Cedar Infonet Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 6242/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4308 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 05-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Assessee Lawyers: R S AHUJA
• Keywords: Bogus purchase; Earning of tax free income; Additional evidence; Rule 8D
• Section: 14A; 132; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.-6242/DEL/2016 (ASSESSMENT YEAR: 2011-12) CEDER INFONET PVT. LTD C/O: RS AHUJA & CO, CAS C-353, DEFENC COLONY, NEW DELHI. VS. ACIT CIRCLE-5(2), NEW DELHI. PAN NO. AABCC9486E APPELLANT RESPONDENT ITA NO.-606/DEL/2017 (ASSESSMENT YEAR: 2011-12) A CIT CIRCLE-5(2), NEW DELHI. VS. CEDER INFONET PVT. LTD C/O: RS AHUJA & CO, CAS C-353, DEFENC COLONY, NEW DELHI. PAN NO. AABCC9486E APPELLANT RESPONDENT ASSESSEE BY SH RS AHUJA, CA REVENUE BY MS. NIDHI SRIVASTAVA, CIT DR DATE OF HEARING: 16-10-2020 PRONOUNCEMENT ON 23-10-2020 ORDER PER K. NARASIMHA CHARY, JM CHALLENGING THE ORDER DATED 30.09.2016 PASSED BY TH E LD COMMISSIONER OF INCOME TAX (APPEALS) 24, NEW DELH I ( LD. CIT(A)) FOR THE AY 2011-12, BOTH THE ASSESSEE AND THE REVENUE FILED THESE APPEALS. 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 30/9/2011 DECLARING NIL INCOME. ASSESSMENT WAS, HOWEVER, COMPLETE UNDER SECTION 144 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) AT AN IN COME OF RS. 14,56,43,816/- AFTER ADDING RS. 4,70,61,259/- UNDE R SECTION 36 (1)(III) OF THE ACT BY DISALLOWING 15% OF THE INTEREST EXPENSE, RS. 19, 990/- BY DISALLOWING THE PRELIMINARY EXPENSES, RS. 6,30,73,4 10/- UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULE S1962 (THE RULES) AND RS. 3,54,89,157/- BY DISALLOWING 10% OF THE TOTAL P URCHASES MADE BY THE ASSESSEE FROM THE GROUP COMPANIES ON THE GROUND THA T THE PURCHASES ARE INFLATED TO REDUCE THE PROFITS. 3. ASSESSEE CHALLENGED ALL THESE FOUR ADDITIONS BEF ORE THE LD. CIT(A) IN APPEAL, BUT NOT PRESSED THE GROUNDS RELATING TO THE ADDITION OF RS. 19, 990/- ADDED TOWARDS DISALLOWANCE OF PRELIMINARY EXP ENSES. AFTER REGULATING THE REMAINING 3 ADDITIONS, LD. CIT(A) GR ANTED RELIEF TO THE ASSESSEE IN RESPECT OF RS. 6,30,73,410/- ADDED UNDE R SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AND RS. 3,54,89, 157/- ADDED BY DISALLOWING THE 10% OF THE PURCHASES MADE BY THE AS SESSEE FROM THE GROUP COMPANIES, BUT SUSTAINED THE ADDITION OF RS. 4,70,6 1,259/- DISALLOWED UNDER SECTION 36 (1)(III) OF THE ACT ON AD HOC BASI S AT 10% OF THE INTEREST EXPENSE. 