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

आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

2. First we shall take appeal for assessment year 2008-09 vide . The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

“1. The learned Commissioner of Income Tax(Appeal) had erred by upholding the wrong action of learned assessing officer wrongly calculating loss amounting to Rs. 3,83,03,181/- from sale of plywood /furniture instead of profit earned by appellant company amounting to Rs. 9,213/-. 2. The learned Commissioner of Income Tax(Appeal) had again erred by approving the incorrect action of learned assessing officer of disallowing the legitimate rebate and claim amounting to Rs.18679300/-. ”

Plywood/Furniture

Sale : Rs.3,71,01,964/- Less: Purchase : Rs. 9,09,78,075/- ------------------------ : Rs.5,38,76,111/- Less: Closing Stock : Rs.1,55,72,930/- ------------------------ Loss: : Rs.3,83,03,181/- ------------------------- It was observed by the AO that in these transactions for purchase/sale of plywood/furniture, the assessee has not taken physical delivery of goods but the delivery was directly given to the assessee’s buyer and the transaction was routed through the assessee by which the assessee was receiving purchase bill from the supplier and was subsequently raising sales bill on the buyer. Thus, the assessee was liable only to the extent of commission or difference in price of material , the assessee was asked to explain that how losses were incurred by the assessee.

The assessee in response failed to give justification for said loss claimed by it or produce any documentary evidence to show that how loss is attributable to the assessee. The AO observed that the assessee is acting only as an conduit/agent of the parties concerned and book purchase only against finding of suitable buyer. Thus, the assessee is entitled to the extent of difference in price which amounts to commission for arranging the ITA 411 /Mum/2013 & 398/Mum/2013 4 transaction. Thus, the AO held that the loss shown by the assessee is not a real loss attributable to the assessee and the same was disallowed by the AO vide assessment order dated 22-12-2010 passed by the AO u/s. 143(3) of the Act.

Secondly, It was noted by the AO from the Profit and Loss Account that the assessee has claimed rebate of Rs.1,86,79,300/-. The assessee was asked to explain the same and justify the allowability of claim. The assessee submitted that M/s Premium Paper and Board Industries Limited has purchased goods from the assessee in various lots. When the goods were used by the said buyer, it was found that the goods were not in good condition and hence the claim was lodged by the said buyer for rebate. The assessee submitted that it surveyed and verified the goods supplied by the assessee and found various deficiencies in goods at the end of the assessee. The defects noticed by the assessee were as under:

Thus, it was observed that the product was not in a position to be sold in the open market as fresh and hence the assessee had to allow credit of Rs.1,86,79,300/- to M/s. Premium Paper and Board Industries Limited which is one of the largest and reputed paper and board dealers of the country.

The assessee submitted debit note supplied by M/s Premium Paper and Board Industries Limited on the assessee, wherein the account of the ITA 411 /Mum/2013 & 398/Mum/2013 5 assessee was debited towards inferior quality of material supplied by the assessee as also credit notes were submitted by the assessee wherein the assessee has credited the account of the said party M/s Premium Paper and Board Industries Limited towards inferior quality of material supplied by the assessee to the said party.

The AO observed that the assessee has not taken deliveries of these goods and in case if the assessee’s supplier has supplied defective material, the assessee should raise debit notes in their favour since real transaction of purchase and sale of goods is between the assessee’s suppliers and the purchaser M/s Premium Paper and Board Industries Limited and the assessee is only acting as conduit and thus not responsible for the defective material supplied by the suppliers and hence the loss suffered cannot be attributed to the assessee and hence the assessee’s claim of rebate and claim of Rs.1,86,79,300/- was disallowed by the AO and added to the income of the assessee vide assessment order dated 22.12.2010 passed by the AO u/s 143(3) of the Act.

4.Aggrieved by the assessment order dated 22.12.2010 passed by the AO u/s. 143(3) of the Act, the assessee filed first appeal with the learned CIT(A) .

It was submitted that the auditors of the assessee company inadvertently overlapped some of the traded items in the audited Balance Sheet’s grouping and schedule . The assessee submitted that the actual profit was Rs.9,213/- from traded items of plywood and furniture instead of loss of Rs.3,83,03,181/- mistakenly determined by the AO.

