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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI L.P. SAHU
The aforesaid appeals have been filed by the revenue as well as by the assessee against impugned order dated 29.12.2015, passed by Ld. CIT (Appeals)-24, New Delhi for the assessment year 2012-13.
We will first take revenue’s appeal. In the revenue’s appeal revenue has challenged the addition of Rs. 8,08,420/-. The relevant ground reads as under:- “On the facts and circumstances of the case, the CIT(A) has erred in law in restricting the addition to Rs. 8,08,420/- out of total addition of Rs. 48,04,151/- made by the AO on account of sale of scrap out of books.”
Since the tax effect on the amount disputed by the revenue is less than Rs. 20 lacs, therefore, in view of recent Circular of CBDT No. 3/2018 dated 11th July, 2018, whereby the monetary limit of tax effect for not filing appeals before the Tribunal has been revised to Rs. 20,00,000/-, the appeal of the Revenue is not maintainable. It is not the case of the Revenue that the present appeal comes within the sweep of exclusion clauses as given in para No. 10 & 11 of the said Circular. Thus, without going into merits of the case, we dismiss the appeal filed by the Revenue, being not maintainable as the said circular is applicable on the pending appeals also.
In the result, the appeal of the Revenue stands dismissed as indicated above.
Now we come to the assessee’s appeal wherein the assessee has raised following grounds:- 1. “The Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 8,08,420/- on account of unaccounted scrap sale out of total addition of Rs. 48,04,151/- 2
made by the Ld. AO (refer Para 4.1.21 of order of CIT(A) dated 29.12.2015) and as such addition of Rs. 8,08,420/- may please be deleted. 2. The Ld. Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 5,11,464/- made by the Ld. AO in respect of section 14A of the Income Tax Act, 1961 r.w. Rule 8D of the Income Tax Rules, 1962. Thus, addition of Rs. 5,11,464/- may please be deleted.”
The facts in brief are that assessee is engaged in manufacturing of premium quality plastic moulded components for automobile sector. It has two units, namely Gurgaon Unit & Manesar Unit. Search and seizure operation was conducted at the business premises of the assessee on 9.11.2011. The AO observed that during the course of search, statement u/s 132(4) of Shri Ish Budhiraja, was recorded wherein he was asked to explain the sources of cash amounting to Rs. 3,44,500/-. In his statement he has stated that sum of Rs. 3,14,500/- was generated from sale of scrap out of the books of M/s. TRW Sun Steering Wheels Pvt. Ltd. and M/s. Sun Vaccum Formers Pvt. Ltd. He further observed that at the residential premises of Shri Subhash Sathe certain documents were found and seized which pertained to scrap sales. He thus concluded that there was a sale of scrap outside the books and from the statements given by these persons it is quite clear that there was a generation of cash through scrap which amounted to Rs. 7 to 8 lacs approximately per year. Assessee was required to provide the details regarding ratio of disclosed scrap sales and total disclosed sales and noted that from the %age to scrap sale to total sale was between 0.10% to 0.16%. Since as per the seized documents, scrap sale was Rs.7,98,636/- which was for the period of five months from April, 2011 to August 2011, therefore, AO based on 3 five months scarp sale he applied to the total scrap ratio and thereby estimated the sale of scrap at Rs. 48,04,151/- by applying 2.12 times of scrap sales book during the year.
Ld. CIT (A) gave part relief and computed unaccounted scrap sales at 3.55% times of unaccounted scrap of Manesar unit and also allowed benefit of Rs. 8 lacs already disclosed by the assessee and restricted the addition of Rs. 8,08,420 out of Rs.48,04,151/-. No estimate was made on account of Gurgaon Unit, because no scrap was generated from this unit.
Before us Ld. Counsel for the assessee submitted that a complaint was received by the management of the assessee company that employees were involved in not reporting the actual income from the scrap sold by them and accordingly, internal inquiry was conducted and employees were confronted with coercive action. Thereafter, approximately Rs. 8 lacs were received from them. So far as the documents received from the premises of Managing Director, Shri Subhash Sathe, the assessee’s contention was that, since internal inquiry was pending on the date of search, therefore, these documents were lying with the Managing Director and the Director. Ld. AO has not made any independent inquiry from the third party whose names are appearing in the alleged seized documents even on the request made by the assessee before the AO. Even otherwise also sale of scrap is comparable with the total sale credited to the profit and loss account and there were two types of scraps, namely manufacturing scrap and non manufacturing scrap: → Manufacturing Scrap generated out of Injection moulding process i.e. manufacturing process adopted by assessee. Such as, Plastic lumps, scrap burada, scrap plastic others, etc. 4 → Non-Manufacturing scrap – other scraps generated not directly related to manufacturing process. Such as drums, used oil, PU Foam, wooden pallets, broken bins, paint tins, corrugated boxes, etc. 8.1. He further submitted percentage of normal industrial standard of scrap was 1.5% to 2.5% and assessee has booked scrap sales to total sales at 0.11%. AO has applied multiplying factors of 2.12 times from the books of scrap sales even after the date of search on the presumption that assessee would have continued to make alleged unaccounted scrap sale which is not justified and the Ld. CIT (A) has revised the multiplication factor to 3.55 times considering the scrap sales in post search period, but he has restricted the same to the Manesar Unit.
On the other hand, Ld. DR strongly relied upon the order of the Ld. CIT (A) and the AO and submitted that, once it is found during the course of search alongwith documentary evidences that Assessee Company was selling scrap outside the books, then such an estimate made by the AO and Ld. CIT (A) is justified.
After considering the rival submission and on perusal of the relevant material placed on record and the findings given in the impugned order, it is seen that during the course of search at the residential premises of the Managing Director and Director of the Company, certain documents were found and seized which reflected that there were sale of scraps made outside the books of accounts. Various instances have been highlighted wherein the amount recorded on sale of scrap in the seized documents is more than what has been deposited in the bank account. Thus, from the contemporaneous record it was found that there were sale of various scrap generated in 5 factory were sold in cash outside the books of accounts and this has been done by under invoicing the sale value. This fact has also been admitted in one of the statement of the Director. The AO has computed the ratio on unaccounted scrap sale to accounted sale for a period of five months in the following manner:- Accordingly, as per the AO, the ratio of unaccounted scrap sale to accounted scrap sale for the 5 month period = Rs.7,98,636 =2.12 Rs. 3,77,328 As per the appellant, the ratio for the same period should be = Rs. 7,98,636 = 1.33 Rs. 6,02,235 10.1 Ld. CIT(A) after calling for the entire details, ledger account and scrap sale of both Gurgaon Unit and Manesar Unit found that invoices number as appearing in the seized documents corresponds with the scrap sale bills issued from the Manesar unit. It was also held by him that the figure given by the assessee about ratio is not correct and since the seized documents exclusively relate to Manaser unit, therefore, he held that correct ratio of unaccounted cash sales as represented by the seized documents can be derived by the comparing it to annual accounted scrap sales of the Manesar Unit only. That is the reason why he has estimated the scrap scale only with Manesar unit not Gurgaon unit. Ld. CIT (A) after detailed discussion has held that multiplication factor of 3.55 times to compute undisclosed sales are justified. Once it is an undisputed fact that one of the Director has admitted in his statement that assessee company was indulged in unaccounted sale of scarp generated in the manufacturing process in cash in the assessment years 2010-11 to 2012-13; and manufacturing process of the Manesar unit continued to be the same for all the three 6 years, then in our opinion Ld. CIT(A) has rightly held that if scrap has been generated and sold during the assessment year 2012-13 in the earlier years, then same should be there in the assessment year 2012- 13 also. He has elaborately discussed and explained meticulously based on seized material how estimate of scrap sale can be made where no material is found. Such an action of Ld. CIT(A) is justified, because it is matter of record that in all the years assessee has been generated unaccounted cash from the scrap sales outside books, then based on same ratio such unaccounted cash has to be treated as unexplained. Thus, we do not find any infirmity in the order of the Ld. CIT (A) and the same is affirmed.
In so far as the disallowance u/s 14A of Rs. 5,11,464/- is concerned, the brief facts are that assessee has earned dividend income of Rs. 57,14,126/- against which no disallowance was offered by the assessee. In response to the show cause notice by the AO the assessee could not substantiate its claim as to why no expenditure can be attributed for earning of the exempt income. Ld. AO has computed the disallowance u/s 14A after applying rule 8D at Rs. 5,11,464/- which has been confirmed by the Ld. CIT(A).
Before us Ld. Counsel submitted that the investments have been made by the assessee from its reserves & surplus, share capital and had not utilised any borrowed funds, therefore, no interest disallowance should be made. In support he strongly relied upon the order of Hon’ble Delhi High Court in the case of Eicher Motors Ltd. vs CIT (2017) 398 ITR 51.
On the other hand Ld. DR has strongly relied upon the order of Ld. CIT (A).
On perusal of the impugned order, we find AO has made disallowance under rule 8D(2)(ii) at Rs. 1,23,154/- and indirect disallowance of expenditure under rule 8D(2)(iii) at Rs. 3,88,310/-. In so far as disallowance of interest is concerned, we find that assessee has huge surplus funds available with it which is evident from the following chart:-
Particulars As on 01-04-2011 As on 31-03-2012 Share Capital Rs. 3.91 crores Rs. 3.91 crores Free Statutory Reserves Rs. 60.47 crores Rs. 65.73 crores Total own funds [PB No. 73] Rs. 64.38 crores Rs. 69.64 crores Investment considered by Ld. Rs. 6.09 crors Rs. 9.43 crores AO for purpose of disallowance u/s 14A 14.1 Thus, in wake of availability of such huge surplus fund, which is far more than the investment made by the assessee, we direct that no disallowance of interest can be made.
14.2 However, with regard to indirect expenses, we find that assessee has not discharged its prima facie onus as to why no expenditure is attributable for earning of such a huge exempt income and it is only when assessee discharges his onus, then AO has to record his ‘satisfaction’ having regard to the accounts maintained by the assessee and on the claim made by the assessee. Thus, under these facts and circumstances, we hold that in so far as disallowance of indirect expenditure is concerned the same has rightly been confirmed by the Ld. CIT (A) and to this extent order of the Ld. CIT(A) is confirmed.