ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3(2), MUMBAI, MUMBAI vs. NITIN FIRE PROTECTION INDUSTRIES LTD, MUMBAI

Briefly stated the facts of the case are that the assessee filed its return of income on 28/11/2016 declaring total income at Rs. 22,97,960/- under normal provisions of the Act and Rs. 7,90,37,890/- u/s 115JB of the Act. The return was selected for scrutiny under CASS and vide order dated 17/12/2018 assessment was completed u/s 143(3) of the Act accepting the returned income as such. 3.1. Subsequently, information was received on Insight Portal that the assessee had received sum of Rs. 11,28,47,171/- from Shri Rupesh Vidyadhar Kokate, proprietor of Sai Net Corporation. It was found that in the case of Shri Rupesh Vidyadhar Kokate, credits were received through online transfers and immediately the amount was transferred to third parties and no other transactions were carried out in the bank account which prompted the AO to believe that Shri Rupesh Vidyadhar Kokate, has not carried out any genuine business activity. It was believed that the assessee is one of the beneficiaries who has entered into transactions with Shri Rupesh Vidyadhar Kokate, and has received credits in its bank account in the guise of business transactions. The & 3695/Mum/2025 3 assessee was issued a showcause to explain the entry of Rs. 15,30,55,210/- from bank account of Shri Rupesh Vidyadhar Kokate. The assessee filed a detailed reply explaining that the assessee supplied the fire-fighting protection equipment to Shri Rupesh Vidyadhar Kokate and has received the payment from the said party. In support of its contention, the assessee submitted copy of tax invoices for supply of material, copy of bank statement reflecting payment received from the said party, ledger of party in the books of the assessee. It was explained that the assessee entered into business transactions with Sai Network Corporation, for procurement of material and the same is fully accounted in its books of accounts and reflected in the financial statement and offered for taxation in the income tax return filed. 3.1.1. The submission of the assessee did not find favour with the AO who doubted the sale transactions relating to firefighting and safety protection material to Sai Network Corporation (Prop. Rupesh Vidyadhar Kokate). The AO observed that though the assessee had furnished tax invoices, bank statements and Ledger accounts but did not furnish copy of the bills/vouchers/delivery challans, details of transportation, proof of delivery of materials etc. The AO further observed that the sale transactions was on the basis of verbal order and no document with respect to the purchase order is maintained by the assessee. The AO also rubbished the claim of the assessee that the receipt of Rs.13,03,42,638/- is against outstanding balance against supply of firefighting and safety protection material. The AO also rubbished the claim that during the year sales of Rs.2,27,12,573/- only, was made.

Before us, the ld. D/R strongly supported the findings of the AO and read the operative part. It is the say of the ld. D/R that since the receipts were credited during the year under consideration the same has to be considered u/s 68 of the Act for the assessment year in dispute. The ld. D/R further submitted that the assessee has not submitted any documentary evidences, insofar as, transportation of goods is concerned. 4.1. Per contra, the ld. Counsel for the assessee is reiterated what has been stated before the lower authorities.

It can be seen from the above account that sales of Rs. 13,03,42,638/- was made during FY 2014-15 pertaining to AY 2015-16 and the same were the opening balance for the year under consideration. The assessee has received the amount during the year under consideration and made the sales of Rs. 2,27,12,573/- during the year under consideration. The sales are supported by the sales invoices, VAT returns & 3695/Mum/2025 6 and against the sale consideration the assessee has received the amount which is reflected in the statement of accounts mentioned hereinabove. The entire consideration of Rs. 15,30,55,210/- is part of sales receipts made in the earlier financial year as well as during the current financial year as explained hereinabove. We are of the considered view that since the entire credit is reflected in the sales made by the assessee to Sai Network Corporation the same cannot be added u/s 68 of the Act. The ld. CIT(A) has rightly deleted the same. Accordingly, Ground No. 1 is dismissed.

The issue raised vide Ground No. 2 relates to the deletion of Rs. 9,74,20,891/- made u/s 10AA of the Act.

The assessee was asked to justify its claim of deduction. It was explained that the assessee is carrying out its business in Special Economic Zone (SEZ) for assembling, trading, manufacturing and distribution activity of fire protection equipments. In support of its claim copy of LOP certificate Visakhapatnam SEZ was submitted. It was also pointed out that this is the seventh year of claim and in the earlier assessment years the claim has been allowed. 8.1. The submission of the assessee did not find any favour with the AO. The AO was of the opinion that the assessee is only carrying out calibration activities. Therefore, it cannot be called as assembling of the goods and the assessee is not involved in any manufacturing activities at Visakhapatnam SEZ. The AO further observed that in the earlier years also the claim of deduction u/s 10AA of the Act was disallowed and accordingly disallowed the same for the year under consideration also. & 3695/Mum/2025 7 8.2. The assessee carried the matter before the ld. CIT(A) and reiterated its claim of deduction u/s 10AA of the Act and pointed out that the claim of deduction has been allowed in earlier years. After considering the facts and the submissions, the ld. CIT(A) found that this is a repetitive issue and has already been decided by the Tribunal vide order dated 08/02/2019 in for AY 2012-13, basis which the ld. CIT(A) deleted the disallowance of Rs. 9,74,20,891/-. 8.2.1. The ld. D/R could not controvert the findings of the ld. CIT(A) but stated that the decision of the Tribunal has not been accepted by the revenue and the appeal is pending before the Hon’ble High Court.

We have carefully considered the orders of the authorities below. We find that the Coordinate Bench in for AY 2012-13, has decided the issue in favour of the assessee and against the revenue. As no new distinguishing decision has been brought to our notice, respectfully following the decision of the Coordinate Bench (supra), we decline to interfere. Ground No. 2 is dismissed.

Ground No. 3 relates to the deletion of disallowance made u/s 14A r.w.r. 8D. While scrutinizing the return of income the AO observed that the assessee has earned exempt dividend income of Rs. 74,959/-. Invoking the provisions u/s 14A r.w.r. 8D, the AO computed the disallowance at Rs.28,77,074/- and added the same to the income of the assessee. 10.1. Before the ld. CIT(A), the assessee strongly contended that it has not claimed any exempt income during the year and the said entry of Rs. 74,959/- is the reversal entry of the provision made in the earlier year. Since no exempt income was received during the year no disallowance & 3695/Mum/2025 8 needs to be made. After considering the facts and the submissions, the ld. CIT(A) was convinced that the alleged exempt income of Rs. 74,959/- relates to reversal of excess provision of interest on DDT taken during the year 2015-16 and carried forward to the year under consideration and since it is not exempt income it cannot be a subject matter for disallowance u/s 14A r.w.r. 8D and deleted the impugned disallowance.

Before us, the ld. D/R strongly supported the findings of the AO and the ld. Counsel relied upon the decision of the ld. CIT(A).

We have carefully considered the orders of the authorities below. The undisputed fact is that Rs. 74,959/- is the reversal entry of excess provision made in the earlier assessment year which means that during the year under consideration there was no exempt income. The Special Bench in Cheminvest Ltd. v. ITO [2009] 121 ITD 318 (Del) (SB), has held that if there is no exempt income, no disallowance u/s 14A of the Act, needs to be made. The same is fortified by the decision of Hon’ble Gujrat High Court in the case of Commissioner of Income Tax vs. Corrtech Energy Pvt. Ltd. reported in 372 ITR 97. On the given facts and circumstances and in light of the judicial decisions, we do not find any error or infirmity in the findings of the ld. CIT(A) and dismiss Ground No. 3.

Now, we take up the revenue’s appeal in . The grievance of the revenue reads as under:- “1. On facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 7,39,51,688/ - made by the Assessing Officer on account of bogus accommodation entries treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961, without properly appreciating the findings of the Investigation Wing and the material brought on record during the reassessment proceedings.

Briefly stated, the facts of the case are that the assessee filed its return of income on 28/11/2016 declaring total income at Rs. 9,97,18,579/-. The return was selected for scrutiny assessment under CASS and vide order dated 17/12/2018 framed u/s 143(3) of the Act, the income was assessed at Rs. 22,97,690/-. On the basis of the information received from the office of DIT (Inv.)-II, Baroda, the AO came to know that a bank account was opened at Axis Bank, Tardeo, Mumbai, in the name of Pankaj Metal Centre Pvt. Ltd.. In the said bank account, RTGS credits from European Metal Pvt. Ltd., ACE Metals P. Ltd. and Volition Trading P. Ltd., totaling to Rs. 452.29 Crores, was found. It was also noted that the funds were immediately debited through RTGS to Pratibha Industries, Alucast Engineer and MAN Tubinox Ltd.. The AO also found that the aforementioned companies had common directors, namely, Shri Hiren Harakchand Shah and Shri Jayesh Harakchand Shah. 14.1. From the verification of the entries in the books of Pankaj Metal Centre Pvt. Ltd., it came to the knowledge of the AO that the assessee has given sales entries to the above company amounting to Rs. 7,39,51,688/- . Basis this information, the completed assessment of the assessee was reopened and accordingly statutory notices were issued and served upon & 3695/Mum/2025 10 the assessee. The assessee was asked to furnish the details of the alleged sales entries. In its reply, the assessee explained that it has purchased steel rods and H.R. steel plate from European Metal Pvt. Ltd. and Volition Trading Pvt. Ltd. via letter of credit and sold the same material to Pankaj Metal Centre Pvt. Ltd.. The purchases were made via letter of credit through bank and the payment as also been through bank. The assessee submitted the copy of the letter of credit from Bank of Baroda, tax invoices along with VAT, delivery challan/note, copy of Ledger of both parties, copy of bank statement, purchase order, statement of purchase summary with items as quantitative details against sales made to Pankaj Metal Centre Pvt. Ltd. and the payment of VAT thereon. The assessee further explained that the goods sold were not as per the required standard and was rejected and returned back to the group associate company Pankaj Metal Centre Pvt. Ltd.. Necessary VAT applicable on the sale and purchase of detailed accordingly and duly reflected in the books of accounts of the assessee. It was further explained that European Metal Pvt. Ltd. and Volition Trading Pvt. Ltd. both have agreed for not raising debit/credit note for purchase return but instead they agreed to re-purchase the same material in their sister concern/associate concern and repay the money in full. The assessee also furnished copy of tax invoices with VAT, delivery challans, copy of Ledger account confirmations, details of material sold to Pankaj Metal Centre Pvt. Ltd.. The submissions of the assessee along with documentary evidences were rejected by the AO who was of the firm belief that the entries made are accommodation entries and accordingly added the amount of Rs. 7,39,51,689/- and further added commission of & 3695/Mum/2025 11 5% to Rs. 36,97,584/- being commission paid for the alleged accommodation entry.

Assessee carried the matter before the ld. CIT(A) and reiterated what has been claimed before the AO once again relied on the same documentary evidence which were furnished for the AO. After considering the facts and submissions, the ld. CIT(A) observed that though the AO has made the addition u/s 37(1) of the Act as unexplained expenses, but the same has to be considered in the light of Section 68 of the Act. The ld. CIT(A) further observed that the taxability is not in dispute as the assessee has shown the credits as its sales whereas the AO wants to tax the same as unexplained cash credits. After considering the facts and submissions, the ld. CIT(A) was of the opinion that the sale transactions have been considered as bogus by the AO though the same are regular business transactions duly supported by documents that indicate not only the genuineness of the sales made but also the purchases of the corresponding items and accordingly deleted the addition of Rs. 7,39,51,689/- and further deleted the alleged commission of Rs.36,97,584/-.

Before us, the ld. D/R strongly supported the findings of the AO and the ld. Counsel reiterated what has been stated before the lower authorities.

We have carefully considered the orders of the authorities below. It would be imperative to refer to the report of Maharashtra GST Department, which reads as under:-

This is further explained from the sales annexure which are as under:-

From the aforementioned documentary evidence it is crystal clear that the impugned sales are subject to Maharashtra GST which has been accepted as such. Since the sales have been recorded in the regular books of accounts and accepted as such as the books of accounts have not been rejected by the AO, we do not find any merit in the impugned addition and the ld. CIT(A) has rightly deleted the impugned additions which calls for no interference. Accordingly, the effective ground/s raised by the revenue are dismissed.