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It was submitted that purchase of plywood/furniture was Rs.5,20,96,701/- instead of Rs.9,09,78,075/- as inadvertently considered by the AO while assessing the case of the assessee. The reconciliation and other details were submitted before the AO but he mistakenly overlooked the same , was the submission of the assessee before learned CIT(A). The assessee submitted before learned CIT(A) that the AO never issued show cause notice to the assessee before making this incorrect and unjustified huge additions. It was submitted by the assessee that the AO never made any enquiries with the suppliers of the assessee u/s. 131/133(6) of the Act.

With respect to the second issue with respect to non allowability of rebate and claim of Rs.1,86,79,300/- , it was submitted by the assessee before learned CIT(A) that the assessee supplied the goods i.e. paper and boards to its customers in various lots. The goods were found by the customers to be not in good condition hence they lodged claim with the assessee for rebate. When the assessee surveyed and verified the goods, several deficiencies were found in the goods at the end of the assessee which are set out above in preceding para’s of this order and not repeated here. The assessee submitted that the finding of the AO that the assessee is conduit of purchaser is baseless and the loss is genuinely incurred by the assessee. The AO did not issue any show cause to the assessee before making heavy and unjustified additions. The submissions made by the assessee were ignored and overlooked mistakenly by the AO while sending remand report to the learned CIT(A), was the submission of the assessee before learned CIT(A). It was submitted that the assessee dealt within several products such as plywood, furniture , cement, glasses, paper etc and the auditor of the assessee overlapped certain traded items in the audited Balance Sheet’s grouping/schedules. It was submitted that the ITA 411 /Mum/2013 & 398/Mum/2013 7 loss determined by the AO from plywood/furniture was mistakenly determined at Rs.3,83,03,181/- instead of profit of Rs.9,213/- both during assessment as well at the time of sending remand report to learned CIT(A). During remand report proceedings, it was submitted that complete details of purchase , sale and reconciliation statement was submitted by the assessee to the AO but the AO mistakenly overlooked to consider the vital details in the same. It was submitted that purchases being factual matter are recorded in the books of accounts which no body can alter the same and the same can be verified.

The learned AO in remand report submitted to learned CIT(A) reiterated its findings as were in the assessment order and also observed that the assessee is now taking the plea of overlapping/regrouping done by the auditors which was incorrect in original audit report. The rectified page of audit report submitted now by the assessee vitiates the authenticity of original audit report and hence the AO stated in Remand Report that the AO has correctly passed the assessment order and the evidences now submitted be rejected and the appeal be decided on merits. The remand report was confronted to the assessee wherein the assessee submitted that the auditors have overlapped some of the traded items in the audited Balance Sheets schedule and infact purchase of plywood/furniture was Rs. 5,20,96,701/- instead of Rs.9,09,78,075/- and hence it was submitted that the assessee should not suffer because of the inaccuracies in the audit report and in audited balance sheet and profit and loss account.

The learned CIT(A) rejected the contentions of the assessee by holding that the assessee is now contending that there is an mistake in audit report and audited financial statements. The learned CIT(A) observed that the auditors have not revised the audited financial statements and the audit report , nor the auditors have issued any clarification with regard to any ITA 411 /Mum/2013 & 398/Mum/2013 8 errors in the audited final accounts. The assessee could not contradict that it is only acting as conduit /agent of parties concerned and book purchases only against finding a suitable buyer. Thus, the losses belongs to principals and no evidence is on record that audit report and final accounts signed by the assessee’s Directors and the auditors are erroneous, wholly or partly. Thus, the learned CIT(A) confirmed the disallowance of Rs.3,83,03,181/- towards loss claimed by the assessee on trading of plywood/furniture vide appellate order dated 09-10-2012 passed by learned CIT(A).

With respect to second disallowance of claim of Rs.1,86,79,300/- towards defective material, it was observed by learned CIT(A) that the assessee has not brought on record any material or evidence to prove that the assessee was responsible for any defect in the material supplied by the supplier to the end users. No copy of commission agreement nor the terms and conditions of purchase made by the assessee and sales made by the assessee have been brought on record before learned CIT(A). Thus, vide appellate order dated 09-10-2012 passed by learned CIT(A), the assessee claim of Rs.1,86,79,300/- towards rebate for defective material was rejected by learned CIT(A).

authorities below and hence instead of loss of Rs.3,83,03,181/- as claimed in return of income filed with the Revenue on trading of plywood/furniture, the assessee earned profit of Rs.9,213/- . The learned counsel for the assessee drew our attention to the orders of learned CIT(A) page 6/para 5.2 wherein it is stated that as per audited balance sheet as at 31-03- 2008, the assessee earned profit of Rs.9,213/- instead of loss of Rs.3,83,03,181/- while as per schedules of purchase and sales , the AO noted that the assessee incurred loss of Rs.3,83,03,181/- in the business of plywood/furniture. The learned counsel for the assessee drew our attention to page 36-39/paper book wherein attention was drawn of the authorities below to the error which crept in the figures of purchase due to inadvertent mistake of the auditors. The learned counsel for the assessee drew our attention to the statement of fact filed before learned CIT(A) which is placed in the file to reiterate its submissions. It was submitted that great prejudice has been caused to the assessee due to error committed by the auditors and the authorities below have not considered the submissions of the assessee in right perspective and it was submitted that the issue may be set aside to the file of AO who may be directed to re- verify the losses incurred by the assessee of Rs.3.83 crores. The ld DR on the other hand relied on the orders of the learned CIT(A).

Similarly, with respect to second issue , the assessee’s counsel reiterated the submissions as were made before the authorities below and submitted that the matter be set aside to file of the AO for re-examination/ re- verification of the issue and the authorities below rejected the contentions of the assessee without any verifications, enquiry and examination. The ld DR relied on the orders of the authorities below.

error/mistake committed by the auditors , the figures of purchase was misreported in the schedules/ groupings which led to the claim of loss of Rs.3,83,03,181/- as against profit of Rs.9,213/- as per audited balance sheet, wherein purchases of plywood/furniture was mistakenly reported by auditors in schedule/grouping at Rs. 9,09,78,075/- instead of Rs. 5,20,96,701/- and since the authorities below rejected the contentions of the assessee . In our considered view in the interest of justice and fair play, the issue needs to be set aside and restored to the file of the AO for re-verification and de-novo determination of the issue on merits after enquiry, examination and verification as may be considered appropriate by the AO. The AO shall examine the matter comprehensively including implication of contention of the assessee that the purchase were shown at higher figure of Rs.9,09,78,075/- due to inadvertent mistake instead of actual purchases being of Rs.5,20,96,701/- , and its implication thereof on the taxability of the differential amount as now the expenditure stood reduced by the amount of Rs.3,88,81,374/- due to withdrawal of claim of inflated purchases , as to that extent the total taxable income will stood increased .The assessee is directed to appear before the AO and produce all relevant and necessary evidences in support of its contentions in its defense which shall be admitted by the AO and adjudicated on merits in accordance with law. Needless to say proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly.

With respect to second issue of disallowance of claim of rebate of Rs.1,86,79,300/- by the authorities below on account of defective material supplied by the assessee to its customer, we after considering the rival contentions and perusing the material on record are again of considered view keeping in view facts and circumstances of the case, that this matter ITA 411 /Mum/2013 & 398/Mum/2013 11 also need to be set aside and restored to the file of the AO for de-novo determination of the issue on merits after examination, enquiry and verification by the AO as may be considered appropriate by the AO to determining the genuineness of the claim and also quantification of the loss allocable to the assessee for defective material supplied by the assessee to its suppliers in accordance with the terms of supplies. The assessee is directed to appear before the AO and produce all relevant and necessary evidences in support of its contentions in its defense to prove the genuineness of its claim of rebate for defective material , which shall be admitted by the AO and adjudicated on merits in accordance with law. Needless to say proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly.

“ Following are the grounds of appeal without prejudice to one another:

1. The learned Commissioner of Income Tax(Appeal) had erred by approving the wrong action taken by learned assessing officer of applying wrongly the Rule 8D pursuant to the provisions of Section 14A to the assessee company who is engaged in the business of “Trading in Commodities and investment in Equity Shares”.

2. The learned Commissioner of Income Tax(Appeal) has again erred by approving the unfair and unreasonable stand taken by learned assessing of considering genuine Short Term Capital Loss on sale of ITA 411 /Mum/2013 & 398/Mum/2013 12

Land at Hasteda (Rajasthan) amounting to Rs.11427420/- as sham transaction.”

13. Before the learned CIT(A), the assessee contended that the assessee never bought the shares with motive of earning dividend income which is an exempt income. The assessee submitted that in few case it got the ITA 411 /Mum/2013 & 398/Mum/2013 13

dividend which does not mean that the dividend earning was the motive of the assessee. The assessee submitted that no proximity is established between the expenditure incurred and the income not forming part of the total income. The assessee relied upon the decision of Hon’ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited v. DCIT (2010) 328 ITR 81(Bom.) and Yatish Trading Company Private Limited v. ACIT (2011) 129 ITD 237(Mum.Trib.).

The learned CIT(A) rejected the contentions of the assessee as in the opinion of learned CIT(A) the assessee is not able to show by production of material that the shares were acquired from the owned funds available at the assessee’s hand at relevant point of time with taking benefit of loans bearing interest.The assessee was not able to give any details to work out the direct nexus of the interest expenditure related to the exempted income which was not included in the total taxable income. The assessee’s present case is covered by provisions of Section 14A(3) of the Act because the assessee has claimed that the no expenditure was incurred by the assessee in relation to the exempted income which did not form part of the total income. It was also observed by learned CIT(A) that the assessee case is also covered by Section 14A(2) of the Act as the AO was not satisfied with the correctness of the claim of the assessee in respect of such expenditure incurred in relation to earning of income which does not form part of the taxable income. The learned CIT(A) relied upon the decision of Special Bench of the Tribunal in the case of Daga Capital Management reported in (2008) 26 SOT 603(Mum.) and held that it is the value of investment that is to be considered while calculating disallowance u/r 8D(2)(ii) of Income Tax Rules, 1962 and not the shares held as an investment. Therefore, it was held that the shares held as stock in trade shall also be considered for purposes of disallowance. Thus, the learned CIT(A) confirmed the disallowance of Rs.6,52,727/- made by the AO u/s ITA 411 /Mum/2013 & 398/Mum/2013 14

14A of the Act read with Rule 8D of Income Tax Rules, 1962, vide appellate order dated 11.09.2012 passed by learned CIT(A).

to the accounts of the assessee. The assessee has claimed that no expenditure is incurred in relation to earning of income which does not form part of the total income of the assessee as per provisions of the Act. The authorities below have given a finding of fact that the assessee has maintained composite books of accounts and it is not possible to work out the expenditure incurred in relation to earning of exempt income. The assessee also did not came forward to present the disallowance of expenditure incurred in relation to earning of income not forming part of the total income as per provisions of the Act and instead claimed that no expenditure has been incurred which can be disallowed u/s. 14A of the Act.Thus, in our considered view keeping in view factual matrix of the case, the AO has rightly invoked the provisions of Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 . However, we are also of considered view that while calculating average investment held by the assessee, the shares/securities held as stock in trade cannot be included for computing disallowance u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 for which reference is drawn to recent decision of Mumbai Tribunal in the case of Fiduciary Shares and Stock Private Limited v. ACIT in (2016) 70 taxmann.com 23(Mum. Trib.) wherein the Tribunal held as under:

“4.4.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. The issue for adjudication before us is as to whether the shares held by the assessee- company under the head 'stock-in-trade' are to be considered for making disallowance under section 14A r.w. Rule 8D. As submitted by the learned A.R. for the assessee we find that the Hon'ble Jurisdictional Court in the case of India Advantage Securities Ltd. (supra) has held that disallowance, if any, to be made under section 14A r.w. Rule 8D should ITA 411 /Mum/2013 & 398/Mum/2013 16 only be made with regard to investments and not with regard to shares held as stock-in-trade. This decision of the Hon'ble Bombay High Court (supra) has been followed by the Coordinate Bench of this Tribunal in the case of Devkant Synthetics (India) (P.) Ltd. (supra) wherein at para 12 and 13 thereof it has been held as under:—

"12. We heard the parties and perused the record. We notice that the Hon'ble Karnataka High Court has held in the case of CCI Ltd. (supra) that the shares held as stock in trade should be excluded for the purpose of computing disallowance u/s 14A of the Act, since they cannot be said to be "investment" made for the purpose of earning dividend income. In the case of India Advantage Securities Ltd. (supra), the Hon'ble Bombay High Court has noticed that the CIT(A) took into account the words of the Rule and found that the figures as derived by the Assessing officer cannot be taken into consideration. The Ld CIT(A) had observed that, one can at best disallow the expenses which are incurred for earning dividend income and for that purpose, the figures under the head "Investment" could be taken and some charges apportioned for the purpose of computing expenses. The decision rendered by the Tribunal in the case of India Advantage Securities Ltd. (supra) was found to be neither perverse nor vitiated by any error of law apparent on the face of record by Hon'ble Bombay High Court. We further notice that the decision rendered in the case of CCI Ltd (supra) has been followed by the co-ordinate benches of Tribunal in the case of India Advantage Securities Ltd (ITA No.6711/Mum/2011 and Ganjam Trading Co. Pvt Ltd (supra).

Bench of the Tribunal in the case of ITO v. Daga Capital Management (P.) Ltd. [2009] 117 ITD 169 (Mum.)(SB) also. However, following the decision of Hon'ble Karnataka High Court in the case of CCI Ltd. (supra), the Tribunal held that the disallowance of interest in relation to dividend received from shares held as stock-in-trade cannot be made.' 4.4.2 Respectfully following the decisions of the Hon'ble Bombay High Court in the case of India Advantage Securities Ltd. (supra), the Hon'ble Karnataka High Court in the case of CCI Ltd. (Supra) and the Coordinate Bench of this Tribunal in the case of Devkant Synthetics (India) (P.) Ltd.(supra), we hold that the disallowance under section 14A r.w. Rule 8D cannot be made in respect of shares held as stock-in-trade and therefore direct the AO to delete the disallowance made under section 14A r.w. Rule 8D. Consequently, ground No. 1 of the assessee's appeal is allowed.”

The proposition of the assessee that the disallowance u/s 14A of the Act cannot exceed dividend income came for adjudication before the Mumbai, Tribunal in a very recent appeal in the case of Foods and Inns Limited v. ACIT (2016) 159 ITD 1007(Mum. Trib.) , wherein the Tribunal held as under:

“3.3.1 For assessment years 2009-10 and 2010-11

The assessee had earned exempt dividend income of Rs. 41,126/- and Rs. 40,003/- respectively, but suo moto disallowed an amount of Rs. 40,000/-as expenditure incurred for earning exempt income only in A.Y. 2010-11. The AO invoking the provisions of section 14A r.w. Rule 8D disallowed Rs. 18,86,195/- for A.Y. 2009-10 and Rs. 17,38,275/- for A.Y. 2010-11. On appeal, the learned CIT (A) restricted the disallowance under section 14A r.w. Rule 8D to Rs.

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1,07,754/- for A.Y. 2009-10 and to ½% of average investments for A.Y. 2010-11. 3.3.2 Before us, Revenue for A.Y. 2009-10 and the assessee by way of COs for A.Y. 2009-10 and 2010-11 have assailed the orders of the learned CIT (A) in respect of his finding/decision on the issue of disallowance under section 14A r.w. Rule 8D. Revenue in A.Y. 2009-10 assails the orders of the learned CIT (A) in restricting the disallowance to ½% of the average investment for administrative expenses. On the other hand, the assessee in its COs for assessment years 2009-10 and 2010-11 has challenged the impugned orders of the learned CIT (A) in directing the AO to compute the disallowance under section 14A r.w. Rule 8D @0.5% of the total average investment for administrative expenses without assigning any reasons, when such disallowance ought to be made only in respect of 0.5% of average investments yielding tax free income. 3.3.3 We have heard both the learned D.R. for Revenue and the learned A.R. for the assessee. In the course of hearing, the learned A.R. for the assessee submitted that the assessee had earned exempt dividend income of Rs. 41,216/- in A.Y. 2009-10 and Rs. 40,003/- in A.Y. 2010-11 and that while the assessee had claimed that no expenditure had been incurred for earning this income in A.Y. 2009-10, Rs. 40,000/- was shown to have been incurred for earning the exempt income in A.Y. 2010-11 It was contended that in the light of the decisions of the Hon'ble Punjab & Haryana High Court in the case of PR. CIT v. Empire Package (P.) Ltd. [IT Appeal No. 415 of 2015, dated 12-1-2016] and of the Hon'ble Punj. & Har. High Court in the case of CIT v. Deepak Mittal [2014] 361 ITR 131/[2013] 38 taxmann.com 83/219 Taxman 314 (Punj. & Har.), ITA 411 /Mum/2013 & 398/Mum/2013 19 the disallowance under section 14A r.w. Rule 9D in the case on hand @ 0.5% of investment in tax free securities cannot exceed the exempt income and should be restricted accordingly. 3.3.4 We have perused the cited judgements. In the case of Empire Package (P.) Ltd. (supra), the question raised by Revenue before the Hon'ble Court was: —

"Whether in the facts and circumstances of the case the Hon'ble ITAT is justified in law to hold that the disallowance made under section 14A read with Rule 8D cannot exceed exempt income, in the absence of any such instruction being there in the relevant section or rule?"

The Hon'ble High Court dismissed Revenue's appeal holding as under at paras 3 to 5: —

'3. We have heard learned counsel for the appellant-revenue.

shown at Rs. 1,11,564/- whereas disallowance under Section 14A read with Rule 8D of the Rules worked out by the Assessing Officer came to Rs. 4,09,675/-. Thus, the Assessing Officer disallowed the entire tax exempt income which is not permissible as per settled position of law. Consequently, the Tribunal remitted the matter to the Assessing Officer with a direction to decide the same afresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. The relevant finding recorded by the Tribunal reads thus:-

"7. In the instant case, the income from dividend has been shown at Rs. 1,11,564/-, the disallowance under section 14A read with Rule 8 D worked out by the Assessing Officer comes to Rs. 4,09,675/-. Thus, it is clear that the AO has disallowed the entire tax exempt income which is not permissible in view of the judgment of the Hon'ble Delhi High Court referred to above. The Hon'ble Delhi High Court held that the window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". The disallowance under section 14A read with Rule 8D as worked out by the Assessing officer is not in accordance with law and as such working is not sustainable.

8. In view of the above observations, I think it is appropriate to set aside the order of the learned CIT (A) on this issue and remit the matter to the file of AO with a direction to decide the issue afresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee."

Additionally, the tax effect involved is of Rs. 1,26,589/- only.

ITA 411 /Mum/2013 & 398/Mum/2013 21

5. The view adopted by the Tribunal being a plausible view based on factual position and the relevant case law on the point, does not warrant any interference by this Court. Learned counsel for the appellant-revenue has not been able to show any illegality or perversity in the impugned order. Thus, no substantial question of law arises. Consequently, the appeal stands dismissed.' 3.3.5 Respectfully following the decision of the Hon'ble Punjab & Haryana High Court in Empire Package (P.) Ltd. (supra) and of the Hon'ble Punj. & Har. High Court in the case of Deepak Mittal (supra), we are of the considered view that the learned CIT (A) has not given any proper basis for working out the disallowance under section 14A r.w. Rule 8D; specifically when the disallowance is far in excess of the exempt dividend income earned in the year under consideration. In this view of the matter, we set aside the impugned order of the learned CIT (A) on this issue and restore the matter to the file of the AO to decide the issue afresh, in accordance with law in the light of the ratio laid down by the above judicial pronouncements (supra) after affording reasonable opportunity to the assessee of being heard and to file submissions/details required in this regard. Consequently, assessee's ground No. (a) in CO for 2009-10 and CO for A.Y. 2010- 11 and Revenue's ground No. 1 for A.Y. 2010-11 are treated as allowed for statistical purposes.”

We have perused the other case laws relied upon by the assessee. In the instant case, there is a finding recorded by the authorities below that the assessee is maintaining composite books both with respect to taxable and exempt income and it is not possible to work out disallowance u/s 14A of the Act having regard to the accounts of the assessee. Thus based on the ITA 411 /Mum/2013 & 398/Mum/2013 22 facts and circumstances of the instant case, we are setting aside and restoring the above issue to the file of learned AO for de-novo working out disallowance of expenditure u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 in accordance with our above directions and also keeping in view decisions of Hon’ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340(Bom HC) and in the case of HDFC Bank Ltd. v. DCIT (2014) 366 ITR 505(Bom HC) and decision of Hon'ble Bombay High Court in writ petition in HDFC Bank Limited v. DCIT(2016) 67 taxmann.com 42(Bom. HC) . We order accordingly.

16-01-2009 in favour of Smt Anju Yadav and secondly with Smt. Savitri Devi Yadav and Smt. Nirmala Yadav residents of Jaipur for Rs.20,40,000/- and Rs.38,00,000/- respectively. The assessee submitted registration deeds of the property. It was observed by the AO that sale deed was executed by Mr. Rajendra Kumar Soni resident of Jaipur as power of attorney holder of the assessee company on 22-01-2009.The payments for the land purchase by the assessee were made when the land were sold after nearly ten months and resulted in loss of Rs.1,14,27,420/- . The assessee was asked to explain that why the said loss on sale of Hasteda land should not be disallowed.

The assessee submitted before the AO that the assessee bought the said land admeasuring 7.33 hectares in March 2008 at Hasteda Tehsil, Chomu District , Jaipur with the intention of earning short term capital gains , from Siyaram Exports India Private Limited for Rs.171.50 lacs , against which the assessee made payment of Rs.10 lacs in March 2008 while balance payments of Rs.161.50 lacs were made in the month of January 2009. It was submitted that the assessee got the information from the ‘reliable sources’ that new township would be developed by reputed builders from Jaipur at Hasteda and hence the assessee took decision to buy this parcel of land.Since the plan could not go through and hence the assessee sold this land to Smt. Anju Yadav and to Smt. Savitri Yadav and Smt. Nirmala Yadav. The sale deed was registered on 16-01-2009. It was submitted that transaction is genuine and merely because payment to Siyaram Exports Private Limited was made late , it could not be held to be bogus transaction. The assessee has paid full consideration to the seller party and the assessee has also got full payment from buyer party. The documents have been duly registered with appropriate authority i.e. Sub- registrar and stamp duty has been duly paid to the Government.

ITA 411 /Mum/2013 & 398/Mum/2013 24

The AO held that these are sham transaction as the assessee company has accommodated both the parties i.e. sellers and buyers wherein sellers got full consideration and buyer also paid full consideration being lesser amount . The theory of new township is cooked up and information is not from ‘public sources’ but from so called ‘reliable sources’ which has no credence. The transaction defies logic and the balance sheet does not show any stress sign and at best the assessee could have lost advance payment of Rs. 10 lacs if the assessee was not able to carry forward the sale transaction and complete the sale by 31-12-2008 as there was no need for sale and to incur loss of Rs.1.14 crores and instead loss could have been only Rs. 10 lacs. Thus, the AO held based on the series of events mentioned above and also conduct of entire transaction that the transaction is a sham transaction and loss generated is not genuine and loss of capital Rs.1,14,27,420/- on this transaction was disallowed by the AO vide assessment order dated 30-12-2011 passed by the AO u/s 143(3) of the Act.

Limited by paying higher sales consideration of Rs.171.50 lacs when the same land was registered and sold for a sum of Rs. 58.40 lacs. The assessee as per learned CIT(A) also failed to prove the bonafide in accommodating Smt Anju Yadav, Smt Savitri Yadav and Smt. Nirmala Yadav for a sale consideration of Rs.58.40 lacs when the assessee itself paid Rs. 171.50 lacs for the said land. Further, most of payment i.e. Rs.161.50 lacs were made after the land was transferred to the buyers namely Smt Anju Yadav, Smt Savitri Yadav and Smt. Nirmala Yadav. Thus, as per learned CIT(A) the genuineness of the transaction leading to alleged capital loss of Rs.1,14,27,420/- is not proved . Accordingly the appeal of the assessee was dismissed by learned CIT(A) vide appellate orders dated 11.09.2012.

by the assessee vide two separate sale deeds both 16-01-2009 for total consideration Rs. 58.40 lacs to Smt. Anju Yadav and secondly to Smt. Savitri Yadav and Smt. Nirmala Yadav. The balance consideration of Rs. 161.50 lacs for the purchase of land was paid by the assessee to Siyaram Exports Private Limited after selling the land on 16-01-2009 to Smt. Anju Yadav and secondly to Smt. Savitri Yadav and Smt. Nirmala Yadav. The two sale deeds are placed in paper book/page 29-58.The assessee incurred loss of Rs.1,14,27,420/- in the said purchase and sale of land. It was submitted that all the facts were brought to the knowledge of the authorities below but they erred in holding that the said transaction is not genuine and is a sham transaction. It was submitted that by entering agreement to sale dated 10-03-2008 wherein the assessee paid Rs. 10 lacs as initial consideration to Siyaram Exports India Private Limited, the assessee acquired valuable rights in the capital asset and the assessee relied upon decision of Hon’ble Bombay High Court in the case of CIT v. Tata Services Limited (1980) 122 ITR 594(Bom) and CIT v. Vijay Flexible Containers (1990) 186 ITR 693(Bom) and hence observation of the learned CIT(A) that the assessee name does not appear in 7/12 extract is irrelevant. It was submitted that since the assessee was unable to perform its obligation of paying the consideration under agreement to sell , the ultimate sale deed’s dated 16-01-2009 had both Siyaram Exports India Private Limited and the assessee as a party to the sale deed so that there are no defects in the title. It was submitted that both the parties are not related to the assessee. The sale is by registered sale deed and the AO did not conduct any enquiry. It was submitted that as per agreement to sale dated 10-03-2008, the assessee had to pay entire balance consideration together, the assessee paid the same in January 2009 and part of the consideration was obtained by selling the rights to Smt Anju Yadav and to Smt Savitri Yadav and Smt. Nirmala Yadav vide two sale deeds both dated ITA 411 /Mum/2013 & 398/Mum/2013 27

16-01-2009. Thus , it was submitted by learned counsel for the assessee that the transaction is genuine and disallowance ought to be deleted.

which induced assessee to purchase the land. The said agreement to sale dated 10-03-2008 is placed in paper book/page 26-28 filed with the Tribunal. The assessee sold the said land admeasuring 7.33 hectares vide two separate sale deeds both dated 16-01-2009 to Smt Anju Yadav and secondly to Smt Savitri Yadav and Smt. Nirmala Yadav for total consideration of Rs. 58.40 lacs. The assessee , thereafter, made balance payment of Rs.161.50 lacs in the month of January 2009 starting from 17th January 2009 to Siyaram Exports India Private Limited for completing purchase of afore-stated land which was purchased vide agreement to sale dated 10-03-2008, while two sale deeds executed by the assessee in favour of Smt Anju Yadav and secondly to Smt Savitri Yadav and Smt. Nirmala Yadav are dated 16-01-2009 and that too for a substantial lower amount of Rs. 58.40 lacs which defies all logic, principles of commercial expediency and rationality as the huge loss is suffered by the assessee vide these purchase and sale of land transactions, amounting to Rs. 1,14,00,420/- . The assessee has also not been able to bring on record any justification, reasons or cogent evidences/explanation to substantiate huge fall in valuation of land from Rs 171.5 lacs in March 2008 to Rs 58.40 lacs in the month of January 2009 , i.e. just in 10 months. Both the sales deeds dated 16-01-2009 for total consideration of Rs. 58.40 lacs with Smt Anju Yadav and secondly with Smt Savitri Yadav and Smt. Nirmala Yadav are placed in paper book/page 29-58. The assessee in its agreement to sale dated 10-03-2008 with Siyaram Exports India Private Limited for purchase of the said land for Rs.171.50 lacs wherein cash advance of Rs.10 lacs was only paid by the assessee on 10-03-2008 had an exit clause in the said agreement wherein the assessee could have asked the Siyaram Exports India Private Limited to forfeit advance of Rs 10 lacs paid by the assessee on 10-03-2008 if the assessee was not able to complete the transaction of purchase of land of its own by 31-12-2008 due to any reasons whatsoever and the loss would have been limited and restricted to Rs. 10 lacs only, ITA 411 /Mum/2013 & 398/Mum/2013 29 but the manner in which the assessee went ahead in January 2009 and entered into two sales deed both dated 16-01-2009 for sale of aforesaid land to Smt Anju Yadav and secondly to Smt Savitri Yadav and Smt. Nirmala Yadav for a meager sum of Rs. 58.40 lacs to self prejudice itself by saddling with an avoidable and unwarranted capital loss of Rs 114 lacs instead of restricting the said capital loss to Rs. 10 lacs as described above by asking the seller Siyaram Exports India Private Limited to forfeit the advance, clearly defies all logic, rationality and principles of commercial expediency known to the business world which clearly indicates to irresistible as well one and only one conclusion that the whole transaction for purchase and sale of afore-stated land Were accommodating in nature whereby interests of both the purchaser and seller in receiving or giving sale consideration through consideration amounts recorded in books of accounts were duly looked by the assessee wherein seller was accommodated with making of higher payments on record and buyers were accommodated to give lesser price on record for the same parcel of land , and on the touchstone of preponderance of probabilities it reflects that the rest of the money purportedly exchange hands as ‘on-money’ which were not brought to tax on record . The transactions for sale and purchase of land were entered into by the assessee and once the Revenue has doubted the transactions as being not genuine for the reasons as set out above, then the onus shifts back to the assessee to prove by cogent evidences and explanations that the transactions for purchase and sale of land were in fact genuine which the assessee in the instant case failed to do so. Thus, these transactions for purchase and sale are not proved by the assessee to be genuine transactions and are held by us to be sham and colorable devices and short term capital loss of Rs. 114 lacs incurred by the assessee cannot be allowed under the provisions of the Act . We therefore confirm/sustain the order of learned CIT(A) in which we donot find any infirmity. We order accordingly.

ITA 411 /Mum/2013 & 398/Mum/2013 30

Order pronounced in the open court on 19th September, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 19 -09-2016 को क� गई ।