ACIT, New Delhi V. M/s. Amtek Ring Gear Ltd., New Delhi

ITA 5023/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2929 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 12-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Keywords: Bogus purchase; Capital asset; Search and seizure; Document seized; Earning of tax free income; Documents seized
• Section: 142(1); 153A; 234B; 14A; 132

Judgement Text

1 ITA NO. 5023 & ORS/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 5023/DEL/201 4 ( A.Y 2005-06) & ITA NO. 5024/DEL/201 4 ( A.Y 2006-07) ACIT CENTRAL CIRCLE-14 NEW DELHI (APPELLANT) VS AMTEK RING GEARS LTD. 4, LSC, BHANOT APARTMENTS, PUSHP VIHAR NEW DELHI AABCB4094M (RESPONDENT) ITA NO. 4948/DEL/2014 ( A.Y 2005-06) & ITA NO. 4949/DEL/2014 ( A.Y 2006-07) AMTEK RING GEARS LTD. C/O. M/S. RRA TAXINDIA, D-28, SOUTH EXTENSION, PART-1 NEW DELHI AABCB4094M (APPELLANT) VS DCIT CENTRAL CIRCLE-14 NEW DELHI (RESPONDENT) APPELLANT BY SMT. APARNA KARAN, CIT(DR) RESPONDENT BY DR. RAKESH GUPTA, ADV, SOMIL AGARWAL, ADV ORDER PER SUCHITRA KAMBLE, JM THESE APPEALS ARE FILED BY THE REVENUE AS WELL AS A SSESSEE AGAINST THE ORDER DATED 26/03/2014 PASSED BY CIT(A) -XXXIII, NEW DELHI. DATE OF HEARING 18.09.2017 DATE OF PRONOUNCEMENT 14.12.2017 2 ITA NO. 5023 & ORS/DEL/2014 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 5023/DEL/2014 ( A.Y 2005-06) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O TO RECOMPUTED THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, WHE N THE DISALLOWANCE WAS COMPUTED SPECIFICALLY ACCORDING TO THE METHOD PRESCRIBED IN RULE 8D OF THE INCOME TAX RULE S, 1962. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O TO VERIFY THE NATURE OF USE OF LOAN AND PURPOSE OF INTEREST BY MI SINTERPRETING RULE 8D OF THE INCOME TAX RULES AS THE SAID RULE DO ES NOT ALLOW ANY SUCH SCOPE IN ITS APPLICATION. 3. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TEN ABLE ON FACTS AND IN LAW. 3. THE GROUNDS OF APPEALS ARE AS UNDER:- ITA NO. 4948/DEL/2014 ( A.Y 2005-06) 1. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ORDER PASSED BY THE LEANED ASSESSING OFFICER IS BAD IN LAW, AND THE LEARNED CIT(A) ERRED IN HOLDING THAT THERE IS NO JURISDICTIONAL IN FIRMITY IN PASSING THE ORDER . (II) WITHOUT PREJUDICE TO THE GENERALITY OF ABOVE G ROUND, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT INCOME SHOWN IN THE RETUR N FILED U/S 139(1) HAD BECOME FINAL, WHICH COULD NOT BE DISTURBED IN ABSEN CE OF ANY ADVERSE MATERIAL FOUND IN THE COURSE OF SEARCH. 2. ON THE FACTS AND IN THE OF THE CASE, THE LEARNED C IT(A) ERRED IN HOLDING THAT:- (I) THE AO HAD JURISDICTION TO MAKE DISALLOWANCE U /S 14A EVEN WHEN NO ASSESSMENT OR RE-ASSESSMENT WAS PENDING BEF ORE HIM AND NO FRESH MATERIAL WHATSOEVER WAS FOUND IN RESPECT O F THIS ISSUE IN THE COURSE OF SEARCH; 3 ITA NO. 5023 & ORS/DEL/2014 (II) THERE WAS NO PRESUMPTION THAT APPELLANTS OW N FUNDS WERE INVESTED IN SHARES IN A SITUATION WHERE SHARE CAPIT AL AND RESERVES FAR EXCEEDED THE VALUE OF SUCH INVESTMENTS; (III) IT CANNOT BE RULED OUT THAT FUNDS FROM CAS H CREDIT ACCOUNT COULD HAVE BEEN USED FOR ACQUISITION OF SHARES; (IV) INVESTMENT IN GROUP COMPANIES SHOULD BE RED UCED FROM AVERAGE INVESTMENT ONLY IF SUCH INVESTMENT IS MADE PRIOR TO SIX YEARS COVERED U/S 153 A; AND (V) SPECIFIC LOAN, BY WAY OF LONG-TERM AND FOREIG N, USED FOR ACQUIRING CAPITAL ASSETS, SHOULD BE REDUCED FROM T OTAL ASSETS WHILE APPLYING THE FORMULA MENTIONED IN RULE 8D. 3. THE LEARNED CIT(A) ERRED IN SUSTAINING A PART OF TH E DISALLOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8D AND NOT DE LETING THE WHOLE OF SUCH ADDITION. 4. THAT IN ANY CASE, THE ACTION OF LEARNED CIT (A) IN CONFIRMING A PART OF THE DISALLOWANCE OF RS. 24,80,460/- MADE BY THE LEA RNED AO AND THAT TOO WITHOUT ANY INCRIMINATING MATERIAL FOUND AS A R ESULT OF SEARCH IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF T HE CASE. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES O F THE CASE, LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVE RSING THE ACTION OF LD. A.O IN CHARGING THE INTEREST U/S 234B AND 234C OF T HE INCOME TAX ACT, 1961. ITA NO. 4949/DEL/2014 ( A.Y 2006-07 ) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEANED ASSESSING OFFICER IS BAD IN LAW, AND THE LEARNED CI T(A) ERRED IN HOLDING THAT THERE IS NO JURISDICTIONAL INFIRMITY IN PASSING THE ORDER . (II) WITHOUT PREJUDICE TO THE GENERALITY OF ABOVE G ROUND, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT INCOME EARLIER ASSESSED AS PER THE ORDER OF LEARNED CIT(A) HAD BECOME FINAL, WHICH COULD NOT BE DISTURBED IN ABSENCE OF A NY ADVERSE MATERIAL FOUND IN THE 4 ITA NO. 5023 & ORS/DEL/2014 COURSE OF SEARCH. 2. ON THE FACTS AND IN THE OF THE CASE, THE LEARNED CIT(A) ERRED IN HOLDING THAT:- (I) THE AO HAD JURISDICTION TO MAKE DISALLOWANCE U/S 14 A EVEN WHEN NO ASSESSMENT OR RE-ASSESSMENT WAS PENDING BEFORE HIM AND NO FRESH M ATERIAL WHATSOEVER WAS FOUND IN RESPECT OF THIS ISSUE IN THE COURSE OF SEARCH; (II) THERE WAS NO PRESUMPTION THAT APPELLANTS OWN FUNDS WERE INVESTED IN SHARES IN A SITUATION WHERE SHARE CAPITAL AND RESERVES FAR EXCE EDED THE VALUE OF SUCH INVESTMENTS; (III) IT CANNOT BE RULED OUT THAT FUNDS FROM CASH CREDIT ACCOUNT COULD HAVE BEEN USED FOR ACQUISITION OF SHARES; (IV) INVESTMENT IN GROUP COMPANIES SHOULD BE REDUCED FRO M AVERAGE INVESTMENT ONLY IF SUCH INVESTMENT IS MADE PRIOR TO SIX YEARS COVERED U/S 153A; AND (V) SPECIFIC LOAN, BY WAY OF LONG-TERM AND FOREIGN, USE D FOR ACQUIRING CAPITAL ASSETS, SHOULD BE REDUCED FROM TOTAL ASSETS WHILE APPLYING THE FORMULA MENTIONED IN RULE 8D. 3. THE LD.CIT(A) ERRED IN SUSTAINING A PART OF THE DISALLOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8D AND NOT DELETING THE WHOL E OF SUCH ADDITION MORE SO WHEN INCOME EARLIER ASSESSED HAD BECOME FINAL. 4. THAT IN ANY CASE, THE ACTION OF LEARNED CIT (A) IN CONFIRMING A PART OF THE DISALLOWANCE OF RS.46,29,210/- MADE BY THE LEARNED AO AND THAT TOO WITHOUT ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSING THE ACTI ON OF LD. AO IN CHARGING THE INTEREST U/S 234B AND 234C OF THE INCOME TAX ACT, 1 961. ITA NO. 5024/DEL/2014 ( A.Y 2006-07 ) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A)HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O TO RECOMPUTED THE DIS ALLOWANCE U/S 14A OF THE INCOME TAX 5 ITA NO. 5023 & ORS/DEL/2014 ACT, WHEN THE DISALLOWANCE WAS COMPUTED SPECIFICALL Y ACCORDING TO THE METHOD PRESCRIBED IN RULE 8D OF THE INCOME TAX RULES, 1962 . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A)HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O TO VERIFY THE NATURE OF USE OF LOAN AND PURPOSE OF INTEREST BY MISINTERPRETING RULE 8D OF THE INCOME TAX RULES AS THE SAID RULE DOES NOT ALLOW ANY SUCH SCOPE IN ITS APPLICATION. 3. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TENABLE OF FACTS AND IN LAW. 3. FOR THE SAKE OF CONVENIENCE WE ARE TAKING UP THE FACTS FOR A.Y. 2005-06 AS THE SAME ARE IDENTICAL WITH THE FAC TS OF A.Y. 2006-07. M/S. AMTEK RING GEARS (FORMERLY KNOWN AS B ENDA AMTEK LTD) WAS INCORPORATED ON 13 TH DAY OF JULY, 1995. THE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AUTOMOTIVE COMPONENTS SUCH AS GEAR, FLY WHEEL RING GEAR AND ASSEMBLY ETC. A SEARCH AND SEIZURE OPERATION U/S 13 2 OF THE INCOME TAX ACT, 1961 WAS CONDUCTED BY THE INVESTIGA TION WING OF THE DEPARTMENT ON 22/3/2011 IN THE CASE OF AMTEK GROUP OF CASES. SUBSEQUENTLY, THE CASE WAS CENTRALIZED WITH CENTRAL CIRCLE-14, NEW DELHI VIDE ORDER DATED 30.09.2011. A CCORDINGLY NOTICE U/S 153A OF THE ACT WAS ISSUED TO THE ASSESS EE ON 03.10.2011 TO FILE THE RETURN OF INCOME. IN RESPONS E TO THE SAID NOTICE, RETURN DECLARING AN INCOME OF RS. 1,28,24,0 76/- WAS FILED ON 12/4/2017 AGAINST THE ORIGINAL RETURN FILE D U/S 139(1) OF THE I. T. ACT DECLARING INCOME OF RS. 1,28,24,07 6/- ON 31.10.2005. NOTICE U/S 143(2) AND 142(1) OF THE INC OME TAX ACT, 1961 WERE ISSUED ALONG WITH A QUESTIONNAIRE DA TED 24.09.2012 AND FIXED FOR HEARING ON 01.10.2012. IN RESPONSE TO VARIOUS STATUTORY NOTICES, C.A ALONG WITH VICE PRES IDENT OF AMTEK GROUP OF COMPANIES ATTENDED THE PROCEEDINGS A ND 6 ITA NO. 5023 & ORS/DEL/2014 FURNISHED NECESSARY DETAILS, INFORMATION AND DOCUME NTS CALLED FOR, FROM TIME TO TIME WHICH WERE TAKEN ON RECORD B Y THE ASSESSING OFFICER. IN VIEW OF THE INFORMATION FILED THE CASE WAS DISCUSSED WITH THE ARS OF THE ASSESSEE. A SEARCH AND SEIZURE ACTION WAS CONDUCTED ON THE PREMISES BELONGING TO A MTEK GROUP COMPANY AT VARIOUS PLACES ON 22.03.2011. DURING THE SEARCH THE CORPORATE OFFICE, REGISTERED OFFICE, FACTORIES AND RESIDENCES OF THE DIRECTORS WERE COVERED. DURING T HE COURSE OF SEARCH CONDUCTED ON 22.03.2011 A NUMBER OF INCRIMIN ATING DOCUMENTS WERE FOUND AND SEIZED FROM THE PREMISES 9 , TOLSTOY MARG, CONNAUGHT PLACE, NEW DELHI. THESE SEIZED MATE RIAL WAS MARKED ANNEXURE A-L, A-2, A-4. A-LL. THESE DOCUMENT S WERE THE LEDGER ACCOUNTS OF TWO FIRMS NAMELY M/S. LORD INDUS TRIES AND M/S. COMPAX INDUSTRIAL SYSTEM. THE DOCUMENTS ALSO C ONSIST OF RETAIL INVOICES OF 10 DIFFERENT PARTIES. THESE RETA IL INVOICES WERE RAISED IN THE NAME OF M/S. LORDS INDUSTRIES AND M/S . COMPAX INDUSTRIAL SYSTEM BEING THE BUYERS. THE NAME AND AD DRESS OF THE CONSIGNEE IS ONE OF THE FIVE GROUP COMPANIES OF AMTEK. FURTHER, THE SEIZED MATERIAL ALSO CONTAINS LEDGER A CCOUNTS OF M/S LORDS INDUSTRIES AND M'S. COMPAX INDUSTRIAL SYS TEM. DURING THE YEAR UNDER CONSIDERATION A GROSS TURNOVE R OF RS. 79.29 CORES WAS SHOWN WITH G. P RATIO OF 21.97% AND N.P. RATIO AT 7.40%. THE A.O OBSERVED THAT THE ASSESSEE MADE I NVESTMENT OF RS. 902.35 CRORES IN EQUITY SHARES TO EARN DIVID END INCOME FROM SUCH INVESTMENT, HENCE DISALLOWANCE OF EXPENSE S RELATED TO EARN EXEMPT INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE U/S 14A OF THE I.T. ACT, 196 1 WERE 7 ITA NO. 5023 & ORS/DEL/2014 ATTRACTED. THE ASSESSEE DID NOT ATTRIBUTE ANY EXPEN DITURE TOWARDS DIVIDEND INCOME WHICH DID NOT FORM PART OF TOTAL INCOME AS PER COMPUTATION OF INCOME FILED. HE WAS A SKED TO FILE DETAIL OF EXPENSES AS PER RULE 8D AND SHOW CAUSED V IDE ORDER SHEET ENTRY DATED 06.03.2013 AS TO WHY EXPENSES INC URRED TO EARN EXEMPT INCOME AS DIVIDEND WHICH DID NOT FORM P ART OF THE TOTAL INCOME SHOULD NOT BE DISALLOWED U/S 14A OF TH E I.T.ACT,1961 AS PER RULE 8 D. THE REPLY OF THE ASSESSEE WAS DULY CONSIDERED BUT NOT ACCEPTED BY A.O AS THE ASSESSEE HAS NOT QUANTIFIED/ATTRIBUTED THE EXPENSES U/S 14A OF THE I T ACT AND NOT DISALLOWED IN THE P&L ACCOUNT WHICH WERE RELAT ED TO THE EXEMPT INCOME NOT FORMING THE PART OF THE TOTAL INC OME. THE ASSESSING OFFICER OBSERVED THAT WHILE CERTAIN EXPEN SES LIKE MANAGERIAL EXPENSES, BANK CHARGES ETC MUST HAVE BEE N INCURRED BY THE ASSESSEE TO EARN THE EXEMPT INCOME IN THE SHAPE OF DIVIDEND OF RS.2,87,825/-WHICH WAS CLAIMED EXEMPT U/S 10(34) OF THE I.T.ACT,1961. THE A.O WAS NOT SAT ISFIED WITH THE CONTENTIONS OF THE ASSESSEE AND MADE DISALLOWAN CE OF RS.24,80,460/- WAS ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY A LLOWED THE APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THERE WERE NO INCRIMIN ATING DOCUMENTS/PAPERS FOUND AND SEIZED FROM ANY OF THE P REMISES BELONGING TO THE ASSESSEE COMPANY DURING THE SEARCH OPERATION. THEREFORE THE ISSUE IS COVERED BY THE HONBLE DELHI 8 ITA NO. 5023 & ORS/DEL/2014 HIGH COURT DECISION IN CASE OF CIT VS. KABUL CHAWLA 380 ITR 573. THE LD. AR FURTHER SUBMITTED THAT THERE IS NO DIVIDEND INCOME IN THIS PARTICULAR YEAR. THEREFORE, THE RATI O OF DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS. HOLCIM INDIA P. LTD. WILL BE APPLICABLE. 6. THE LD. DR ON THE OTHER HAND VEHEMENTLY OPPOSED THE CONTENTIONS OF THE LD. AR. THE LD. DR FURTHER SUBMI TTED THAT THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE U/S 14A OF THE ACT WHEN THE DISALL OWANCE WAS COMPUTED SPECIFICALLY ACCORDING TO THE METHOD PRESC RIBED UNDER RULE 8D BY THE ASSESSING OFFICER. THE LD. DR SUBMIT TED THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CL AIM OF THE ASSESSEE AND MADE PROPER ADDITIONS. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RECORD. THE CONTENTIONS OF THE LD. AR THAT NO INCRIMINATING MATERIAL FOUND WAS DULY CONSIDERED BY THE CIT(A) IN HIS ORDE R. THUS, THERE IS NO NEED TO INTERFERE WITH THE SAME. THE CI T(A) HELD AS UNDER: 4.3 DECISION:- I HAVE CONSIDERED THE ASSESSMENT ORDER, WRITTEN SUB MISSION AND ORAL ARGUMENTS OF LD.AR DURING THE APPELLATE PROCEE DINGS. ENTIRE ADDITION OF BOGUS PURCHASES HAVE BEEN MADE O N THE BASIS OF ALLEGED PURCHASE INVOICES & COPY OF LEDGER IN TH E BOOKS OF AMTEK GROUP OF COMPANIES IN THE NAME OF LORD INDUSTRIES & M/S COMPAX INDUSTRIAL SYSTEM FOUND & SEIZED FROM THE PREMISE A T 9, TOLSTOY MARG, NEW DELHI. THEREFORE, IT IS NECESSARY TO ADJUDICATE ON THE EVIDENTIAL VALUE OF THESE SEIZED DOCUMENTS. DURING THE APPELLA TE PROCEEDINGS LD.AR HAS FILED COPY OF SUCH SEIZED DOCUMENTS. THE NATURES OF SEIZED 9 ITA NO. 5023 & ORS/DEL/2014 DOCUMENTS ARE DISCUSSED IN THE ASSESSMENT ORDER ALS O. I HAVE PERUSED THESE SEIZED DOCUMENTS CLOSELY. FIRSTLY, I WOULD DE AL WITH EVIDENTIAL VALUE OF THE SEIZED DOCUMENT. I) EVIDENTIAL VALUE OF SEIZED DOCUMENTS:- DURING THE SEARCH & SEIZURE PROCEEDINGS, VARIOUS BI LLS ISSUED BY VARIOUS COMPANIES FOR DIFFERENT PERIOD WERE SEIZED. ON THE TOP OF THE BILLS, IT IS WRITTEN RETAIL INVOICE. SUCH BILL CONTAINS INVOI CE NO., COMMERCIAL INVOICE NO.. DATE & TIME OF ISSUE, PURCHASE ORDER DATE, DES CRIPTION OF GOODS SOLD, AND VALUE IN RS. ETC. EACH BILL SHOWS NAME OF THE BUYER AS EITHER M/S LOR DS INDUSTRIES OR M/S COMPAX INDUSTRIAL SYSTEM. NAME & ADDRESS OF CONSIGN EE IS SHOWN AS ONE OF THE FIVE AMTEK GROUPS OF COMPANIES NAMELY:- 1. M/S AMTEK AUTO LTD. 2. M/S AMTEK INDIA LTD. 3. M/S RING GEARS LTD. 4. M/S AMTEK CRANKSHAFT INDIA LTD. 5. M/S AHMEDNAGAR FORGING LTD. EACH BILL CONTAINS STAMP OF RESPECTIVE AMTEK GROUP OF COMPANIES WITH GATE ENTRY NO., DATE & VEHICLE NO. THE GOODS SOLD A S PER BILL ARE OF AUTO PARTS. THE BUSINESS OF THE APPELLANT COMPANY ALONGW ITH OTHER 4 COMPANIES OF AMTEK GROUP ARE ALSO MANUFACTURING OF AUTO PARTS . THEREFORE, THERE IS CHANCE OF USING THESE MATERIALS BY THESE COMPANIES. DURING THE SEARCH PROCEEDINGS, STATEMENT OF SH. ARV IND DHAM WAS RECORDED U/S 132(4). IN THE STATEMENT OF SH. ARVIND DHAM NEVER STATE THAT THESE ARE PROFORMA INVOICES. DETAILS OF RELEVANCE O F HIS STATEMENT WOULD BE DISCUSSED SUBSEQUENTLY. DURING THE ASSESSMENT PROCEEDING, THE APPELLANT EXP LAINED THAT THESE ARE NOT PURCHASE BILL BUT ONLY PROFORMA INVOICES. I T WAS FURTHER EXPLAINED THAT THE APPELLANT COMPANY INTENDED TO PURCHASE GOO DS FROM M/S LORD INDUSTRIES AND M/S COMPAX INDUSTRIAL SYSTEM & HAS G IVEN ADVANCE. THESE TWO ENTITIES WERE TRYING TO PURCHASE THESE AUTO PAN S FROM ASSOCIATE COMPANIES OF THE APPELLANT COMPANY, WHICH COULD NOT TAKE PLACE & THEREFORE, THE ADVANCE GIVEN TO M/S LORD INDUSTRIES & M/S COMPAX INDUSTRIAL SYSTEM WAS RETURNED BACK. LD.AR HAS ARGU ED THAT ADVERSE INFERENCE CANNOT BE TAKEN ON PHOTOCOPY OF ALLEGED B OGUS BILLS SEIZED WITHOUT ANY FURTHER EVIDENCE & RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS. IN THIS REGARD. 1 HAVE EXAMINED THE FACTS. THESE SEIZED 10 ITA NO. 5023 & ORS/DEL/2014 DOCUMENTS ARE NOT ONLY PURCHASE BILLS, IT IS SUPPOR TED BY LEDGER OF M/S LORD INDUSTRIES & M/S COMPAX INDUSTRIAL SYSTEM WHICH TAL LIES WITH THE BOOKS OF ACCOUNTS. FURTHER, THESE SEIZED BILLS CONTAIN THE P ROCUREMENT DETAILS OF GOODS WHICH ARE USED BY THE APPELLANT COMPANY AS RA W MATERIAL FOR ITS BUSINESS. THE APPELLANT ALSO CONFIRM TO THE EXTENT THAT THESE BILLS ARE PROFORMA INVOICE FOR WHICH ADVANCES WERE GIVEN. FURTHER, DURING THE SEARCH & POST SEARCH ENQUIRY, I NSPECTORS WERE SENT AT THE ADDRESS OF THE SELLERS AS PER THE PURCH ASE INVOICES. ALL THE INSPECTORS OF INCOME TAX REPORTED THAT THES E PURCHASES PARTIES DO NOT EXIST AT THE ADDRESS GIVEN IN THE INVOICES. THESE SPECIMEN INSPECTORS REPORT IS SCANNED & REPRODUCED IN THE ASSESSMENT OR DER. DURING THE APPELLATE PROCEEDINGS, LD.AR HAS TAKEN S IMILAR ARGUMENT. FURTHER, LD.AR HAS ARGUED THAT THESE SEIZED DOCUMEN TS WERE FOUND & SEIZED FROM THIRD PARTY. THEREFORE, IT HAS NO EVIDE NTIAL VALUE IN THE CASE OF THE APPELLANT. LD.AR HAS FURTHER ARGUED THAT DURING THE SEARCH PRO CEEDINGS, THE PRODUCTION / PURCHASE INCHARGE HAVE DENIED TO HAVE PURCHASE THE MATERIALS FROM M/S LORD INDUSTRIES OR M/S COMPAX IN DUSTRIAL SYSTEM OR ANY OF THE COMPANIES WHO HAD ISSUED THE INVOICE. FI NALLY, LD.AR ARGUED THAT NO BOGUS PURCHASE WAS CARRIED OUT BY THE APPEL LANT COMPANY AS PER THE INVOICES OF CONSIGNMENT SALES SEIZED. DURING THE SEARCH & SURVEY OPERATION & POST SEARCH ENQUIRY IT WAS FOUND THAT CONSIGNMENT AGENT M/S LORD INDUSTRIES AN D M/S COMPAX INDUSTRIAL SYSTEM DOES NOT OPERATE FROM THE ADDRESS MENTIONED IN THE PURCHASE INVOICE SEIZED. RELEVANT STATEMENTS OF THE OWNER OF THE ADDRESS OR OCCUPANT OR PEON OR CHOWKIDAR ARE REPRODUCED IN THE ASSESSMENT ORDER. FURTHER, IT WAS ASCERTAINED THAT PROPRIETOR OF M/S COMPAX INDUSTRIAL SYSTEM & M/S LORD