ANSH MERCHANDISE P LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 6458/MUM/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7578 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P MEENA
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Bogus purchase; Gift; Opportunity of being heard; Principle of natural justice; Peak credit; Earning of tax free income; Accommodation entries
• Section: 69C; 143(3); 5(2); 14A; 133(6)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.6458/MUM/2014 ( / ASSESSMENT YEAR: 2010 - 11) ANSH MERCHANDISE PRIVATE LTD, OFF ICE NO. 211, BALAJI ARCADE NEAR SEJAL GLASS, S.V. ROAD, KANDIVALI (W), MUMBAI - 400067 / V. DCIT 5(2) AAYAKAR BHAVAN, MUMBAI - 400020 ./ PAN : AABCN8176E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: DR. K. SHIVARAM & SHRI. RAHUL HAKANI REVENUE BY : SHRI. R.P MEENA ,CIT - DR / DATE OF HEARING : 27 - 03 - 2018 / DATE OF PRONOUNCEMENT : 16 - 04 - 2018 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE , BEING ITA NO. 6458/MUM/2014 FOR ASSESSMENT YEAR 2010 - 11 IS DIRECTED AGAINST THE APPELLATE ORDER DATED 28.08.2014 PASSED BY LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 9 , MUMBAI (HEREINAFTER CALLED 'THE CIT (A) ') , THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 26 - 03 - 2013 PASSED BY THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO ) U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED 'THE ACT') FOR ASSESSMENT YEAR 2010 - 11 . I.T.A. NO.6458/MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED 'THE TRIBUNAL') READ AS UNDER - 1. THE LEARNED COMMISSIONER OF IN COME TAX (APPEAL) HAD ERRED BY APPROVING THE WRONG ACTION, TAKEN BY LEARNED ASSESSING OFFICER, OF APPLYING WRONGLY THE RULE 8D PURSUANT TO THE PROVISIONS OF SECTION 14A TO THE ASSESSEE COMPANY WHO IS ENGAGED IN THE BUSI NESS OF 'TRADING IN COMMODITIES AND INVESTMENT IN EQUITY SHARES'. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) HAS AGAIN SEVERELY ERRED IN TREATING GENUINE PURCHASE AS BOGUS PURCHASE AMOUNTING TO RS. 19,69,43,88 3/ - AS BY APPROVING THE UNFAIR AND UNREASONABLE STAND TAKEN BY LEARNED ASSESSING OFFICER OF CONSIDERING GENUINE PURCHASE AS BOGUS PURCHASE. THE LEARNED ASSESSING OFFICE HAS MADE VERY HIGH PITCHED ASSESSMENT ORDER. 3. THE APPELLANT CRAVES TO ADD, AMEND OR ALTER THE GROUNDS OF APPEAL AT TH E TIME OF OR BEFORE THE HEARING OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF GOODS. INFORMATION WAS RECEIVED BY AO FROM THE DGIT (INV.) MUMBAI THAT SOME PARTIES HAVE PROVIDED ACCOMMO DATION BILLS WITHOUT SUPPLYING A N Y MATERIAL . IT WAS OBSERVED BY THE AO THAT THE FOLLOWING ENTITIES H AVE PROVIDED ACCOMMODATION ENTRIES TO ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR FOR RS. 19,69,43,883/ - , THE DETAILS OF WHICH ARE AS UNDER: - NAME PA N A.Y. AMOUNT (RS.) ; STRONG TRADING PVT LTD AAMCS9529E 2009 - 10 1,57, 85,686 ACCURATE MULTITUDE PVT LTD AAGCA7138L 2009 - 10 27,15,326 KRISHNA TRADING ASSOCIATES AMMPG4969Q 2009 - 10 8, 40,77,603 SIDDHIVINAYAK ENTERPRISES AIVPT3929Q 2009 - 10 85,68,599 : SHIV TRADING ENTERPRISES AMQPG3642J 2009 - 10 76,65,261 ASHTA VINAYAK ASSOCIATE BCFPS9832Q 2009 - 10 16,58,567 ANAND TRADING CORPORATION AHXPK9433H 2009 - 10 7,64, 72.841 ---------------- 19,69,43,883 ------------------- I.T.A. NO.6458/MUM/2014 3 THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME BY THE AO. THE ASSESSEE SUBMITTED THAT IT HAS GENUINELY PURCHASED CUT & POLISH ED DIAMONDS FROM SEVEN PARTIES MENTIONED IN THE SHOW CASE NOTICE AND THE SAID MATERIAL WAS SOLD TO M/S. GOENKA DIAMOND & JEWELS LTD. TH E AO REJECTED THE CONTENTION S OF THE ASSESSEE AS IN THE OPINION OF AO , SALES TAX DEPARTMENT , GOVT. OF MAHARASHTRA HAS MADE A DEEP INVESTIGATION OF ACCOMMODATION ENTRY PROVIDERS AND STATEMENT ON OATH HAS BEEN RECORDED WHEREIN THE SE PARTIES HAVE SPECIFICAL LY MENTIONED THAT THEY HAVE NOT DONE ANY BUSINESS BUT ONLY PROVIDED ACCOMMODATION ENTRIES WITHOUT SUPPLYING ANY MATERIAL . THE ASSESSEE IS ONE OF THE BENEFICIARIES OF THE SAID BOGUS ENTRIES AND THE AO MADE ADDITION S TO THE INCOME OF THE ASSESSEE TO THE TUN E OF RS. 19,69,43,883/ - WHEREIN THE AO HELD THAT THE ASSESSEE HAS OBTAINED ACCOMMODATION ENTRIES AND REDUCED ITS PROFIT AND CONSEQUENTLY LIABILITY TO TAX TO THE TUNE OF RS. 19,69,43,883/ - , VIDE ASSESSMENT ORDER DATED 26 - 03 - 2013 PASSED U/S 143(3). 4. T H E MATTER WENT IN APPEAL BEFORE THE LEARNED CIT - A WHO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE RESTRICTED THE ADDITION TO THE PEAK CREDIT WHICH COME S TO RS. 14,15 , 44,853/ - , VIDE APPELLANT ORDER DATED 28.08.2014 PASSED BY LEARNED CIT(A) . 5. THERE W AS ALSO DISALLOWANCE TO THE TUNE OF RS. 6,76,691/ - MADE BY THE AO U/S. 14A READ WITH RULE 8D OF INCOME - TAX RULES, 1962 WITH RESPECT TO THE EXPENSES INCURRED IN RELATION TO THE EARNING OF AN EXEMPT INCOME . T HE AO OBSERVED FROM P&L ACCOUNT AND BALANCE SHEET OF THE ASSESSEE THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 1,26,939/ - WHICH WAS CLAIMED AS AN EXEMPT INCOME U/S. 10(34) AND THE ASSESSEE HAD AVERAGE INVESTMENT IN THE SHARES AND MUTUAL FUND TO THE TUNE OF RS. 13,16,03,434/ - . T HE AO OBSERVED THAT ALL THE EXPENSES INCURRED ARE OUT OF THE COMMON POOL FUNDS AND THE ASSESSEE HAS ALSO MAINTAINED COMPOSITE BOOKS OF ACCOUNTS FOR TAXABLE INCOME AND EXEMPT INCOME. THE AO OBSERVED THAT THE ASSESSEE HAS PAID INTEREST OF RS. 1,96,737/ - . THE AO APPLIED RULE 8D OF THE 1962 RULES R.W.S. 14A AND MADE DISALLOWANCE OF RS. 6,76,691/ - , AS DETAILED HERE UNDER: - I.T.A. NO.6458/MUM/2014 4 I) NIL II) IN TEREST EXPENSE X AVERAGE INVEST M E NT AVERAGE ASSET RS. 198737 X RS 131603434 RS. 1400566891 RS. 18,674 III) 0.5% OF AVERAGE INVESTMENT 0.5% X RS. 131603434 DISALLOWANCE U/S. 14A = RS. 18,674/ - + RS. 6,58,017/ - = 6,76,691/ - 6. THE ASSESSEE WENT IN APPEAL BEFORE THE LEARNED CIT - A WHO UPHELD THE ADD ITIONS VIDE APPELLATE ORDER DATED 28 - 08 - 2014 , BY HOLDING AS UNDER: - 5.3. DISALLOWANCE U/S 14A - AFTER CONSIDERING THE RIVAL SUBMISSIONS, IT IS NOTED THAT IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAS MADE HUGE INVESTMENT IN SHARES AND MUTUAL FUNDS AND EARNED SUBSTANTIAL INCOME FROM DIVIDEND WHICH ARE EXEMPT FROM TAX, THEREFORE I AGREE WITH THE FINDING OF THE A.O THAT THE ASSESSEE WOULD HAVE DEFINITELY INCURRED EXPENDITURE IN EARNING OF EXEMPT INCOME BECAUSE THE MAN POWER AS WELL AS INFRASTRUCTURE OF THE APPELLANT COMPANY WAS UTILIZED FOR EARNING OF THE EXEMPT INCOME. UNDER THESE CIRCUMSTANCES, DISALLOWANCE U/S.14 A IS JUSTIFIED. FROM A.Y 2008 - 09 PROVISIONS OF RULE 8D ARE ALSO APPLICABLE IN ALL SUCH CASES WHERE IT IS NOT PRACTICALLY POSSIBLE TO EXACTLY SEGREGATE THE EXPENSES INCURRED IN RELATION TO E ARNING OF EXEMPT INCOME, LIKE THE CASE OF THE APPELLANT. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE LTD., (2010) 328 ITR 81 HAS UPHELD THE APPLICABILITY OF RULE 8D IN SUCH CASES. THEREFORE, THE DISALLOWANCE MADE BY THE A.O U/S.14 A BY INVOKING THE PROVISIONS OF RULE 8D IN THE INSTANT CASE IS JUSTIFIED, HENCE THE SAME IS CONFIRMED. 7 . AGGRIEVED BY THE APPELLATE ORDER DATED 28 - 08 - 2014 PASSED BY LEARNED CIT(A) W.R.T. UPHOLDING OF BOTH THE ADDITIONS , THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE UPHOLDING OF THE ADDITIONS WITH RESPECT TO BOTH THE ISSUES . T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT DISALLOWANCE U/S. 14A HAVE BEEN MADE TO THE TUNE OF RS. 6,76,691/ - BY APPLYING RULE 8D BUT THE SAID DISALLOWAN CE CANNOT EXCEED EXEMPT INCOME WHICH WERE TO THE TUNE OF RS. 1,26,939/ - . THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PRIVATE LTD V. CIT REPORTED IN (2015) 372 ITR 6 94 (DEL H C) . IT WAS ALSO SUBMITTED THAT AS PER DECISION OF ITAT, DELHI - SPECIAL BENCH I.T.A. NO.6458/MUM/2014 5 IN THE CASE OF ACIT V. VIREET INVESTMENT PRIVATE LTD REPORTED IN (2017) 165 ITD 27(DEL - TRIB.)(SB) ON LY THOSE INVESTMENTS WHICH YIELDED DIVIDEND /EXEMPT INCOME DURING THE RELEVANT YEAR ARE TO BE CONSIDERED FOR MAKING DISALLOWANCE U/S. 14A R . W . R . 8D . T HE LD. COUNSEL FOR THE ASSESSEE WITH RESPECT TO THE SECOND DISALLOWANCE OF ALLEGED BOGUS PURCHASES SUBMITTED THAT ASSESSEE WAS DEALING IN DIAMONDS AND PURCHASES WERE MADE FROM 56 PARTI ES WHILE DISALLOWANCE WERE MADE W.R.T. SEVEN PARTIES TO THE TUNE OF RS. 19,69,43,883/ - BASE D ON INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEPARTMENT . IT WAS SUBMITTED THAT BOOKS OF ACCOUNTS WERE NOT REJECTED BY THE AUTHORITIES I.E. AO AS WELL LEARNED CIT(A). O UR ATTENTION WAS DRAWN TO PAGE 32 OF THE PAPER BOOK AND IT WAS SUBMITTED THAT ASSESSEE ASKED FOR CROSS EXAMINATION OF THE SAID PARTIES WHO HAD GIVEN STATEMENT AGAINST THE ASSESSEE BUT THE SAME WERE NOT ALLOWED. THE LEARNED COUNSEL FOR THE ASSESS EE WOULD RELY ON DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. ASHISH INTERNATIONAL IN ITA NO. 4299 OF 2009 DATED 22/02/2011 . OUR ATTENTION WAS DRAWN TO PAGE NO. 31 OF THE PAPER BOOK WHEREIN NOTICE ISSUE D BY AO TO ASSESSEE WITH RESPECT TO T HE SEVEN PARTIES IS PLACED. I T WAS SUBMITTED THAT NO NOTICES WERE ISSUED BY THE AO TO SAID PARTIES U/S. 133(6) AND ALSO NO SUMMONS WERE ISSUED BY THE AO TO THESE PARTIES U/S 131. O UR ATTENTION WAS ALSO DRAWN TO PAGE 30 OF THE PAPER BOOK AND IT WAS SUBMIT TED THAT DETAIL OF PURCHASES WERE SUBMITTED ALONG WITH COPY OF LEDGER ACCOUNT OF PARTIES BEFORE THE AO. IT WAS SUBMITTED PEAK ADDITION HAD WRONGLY BEEN ADDED U/S. 69C . O UR ATTENTION WAS DRAWN TO PAGE 94 OF PAPER BOOK WHEREIN DECISION OF HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT V. ASHISH INTERNATIONAL IN ITA NO. 4299 OF 2009 VIDE ORDERS DATED 22.2.2011 IS PLACED. T HE ASSESSEE ALSO RELIED UPON DECISION IN THE CASE OF FANCY WEAR V. ITO REPORTED IN (2017) 167 ITD 621 (MUM - TRIB.) . THE ASSESSEE ALSO DREW OUR A TTENTION TO PARA 5.4 OF LEARNED CIT - A APPELLATE ORDERS , AND ALSO TO STATEMENT OF FACT FILE D BEFORE THE LEARNED CIT - A VIDE PARA B(V) OF STATEMENT OF FACT TO CONTEND THAT CROSS EXAMINATION OF THESE PARTIES WERE SOUGHT BUT DENIED BY AUTHORITIES BELOW . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE COULD NOT PRODUCE THE SE PARTIES AND THE ONUS IS NOT ON THE ASSESSEE TO PRODUCE THESE PARTIES . I T WAS ALSO SUBMITTED THE PEAK CREDIT CANNOT BE APPLIED UNDER THESE CIRCUMSTANCES . THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON DECISION IN THE CASE OF ACIT V . CHORON DIAMOND INDIA P. LTD IN ITA NO. 4449/MUM/2016, AY 2007 - 08 ETC. . T HE ASSESSEE ALSO RELIED I.T.A. NO.6458/MUM/2014 6 UPON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CA SE OF ITO V . RATNALAYA DIAMOND S PRIVATE LTD. IN ITA NO. 3760/MUM/2016 IN AY 2007 - 08, DATED 16 - 08 - 2017 . IT WAS SUBMITTED THAT IN RATNALAYA DIAMOND PRIVATE LIMITED(SUPRA), TRIBUNAL HAS CONFIRMED ADDITION TO THE OF TUNE OF 6% OF ALLEGED BOGUS PURCHASES, WHILE IN THE CASE OF CHORON DIAMOND S INDIA PRIVATE L IMITED (SUPRA) CASE , TRIBUNAL RESTRICTED ADDITIONS TO THE TUNE OF 4% OF ALLEGED BOGUS PURCHASES . THE ASSESSEE ALSO RELIED UPON DECISION IN THE CASE OF AMY DI AM VEGA JEWELLERY PRIVATE LTD. V. DCIT IN ITA NO. 5799 - 5801/M/2016 . IT WAS SUBMITTED THAT ASSESSEE HAS DULY SUBMITTED COPIES OF BANK STATEMENT AS WELL AS COPY OF ITRS OF THESE PARTIES, WHICH ARE PLACED IN PAPER BOOK/PAGE 33 - 62. 8. THE LD. CIT - DR ON THE OTHE R HAND SUBMITTED THAT LD. CIT - A CALLED FOR REMAND REPORT FROM THE AO AND ASSESSEE HAS NOT PRODUCED DOCUMENTS/PARTIES BEFORE THE AO EVEN DURING THE REMAND PROCEEDINGS . THE LEARNED CIT DR SUBMITTED THAT THE ASSESSEE HAS NOT FILED REMAND REPORT AND SINCE IT IS ASSESSEE APPEAL , THE ONUS IS ON THE ASSESSEE TO FILE REMAND REPOR T. THE LEARNED CIT - DR REFER RED TO PARA 5.2 OF THE APPELLATE ORDER OF LEARNED CIT - A AND SUBMITTED T HAT ASSESSEE HAS NOT COOPERATED WITH R EVENUE AND EVEN NO QUANTITATIVE DETAILS/RECONCILIATION OF THE STOCK HAS BEEN SUBMITTED BY THE ASSESSEE. IT WAS SUBMITTE D BY LEARNED CIT - DR THAT AO HAS EXAMINED THE MATTER AS WELL MAHARASHTRA SALES TAX AUTHORITIES HAVE MADE DETAILED ENQUIRIES TO ARRIVE AT CONCLUSION THAT THESE PARTIES ARE MERELY HAWALA OPERATORS PROVIDING ACCOMMODATION ENTRIES. IT WAS SUBMITTED THAT DGIT(IN V.) ,MUMBAO ALSO MADE INDEPENDENT ENQUIRIES/INVESTIGATION AND CONCLUSIONS WERE ARRIVED THAT THE ASSESSEE IS BENEFICIARY OF ACCOMMODATION ENTRIES FROM THESE SEVEN ALLEGED HAWALA ENTRY PROVIDERS. THERE WERE SEVEN CONCERNS WITH WHOM THE ASSESSEE DEALT WHO WERE ENGAGED IN PROVIDING HAWALA ACCOMMODATION ENTRIES WITHOUT SUPPLYING MATERIAL. IT IS ALSO SUBMITTED THAT PURCHASE AND SALES BILLS HAVE NOT BEEN SUBMITTED AS THES E WERE NOT AVAILABLE WITH THE ASSESSEE. THE ASSESSEE HAS DEALT WITH THE HAWALA OPERATOR AND HA VE ONLY OBTAINED ACCOMMODATI ON ENTRIES WITHOUT ANY SUPPLY OF MATERIAL . MAHARASHTRA VAT DEPARTMENT AS WELL AS DGIT (INV.) HAS MADE NECESSARY ENQUIRES AND IT IS ONLY AFTER THESE ENQUIRIES STATEMENT WAS