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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ NEW DELHI
Before: SHRI G.D. AGRAWAL. & SHRI CHANDRA MOHAN GARG
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
This appeal has been filed by the assessee against the order of the ld. CIT(A)- XVIII, New Delhi dated 26.11.2012 in first appeal No. 195/10-11 pertaining to A.Y 2008-09.
The assessee has raised the following grounds of appeal:
1. The assessment made U/s 143(3) and the additions/disallowance made by the Assessing Officer are illegal, bad in law & without jurisdiction.
2. That in view of the facts and circumstances of the case, the CIT(A) erred on facts and in law in upholding the action of the AO in making enquiries and making additions in respect of the issues which were not covered by the AIR information. The addition / disallowances made are against the CBDT instructions and the Assessing Officer had no jurisdiction to make such additions.
3. That in view of the facts and circumstances of the case erred on facts, the CIT(A) has erred on facts and in law in upholding the action of the AO in rejecting the books of accounts without pointing out any error in the regular books of account maintained by the appellant. In any case the books have been illegally and wrongly rejected and the said rejections of books of account cannot be justified by any material on record.
4. The AO/ CIT(A) has erred in fact and in law in treating the Cash Sales as income from other sources and also erred in not allowing deduction U/s 80IC to the appellant.
5. That in view of the facts and circumstances of the case CIT(A) erred on facts and in law in uphold the action of the assessing officer in not allowing the deduction U/s 80IC. The CIT(A) has also failed to appreciate that the appellant has fulfilled all the condition of the said section and the deduction U/s 80IC is allowable out of profits of eligible unit.
6. The CIT(A), in view of the facts and circumstances of the case erred on facts and in law in uphold the additions of Rs. 7,77,86,000/- u/s 68 in respect of cash sales proceeds deposited in the bank account. He has also erred on facts and in law in disallowing the cash sales and recasting the trading account.
7. The CIT(A) erred on facts and in law in giving the direction to the AO to verify the genuineness of sales made in the earlier Assessment Year 2006-07 & 2007-08 is illegal, bad in law and without jurisdiction. The said direction of the CIT(A) is beyond jurisdiction and is liable to be deleted
8. The additions / disallowances made are unjust, unlawful, without jurisdiction and are also highly excessive. The CIT(A) has wrongly & illegally upheld the addition of Rs.7,77,86,000/-.
9. The Assessing Officer has, in view of the facts and circumstances of the case erred on facts and in law in holding that 2% of the sales i.e. 99,96,643/- cannot be treated as income of the eligible unit. The observation made is without any basis and are uncalled for.
10. The CIT(A) has, in view of the facts and circumstances of the case erred on facts and in law in upholding the disallowing the sum of Rs. 6,08,143/- u/s 14A r.w.r. 8D made by AO.
11. The additions made and the observations made are unjust, unlawful and based on mere surmises and conjunctures. The additions made cannot be justified by any material on record.
12. That the explanation given evidence produced, material placed and available on record has not been properly considered and judicially interpreted and the same do not justify the additions/ allowances made.
13. That the impugned Assessment Order passed by the Assessing Officer is against the principles of natural justice and the same has been passed without affording reasonable and adequate opportunity of being heard.
14. That the interest u/s 234A, 234B, 234C & 234D has been wrongly and illegally charged as the appellant could not have foreseen the disallowances/additions made and could not have included the same in current income for payment of Advance tax. The interest charged under various sections is also wrongly worked out.
Apropos Ground Nos. 1 to 5, we have heard the rival contentions and have perused the relevant material on record. The ld. AR submitted that the ld. CIT(A) erred in upholding the addition in respect of issue which was not covered by the AIR Information and the impugned addition on account of treating the cash sales as income from other sources and not allowing the deduction u/s 80IC of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] is against the CBDT Instructions. The ld. AR pointed out that the ld. CIT(A) also erred in upholding the rejection of books of accounts without pointing out any error in the books of accounts maintained by the assessee, thus the impugned addition is not sustainable in law and in the facts of the case. The ld. AR also pointed out that the authorities below failed to appreciate that the appellant fulfilled all the conditions of section 80IC of the Act and the same is allowable out of profits of eligible unit and profits includes profits from cash sales also as there is no distinction between cash and credit sales in the acid test of allowability of deduction u/s 80IC of the Act.
Per contra, the ld. DR of the Revenue strongly supported the action of the A.O and it was contended that the cash sales was not A.O was quite justified in making disallowance in this regard and the first appellate authority upheld the order of the A.O by considering all relevant facts of the case as well as legal propositions on the issue,
On careful consideration of the above, we note that as per the chart filed by the assessee from A.Y 2005-06 to 2013-14 i.e. for nine years, we observe that it is a normal practice of the assessee to make cash and credit sales. From the assessee’s paper book page 122, which was also submitted before the A.O and the ld. CIT(A), it is apparent that the assessee submitted all month-wise details of cash and credit sales during F.Y. 2007-08 relevant to A.Y 2008-09 which shows that the assessee made cash sales of product angle of Rs. 14,71,08,377/- and cash sales of product and cutting of Rs. 31,61,800/- which comes to total sum of Rs. 15,02,70,267/- as claimed by the assessee, this chart shows month wise cash and credit sales out of which credit sales have been accepted but cash sales have been disputed by the A.O by alleging that the sales have been inflated in the month of March 2008 wherein total cash sales recorded is around 50% of total cash sales.
The A.O also alleged that cash creditors have been regularly introduced in the books of accounts as sales, in order to claim deduction u/s 80IC of the Act.
At this juncture, at the very outset, it would also be necessary to consider the ground of the assessee wherein it has been alleged that he books of accounts have been rejected without any legal basis. The ld. AR pointed out that in para 4.1 the A.O alleged that the assessee, despite of several requests did not submit details of HDFC Bank, Muzaffarnagar and the same was received by him through AIR Information wherein huge cash was found to be deposited. The ld. AR also pointed out that the A.O noted that no details of cash sales on total sales of Rs. 99,91,440/- [ex UA] is on record. The ld. AR vehemently pointed out that all details regarding HDFC Bank A/c and cash sales were submitted before the A.O and it has not been objected by the A.O and the ld. CIT(A) and he also drew our attention towards assessee’s paper book pages 121 to 123, 124 to 125 and 190 to 197 to support this contention.
In reply, the ld. counsel of the Revenue supported the action of the A.O and submitted that despite of several requests, the assessee did not file copy of HDFC Bank account details and cash sales details.
Thus, the A.O was quite correct and justified in rejecting books of accounts of the assessee. The ld. DR of the Revenue also pointed out that there was no occasion for the A.O to examine papers submitted in the paper book including pages 121 to 125 and 190 to197. Therefore, these cannot be considered as supportive to the claim of the assessee.
At the outset, we may point out that as per section 145(3) of the Act, the A.O is empowered to reject books of accounts of the assessee in certain conditions viz (i) where the A.O is not satisfied about the correctness or completeness of the accounts of the assessee or (ii) wherein the method of accounting provided in sub-section (1) of section 145 of the Act has not been regularly followed by the assessee or the ld. CIT(A), (iii) income has not been computed in accordance with the standards notified under sub section (2) of the said provision, then only the A.O may make assessment in the manner as provided in section 144 of the Act after rejecting ht books of accounts of the assessee.
In the present case, from the relevant operative para 3.1 and 4.1 of the A.O, we note that the A.O has not shown his intention by issuing any show cause to the assessee before rejecting the books of accounts.
We also observe that the A.O has not leveled any allegation, as per mandate of section 145(3) of the Act, to establish that any of the conditions therein has been found in the case of the assessee validly enabling the A.O to reject the books of accounts of the assessee.
Since books of accounts have been rejected without following due procedure as mandated by Section 145(3) of the Act and without affording due opportunity of hearing to the assessee. Thus, conclusion of the authorities below in rejecting books of accounts is set aside and this issue is returned to the file of the A.O for afresh adjudication after allowing opportunity of being heard for the assessee. Accordingly, by this ground of the assessee is allowed for statistical purposes.
First of all, we must point out that the A.O has noted factually incorrect facts for making disallowance as total cash sales claimed is of Rs. 15.02 crores whereas the total cash sales in March 2008 were of Rs. 2,46,27,840/- + Rs. 3,20,760/- - Rs. 2,49,48,600/-, which is only 16- 17% of total cash sales. We further observe that it is a regular practice of the assessee to make huge cash sales which is also apparent from the chart submitted before the A.O wherein huge cash sales in earlier and subsequent A.Ys have been accepted by the A.O without any dispute. Thus, we are inclined to hold that the disallowance and addition made on the basis of incorrect facts and flouting the well accepted rule of consistency cannot be held as sustainable and thus we dismiss the same. At the same time, we also observe that it is the claim of the assessee that the amount of cash sales was deposited with HDFC Bank Muzaffarnagar and the A.O alleged that despite several opportunities copy of the bank statement was not submitted by the assessee during the assessment proceedings and this allegation was also reiterated by the ld. CIT(A) while upholding the disallowance.
Thus the main thrust of the Revenue is that he A.O and the ld. CIT(A) could not get opportunity to examine and verify the claim of the assessee regarding cash sales in the light of documentary evidence and explanation of the assessee. We may point out that the Tribunal cannot examine and verify the facts which were not confronted and considered by the authorities below during assessment and first appellate proceedings. Thus, in our considered opinion this issue requires afresh consideration, examination and verification at the end of the A.O. Thus the same i.e. issue of cash sales is restored to the file of the A.O for afresh de novo adjudication after affording due opportunity of being heard to the assessee.
Next question posed to us for adjudication is that whether the A.O was justified in denying deduction u/s 80-IC of the Act pertaining to cash sales treating the same as income from other sources. The ld. AR pointed out that there is no condition in the Act that the assessee would not be eligible for deduction on cash sales. The ld. AR vehemently pointed out that the A.O regularly allowed deduction u/s 80IC of the Act on both kinds of sales either cash or credit and there is no valid reason to deny the same only on the cash sales for the period under consideration. The ld. AR also showed us details and particulars showing that the cash and credit sales for all purposes, including deduction u/s 80IC of the Act have been accepted in earlier years from A.Y 2005-06 to 2007-08 and also in the subsequent years. i.e from A.Y 2010-11 to 2013-14 and also filed copies of assessment orders framed u/s 143(3) of the Act for A.Y 2010-11, 2011-12 and 2013-14 to show that there was credit and huge cash sales in earlier and subsequent A.Ys and deduction u/s 80IC of the Act has been consistently and regularly allowed to the assessee without any dispute regarding cash sales.
The ld. counsel of the Revenue strongly supported the action of the A.O as well as the order of the ld. CIT(A).
On careful consideration of the rival submissions, we are of the view that from para 4.2 of the assessment order, it is clear that the A.O firstly held that the sales have been inflated in order to claim deduction u/s 80IC of the Act. Thereafter, in the subsequent part, the A.O also held that the assessee has not been able to explain the source of cash deposits in his bank account of Rs. 7,77,86,000/- and he added the same u/s 68 of the Act as unexplained and consequently, he dismissed claim of deduction u/ 80IC of the Act on this amount i.e. Rs. 7,77,86,000/-. Since by the earlier part of the order we have held that the rejection of books of accounts was not in accordance with the provisions of section 145(3) of the Act, thus the impugned cash sales cannot be treated as income from other sources and deduction u/s 80IC of the Act cannot be denied on the amount of such cash sales.
However, we cannot ignore that the A.O had no occasion to examine the details and documents filed by the assessee at pages 121 to 125 and 190 to 197. Consequently, the action of the A.O in rejecting the books of accounts and treating cash sales as income from other sources and denying deduction u/s 80IC of the Act is set aside and the A.O is directed to examine and verify the claim of the assessee regarding cash sales, for deduction u/s 80IC of the Act. We also direct the A.O to verify and examine the cash sales in the light of commercial tax payment, raw material consumed and stock register verification, if any, after considering the submissions of the assessee and after providing due opportunity of hearing for the assessee. With these directions, Ground Nos. 1 to 5 of the assessee are allowed for statistical purposes.
Ground Nos. 6 to 9
Apropos these grounds, we have heard the arguments of both the sides and have carefully perused the relevant material on record. The ld. AR contended that as per the A.O, the assessee did not mention the bank account with HDFC in which cash has been deposited and this information was available to him from AIR report only. The ld. AR vehemently argued that the A.O ignored the fact that the assessee filed copy of the said statement of account with HDFC Bank. The ld. AR also contended that the allegation of the A.O that all cash bills have been prepared are also not sustainable because in the accounts duty is segregated and if one person is doing cash billing the naturally all cash bills would be prepared by that person. The ld. AR also contended that if all cash bills have been prepared by a person, then it cannot be presumed that these bills relating to various days have been prepared in a day and thus it also cannot be assumed that the same lacks the genuineness of regular sale invoice. The ld. AR vehemently pointed out that the cash deposit to a bank 40 Km away from the assessee’s office cannot be a valid basis to doubt cash sales and to make disallowance of cash sales. The ld. AR also pointed out that the assessee deposited proceeds of cash sales as per convenience and security reasons to HDFC Bank and sales tax etc was also paid thereon.
Thus, it cannot be doubted only because the amount was not deposited into a nearby bank account. The ld. AR further contended that in para 4.1(e) , the A.O made bald allegations without bringing out any event or comparable of similar entity by wrongly holding that the assessee has shown very high gross profit ratio and the production figures shown is very high taking into account the consumption of electricity and fuel and the percentage of raw material over finished goods is also higher that the industry average. The ld. AR vehemently argued that the ld. CIT(A) was not correct in upholding the conclusion of the A.O wherein 2% of the sales, i.e. Rs. 99,96,643/- has not been treated as income eligible for deduction u/s 80IC of the Act.
The ld. DR supported the orders of the AO as well as CIT(A) and submitted that the assessee is showing huge cash sales which was not genuine and all were prepared by a person in a single day to inflate sales and to justify cash deposit to bank account which was revealed by the AIR information and the copy of same account was not submitted before the AO then it was quite just and proper to make disallowances and additions in this regard. The ld. DR also pointed out that the AO rightly considered the low consumption of raw materials, and fuel in proportion to finished goods and when the cash was deposited in bank 40 KM away leaving the near bank then the AO was quite correct and justified in disallowing the cash sales.
The ld. Counsel for the assessee, placing rejoinder against the above noted submissions of the ld. DR contended that without bringing out any comparative figures of full raw material consumption and gross profit ratio of similar industry in the similar conditions i.e. rates of raw materials & fuel etc., the AO cannot allege the same as excessive and doubtful. The Ld. Counsel pointed out that cash sales was made during earlier and succeeding years which have been consistently accepted by the AO this there was no valid reason to disallow sales and disallow total sales.
On careful consideration of above, at the outset, we observe that the authorities below categorically noted that the assessee did not submit copy of bank statement with HDFC Bank with which the impugned proceeds of cash sales was deposited. Per contra, it is contended by the ld. Counsel of the assessee that the assessee submitted all relevant documents including copy of the bank statement with HDFC bank during assessment proceedings. Further move the impugned cash sales can be verified from the respective purchasers and other related offices including the commercial tax deptt. The disallowance of cash sales and not treating the amount 2% of total sales as income from eligible unit have been made without considering the entire relevant evidence and explanation of the assessee and the issue of cash sales detailed verification and examination of all related documentary and circumstantial evidence. The AO shall also consider the percentage of the consumption of fuel and raw materials in proposition to finished goods and will also take into consideration the percentage of gross profit ratio of other similar unit, if any, in the similar factual conditions. We may point out that without considering the relevant evidence, details and explanation alongwith earlier and subsequent year financial results and GP ratio of the assessee and similar unit in similar location the Aon cannot make disallowance and addition and it is also on the assessee to justify and explain the situations wherein huge cash sales was made and cash was deposited to bank account which is 40 KM away from the office of the assessee.
The assessee may also submit all other relevant details pertaining to transportation, commercial tax payment and purchasers to establish its claim of cash sales. With these directions issue involved in ground nos.
6 to 9 of the assessee are restored to the file of the AO for de novo adjudication. The AO is also directed to adjudicate the same after affording due opportunity of hearing to the assessee and without being prejudiced from the earlier assessment and impugned first appellate order of the CIT(A). Accordingly, ground Nos. 6 to 9 of the appeal of the assessee are allowed for statistical purposes.
Ground No. 10 to 13 of assessee
Apropos these grounds, the ld. Counsel for the assessee reiterated submissions of the assessee dated 10.8.2011, as reproduced by the CIT(A) in para 8 of the impugned order, and contended that the assessee has opening balance of Rs. 65 crores reserves and surplus, the assessee invested Rs. 7.5 lacs in the shares of group concern i.e. Rana Spong Ltd. Orissa to acquire stake in that company. The Ld. Counsel
pointed out that the assessee has not earned any exempt income from these shares during the relevant period. To support this contention the Ld. Counsel placed reliance on the decision of Hon’ble Jurisdictional High Court of Delhi in the case of Cheminvest Ltd. vs. CIT-IV vide order dated 2nd September, 2015 and contended that if there is no exempt income then no disallowance u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 can be made.
The Ld. DR supported the action of the AO as well as first appellate order of CIT(A). However, he could not controvert his factum that there was no exempt income for the assesee out of investment in shares and ratio of decision of Hon’ble High Court (supra) favours assessee’s contention.
On careful consideration of above, we not that in para 23 of decision of Hon’ble High Court, their Lordships speaking for the Jurisdictional High Court observed as follows :-
“ (i) The expression “does not form part of the total income” in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. The decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is “for the purpose of making or earning such income”. Section 14A of the Act on the other hand contains the expression “in relation to income which does not form part of the total income”. The decision in Rajendra Prasad Moody cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act. (ii) The investment by the Assessee in the shares of Max India Ltd. is in the form of a strategic investment. Since the business of the Assessee is of holding investments, the interest expenditure must be held to have been incurred for holding and maintaining such investment. The interest expenditure incurred by the Assessee is in relation to such investments which gives rise to income which does not form part of total income.”
In the present case, admittedly and undisputedly, the assessee earned no exempt income from the shares held in Rana Sponge Ltd. Orissa.
Thus the ratio of the said decision of Hon’ble Jurisdictional High Court is squarely applicable in favour of the assessee. Thus, respectfully following the same we hold that no disallowance u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 can be made for A.Y 2008-09 and addition made by the AO in this regard is not sustainable and consequently we dismiss the same. Accordingly ground Nos. 10 to 13 of the assessee are allowed.
Last Ground No. 14 is regarding charging of interest which is consequential in nature.
In the result, appeal of the assessee is partly allowed on Ground Nos. 10 to 13 and allowed for statistical purposes on other grounds.
Order pronounced in the open court on 12.08.2016.