INDUSTRIES ARE A ONLY PAID EMPLOY EE OF ARNTEK INDIA LTD. ON THE BASIS OF THESE FACTS THE LD. ASSESSING OFFICER HAS CONCLUDED THAT BOTH CONSIGNMENT AGENTS NAMELY M/S LORD INDUSTRIES & M/S COMPAX INDUSTRIAL SYSTEM ARE BOGUS ENTITIES CREATED BY M/S AMTEK GROUP FOR BOGUS PURCHASES. I HAVE CONSIDERED THE ENTIRE FACTS & EVIDENCES RELA TED TO THE SEIZED PURCHASE INVOICE AND LEDGER OF M/S LORD INDUSTRIES & M/S COMPAX INDUSTRIAL SYSTEM. ARGUMENTS OF THE APPELLANT THAT THESE PURCHASE INVOICES ARE PROFORMA INVOICES CANNOT BE ACCEPTED BECAUSE NO WHERE IN THE PURCHASE INVOICES IT IS WRITTEN AS PROFORMA INVOICES. FURTHE R EACH PURCHASE INVOICE CONTAINS DATE, PURCHASE ORDER DATE, QUANTITY & AMOU NT ALONGWITH HANDLING CHANGES. FOR MOST IMPORTANT FEATURES OF EACH SEIZED PURCHASE INVOICES IS 11 ITA NO. 5023 & ORS/DEL/2014 THAT EACH INVOICES ARE STAMPED BY RESPECTIVE AMTEK GROUP OF COMPANIES MENTIONING UNIT WITH DATE, ENTRY NO. & VEHICLE NUMB ER. THE ITEM OF PURCHASE MENTIONED IN THE PURCHASE INVOICES ARE RAW MATERIAL TO BE USED FOR FURTHER PROCESSING BY THE RESPECTIVE UNITS. IN VIEW OF THE ABOVE FACTS, IT IS UNDOUBTEDLY CLEAR THAT THESE GOODS HAVE BEEN REC EIVED BY THE RESPECTIVE UNITS OF THE APPELLANT COMPANY & OTHER FOUR AMTEK G ROUP OF COMPANIES. THE APPELLANT HAS NOWHERE EXPLAINED THE PURPOSE OF KEEPING SUCH BOGUS BILL. EVEN IF THESE BILLS ARE TREATED AS PROF ORMA INVOICE, WHY SUCH INVOICES ARE FROM PROVEN NONEXISTENT CONCERNS. PROF ORMA INVOICES IF AT ALL HAVE TO BE FROM EXISTING CONCERNS. FURTHER, LD. AR'S ARGUMENT THAT THE PAYMENT MADE TO M/S LORD INDUSTRIES & M/S COMPAX INDUSTRIAL SYSTEM ARE ONLY FINANCIAL TRANSACTION AND REPRESENTS ADVANCE GIVEN FOR PURCHASE OF MATERI AL WHICH WAS RETURNED SUBSEQUENTLY CANNOT BE ACCEPTED. THE SEIZED LEDGER OF LORD INDUSTRIES & M/S COMPAX INDUSTRIAL SYSTEM SHOWS THESE AMOUNT OF PURCHASES DEBITED ALONGWITH COMMISSION ON SUCH PURCHASES, WHICH IS RE VERSED IN THE BOOKS OF ACCOUNT AT THE END OF THE YEAR. THIS PROCESS CONTIN UED FOR MANY FINANCIAL YEARS. HOW ADVANCE IS GIVEN FOR PURCHASE FOR MANY F INANCIAL YEARS EVERY YEAR ADVANCE IS GIVEN & PURCHASES ALONGWITH COMMISS ION IS DEBITED IN THE ACCOUNTS & THE SAME IS REVERSED AT THE CLOSE OF EVE RY YEAR. IN ONE YEAR SUCH STRAY TRANSACTION MAY HAPPEN. SIMILAR TRANSACTION C ANNOT HAPPEN IN CONSECUTIVE ASSESSMENT YEARS, ON REPEATATIVE BASIS. AFTER CONSIDERING THESE FACTS I AM OF THE CONSIDERE D VIEW THAT THE APPELLANT COMPANY HAS MADE PURCHASES AS PER THESE P URCHASES INVOICES (SEIZED). HOWEVER, SUCH PURCHASES ARE NOT MADE FROM THE PERSON WHO HAVE ISSUED THE BILLS AS THEY ARE PROVEN TO BE BOGUS ENT ITIES, AS THESE GOODS HAVE BEEN RECEIVED BY THE RESPECTIVE UNITS OF AMTEK GROU P, THROUGH SPECIFIC ENTRY NO., DATE & VEHICLE NO.. APPARENTLY THE NAME OF BOGUS ENTITIES FOR ISSUING BILL WAS TO HAVE PROPER CHECK ON FLOW OF MA TERIAL AS LOWER STAFF WOULD NOT ACCEPT THE MATERIAL WITHOUT SOME NAME. LD. ARS ARGUMENT THAT NO COGNIZANCE HAS BEEN TAKEN IN THE ASSESSMENT OF M/S LORD INDUSTRIES & COMPAX INDUSTRI AL SYSTEM & 10 COMPANIES WHO HAVE ISSUED THE BILLS WILL NOT ALTER THE ABOVE FACTS AS THESE GOODS WERE PURCHASED FROM THE GRAY MARKET & TO PROV IDE CONTROL OF FLOW OF GOODS AT THE UNITS, SOME NAME IS GIVEN AS SUPPLIER & CONSIGNMENT AGENT. 12 ITA NO. 5023 & ORS/DEL/2014 NEXT ARGUMENTS OF LD.AR THAT THE ALLEGED SEIZED DOC UMENT WAS NOT SEIZED FROM THE PREMISE OF THE APPELLANT ARE NOT CO RRECT. DURING THE STATEMENT CHAIRMAN OF THE GROUP SH. ARVIND DHAM HAS STATED THAT DUE TO RENOVATION OF HEAD OFFICE OF AMTEK GROUP WHICH INCL UDES THE APPELLANT COMPANY WAS SHIFTED TO 9, TOLSTOY MARG. IN FACT THE APPELLANT VIDE LETTER DT.8.03.2013 HAS CLAIMED THAT BOOKS OF ACCOUNT IN H ARD DISC WAS SEIZED AS PER PANCHNAMA DT.02.03.2011 AT 9, TOLSTOY MARG, NEW DELHI PREMISE. THIS PROVES THAT AT 9. TOLSTOY MARG, THE APPELLANT HAS T HE OFFICE AT THE TIME OF SEARCH & SEIZURE OPERATION. IN VIEW OF THE ABOVE FACTS, I HELD THAT THE APPELLA NT COMPANY ALONGWITH OTHER AMTEK GROUP OF COMPANIES HAVE MADE PURCHASES AS PER THE SEIZED DOCUMENT IN QUANTITY & VALUE MENTIONED IN TH E ANNEXURE A-L, A-2, A- 4 & A-L 1. IN FACT, THE CASE LAWS REFERRED BY THE LD. AR ARE N OT APPLICABLE IN THE PRESENT CASE AS THERE IS INCRIMINATING MATER IAL FOUND IN ASSESSEES CASE. AS RELATES TO ISSUE OF 14A, THE CIT(A) HAS GIVEN DE TAILED FINDING. THERE IS NO NEED TO INTERFERE WITH THE SAME. THE CI T(A) HELD AS UNDER: 5.3 DECISION I HAVE CONSIDERED THE ASSESSMENT ORDER, WRITTEN SUB MISSION AND ORAL ARGUMENTS OF LD. AR CAREFULLY. DURING THE APPELLATE PROCEEDINGS, LD. AR HAS ARGUED MAINLY THAT THE LD. ASSESSING OFFICER WITHOUT EXAMINING TH E CLAIM OF EXPENSE WITH RESPECT OF EXEMPT INCOME IN THE BOOKS OF ACCOU NTS, HAS MADE DISALLOWANCE U/S 14A READ WITH RULE 8D AS PER THE C ALCULATION CONTAINED THEREIN. I HAVE PERUSED THE ASSESSMENT ORDER CLOSELY, WHILE COMPUTING DISALLOWANCE U/R 8D. THE LD. ASSESSING OFFICER HAS TAKEN TOTAL INVESTMENT OF SHARES SHOWN IN THE BALANCE SHEET, WI THOUT EXAMINING THE TYPES OF TOTAL INVESTMENT IN SHARES & SECURITIE S. 13 ITA NO. 5023 & ORS/DEL/2014 DURING THE APPELLATE PROCEEDINGS, LD. AR HAS EXPLAI NED THAT TOTAL INVESTMENT IN SHARES & SECURITIES SHOWN IN TH E BALANCE SHEET CONSIST OF THREE TYPES OF EQUITY, NAMELY :- 1) INVESTMENT IN GROUP COMPANIES. 2) INVESTMENT IN OVERSEAS COMPANIES. 3) INVESTMENT IN OTHER COMPANIES. HE FURTHER ARGUED THAT DIVIDEND FROM THE INVESTMENT IN OVERSEAS COMPANIES ARE TAXABLE IN NATURE. THEREFORE , THIS INVESTMENT CANNOT BE CONSIDERED WHILE CALCULATING AVERAGE INVE STMENT U/R 8D. FURTHER, HE ARGUED THAT INVESTMENT IN GROUP COMPANI ES ARE STATIC IN NATURE AND NO EXPENDITURE OR MANAGERIAL REMUNERATIO N IS REQUIRED FOR THIS INVESTMENT, AS THESE INVESTMENTS ARE REQUIRED TO KEEP HOLDING IN THE GROUP COMPANIES AND THE PURPOSE IS NOT TO EARN DIVIDEND & FURTHER, THESE INVESTMENT IS PRIOR TO THE BLOCK PER IOD U/S 153A. THEREFORE, INTEREST EXPENDITURE INCURRED DURING THE YEAR IS NOT UTILIZED FOR PROCURING THESE SHARES. DURING THE APPELLATE PROCEEDINGS, FURTHER LD. AR EX PLAINED THAT INTEREST PAYMENTS ON LOAN ARE ALSO OF TWO TYPE S NAMELY:- I) FOREIGN AS WELL AS INDIAN TERM LOAN TO BE UTILIZED FOR SPECIFIC PURPOSES TO ACQUIRE CAPITAL ASSETS. II) CASH CREDIT BANK ACCOUNT AND OTHER LOANS WHICH ARE NOT FOR SPECIFIC PURPOSES. 1 HAVE EXAMINED THESE FACTS & ALL ARGUMENTS OF LD. AR. I DO NOT AGREE WITH THE ARGUMENTS OF LD. AR THAT SINC E, THE APPELLANT HAS ITS OWN SURPLUS FUND, IT CAN BE PRESU MED THAT ENTIRE INVESTMENT SHARES AND SECURITIES ARE FROM IT S OWN SURPLUS FUND AND ENTIRE INTEREST IS PAID ONLY FOR O THER BUSINESS TRANSACTION. IMMEDIATE SOURCE OF INVESTMENT HAS TO BE EXAMINED. THEREFORE, IN MY VIEW, LOAN FUND EITHER INDIAN FUND IN TERMS OF TERM LOAN FOR CAPITAL ASSET OR FOREIGN LOAN FOR ACQ UISITION OF CAPITAL ASSETS CANNOT BE USED FOR ACQUIRING THE SHA RES/MUTUAL FUND WHOSE INCOME IS TAX EXEMPT. HOWEVER, USE OF FU ND FROM CASH CREDIT ACCOUNT FOR THE ACQUISITION OF SHARES W HOSE INCOME IS EXEMPT CANNOT BE RULED OUT. INFACT IF INVESTMENT IN SUCH SHARES/MUTUAL FUND IS MADE FROM SUCH CASH CREDIT AC COUNT, 14 ITA NO. 5023 & ORS/DEL/2014 THE IMMEDIATE SOURCE FOR ACQUISITION OF THESE ASSET S, IS INTEREST BEARING FUND. IN VIEW OF THE ABOVE ANALYSIS, THE APPELLANT ADHOC DISALLOWANCE FOR EXEMPT INCOME CANNOT BE UPHELD. TH EREFORE, I HOLD THAT EXPENDITURE INCURRED FOR EARNING EXEMPT I NCOME HAS NOT BEEN CLAIMED IN THE BOOKS OF ACCOUNTS PROPERLY. HENCE DISALLOWANCE IS REQUIRED TO BE COMPUTED U/S 14A. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE CASE, I DIRECT THE ASSESSING OFFICER TO RECOMPUTED THE DISALLOWANCE U/S 14A READ WITH RULE 8D WITH FOLLOWI NG MODIFICATIONS:- (I) REDUCE THE INVESTMENT IN OVERSEAS COMPANIES FROM THE TOTAL INVESTMENT IN SHARES/DIVIDEND WHILE COMPUTING AVERAGE INVESTMENT AS PER RULE 8D AFTER VERIFYING THAT THE INCOME FROM THESE INVESTMENTS ARE TAXABLE IN INDIA. (II) FURTHER, INVESTMENT IN COMPANIES OF AMTEK GROUP S HOULD BE REDUCED FROM AVERAGE INVESTMENT IF SUCH GROUP INVESTMENT IS MADE PRIOR TO SIX AYS COVERED U/S 153 A, AS NO EXPENDITURE IS APPARENTLY INCURRED TO MAINTAIN S UCH INVESTMENT. ( III) WHILE COMPUTING INTEREST DISALLOWANCE, REDUCE INTE REST ON TERM LOAN AND FOREIGN LOAN IN ANY FORM TO BE UTILIZ ED FOR ONLY ACQUIRING CAPITAL ASSET FROM TOTAL INTEREST DE BITED IN P & L A/C. FURTHER AMOUNT OF SUCH SPECIFIC LOAN I.E. TERM LOAN AND FOREIGN LOAN SHOULD BE REDUCED FROM TOTAL ASSET AS PER THE FORMULAE PROVIDED IN RULE 8D. (IV) IT MAY BE MENTIONED HERE THAT WHILE MAKING ADDITI ON BY WAY OF DISALLOWANCE U/S 14A, THE CREDIT FOR SELF DISALLOWANCE SHOULD BE GIVEN. LD AR'S ARGUMENT THAT NO DISALLOWANCE CAN BE MADE U /S 14A AS THE SAME IS NOT BASECFON ANY INCRIMINATING EVIDENCE FOU ND AS A RESULT OF SEARCH AND SEIZURE OPERATION CANNOT BE ACCEPTED. 1 HAVE PE RUSED THE JUDICIAL PRONOUNCEMENTS RELIED BY THE LD. AR. IN MY VIEW, JU RISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF ANIL BHATIA CITED SUPRA HAS HELD THAT THE LD. 15 ITA NO. 5023 & ORS/DEL/2014 ASSESSING OFFICER HAS POWER TO ASSESS TOTAL INCOME IF INCRIMINATING EVIDENCES ARE FOUND DURING SEARCH FOR ANY ASSESSMEN T YEAR. IN PRESENT CASE, I HAVE HELD THAT THERE ARE EVIDENCES IN FORM OF SEIZED DOCUMENTS ESTABLISHING UNACCOUNTED PURCHASES AND TURNOVER IN EARLIER PARTS OF THE ORDER, THEREFORE, THE ASSESSING OFFICER HAS POWER T O ASSESS TOTAL INCOME INCLUDING DISALLOWANCE U/S 14A. THE DECISION OF HOLCIM INDIA P. LTD. WILL NOT BE AP PLICABLE AS THERE ARE EXPENDITURE INCURRED BY THE ASSESSEE. THUS, THERE IS NO NEED TO INTERFERE WITH THE DECIS ION OF THE CIT(A) AND HENCE THE APPEALS OF THE REVENUE AND THE ASSESSEE ARE DISMISSED. 8. IN RESULT, THE APPEALS OF THE REVENUE AND THE AS SESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14TH DECEMB ER, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14/12/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 16 ITA NO. 5023 & ORS/DEL/2014 DATE 1. DRAFT DICTATED ON 18/09/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 19/09/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 15.09.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 5 .09.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.