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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: Shri Pawan Singh & Shri G Manjunatha
O R D E R Per Pawan Singh Judicial Member : 1. These cross appeals are directed against the order of CIT(A)-53, Mumbai dated 30-01-2017. The assessee, in its appeal has raised the following grounds of appeal:-
2 ITAs 3367 & 2777/Mum/2017 “1. The Learned Commissioner of Income Tax (Appeals)-53 ["CIT(A)"], on the facts of the case and in law, has erred in upholding the addition of Rs. 10,20,37,975, being 1.42% of gross profit, in appellant's total income. The appellant respectfully submits that its gross profit of 8.20%, as shown by the audited financial statement, is correct.
2. The Learned C1T(A), on the facts of the case and in law, has erred in upholding an ad-hoc disallowance of Rs. 2,06,12,8007- on account of 10% of entire administrative expenses.”
The revenue, in its cross appeal, raised the following grounds of appeal:-
(i) "On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the ad-hoc disallowance of Rs 5,84,79,680/- on account of total interest paid on incremental working capital loans taken during the year under consideration by holding that the disallowance is based merely on assumption, without taking into consideration the fact that the assessee could not provide any requisite evidences regarding the utilization of working capital loan?" (ii) "On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the disallowance of Rs. 50,96,663/- made u/s 14A r.w rule 18D by holding that the assessee had not made any fresh investment in the year and old investments and that the assessee had not earned any exempt income during the relevant period without taking into consideration that disallowance of expenditure for earning exempt income under section 14A read with Rule 8D would be attracted even if the corresponding exempt income has not been earned during the financial year ?"
Brief facts of the case are that assessee is a company engaged in the manufacturing of knitted fabrics and trading of yarn, filed its return of income for assessment year (AY) 2012-13 on 27-09-2012 declaring loss of Rs.39,61,68,590/-. The return of income was selected for scrutiny. The AO, while passing the assessment order made adhoc addition of Rs.102,03,79,579 on account of lower gross profit by rejecting audited accounts. The AO also made adhoc disallowance of Rs.5,84,79,680 on 3 ITAs 3367 & 2777/Mum/2017 account of total interest paid on incremental working capital loans.
Disallowance u/s 14A of Rs.50,96,663 and adhoc disallowance on account of administrative expenses of Rs.2,61,00,000/-. On appeal before Commissioner (Appeals), addition on account of lower gross profit and addition on account of administrative expenses were upheld. However, the addition plus disallowance u/s 14A and adhoc disallowance of incremental working capital loan was deleted. Thus, aggrieved by the order of the CIT(A), both the parties have raised their respective grounds of appeal, as we have noted above.
None appeared on behalf of assessee despite repeated calls. Perusal of record reveals that the AR for the assessee was appearing. However, from 28th March, 2019, none appeared on behalf of the assessee. Thus, we are left with no option except to hear the submission of the Ld. DR for the revenue and to decide the appeals on the basis of material available on record.
First we are taking up the appeal filed by assessee in ITA No.2777/Mum/2017. Ground 1 relates to sustaining the addition of Rs.10,20,37,975 on account of lower GP. The Ld. DR supported the order of lower authorities. The Ld. DR further submits that during the assessment the assessing officer noted that the assessee has shown lower gross profit
4 ITAs 3367 & 2777/Mum/2017 (GP) comparative to immediately preceding assessment year. The assessee was asked to substantiate its stand. Though, the assessee filed its reply, however, no evidences and explanation about the sale, purchase, transportation, and stock register was furnished before the assessing officer. The assessee is its reply submitted that all the supporting vouchers, bills and the evidences have been lost and that the entry in the report in Form 3CD should be accepted. The AO rejected books of account. The AO in absence of evidences estimated addition of GP at 1.42% and worked out addition of Rs. 10,20,37,975/-. Before ld CIT(A) no evidences was filed , accordingly he addition was upheld. The ld. DR prayed to uphold the additions.
We have considered the submission of learned DR for the revenue and also gone through the orders of authorities below. The assessing officer while making assessment issued show cause notice as to why the assessee has shown lower GP comparative to preceding assessment year. The assessee was asked to substantiate the lower GP in the current year. The assessee filed its reply wherein the assessee stated that all the documents including bills, vouchers, transport receipts, stock register and other supporting evidence has been lost. The assessee further stated that the documentary is entered in Form 3CD should be accepted. The assessing officer in absence
5 ITAs 3367 & 2777/Mum/2017 of necessary documentary evidences rejected the books of account. The assessing officer also recorded that a survey was conducted by the investigation wing of the revenue on Tayal group in Mumbai on 10 September 2013, wherein the statement of Shri Praveen Kumar Tayal was recorded. During the course of survey, instances of claim of bogus expenses on account of purchase a capital assets were found. The assessee is stated to be beneficiary of bogus expenses. The assessing officer in absence of evidence estimated ad hoc addition by treating the GP rate of earlier years as a benchmark. Before Commissioner (Appeals) no documentary evidences were furnished except repeating the same stand as taken before the assessing officer. The learned Commissioner (Appeals) confirmed the action of assessing officer in absence of any documentary evidences.
Before us, the assessee neither filed any documentary evidences nor any written submission to substantiate this ground. Therefore, we do not find any justification to interfere with the finding of learned Commissioner (Appeals). In the result this ground of appeal is dismissed.
5. Ground No.2 relates to ad hoc disallowance of administrative expenses.
The learned DR for the revenue supported the order of lower authorities.
The learned DR further submits that for the period under consideration the assessing officer noted that there is exceptional rise the administrative
6 ITAs 3367 & 2777/Mum/2017 expenses of Rs. 20.61 crore. Therefore, in order to verify the expenses, the assessing officer issued show cause notice to the assessee. The assessee could not produce any evidence to substantiate in increase of huge administrative expenses. The assessee failed to discharge its onus in proving the claim of administrative expenses, therefore, the assessing officer disallowed is reasonable ad hoc disallowances. Before Commissioner (Appeals) no evidences was furnished by assessee. Howeve,r the learned Commissioner (Appeals) noted that the assessing officer in disallowing 10% of administrative expenses wrongly worked the disallowances therefore, he directed the AO to correct the figure in order giving effect.
We have considered the submission of learned DR for the revenue and perused the material available on record. We have noted that during the assessment the assessing officer noted that the assessee has shown substantial increase in the administrative expenses for the year under consideration comparative to the preceding year of Rs. 1 4.83 crore . The assessing officer issued show cause notice to the assessee to substantiate the administrative expenses. The assessee filed its reply on 13th March 2015. The reply of the assessee was not accepted by assessing officer in absence of any corroborative evidence. The assessing officer concluded that the assessee has not discharge its onus in proving the claim of 7 ITAs 3367 & 2777/Mum/2017 administrative expenses and disallowed 10% of 20.61 crore. We have noted that while working the disallowances the assessing officer worked out disallowance of Rs. 2.61 crore. Before learned Commissioner (Appeals) the assessee stated that the administrative expenses is only just 2.87% of turnover and that in preceding year it was 2.42% of the total turnover. The assessee also stated that the turnover of assessee was increased about 17% from the proceeding financial year. The learned Commissioner (Appeals) after considering the submission of the assessee concluded that in absence of any corroborative evidence it cannot be said that the assessee has discharged onus. The learned Commissioner (Appeals) confirmed the action of the assessing officer. However, on the working of disallowances the assessing officer was directed to correct the figure of disallowances. Before us the assessee neither furnished any documentary evidence not filed any written submission to substantiate the ground of appeal, therefore, we do not find any justification in interfering the finding of Commissioner (Appeals). In the result this ground of appeal is also rejected.
In the result appeal of the assessee is dismissed.
Ground No.1 relates to deleting the disallowances of Rs. 5,84,79,680/-. The learned AR for the revenue supported the order of assessing officer. The 8 ITAs 3367 & 2777/Mum/2017 learned AR for the revenue further submits that as per balance-sheet and report in form three CD, working capital loan of Rs. 83.54 crore was increased as compared to the immediately preceding year. The assessing officer issued show cause notice to the assessee for seeking the details of secured and unsecured loan and the purpose of their utilisation, copy of the accounts along with the confirmation and if the loans were utilised for other than for normal course of business. The assessee could not prove the actual utilisation of loan. The assessing officer disallowed 14% of loan. The assessee paid interest for six months therefore in absence of any details the assessing officer worked out the disallowance of interest of Rs. 5.84 crore.
The learned CIT(A) deleted the entire disallowance despite the fact that no evidence was furnished by assessee.
We have considered the submission of the learned AR for the revenue and perused the material available on record. During the assessment the assessing officer noted that working capital loan of Rs. 83.54 crore was increased as compared to the immediately preceding assessment year. The assessee was asked to furnish the details of secured and unsecured loan purpose and utilisation of such loan and the details of interest paid on such loan. In absence of satisfactory evidences the assessing officer worked out the disallowances of Rs.5.84 Crore. Before Commissioner (Appeals) the 9 ITAs 3367 & 2777/Mum/2017 assessee stated that the assessing officer assumed that entire credit limit availed during the year had not been used for business purpose. The assessing officer has not verified the balance-sheet of the company, which shows that against working capital finance of Rs.208.03 crore, the assessee was showing inventory and debtors of Rs. 197.83 Crores and Rs. 154.32 Crores respectively, aggregating of Rs. 322.15 crore. If the act of AO is accepted, the amount of debtor and the stock, then the assessing officer should have accepted the working capital finance taken from the bank was just 59.07% of current asset and therefore, question of working capital finance having been used for any purpose other than per the business does not arise. The learned Commissioner (Appeals) after considering the submission of the assessee observed that though, the assessee could not provide the requisite evidence regarding utilisation of working capital loan before the assessing officer but that alone itself could not be ground for making the disallowance of interest expenses. The disallowances are based on an assumption and presumptions that entire working capital limits availed by assessee was not utilised for the purpose of business. There is nothing on the record that the assessee has diverted interest bearing borrowed funds by granting interest free loans to sister concern. The assessee has shown that against working capital loan of Rs. 208.03 crore, it
10 ITAs 3367 & 2777/Mum/2017 was having closing inventory of 197.87 crore and directors of Rs. 154.32 crore respectively which is aggregating to Rs. 352 .15 crore. the working capital loan availed from the bank was around 59.07% of the current asset.
The turnover of the assessee was increase from Rs. 611 Crore to Rs. 718 Crore i.e 17%. Therefore it cannot be concluded that the assessee used the working capital for other than business purpose and deleted the disallowances. We have seen the finding of the ld. Commissioner (Appeals) is based on sound reasoning. No contrary facts is brought to our notice to take to take other view, thus, we affirm the action of the ld. Commissioner (Appeals). In the result this ground of appeal is dismissed.
10. Ground No. 2 relates to deleting the disallowance under section 14 A. The learned DR for the revenue supported the order of assessing officer. The learned DR further submits that during the relevant period the assessee made substantial investment for earning exempt income, the assessing officer rightly invoked the provisions of Rule 8D and computed the disallowances under section14A.
11. We have considered the submissions of learned DR for the revenue and reduce the orders of authorities below. During the assessment the assessing officer noted that the assessee has made huge investment in subsidiaries for earning exempt income. The assessee has not made any 11 ITAs 3367 & 2777/Mum/2017 voluntary disallowance under section14A. The assessing officer was of the view that certain administrative expenses had to be incurred in connection with the every activities carried out by the assessee. Therefore, the assessing officer was not satisfied with the correctness of the claim of the assessee. The assessing officer invoked the provisions of rule 8D and worked out the disallowance of Rs. 50.96 Lacks, which consist of Rs. 46,76,398/- under Rule 8D2(ii) of and Rs. 4,20,265/- under Rule 8D2(iii) being .5% of average value of investment. During the appellate stage, the assessee stated that there was no justification in making the disallowance under section14A. It was further stated that no fresh investment was made during the year and all the investment were old investment and were funded through own capitals and reserves of Rs. 211.41 crore. It was further stated that no such disallowances were made in earlier scrutiny assessments. The assessee also stated that no exempt income was earned by the assessee during the relevant period and no disallowance was warranted. The assessee also relied upon the decision of Delhi High Court in Cheminvest meant Ltd versus CIT in of 2014. The learned Commissioner (Appeals) after considering the submission of the assessee and following the ratio laid down by Hon’ble Delhi High Court in Cheminvest ltd (supra) held that no disallowance under section14A is called
12 ITAs 3367 & 2777/Mum/2017 for, once there is no exempt income received or receivable by the assessee during the relevant previous year. We have noted that the assessing officer nowhere in the assessment order has a specified that the assessee has received any dividend income during the relevant period. In absence of any finding of assessing officer that the assessee earned any exempt income, we are in agreement with the finding of learned Commissioner (Appeals) that during the relevant period the assessee has not received any exempt income therefore, no disallowance under 14 A is warranted. In the result the ground of appeal raised by revenue is dismissed
In the result appeal of the revenue is dismissed.
Order pronounced in the open court on 17 - 07-2019.