RECORDED OF THESE PARTIES . IT HAS COME TO THE NOTICE T HAT ASSESSEE HAS OBTAINED MERELY ACCOMMODATION ENTRY FROM SEVEN PARTIES WHEREIN NO I.T.A. NO.6458/MUM/2014 7 MATERIAL WAS SUPPLIED OF THESE PARTIES. IT WAS ALSO SUBMITTED BY LEARNED CIT DR THAT THE ASSESSEE HAS ONLY SUP PLIED RETURN OF INCOME/ BANK STATEMENT OF THESE SEVEN P ARTIES AND THEIR BALANCE SHEET, PROFIT & LOSS ACCOUNT ETC. HAVE NOT BEEN SUBMITTED AND ALSO NO CONFIRMATION FROM THESE PARTIES HAVE BEEN SUBMITTED. IT WAS SUBMITTED THAT THESE PARTIES HAVE MEAGRE INCOME AND HAVE NO CAPACITY TO DEAL WITH DIAMOND S OF SUCH MAGNITU DE. THESE PARTIES DOES NOT HAVE ANY INFRASTRUCTURE AVAILABLE WITH THE M AND HENCE AO HAS RIGHTLY DIS BELIEVE D THESE PARTIES. OUR ATTENTION WAS ALSO DRAWN TO PAGE NO. 33 - 62 , WHEREIN THE COPIES OF ITRS AND BANK STATEMENT OF THESE SEVEN PARTIES ARE PLACED A ND IT WAS SUBMITTED THAT THESE PARTIES DID NOT HAVE ANY CAPACITY/ CAPABILITIES TO DEAL WITH DIAMOND AND HENCE ADDITIONS WERE RIGHTLY MADE BY AUTHORITIES. THE LD. CIT - DR RELIED UPON DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. PRECISION FIN ANCE PRIVATE LIMITED (1994) 208 ITR 465 (CAL.HC) . IT WAS SUBMITTED THAT PAYMENT BY CHEQUE IS NOT SACROSANCT. IT WAS ALSO SUBMITTED BY LEARNED CIT - DR THAT THERE IS NO EVIDENCES ON RECORD OF ASSESSEE HAVING DEALT WITH CUT & POLISHED DIAMOND . IT WAS ALSO SUBM ITTED BY LEARNED CIT DR THAT T HERE IS NO EVIDENCE OF SUPPLY OF THESE DIAMONDS OF HUGE MAGNITUDE TO THE ASSESSEE BY THESE PARTIES AND ALSO THESE PARTIES WERE NOT HAVING ADEQUATE INFRASTRUCTURE FACILITIES AS IS EMANATING FROM THEIR AUDITED FINANCIAL STATEMENTS TO HAVE ADEQUATE INFRASTRUCTURE FACILITIES TO UNDERTAKE CUT AND POLISHED DIAMONDS . I T WAS SUBMITTED BY LEARNED CIT DR THAT A SSESSEE IS DEALING IN COMMODITIES AND SHARES AND IT IS STRANGE THAT THE ASSESSEE VENTURED INTO CUT AND POLISHED DIAMONDS. THE LD CIT - DR RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CA SE OF N.K PROTEINS LIMITED V . DCIT IN SPECIAL LEAVE TO APPEAL (C).. CC NO(S) 769 OF 2017 VIDE ORDERS DATED 16 - 01 - 2017, REPORTED IN 2017 - TIOL - 23 - SC - IT AND PRAYED THAT ADDITIONS TO THE TUNE OF 100% OF THE ALLEGED BOGUS PURCHASES BY UPHELD. THE LEARNED CIT DR ALSO RELIED UPON DECISION OF HONBLE SUPREME COURT IN THE CAS E OF CIT V. P. MOHANKALA (2007) 161 TAXMAN 169 (SC), DECISION OF HONBLE SUPREME COURT IN THE CASE SUMATI DAYAL V. CIT REPORTED IN (1995) 80 TAXMAN 89 (SC) DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V. DURGA PARSAD MORE (1971) 82 ITR 540(SC), AND IT WAS SUBMITTED THAT THE APPELLATE ORDER OF LEARNED CIT - A BE UPHELD. WITH RESPECT TO ADDITIONS MADE OF DISALLOWANCE U/S 14A R.W.R. 8D, IT WAS SUBMITTED BY LEARNED CIT DR THAT RULE 8D OF THE 1962 RULES WA S CORRECTLY I.T.A. NO.6458/MUM/2014 8 APPLIED BY THE AO. IT WAS SUBMITTED T HAT THE ASSESSEE HAS CLAIMED EXEMPT INCOME TO THE TUNE OF RS. 1.26 LAC BY WAY OF DIVIDEND INCOME . THE LEARNED CIT DR WOULD RELY ON DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (2018) 91 T AXMAN.COM 154 (SC) AND STATED THAT THE SAID DECISION IS DIRECTLY APPLICABLE TO THE FACTS BEFORE US. 9 . THE LD. COUNSEL ON THE OTHER HAND SUBMITTED IN REJOINDER THAT HONBLE CALCUTTA HIGH COURT DECISION IN THE CASE OF CIT V. PRECISION FINANCE PRIVATE LTD. (SUPRA) DEALS WITH CASH CREDIT AND DOES NOT DEAL WITH NORMAL PURCHASES MADE BY THE TAXPAYER. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DISTINGUISHED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF P. MOHANK ALA (SUPRA) AND SUBMITTED THAT THIS DECISION DEALS WITH GIFTS WHICH IS NOT THE CASE HERE. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DISTINGUISHED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF N.K PROTEINS LTD. (SUPRA) AND IT WAS SUBMITTED THAT IN THIS CASE UNSIGNED CHEQUE BOOKS OF THE SUPPLIERS WERE FOUND WITHIN THE PREMISES OF THE PERSON WHO WAS SEARCHED I.E . N.K PROTEINS LTD. . O N BEING ASKED BY THE BENCH TO PROVE ABOUT THE INFRASTRUCTURE OF THE ASSESSEE TO UNDERTAKE THE BUSINESS OF CUT AND POLISHED DIAMONDS AND GROSS B LOCK OWNED BY THE ASSESSEE , IT WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT THE G ROSS B LOCK OF THE ASSESSEE IS ONLY RS. 1.98 LAC WHICH CONSIST OF COMPUTER, FURNITURE AND OFFICE EQUIPMENT. THE ASSESSEE S COUNSEL SUBMITTED THAT ASSESSEE IS TRADING IN DIAMOND S A ND THE DIAMOND ARE KEPT IN OFFICE. IT WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT NO STRONG VAULT/LOCKERS ARE KEPT BY THE ASSESSEE . I T IS SUBMITTED THAT DIAMONDS ARE KEPT IN THE OFFICE. O N BEING ASKED BY THE BENCH , IT WAS SUBMITTED BY THE ASS ESSEE S COUNSEL THAT ONLY DETAILS AS TO PURCHASES WERE SUBMITTED BEFORE THE AO (PAGE 63/PAPER BOOK) . IT WAS SUBMITTED THAT QUANTITATIVE DETAILS AND RECONCILIATION OF THE STOCK IS NOW SUBMITTED FOR THE FIRST TIME BEFORE THE TRIBUNAL AND THE SAME WAS NOT P RODUCED BEFORE THE AUTHORITIES BELOW . ON BEING ASKED BY THE BENCH IT WAS SUBMITTED THAT THE SALE AND PURCHASE BILLS WERE WITH THE SALES TAX DEPARTMENT VIDE RE CEIPT DATED 21.08.2012 AND THESE WAS NEVER PRODUCED BEFORE THE AO AS WERE BEFORE THE CIT - A ( PAGE N O.30 OF THE PAPER BOOK LETTER DATED 01 - 03 - 2013 TO AO/ PARA 2 ) . I T WAS SUBMITTED THAT QUANTITATIVE STOCK/RECONCILIATION WERE NOT VERIFIED BY AO AS WELL AS LEARNED CIT - A AS IT WAS NEVER BEFO RE THE AO AS WELL AS CIT - A AND IS PRODUCED FOR THE FIRST TIME I.T.A. NO.6458/MUM/2014 9 B EFORE THE TRIBUNAL AND PRAYER WAS M ADE THAT ONE MORE OPPORTUNITY BE PROVIDED TO THE ASSESSEE TO PRODUCE ALL DETAILS BEFORE THE AO FOR EXAMINATION AND VERIFICATIONS AND THE ASSESSEE UNDERTAKES TO PROVE GENUINENESS /BONAFIDE OF ITS CASE AND MATTER MAY BE SET ASIDE TO THE FILE OF THE AO. LATER , THE ASSESSEE COUNSEL HAS FILED REMAND REPORT OF THE AO WHICH IS NOW PART OF THE RECORD. 10 . WE HAVE CONSIDERED RIVAL CONTENTION S AND PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS BY RIVAL PARTIES . THE ASSESS EE IS STATED TO BE ENGAGED IN THE BUSINESS OF TRADING OF GOODS INCLUDING CUT AND POLISHED DIAMONDS . INFORMATION WAS RECEIVED BY AO FROM THE DGIT (INV.) MUMBAI THAT SOME PARTIES HAVE PROVIDED ACCOMMODATION BILLS WITHOUT SUPPLYING ANY MATERIAL , WHICH INFOR MATION WAS RECEIVED BY REVENUE BASED ON ENQUIRIES CONDUCTED BY MAHARASHTRA SALES TAX DEPARTMENT. THE ASSESSEE WAS STATED TO BE BENEFICIARY OF ACCOMMODATION ENTRIES TOWARDS ALLEGED BOGUS PURCHASES TO THE TUNE OF RS. 19,69,43,883/ - PROVIDED BY