GOLF TECHNOLOGIES PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

These three appeals have been filed by the assessee and one appeal has been filed by the revenue against the orders of the ld. CIT(A)-XXXI, New Delhi dated 28.08.2012.

Since, the issues involved in all the appeals of the assessee are common, they were heard together.

In ITA No. 5568/Del/2012 for the AY 2009-10, following effective grounds have been raised by the assessee: “(i) On the facts and circumstances of the case and in law the Ld. CIT (Appeals) had erred in law in confirming the additions for the reasons which are not supported in law. (ii) The Ld. CIT had grossly erred in law in rejecting the contention of assessee that assessment framed is bad in law and de hors any incriminating material. The Ld. CIT decided without even looking to the facts of the case. The reasons cited by Ld. CIT for rejecting ground No. 3(i) & (ii) are not tenable in law. (iii) The Ld. CIT had also erred in law is confirming the disallowance of preliminary expenses of Rs. 24593/-. The conclusion drawn are perverse to record. (iv) The Ld. CIT had erred in law is upholding the addition of Rs. 907943/- on a/c of undisclosed Rental Income. (iv)(a) The Ld. CIT had erred in law in confirming the addition of Rs. 948000/- disallowed u/s 36(1 )(iii) being interest and alleged as advance to Sister concern. The Ld. CIT failed to appreciate the contention of assessee that the same had been paid on capital barrowed for the purpose of business and for business necessity. The business purpose is related to immediate requirement of assessee business of the goods dealing by assessee. (v) The Appellant craves to be allowed to add any fresh grounds of appeal and for delete or amend any of the grounds of appeal.

Ground No. (iii) for assessment years 2008-09 to 2010-11 are not pressed by the assessee, hence do not required to adjudicate.

Ground No. (iv) for AY 2008-09 of Rs.37,52,68,811/-, the AO noted that in the list of parties from whom purchases had been made, certain

From the details of purchases, transaction with following parties had been considered as bogus by the AO in view of reply of Sh. Col. H.S. Bedi in his statement recorded under section 132(4) at the time of search under section 132 of the income tax act, on 25th September, 2009 and on the basis of investigation made during the search operation, post search investigation and during assessment proceedings.

In the course of assessment proceedings it had been held by the AO that purchases made from the following parties were not genuine. Out of the 17 entities/concerns mentioned below 5 are assessed by the same AO. It was held that these parties were not into genuine business activities and were only such entities/concerns which have provided accommodation invoices/ bills to the assessee and other concerns without supplying any material.

It was held that the assessee company has not submitted reply to the queries raised by the AO. The assessee company is a group company of Tulip Group, and in the course of search proceedings under section 132(4), a statement of Lt. Col H.S. Bedi, CMD of the group made a declaration of Rs. 75 Crore on account of bogus purchases made by different group companies. Declaration under section 132(4) was made in the names of M/s Golf Technologies Pvt. Ltd., Firepro Wireless & Technologies Pvt. Ltd. & M/s Pinewood Information System Pvt. Ltd. During the course of examining information filed on behalf of the companies in which declaration was made under, section 132(4) of the income tax act, 1961 it came to notice of the AO that these companies made substantial bogus purchases and included the amount of declaration.

Purchases made from the companies/entities as above were admitted as bogus during the search operation, post search investigation and assessment proceedings. Further a simultaneous action under section 133A was also carried out at the premises of M/s Jay Enn Infotech Pvt. Lid. M/s Aadhar Technologies Pvt. Ltd., and Unique Distributers, in which it was seen that these entities were nothing but only paper entities which were providing accommodation entries by issuing bogus sales bills on account of which the so called buyer (in whose names bill is issued) could inflate its expenditure and reduce profits. Therefore, in view of statement of Sh. Col. H.S. Bedi, CMD of Tulip group and information filed in the case of M/s golf Technologies Pvt. Ltd., purchases made by the assessee company from the entities/companies as above, were held as bogus purchases for which the assessee company had no explanation to offer to the satisfaction of AO.

In the course of assessment proceedings in the case of M/s Jay Enn Infotech Pvt. Ltd., whose case was also centralized with AO, it had been taken to notice that the assessee was not able to furnish details of sales

Therefore, the amount of Rs. 375268811/- was disallowed and added back, out of total purchase made by the assessee company during the relevant previous year and considered as undisclosed income in the hands of the assessee company for the assessment year 2008-09.

The ld. CIT (A) has adjudicated the issue holding as under: “Wherein the appellant has challenged the addition of Rs. 37,52,68,811/- on account of bogus purchases from M/s Jay Enn Infotech Pvt. Ltd. and other parties, I find from the assessment order and rival submission made in this regard that the appellant company has shown huge purchases from various parties including M/s Jay Enn infotech Pvt. Ltd. and out of these entities some are not dealing with actual business but issuing bills to accommodate bogus purchases. The fact has already been established in case of M/s Jay Enn infotech Pvt. Ltd. where it was seen in a course of search that there was no stock or cash as per books of account and lots of irregularities were observed and nothing was explained which apparently showed that the entity is nothing but a paper entity and engaged in bogus sales bills. It is pertinent to mention that in the course of search statement of Col. U.S. Bedi, CMD of the appellant company was recorded and Sh. Bedi declared Rs. 75 Crore on account of bogus purchases in various group companies made from different entities. In his reply during the course of 9 5568, 5569 & 5540/Del/2012 Golf Technologies Pvt. Ltd. appellate proceedings the counsel of the appellant company submitted that the appellant has debited purchases in profit and loss account and goods purchase were sold to various party and sale consideration to this effect has been credited in the profit and loss account as well. The Counsel further stated that the AO has disallowed only purchases i.e. debit amount in the profit and loss account and not touched the sales credited in the profit and loss account. This contentions of the appellant is also not convincing as it cannot be verified with certainty that the items sold are not purchased from any other entity but only from these fictitious and paper entities. The appellant states that the purchases were made through banking channel and VAT paid. This is not a sound argument as these elements always exist in case of bogus purchases. When the supplier himself admitted accommodation transaction of bogus purchases and chief of appellant group company admitted this fact, where the doubt remains. Moreover, the appellant company in the A.Y.2009-10 surrendered an amount of Rs. 21,00,00,000/- on account of bogus purchases in its return of income.

Before us, during the hearing, the ld. AR argued that there is no nexus between purchases made by assessee and bogus purchases declared by Group Company. The A.O. has not proved beyond doubt-the fact that the purchases made from alleged company are bogus whereas the assessee had produced and shown party wise purchase and sales during the assessment proceeding proving that these transactions are not paper transaction. The payment has been made through banking channel for all these purchases and the copies of purchase bills party wise were submitted during the assessment proceedings vide letter dated 05/12/2011 and 15/12/2011.

Further, it was argued that for treating normal purchase as bogus purchase, mentioned in the assessment order and the inference drawn by A.O. is baseless, wrong and against the facts of the case as the details mentioned in the assessment order pertains to assessment year 2009-10 10 5568, 5569 & 5540/Del/2012 Golf Technologies Pvt. Ltd. and 2010-2011 and not to this year. It is established law that each year of assessment is an independent assessment year. For this assessment year 2008-09 there is neither material available on record nor any material was confronted to the assessee during assessment proceedings proving that the purchases made are bogus purchases.

Secondly, during the year the assessee has debited Rs. 37,52,68,811/- as purchases in Profit & loss A/c and the goods purchased above has been sold to various parties and consequent sale of Rs. 38,27,42,233/- has been credited in profit & loss account. The receipts have been duly accounted and offered for taxation. A sheet showing the quantity inflow as purchase and outflow as sale has been produced.

The Assessing Officer has disallowed Rs.37,52,68,811/- on debit side only without looking the credit side of sale, which means, if purchases are disallowed then sales should also be disallowed, the preposition of which we are not inclined to accept. Abstract of Profit and Loss A/c for the F.Y. ended 31/03/2008 PARTICULARS AMOUNT PARTICULARS AMOUNT To Bogus 37,52,68,811 By sales – Against alleged Bogus 38,27,42,233 Purchases Purchases Profits 74,73,422 38,27,42,233 38,27,42,233

From above it is clear that if debit of Rs.37,52,68,811/- to be disallowed on the ground of bogus purchases, then correspondingly credit of Rs.38,27,42,233/- should also be disallowed, the preposition of which we are not inclined to accept. Further, it was argued that every item purchased is either sold or is in stock. The quantitative movement of all stock purchased during the year as INFLOW and OUTFLOW of the same stock when it is sold, the preposition of which we are considerate to

It was argued that the observations of the revenue are wrong that the assessee has debited bogus purchases to reduce the profits, this observation is wrong and against the facts of the case as assessee has shown profit of Rs 74,73,422/- on alleged bogus purchases.

On the other hand, the ld. DR vehemently argued that the assessee has been continuously in the habit of raising the bogus bills to deflate the profits and the material collected during the search & seizure operation amply proves the fact. The assessee has also surrendered a whooping amount of Rs.75 crores only after the revenue made due enquiries and recorded the statements of alleged sellers who undisputedly agreed that no sale have been made by them. She has taken us through the entire statements recorded and the investigations carried.

Heard the arguments of both the parties and perused the material available on record.

The issue narrows down to the finding of the fact whether the purchases have been indeed made, payments have been made against such purchases, whether goods have been received, whether such goods have been sold or not and if sold what is the profit earned and whether the profit has been declared for tax or not ?

We have perused the details of purchases allegedly made by the assessee from the above said bogus parties and the sales made by assessee to Golf Technologies Ltd.

We have gone through the ledger accounts of the purchases and also sales made to Tulip IT Services Ltd. The sale and purchase details are as under:

We have also gone through the details of purchases made by the 17 parties and the subsequent sale. The details are as under:

We have also gone through the items purchases by these parties and found that the items consists of hard discs, air span antennas, alberain bmax CPE –IDU 10, CD writers, Cisco port switches, Cisco port Ethernet modules, delink ports switches and modem, DVD drive writer, infinite wireless systems. We have also gone through the quantitative details of the purchased and sale of the sale of goods in quantity and item wise. We find that the goods have been duly purchased and sold to Tulip Telecom Ltd. We have also examined the value of the total purchases made and also the receipts of sale out of such purchases and the profit earned thereof.

We find that the entire purchase from these parties is to the tune of Rs.37,52,68,800/- whereas the sale receipts from that sales which have been duly accounted were to the tune of Rs.38,27,42,200/-. We find that a profit of Rs.74,37,422/- has been earned by the assessee from these transactions and duly offered to tax. Under these circumstances, it cannot be said that the purchase have been bogus especially when the quantitative details have been tallied item wise and the sale proceeds have been taken into P&L account and the profit earned on such transaction is offered to tax. They could not have been any sales without purchase of the items. Hence, we are unable to accept the contention of the revenue. The appeal of the assessee on this ground is allowed.

In the return of income filed for the assessment year 2008-09, the assessee company had debited interest amounting to Rs. 1,64,18,710/- in the profit and loss account of the financial year 2007-08. During the course of assessment proceedings, it had been taken to the balance at 53 5568, 5569 & 5540/Del/2012 Golf Technologies Pvt. Ltd. the end of the year out of the amount of loan raised and also made advances to sister concerns without charging interest or lower interest.

In the course of assessment proceedings from the details submitted, it had been perused that against payment of interest of Rs. 1,64,18,710/- the assessee company has shown receipt of interest of Rs. 17,33,333/- and for the difference in interest payments no satisfactory reply has been submitted. From the transaction recorded in the bank accounts, it was held that the assessee company transferred the funds to its sister concerns during the year and no business purpose has been indicated behind transfer of these funds to sister concerns.

Further, the disallowance on investments had already been made. The AO noted that the funds were given to family members who had not paid any interest on these loans, in particular Tulip Jewels & Sh. Vishwajeet Sinha to whom a total amount of Rs. 60 lac was given as advance. The AO held that the assessee company raised the funds at higher rate of interest which were utilized by the family members for a purpose other than business without paying any interest.

Therefore, out of interest payments of Rs. 1,64,18,710/-, an amount equivalent to 12% on Rs. 60 lac amount given as advance to Tulip Jewels & Vishwajeet Sinha was disallowed and added back in the income of the assessee company. This amount works out to Rs. 7,20,000/- for the AY 2008-09 u/s 36(1)(iii) of the income tax act, 1961.

The AO has calculated the corresponding amount at Rs.9,48,000/- for the AY 2009-10 taken up by assesseat Ground No. iv(a).

Before us, the primary argument taken up by the ld. AR is that the assessee has got sufficient interest free own funds to extend the loan to sister concerns of Rs. 60,00,000/-. Notwithstanding the fact of availability of own funds, the ld. AR argued that no disallowance on account of 54 5568, 5569 & 5540/Del/2012 Golf Technologies Pvt. Ltd. interest is called for as the assessee has disclosed Rs.21 crs. to taxable income and the total purchases were of Rs.11.72 crs. Hence, the benefit of telescoping of the surrendered amount to the interest be allowed.

The ld. DR relied on the orders of the authorities below which have been duly perused. The various case laws quoted by the ld. DR namely CIT Vs Hero Cycles Ltd., CIT Vs Winsom Textiles, CIT Vs Abhishek Industries Ltd., CIT Vs Avon Cycles.

We have carefully considered the contentions of both the parties and have also gone through various case laws referred to before us. The issue to be adjudicated, as narrowed down from the arguments made before us by both the parties, is whether in relation to disallowance of interest made u/s.36(1)(iii) of the Act, the action of the AO is correct or not. The issue of disallowance of interest has reached finality with the judgment of Hon’ble Supreme Court in the case of Hero Cycles (P.) Ltd. Vs. CIT, Ludhiana [2015] 379 ITR 347. The proposition laid down by the Hon’ble Apex Court is that where the assessee had sufficient own interest free funds along with interest bearing funds and had made or advanced sums for non business purposes without charging any interest, the presumption that would arise is that the investment had been made out of interest free funds generated or available with the assessee, is still a good law in the light of the decision of the Hon’ble Apex Court in the case of Hero Cycles Ltd. (supra).

The appeal of the assessee on this ground is allowed.

During the assessment proceedings, on going through the AS-26, the AO found that the receipts on account of rent were to the tune of Rs.1,73,30,112/- received from M/s Tulip Telecom Ltd. and due tax has been deducted u/s 194-I of the Income Tax Act, 1961. From the computation, the AO observed that out of Rs. 1,73,30,112/- received , the assessee only an amount of Rs.1,60,33,050/- in the P&L account and the remaining amount of Rs.12,97,062/- has been treated as ‘income from house property’ on which 30% deduction u/s 24 has been allowed.

For the assessment year 2009-10, the assessee submitted copy of the computation of income wherein assessee has added back an amount of Rs.11,48,924/- to the profit before taxes in the P&L account.

The ld. CIT (A) has confirmed the addition.

Before us, it was argued that no show-cause notice has been given with regard to the addition made. The revenue could not dispute the contentions of the assessed by the way of production of any show cause notice issued. Hence the addition made by the AO is hereby directed to be deleted for failure to follow the principles of natural justice. The appeal of the assessee on this ground is allowed. - AY 2007-08 (Revenue’s Appeal) Assessment year - 2007-08 Due date of filing of return – 29.02.2008 Date of search – 24.09.2009

The assessment is not an abated assessment. There is no dispute that the additions made were not based on any seized material. Hence, in view of the judgment of the Hon’ble Delhi High Court in the case CIT vs. Kabul Chawla (2016) 380 ITR 0573, the appeal of the department is treated dismissed.