4. ASSESSEE, THEREFORE, CHALLENGED THE ADDITION OF RS. 4,70,61,259/- BY WAY OF DISALLOWANCE UNDER SECTION 36 (1)(III) OF TH E ACT ON AD HOC BASIS AT 10% OF THE INTEREST EXPENSE; WHEREAS THE REVENUE CH ALLENGING THE DELETION OF THE ADDITION OF RS. 6,30,73,410/- UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AND RS. 3, 54,89,157/- ADDED B Y DISALLOWING 3 10% OF THE TOTAL PURCHASES ON AD HOC BASIS, IN THES E 2 APPEALS. SINCE THESE TWO APPEALS EMANATE FROM THE SAME SET OF FACTS AND THE SAME ASSESSMENT ORDER, WE DEEM IT JUST AND CONVENIENT TO DISPOSE TH EM OF BY WAY OF THIS COMMON ORDER. 5. COMING TO THE ASSESSEES APPEAL, IT RELATES TO T HE ADDITION OF RS. 4, 70, 61, 259/- BY DISALLOWING, ON AD HOC BASIS, 15% OF THE INTEREST EXPENSE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSI NG OFFICER NOTED THAT THE ASSESSEE HAD DEBITED INTEREST EXPENSES AMOUNTIN G TO RS. 31, 37, 41, 731/- IN THEIR PROFIT AND LOSS ACCOUNT (P&L ACCOUN T), AND SINCE NO EVIDENCE TO PROVE THE FACT THAT THE LOAN ON WHICH T HE INTEREST AND FINANCE EXPENSES WERE PAID EXCLUSIVELY UTILISED FOR THE PUR POSE OF THE BUSINESS OF THE ASSESSEE, LEARNED ASSESSING OFFICER HAD TAKEN A VIEW THAT AN AMOUNT EQUIVALENT TO 15% OF SUCH INTEREST EXPENSE, AMOUNTI NG TO RS. 4,70,61,259/- HAS TO BE DISALLOWED UNDER SECTION 36 (1)(III) OF T HE ACT. 6. ASSESSEE PRODUCED THE DETAILS OF THE INTEREST PA ID ON THE LOAN AND ALSO THE DETAILS OF THE INTEREST RECEIVED BY THE AS SESSEE AND SUBMITTED THAT THE INTEREST EXPENSE HAS TO BE NET OF TO THE DIFFER ENCE BETWEEN THE INTEREST PAID AND INTEREST RECEIVED, NAMELY, INTERE ST PAID RS. 31,37,41,731/- AND THE INTEREST RECEIVED RS. 27,54,10,427/- AND TH EREFORE THE CLAIM OF THE ASSESSEE TOWARDS THE INTEREST EXPENSE WAS ONLY RS. 3,83,31,304/- WHICH ALONE HAS TO BE CONSIDERED FOR A ALLOWING OR DISALL OWING THE INTEREST EXPENSE. LD. CIT(A), HOWEVER, DID NOT ACCEPT THE CO NTENTION OF THE ASSESSEE AND OBSERVED THAT THOUGH RS. 31,37,41,731/- TOWARDS THE INTEREST PAID AND RS. 27,54,10,427/- TOWARDS THE INTEREST RECEIVED IS APPEARING IN THE P&L ACCOUNT, THERE IS NO ONE-TO-ONE CONNECTION BETWEEN THE LOANS GIVEN AND THE LOANS TAKEN. 4 7. ASSESSEE PRODUCED BEFORE US THE P&L ACCOUNT AND THE BALANCE SHEET TO DEMONSTRATE THAT THE ASSESSEE HAD SHOWN BO TH THE INTEREST PAID AND THE INTEREST RECEIVED AND THAT THE BORROWED FUN DS HAVE BEEN UTILISED TO THE INTEREST. IT COULD BE SEEN FROM PAGE NO. 62 OF THE PAPERBOOK THAT THE ASSESSEE HAD SHOWN THE NAMES OF THE ENTITIES FR OM WHOM THE LOAN WAS TAKEN AND THE NAMES OF THE ENTITIES TO HOME LOANS A ND ADVANCES WERE GIVEN. APART FROM THIS THE ASSESSEE HAD PRODUCED TH E COPIES OF THE BALANCE SHEET AND ALSO THE P&L ACCOUNT TO BE FOUND AT PAGE NUMBERS 68 AND 69-71 OF THE PAPERBOOK WHERE THESE 2 AMOUNTS ARE SHOWN. F URTHER, THESE DOCUMENTS GO TO SHOW THAT AS ON 31/3/2010 THE LOANS SECURED BY THE ASSESSEE STOOD AT RS. 1, 39, 78, 00, 000/- AND SUCH LOANS BY 31/3/2011 WERE RS. 3 41.30 CRORES; WHEREAS THE LOANS AND ADVANCES GIVEN AS ON 31/3/2010 WERE RS. 87, 95, 80, 423/- WHEREAS BY 31/3/2011 SUC H LOANS ADVANCED WERE RUPEES 263 OF THE ACT .98 CRORES. ALL THIS GO TO SH OW THAT THE ASSESSEE HAS BEEN SPENDING THE LOAN TAKEN AMOUNT TOWARDS ADVANCE MENT OF LOANS FOR EARNING THE INCOME. IN THE CIRCUMSTANCES THERE NOTH ING IMPROBABLE IN THE SUBMISSION OF THE ASSESSEE THAT THEY ARE UTILISING THE LOANS TAKEN FOR ADVANCING THE LOANS TO EARN INTEREST; AND THAT BOTH THE INTEREST PAID AND INTEREST RECEIVED ARE REFLECTED IN THE FINANCIALS O F THE ASSESSEE. 8. IN THE CIRCUMSTANCES WE ARE OF THE CONSIDERED OP INION THAT THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE THAT THE LOANS TAKEN WERE UTILISED FOR ADVANCING THE LOANS IN FURTHERANCE OF THEIR BUSINESS AND, THEREFORE, THE ASSESSEE IS ENTITLED TO CLAIM THAT T HE DIFFERENCE BETWEEN THE INTEREST PAID AND INTEREST RECEIVED ALONE HAS TO BE CONSIDERED TOWARDS THE CLAIM OF INTEREST EXPENDITURE AND ANY DISALLOWANCE OF THE INTEREST EXPENSE HAS TO BE MADE ONLY WITH REFERENCE TO THE DIFFERENC E AMOUNT AND NOT WITH 5 REFERENCE TO THE ENTIRE INTEREST AMOUNT PAID. WITH THIS VIEW OF THE MATTER, WE DIRECT THE LEARNED ASSESSING OFFICER TO LIMIT TH E DISALLOWANCE OF 15% ON RS. 3, 83, 31, 304/- AND TO DELETE THE BALANCE AMOU NT. GROUND OF ASSESSEES APPEAL IS ACCORDINGLY ALLOWED IN PART. 9. FIRST GROUND OF REVENUES APPEAL RELATES TO THE ADDITION OF RS. 6, 30, 73, 410/- ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. IT COULD BE SEEN FROM TH E ASSESSMENT ORDER, THAT ON OBSERVING THAT THE ASSESSEE HAD RECEIVED A DIVID END AMOUNT OF RS. 5,71,95,882/- BY MAKING AN INVESTMENT OF RS. 42,50, 13,767/-, THE ASSESSING OFFICER JUMPED TO THE CALCULATION OF DISALLOWANCE U NDER RULE 8D OF THE RULES WITHOUT REFERRING TO THE CLAIM OF EXPENDITURE , IF ANY, PREFERRED BY THE ASSESSEE IN THEIR BOOKS. ASSESSEE CLAIMS THAT NO EX PENSES HAVE BEEN CLAIMED BY THE ASSESSEE IN THEIR P&L ACCOUNT WHICH IS RELATABLE TO THE EARNING OF THE EXEMPT INCOME, INASMUCH AS ALL THE I NVESTMENTS WERE MADE IN EARLIER ASSESSMENT YEARS OUT OF THE ASSESSEES O WN FUNDS AND THE DEPARTMENT HAD ACCEPTED THE SAME. ASSESSEE FURTHER CONTENDED BEFORE THE LD. CIT(A) THAT THE LEARNED ASSESSING OFFICER H AD NOT RECORDED ANY SATISFACTION BEFORE PROCEEDING