THESE SEVEN PA RTIES TO THE ASSESSEE. THESE PARTIES HAVE DEPOSED BEFORE MAHARASHTRA SALES TAX AUTHORITIES THAT THEY WERE ONLY ISSUING BOGUS BILLS WITHOUT SUPPLYING ANY MATERIAL. THE ASSESSEE WAS STATED TO BE BENEFICIARY OF THE ALLEGED ACCOMMODATION ENTRIES TOWARDS ALLEG ED BOGUS PURCHASES TO THE TUNE OF RS. 19,69,43,883/ - FROM FOLLOWING SEVEN PARTIES, THE DETAILS OF WHICH ARE AS UNDER: - NAME PAN A.Y. AMOUNT (RS.) ; STRONG TRADING PVT LTD AAMCS9529E 2009 - 10 1,57,85,686 ACCURATE MULTITUDE PVT LTD AAGCA7138L 2009 - 10 27,15,326 KRISHNA TRADING ASSOCIATES AMMPG4969Q 2009 - 10 8,40,77,603 SIDDHIVINAYAK ENTERPRISES AIVPT3929Q 2009 - 10 85,68,599 : SHIV TRADING ENTERPRISES AMQPG3642J 2009 - 10 76,65,261 ASHTAVINAYAK ASSOCIATE BCFPS9832Q 2009 - 10 16,58,567 ANAND TRADING CORPORATION AHXPK9433H 2009 - 10 7,64,72.841 ---------------- 19,69,43,883 ------------------- I.T.A. NO.6458/MUM/2014 10 THE AO MADE ADDITIONS TO THE TUNE OF 100% OF THE ALLEGED BOGUS PURCHASES WHICH WAS RESTRICTED TO PEAK CREDIT BY THE LEARNED CIT(A). THE ASSESSEE COULD NOT PRODUCE THESE PARTIES BEFORE THE AUTHORITIES BELOW. THE ASSESSEE ALSO COULD NOT PROVE AND ESTABLISH THAT THE DELIVERIES OF CUT AND POLISHED DIAMONDS WERE RECEIVED BY IT. THE ASSESSEE HAD ONLY PRODUCED DETAILS OF PURCHASES BEFORE AUT HORITIES BELOW AND EVEN SALE/PURCHASE INVOICES COULD NOT BE PRODUCED AS THESE INVOICES WERE STATED TO BE WITH SALES TAX AUTHORITIES . THE ASSESSEE PRODUCED BEFORE THE TRIBUNAL FOR THE FIRST TIME QUANTITATIVE DETAILS AND RECONCILIATION OF STOCK OF DIAMONDS , WHICH WAS NOT SUBMITTED BEFORE THE AUTHORITIES BELOW AND CONSEQUENTLY THE SAME COULD NOT BE SUBJECTED TO VERIFICATION BY THE AUTHORITIES BELOW . THESE PURCHASES ARE APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND PRIMARY ONUS IS ON THE ASSESSEE TO P ROVE THAT PURCHASES ARE GENUINE FOR WHICH THE ASSESSEE IS TO SUBMIT COGENT EVIDENCES TO SUBSTANTIATE ITS CASE . T HE ASSESSEE HAS TO DISCHARGE ITS PRIMARY BURDEN THAT IT WAS GENUINELY ENGAGED IN THE BUSINESS OF CUT AND POLISHED DIAMONDS AND THE PARTIES WHO WERE STATED TO HAVE SUPPLIED THE CUT AND POLISHED DIAMONDS HAD IN FACT SUPPLIED THE SAID CUT AND POLISHED DIAMONDS TO THE ASSESSEE AND THESE PURCHASES ARE INFACT GENUINE . THESE ARE PRIMARY ONUS WHICH IS ON THE ASSESSEE AS PURCHASES ARE REFLECTED IN THE BOO KS OF ACCOUNTS OF THE ASSESSEE. IF THE ASSESSEE DISCHARGES ITS PRIMARY ONUS , THEN THE ONUS SHIFTS TO REVENUE TO DISPROVE THE CONTENTIONS OF THE ASSESSEE BY BRINGING ON RECORD COGENT INCRIMINATING MATERIAL . ONCE THE ASSESSEE DISCHARGES ITS PRIMARY BURDEN AND STILL IF REVENUE WANTS TO RELY ON INCRIMINATING STATEMENT OF THESE PARTIES WHO HAVE DEPOSED TO BE ENGAGED IN PROVIDING ACCOMMODATION ENTRIES TOWARDS ALLEGED BOGUS PURCHASES WITHOUT SUPPLYING MATERIAL , THEN IN THAT CASE REVENUE HAS TO FURNISH COPIES OF THE RELIED UPON STATEMENT TO THE ASSESSEE AND CROSS EXAMINATION OF THESE PARTIES BE ALLOWED TO THE ASSESSEE. THUS, UNDER THESE CIRCUMSTANCES , WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE DESERVES ONE MORE OPPORTUNITY AND MATTER NEED TO BE RESTOR ED TO THE FILE OF LEARNED CIT(A) FOR FRESH ADJUDICATION OF THE ISSUE ON MERITS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT LEARNED CIT(A) SHALL PROVIDE PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW AND EVIDENCES/ EXPLANATIONS I.T.A. NO.6458/MUM/2014 11 SUBMITTED BY THE ASSESSEE IN ITS DEFENCE IN SET ASIDE PROCEEDINGS WILL BE ADMITTED BY LEARNED CIT(A) IN THE INTEREST OF SUBSTANTIAL JUSTICE. NEEDLESS TO SAY THAT POWERS OF LEARNED CIT(A) ARE CO - TERMINUS WITH POWERS OF THE AO. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. WE ORDER ACCORDINGLY. T HE ASSESSE E HAD MADE INVESTMENTS IN SHARES AND MUTUAL FUNDS TO THE TUNE OF RS. 13.16 CRORES AND HAS RECEIVED DIVIDEND INCOME OF RS. 1 , 26,939/ - WHICH WAS CLAIMED AS AN EXEMPT INCOME U/S 10(34) . THE ASSESSEE HAS MAINTAINED COMPOSITE BOOKS OF ACCOUNTS AND THERE IS MIXED/COMMON POOL OF FUNDS WHICH WERE UTILISED FOR MAKING INVESTMENTS IN SHARES/MUTUAL FUNDS AND IT WAS NOT POSSIBLE FOR THE ASSESSEE TO SEGREGATE /IDENTIFY THE EXPENDITURE INCURRED IN RELATION TO THE EARNING OF AN EXEMPT INCOME . T HE AO APPLIED PROVISION OF SECTION 14A R.W.R. 8D AND MADE DISALLOWANCE OF EXPENDITURE TO THE TUNE OF RS. 6,76,691/ - . THE ASSESSEE HAS CLAIMED ITSELF TO BE TRADER OF SHARE S AND IT WAS STATED THAT SINCE SHARES ARE HELD FOR TRADING PURPOSES , THEN NO DISALLOWANCE U/S 14A OF THE 1961 ACT IS WARRANTED . THE HONBLE SUPREME COURT IN MAXOPP INVESTMENT LIMITED (SUPRA) HAS ALREADY REJECTED THEORY OF DOMINANT PURPOSE FOR WHICH INVEST MENTS IN SHARES /MUTUAL FUNDS HAVE BEEN MADE AND EVEN IF SHARES ARE HELD AS STRATEGIC INVESTMENT OR STOCK - IN - TRADE, THE DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME HAS TO BE MADE U/S. 14A . THE ASSESSEE HAS TO MADE DISALL OWANCE OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME KEEPING IN VIEW PROVISION OF SECTION 14A HAVING REGARD TO ACCOUNTS OF THE ASSESSEE . THE AO HAS TO VERIFY/ ASCERTAIN THE DISALLOWANCE U/S 14A OF THE EXPENDITURE INCURRED IN RELATION TO EARNINGS OF EXEMPT INCOME HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE . THE AO HAS RECORDED SATISFACTION THAT KEEPING IN VIEW COMPOSITE BOOKS OF ACCOUNTS MAINTAINED AND MIX ED POOL OF FUNDS THERE IS A NEED TO INVOKE RULE 8D , DISALLOWANCE WAS ACCORDIN GLY WORKOUT BY THE AO TO THE TUNE OF RS. 6,76,691/ - BY APPLYING RULE 8D( 2 )(II) AND 8D( 2 )(III ). T HE HONBLE DELHI HIGH C OURT IN THE CASE OF JOINT INVESTMENT S PRIVATE LIMITED(SUPRA) HAS HELD THAT THE DISALLOWANCE U/S 14A CANNOT EXCEED EXEMPT INCOME . HONBL E SPECIAL B ENCH IN THE CASE OF VIREET INVESTMENT S P. LTD. (S UPRA) HAS HELD THAT ONLY INVESTMENTS WHICH YIELDED EXEMPT INCOME ARE TO BE CONSIDERED FOR MAKING DISALLOWANCE OF EXPENDITURE U/S 14A R.W.R. 8D . THUS, KEEPING IN VIEW RATIO OF ABOVE DECISIONS READ IN CONJUNCTION WITH PROVISIONS OF S ECTION 14A , DISALLOWANCE CANNOT EXCEED EXEMPT INCOME AND I.T.A. NO.6458/MUM/2014 12 HENCE WE ARE RESTRICTING THE DISALLOWANCE U/S. 14A R.W.R . 8D TO RS. 1,26,939/ - . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ON THIS GROUND. WE ORDER ACCORDINGLY. 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 6 .04.2018 1 6 .04.2018 S D / - S D / - (JOGINDER SIN GH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 1 6 .04.2018 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI