVESTIGATED THE ISSUE AND ONLY INSISTED ON THE DISCLOSURE MADE BY ASSESSEE. WE HAVE SEEN THAT THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE, ACCOUNTS OF MDHPL AND THE FACT THAT NO AMOUNT ON ACCOUNT OF MARKETING FEES FROM THE CONTRACT OF ASSESSEE WITH MDHPL WAS REALISED. IN OUR VIEW, THERE IS NO INFIRMITY IN THE ORDER OF THE LD.CIT(A), WHICH WE AFFIRM. IN THE RESULT, GROUND NO.2 OF THE RAISED BY REVENUE IS DISMISSED. 16. GROUND NO.3 RELATES TO DELETING ADDITION OF RS.1.96 LAKHS ON THE BASIS OF ADDITIONAL EVIDENCES. THE LD. CIT-DR FOR THE REVENUE SUBMITS THAT THE AO MAD ADDITION OF RS.1.96 LAKHS ON PROTECTIVE BASIS ON THE STOCK DIFFERENCE FOUND DURING THE SURVEY. THE ASSESSEE COULD NOT RECONCILE THE DIFFERENCE DURING THE SURVEY OR ASSESSMENT PROCEEDINGS. BEFORE THE LD. CIT(A), THE ASSESSEE TOOK A STAND THAT ADDITION WAS ON PROTECTIVE BASIS AND THAT STOCK WAS ACCOUNTED IN THE BOOKS OF ITS SISTER CONCERN I.E. VIVID M. INVESTMENT PRIVATE LTD.. THE LD.CIT(A) ACCEPTED THE ADDITIONAL EVIDENCES AND ADDITIONAL CONTENTION OF THE ASSESSEE IN VIOLATION OF RULE 46A. ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 15 17. ON THE OTHER HAND, THE LD.AR OF THE ASSESSEE SUBMITS THAT THE AO MADE ADDITION OF STOCK DIFFERENCE ON PROTECTIVE BASIS ON THE GROUND THAT VIVID MARGI INVESTMENT PVT. LTD IS NOT ASSESSED IN HIS RANGE AND IT IS NOT POSSIBLE TO VERIFY SUCH CLAIM. THE LD.AR SUBMITS THAT THE LD. CIT(A) AFTER HIS SATISFACTION THAT THE INVOICES OF VIVID M. INVESTMENT DULY ACCOUNTED THOSE DIFFERENCE, DELETED THE ADDITIONS. IN ALTERNATIVE SUBMISSIONS THE LD AR FOR THE ASSESSEE SUBMITS THAT THE BENCH MAY TAKE APPROPRIATE CALL ON THE ISSUE IN ACCORDANCE WITH LAW. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND FOUND THAT THE AO MADE ADDITION BY TAKING VIEW THAT THERE WAS A DIFFERENCE IN STOCK FOUND DURING THE SURVEY. THE ASSESSEE EXPLAINED THAT THE DIFFERENCE WAS RECORDED IN THE BOOKS OF ACCOUNTS OF VIVID MARGI INVESTMENT [SISTER CONCERN OF ASSESSEE]. THE AO MADE THE ADDITION BY TAKING VIEW THAT THE SISTER CONCERN OF ASSESSEE IS NOT ASSESSED IN HIS RANGE AND IT IS NOT ASCERTAINABLE. WE FIND THAT THE AO HAS NOT INVESTIGATED THE FACT FROM SISTER CONCERN, NO NOTICE OF SUMMON WAS ISSUED. WE FIND THAT THE LD.CIT(A) AFTER CONSIDERING THE ACCOUNTS AND INVOICES OF VIVID M. INVESTMENT THAT THESE STOCKS WERE DULY ACCOUNTED IN THE SAID CONCERN DELETED THE PROTECTIVE ADDITION. IN OUR VIEW, THE LD.CIT(A) TOOK A REASONABLE VIEW AFTER VERIFYING THE FACTS. WE FURTHER FIND THAT THE ASSESSEE MADE A MERE PROTECTIVE ADDITION AND NOT CLARIFIED ON WHOM THE SUBSTANTIVE ADDITION IS MADE. HENCE, WE AFFIRM THE ORDER OF LD CIT(A). IN THE RESULT THIS GROUND OF APPEAL IS ALSO DISMISSED. ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 16 19. GROUND NO.4 RELATES TO DELETING THE ADDITION OF RS.34,692/-. THE LD.CIT(DR) FOR THE REVENUE SUBMITS THAT THE LD.CIT(A) DELETED THE ADDITION WITHOUT CALLING THE REMAND REPORT AND IN VIOLATION OF RULE 46A. 20. ON THE OTHER HAND, THE LD.AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD.CIT(A), THE LD.AR SUBMITS THAT ACCORDING TO ASSESSEE, THERE WAS NO UNEXPLAINED CASH DIFFERENCE AT THE TIME OF SURVEY. ENTIRE CASH HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS. IT IS NOT KNOWN FROM THE ASSESSMENT ORDER WHETHER ACCORDING TO THE LD.AO IF CASH DIFFERENCE WAS FOUND IN SHORT OR IN EXCESS. IN ALTERNATIVE SUBMISSIONS THE LD AR FOR THE ASSESSEE SUBMITS THAT THE BENCH MAY TAKE APPROPRIATE CALL ON THE ISSUE IN ACCORDANCE WITH LAW 21. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD.AO MADE ADDITION ON ACCOUNT OF CASH DIFFERENCE. BEFORE THE LD.CIT(A), THE ASSESSEE CONTENDED THAT THE AO MADE ADDITION ON ACCOUNT OF CASH DIFFERENCE. THE AO HAS NOT POINTED OUT WHETHER THE DIFFERENCE IN CASH WAS SHORT OR IN EXCESS. WE FIND THAT BEFORE MAKING ADDITION, THE AO HAS NOT ISSUED ANY SHOW CAUSE NOTICE. THE LD.CIT(A) ON FURNISHING COPY OF PETTY CASH BOOK FOUND THAT THE CASH AVAILABLE ON 05.08.2008 WAS OF RS.1,15,026/-. FURTHER WE FIND THAT THE AO MADE ADDITION WITHOUT SPECIFYING THE DIFFERENCE WHETHER IT WAS SHORT OR IN EXCESS MADE ADDITION OF RS.34,962/-. THE LD. CIT(A) ON VERIFYING THE PETTY CASH BOOK ITA NO.397/SRT/2017 THEMIS MEDICARE LTD., (AY 2009-10) 17 DELETED THE ADDITION. IN OUR VIEW, THE LD.CIT(A) HAS TAKEN A REASONABLE AND PLAUSIBLE VIEW AS THE LD.AO HAS NOT CLARIFIED WHETHER CASH WAS EXCESS OR SHORT. THUS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A). IN THE RESULT, GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED. 22. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER ANNOUNCED ON 23 RD AUGUST, 2021 BY PLACING THE RESULT ON THE NOTICE BOARD. SD/- SD/- ( DR ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER SURAT, DATED: 23/ 08/2021 / SGR COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR 6. GUARD FILE TRUE COPY/ BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, ITAT, SURAT