DCIT CIR 6(3)(1), MUMBAI V. INDIA FASHIONS LTD, MUMBAI

ITA 6921/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1468 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 06-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHI RAMA KARTIKEYANLD
• Keywords: Earning of tax free income; Retraction; Rule 8D
• Section: 143(3); 133A; 14A

Judgement Text

ITA NO.6921/MUM/2017 M/S. INDIA FASHIONS LTD. ASSESSMENT YEAR :2011-12 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6921/MUM/2017 ( / ASSESSMENT YEAR: 2011-12) D CI T , CIRCLE - 6(3)(1) ROOM NO.506, 5 TH FLOOR AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. / VS. M/S. INDIA FASHIONS LTD. 369, A-2 SHAH & NAHAR INDUSTRIAL ESTATE LOWER PAREL MUMBAI-400 013. ./ ./PAN/GIR NO. AABCI-4292-A ( ! /APPELLANT ) : ( '#! / RESPONDENT ) APPELLANT BY : ABHI RAMA KARTIKEYAN-LD.DR RESPONDENT BY : JITENDRA JAIN- AR / DATE OF HEARING : 12/03/2019 / DATE OF PRONOUNCEMENT : 19/03/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2011-12 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME- TAX (APPEALS)-12, MUMBAI, [IN SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A)-12/DCIT-6(3)(1)/248/2016-17 DATED 08/09/2017 ON FOLLOWING EFFECTIVE GROUNDS OF APPEAL: - ITA NO.6921/MUM/2017 M/S. INDIA FASHIONS LTD. ASSESSMENT YEAR :2011-12 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1 CRORE MADE BY THE AO ON ACCOUNT DISCLOSURE DURING THE SURVEY PROCEEDINGS AS THE ASSESSEE HAD O FFERED ADDITIONAL INCOME OF RS. 1 CRORE FROM MERCHANT TRADING FROM CHINA TO USA AND INCOME FROM WIND TURBINE AT TAMILNADU IN HIS STATEMENT RECORDED ON OATH U/S. 133A AND RETRACTION OF THE ASSESSEE FROM THE SWORN IN STATEMENT WAS AN AFTERTH OUGHT.' 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE U/S. 14A AT RS. 5,64,729/- COMPRISING OF INTEREST EXPENSES OF RS.4,69,401/- UNDER RULE 8D(2) (II) AND ADMINISTRATIVE EXPENSES OF RS. 95,328/- UNDER RULE 8D(2)(III), WIT HOUT APPRECIATING THE FACT THAT RULE 8D HAS A PRESCRIBED A FORMULA FOR CALCULATION OF DISALLOWANCE U/S 14A AND THE SAME IS BINDING IN NATURE AND THE INVESTMENTS WERE MADE FROM THE COMMON POOL OF FUND AND THE ASSESSEE HAD NOT PROVIDED ANY EVIDE NCE TO PROVE THAT THE INTEREST FREE ADVANCES WERE NOT MADE OUT OF BORROWED FUNDS.' 2.1 THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY L D. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(3)(1), MUMBAI [AO] U/S 143(3) READ WITH SECTION 144C ON 29/03/2015 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.5.64 LACS UNDER NORMA L PROVISIONS AS AGAINST LOSS OF RS.371.81 LACS E-FILED BY THE ASSES SEE ON 29/11/2011. THE BOOK PROFITS U/S115JB WERE COMPUTED AT RS.122.23 LACS AS AGAINS T RS.116.58 LACS COMPUTED BY THE ASSESSEE. THE ASSESS EE BEING RESIDENT CORPORATE ENTITY WAS STATED TO BE ENGAGED AS MANUFACTURER, TRADER AND EXPORTERS OF READYMADE GARMENTS DURING IMPUGNED AY. 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.3,225/- WHICH C ALLED FOR DISALLOWANCE U/S 14A. APPLYING THE PROVISIONS OF RU LE 8D, LD. AO WORKED OUT AGGREGATE DISALLOWANCE OF RS.5.64 LACS A GAINST THE SAME WHICH COMPRISED-OFF OF INTEREST DISALLOWANCE U/R 8D (2)(II) FOR RS.4.69 LACS AND EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS .0.95 LACS. 2.3 THE SECOND ADDITION OF RS.1 CRORE STEM FROM THE FACT THAT THE ASSESSEE WAS SUBJECTED TO SURVEY ACTION U/S 133A ON 26/11/2010 WHEREIN IN RESPONSE TO QUESTION NO.4 PUT TO THE DIR ECTOR OF THE ASSESSEE, ITA NO.6921/MUM/2017 M/S. INDIA FASHIONS LTD. ASSESSMENT YEAR :2011-12 3 THE ASSESSEE OFFERED ADDITIONAL INCOME OF RS.1 CROR E TO ACCOUNT FOR INCOME FROM MERCHANT TRADING FROM CHINA TO USA AND INCOME FROM WIND TURBINE PROJECT AT TAMIL NADU. ON THE BASIS OF THE SAME, LD. AO PROCEEDED TO ADD THE SAME TO THE INCOME OF THE ASSE SSEE SINCE THE SAME WAS NOT REFLECTED SEPARATELY IN THE RETURN OF INCOME FILED BY THE ASSESSEE. 2.4 THE ASSESSEE DEFENDED ITS STAND VIDE RELY DATED 18/03/2015 BY SUBMITTING THAT THE SAME WAS PURELY ADHOC DISCLOSURE AND THE INCOME & EXPENSES RELATING TO MERCHANT TRADING ACTIVITIES AS WELL AS TURBINE PROJECT WAS PROPERLY RECORDED IN THE BOOKS OF ACCOUNTS AND THEREFORE, FURTHER ADDITION / DISCLOSURE, ON THAT ACCOUNT, WAS NOT REQ UIRED. THE ATTENTION WAS DRAWN TO THE FACT THAT THE DISCLOSURE MADE DURI NG SURVEY PROCEEDINGS WAS SUBSEQUENTLY RETRACTED BY THE DIREC TOR ON 30/01/2011. HOWEVER, TREATING THE EXPLANATION MERELY AN AFTERTH OUGHT STORY CREATED BY THE ASSESSEE, THE AMOUNT OF RS.1 CRORE WAS ADDED TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITH S UCCESS BEFORE LD. FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDER DATED 08/09/2017 WHEREIN INTEREST DISALLOWANCE U/R 8D(2)(II) WAS DELETED BY OBSERVING THAT OWN FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS MADE BY THE ASSESSEE. TO ARRIVE THE SAID CONCLUSION, STRENGTH WAS DRAWN FROM THE JUDGMENTS OF HONBLE BOMBAY HIGH COURT RENDERED IN CIT VS RELIANCE UTILITIES & POWER LTD. [313 ITR 340] & ALSO IN CIT VS. HDFC BANK LTD. [ITA NO. 330 OF 2012 . THE EXPENSE DISALLOWANCE U/R 8D(2)(III) WAS RESTRIC TED TO RS.3,325, BEING EXEMPT INCOME EARNED BY THE ASSESSE E. AGGRIEVED BY ITA NO.6921/MUM/2017 M/S. INDIA FASHIONS LTD. ASSESSMENT YEAR :2011-12 4 THE AFORESAID RELIEF PROVIDED BY FIRST APPELLATE AU THORITY, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. UPON HEARING RIVAL SUBMISSIONS, THE FACTUAL MATR IX THAT ASSESSEES OWN FUNDS WERE FAR IN EXCESS OF INVESTMENTS MADE BY THE ASSESSEE REMAIN UNREBUTTED. NOTHING HAS BEEN PLACED ON RECOR D TO CONTROVERT THE FINDINGS IN IMPUGNED ORDER. SO FAR AS EXPENSE DISAL LOWANCE IS CONCERNED, WE FIND THAT THE DISALLOWANCE HAS BEEN R ESTRICTED TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE WHIC H IS IN LINE WITH THE SETTLED LEGAL POSITIONS. THEREFORE, FINDING NO INFI RMITY IN THE IMPUGNED ORDER, WE DISMISS THIS GROUND OF REVENUES APPEAL. 5.1 SO FAR AS THE ADDITION OF RS.1 CRORE IS CONCERN ED, THE ASSESSEE AGITATED THE SAME BEFORE FIRST APPELLATE AUTHORITY VIDE REPLIES DATED 22/08/2016 & 31/07/2017 WHEREIN THE ASSESSEE, INTER-ALIA, CONTENDED THAT THE SALE AND PURCHASE TRANSACTIONS FROM MERCHA NT TRADING ACTIVITY WERE DULY REFLECTED IN THE BOOKS OF ACCOUNTS AND TH E CONCERNED RECEIPTS AS WELL AS PAYMENTS WERE THROUGH BANKING CHANNELS. REGARDING WIND-TURBINE PROJECT, IT WAS SUBMITTED TH AT THE ASSESSEE GENERATED AND SOLD ENERGY AGGREGATING TO RS.11.98 L ACS TO TAMIL NADU STATE ELECTRICITY BOARD WHICH WAS ALSO REFLECTED IN THE BOOKS OF ACCOUNTS UNDER THE HEAD SALE OF ENERGY AND THEREFORE, NO FURTHER ADDITION, IN THAT RESPECT WAS WARRANTED. IN SUPPORT THE ABOVE SUBMISSIONS, ATTENTION WAS DRA WN TO THE FACT THAT THE COMPLETE DETAILS OF INCOME FROM MERCHANT TRADING AS WELL AS INCOME FROM WIND TURBINE PROJECT WAS FILED ALONG WITH DOCUMENTARY EVIDENCES AS WELL AS FINANCIAL STATEMENTS DURING ASSESSMENT PROC EEDINGS BEFORE LD. AO. ITA NO.6921/MUM/2017 M/S. INDIA FASHIONS LTD. ASSESSMENT YEAR :2011-12 5 ANOTHER IMPORTANT ASPECT BROUGHT TO THE NOTICE OF L D. CIT(A) WAS THE FACT THAT NO INCRIMINATING MATERIAL WAS FOUND DURING SUR VEY PROCEEDINGS AND THE ADDITIONS WERE MADE MERELY ON THE BASIS OF THE STATEMENT GIVEN BY THE DIRECTOR WHICH HAS SUBSEQUENTLY BEEN RETRACTED AND THEREFORE, THE SAME COULD NOT FORM THE BASIS OF ADDITION IN THE HA NDS OF THE ASSESSEE. RELIANCE WAS PLACED ON THE DECISION OF HONBLE MADR AS HIGH COURT RENDERED IN CIT VS S.KHADER KHAN & SONS [300 ITR 157] TO SUBMIT THAT STATEMENTS MADE DURING SURVEY PROCEEDINGS COUL D NOT HAVE ANY EVIDENTIARY VALUE UNLESS CORROBORATED WITH CIRCUMST ANTIAL EVIDENCES. 5.2 AFTER DUE CONSIDERATION OF ASSESSEE SUBMISSION S, LD. FIRST APPELLATE AUTHORITY CONCURRED WITH THE STAND THAT N O INCRIMINATING MATERIAL WAS FOUND IN THE SURVEY PROCEEDINGS AND TH E ADDITIONS WERE MADE MERELY ON THE BASIS OF STATEMENT GIVEN BY THE DIRECTOR WITHOUT BRINGING ON RECORD ANY EVIDENCES EITHER DURING SURV EY PROCEEDINGS OR DURING ASSESSMENT PROCEEDINGS. IT WAS FURTHER NOTED THAT THESE STATEMENTS MADE DURING SURVEY PROCEEDINGS, ON STAND ALONE BASIS, WOULD HAVE NO EVIDENTIARY VALUE IN TERMS OF CITED DECISIO N OF HONBLE MADRAS HIGH COURT AS CONFIRMED BY HONBLE APEX COURT VIDE ITS DECISION REPORTED IN 352 ITR 480. FINALLY, THE ADDITIONS WER E DELETED BY MAKING FOLLOWING OBSERVATIONS: - 60. AS STATED EARLIER, NO INCRIMINATING EVIDENCES W ERE DETECTED EITHER DURING THE COURSE OF THE SURVEY OR THE ASSESSMENT PROCEEDINGS WITH RE GARD TO THE MERCHANT TRADING ACTIVITY AND THE WIND TURBINE PROJECT OF THE APPELLANT. THE ADDITION WAS MADE BY THE A.O. RELYING SOLELY ON THE STATEMENT RECORDED DURING THE COURSE OF SURVEY. AS HELD BY THE HON'BLE SUPREME COURT AND HON'BLE MADRAS HIGH COURT IN THE CASE OF S.KHADER KHAN & SONS (SUPRA) AND THE HON'BLE MUMBAI ITAT IN THE CASE OF PREMSONS (SUPRA), THE STATEMENT RECORDED DURING THE SURVEY DOES NOT HAVE ANY EVIDEN TIARY VALUE AND NO ADDITION CAN BE MADE BASED ON THE INCOME ADMITTED IN SUCH STATEMENT UNLESS THERE ARE EVIDENCES TO CORROBORATE THE INCOME ADMITTED IN THE STATEMENT. T HE RATIO LAID DOWN IN THESE CASES IS SQUARELY APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE. HENCE, RESPECTFULLY FOLLOWING THE ITA NO.6921/MUM/2017 M/S. INDIA FASHIONS LTD. ASSESSMENT YEAR :2011-12 6 SAME, IT IS HELD THAT THE ADDITION OF RS.L CRORE MADE IN THE ASSESSMENT ORDER SOLELY ON THE BASIS OF THE INCOME ADMITTED IN THE S TATEMENT RECORDED DURING THE COURSE OF SURVEY IS UNSUSTAINABLE AND THE A.O. IS D IRECTED TO DELETE THE SAME. THIS GROUND OF APPEAL IS THEREFORE ALLOWED IN FAVOUR OF THE APPELLANT. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] SUPPORT ED THE STAND OF LD. AO BY SUBMITTING THAT THE MATERIAL ON RECORD, PRIMA FACIE, DO NOT SUBSTANTIATE THE ASSESSEES STAND THAT THE TRANSACT IONS WERE DULY REFLECTED IN THE BOOKS OF ACCOUNTS. PER CONTRA, LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR], DRAWING OUR ATTEN TION TO THE DOCUMENTS PLACED IN THE PAPER-BOOK, SUBMITTED THAT ALL THE TRANSACTIONS WERE DULY REFLECTED IN THE BOOKS OF ACCOUNTS AND CO MPLETE DETAILS, IN THIS REGARD, WAS FILED BEFORE LD. AO DURING ASSESSMENT P ROCEEDINGS AND THEREFORE, THE ONUS CASTED UPON THE ASSESSEE WAS DU LY DISCHARGED. 7. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. THE UNDISPUTED POSITIO N THAT EMERGES IS THAT NO INCRIMINATING MATERIAL WAS FOUND IN THE SURVEY P ROCEEDINGS QUA ADDITIONAL SURRENDER OF RS.1 CRORE MADE BY THE ASSE SSEE. NO CIRCUMSTANTIAL EVIDENCE HAS BEEN BROUGHT ON RECORD EITHER DURING SURVEY PROCEEDINGS OR DURING ASSESSMENT PROCEEDINGS SO AS TO SUPPORT THE IMPUGNED ADDITIONS. THE ADDITIONS HAVE MERELY BEEN MADE ON THE STRENGTH OF STATEMENT GIVEN BY THE DIRECTOR DURING SURVEY PROCEEDINGS AND THE SAME HAS SUBSEQUENTLY BEEN RETRACTED. SUCH STATEMENT, IN OUR OPINION, DO NOT CARRY MUCH EVIDENTIARY VALUE UNLESS SUPPORTED BY CERTAIN CIRCUMSTANTIAL EVIDENCES AND THEREFORE, THE RELIANC E OF FIRST APPELLATE AUTHORITY ON CITED BINDING JUDICIAL PRONOUNCEMENTS TO ARRIVE AT THE CONCLUSION WAS QUITE APPROPRIATE AND NO INFIRMITY C OULD BE FOUND IN THE ITA NO.6921/MUM/2017 M/S. INDIA FASHIONS LTD. ASSESSMENT YEAR :2011-12 7 SAME. ANOTHER IMPORTANT FACTOR TO BE NOTED IS THAT THE STATED TRANSACTIONS WERE CARRIED OUT THROUGH BANKING CHANNELS AND DULY RECORDED IN THE BOOKS OF ACCOUNTS WHICH WERE SUBJECT TO AUDIT. THE COMPLETE DETAILS OF THESE TRANSACTIONS ALONG WITH RELEVANT DOCUMENTARY EVIDENCES WAS PLACED BY THE ASSESSEE BEFORE LD. AO AND THEREFORE, FULLY DISCHARGED THE ONUS CASTED UPON ASSESSEE, IN THIS REGARD. THER EFORE, FINDING NO INFIRMITY IN THE IMPUGNED ORDER, WE DISMISS THIS GR OUND OF APPEAL ALSO. 8. RESULTANTLY, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MARCH, 2019. SD/- SD/- (MAHAVIR SINGH) ( MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 19/03/2019 SR.PS, JAISY VARGHESE !'#$ # / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. +, '% , , / DR, ITAT, MUMBAI 6. ,./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.