TO MAKE THE DISALLOW ANCE, AND SUCH DISALLOWANCE IS BAD IN LAW. 10. ON THIS ASPECT LD. CIT(A) OBSERVED THAT IN VIE W OF THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. TAIKISHA ENGINEERING INDIA LTD 370 ITR 338 (DEL) FOLLOWED IN CIT VS. IP SUPPORT SERVICES INDIA PVT. LTD IN ITA NO. 283/2015 DATED 2 4/9/2015 (DELHI), THE ACTION OF THE LEARNED ASSESSING OFFICER IN INVOKING SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES WITHOUT RECORDING HI S SATISFACTION CANNOT BE APPROVED. AS A MATTER OF FACT, LD. CIT(A) FOUND THA T NO SATISFACTION OF THE 6 LEARNED ASSESSING OFFICER WAS RECORDED NOR AT LEAST SUCH SATISFACTION COULD BE DISCERNED FROM THE ASSESSMENT ORDER, AS TO WHY T HE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE WAS UNREASONABLE AND UNSATISFACTORY (OR LACK OF ANY SUO MOTO DISALLOWANCE), WHICH IS A MANDATORY REQUIREMENT UNDER LAW. LD. CIT(A), THEREFORE, DELETED THE ADDIT ION ON THIS SCORE. 11. THERE IS NO DISPUTE ABOUT THE FACTUAL FINDING O F THE LD. CIT(A) THAT THE LEARNED ASSESSING OFFICER DID NOT RECORD ANY SA TISFACTION TOWARDS THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING TH E EXEMPT INCOME, NOT ANY SUCH SATISFACTION IS IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER. LD. CIT(A) RIGHTLY FOLLOWED THE BINDING PRECEDENT OF TH E HONBLE JURISDICTIONAL HIGH COURT, AND THEREFORE, WE FIND IT DIFFICULT TO HOLD THAT THE IMPUGNED FINDINGS OF THE LD. CIT(A) SUFFER ANY LEGAL INFIRMI TY. WE, THEREFORE, UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS GROUND N O. 1 OF THE REVENUES APPEAL. 12. GROUND NO. 2 OF REVENUES APPEAL IS IN RESPECT OF THE ADDITION OF RS. 3, 54, 89, 157/- ON ACCOUNT OF DISALLOWANCE OF 10% OF THE PURCHASES MADE BY THE ASSESSEE FROM THE SISTER CONCERN. IN HIS ORD ER LEARNED ASSESSING OFFICER RECORDED THAT THE ASSESSEE MADE SUBSTANTIAL PURCHASES AND SALES WITH THE GROUP COMPANIES FOR WHICH NO DETAILS WERE FILED BY THE ASSESSEE AND IN THE ABSENCE OF ANY VERIFIABLE DETAILS, AN AD DITION OF 10% OF THE TOTAL PURCHASES MADE BY THE ASSESSEE FROM THE GROUP COMPA NIES IS JUSTIFIABLE. LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT A S UBSTANTIAL AMOUNT OF RS. 25 CRORES WAS DECLARED UNDER SECTION 132 (4) OF THE ACT AT THE TIME OF SEARCH ON THE ASSESSEE GROUP, ON ACCOUNT OF BOGUS P URCHASES AND, IN SUCH CIRCUMSTANCES, THE POSSIBILITY TO INFLATE THE PURCH ASES CANNOT BE RULED OUT. 7 13. ON THIS ASPECT, WHILE ADMITTING THE ADDITIONAL EVIDENCE UNDER RULE 46A OF THE RULES, LD. CIT(A) SOUGHT THE REPORT OF T HE LEARNED ASSESSING OFFICER AND ON VERIFICATION OF THE RECORD LEARNED A SSESSING OFFICER REPORTED THAT THE LETTERS DATED 31/10/2013 AND 27/11/2013 WE RE TO BE FOUND ON RECORD WHEREAS THE LETTER DATED 9/12/2013 WAS NOT T O BE FOUND. ON VERIFICATION OF THE LETTERS TO BE FOUND ON THE RECO RD MORE PARTICULARLY THE LETTER DATED 27/11/2013, LD. CIT(A) FOUND THAT THIS LETTER CONTAINS THE PART WHERE THE DETAILS OF PURCHASES AND SALES AND SUCH D ETAILS ESTABLISH THE FACT THAT THE ASSESSEE HAD PURCHASED AND SOLD GOATS IN T HE SAME DAY THE TRANSACTIONS BEING WITH A SISTER CONCERNS, BUT THE FACT REMAINS THAT BOTH THE PURCHASES AND SALES WITH GROUP CONCERNS, THE BO GUS PURCHASES WOULD NATURALLY BE OFFSET WITH A BOGUS SALE RESULTING IN A ZERO-SUM OUTCOME. LD. CIT(A) FURTHER OBSERVED THE ASSESSEE HAD OFFERED PR OFIT ON THE SET OF PURCHASES AND SALES TRANSACTIONS. HE FURTHER HELD T HAT IN VIEW OF THE DECISION IN THE CASE OF ROYAL MARWAR TOBACCO PRIVAT E LIMITED (2009) 29 SOT 53 (AHD) (URO) AND HC CHANDANA (P) LTD VS. DCIT (91 TTJ 243 (DELHI)), AN ADMISSION OF BOGUS PURCHASES IN SOME EARLIER YEAR C ANNOT BE EXTRAPOLATED TO THE CURRENT YEAR WITHOUT ANY SPECIFIC EVIDENCE I N RESPECT OF THE LATER YEAR. 14. WE ARE IN AGREEMENT WITH THE LD. CIT(A) THAT ON E CANNOT DISALLOW THE PURCHASES ON SUSPICION ALONE, WHILE IGNORING TH AT THE CORRESPONDING SALES WOULD HAVE TO BE TREATED AS BOGUS ALSO, IN WH ICH EVENT IT WOULD RESULT IN ZERO-SUM OUTCOME. WITHOUT REJECTING THE SALES, I T WOULD BE UNREASONABLE TO SUSPECT THE PURCHASES ALONE. LEARNE D ASSESSING OFFICER DID NOT MAKE OUT ANY DISCREPANCY IN THE STATUTORILY MAN DATED AUDITED ACCOUNTS OF THE ASSESSEE. LEARNED ASSESSING OFFICER MERELY PROCEEDED ON 8 SUSPICION IN VIEW OF THE DECLARATION OF RS. 25 CROR ES UNDER SECTION 132 (4) OF THE ACT BY ONE SH. HS BEDI ON BEHALF OF THE ASSE SSEE GROUP OF COMPANIES FOR AN EARLIER YEAR, WHICH IS QUITE IMPERMISSIBLE I N VIEW OF THE DECISIONS REFERRED TO BY THE LD. CIT(A). LD. CIT(A) IS RIGHT IN OBSERVING THAT HOWEVER GRAVE THE SUSPICION IS, IT IS NOT EQUIVALENT TO EVI DENCE OR PROOF. NO ADDITION CAN BE MADE BASING ON SUSPICION, WHEN THE BOOKS ARE AVAILABLE BEFORE THE ASSESSING OFFICER TO BRING OUT MATERIAL SUFFICIENT TO SUPPORT HIS SUSPICION. IN THE ABSENCE OF ANY SUCH EVIDENCE, NO AD HOC DISALLO WANCE COULD BE SUSTAINED AND, ACCORDINGLY, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 2 OF REVENUES APPEAL IS, AC CORDINGLY, DISMISSED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/10/2020 SD/- SD/- (PRASHANT MAHARISHI) (K. NARSIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23.10.2020 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI