RATAN TAXTILES P. LTD.,JAIPUR vs. DCIT, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM

vk;dj vihy la-@ITA No. 527/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke M/s Ratan textiles P. Ltd., D.C.I.T., Vs. Papriwal Cottage, Ajmer Road, Circle-2, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCR 3760 L vihykFkhZ@Appellant izR;FkhZ@Respondent

vk;dj vihy la-@ITA No. 595/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke Dy. Commissioner of M/s Ratan textiles P. Ltd., Vs. Income Tax, Papriwal Cottage, Ajmer Road, Circle-2, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCR 3760 L vihykFkhZ@Appellant izR;FkhZ@Respondent

vk;dj vihy la-@ITA No. 528/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke M/s Ratan textiles P. Ltd., D.C.I.T., Vs. Papriwal Cottage, Ajmer Road, Circle-2, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCR 3760 L vihykFkhZ@Appellant izR;FkhZ@Respondent

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 2 M/s Ratan Textiles P Ltd. Vs DCIT vk;dj vihy la-@ITA No. 596/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke Dy. Commissioner of M/s Ratan textiles P. Ltd., Vs. Income Tax, Papriwal Cottage, Ajmer Road, Circle-2, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCR 3760 L vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA Nos. 531, 525 & 526/JP/2016 fu/kZkj.k o"kZ@Assessment Years : 2007-08 to 2009-10 cuke M/s Ratan textiles P. Ltd., D.C.I.T., Vs. Papriwal Cottage, Ajmer Road, Circle-2, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCR 3760 L vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal & Shri O.P. Agarwal (CA) jktLo dh vksj ls@ Revenue by : Shri Rajendra Singh (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 28/03/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 21/04/2017 vkns'k@ ORDER

PER: KUL BHARAT, J.M.

This is a bunch of seven appeals filed by the assessee and the

revenue arise against the separate orders dated 31/3/2016 passed by the

ld. CIT(A)-I, Jaipur pertaining to the A.Ys. 2007-08 to 2011-12.

convenience and brevity, a consolidated order is being passed.

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 3 M/s Ratan Textiles P Ltd. Vs DCIT

representatives that the cross appeals being ITA No. 527/JP/2016 and

595/JP/2016 pertaining to the assessment year 2010-11 may be taken as a

lead case as the facts and grounds are identical and arise from the similar

issues. Therefore, we first take up cross appeals being ITA No.

527/JP/2016 filed by the assessee and ITA No. 595/JP/2016 filed by the

revenue for the assessment year 2010-11, wherein the assessee and the

revenue have taken following grounds of appeal:

Grounds of assessee’s appeal in ITA No. 527/JP/2016.

“1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the addition made in the assessment completed u/s 143(3) solely on the basis of statements recorded during the course of survey which stood retracted by the assessee through an affidavit filed by its director. Thus, the additions made solely on the basis of such retracted statements deserve to be deleted. 1.1 That, the Ld. AO has further erred in not accepting the affidavit given by the director of the assessee company without any basis and with the sole purpose to make additions without brining on record any corroborative material found during the course of survey or during the course of assessment proceedings, and also by completely ignoring the well established law that no addition can be made solely on the basis of statements recorded on oath during the course of survey conducted u/s 133A of the Act, when the assessee extended full cooperation. Thus, the assessment order

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deserves to be held bad in law and the additions made thereunder deserve to be deleted. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the application of provisions of section 145(3) of the Income Tax Act, 1961 without appreciating the fact that the Ld. AO had miserably failed to point out any material defect in the books of account of assessee. Thus, the action of Ld. AO in rejecting the books of account of assessee u/s 145(3) deserves to be held bad in law. 2.1 That, the Ld. AO and the Ld. CIT(A) has further erred in rejecting the books of account of assessee u/s 145(3) solely on the basis of the allegation that the job work charges and stipend paid by assessee are unverifiable/unjustified by completely ignoring the submissions made and evidences adduced in order to establish the genuineness of the expenses incurred by the assessee. Thus the Ld. AO has failed to reach the satisfaction that true profits cannot be deduced from the books of account of assessee, hence the action of Ld. AO in invoking the provisions of section 145(3) deserves to be held bad in law. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in making lump sum trading addition of Rs. 25,00,000/- without any basis and without establishing as to how the trading results declared by the assessee are not true and correct. Thus, the trading addition of Rs. 25,00,000/- deserves to be deleted. 3.1 That, the Ld. AO and Ld. CIT(A) have further erred in holding that the job work charges paid to M/s Kalpana Handicraft and M/s Kalpana Impex are bogus and

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unverifiable (though no separate addition made on this account) when all the necessary details regarding rendering of services by these parties were submitted, thus the job charges paid to these concern deserves to be treated as genuine and the observation of Ld. AO treating the aforesaid payment as non-genuine / unverifiable deserves to be ignored and excluded and the addition made based on such conclusion deserves to be deleted. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has further erred in sustaining the disallowance of Rs. 5,33,266/- being 20% of the stipend expenses claimed by assessee out of the total disallowance of Rs. 19,99,747/- made by Ld. AO being 75% of the stipend expenses claimed at Rs. 26,66,330/-, without any basis and without considering the submissions made by assessee and the evidences adduced in support of the genuineness of the expenses claimed by assessee. Thus, the disallowance of Rs. 5,33,266/- sustained by the Ld. CIT(A) deserves to be deleted. 4.1 Without prejudice to Ground of Appeal No. 01 to 04 and in the alternative, the Ld. CIT(A) has grossly erred in confirming further disallowance of Rs. 5,33,266/- out of the stipend expenses when the trading results are not accepted and the provisions of section 145(3) are invoked.” Grounds of revenue’s appeal in ITA No. 595/JP/2016.

“1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in restricting the disallowance of stipend expenses @ 20% as against 75% applied by the A.O.

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the revenue in all the other appeals for the A.Y. 2007-08, 2008-09, 2009-

10 and 2011-12.

Income Tax Act, 1961 (hereinafter referred as the Act) was carried out at

the business premises of the assessee on 04/8/2011. During the course of

survey, the statement of the Directors of the assessee company and the

employees were recorded. On the basis of the material gathered and the

statement of the Directors of the assessee company, the case was picked

up for scrutiny assessment and the assessment U/s 143(3) of the Act was

framed vide order dated 26/3/2013. While framing the assessment, the

Assessing Officer made additions on account of trading addition of Rs.

25.00 lacs, disallowance out of stipend expenses of Rs. 19,99,747/-,

deemed dividend of Rs. 36,85,000/- and disallowance U/s 14A of the Act of

Rs. 45,795/-.

carried the matter before the ld. CIT(A), who after considering the

submissions, partly allowed the appeal. While partly allowing the appeal,

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the ld. CIT(A) deleted the addition made on account of deemed dividend of

Rs. 36,85,000/- and restricted the disallowance of stipend expenses to the

extent of Rs. 5,33,266/- against Rs. 19,99,747/- and confirmed the trading

addition of Rs. 25.00 lacs.

revenue are in appeals before this Bench. Grounds No. 1 to 3 of the

assessee’s appeal are against rejection of books of account and making

trading addition of Rs. 25.00 lacs. The ld AR of the assessee reiterated the

submissions as made in the written brief. He submitted that the entire

assessment is based on the basis of the statement recorded during the

course of survey. He submitted that the statement so recorded were

subsequently retracted by the assessee. He submitted that the action of

the authorities below relying upon the statement recorded during the

course of survey is contrary to ratio laid in the judgment of the Hon'ble

Supreme Court rendered in the case of CIT Vs. S. Khader Khan Son (2013)

352 ITR 480 (SC) and also the judgments of the Hon’ble High Courts of

Delhi and Kerala in the cases of CIT Vs. Dhingra Metal Works and Paul

Mathews and sons Vs. CIT (2003) 263 ITR 101 (Ker). He submitted that

the tax was deposited under protest. The Assessing Officer presumed

payment of tax on the surrendered amount during the course of survey as

if the assessee had accepted the surrendered amount as correct. He

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contended that the Assessing Officer doubted about the payments made to

M/s Kalpana Impex and M/s Kalpana Handicrafts. He submitted that both

were providing services to the assessee. He submitted that the authorities

have based their findings on the basis of pick and choose of the contents

of statements, which is also not permissible under the law. He contended

that the firms, who had rendered services were duly registered under the

provisions of ESI. He contended that in the case of M/s Kalpana Impex,

ESI was duly deducted from the payments made to the labourers, which

established the existence of genuineness of the transactions. He submitted

that the statements of Shri Naresh Kumar Jain, Director of the company,

Shri Harak Chand Jain, employee of the company were taken during the

course of survey without providing them books of account etc., therefore,

their statements were not voluntary and as such these statements were

duly retracted by the maker of the statements. Hence, it has no evidentiary

value. Therefore, basing the assumption on such statement is contrary to

the settled principle of law. He submitted that the statements are not the

concluding piece of evidence.

of the authorities below and further argued that merely because the

assessee had retracted the statement would not prohibit the Assessing

Officer to make use of the information and the material gathered during

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the course of survey. He submitted that it is on record that the proprietor

of the so called firms was not aware of the whereabouts of their business

premises and how many people were working under this premises.

Therefore, the authorities below are justified in rejecting the explanation of

the assessee and making additions by rejecting the books of account.

compare the total payments made by the assessee on account of stitching

job charges during the year under appeal, which is of Rs. 1,18,52,754/-

out of which Rs. 21,87,127/- were paid to M/s Kalpana Impex, which in

terms of percentage comes to 18.45%. Similarly, the payments on account

of printing charges of Rs. 2,23,91,991/- of which Rs. 93,079/- only was

paid to M/s Kalpana Handicrafts for washing and spotting job work, which

in terms of percentage comes to 0.41% only. He submitted that in fact

percentage of total disallowed expenses in terms with total manufacturing

expenses booked by the assessee company during the year is less than

even 1%. Ld. Counsel further submitted that the inference drawn from the

statements of Shri Chandan Singh Chouhan is not correct. He submitted

that the statement given by Shri Chandan Singh Chouhan would not inspire

confidence as the contents of the same are self contradictory.

the material available on the record. There is no dispute with regard to the

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proposition that statements recorded during the course of survey has no

evidentiary value. Such statements if retracted by the assessee would shift

the onus on the Assessing Officer to prove the contents of the statement

as correct by placing material corroborating the correctness of such

statements on record. In the present case, the Assessing Officer based his

findings solely on the basis of the contents of the statement recorded

during the course of survey. No other material is gathered suggesting that

the statements were not correct. As per the assessee, one of the firm M/s

Kalpana Impex is registered with ESI and deducting contribution and

depositing the same to the concerned authority. The Assessing Officer was

required to make inquiry on these contents since the statement was

recorded during the course of survey and such statements stated a fact

which was required to be further corroborated with a plausible evidence.

We find that the assessee had enclosed details of contractors from whom it

had got the work done at page 9 of the paper book. A letter addressed to

the Registering Authority under the Contract Labour Act is enclosed, which

was received by the concerned department on 26/1/2011. At page No. 7 of

paper book, a registration certificate dated 09/9/2005 is enclosed, which

includes name of Smt. Kalpana Jain. These details demonstrate that

Proprietor of M/s kalpana Impex was registered with concerned authority

of labour department for the purpose of stitching. From the records, as

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made available, it is transpired that the assessee was engaging persons on

contract for its work. On this aspect, no inquiry was made by the Assessing

Officer. In our considered view, the Assessing Officer ought not to have

based the assessment solely on the statements recorded during the course

of survey, he should have brought material suggesting that no job work

was done by the said firms. The Hon’ble Rajasthan High Court in the case

of CIT, Udaipur Vs. Shri Roshan Lal Lodha in I.T. appeal No. 185/2014

order dated 03/11/2015 has held as under:-

“In the case aforesaid, Hon'ble Apex Court held that Section 133-A of the Income Tax Act does not empower Income Tax officer to examine any person on oath; hence, the statement recorded under Section 133-A has no evidentiary value and any admission made during such statement cannot be made basis of addition. The appeal preferred by the revenue before the Income Tax Appellate Tribunal came Lo be dismissed by the judgment impugned. Learned counsel appearing on behalf of the appellant submits that the assessee in the instant matter did not retract from his statement, therefore, the law laid down in the case of S. Khader Khan Son (supra) is not applicable. We do not find any merit in the argument advanced. The assessee filed an appeal before the [3] Commissioner, Income Tax (Appeals), with specific assertion that the statement made by him would have not been accepted to make any addition and therefore, his denial is apparent. In view of it, the orders passed by the Commissioner, Income Tax (Appeals) and the Income Tax Appellate Tribunal do not suffer from any wrong. The appeal is having no substantial question of law. Hence, the same is dismissed.”

If we apply the ratio of the judgment of the Hon’ble Apex Court rendered

in the case of CIT Vs. S.Khader Khan son (Supra) on the facts of the

present case, the authorities below were no justified in making the addition

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 12 M/s Ratan Textiles P Ltd. Vs DCIT

on the basis of the statement recorded during the course of survey. No

other material suggesting that the claim of the assessee was false, is

brought on record by the revenue. Under these facts and in view of the

binding precedent, we are unable to confirm the finding of the ld. CIT(A).

Therefore, we direct the Assessing Officer to delete the trading addition of

Rs. 25.00 lacs. Grounds No. 1 to 3.1 of the assessee’s appeal are disposed

off in indicated hereinbefore.

confirming the disallowance of stipend expenses to the extent of Rs.

5,33,266/-. The ld A.R. of the assessee has reiterated the submissions as

made in the written submissions. He submitted that the Assessing Officer

made disallowance of the stipend expenses solely on the basis of the

statement of Shri Naresh Kumar Jain recorded during the course of survey

proceedings. He submitted that the statements recorded of Shri Naresh

Kumar Jain during the survey, a surrender was obtained from him wherein

he admitted 50% of the payment made to trainees as bogus. However, in

the assessment order, the Assessing Officer made lump sum addition @

75% of total expenditure claimed by the assessee company in all the

years. However, the ld CIT(A) considering the evidence and submissions

by the assessee restricted the addition @ 20% of expenses claimed. He

submitted that in the instant case, the Assessing Officer has rejected the

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books of account and made lump sum addition of Rs. 25.00 lacs on this

account, which very well cover any and every discrepancy in the books of

account, thus no separate disallowance is called for on the allegation of

stipend expenses being held as bogus. He submitted that it is settled

position of law that once books of account are rejected, the same cannot

be relied for the purposes of making addition of a particular item of

expenditure in the P&L account. In support of this contention, the ld

counsel for the assessee has relied upon the following case laws:-

(i) Indwell Constructions v. Commissioner of Income-tax reported in 232 ITR 0776-[1998]

(ii) 037 ITR 0369 Maddi Sudarsanam Oil Mills Co. v. CIT [Andhra Pradesh High Court]

(iii) 36 DTR 220 Teja Constructions Vs. Asstt. CIT (Hyd. ‘A’)

(iv) 116 TTJ 289 ITO Vs. Kenaram Saha & Subhash Saha (Kol.)

(v) 58 DTR 368 ITO vs. Sadhwani Brotehrs (Jp 'B')

(vi) Singhal Builders Contractor v. Addl. CIT [2011] 12 Taxman.com 199 (Jp. ITAT)

(vii) [2011] 007 ITR (Trib) 0183 Reliable Surface Coatings Vs. ACIT.

of the authorities below. However, he submitted that the ld. CIT(A) was

not justified in restricting the disallowance to the extent of 20% for which

the revenue is in appeal before this Tribunal.

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the material available on the record. The ld. CIT(A) has decided the issue

by observing as under:-

“(v) It is noted from the above details that during the course of survey u/s 133A of the Act, Shri Naresh Jain, the Director of the appellant company surrendered a sum of Rs. 50 lac, out of total expenditure of Rs. 95,41,465/- claimed by the appellant from FY 2006-07 to 2009-10 as per following details: F.Y. Amount 2006-07 Rs. 10,55,585/- 2007-08 Rs. 27,37,958/- 2008-09 Rs. 30,85,592/- 2009-10 Rs. 26,66,320/- Total Rs. 95,41,465/- (vi) However, subsequently, the said surrender was retracted by the appellant. It is noted from the assessment order that the AO relied heavily on the statements of Shri Naresh Jain and Shri Bunkar recorded during the course of survey u/s 133A of the Act. The AO disallowed 75% of the stipend expenditure claimed by the appellant against approximately 50% surrendered during survey on the basis of following additional findings:

• The payments were made in cash and no PF/ESI has been deducted while making such payments. • There is no basis of determining minimum or maximum amount of stipend. • Various discrepancies are noticed in the salary/wages sheets. • Out of list of 147 trainees submitted by the appellant, the AO noted that 50% of the mobile numbers were either wrong or incorrect

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 15 M/s Ratan Textiles P Ltd. Vs DCIT • Out of the 10 trainees required by the AO to produce (who were working during different periods), only 3 were produced before the AO.

(vii) It is noted that the AO has just ignored the various documentary evidences filed by the appellant including the attendance sheets of the trainees, retraction by Shri Naresh Kumar Jain, copies of the complete set of appointment documents of each trainee consisting of applications made by the individuals for being appointed as trainee in the appellant, along with his bio data, qualification , address / identity verification , and the appointment letter issued by the appellant mentioning therein the date of joining, initial salary and job details, attendance register, showing the daily attendance of each trainee along with factory in and out time , on the basis of which monthly stipend payment is done , along with copy of entry card of each trainee. Copy of monthly stipend payment sheet, duly reflecting the amount paid to each trainee computed on the basis of his agreed stipend rate, number of days worked etc, along with receipts of each trainee thereon. The AO has also ignored the fact that the applicability of ESI / PF law was not mandatory up to June-2010 on the payment made to stipend trainees. The inspection report of ESI officials reveal that no such discrepancy was reported by the PF / ESI department officials. Further, the incorrect mobile numbers and inability of the appellant to produce the trainees who had already left the appellant and cash payments to trainees cannot be the grounds for disallowing 75% of the stipend expenses claimed by the appellant.

(viii) It may be mentioned that in the case of CIT Vs Shri Roshan Lai (Supra), it has been held by the Hon’ble Rajasthan High Court that the statement recorded under Section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. Further, the Hon’ble Supreme Court in the case of CIT Vs S. Khader Khan Son

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[2012] 25 taxmann.com 413 (SC)dismissed the civil appeal by the income tax department and confirmed the order of Hon’ble Madras High Court in the case of CIT Vs S. Khader Khan Son [2008] 300 ITR 157 (MAD.) wherein it was held by the Hon’ble High Court of Madras that:

“From the foregoing discussion, the following principles can be culled out:

(i) An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court in Pulkngode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18;

(ii) In contradistinction to the power under section 133A, section 132(4] of the Income-tax Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.);

(iii) The expression "such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284 ITR 220 (Mad.);

(iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C (A) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad.);

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(v) Finally, the word "may" used in section 133A(3) (Hi) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act", as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the statement, obtained under section 133A would not automatically bind upon the assesses we do not see any reason to interfere with the order of the Tribunal."

(ix) Therefore, in view of the above discussion, it is held that the AO was not justified in disallowing 75% of the trainee stipend claimed by the appellant. However, the discrepancies as observed by the AO - cannot be totally brushed aside. Hence, considering the totality of facts and circumstances of the case, I think it would be appropriate to restrict the disallowances to 20% instead of 75% of the amount claimed by the appellant. Hence, disallowance out of stipend expenses is restricted to Rs. 5,33,266/- against Rs. 19,99,747/- made by the AO. From the above, it is evident that the ld. CIT(A) has restricted the

disallowance on ad hoc basis. After considering the material placed before

this Tribunal, we are of the considered view that when the inspection was

carried out by the ESI and PF department, no discrepancy was reported in

respect of rate of stipend and payment of stipend. The Assessing Officer

has not placed any material suggesting that the number of trainees was

not correct. Moreover, the Assessing Officer has based his finding on the

basis of presumption that the assessee is not charitable institute than why

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it would provide training with stipend to the persons who would quit after

training. This observation of the Assessing Officer is purely based on the

conjecture and surmises, which cannot be the basis for making

disallowance. If the Assessing Officer’s reasoning is accepted, then it would

make the assessee liable for prosecution for practicing the bonded labour.

Therefore, this disallowance is unjustified and the same is hereby deleted.

allowed.

assessment year 2010-11. The first ground of the appeal is against

restricting the disallowance of stipend expenses @ 20% against 75%

applied by the Assessing Officer. Both the representative of the parties

adopted the same argument as was made in ITA No. 527/JP/2016.

observing as under:-

“From the above, it is evident that the ld. CIT(A) has restricted the disallowance on ad hoc basis. After considering the material placed before this Tribunal, we are of the considered view that when the inspection was carried out by the ESI and PF department, no discrepancy was reported in respect of rate of stipend and payment of stipend. The Assessing Officer has not placed any material suggesting that the number of trainees was not correct. Moreover, the Assessing Officer has based his finding on the basis of presumption that the assessee is not charitable institute than why it would provide training with stipend to the persons who would quit after training. This observation of the Assessing Officer is purely based on the conjecture and surmises, which cannot be the basis for making disallowance. If the

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Assessing Officer’s reasoning is accepted, then it would make the assessee liable for prosecution for practicing the bonded labour. Therefore, this disallowance is unjustified and the same is hereby deleted.”

Accordingly, this ground of the revenue’s appeal is dismissed.

on account of deemed dividend. The ld. Sr.DR has supported the order of

the Assessing Officer and submitted that the ld. CIT(A) was not justified in

deleting the addition.

of the ld. CIT(A) and reiterated the submissions as made in the written

submissions.

material available on the record and also gone through the orders of the

authorities below. The ld. CIT(A) has elaborately examined this issue in his

order and decided the same by holding as under:-

“3.3.2 Determination:

(i) I have duly considered the assessment order, submissions of the appellant and the material placed on record. During the year under consideration the appellant company received a sum of Rs. 36,85,000/- from M/s Ratan Papers Pvt. Ltd. as per the following details: Date Amount (In Rs.) 08.01.2010 20,00,000/- 05.02.2010 5,50,000/- 24.02.2010 11,35,000/- Total 36,85,000/-

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(ii) The AO has treated the above amount of Rs. 36,85,000/- as deemed dividend u/s 2(22) (e) of the Act and made addition to the income of the appellant. The issue has been discussed from para 44 to 52 on pages 35 to 42 of the assessment order. During the assessment proceedings, it was the submission of the appellant that: (a) The assessee M/s Raton Textiles Pvt. Ltd. is a closely held company and it’s factory premises is situated at 199-200, Sitapura Industrial Area Jaipur. Certain portion of the said premises is let out by the assessee company to its sister concern / group company M/s Ratan Papers Pvt. Ltd. and during the year monthly rent of Rs. 10,000/- was charged in consideration of tenancy rights given. During the year assessee company obtained from M/s Ratan Papers Pvt. Ltd. sum of Rs. 36,85,000/- by way of security deposits for providing the tenancy rights in the factory premises and for allowing the facility of mortgaging its immovable assets.

(b) The three share holders, having the substantial interest in the assessee company, are the directors in M/s Ratan Papers Pvt. Ltd.

(c) The tenant i.e. M/s Ratan Paper Pvt. Ltd. is enjoying both fund based and non fund based bank limits from Indian Bank MLA. Road Branch, Jaipur. The assessee company permitted its immovable property (of value Rs. 6.00 crores approx) to be mortgaged to the bank as collateral security for enabling M/s Ratan Papers Pvt. Ltd. to take the benefit of bank limits. Further the assessee also provided the corporate guarantee to the bank to enable M/s Ratan Papers Pvt. Ltd. to enjoy the bank limit facility.

In the course of survey proceedings the sum of Rs. 36,85,000/- given as security deposits by M/s Ratan Papers Pvt. Ltd. to the assessee company was treated as deemed dividend u/s 2(22) (e), but the circumstances and nature of transaction explained above does not come within the purview of section 2(22) because the phrase “by way of advance or loan" appearing in sub-clause (e) of section 2(22) of the I.T. Act, 1961, must be construed to mean those advances or loans which a shareholder or any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this reply referred to as the said concern), enjoys simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; but if such loan or advance is given to such shareholder or any concern in which such shareholder is a member or a

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partner and in which he has a substantial interest as a consequence of any further consideration which is beneficial to the company received from such a share-holder or said concern, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitions loan or advance given by a company to those classes of shareholders or any concern in which such shareholder is a member or a partner and in which he has a substantial interest would come within the purview of section 2(22) but not cases where the security deposits offered by tenant is given in return to an advantage conferred upon the company by such shareholder or any concern in which such shareholder is a member or a partner and in which he has a substantial interest.

The assessee M/s Ratan Textiles Pvt. Ltd. had substantial interest in M/s Ratan Papers Pvt. Ltd. through its shareholders. The assessee permitted its immovable property to be mortgaged to the bank for enabling the tenant company (RPPL) to take the benefit of bank limits and the tenant M/s Ratan Papers Pvt. Ltd. given the sum of Rs. 36,85,000/- as security deposits for utilizing the space of assessee and for retaining the benefit of loan availed from the bank by mortgaging the immovable property belonging to the assessee and if decision was taken to give advance to the assessee such decision was not to give gratuitions advance to the assessee company but to protect the business interest of the company. The sum of Rs. 36,85,000/- could not be treated as deemed dividend, because the assessee's valuable immovable property was mortgaged with the bank as security for the loan facility enjoyed by the said tenant company.

We rely on Pradip Kumar Malhotra v. Commissioner of Income-tax [2011] 338 ITR 0538-[In the Calcutta High Court]

For your ready reference and kind perusal we are enclosing the copy of sanction letter dated 20/07/2009 issued by Indian Bank in favour of M/s Ratan Paper Pvt. Ltd., disclosing the condition for mortgaging the immovable property of the assessee company, as collateral security. (iii) The AO has considered the above submission of the appellant and observed that the theory of security deposit devised by the appellant is nothing but an afterthought because of the following:

i) No such Security Deposit is there in the Audited Balance Sheet of the assessee company as on 31/03/2011. In the liability part one is share holders fund and other segment is Loan Funds (divided in secured loans, unsecured loans and deferred liability).

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ii) As per the assessee, the portion to be let out was for the monthly rent of Rs 10,000/-. It cannot be believed that security deposit for that portion was Rs. 36,85,000/-. There is no basis of the so called security deposit.

iii) On perusal of the letter dated 20/07/2009 of Indian Bank, Moti Lai Atal Road, Jaipur, it is observed that this is with regard to renewal of credit facilities for M/s Ratan Paper Pvt. Ltd. and the assessee company both (as mentioned under the head other liability of the group account M/s RTPL Renewed on 01.07.2009.

iv) It cannot be said that M/s Ratan Paper Pvt. Ltd alone had availed benefit of corporate guarantee by the assessee because the assessee itself is also one of the beneficiary of the bank limits.

It was also observed by the AO that:

• The assessee is the beneficial owner of shares having more than 10% of the voting power in the company, M/s Ratan Papers Pvt. Ltd.

• The assessee during the year under consideration has taken loan from M/s Ratan Papers Pvt. Ltd, claiming the same as security deposit.

• From the copy of account of the assessee in the books of M/s Ratan Papers Pvt. Ltd. it is appearing that there is a debit balance of Rs. 36,85,000/-.

In view of the above facts, the AO invoked the provisions of section (iv) 2(22)(e) of the Act and made addition of Rs. 36,85,000/- to the income of the appellant company.

(v) Before proceeding further, it would be appropriate to mention the share holding pattern of both the companies i.e. RTPL and RPPL as on 31.03.2010 as under: Ratan Textiles Pvt. Ltd. 31.03.2010 Ratan Papers Pvt. Ltd. 31.03.2010 Name o the No. of %of Name of the No of %of share holder shares share share holder shares share holding holding Dinesh Ku. Savita jain 100 1 Jain HUP Savita Jain 100 Sunit Jain 95 9.5% Gaurav Jain 20100 24.75% Sapna Jain 1 Pooja Jain 100 Gaurav jain 501 50.1%

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Vaibhav Jain 3150 Vaibhav jain 24 Rashmi Jain 100 Anant jain 1 Anant Jain 2500 Naresh 1600 Ku.Jain Naresh Ku. Jain 100 HUF Rajshree Jain 100 Sunit Jain 20100 Sapna Jain 2600 Total 81200 1000

(vi) During the course of appellate proceedings, it was submitted by the AR that RTPL was not the share holder of payer company i.e. RPPL rather the Directors of the appellant company are the share holders of RPPL and the payment of the security deposit was made to the appellant company and not to its share holders, therefore, the provisions of section 2(22) (e) is not applicable to the appellant company. Reliance was placed on the decision of Hon’ble Rajasthan High Court in the cases of CIT Vs Hotel Hilltop [2009] 313 ITR 116(Raj) and Hon’ble ITAT, Agra in the case of Indian Casting Company vs. Income tax Department (19.07.2012) in which the above decision was followed.

(vii) It may be mentioned that the Hon’ble Rajasthan High Court in the case of CIT Vs Hotel Hilltop (Supra) held that: “From reading of section 2(22)(e) it is clear, that it comprehends manifold requirements, the first being, the payment should be made by way of loan or advance, to the concern. Of course on this aspect, the conclusion has been recorded by the Tribunal against the Revenue, but then on bare reading of the agreement and considering the totality of circumstances, including the very nature of the term 'security', and the fact, that substantial portion of this Rs. 10 lakhs of amount say more than 9 lakhs, have been advanced only during 7-1-91 to 22-3-91, it is difficult to accept, it as a security, in the sense of the term, as comprehended in the agreement, rather it clearly appears to be simply a nomenclature used, to borrow the words of the Assessing Officer 'transparent cover'. [Para 7]

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The more important aspect, being the requirement of section 2(22) (e) is, that "the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he as substantial interest, or any payment by any such company, on behalf, or for the individual benefit of any such shareholders Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder. Obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm, in which event if would fall within the expression 'deemed dividend'. Obviously, income from dividend, is faxable as income from of her sources, under section 56, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the instant case is not shown to be one of the persons, being shareholder. Of course the two individuals being partners of the assessee-firm are the common persons, holding more than requisite amount of shareholding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. [Para 8]

Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm. [Para 9"

Further, in the case of CIT Vs Suram Holdings P Ltd [2014] 41 (viii) taxmann.com, the Hon’ble Rajasthan High Court has followed its earlier decision in the case of CIT vs. Hotel Hilltop (Supra). It would be appropriate to reproduce hereunder the decision of Hon’ble Jurisdictional High Court in the case CIT vs. Suram Holdings Pvt. Ltd. (Supra) as under:

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revealed that the assessee has received a sum of Rs.23.00 lacs from M/s. Japanwala Jewellers (P.) Ltd., Jaipur on the ground that it was towards share application money. The assessing authority after taking note of Sec. 2(22) (e) and available records observed that the share application money of Rs. 23.00 lacs received by the assessee company is in the nature of unsecured loan and further held to be the deemed dividend in the hands of assessee company as per provisions of Sec. 2(22] (e] of IT Act, 1961 and such deemed dividend was considered as income in the hands of the assessee. However, against the order of assessing authority, appeal came to be preferred before the Commissioner of Income-tax Appeals (I), Jaipur and the question was as to whether holding share application money of Rs. 23.00 lacs received from M/s. Japanwala Jewelers (P) Ltd. can be considered as unsecured loan and thereby considered as deemed dividend u/S. 2(22) (ej of the Act. However, the appellate authority taking note of the judgment of this Court in Hotel Hilltop case (supra) observed that deemed income cannot be taxed in the hands of non-shareholders namely the concern. As the concern can never receive dividend from the company, as dividend is paid only to the shareholders, benefit of set off as per section 2 (22) (e)(iii) cannot be allowed to the concern and further observed that substance of the requirements of provisions of the Act is that the payment should be made on behalf of or for any individual benefit of any such shareholders and further observed that the proceedings which have been initiated against the person /shareholder for whose individual benefit the amount was paid by the company and deemed income is taxable under the head 'income from other sources' and accordingly it should be taxed in the case of the individual and the assessee being not a shareholder is not one of the persons and Shri Ramsharan Gupta is beneficiary shareholder having requisite interest in the assessee company as well as other concern and accordingly such deemed dividend should have been considered in the hands of the individual Ramsharan Gupta and not in the hands of the assessee company.

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In view of the above discussion and respectfully following the decisions of (ix) jurisdictional High Court in the above referred cases, it is held that the AO was not justified in treating the sum of Rs. 36,85,000/- as deemed dividend in the hands of the appellant company as the appellant company is not the registered owner of shares of RPPL. Therefore, the addition of Rs. 36,85,000/- made by the AO u/s 2(22) (e) of the Act is hereby deleted.” It was contended before the ld. CIT(A) that the assessee company was not

the share holder of the bare company rather the Directors of the appellant

company are the share holders of the RPPL and the payment of the

security deposit are made to the appellant company and not to share

holders. Therefore, the provisions of Section 2(22)(e) of the Act is not

applicable to the appellant company. In this regard, reliance is placed on

the decision of the Hon’ble Jurisdictional High court in the case of CIT Vs.

Hotel Hilltop (supra), wherein the Hon'ble High Court has held as under:-

“From reading of section 2(22)(e) it is clear, that it comprehends manifold requirements, the first being, the payment should be made by way of loan or advance, to the concern. Of course on this aspect, the conclusion has been recorded by the Tribunal against the Revenue, but then on bare reading of the agreement and considering the totality of circumstances, including the very nature of the term 'security', and the fact, that substantial portion of this Rs. 10 lakhs of amount say more than 9 lakhs, have been advanced only during 7-1-91 to 22-3-91, it is difficult to accept, it as a security, in the sense of the term, as comprehended in the agreement,

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rather it clearly appears to be simply a nomenclature used, to borrow the words of the Assessing Officer 'transparent cover'. [Para 7]

The more important aspect, being the requirement of section 2(22) (e) is, that "the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he as substantial interest, or any payment by any such company, on behalf, or for the individual benefit of any such shareholders Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder. Obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm, in which event if would fall within the expression 'deemed dividend'. Obviously, income from dividend, is faxable as income from of her sources, under section 56, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the instant case is not shown to be one of the persons, being shareholder. Of course the two individuals being partners of the assessee-firm are the common persons, holding more than requisite amount of shareholding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. [Para 8]

Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm. [Para 9"

We find that the ld. CIT(A) has rightly followed the decision of the Hon'ble

jurisdictional High Court. The revenue has not placed any contrary material

before this Bench, therefore, we sustain the order of the ld. CIT(A) on this

issue and dismiss the revenue’s ground of appeal. Hence, the revenue’s

appeal in ITA No. 595/JP/2016 is dismissed.

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596/JP/2016 filed by the revenue pertaining to the assessment year 2011-

following grounds of appeal:

Grounds of assessee’s appeal in ITA No. 528/JP/2016.

“1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the addition made in the assessment completed u/s 143(3) solely on the basis of statements recorded during the course of survey which stood retracted by the assessee through an affidavit filed by its director. Thus, the additions made solely on the basis of such retracted statements deserve to be deleted. 1.1 That, the Ld. AO has further erred in not accepting the affidavit given by the director of the assessee company without any basis and with the sole purpose to make additions without brining on record any corroborative material found during the course of survey or during the course of assessment proceedings, and also by completely ignoring the well established law that no addition can be made solely on the basis of statements recorded on oath during the course of survey conducted u/s 133A of the Act, when the assessee extended full cooperation. Thus, the assessment order deserves to be held bad in law and the additions made thereunder deserve to be deleted. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the application of provisions of section 145(3) of the Income Tax Act, 1961 without appreciating the fact

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that the Ld. AO had miserably failed to point out any material defect in the books of account of assessee. Thus, the action of Ld. AO in rejecting the books of account of assessee u/s 145(3) deserves to be held bad in law. 2.1 That, the Ld. AO and the Ld. CIT(A) has further erred in rejecting the books of account of assessee u/s 145(3) solely on the basis of the allegation that the job work charges and stipend paid by assessee are unverifiable/unjustified by completely ignoring the submissions made and evidences adduced in order to establish the genuineness of the expenses incurred by the assessee. Thus the Ld. AO has failed to reach the satisfaction that true profits cannot be deduced from the books of account of assessee, hence the action of Ld. AO in invoking the provisions of section 145(3) deserves to be held bad in law. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in making lump sum trading addition of Rs. 30,00,000/- without any basis and without establishing as to how the trading results declared by the assessee are not true and correct. Thus, the trading addition of Rs. 30,00,000/- deserves to be deleted. 3.1 That, the Ld. AO and Ld. CIT(A) have further erred in holding that the job work charges paid to M/s Kalpana Handicraft and M/s Kalpana Impex are bogus and unverifiable (though no separate addition made on this account) when all the necessary details regarding rendering of services by these parties were submitted, thus the job charges paid to these concern deserves to be treated as genuine and the observation of Ld. AO treating the aforesaid payment as non-genuine / unverifiable deserves to be ignored and excluded and

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the addition made based on such conclusion deserves to be deleted. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has further erred in sustaining the disallowance of Rs. 6,23,627/- being 20% of the stipend expenses claimed by assessee out of the total disallowance of Rs. 23,38,603/- made by Ld. AO being 75% of the stipend expenses claimed at Rs. 31,18,137/-, without any basis and without considering the submissions made by assessee and the evidences adduced in support of the genuineness of the expenses claimed by assessee. Thus, the disallowance of Rs. 6,23,627/- sustained by the Ld. CIT(A) deserves to be deleted. 4.1 Without prejudice to Ground of Appeal No. 01 to 04 and in the alternative, the Ld. CIT(A) has grossly erred in confirming further disallowance of Rs. 6,23,627/- out of the stipend expenses when the trading results are not accepted and the provisions of section 145(3) are invoked. 5. On the facts and in the circumstances of the case, the ld. CIT(A) has grossly erred in sustaining the addition of Rs. 45,795/- made by the ld. AO U/s 14A of the Income Tax Act, 1961 without recording any satisfaction inasmuch as no show cause notice was issued, thereby denying the opportunity of being heard on this issue. Thus, the action of the ld. A.O. and ld. CIT(A) deserves to be held bad in law and the addition so made deserves to be deleted” Grounds of revenue’s appeal in ITA No. 596/JP/2016.

“1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in restricting the

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disallowance of stipend expenses @ 20% as against 75% applied by the A.O. 2. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition made on account of deemed dividend U/s 2(22)(e) of the I.T. Act.”

No. 527/JP/2016 and 595/JP/2016 regarding assessee’s appeal ground No.

1 to 4.1 and both the grounds of the revenue’s appeal being identical

grounds. We have decided the identical grounds by observing as under:-

“9. We have heard the rival contentions of both the parties and perused the material available on the record. There is no dispute with regard to the proposition that statements recorded during the course of survey has no evidentiary value. Such statements if retracted by the assessee would shift the onus on the Assessing Officer to prove the contents of the statement as correct by placing material corroborating the correctness of such statements on record. In the present case, the Assessing Officer has based his findings solely on the basis of the contents of the statement recorded during the course of survey. No other material is gathered suggesting that the statements were not correct. As per the assessee, one of the firm M/s Kalpana Impex is registered with ESI and deducting contribution and depositing the same to the concerned authority. The Assessing Officer was required to make inquiry on these contents merely because the statement is recorded during the course of survey and such statements stated a fact which is required to be further corroborated with a plausible evidence. We find that the assessee has enclosed details of

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contractors from whom it had got the work done at page 9 of the paper book. A letter addressed to the Registering Authority under the Contract Labour Act is enclosed, which was received by the concerned department on 26/1/2011. At page No. 7 of paper book, a registration certificate dated 09/9/2005 is enclosed, which includes name of Smt. Kalpana Jain. These details demonstrate that Proprietor of M/s kalpana Impex was registered with concerned authority of labour department for the purpose of stitching. From the records, as made available, it is transpired that the assessee was engaging persons on contract for its work. On this aspect, no inquiry was made by the Assessing Officer. In our considered view, the Assessing Officer ought not to have based the assessment solely on the statements recorded during the course of survey, he should have brought material suggesting that no job work was done by the said firms. The Hon’ble Rajasthan High Court in the case of CIT, Udaipur Vs. Shri Roshan Lal Lodha in I.T. appeal No. 185/2014 order dated 03/11/2015 has held as under:- “In the case aforesaid, Hon'ble Apex Court held that Section 133-A of the Income Tax Act does not empower Income Tax officer to examine any person on oath; hence, the statement recorded under Section 133-A has no evidentiary value and any admission made during such statement cannot be made basis of addition. The appeal preferred by the revenue before the Income Tax Appellate Tribunal came Lo be dismissed by the judgment impugned. Learned counsel appearing on behalf of the appellant submits that the assessee in the instant matter did not retract from his statement, therefore, the law laid down in the case of S. Khader Khan Son (supra) is not applicable. We do not find any merit in the argument advanced. The assessee filed an appeal before the [3] Commissioner, Income Tax (Appeals), with specific assertion that the statement made by him would have not been accepted to make any addition and therefore, his denial is apparent.

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In view of it, the orders passed by the Commissioner, Income Tax (Appeals) and the Income Tax Appellate Tribunal do not suffer from any wrong. The appeal is having no substantial question of law. Hence, the same is dismissed.”

If we apply the ratio of the judgment of the Hon’ble Apex Court rendered in the case of CIT Vs. S.Khader Khan son (Supra) on the facts of the present case, the authorities below were no justified in making the addition on the basis of the statement recorded during the course of survey. No other material suggesting that the claim of the assessee was false, is brought on record by the revenue. Under these facts and in view of the binding precedent, we are unable to confirm the finding of the ld. CIT(A). Therefore, we direct the Assessing Officer to delete the trading addition of Rs. 25.00 lacs. Grounds No. 1 to 3.1 of the assessee’s appeal are disposed off in terms of the above.”

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of the stipend expenditure claimed by the appellant against approximately 50% surrendered during survey on the basis of following additional findings: • The payments were made in cash and no PF/ESI has been deducted while making such payments. • There is no basis of determining minimum or maximum amount of stipend. • Various discrepancies are noticed in the salary/wages sheets. • Out of list of 147 trainees submitted by the appellant, the AO noted that 50% of the mobile numbers were either wrong or incorrect • Out of the 10 trainees required by the AO to produce (who were working during different periods), only 3 were produced before the AO.

(vii) It is noted that the AO has just ignored the various documentary evidences filed by the appellant including the attendance sheets of the trainees, retraction by Shri Naresh Kumar Jain, copies of the complete set of appointment documents of each trainee consisting of applications made by the individuals for being appointed as trainee in the appellant, along with his bio data, qualification , address / identity verification , and the appointment letter issued by the appellant mentioning therein the date of joining, initial salary and job details, attendance register, showing the daily attendance of each trainee along with factory in and out time , on the basis of which monthly stipend payment is done, along with copy of entry card of each trainee. Copy of monthly stipend payment sheet, duly reflecting the amount paid to each trainee computed on the basis of his agreed stipend rate, number of days worked etc, along with receipts of each trainee thereon. The AO has also ignored the fact that the applicability of ESI / PF law was not mandatory up to June-2010 on the payment made to stipend trainees. The inspection report of ESI officials reveal that no such discrepancy was reported by the PF / ESI department officials. Further, the incorrect mobile numbers and inability of the appellant to produce the trainees who had already left the appellant and

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cash payments to trainees cannot be the grounds for disallowing 75% of the stipend expenses claimed by the appellant.

(viii) It may be mentioned that in the case of CIT Vs Shri Roshan Lai (Supra), it has been held by the Hon’ble Rajasthan High Court that the statement recorded under Section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. Further, the Hon’ble Supreme Court in the case of CIT Vs S. Khader Khan Son [2012] 25 taxmann.com 413 (SC) dismissed the civil appeal by the income tax department and confirmed the order of Hon’ble Madras High Court in the case of CIT Vs S. Khader Khan Son [2008] 300 ITR 157 (MAD.) wherein it was held by the Hon’ble High Court of Madras that:

“From the foregoing discussion, the following principles can be culled out:

(i) An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court in Pulkngode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18;

(ii) In contradistinction to the power under section 133A, section 132(4] of the Income-tax Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.);

(iii) The expression "such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284 ITR 220 (Mad.);

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(iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C (A) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad.);

(v) Finally, the word "may" used in section 133A(3) (Hi) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act", as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself.

For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the statement, obtained under section 133A would not automatically bind upon the assesses we do not see any reason to interfere with the order of the Tribunal."

(ix) Therefore, in view of the above discussion, it is held that the AO was not justified in disallowing 75% of the trainee stipend claimed by the appellant. However, the discrepancies as observed by the AO - cannot be totally brushed aside. Hence, considering the totality of facts and circumstances of the case, I think it would be appropriate to restrict the disallowances to 20% instead of 75% of the amount claimed by the appellant. Hence, disallowance out of stipend expenses is restricted to Rs. 5,33,266/- against Rs. 19,99,747/- made by the AO.

From the above, it is evident that the ld. CIT(A) has restricted the disallowance on ad hoc basis. After considering the material placed before this Tribunal, we are of the considered view that when the inspection was carried out by the ESI and PF department, no discrepancy was reported in respect of rate of stipend and payment of stipend. The Assessing Officer has not placed any material suggesting that the number of trainees was not correct. Moreover, the Assessing Officer has based his finding on the basis of

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presumption that the assessee is not charitable institute than why it would provide training with stipend to the persons who would quit after training. This observation of the Assessing Officer is purely based on the conjecture and surmises, which cannot be the basis for making disallowance. If the Assessing Officer’s reasoning is accepted, then it would make the assessee liable for prosecution for practicing the bonded labour. Therefore, this disallowance is unjustified and the same is hereby deleted.

The facts are identical in this year as well as no change into the facts is

pointed out by the revenue. Therefore, the grounds of appeal are allowed.

The 5th ground of the assessee’s appeal is against sustaining the 21.

addition of Rs. 45,795/- made by the Assessing Officer U/s 14A of the Act.

The Assessing Officer observed that the assessee company had debited

interest expenses of Rs. 44,74,970/- and had shown dividend income of

Rs. 40,353/-. The dividend income was exempted income U/s 10(34) of the

Act. The Assessing Officer asked the assessee to explain as to why

disallowance U/s 14A should not be made on this income. The Assessing

Officer observed that there cannot be any separation with regard to day to

day investments out of the bank accounts what which part pertain to the

interest bearing funds and which part not. Therefore, he disallowed Rs.

45,795/- U/s 14A of the Act.

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“I have duly considered the assessment order and the other material placed on record. The issued has been discussed by the AO in para 37 of the assessment order wherein it was stated by the AO that the appellant has received dividend income of Rs. 40,353/- and it has debited interest expenses of Rs. 44,74,970/- in its P&L Account. During assessment proceedings, the appellant was required to explain why disallowances u/s 14A should not be made on account of income which do not form part of the income. It was stated by the appellant that the investment was made out of non interest giving funds and therefore, no disallowances can be made. The AO after examining the matter, made disallowance of Rs. 45,795/- u/s 14A of the Act. During the appellate proceedings, the appellant has not made any submission in this regard. Therefore, the disallowance of Rs. 45,795/- made by the Assessing Officer U/s 14A is hereby sustained. Hence, this ground of appeal is rejected.”

below were not justified in making the disallowance by invoking the

provisions of Section 14A of the Act and confirmed the same.

submitted that there is no dispute with regard to the fact that the assessee

has earned exempt income, therefore, the expenditure related to such

income is not allowable. Moreover, he submitted that before the ld. CIT(A),

no submission was made.

material available on the record and also gone through the orders of the

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authorities below. From perusal of the record, it transpires that the

assessee had not made any submission on the ground taken U/s 14A of

the Act before the ld. CIT(A), therefore, we find no infirmity in the order of

the ld. CIT(A) and the same is hereby affirmed. Accordingly, the appeal of

the assessee is partly allowed and the appeal of the revenue is dismissed.

parties have adopted the same arguments as made in ITA No.

595/JP/2016 regarding both the grounds of the revenue’s appeal being

identical grounds. We have decided the identical grounds by observing as

under:-

“15. Since, we have decided this issue in favour of the assessee by observing as under:- “From the above, it is evident that the ld. CIT(A) has restricted the disallowance on ad hoc basis. After considering the material placed before this Tribunal, we are of the considered view that when the inspection was carried out by the ESI and PF department, no discrepancy was reported in respect of rate of stipend and payment of stipend. The Assessing Officer has not placed any material suggesting that the number of trainees was not correct. Moreover, the Assessing Officer has based his finding on the basis of presumption that the assessee is not charitable institute than why it would provide training with stipend to the persons who would quit after training. This observation of the Assessing Officer is purely based on the conjecture and surmises, which cannot be the basis for making disallowance. If the Assessing Officer’s reasoning is accepted, then it would make the assessee liable for prosecution for practicing the bonded labour. Therefore, this disallowance is unjustified and the same is hereby deleted.”

Accordingly, this ground of the revenue’s appeal is dismissed.”

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“18. We have heard the rival contentions of both the parties, perused the material available on the record and also gone through the orders of the authorities below. The ld. CIT(A) has elaborately examined this issue in his order and decided the same by holding as under:- “3.3.2 Determination:

(i) I have duly considered the assessment order, submissions of the appellant and the material placed on record. During the year under consideration the appellant company received a sum of Rs. 36,85,000/- from M/s Ratan Papers Pvt. Ltd. as per the following details: Date Amount (In Rs.) 08.01.2010 20,00,000/- 05.02.2010 5,50,000/- 24.02.2010 11,35,000/- Total 36,85,000/-

(ii) The AO has treated the above amount of Rs. 36,85,000/- as deemed dividend u/s 2(22) (e) of the Act and made addition to the income of the appellant. The issue has been discussed from para 44 to 52 on pages 35 to 42 of the assessment order. During the assessment proceedings, it was the submission of the appellant that: (a) The assessee M/s Raton Textiles Pvt. Ltd. is a closely held company and it’s factory premises is situated at 199-200, Sitapura Industrial Area Jaipur. Certain portion of the said premises is let out by the assessee company to its sister concern / group company M/s Ratan Papers Pvt. Ltd. and during the year monthly rent of Rs. 10,000/- was charged in consideration of tenancy rights given. During the year assessee company obtained from M/s Ratan Papers Pvt. Ltd. sum of Rs. 36,85,000/- by way of security deposits for providing the tenancy rights in the factory premises and for allowing the facility of mortgaging its immovable assets.

(b) The three share holders, having the substantial interest in the assessee company, are the directors in M/s Ratan Papers Pvt. Ltd.

(c) The tenant i.e. M/s Ratan Paper Pvt. Ltd. is enjoying both fund based and non fund based bank limits from Indian Bank MLA. Road Branch, Jaipur. The

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assessee company permitted its immovable property (of value Rs. 6.00 crores approx) to be mortgaged to the bank as collateral security for enabling M/s Ratan Papers Pvt. Ltd. to take the benefit of bank limits. Further the assessee also provided the corporate guarantee to the bank to enable M/s Ratan Papers Pvt. Ltd. to enjoy the bank limit facility.

In the course of survey proceedings the sum of Rs. 36,85,000/- given as security deposits by M/s Ratan Papers Pvt. Ltd. to the assessee company was treated as deemed dividend u/s 2(22) (e), but the circumstances and nature of transaction explained above does not come within the purview of section 2(22) because the phrase “by way of advance or loan" appearing in sub-clause (e) of section 2(22) of the I.T. Act, 1961, must be construed to mean those advances or loans which a shareholder or any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this reply referred to as the said concern), enjoys simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; but if such loan or advance is given to such shareholder or any concern in which such shareholder is a member or a partner and in which he has a substantial interest as a consequence of any further consideration which is beneficial to the company received from such a share-holder or said concern, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitions loan or advance given by a company to those classes of shareholders or any concern in which such shareholder is a member or a partner and in which he has a substantial interest would come within the purview of section 2(22) but not cases where the security deposits offered by tenant is given in return to an advantage conferred upon the company by such shareholder or any concern in which such shareholder is a member or a partner and in which he has a substantial interest.

The assessee M/s Ratan Textiles Pvt. Ltd. had substantial interest in M/s Ratan Papers Pvt. Ltd. through its shareholders. The assessee permitted its immovable property to be mortgaged to the bank for enabling the tenant company (RPPL) to take the benefit of bank limits and the tenant M/s Ratan Papers Pvt. Ltd. given the sum of Rs. 36,85,000/- as security deposits for utilizing the space of assessee and for retaining the benefit of loan availed from the bank by mortgaging the immovable property belonging to the assessee and if decision was taken to give advance to the assessee such decision was not to give gratuitions advance to the assessee company but to protect the business interest of the company. The sum of Rs. 36,85,000/-

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could not be treated as deemed dividend, because the assessee's valuable immovable property was mortgaged with the bank as security for the loan facility enjoyed by the said tenant company.

We rely on Pradip Kumar Malhotra v. Commissioner of Income-tax [2011] 338 ITR 0538-[In the Calcutta High Court]

For your ready reference and kind perusal we are enclosing the copy of sanction letter dated 20/07/2009 issued by Indian Bank in favour of M/s Ratan Paper Pvt. Ltd., disclosing the condition for mortgaging the immovable property of the assessee company, as collateral security. (iii) The AO has considered the above submission of the appellant and observed that the theory of security deposit devised by the appellant is nothing but an afterthought because of the following:

i) No such Security Deposit is there in the Audited Balance Sheet of the assessee company as on 31/03/2011. In the liability part one is share holders fund and other segment is Loan Funds (divided in secured loans, unsecured loans and deferred liability).

ii) As per the assessee, the portion to be let out was for the monthly rent of Rs 10,000/-. It cannot be believed that security deposit for that portion was Rs. 36,85,000/-. There is no basis of the so called security deposit.

iii) On perusal of the letter dated 20/07/2009 of Indian Bank, Moti Lai Atal Road, Jaipur, it is observed that this is with regard to renewal of credit facilities for M/s Ratan Paper Pvt. Ltd. and the assessee company both (as mentioned under the head other liability of the group account M/s RTPL Renewed on 01.07.2009.

iv) It cannot be said that M/s Ratan Paper Pvt. Ltd alone had availed benefit of corporate guarantee by the assessee because the assessee itself is also one of the beneficiary of the bank limits.

It was also observed by the AO that:

• The assessee is the beneficial owner of shares having more than 10% of the voting power in the company, M/s Ratan Papers Pvt. Ltd.

• The assessee during the year under consideration has taken loan from M/s Ratan Papers Pvt. Ltd, claiming the same as security deposit.

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 43 M/s Ratan Textiles P Ltd. Vs DCIT • From the copy of account of the assessee in the books of M/s Ratan Papers Pvt. Ltd. it is appearing that there is a debit balance of Rs. 36,85,000/-.

In view of the above facts, the AO invoked the provisions of section (iv) 2(22)(e) of the Act and made addition of Rs. 36,85,000/- to the income of the appellant company.

(v) Before proceeding further, it would be appropriate to mention the share holding pattern of both the companies i.e. RTPL and RPPL as on 31.03.2010 as under: Ratan Textiles Pvt. Ltd. 31.03.2010 Ratan Papers Pvt. Ltd. 31.03.2010 Name o the No. of %of Name of the No of %of share holder shares share share holder shares share holding holding Dinesh Ku. Savita jain 100 1 Jain HUP Sunit Jain Savita Jain 100 95 9.5% Gaurav Jain 20100 24.75% Sapna Jain 1 Gaurav jain Pooja Jain 100 501 50.1% Vaibhav Jain 3150 Vaibhav jain 24 Rashmi Jain 100 Anant jain 1 Anant Jain 2500 Naresh 1600 Ku.Jain Naresh Ku. Jain 100 HUF Rajshree Jain 100 Sunit Jain 20100 Sapna Jain 2600 Total 81200 1000

(vi) During the course of appellate proceedings, it was submitted by the AR that RTPL was not the share holder of payer company i.e. RPPL rather the Directors of the appellant company are the share holders of RPPL and the payment of the security deposit was made to the appellant company and not to its share holders, therefore, the provisions of section 2(22) (e) is not applicable to the appellant company. Reliance was placed on the decision of Hon’ble Rajasthan High Court in the cases of CIT Vs Hotel

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 44 M/s Ratan Textiles P Ltd. Vs DCIT

Hilltop [2009] 313 ITR 116(Raj) and Hon’ble ITAT, Agra in the case of Indian Casting Company vs. Income tax Department (19.07.2012) in which the above decision was followed.

(vii) It may be mentioned that the Hon’ble Rajasthan High Court in the case of CIT Vs Hotel Hilltop (Supra) held that: “From reading of section 2(22)(e) it is clear, that it comprehends manifold requirements, the first being, the payment should be made by way of loan or advance, to the concern. Of course on this aspect, the conclusion has been recorded by the Tribunal against the Revenue, but then on bare reading of the agreement and considering the totality of circumstances, including the very nature of the term 'security', and the fact, that substantial portion of this Rs. 10 lakhs of amount say more than 9 lakhs, have been advanced only during 7-1-91 to 22-3-91, it is difficult to accept, it as a security, in the sense of the term, as comprehended in the agreement, rather it clearly appears to be simply a nomenclature used, to borrow the words of the Assessing Officer 'transparent cover'. [Para 7]

The more important aspect, being the requirement of section 2(22) (e) is, that "the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he as substantial interest, or any payment by any such company, on behalf, or for the individual benefit of any such shareholders Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder. Obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm, in which event if would fall within the expression 'deemed dividend'. Obviously, income from dividend, is faxable as income from of her sources, under section 56, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the instant case is not shown to be one of the persons, being shareholder. Of course the two individuals being partners of the assessee-firm are the common persons, holding more than requisite amount of shareholding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. [Para 8]

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Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm. [Para 9"

(viii) Further, in the case of CIT Vs Suram Holdings P Ltd [2014] 41 taxmann.com, the Hon’ble Rajasthan High Court has followed its earlier decision in the case of CIT vs. Hotel Hilltop (Supra). It would be appropriate to reproduce hereunder the decision of Hon’ble Jurisdictional High Court in the case CIT vs. Suram Holdings Pvt. Ltd. (Supra) as under:

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 46 M/s Ratan Textiles P Ltd. Vs DCIT

initiated against the person /shareholder for whose individual benefit the amount was paid by the company and deemed income is taxable under the head 'income from other sources' and accordingly it should be taxed in the case of the individual and the assessee being not a shareholder is not one of the persons and Shri Ramsharan Gupta is beneficiary shareholder having requisite interest in the assessee company as well as other concern and accordingly such deemed dividend should have been considered in the hands of the individual Ramsharan Gupta and not in the hands of the assessee company.

We have heard the appellant at length and in our considered view from the 4. submission made in our opinion, no substantial question of low emerges for consideration in the instant appeal which may require interference by this Court.

(ix) In view of the above discussion and respectfully following the decisions of jurisdictional High Court in the above referred cases, it is held that the AO was not justified in treating the sum of Rs. 36,85,000/- as deemed dividend in the hands of the appellant company as the appellant company is not the registered owner of shares of RPPL. Therefore, the addition of Rs. 36,85,000/- made by the AO u/s 2(22) (e) of the Act is hereby deleted.” It was contended before the ld. CIT(A) that the assessee company was not the share holder of the bare company rather the Directors of the appellant company are the share holders of the RPPL and the payment of the security deposit are made to the appellant company and not to share holders. Therefore, the provisions of Section

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2(22)(e) of the Act is not applicable to the appellant company. In this regard, reliance is placed on the decision of the Hon’ble Jurisdictional High court in the case of CIT Vs. Hotel Hilltop (supra), wherein the Hon'ble High Court has held as under:- “From reading of section 2(22)(e) it is clear, that it comprehends manifold requirements, the first being, the payment should be made by way of loan or advance, to the concern. Of course on this aspect, the conclusion has been recorded by the Tribunal against the Revenue, but then on bare reading of the agreement and considering the totality of circumstances, including the very nature of the term 'security', and the fact, that substantial portion of this Rs. 10 lakhs of amount say more than 9 lakhs, have been advanced only during 7-1-91 to 22-3-91, it is difficult to accept, it as a security, in the sense of the term, as comprehended in the agreement, rather it clearly appears to be simply a nomenclature used, to borrow the words of the Assessing Officer 'transparent cover'. [Para 7]

The more important aspect, being the requirement of section 2(22) (e) is, that "the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he as substantial interest, or any payment by any such company, on behalf, or for the individual benefit of any such shareholders Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder. Obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm, in which event if would fall within the expression 'deemed dividend'. Obviously, income from dividend, is faxable as income from of her sources, under section 56, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the instant case is not shown to be one of the persons, being shareholder. Of course the two individuals being partners of the assessee-firm are the common persons, holding more than requisite amount of shareholding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. [Para 8]

Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of

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the individuals, being the shareholders, and not in the hands of the firm. [Para 9"

We find that the ld. CIT(A) has rightly followed the decision of the Hon'ble jurisdictional High Court. The revenue has not placed any contrary material before this Bench, therefore, we sustain the order of the ld. CIT(A) on this issue and dismiss the revenue’s ground of appeal.”

The facts are identical in this year as well as no change into the facts and

circumstances. The revenue has not pointed out any new material fact,

therefore, the grounds of appeal are dismissed.

526/JP/2016 pertaining to the assessment year 2007-08 to 2009-10. In ITA

No. 531/JP/2016, the assessee has taken following grounds of appeal:-

“1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the addition made in the assessment completed u/s 143(3) solely on the basis of statements recorded during the course of survey which stood retracted by the assessee through an affidavit filed by its director. Thus, the additions made solely on the basis of such retracted statements deserve to be deleted. 1.1 That, the Ld. AO has further erred in not accepting the affidavit given by the director of the assessee company without any basis and with the sole purpose to make additions without brining on record any corroborative material found during the course of survey or during the course of assessment proceedings, and also by completely ignoring the well established law that no

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addition can be made solely on the basis of statements recorded on oath during the course of survey conducted u/s 133A of the Act, when the assessee extended full cooperation. Thus, the assessment order deserves to be held bad in law and the additions made thereunder deserve to be deleted. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the application of provisions of section 145(3) of the Income Tax Act, 1961 without appreciating the fact that the Ld. AO had miserably failed to point out any material defect in the books of account of assessee. Thus, the action of Ld. AO in rejecting the books of account of assessee u/s 145(3) deserves to be held bad in law. 2.1 That, the Ld. AO and the Ld. CIT(A) has further erred in rejecting the books of account of assessee u/s 145(3) solely on the basis of the allegation that the job work charges and stipend paid by assessee are unverifiable/unjustified by completely ignoring the submissions made and evidences adduced in order to establish the genuineness of the expenses incurred by the assessee. Thus the Ld. AO has failed to reach the satisfaction that true profits cannot be deduced from the books of account of assessee, hence the action of Ld. AO in invoking the provisions of section 145(3) deserves to be held bad in law. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in making lump sum trading addition of Rs. 15,00,000/- without any basis and without establishing as to how the trading results declared by the assessee are not true and correct. Thus, the trading addition of Rs. 15,00,000/- deserves to be deleted.

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3.1 That, the Ld. AO and Ld. CIT(A) have further erred in holding that the job work charges paid to M/s Kalpana Handicraft and M/s Kalpana Impex are bogus and unverifiable (though no separate addition made on this account) when all the necessary details regarding rendering of services by these parties were submitted, thus the job charges paid to these concern deserves to be treated as genuine and the observation of Ld. AO treating the aforesaid payment as non-genuine / unverifiable deserves to be ignored and excluded and the addition made based on such conclusion deserves to be deleted. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has further erred in sustaining the disallowance of Rs. 2,05,809/- being 20% of the stipend expenses claimed by assessee out of the total disallowance of Rs. 7,71,784/- made by Ld. AO being 75% of the stipend expenses claimed at Rs. 10,29,045/-, without any basis and without considering the submissions made by assessee and the evidences adduced in support of the genuineness of the expenses claimed by assessee. Thus, the disallowance of Rs. 2,05,809/- sustained by the Ld. CIT(A) deserves to be deleted. 4.1 Without prejudice to Ground of Appeal No. 01 to 04 and in the alternative, the Ld. CIT(A) has grossly erred in confirming further disallowance of Rs. 2,05,809/- out of the stipend expenses when the trading results are not accepted and the provisions of section 145(3) are invoked. 5. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.”

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In ITA Nos. 525 & 526/JP/2016, the assessee has taken identical grounds

of appeal as was taken in ITA No. 531/JP/2016.

No. 527/JP/2016 regarding assessee’s appeal ground No. 1 to 4.1. We

have decided the identical grounds by observing as under:-

“9. We have heard the rival contentions of both the parties and perused the material available on the record. There is no dispute with regard to the proposition that statements recorded during the course of survey has no evidentiary value. Such statements if retracted by the assessee would shift the onus on the Assessing Officer to prove the contents of the statement as correct by placing material corroborating the correctness of such statements on record. In the present case, the Assessing Officer has based his findings solely on the basis of the contents of the statement recorded during the course of survey. No other material is gathered suggesting that the statements were not correct. As per the assessee, one of the firm M/s Kalpana Impex is registered with ESI and deducting contribution and depositing the same to the concerned authority. The Assessing Officer was required to make inquiry on these contents merely because the statement is recorded during the course of survey and such statements stated a fact which is required to be further corroborated with a plausible evidence. We find that the assessee has enclosed details of contractors from whom it had got the work done at page 9 of the paper book. A letter addressed to the Registering Authority under the Contract Labour Act, 1917 is enclosed, which was received by the concerned department on 26/1/2011. At page No. 7 of paper book, a registration certificate dated 09/9/2005 is enclosed, which includes name of Smt. Kalpana Jain. These details demonstrate that Proprietor of M/s kalpana Impex was registered with concerned authority of labour department for the purpose of stitching. From the records, as made available, it is transpired that the assessee

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was engaging persons on contract for its work. On this aspect, no inquiry was made by the Assessing Officer. In our considered view, the Assessing Officer ought not to have based the assessment solely on the statements recorded during the course of survey, he should have brought material suggesting that no job work was done by the said firms. The Hon’ble Rajasthan High Court in the case of CIT, Udaipur Vs. Shri Roshan Lal Lodha in I.T. appeal No. 185/2014 order dated 03/11/2015 has held as under:- “In the case aforesaid, Hon'ble Apex Court held that Section 133-A of the Income Tax Act does not empower Income Tax officer to examine any person on oath; hence, the statement recorded under Section 133-A has no evidentiary value and any admission made during such statement cannot be made basis of addition. The appeal preferred by the revenue before the Income Tax Appellate Tribunal came Lo be dismissed by the judgment impugned. Learned counsel appearing on behalf of the appellant submits that the assessee in the instant matter did not retract from his statement, therefore, the law laid down in the case of S. Khader Khan Son (supra) is not applicable. We do not find any merit in the argument advanced. The assessee filed an appeal before the [3] Commissioner, Income Tax (Appeals), with specific assertion that the statement made by him would have not been accepted to make any addition and therefore, his denial is apparent. In view of it, the orders passed by the Commissioner, Income Tax (Appeals) and the Income Tax Appellate Tribunal do not suffer from any wrong. The appeal is having no substantial question of law. Hence, the same is dismissed.”

If we apply the ratio of the judgment of the Hon’ble Apex Court rendered in the case of CIT Vs. S.Khader Khan son (Supra) on the facts of the present case, the authorities below were no justified in making the addition on the basis of the statement recorded during the course of survey. No other material suggesting that the claim of the assessee was false, is brought on record by the revenue. Under these facts and in view of the binding precedent, we are unable to confirm the finding of the ld. CIT(A). Therefore, we direct the

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Assessing Officer to delete the trading addition of Rs. 25.00 lacs. Grounds No. 1 to 3.1 of the assessee’s appeal are disposed off in terms of the above.”

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 54 M/s Ratan Textiles P Ltd. Vs DCIT • Out of the 10 trainees required by the AO to produce (who were working during different periods), only 3 were produced before the AO.

(vii) It is noted that the AO has just ignored the various documentary evidences filed by the appellant including the attendance sheets of the trainees, retraction by Shri Naresh Kumar Jain, copies of the complete set of appointment documents of each trainee consisting of applications made by the individuals for being appointed as trainee in the appellant, along with his bio data, qualification , address / identity verification , and the appointment letter issued by the appellant mentioning therein the date of joining, initial salary and job details, attendance register, showing the daily attendance of each trainee along with factory in and out time , on the basis of which monthly stipend payment is done , along with copy of entry card of each trainee. Copy of monthly stipend payment sheet, duly reflecting the amount paid to each trainee computed on the basis of his agreed stipend rate, number of days worked etc, along with receipts of each trainee thereon. The AO has also ignored the fact that the applicability of ESI / PF law was not mandatory up to June-2010 on the payment made to stipend trainees. The inspection report of ESI officials reveal that no such discrepancy was reported by the PF / ESI department officials. Further, the incorrect mobile numbers and inability of the appellant to produce the trainees who had already left the appellant and cash payments to trainees cannot be the grounds for disallowing 75% of the stipend expenses claimed by the appellant.

(viii) It may be mentioned that in the case of CIT Vs Shri Roshan Lai (Supra), it has been held by the Hon’ble Rajasthan High Court that the statement recorded under Section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition. Further, the Hon’ble Supreme Court in the case of CIT Vs S. Khader Khan Son [2012] 25 taxmann.com 413 (SC)dismissed the civil appeal by the income tax department and confirmed the order of Hon’ble Madras High Court in the case of CIT Vs S. Khader Khan Son [2008] 300 ITR 157 (MAD.) wherein it was held by the Hon’ble High Court of Madras that:

“From the foregoing discussion, the following principles can be culled out:

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 55 M/s Ratan Textiles P Ltd. Vs DCIT

(i) An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the apex court in Pulkngode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18;

(ii) In contradistinction to the power under section 133A, section 132(4] of the Income-tax Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.);

(iii) The expression "such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284 ITR 220 (Mad.);

(iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C (A) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad.);

(v) Finally, the word "may" used in section 133A(3) (Hi) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act", as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself.

For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 56 M/s Ratan Textiles P Ltd. Vs DCIT

dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the statement, obtained under section 133A would not automatically bind upon the assesses we do not see any reason to interfere with the order of the Tribunal."

(ix) Therefore, in view of the above discussion, it is held that the AO was not justified in disallowing 75% of the trainee stipend claimed by the appellant. However, the discrepancies as observed by the AO - cannot be totally brushed aside. Hence, considering the totality of facts and circumstances of the case, I think it would be appropriate to restrict the disallowances to 20% instead of 75% of the amount claimed by the appellant. Hence, disallowance out of stipend expenses is restricted to Rs. 5,33,266/- against Rs. 19,99,747/- made by the AO.

From the above, it is evident that the ld. CIT(A) has restricted the disallowance on ad hoc basis. After considering the material placed before this Tribunal, we are of the considered view that when the inspection was carried out by the ESI and PF department, no discrepancy was reported in respect of rate of stipend and payment of stipend. The Assessing Officer has not placed any material suggesting that the number of trainees was not correct. Moreover, the Assessing Officer has based his finding on the basis of presumption that the assessee is not charitable institute than why it would provide training with stipend to the persons who would quit after training. This observation of the Assessing Officer is purely based on the conjecture and surmises, which cannot be the basis for making disallowance. If the Assessing Officer’s reasoning is accepted, then it would make the assessee liable for prosecution for practicing the bonded labour. Therefore, this disallowance is unjustified and the same is hereby deleted.

ITA 527 & 595/JP/2016 with Ors. 5 appeals_ 57 M/s Ratan Textiles P Ltd. Vs DCIT The facts are identical in this year as well as no change into the facts is

pointed out by the revenue. Therefore, the grounds of appeal are allowed.

no separate adjudication. Accordingly, the same is hereby dismissed.

applied in the appeals of the assessee in ITA No. 525 & 526/JP/2016.

Accordingly, the appeals of the assessee are allowed.

appeals of the revenue are dismissed. Order pronounced in the open court on 21/04/2017,

Sd/- Sd/- ¼foØe flag ;kno½ ¼dqy Hkkjr½ (Vikram Singh Yadav) (Kul Bharat) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 21st April, 2017 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Ratan textiles P. Ltd., Jaipur.. 2. izR;FkhZ@ The Respondent- D.C.I.T., Circle-2, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 527, 595, 528, 596, 531, 525 & 526/JP/2016) vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत