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Income Tax Appellate Tribunal, DELHI BENCH “E” NEW DELHI
Before: SHRI AMIT SHUKLA & Dr. B.R.R. KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E” NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND Dr. B.R.R. KUMAR, ACCOUNTANT MEMBER
I.T.A. No.3311/DEL/2019 Assessment Year: 2014-2015
Orient Craft Ltd., vs. DCIT, Central Circle-II, C/O RRA Tax India D-28, Gurgaon. South Extn. Part-I, New Delhi. TAN/PAN: AAACO0068M (Appellant) (Respondent)
I.T.A. No.5038/DEL/2019 Assessment Year: 2014-2015
DCIT, Central Circle-II, Orient Craft Ltd., C/O RRA Tax Gurgaon. vs. India D-28, South Extn. Part-I, New Delhi.
TAN/PAN: AAACO0068M (Appellant) (Respondent)
Appellant by: Dr. Rakesh Gupta, Adv. Respondent by: Ms. Pramita M. Biswas, CIT-D.R. Date of hearing: 14 07 2021 Date of pronouncement: 24 09 2021
O R D E R PER AMIT SHUKLA, JM
The Assessee and the Revenue both are in appeal against the Order of Commissioner of Income Tax (Appeals)-III, Gurgaon, dated 30.03.2019. The grounds of appeal raised by the Revenue and by the assessee, respectively are as under:-
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That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction u/s 153A and further erred in passing the impugned assessment order. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in assuming jurisdiction and framing the impugned assessment order u/s 153A, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the addition of Rs.1,55,38,830/- made by Ld. AO on account of capital gain and Rs.39,96,76,340/- as business income in terms of section 45(2) and section 28 respectively, more so when the stock was not sold in the year under appeal as per the case of Ld. AO himself. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in not deleting the addition of Rs.1,55,38,830/- made by Ld. AO on account of capital gain and Rs.39,96,76,340/- as business income in terms of section 45(2) and section 28, is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.7,28,980/- allegedly on account of bogus expenses claimed with respect to M/s Sai Export, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 6. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.7,28,980/- allegedly on account of bogus expenses claimed with
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respect to M/s Sai Export, is bad in law and against the facts and circumstances of the case. 7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.7,98,79,360/- allegedly on account of bogus expenses claimed with respect to M/s Shri Ram Exports, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 8. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs.7,98,79,360/- allegedly on account of bogus expenses claimed with respect to M/s Shri Ram Exports, is bad in law and against the facts and circumstances of the case. 9. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.15,41,15,599/- allegedly on account of bogus purchases from M/s Akansha Fashion and M/s Jindal Fashion, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 10. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.15,41,15,599/- allegedly on account of bogus purchases from M/s Akansha Fashion M/s Jindal Fashion, is bad in law and against the facts and circumstances of the case. 11. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the
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action of Ld. AO in making addition of Rs.26,48,09,191/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s Super Connection, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 12. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.26,48,09,191/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s Super Connection, is bad in law and against the facts and circumstances of the case. 13. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.1,85,11,715/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from various concerns, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 14. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.1,85,11,715/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from various concerns, is bad in law and against the facts and circumstances of the case. 15. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining the disallowance of Rs.49,301/- made by Ld. AO u/s 14A, more so when no incriminating material has been found as a result of search
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That in any case and in any view of the matter, addition made in the impugned assessment order are beyond jurisdiction and illegal also for the reason that these could not have been made since no incriminating material has been found as a result of search. 17. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned assessment order without there being requisite approval in terms of section 153D and in any case approval if any is mechanical without application of mind and is no approval in the eyes of law. 18. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B of Income Tax Act, 1961. 19. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. Departmental Grounds of Appeal i) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 11,93,649/- made by the AO on account of bogus expenses placing reliance on the documents furnished by the assessee which failed to prove that the expenditure was incurred wholly and exclusively for the purpose of business. ii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that the onus to prove that the expenses of Rs. 11,93,649/- have been incurred for the services rendered by the proprietary concern M/s Palwal Enterprises (Prop. Smt. Hema Sharma) is on the assessee company. iii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that at the time of search no
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evidence was found to prove that the expenses incurred in respect of fabrication job alleged to be undertaken by M/s Palwal Enterprises. iv) Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the disallowance of product development /sampling expenses Rs. 13,73,86,146/- made by the AO by ignoring the decision of the Hon’ble Supreme court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT 225 ITR 802. v) Whether section 14A(1) of the Income Tax Act, 1961 would stand attracted even if the tax-exempt income is not actually earned during a particular year subject to expenditure relatable to such income having been incurred during the year. vi) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in deleting the addition on account of section 14A without appreciating that while noticing the objects and reasons behind introduction of Section 14A of the Income Tax Act 1961, the Hon'ble Supreme Court held in CIT v. Walfort Share & Stock Brokers (P) Ltd. [2010] 326 ITR 1 (SC) that expenses allowed can only be in respect of earning of taxable income. vii) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in deleting the addition made on account of section 14A of the Act without appreciating the judgment of Hon'ble Supreme Court in CIT v. Rajendra Prasad Moody [1978]115 ITR 519(SC) which held that the allowability (or otherwise) of an expenditure would not depend upon whether it has in fact resulted in an income, and that the mere fact that expenditure stands incurred for the purpose is sufficient for its admissibility, and whether the ratio of this judgment can be applied to say, by the same analogy, that the expenditure incurred to earn an exempt income is subject to its admissibility under the provisions of the Income Tax Act 1961 including those of section 14A irrespective of
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whether there is a receipt of exempt income during the year under consideration. viii) Whether on the facts and in the circumstances of the case and in law the Ld CIT(A) is justified in deleting the addition made on account of section 14A of the Act without appreciating the observations of the Hon'ble Supreme Court in Maxopp Investment Ltd. reported in (2018) 91 taxmann.com 154 (SC), that as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee "in relation to income which does not form part of the total income under this Act". ix) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition made on account of section 14A of the Act without adjudicating on the proposition of law u/s 14A of the Income Tax Act, 1961 as propounded by the CBDT Circular no. 5 of 2014 dated 11.02.2014 i.e. section 14A is triggered for disallowance of expenditure incurred which is relatable to tax-exempt income even though no tax-exempt income under the Act has been earned during a particular year. x) Whether the CBDT Circular no 5 of 2014 is illegal and not in consonance with legislative intent behind Section 14A and the charging sections 4 and 5 of the Income Tax Act, 1961 which lay down that total income under the Act would include income from all sources whether "received", "deemed to be received", "accrued" or "deemed to accrue". xi) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing.
We shall now proceed to dispose of the appeals as under: 3. Assessee has filed paper book in 4 Volumes having Pages 1 to 1734, which were referred by Ld. AR extensively during the course of hearing of the above appeals. Brief synopsis has also been filed by Ld. Counsel for the assessee in both the appeals
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running into 8 pages, which is also held on record and has also been considered by us. 4. The case of the assessee represented by Dr. Rakesh Gupta and that of revenue represented by Ms. Parmita Biswas. Arguments were extensively heard on all the grounds involved. Since both appeals are the cross appeals and therefore, we take both the appeals for disposal by taking the assessee’s appeal first.
Ground of appeal no. 1 & 2 These grounds were relating to assumption of jurisdiction under section 153A but these grounds of appeal were not pressed by Ld. Counsel as per the brief synopsis filed and hence these are dismissed.
Ground no. 3 & 4 of the assessee’s appeal are in respect of the Ld. first appellate authority’s action in not deleting the addition of Rs. 1,55,38,830/- and Rs. 39,96,76,340/- made in the assessment order under section 45(2) and section 28 respectively. AO has discussed the issue at page 45-61 of the assessment order whereas CIT(A) has discussed this issue at page 113-122 of the appeal order.
It is seen that assessee was having a plot of land measuring 24412 sq feet at village Khandsa (Gurgaon) and applied for license for development of cyber project over the land. Assessee company entered into the collaboration agreement with M/s Olympus Realtors P Ltd for the development of the project who in turn entered into a back to back agreement with M/s Bestech India P Ltd for the execution of the construction and development of the said project. It is the taxability of capital gain and business income arising from the conversion of capital asset into stock in trade and transfer of completed real estate units. According to AO such
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income should be taxed in this very year as the project was completed in this year and Main Promoter Mr. Sudhir Dhingra admitted to pay tax in this year and the working found at the time of search also showed the accrual of taxable income in this year. Findings of AO were confirmed by CIT(A).
Ld. Counsel for the assessee drew our attention to the pages 1726 to 1729 of the paper book which were the written submissions filed before CIT(A) and relied upon the pages of the paper book referred therein. It was submitted by him that applicability of section 45(2) is not in dispute between the assessee and the revenue and the question involved is as to whether the income should be taxed in the hands of the assessee in the year under appeal or in the year in which the stocks are sold as per the mandate of section 45(2). According to him, income has to be brought to tax when stocks were sold in future years and in that regard, it was submitted that partial stocks were sold in the previous year relevant to AY 2017-18 and it is in that year appropriate income was offered to tax and which has also been accepted by Revenue. On the other hand, Ld. CIT(DR) relied upon the findings recorded by AO and CIT(A) and urged that the income was correctly taxed in this year and orders passed by the lower authorities may be confirmed.
We have considered the submissions made on behalf of the appellant and Revenue and we have taken into account the orders passed by the lower authorities. We have read and referred the pages of the paper book as contained in this regard.
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It would be appropriate at this stage to reproduce the written submissions filed before the first appellate authority for and on behalf of the appellant-assessee:
Ld. AO has made the addition of Rs. 1,55,38,830/- vide discussion made in para—7 at pages 45-61 of the assessment order on the ground that assessee has converted its capital asset into stock in trade and therefore, as per the provisions of section 45(2) of the Income Tax Act,1961, capital asset will be deemed to have been transferred on the date of conversion and liability to capital gain tax will arise in the year in which the stock in trade is sold.
According to Ld. AO, the incidence of tax as capital gain in terms of section 45(2) arose in this year and therefore according to him, there was long term capital gain on conversion of capital asset into stock in trade, which was brought to tax by Ld. AO in the year under appeal.
Associated with this issue was the addition of Rs. 39,96,76,340/- taxed by Ld. AO as business income in the year under appeal in terms of section 45(2) read with section 28 of the Income Tax Act,1961 in respect of the stock in trade after conversion of the capital asset.
The facts of the case are that appellant was having a capital asset in the form of a plot of land which was converted as stock in trade by the appellant and there is no dispute on this aspect. Therefore, the taxability on the capital gain & business income arising as a result of conversion & subsequent sale was to be
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brought to tax under & in terms of section 45(2) & section 28 respectively.
The Section 45(2) is reproduced as under: Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. (2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income-tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996, and for the purposes of— (i) section 48; and (ii) proviso to clause (42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method. Explanation.—For the purposes of this sub-section, the expressions "beneficial owner", "depository" and "security" shall have the meanings respectively assigned to them in clauses (a), (e) and (l) of sub-section (1) of section 2 of the Depositories Act, 1996.
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It can be seen that capital asset so converted is deemed to be transferred at the time of conversion and its fair market value at the time of conversion is deemed to be the sale consideration for the purpose of determining the capital gain. But this has further been provided in this section itself that the liability to capital gain tax is deferred till the year in which the stock is sold. Similarly, business profits can be taxed in the year in which sale of stock takes place. 17. Your good self would also kindly see from the entire discussion made by Ld. AO in the impugned assessment order that stock in trade was admittedly not sold in the year under appeal. Therefore, as per the plain provision of section 45(2), there would not be any liability to tax either in respect of capital gain or in respect of business income. This is evident from the fact that Ld. AO has mentioned in para 7.6 and 7.7 at pages 61 of the assessment order that assessee is holding FSI of 98106 sq. ft. in the form of stock. It is thus even not the case of Ld. AO that the stock has been sold in the year under appeal.
It is also a matter of record that assessee has sold the partially stocks in AY 2017-18 and offered to tax the long term capital gain and applicable business profit in that year. This is evident from the copy of computation of income, acknowledgement of return, balance sheet and profit and loss account for AY 2017- 18 enclosed in the paper book at PB 1679-1689.
Therefore when the stocks have not been sold in the year under appeal and stocks have been sold in AY 2017-18 & offered to tax in that year accordingly, there is no question of bringing to
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tax any capital gain or business income in the year under appeal as per the explicit provisions of section 45(2).
Therefore, the action of Ld. AO in making the addition as long term capital gain and business income covered by Ground No. 9 and Ground No. 10 of the appeal memo may please be allowed.
It is seen from the reading of para 7 of the assessment order that it is an admitted position that assessee converted its capital asset (land 40 kanals 7 marlas i.e. 24412 sq. yards at village Khandsa) into stock in trade. This is so evident from the addition made on account of Long Term Capital gain and income under the head Business which is possible in section 45(2) of the Income Tax Act. Also, at page 55 of the assessment order, Assessing Officer has recorded a finding that the assessee viz. Orient Craft Ltd. has converted its fixed assets into stock in trade. This is further clear from the reply to question no. 5 given by ShriSudhirDhingraa, promoter of the assessee company recorded under section 132(4), reproduced by Assessing Officer at page 52, 53 of the assessment order which reads “ Further, this land was converted to stock in trade of M/s OCL in FY 2007-08…”
“…..due income arising from long term capital gain, arising from conversion to stock in trade; and income from business on the basis of profit on account ………..”.
This is further clear from the reply of the assessee reproduced at page 57 of the assessment order wherein it has been mentioned: 1.2 “The above stated land was purchased on various dates as stated above for its own use in garment business, which was earlier shown as fixed assets in the books of accounts of the
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assessee company, later in the F.Y. 2007-08, the company (OCL) intended to use these land for development of IT park and the cost of such Land was transferred as stock in trade…..………..” 2.6 “In the case of the assessee’s company income is recognized in the year in which property is being sold by the company as per provision of section 45(2) of the Income Tax Act, 1961. The assessee company converted the land in question from capital asset to business asset in A.Y. 2008-09. As per provision of section 45(2) capital gain tax up to the date of conversion and further business profits if any generated on sale of the asset is required to be shown in the computation of tax in the year in which asset is sold and accordingly tax liability channelized in that year. During assessment year 2014-15 and 2015-16 no part of commercial units have been sold by the assessee company, therefore no income has been recognized during these years….”
Question to be addressed here is that when the conversion of capital asset into stock in trade has been accepted in the assessment order, can the long term capital gain and business profits arising from such converted capital asset into stock in trade be taxed in the year of completion of the project disregarding the year of taxability as per plain provision of law as contained in this regard including section 45(2) of the Income Tax Act. We have considered all the material before us and the position of law. According to the provision of section 45(2), a particular tax treatment has been prescribed according to which the transfer of capital asset would be deemed to be in the year in which conversion of capital asset into stock in trade has taken place but such capital gain would be taxed in the year in which stock in trade converted from the capital asset comes to be sold. Stock in
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trade in this case came to be sold partially in previous year relevant to AY 2017-18 and its revenue was offered to tax in that year which got taxed too. Therefore, in the face of such fact situation there was no justification in our considered opinion to tax the capital gain and business income in this regard in the year under appeal contrary to the position of law obtaining in this regard. We have seen the finding recorded by the assessing officer and we do not agree with them. Merely because the assessee company was holding stock of 98106 square feet as on 31.3.2014, it does not mean that its valuation should be done based on circle rate& such valuation be brought to tax in this year. There is no such law in our considered view. Closing stocks have to be valued at cost or market price whichever is less. There is no law to apply circle rate for the purpose of valuation of closing stock of the real estate. AO has not referred any provision of law also in this regard. Completion of the project per se cannot lead to the taxability of income. Even if main promoter agreed to pay tax in this year as per his statement made under section 132(4) or some working calculating & showing income from the project in this year is found during the course of search, it does not fasten the tax liability in this year contrary to law. It is settled law that there can be no estoppel against law. Moreover, statement of Mr. Sudhir Dhingra reproduced in the assessment order also refers to section 45(2) and therefore, how can the taxability of income be brought into force in this year merely on the basis of statement of the main promoter when section 45(2) itself provides for the taxability in the year of sale of stocks. Moreover, Mr. Sudhir Dhingra stated in his statement to offer income in previous year relevant to AY 2015-16 as can be seen from para (v) of CIT(A)’s order page 121 and not in the year under appeal. In our considered opinion, obtaining
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completion certificate of the project from the Appropriate Authority as on 8.5.2013 does not ipso facto give rise to any business income. We have also read/seen& considered the objections raised by the first appellate authority which in our considered opinion are more or less on the same lines as adopted by the assessing officer. We do not concur with such observations and findings recorded by the first appellate authority and we thus hold that the addition of Rs. 1,55,38830/- as long term capital gain and Rs. 39,96,76,340/- made in the assessment order and confirmed by the first appellate authority do not stand to the test of law and are not justified on the facts and circumstances of the case and hence we delete the above said both the additions and allow the grounds of appeal of the assessee.
Ground no. 5 & 6 are in respect of addition of Rs. 7,28,980/- made by the A.O. and confirmed by CIT(A) and are in respect of the expenses claimed to be incurred by the assessee company on account of job work done by M/s Sai Exports. Assessing Officer at page 28-36 of his order held such expense as bogus which was upheld by CIT(A) vide discussion made at page 98-105.
It was submitted by the Ld. Counsel with the help of various evidences referred at page 1709-1716of the paper book& It was argued that M/s Sai Export was one of the job workers engaged by the assessee for doing various job work such as bundling, cutting, stitching, thread cutting, finishing etc., which are integral part of the garments manufacturing and further submitted that these job work activities are such without which it was not possible to manufacture the garments and therefore, export sales could not be possible. Ld. Counsel also took us through the adverse observations made by CIT(A) in his order and the assessee’s reply
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thereto as contained at page 4-4 of the synopsis filed before us. On the other hand, Ld. CIT(DR) relied upon assessment order and the order of the first appellate authority.
We have considered the entire material before us and it is seen that page 28-36 of the assessment order does not refer any incriminating material found as a result of search in respect of job work of M/s. Sai Export which was the proprietary concern of Sh. Mohinder Kumar Garg. Only evidence which has been referred in the assessment order was the statement of Sh. Mohiner Kumar Garg in which he stated that since April, 2014 he was working as production consultant with assessee company and earlier he was regular employee of the assessee company 01.01.1997 to 30.09.2013 and that books of accounts of M/s Sai Exports was found being maintained on a computer at D-3, Sector-59, Noida premises covered u/s 133A of the I.T. Act and it was further found that Sh. Rajiv Poddar who was working as an accountant of M/s Orient Craft Ltd. was also found to be maintaining the books of accounts of M/s Sai Exports on the direction of Seniors of M/s Orient Craft Ltd. and that during the course of survey proceedings Sh. Rajiv Kumar Poddar was unable to provide any details regarding work done by M/s Sai Exports for the assseesee and he was also unable to produce any copy of vouchers, challans and goods sent for job work for M/s Sai Exports. During the course of survey, statement of Sh. Pawan Arya of M/s Orient Craft Ltd. was also recorded on oath in which he stated that M/s Sai Export used to do some job work for M/s Orient Craft Ltd. but he was unable to furnish any particular detail and he was even unable to name of the owner and address of M/s Sai Export and further that auditor
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of Sh. Mohinder Kumar Garg and the assessee company with the same.
Arguments were made by Ld. Counsel on the basis of evidences referred at page 1709-1716 of the paper book. It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the job worker M/s Sai Export has raised invoice and payment have been made through account payee cheques and tax having been deducted at source and documents at page 507-514, 565-1463 the paper book establish the existence of the job worker and the job work carried out by M/s Sai Exports. We have also seen the statement of Mr. Mohinder Kumar Garg and Sh. Rajiv Poddar placed enclosed in the paper book, which also establish the job work done by M/s Sai Export. We have also referred to sample copy of muster roll of the all the employees, (PB 775-843) employed by the job worker for two months for all the years involved and so have we seen salary sheet (PB 844-1236) for two months on sample basis, on account of payment of wages. Similarly pages 1257-1310 is the sample copy of bonus register showing actual payment proof of bonus to the employees of job workers and paper book page 1311-1318is the sample copy of Leave register of the employee of the job workers. Similarly paper book page 588-774 is the copy of month wise PF and ESI deduction and deposit and sample copy of two months challan of each year along with ledger account of PF, other evidences of the paper book at pages 507-514, 482-484, 461-481, 1237-1256, 1319-1330, 1344-1374, 1375-1431, 1432-1436, 1437-1463 are of M/s Sai Export and filed the return of income of prior years all these evidences clearly establish that genuineness of job work charges incurred by the assessee company through
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M/s Sai Export and therefore the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable even on merit. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one in its written submissions filed before CIT(A) and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts.
CIT(A) have mentioned in his order the adverse observations of the A.O. only, which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self- serving documents and circumstantial evidence leads to the conclusion of A.O. that Sh. Mohinder Kumar Garg was an old employee of the assessee company cannot take the case of revenue anywhere. It would be enough for us to say that voluminous documentary evidences filed by the assessee to which we have made elaborate reference above are clearly establishing the genuineness of the job work expenses. In the face of direct documentary evidences, how can the so called circumstantial evidences be relied. Documentary evidences filed by the assessee before the lower authorities which have been referred by CIT(A) in his appeal order to which reference has also been made in the written submissions filed by the assessee and to which out attention was drawn clearly establish that job work expense claimed by the assessee to have been paid to M/s Sai Exports are quite genuine and established. In the result, the grounds of appeal in the appeal of the assessee are allowed& the addition of Rs. 7,28,980/- is hereby deleted.
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Ground No. 7 & 8 of the assessee’s appeal are in respect of disallowance of Rs. 7,98,79,360/- made by the A.O. and confirmed by CIT(A) and are in respect of the expenses claimed to be incurred by the assessee company on account of job work done by M/s Shri Ram Exports. Assessing Officer at page 36-39 of his order held such expense as bogus which was upheld by CIT(A) vide discussion made at page 105-110.
It was submitted by the Ld. Counsel with the help of various evidences referred at page 1716-1721of the paper book& It was argued that M/s Shri Ram Exports was one of the job workers engaged by the assessee for doing various job work such as bundling, cutting, stitching, thread cutting, finishing etc., which are integral part of the garments manufacturing and further submitted that these job work activities are such without which it was not possible to manufacture the garments and therefore export sales could not be possible. On the other hand, LdCIT(DR) relied upon the findings recorded in the assessment and first appeal order.
We have considered the entire material before us including the paper books, orders of the lower authorities, synopsis filed before us, written submissions filed before CIT(A) which is part of the paper book. It is seen by us that page 36-39 of the assessment order does not refer any incriminating material found as a result of search in respect of job work of M/s Shri Ram Export which was the proprietary concern of Sh. Subhash Chand Gupta. Only evidence which have been referred in the assessment order was that at the address mentioned in the income tax return of Sh. Subhash Chand Gupta of Shri Ram Export, search was
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undertaken and that premises was occupied by the sister and brother in law of Sh. Subhash Chand Gupta in which the sister and brother in law told to the search team that Sh. Subhash Chand Gupta resides in district Rohtak, Haryana and that Sh. Subhash Chand Gupta runs a business of selling belts and earns only Rs. 15,000/- per month. And that Auditor of Sh. Subhash Chand Gupta prop. of M/s Shri Ram Export is M/s V.K. Dhingra & Co. who happens to be Auditor of the appellant company also and that email id on income tax return of Sh. Subhash Chand Gupta and on the return of the appellant company is that of an employee of the appellant company and further that statement of the wife of Sh. Subhash Chand Gupta was recorded according to which Sh. Subhash Chand Gupta was in the business of trading in belts with monthly income of Rs. 10,000 and having no connection with M/s Orient Craft Ltd.
From the findings recorded in the assessment order, it can be said that there is no incriminating material found as a result of search in respect of job work carried out by M/s Shri Ram Export. Even the survey proceeding referred in the assessment order does not indicate any incriminating material. Finding of books of account of M/s Shri Ram Export at the premises of the assessee cannot be taken as the adverse material when it has been the case that M/s Shri Ram Exports was doing substantial for job work of the assessee company only. 33. Arguments were made on the basis of evidences referred at page 1716-1721 &It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the job worker M/s Shri Ram Export has raised invoices on the assessee company and payment have been made by the assessee company
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to the job worker through account payee cheques and tax having been deducted at source and documents at page 507-514, 565- 1463 of the paper book establish the existence of the job worker and the job work carried out by M/s Shri Ram Exports. We have also seen the evidences referred in the paper book, which also establish the job work done by M/s Shri Ram Export. We have also referred to the copies of the relevant documents filed before the lower authorities from the Worker’s personal Files (PB 588-774) such as Adhar Card, Application form, appointment letter, joining report, ESI Card, Family photos, PF Form -11,16 & 2 as per PF rules, ID proof, Medical test report etc. and sample copy of muster roll of the all the employees(PB 775-843) , employed by the job worker for two months for all the years involved and so also we have seen salary sheet for two months on sample basis(844-1236), on account of payment of wages and actuarial certificate. Similarly pages 1257-1310of the paper book is the sample copy of bonus register showing actual payment proof of bonus to the employees of job workers and paper book page 1311-1318is the sample copy of Leave register of the employee of the job workers. Similarly paper book page 1319-1330 is the copy of month wise PF and ESI deduction and deposit and sample copy of two months challan of each year along with ledger account of PF, other evidences of the paper book at pages 507-514, 482-484, 565-587, 461-481, 1331- 1343, 1344-1374, 1375-1431, 1432-1436, 1437-1463 all are the evidences of M/s Shri Ram Export clearly establish that genuineness of job work charges incurred by the assessee company through M/s Shri Ram Export and therefore the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. The adverse observations made by the A.O. in the assessment order have been met by the assessee
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one by one in its written submissions filed before CIT(A) which is part of the paper book before us and and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts.
CIT(A) have mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self- serving documents and circumstantial evidence leads to the conclusion of A.O., are bald assertion. It would be enough for us to say that voluminous documentary evidences filed by the assessee as referred above and considered by us clearly establish the genuineness of the job work expenses covered by the grounds of appeal under consideration. We have gone through the arguments of the assessee in respect of observations made by CIT(A) as contained at page 6-7 of the synopsis filed before us and we find that the evidences filed by the assessee to prove genuineness of the job work have not been found fault with by CIT(A) and there is no corroborative evidence produced against the assessee. We further find that CIT(A) mis-appreciated the nature of job work being done by this job worker and was not related to the assessee company or its directors. Statement of the wife of the proprietor cannot be used against the assessee. In the result grounds of appeal of the assessee in this regard are allowed & the addition of Rs. 7.98.79,360/- is hereby deleted.
Ground No. 9 &10 of the assessee’s appeal are in respect of disallowance of Rs. 15,41,15,599/- made by the A.O. and confirmed by CIT(A) and are on account of not-genuine purchases
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of fabric made by the appellant from M/s Jindal Fashion and M/s Akanshha Fashion. Assessing Officer at page 2-18 of his order held such purchases were not genuine which was upheld by CIT(A) vide discussion made at page 63-90.
Ld. Counsel for the assessee first of all argued that there was no incriminating material found as a result of search in respect of impugned disallowance. Further, it was submitted by the Ld. Counsel with the help of various evidences referred at page 1692- 1699of the paper book& it was argued that appellant is into the business of garments manufacturing in which fabric is the main raw material and input. The appellant has purchased fabric from the above said firm during the year under appeal, which is evident from the chart enclosed in the paper book (PB 173(i) to 173(ii).Ld. CIT(DR) relied upon the findings contained in the assessment and first appellate order.
It is seen that page 2-18 of the assessment order does not refer any incriminating material found as a result of search in respect of purchase of fabric made by the appellant from M/s Jindal Fashion and M/s Akansha Fashion. Only evidence which have been referred in the assessment order was that ledger account of appellant in the books of the above said concern, i.e. M/s Jindal Fashion, M/s Akansha Fashion from whom the purchases were made, show that bills raised to the appellant by the said concern had mostly consecutive serial numbers and the payments made to the said concern were always in the round figures and that the bank account of the supplier revealed that it received payments and on the same day or within a short span of time, the funds were used to be transferred to other entities and
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further mentions that the names of certain parties to whom the payments have been made by the said concern and the names of such parties have been mentioned by the Ld. AO in the assessment order and that several adverse things regarding the above supplier based upon some alleged enquiries made.
We have considered the entire facts and circumstances as referred in both the orders, submissions of the assessee and Ld. CIT(DR) and various pages of the paper books filed. From the findings recorded in the assessment order, it can be said that there is no incriminating material found as a result of search in respect of purchase of fabric made by the appellant from M/s Jindal Fashion and M/s Akansha Fashion which can be regarded as incriminating material. Even the surveys proceeding referred in the assessment order do not indicate any incriminating material. 39. Arguments were made on the basis of evidences referred at page 1692-1699 of the paper book & It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the purchases of fabric made by the appellant from M/s Jindal Fashoin and M/s Akansha Fashion are genuine purchases, which is evident from voluminous documentary evidences filed by the assessee company and payment have been made through account payee cheques and documents at page 167-169, 170-171, 172-173, and various pages of the paper book referred in the written submissions and shown to us which establish the purchases made by the assessee. CIT(A) after considering the submissions of the assessee though upheld the disallowance but the submissions and the evidences furnished by the assessee and held in the paper book to which our attention was drawn, we find
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that the action of CIT(A) in confirming the impugned addition was not justified.
In view of the exhaustive pleadings and evidences filed by the assessee and considered by us, the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Comprehensive evidences have been brought on record by the assessee which prove that purchases of the fabric were made by the assessee. Without purchases of the fabric, the business of the assessee involving such large export would not have been possible. Both the suppliers are unrelated parties and assessed to income tax. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1696-1699 and reproduced above and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Jindal Fashion and M/s Akansha Fashion. We do not want to burden our order by repeating the whole hosts of documentary evidences filed in this case which establish that the purchases made by the assessee from the above said two suppliers are genuine purchases. We have gone through the observations made by CIT (A) in his appeal order and we do not agree with them.
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Opening of the bank account by the suppliers in the same bank in which assessee had bank account is not something which is unusual as it may be necessary for the smoothness of the banking and avoid the loss of time in collecting the cheques etc. We find that the burden to prove purchases was very well discharged by the assessee. In the result ground of appeal number 9 and 10 of the assessee’s appeal of the assessee are allowed and the addition of Rs. 15,41,15,599/- is deleted.
Ground No. 11 &12, 13, 14 of the assessee’s appeal are in respect of disallowance of Rs. 26,48,17,87,17,045/- and Rs. 1,85,11,715 aggregating to Rs. 28,33,20,906/- made by the A.O. and confirmed by CIT(A) and on account of purchases made by the appellant from M/s Super Connection India P. Ltd. (SCIPL)& other companies. Assessing Officer at page 2-18, 18-23, 23-28 of his order held such purchases were not genuine which was upheld by CIT(A) vide discussion made at page 90-98.
Ld. Counsel for the assessee first of all argued that there was no incriminating material found as a result of search in respect of impugned disallowance. Further, it was submitted by the Ld. Counsel with the help of various documentary evidences referred at page 1699-1708of the paper book& it was argued that that appellant is into the business of garments manufacturing in which fabric is the main raw material and input. The appellant has purchased fabric from the above said six firms during the year under appeal, which is evidenced by the copies of purchase invoices, copy of statement of account of M/s SCIPL & other companies in the books of in the assessee company as enclosed in the paper book and also statement of account in the books of M/s SCIPL & other parties also enclosed in the paper book which
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would show that the payments have been made to M/s SCIPL & other these companies through banking channel. It was also submitted that sales made by M/s SCIPL to the assessee has been accepted in the assessment of M/s SCIPL. Copy of assessment order of M/s SCIPL for A.Y. 2013-14 has been enclosed inthe paper book. On the other hand, Ld. CIT(DR) has relied upon the findings recorded in the assessment order and in the order passed by CIT(A).
We have considered the entire material including the orders passed by the lower authorities. We have taken ourselves to the pages of the synopsis and paper book filed. We have considered the rival submissions. It is seen that the assessment order does not refer any incriminating material found as a result of search in respect of purchase of fabric made by the appellant from M/s Super Connection India P. Ltd. & other companies. Only evidence which have been referred in the assessment order was that statements of the directors namely Sh. Akshay Dhanda and Sh. Ajay Nagpal were recorded on 22.06.2015, which show that they did not have knowledge of the affairs of the company and that Sh. Sudhir Dhingra, director of the appellant company has provided personal guarantee for the loan raised by M/s SCIPL from Kotak Mahindra bank and also regarding Sh. Akshay Dhanda and Sh. Ajay Nagpal on the basis of their statements and further that bulk of purchases were made by M/s SCIPL from the entities controlled by Sh. Sanjay Jindal and since amount remitted were withdrawn in cash it shows that ultimate beneficiary was the appellant company and entities controlled by Sh. Sanjay Jindal were mere entry providers and that several adverse things regarding the above supplier based upon some alleged enquiries made.
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In our considered view, from the findings recorded in the assessment order it can be said that there is no incriminating material found as a result of search in respect of purchases fabric made by the appellant from M/s Super Connection India P. Ltd. & other companies and whatever has been mentioned in the form of statements cannot be regarded as incriminating material. Even the survey proceeding referred in the assessment order does not indicate any incriminating material.
Arguments were made on the basis of evidences referred at page 1699-1708 of the paper book and It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the purchases of fabric made by the appellant from M/s Super Connection India P. Ltd. & other companies are genuine purchases, which is evident from voluminous documentary evidences filed by the assessee company and payment have been made through account payee cheques and documents enclosed in the paper book establish the genuineness of the purchases made by the assessee. CIT(A) after considering the submissions of the assessee upheld the disallowance. At this stage, it would be of help if submissions made by the assessee and documentary evidences filed in this regard are reproduced so as to bring the depth of the evidences proving the genuineness of the purchases placed at Pages 1699-1708 of the paper book:
It was submitted that assessee has purchased fabric from six companies namely M/s Trendy Attire P Ltd of Rs. 35,75,230/-, M/S Fashionable Attire P Ltd of Rs. 40,66,816/-, Fashionara Apparel P Ltd of Rs.40,57,278/-, M/s Modernistic Attire P Ltd of Rs. 30,42,448/-, M/s Starline clothing P Ltd of Rs.37,69,943/- & M/s Super Connection India P. Ltd. of Rs. 26,48,09,191/-, during
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the year which comes to an aggregate amount of Rs. 28,33,20,906/-, which is evidenced by the copies of purchase invoices, copy of statement of account in respect of said entities in the books of appellant company at (PB 2641-2642, 2643-2822, 1671-1738, 1746-1764which are already enclosed in the paper book for A.Y. 2013-14 in assessee’s own case), and also statement of account in the books of said entities i.e. six companies at (PB 1821-1874 & 1884-1902which are already enclosed in the paper book for A.Y. 2013-14), which would show that the payments have been made to said entities through banking channel. It is further important to submit that sale made by the said entities to the assessee company has been accepted in the assessment of said companies. Copy of assessment order of said six entities are enclosed in the paper book at PB 1491-1617 together with copy of acknowledgment of return, computation of income, audited balance sheet, profit & loss account together with all annexure are also enclosed at PB 200-227 & 228-299. PB 179-199 is the copy of acknowledgment of return, computation of income, audited balance sheet, profit & loss account and tax audit report for A.Y. 2013-14 of M/s Super Connection India P Ltd. in support of this fact.
It was also submitted that a detailed submissions vide letters dated 11.12.2017 (PB 174-176), 12.12.2017 (PB 177-178) was made during the course of assessment proceeding a copy of which is enclosed in the paper book and which has been reproduced in the assessment order also, in which and along with which detailed justification was made with the help of several annexure that export would not have been possible by the assessee, if it had not purchased the goods from above said companies. In fact input
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output ratio and industry consumption were also furnished at PB 1906-1907 (which is already enclosed in the paper book for A.Y. 2013-14). All the annexure referred in that letter are also enclosed in the paper book to show that purchases made by the assessee from six companies could not be disbelieved at PB 1617-2460, PB 2463-2936 (which is already enclosed in the paper book for A.Y. 2013-14). PB 1671-1764are the ledger accounts of M/s, Fashionable Attire P Ltd, M/s Fashionara Apparel P Ltd, M/s Modernistic Attire P Ltd, M/s Starline clothing P Ltd, M/s Trendy Attire P Ltd & M/s Super Connection India P. Ltd in the books of appellant company, (which are already enclosed in the paper book for A.Y. 2013-14). PB 1821-1902 is the ledger account of appellant company in the books six companies namely M/s, Fashionable Attire P Ltd, M/s Fashionara Apparel P Ltd, M/s Modernistic Attire P Ltd, M/s Starline clothing P Ltd, M/s Trendy Attire P Ltd & M/s Super Connection India P. Ltd, (which is already enclosed in the paper book for A.Y. 2013-14). PB 1903 is the detailed chart showing the year-wise purchases from said six companies, (which is already enclosed in the paper book for A.Y. 2013-14). PB 1906-1907 is the category-wise sheet showing total sales in pieces on sample basis and consumption of fabric along with standard input / output norms (which is already enclosed in the paper book for A.Y. 2013-14). PB 1910 is the reconciliation of purchase quantity and value of fabric in the books of appellant showing opening stock of fabric purchase, consumption, cost of fabric sold and closing
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stock (which is already enclosed in the paper book for A.Y. 2013-14 in assessee’s own case). PB 1911-1958 is the detailed chart showing the standard input/output ratio, as prescribed by the Standard Input/Output Norms under hand book of procedure Volume II of foreign trade policy, published by the Ministry of Commerce (which is already enclosed in the paper book for A.Y. 2013-14). PB 1959 is the detail of comparison between other garment exporter and the appellant company for material consumption as a percentage of sales (which is already enclosed in the paper book for A.Y. 2013-14).
Therefore, purchases made by the assessee from M/s, Fashionable Attire P Ltd, M/s Fashionara Apparel P Ltd, M/s Modernistic Attire P Ltd, M/s Starline clothing P Ltd, M/s Trendy Attire P Ltd & M/s Super Connection India P. Ltd were the genuine purchases and the addition made may therefore please be deleted. Adverse observations made by Ld. A.O. are met as under:- 1. Ld. AO has mentioned at pages 5.1.2 of the assessment order that the bank account of the supplier M/s Trendy Attire P. Ltd. revealed that it transferred payments on the same day of receipt and according to Ld. A.O. the said supplier as entry providing company to the appellant. In reply, it was submitted that in so far as the appellant is concerned since purchases were made by the appellant from M/s Trendy Attire P. Ltd., the payments were made against the purchases and if the said concern in turn made payments on the same day, how can that be held against the
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assessee. Therefore, to find this usual business phenomenon as something which is adverse to the appellant is beyond comprehension and therefore this observation of Ld. AO may please be ignored and rejected.
Ld. A.O. has mentioned in para 5.1.3 to 5.1.5, 5.2 to 5.2.5, of the assessment order that the statements of the directors namely Sh. Vijender Kumar Jain, Sh. Vijay Kumar Sharma and Sh. Balkishan Luthra, Sh. Ashok Kumar Sharma, were recorded on 29.04.2015, which show that they did not have knowledge of the affairs of the company. In reply, it was submitted that assessee was not made aware at any point of time during assessment proceeding that any statement of these two persons were recorded nor the copies of such statements were supplied to the assessee. So much so copies of such statements have not been made part of the assessment order. Therefore such statements have to be excluded from consideration in view of Hon’ble Supreme Court decision in the case of Kishnichand Chellaram vs. CIT 125 ITR 713. Moreover, no opportunity of cross examination has been allowed to the asseseee for that reason also such settlements have to be excluded from consideration. It has also come to the notice of the appellant that such statements were recorded at the back of the assessee and therefore under what circumstances, these statements were given is not known to the assessee. According to the appellant there is no reason why should the directors of M/s Trendy Attire Pvt. Ltd., would have no knowledge of the affairs of TAPL. Therefore this objection of Ld. A.O. may please be rejected.
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Ld. AO has mentioned in para 5.2, 5.4.2, 5.5.2 & 5.6.4 of the assessment order that post search enquiries reveals that the assessee company made purchases from various companies and these companies no actual material has been supplied.
In reply, it was submitted that overwhelming evidences have been furnished substantiating the business done by the assessee which have not been disputed by Ld. AO. Further, the Ld. AO has failed to bring on record any material or evidence to corroborate arrive at the conclusion that purchases from various companies and these companies no actual material has been supplied. The allegations made by Ld. AO are baseless and this is evident from the very fact he has proceeded to assess the income on the basis of return filed by the assessee company. Therefore, the observation made by Ld. AO that the purchases made by the assessee company is bogus and is baseless and without any basis, material or evidence. 4. Ld. A.O. has mentioned in para 5.6.2 of the assessment order that statements of the directors namely Sh. AkshayDhanda and Sh. Ajay Nagpal were recorded on 22.06.2015, which show that they did not have knowledge of the affairs of the company.
In reply, it was submitted that assessee was not made aware at any point of time during assessment proceeding that any statement of these two persons were recorded nor the copies of such statements were supplied to the assessee. So much so copies of such statements have not been made part of the assessment order even though it has been mentioned that
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they are enclosed as Annexure B and Annexure C at PB 1903, 1906-1907 (which is already enclosed in the paper book for A.Y. 2013-14 in assessee’s own case).Therefore such statements have to be excluded from consideration in view of Hon’ble Supreme Court decision in the case of Kishnichand Chellaram vs. CIT 125 ITR 713. Moreover, no opportunity of cross examination has been allowed to the asseseee for that reason also such settlements have to be excluded from consideration. It has also come to the notice of the appellant that such statements were recorded at the back of the assessee and by calling these persons in the income tax department and therefore under what circumstances, these statements were given is not known to the assessee. According to the appellant there is no reason why should the directors of M/s Super Connection India P. Ltd. (SCIPL), would have no knowledge of the affairs of SCIPL. Therefore this objection of Ld. A.O. may please be rejected. 5. Ld. A.O. has also mentioned in para 5.6.2 of the assessment order that Sh. SudhirDhingra, director of the appellant company has provided personal guarantee for the loan raised by M/s SCIPL from Kotak Mahindra bank.
In reply, it was submitted that what is sought to be conveyed by Ld. A.O. from this observation has not been clear. Business relationship of the appellant company with M/s SCIPL was there and therefore, out of business expediency, if guarantee was extended by Mr. Dhingra to M/s SCIPL, nothing adverse can be read into it.
Ld. A.O. has mentioned his conclusions in this para i.e. para 5.6.2 of the assessment order regarding Sh.
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AkshayDhanda and Sh. Ajay Nagpal on the basis of their statements. In reply, it was submitted that first of all as submitted above, these statements having been recorded at the back of the assessee and copies of statements having not been supplied, have to be excluded from consideration. Even if these statements are taken at their face value then also it is submitted that there is nothing which establishes that sales made by M/s SCIPL made by the assessee company is not genuine. Mr. Dhanda being an employee of a group concern cannot be read against the assessee as there is no bar from an employee of the group concern running his own company. Since major sales of M/s SCIPL are to the assessee and M/s SCIPL sought help from the appellant company to maintain its books of accounts and if in that process employee of the appellant company if helped M/s SCIPL to maintain its books of accounts at the premises of the appellant company only for the sake of mutual convenience and because of cost considerations mountain cannot be made out of the mole hills. In other words inferences drawn by Ld. A.O. from the statements of Mr. Dhanda and Mr. Nagpal do not establish that the sales made by M/s SCIPL to the assessee was not genuine, more so when such sales by M/s SCIPL and purchases by the appellant are supported by above mentioned comprehensive evidences and payments having been received / paid through banking channel and more so when the sales made by M/s SCIPL have been accepted by
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income tax department itself in the assessment of SCIPL, it is submitted above.
Ld. A.O. has mentioned in para 5.6.3,6.4, 6.5, of the assessment order that bulk of purchases were made by M/s SCIPL from the entities controlled by Sh. Sanjay Jindal and since amount remitted were withdrawn in cash it shows that ultimate beneficiary was the appellant company and entities controlled by Sh. Sanjay Jindal were mere entry providers.
In reply, it was submitted that these observations of Ld. A.O. are mere surmises and conjectures and there is no cause and effect relationship. If purchases have been made from various entities of Sh. Sanjay Jindal how could that fact alone be taken as the basis to hold that purchases made by the appellant from such entities of Sh. Sanjay Jindal are not genuine. Similarly, if the payment made by these entities from M/s Akansha Fashion and M/s Jindal Fashion are withdrawn in cash by the supplier, how could it establish that beneficiary was none other than the appellant and the suppliers were entry providers. In fact entire case made out by Ld. A.O. seems to have proceeded on a preconceived notion that purchases made by the appellant are nothing but bogus purchases. It is settled law that suspicion howsoever grave cannot par-take the character of evidence. It is submitted at the cost of repetition that assessee has established the genuineness of the purchases with the help of direct and documentary evidences on the one hand and circumstantial evidences on the other. Detailed submissions was made in the assessment proceeding, which is reproduced in the assessment order by which appellant has
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sought to show and submit that the exports could not have been possible but for the purchases made by the assesssee and in this regard assessee has sought to prove this by filing quantitative reconciliation standard input / output norms (PB 1906-1907, 1911-1958) (which is already enclosed in the paper book for A.Y. 2013-14), comparison between other garments export so and in so forth (PB 1959) (which is already enclosed in the paper book for A.Y. 2013-14). Therefore, the action of Ld. A.O. in making the impugned addition of Rs. 28,33,20,906/- is neither correct of fact in law and the same may please be deleted. 8. Ld. AO has mentioned several adverse things regarding the above six suppliers based upon some alleged enquiries made. In reply, it would suffice to say that so far as above enquiries were not confronted to the appellant. Moreover, during the course of impugned assessment proceeding also in our reply dated 11.12.2017 (PB 174-176) filed to Ld. A.O., we made out specifically and we furnished such details in Annexure G, which is enclosed in the paper book at PB 2196—2460, (which is already enclosed in the paper book for A.Y. 2013-14) that the said supplier was selling the fabric to the appellant company and the material / fabric purchased from the M/s SCIPL has been used in production garments, which have been exported by the assessee company to various parties. Therefore, all the adverse observations made by Ld. AO in the assessment order in respect of the purchases made by the appellant from the above said supplier are incorrect and
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allegations against the appellant are denied and it is requested that the purchases made by the appellant in the year under appeal may please be accepted.
In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1702-1708 reproduced also above by us and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance and misplaced on facts. CIT(A) too has mentioned in his order the adverse observations of the A.O. only which in our opinion are misplaced on facts. Contention of CIT(A) that evidence filed by the assessee self-serving documents and circumstantial evidence leads to the conclusion of A.O. It would be enough for us to say that voluminous documentary evidences filed by the assessee are clearly establishing the genuineness of purchases fabric from M/s Super Connection India P. Ltd. & other vendor companies. Other indicators such as percentage ratio of material to sale etc also establish the genuineness of the purchases. We do
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not agree with the observations made by the first appellate authority. In our considered opinion, assessee has been successful to discharge the burden of proving the purchase from M/s Super Connection India P Ltd. & other vendor companies. In the result, ground no. 11 to 14 of the assessee’s appeal of the assessee are allowed and the aggregate addition of Rs. 28,33,20,906/- is deleted.
Ground No. 15 of the assessee’s appeal & ground no. (v) to (x) of the departmental appeal are in respect of addition of Rs. 3,95,42,400/- made by AO under section 14A out of which a sum of Rs. 49,301/- was confirmed by CIT(A) and on the ground that assessee company has shown dividend income on mutual fund / shares amounting to Rs. 49,301/- and balance was deleted by CIT(A). That is how both have come before us and grievances are covered by the above mentioned grounds of appeal. Assessing Officer at page 63-64 of his order and CIT(A) vide discussion made at page 124-125 of the appeal order discussed the issue.
It is seen that there is exempt income only to the extent of Rs. 49,301/- and for this reason also, disallowance under section 14A could not have exceeded this amount in view of the decision of Delhi High Court in the case of Joint Investment Ltd. 372 ITR 694 and hence we uphold the order of CIT(A) to this extent. In the result, ground no. 15 of the assessee’s appeal is dismissed and grounds no. (v) to (x) of the departmental appeal are dismissed.
Ground no. 16 and 19of the assessee’s appeal are general and do not call for any adjudication under these grounds of appeal here.
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Ground no. 17 of the assessee’s appeal is regarding approval under section 153D but nothing specific submissions have been made before us and hence, the same is rejected.
Ground no. 18 of the assessee’s appeal relating to interest u/s 234B is consequential in nature. Departmental Appeal No. ITA 5038/Del/2019 55. Grounds of appeal preferred by Revenue have been reproduced by above.
Grounds of appeal no. (i) to (iii) are in connection with the addition of Rs. 11,93,649/- made by the AO in respect of job work done through M/s Palwal Enterprises which was deleted by CIT(A).
AO has discussed this issue at page 39-44 of the assessment order whereas CIT(A) has discussed this issue at page 110-113 of the appeal order.
Ld. CIT(DR) relied upon the finding recorded in the assessment order and Ld. Counsel for the assessee relied upon the findings recorded by CIT(A) and has also relied upon the submissions made before CIT(A) placed at page 1721- 1726 of the paper book. 59. We have considered the entire material before us including the paper book, synopsis, and orders passed by the lower authorities. It is seen that the job work charges incurred in relation to this job worker was being allowed in the assessment order passed under section 143(3) for AY
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2012-13. Job worker is assessed to tax also. We have taken ourselves to the written submissions filed by the assessee before CIT(A) and we do not find any error in the order of CIT(A) on this score in view of these submissions and paper book pages referred therein. Thus, we dismiss the ground of appeal no. (i) to (iii) of the revenue. 60. Ground of appeal no. (iv) of Revenue’s appeal is in regard to a disallowance of Rs. 13,73,86,146/- made by AO by treating the product development expense as deferred revenue expense which was however deleted by CIT(A).
AO has discussed this issue at page 62-63 of the assessment order whereas CIT(A) has discussed this issue at page 122-124 of the appeal order.
Ld. CIT-DR relied upon the findings recorded by AO whereas Ld. Counsel for the assessee has relied upon the findings recorded by CIT(A).
We have considered rival contentions and have gone through the orders passed by the lower authorities. This very issue was there in A.Y. 2013-14 also. It is seen that CIT(A) has allowed and deleted the addition made by the AO by ITAT’s order in assessee’s own case in AY 2007-08 & 2008-09 and Order of Hon’ble Delhi High Court in case of the assessee only in ITA 566/2016 and ITA 569/2016 dated 30.9.2016. Since issued involved in the present appeal is identical to the issue involved in the above referred Tribunal’s order and
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order passed by Hon’ble High Court , supra, hence we do not find any infirmity in the order of CIT(A) and hence we dismiss ground no. (iv) of the revenue’s appeal before us.
Ground no. (v) to (x) of the departmental appeal have been taken by us along with the assessee’s appeal’s ground number 15.
Order pronounced in the Open Court on 24th September, 2021
Sd/- Sd/- [Dr. B.R.R. KUMAR] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 24/09/2021 PKK: