ANSH MERCHANDISE P LTD,MUMBAI vs. DCIT 5(2), MUMBAI

The assessee went in appeal before the learned CIT-A who upheld the additions vide appellate order dated 28-08-2014 , by holding as under:- “ 5.3. Disallowance u/s 14A- After considering the rival submissions, it is noted that it is an undisputed fact that the appellant has made huge investment in shares and mutual funds and earned substantial income from dividend which are exempt from tax, therefore I agree with the finding of the A.O that the assessee would have definitely incurred expenditure in earning of exempt income because the man power as well as infrastructure of the appellant company was utilized for earning of the exempt income. Under these circumstances, disallowance u/s.14 A is justified. From A.Y 2008-09 provisions of Rule 8D are also applicable in all such cases where it is not practically possible to exactly segregate the expenses incurred in relation to earning of exempt income, like the case of the appellant. The Hon'ble Bombay High Court in the case of M/s. Godrej & Boyce Ltd., (2010) 328 ITR 81 has upheld the applicability of Rule 8D in such cases. Therefore, the disallowance made by the A.O u/s.14 A by invoking the provisions of rule 8D in the instant case is justified, hence the same is confirmed.”

Aggrieved by the appellate order dated 28-08-2014 passed by learned CIT(A) w.r.t. upholding of both the additions , the assessee has filed an appeal before the tribunal challenging the upholding of the additions with respect to both the issues . The Ld. Counsel for the assessee submitted that disallowance u/s. 14A have been made to the tune of Rs. 6,76,691/- by applying Rule 8D but the said disallowance cannot exceed exempt income which were to the tune of Rs. 1,26,939/- . The learned counsel for the assessee relied upon the decision of the Hon’ble Delhi High Court in the case of Joint Investments Private Ltd v. CIT reported in (2015) 372 ITR 694(Del HC). It was also submitted that as per decision of ITAT, Delhi-Special Bench in the case of ACIT v. Vireet Investment Private Ltd reported in (2017) 165 ITD 27(Del-trib.)(SB) only those investments which yielded dividend/exempt income during the relevant year are to be considered for making disallowance u/s. 14A r.w.r. 8D. The ld. Counsel for the assessee with respect to the second disallowance of alleged bogus purchases submitted that assessee was dealing in diamonds and purchases were made from 56 parties while disallowance were made w.r.t. seven parties to the tune of Rs. 19,69,43,883/- based on information received from Maharashtra Sales Tax Department. It was submitted that books of accounts were not rejected by the authorities i.e. AO as well learned CIT(A). Our attention was drawn to page 32 of the paper book and it was submitted that assessee asked for cross examination of the said parties who had given statement against the assessee but the same were not allowed. The learned counsel for the assessee would rely on decision of Hon’ble Bombay High Court in the case of CIT v. Ashish International in of 2009 dated 22/02/2011 . Our attention was drawn to page no. 31 of the paper book wherein notice issued by AO to assessee with respect to the seven parties is placed. It was submitted that no notices were issued by the AO to said parties u/s. 133(6) and also no summons were issued by the AO to these parties u/s 131. Our attention was also drawn to page 30 of the paper book and it was submitted that detail of purchases were submitted along with copy of ledger account of parties before the AO. It was submitted peak addition had wrongly been added u/s. 69C . Our attention was drawn to page 94 of paper book wherein decision of Hon’ble Bombay High Court in the case of CIT v. Ashish International in ITA no. 4299 of 2009 vide orders dated 22.2.2011 is placed. The assessee also relied upon decision in the case of Fancy Wear v. ITO reported in (2017)167 ITD 621(Mum-trib.). The assessee also drew our attention to para 5.4 of learned CIT-A appellate orders , and also to statement of fact filed before the learned CIT-A vide para B(v) of statement of fact to contend that cross examination of these parties were sought but denied by authorities below. The learned counsel for the assessee submitted that assessee could not produce these parties and the onus is not on the assessee to produce these parties . It was also submitted the peak credit cannot be applied under these circumstances. The learned counsel for the assessee relied upon decision in the case of ACIT v. Choron Diamond India P. Ltd in ITA no. 4449/Mum/2016, AY 2007-08 etc.. The assessee also relied upon the decision of the Mumbai tribunal in the case of ITO v. Ratnalaya Diamonds Private Ltd. in in AY 2007-08, dated 16- 08-2017. It was submitted that in Ratnalaya Diamond Private Limited(supra), tribunal has confirmed addition to the of tune of 6% of alleged bogus purchases, while in the case of Choron Diamonds India Private Limited(supra) case , tribunal restricted additions to the tune of 4% of alleged bogus purchases. The assessee also relied upon decision in the case of Amy Diam Vega Jewellery Private Ltd. v. DCIT in ITA no. 5799- 5801/M/2016. It was submitted that assessee has duly submitted copies of bank statement as well as copy of ITR’s of these parties, which are placed in paper book/page 33-62.

The Ld. CIT-DR on the other hand submitted that Ld. CIT-A called for remand report from the AO and assessee has not produced documents/parties before the AO even during the remand proceedings . The learned CIT DR submitted that the assessee has not filed remand report and since it is assessee appeal , the onus is on the assessee to file remand report. The learned CIT-DR referred to para 5.2 of the appellate order of learned CIT-A and submitted that assessee has not cooperated with Revenue and even no quantitative details/reconciliation of the stock has been submitted by the assessee. It was submitted by learned CIT-DR that AO has examined the matter as well Maharashtra Sales Tax Authorities have made detailed enquiries to arrive at conclusion that these parties are merely hawala operators providing accommodation entries. It was submitted that DGIT(Inv.),Mumbao also made independent enquiries/investigation and conclusions were arrived that the assessee is beneficiary of accommodation entries from these seven alleged hawala entry providers. There were seven concerns with whom the assessee dealt who were engaged in providing hawala accommodation entries without supplying material. It is also submitted that purchase and sales bills have not been submitted as these were not available with the assessee. The assessee has dealt with the hawala operator and have only obtained accommodation entries without any supply of material . Maharashtra VAT Department as well as DGIT (inv.) has made necessary enquires and it is only after these enquiries statement was recorded of these parties . it has come to the notice that assessee has obtained merely accommodation entry from seven parties wherein no material was supplied of these parties. It was also submitted by learned CIT DR that the assessee has only supplied return of income/ bank statement of these seven parties and their Balance Sheet, Profit & Loss account etc. have not been submitted and also no confirmation from these parties have been submitted. It was submitted that these parties have meagre income and have no capacity to deal with diamonds of such magnitude. These parties does not have any infrastructure available with them and hence AO has rightly disbelieved these parties. Our attention was also drawn to page no. 33-62 , wherein the copies of ITR’s and bank statement of these seven parties are placed and it was submitted that these parties did not have any capacity/ capabilities to deal with diamond and hence additions were rightly made by authorities. The Ld. CIT-DR relied upon decision of Hon’ble Calcutta High Court in the case of CIT v. Precision Finance Private Limited (1994) 208 ITR 465(Cal.HC). It was submitted that payment by cheque is not sacrosanct. It was also submitted by learned CIT-DR that there is no evidences on record of assessee having dealt with cut & polished diamond . It was also submitted by learned CIT DR that there is no evidence of supply of these diamonds of huge magnitude to the assessee by these parties and also these parties were not having adequate infrastructure facilities as is emanating from their audited financial statements to have adequate infrastructure facilities to undertake cut and polished diamonds. It was submitted by learned CIT DR that assessee is dealing in commodities and shares and it is strange that the assessee ventured into cut and polished diamonds. The ld CIT-DR relied upon the decision of Hon’ble Supreme Court in the case of N.K Proteins Limited v. DCIT in Special Leave to Appeal(C).. CC No(s) 769 of 2017 vide orders dated 16-01-2017, reported in 2017-TIOL-23-SC-IT and prayed that additions to the tune of 100% of the alleged bogus purchases by upheld. The learned CIT DR also relied upon decision of Hon’ble Supreme Court in the case of CIT v. P. Mohankala (2007) 161 Taxman 169 (SC), decision of Hon’ble Supreme Court in the case Sumati Dayal v. CIT reported in (1995) 80 Taxman 89 (SC) decision of Hon’ble Supreme Court in the case of CIT v. Durga Parsad More (1971) 82 ITR 540(SC), and it was submitted that the appellate order of learned CIT-A be upheld. With respect to additions made of disallowance u/s 14A r.w.r. 8D, It was submitted by learned CIT DR that Rule 8D of the 1962 Rules was correctly applied by the AO. It was submitted that the assessee has claimed exempt income to the tune of Rs. 1.26 Lac by way of dividend income. The learned CIT DR would rely on decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (2018) 91 taxman.com 154(SC) and stated that the said decision is directly applicable to the facts before us.

The Ld. Counsel on the other hand submitted in rejoinder that Hon’ble Calcutta High Court decision in the case of CIT v. Precision Finance Private Ltd.(supra) deals with cash credit and does not deal with normal purchases made by the taxpayer. The learned counsel for the assessee also distinguished the decision of Hon’ble Supreme Court in the case of P. Mohankala(supra) and submitted that this decision deals with gifts which is not the case here. The learned counsel for the assessee also distinguished the decision of Hon’ble Supreme Court in the case of N.K Proteins Ltd.(supra) and it was submitted that in this case unsigned cheque books of the suppliers were found within the premises of the person who was searched i.e. N.K Proteins Ltd. . On being asked by the Bench to prove about the infrastructure of the assessee to undertake the business of cut and polished diamonds and Gross Block owned by the assessee , it was submitted by learned counsel for the assessee that the Gross Block of the assessee is only Rs. 1.98 Lac which consist of computer, furniture and office equipment. The assessee’s counsel submitted that assessee is trading in diamonds and the diamond are kept in office. It was submitted by learned counsel for the assessee that no strong vault/lockers are kept by the assessee . It is submitted that diamonds are kept in the office. On being asked by the Bench , it was submitted by the assessee’s counsel that only details as to purchases were submitted before the AO (Page 63/paper book) . It was submitted that quantitative details and reconciliation of the stock is now submitted for the first time before the tribunal and the same was not produced before the authorities below. On being asked by the bench it was submitted that the sale and purchase bills were with the sales tax department vide receipt dated 21.08.2012 and these was never produced before the AO as were before the CIT-A (page no.30 of the paper book – letter dated 01-03-2013 to AO/ para 2) . It was submitted that quantitative stock/reconciliation were not verified by AO as well as learned CIT-A as it was never before the AO as well as CIT-A and is produced for the first time before the tribunal and prayer was made that one more opportunity be provided to the assessee to produce all details before the AO for examination and verifications and the assessee undertakes to prove genuineness/bonafide of its case and matter may be set aside to the file of the AO. Later , the assessee counsel has filed remand report of the AO which is now part of the record.

We have considered rival contentions and perused the material on record including cited case laws by rival parties. The assessee is stated to be engaged in the business of trading of goods including cut and polished diamonds . Information was received by AO from the DGIT (Inv.) Mumbai that some parties have provided accommodation bills without supplying any material , which information was received by Revenue based on enquiries conducted by Maharashtra Sales Tax Department. The assessee was stated to be beneficiary of accommodation entries towards alleged bogus purchases to the tune of Rs. 19,69,43,883/- provided by these seven parties to the assessee. These parties have deposed before Maharashtra Sales Tax Authorities that they were only issuing bogus bills without supplying any material. The assessee was stated to be beneficiary of the alleged accommodation entries towards alleged bogus purchases to the tune of Rs. 19,69,43,883/- from following seven parties, the details of which are as under:-

In the result, appeal of the assessee is partly allowed as indicated above. Order pronounced in the open court on 16.04.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 16.04.2018 को की गई । Sd/- Sd/- (JOGINDER SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER