GRAND PRIX FAB. PVT. LTD.,FARIDABAD vs. ACIT, FARIDABAD

Limited facts involved in these cases are that assessee is a company engaged in the business of manufacture of engineering capital goods. It filed its return of income showing income of Rs.2,03,73,410/- on 19.09.2009. Assessment under section 143(3) of the Income Tax Act was passed on 19.12.2011 determining total income of the assessee at Rs.3,23,97,660/-. Against this the assessee preferred appeal before the learned CIT (Appeals) who partly allowed the appeal of the assessee. Therefore, both the parties are in appeal before us.

Now we first take up the appeal of the assessee. The first ground of appeal is against the sustaining addition of Rs.9,82,800/-

The brief facts of the issue is that for assessment year 2008-09 the Assessing Officer made detailed enquiry and held that certain purchases made from certain parties are bogus. Consequently the additions were made. The learned Assessing Officer noted that assessee has purchases of Rs.32.76 lakhs from M/s. Om Trading Company. The assessee submitted copy of the account of the above party and the details of payment made to that party. The learned Assessing Officer vide para No. 5.2 noted the enquiries made by the Assessing Officer in case of this party in earlier year. Therefore, the assessee was asked to prove the genuineness of the purchases from this party. Assessee submitted that the purchases were made from this party based on the estimate cost sheet and also substantiated with the stock register to show that the material has been received from this party. The learned Assessing Officer rejected the contention of the assessee and noted that since the assessee was not in a position to prove the genuineness of the purchases he made the disallowance of the total purchases from this party. Before making the disallowance the learned Assessing Officer issued notice under section 133(6) to the ITAs. 1006 & 1200 (Del) of 2015. Grand Prix Fab Pvt. Ltd. 4 supplier at the given address, but the notice was received back as no such party was found at the given address. The Assessing Officer further issued summons under section 131 and also deputed the Inspector to serve the above summons. The Inspector reported that from the local enquiry that at the given address the party is not available and such firm never existed. The Inspector also enquired at the other premises and reported that the firm is not genuine. With the report of the Inspector the assessee was confronted. The assessee submitted that as postal authorities have stated that the party has left that means it was existing at that particular time. The Assessing Officer rejected the explanation of the assessee and rejected the books of accounts by invoking the provisions of section 145(3) of the Act. He further relied upon the decision of Hon’ble Delhi High Court in CIT Vs. La Medica 205 ITR 575 (Del). He, therefore, disallowed the complete purchases of Rs.32,76,000/-. The assessee preferred an appeal before the learned CIT (Appeals), who relying upon the decision of the assessee for assessment year 2008-09 where 30% of the purchase price was disallowed and the balance was allowed as an expenditure. He, therefore, out of Rs.32.76 lakhs allowed the purchases of Rs.22,93,200/- and confirmed disallowance of Rs.98,28,800/-. Therefore, both the parties are in appeal before us.

The learned authorized representative submitted that an identical issue arose in assessee’s own case for assessment year 2008-09, which is also referred by the learned CIT (Appeals). The Co-ordinate Bench vide order dated 18.04.2017 confirmed the addition deleted to the extent of 70% by the learned CIT (Appeals). With respect to the balance 30% he stated that same is not justified in view of the decision of the Hon’ble Bombay High Court in 35 taxmann.com 384.

The learned Departmental Representative relied upon the order of the learned Assessing Officer and stated that when the purchases are bogus, there is no reason to allow even 70% of the purchases to the assessee and, therefore, the order of the learned CIT (Appeals) is not proper.

We have carefully considered the rival contentions and find that the issue is squarely covered by the decision of the Co-ordinate Bench in assessee’s own case for assessment year 2008-09 dated 18.04.2017 wherein on the identical facts and circumstances the order passed by the learned CIT (Appeals) was upheld wherein the deletion of the disallowance to the extent of 70% and confirmation of the ITAs. 1006 & 1200 (Del) of 2015. Grand Prix Fab Pvt. Ltd. 6 disallowance to the extent of 30% was upheld. The Co-ordinate Bench has considered the decision of the Hon’ble Bombay High Court also as pressed before us by the learned Departmental Representative and the decision of the Hon’ble Delhi High Court as pressed by the learned DR. In that year the purchases from this party was also involved. In view of this, we do not find any reason to interfere with the order of the learned CIT (Appeals). Accordingly ground No. 1 of the appeal of the assessee and ground No. 2 of the appeal of the Revenue are dismissed.

Now we come to ground No. 2 of the appeal of the assessee wherein the disallowance of Rs.1,94,888/- confirmed by the learned CIT (Appeals) on account of interest expenditure is contested.

We have carefully considered the rival contentions. The main contention of the assessee is that assessee has accruals before investment made in the land. The assessee has stated that net proit of the assessee before depreciation for assessment year 2009-10 stands at 9.26% and, therefore, he took sales up to 30.06.2008 of ITAs. 1006 & 1200 (Del) of 2015. Grand Prix Fab Pvt. Ltd. 8 Rs.2,52,83,638/- and stated that cash profit accrual up to that date is Rs.23,42,056/- and, therefore, to that extent the funds utilized are from internal accruals. The argument of the assessee is not accepted, because the profit accrues to the assessee at the end of the accounting year when the final accounts are made. It does not accrue on day-to-day basis. Further the assessee could not show the interest free funds available with him at the time of purchase of land and, therefore, we do not find any infirmity in the order of the learned CIT (Appeals) in confirming the addition of Rs.1,94,888/- on account of interest expenditure. Accordingly, ground No. 2 of the appeal of assessee is dismissed.

Ground No. 3 is with respect to the disallowance of Rs.7,500/- under section 14A read with Rule 8D(2)(3) of the Act. The learned Assessing Officer noted that assessee has made an investment of Rs.15 lakhs in the mutual fund and, therefore, assessee was asked to explain the disallowance under section 14A of the Act. The assessee submitted that the investments are out of interest-free funds and no interest is disallowable. However, the assessee did not made any reference of the other expenditure and, therefore, he applied 0.5% of expenditure amounting to Rs.7,500/- and further also allowed

The learned authorized representative relied upon the order of the Co-ordinate Bench for assessment year 2008-09. The learned Departmental Representative relied upon the order of the lower authorities.

We have carefully considered the rival contentions and find that for assessment year 2008-09 the Co-ordinate Bench has deleted the disallowance on account of interest, but there is no reference of the disallowance with respect to the expenditure. As there is no claim by the assessee that no such expenditure has been incurred by the assessee, we do not find any merit in the appeal of the assessee with respect to the disallowance confirmed by the learned CIT

Now we come to the ground No. 1 of the appeal of the Revenue which challenges the disallowance of Rs.60,94,813/- deleted by the learned CIT (Appeals) on account of loss due to foreign exchange fluctuation. The claim of the Assessing Officer is that such loss is on account of contingent liability and is not allowable under section 37(1) of the Act. It was further noted by the learned Assessing Officer that the decision of the Hon’ble Supreme Court in the case of CIT Vs. Woodward Governors India Pvt. Ltd. reported in 312 ITR 254 (SC) does not apply to the facts of the case. He held that the liability is not ascertained and further it does not pertain to any revenue transaction as it relates to an advance received by the assessee and there is no purchase and sales during the year. The assessee challenged the issue before the learned CIT (Appeals) who deleted the same holding that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of CIT Vs. Woodward Governors India Pvt. Ltd. (supra). Therefore, the Revenue is in appeal before us.

The learned Departmental Representative relied upon the orders of the learned Assessing Officer.

The learned authorized representative submitted that the issue is squarely covered in favour of the assessee and relied upon the order of the learned CIT (Appeals).

We have carefully considered the rival contentions. As at the end of the year the assessee restated the advances received for foreign exchange for supply of goods from one party. The assessee maintains its books of account on mercantile basis. As on the last day of the account, such advances are required to be restated in terms of the accounting standard 11 issued by the ICAI and further compulsorily to be followed by the company, the assessee recorded the foreign exchange fluctuation, which resulted into loss. The loss was debited to the profit and loss account and claimed as deduction. The foreign exchange fluctuation is on account of advance received for supply of goods, which is revenue in nature and as it is a trade advance, therefore, according to us, no error can be found in the order of the learned CIT (Appeals) in allowing the claim of the assessee based on the decision of the Hon’ble Supreme Court.

In the result, ground No. 1 of the appeal of the Revenue is dismissed.

Ground No. 3 of the appeal of the Revenue is with respect to the disallowance of Rs.23,01,048/- deleted by the learned CIT (Appeals).

The learned authorized representative relied upon the order of the Assessing Officer whereas the learned Departmental Representative relied upon the order of the learned CIT (Appeals) as well as the order of the Co-ordinate Bench.

We have carefully considered the rival contentions. An identical issue involved in assessment year 2008-09 wherein the Co-ordinate bench vide order dated 18.04.2017 deleted the disallowance as per para Nos. 14-16 of the appeal. While giving its finding in para No. 16 the Co-ordinate bench noted that the learned CIT (Appeals) has correctly noted the facts that no such interest-bearing funds were used by the assessee for purchase of the land. The Co-ordinate Bench also followed the issue decided by the Co-ordinate bench in assessee’s own case for assessment year 2007-08. As there is no change in the facts and circumstances of the case, we find no reason to deviate from the finding of the Co-ordinate Bench. Therefore, the ground No. 3 of the appeal of Revenue is dismissed.

The ground No. 4 of the appeal is with respect to deletion of the disallowance of Rs.1,50,000/- by the learned CIT (Appeals) under section 14A of the Act.

The facts have been succinctly stated while deciding ground No. 3 of the appeal of the assessee on identical facts and circumstances. The Co-ordinate bench in assessee’s own case for assessment year 2008-09 has deleted the disallowance of Rs.1,50,000/- on account of investment made in mutual funds. The Co-ordinate Bench for assessment year 2008-09 also followed the decision of Co-ordinate bench in assessee’s own case for assessment year 2007-08. In view of this, we do not find any infirmity in the order of the learned CIT (Appeals) in deleting the disallowance of Rs.1,50,000/- under section 14A of the Act. Consequently ground No. 4 is dismissed.

In the result, appeal of the assessee and appeal of the Revenue, are dismissed.