M/S SVADESHI ENTERPRISE (HUBLI),MUMBAI vs. ITO 17(3)-2, MUMBAI

O R D E R Per Amarjit Singh (AM): This appeal is filed by the assesse against the order passed by the NFAC, Delhi, dated 15.03.2023 for A.Y. 2014-15. The assessee has raised the following grounds before us: “1. The learned CIT(A) has erred in law and on facts in passing the ex-parte order and thereby confirming the order passed by the Assessing Officer The learned CIT (A) has erred in not granting proper opportunity of hearing to the appellant.

2. The learned CIT(A) has erred in law and on facts in confirming the disallowance of compensation paid to M/s. Svadeshi Enterprise (Mumbai) amounting to Rs.10,00,00,000/-.

3. The learned CIT(A) has erred in law and on facts in confirming the disallowance of commission and brokerage expenses of Rs.1,12,36,000/- The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.”

P a g e | 2 M/s Svadeshi Enterprise Vs. ITO 17(3)(2) 2. Fact in brief is that return of income declaring total income of Rs.136,30,420/- was filed on 28.11.2022. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 28.08.2015. During the course of assessment the AO noticed that assesse has paid compensation of Rs.10,00,00,000/- to M/s Svadeshi Enterprises, Mumbai. On query, the assessee explained that assesse firm purchased a land at Hubli Karnakata from Svadeshi Mills Pvt. Ltd. for the purpose of development. The assessee firm has also taken loan from the banks for the development of Hubli project in the earlier years and same was not repaid, therefore, Svadeshi Enterprises, Mumbai has provided help to the assessee by arranging finance for the development of construction of its projects at Hubli. The assessee further submitted that since 1989 to 1990 to 2013-14 at various occasion Svadeshi Enterprises, Mumbai had given money to the assessee as per its requirement for development and construction of the said project at Hubli. The assesse has also shown closing credit balance from 31.03.2008 to 3103.2014 in its books of accounts as reproduced at page 3 of the assessment order the closing credit balance in favour of Svadeshi Enterprises as on 31.03.2014 was of Rs.15,51,85,849/-. The assesse also explained that they could not managed to sale the project at Hubli therefore, they have mutually decided to provide Svadeshi Enterprises Mumbai their share in the form of compensation in the revenue earned by the assesse from the sale of the said project at Hubli to the extent of minimum amount of RS.30% of revenue of Rs. 32,35,70,000/- which comes to Rs. 9,70,70,000/- which was rounded off to the amount of Rs. 10,00,00,000/- by way of compensation. However, the AO has treated the aforesaid transaction of the assessee of giving compensation to Svadeshi Enterprises as colourable device and added the same to the total income of the assesse.