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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI B R BASKARAN & SHRI AMIT SHUKLA
आदेश ORDER �ी अिमत शु�ला, �या स: PER AMIT SHUKLA, JM: The aforesaid cross appeals have been filed by the assessee as well as by the revenue against impugned order dated 23.10.2015, passed by Ld. CIT(Appeals)-10, Mumbai for
2 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 the quantum of assessment passed under section 143(3) for the assessment year 2010-11.
We will first take-up assessee’s appeal, vide which following grounds have been raised:-
“1. The appellate order dated October 23, 2015, passed by the learned Commissioner of Income Tax (Appeals) (‘Ld CIT(A)’) under section 250 of the Income-tax Act, 1961 (‘Act’) and the order passed by the learned Assessing Officer (‘ld AO’) under section 143(3) of the Act are not in accordance with the law and are contrary to the facts and circumstances of the present case. 2. The Ld. CIT(A) / AO has passed the appellate order/assessment order on presumptions and assumptions without providing sufficient opportunity to the Appellant in violation of the principles of natural justice. 3. Based on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in making an ad-hoc disallowance of Rs.1,93,72,170 from the expenditure debited under “cargo handling, labour and transport charges” without there being any relevant material in support thereof and disregarding detailed submissions before the Ld. CIT(A) . 4. Based on the facts and circumstances of the case and in law the Ld. CIT(A) /AO has erred in not allowing depreciation of Rs. 2,53,39,773 claimed on windmill at Rajasthan ignoring the evidence placed on record by the Appellant to prove conclusively that the windmill was commissioned during the year. 5. Based on the facts and circumstances of the case and in law the Ld. CIT(A) /AO has erred in disallowing finance cost amounting to Rs.11,101 on account of interest paid on term loan. 6. Based on the facts and circumstances of the case and in law the Ld. CIT(A) /AO has erred in disallowing an amount of Rs. 19,552 under Section 14A read with Rule 8D”.
The brief facts and background of the case are that, the assessee company is engaged in the business of trading in
3 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 commodities, stevedoring, custom clearing & forwarding, cargo handling, steamer agency to various imports & exports, custom clearance and also generation of power. The assessee- company is having its head office at Mumbai and branch office at Gandhidham (Gujarat). The return of income for the AY 2010-11 was filed on 27thSeptember, 2010 with the DCIT 5(1) Mumbai, declaring total income of Rs1,56,59,350/-. During the pendency of the assessment proceedings, survey action under section 133A was carried out on 27th December, 2012 at the Branch office situated at Gandhidham, Gujarat. All the books of accounts were found to be maintained in the computerized Tally system and the books of account were found to be full and complete and written till the date of survey which were verified by the authorized officer and no specific discrepancy as such were noted by the Departmental officials. The authorized officer also recorded the statement of Shri Bhupeshbhai CA and Hayshed Gandhi, Director of the assessee-company and took back the entire Tally Accounting Data up to the date of survey including that of the preceding year. Ld. Counsel, Mr. Ajit Jain at the outset submitted that ground no. 1 is general and ground no. 2 is not pressed.
The facts apropos, the first issue as raised in ground No.3 relating to ad-hoc disallowance of Rs.1,93,72,170/- are that, during the course of survey it was noticed by the authorised officer that the assessee has suppressed GP/NP by inflating the cargo handling expenses by putting bogus entries at the end of the year. Therefore the Assessing Officer show caused the assessee as to why Net Profit (which was worked out as on the date of survey on 27th Dec 2012) at
4 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 17.61% may not be applied to work out the Net Profit for this year and why cargo handling expenses, labour and transport expenses be not restricted to 39.91% of the total turnover by considering the data for December 2012. In response to the notice, the assessee objected to the application of NP/GP rate as worked out by the authorised officers on the date of survey pertaining to the financial year 2012-13 (relevant to the AY 2013-14) in this financial year 2009-10 and pointed out that, already some bills were lying pending for booking in the accounts aggregating to Rs.1,99,53,580/- and the survey team has already taken such bills and have also seized the same. Apart from that, the bills which were to be received against work done and booked up financial year to the date of survey were approximately Rs. 1.5 crores and this fact was duly intimated to the survey team. While calculating the GP ratio on the date of survey, the amount of expenses aggregating to Rs.3,49,53,580/- were also not been considered and it was for this reason that there was a higher reporting of GP on that date. Thereafter, the assessee gave its detail submission regarding direct expenses for cargo handling, labour and transportation, net profit ratio etc. The relevant extract of the assessee’s submissions have been incorporated by the AO at pages 9 and 10 of the assessment order. The AO, after referring and relying upon the statement of the two labour contractors recorded at the time of survey, came to the conclusion that, the assessee was following a trend to inflate the cargo handling expenses by making entries at the end of the year and thereby suppressing GP/NP. Relying on the statistics gathered at the time of survey, the AO computed the Net Profit at Rs.11,55,90,301 on
5 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 a total turnover of Rs.67,99,42,950 worked out at the net profit rate of 17% as against net profit disclosed by the Assessee at Rs. 8,26,89,167. Accordingly, amount of Rs. 3,29,01,134 (11,55,90,301 – 8,26,89,167) was added back to the total income of the assessee.
Before the First Appellate Authority, the assessee objected to the action of the AO and gave a detailed submission not only justifying the labour expenditure vis-a- vis. the receipts but also pointed that the authorised officers have wrongly compared the trading results for part of the year with the whole preceding accounting period. It was submitted that the difference was due to certain accounting entries/bills remained to be posted and expenditures such as depreciation, interest cost on secured and unsecured loans, as well as certain provisions for expenses is made only at the end of the accounting period, which affects the net profit rate. Thus, on the date of survey itself (i.e., in the middle of the year), the net profit cannot be compared with the earlier preceding year. It was further pointed out that, there are different heads of refunds and the claim of labour expenses and it had nothing to do with the turnover relating to trading of goods and power generation receipts. The labour expenses fall under two distinct sub-heads, that is, cargo handling and labour transportation charges and clearing shipping and stevedoring receipts. The Departmental officials have wrongly calculated the percentage by considering the entire expenses relating to the gross receipts of five different activities with regard to cargo and labour and that too of only sub-heads, that is, cargo handling, labour and transportation expenses including
6 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 the other heads. The assessee also gave the working that for the identical period for the earlier year, receipts and expenses are to be compared, then the percentage of cargo handling receipts with respect to corresponding expenses would be approximately in the same range. This has been demonstrated in the submissions which has been incorporated by the CIT(A) at pages 9 and 10 of his order.
The Ld. CIT(A) after considering the entire gamut of facts, observed that assessee has given full analysis of the net profit worked out by taking into account various factors as discussed in detail in his order in Para No. 6.2 and thereafter came to the conclusion that the addition made by the Assessing Officer on account of suppression of GP/NP cannot be sustained. However, on the basis of the material gathered during the course of the survey proceedings particularly on the basis of the statements of the two labourers, the ld. CIT(A) made an ad-hoc disallowance @ 5% from the expenditure debited under “cargo handling, labour and transport charges” of Rs.38,74,43,418 to meet the ends of justice which worked out to Rs.1,93,72,170/-. The relevant observation and finding of the CIT(A) in this regard reads as under:- “I have carefully considered the facts of the case and the submissions of the Ld. AR. I have also gone through the decisions relied on by the AO and the Ld. AR. As seen from the working of the AO that he has estimated the profits of assessment year 2010-11 even though he has worked out the same based on the statistics taken for FY 2011-12 and part of FY 2012-13 (till 27.12.2012). There were no evidences gathered to show any defects in the books of accounts for assessment year 2010-11. Therefore, the disallowance made
7 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 by the AO for AY 2010-11 is not correct. On the other hand, the learned AR has given full analysis of net profit worked out by taking into account the labour oriented activity that is clearing/shipping/stevedoring by realistically deleting the other type of services for working out net profit of the appellant company. It is also noticed that the AO has estimated net profit of the appellant company. It is also noticed that the AO has estimated net profit without finding any defects in the books of the appellant for AY 2010-11 and without rejecting them. It is evident that the AO has made a gross mistake by making disallowance on each head of expenditure like survey fee and liaisoning fee and at the same time made an estimate of net profit on the entire tread results of the appellant holding that the cargo handling expenses are excessive. Since the estimation of NP and at the same time making disallowance of each head of expenditure cannot go together I hereby reject the estimation of NP. It is also to be noted that the AO has made a mistake in estimating NP without allowing certain expenses like depreciation to be claimed at the end of the financial yea. However, in view of the material gathered during the course of survey proceedings in the form of several bank letter heads (signed and unsigned) of labour contractors found from the premises and impounded, which includes the labour licenses issued etc and the statements recorded from labour contractors I find it reasonable to make an estimated disallowance of 5% from the expenditure debited under “cargo handling labour and transport charges” of Rs.387,443,418 which works out to Rs.1,93,72,170 to meet the ends of justice. Even though the learned AR has argued before me that the labour contractors from whom the survey party has recorded statements were not engaged during the present assessment year therefore their statements are not relevant for making any disallowance
8 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 for the present assessment year is not relevant since the statements and the evidences gathered during the survey throw some light on the modus operandi of the appellant company. Therefore, this line of argument of the learned AR is rejected. In view of the above discussion the ground is partly allowed”.
Before us Ld. Counsel for the assessee, Shri Ajit Kumar Jain, after narrating the facts of the case submitted that the net profit percentage was computed by the AO without pointing out any defect in the books of account and only on the basis of the survey report for a later year, which cannot be sustained either on facts or in law. He brought to our notice that in the year of Survey i.e. AY 2013-14 there was no adjustment made by the AO on the same issue. A copy of the assessment order passed u/s 143(3) for the AY 2013-14 was placed on record by him. On this basis and material fact he pleaded that the AO cannot draw adverse inference in the year not pertaining to survey year and make an addition in AY 2010-11. On merits, Mr. Jain invited our attention to the fact that the assessee company was engaged in a number of activities such as; (i) Trading in various commodities; (ii) Stevedoring and clearing/forwarding; (iii) Power generation through windmills and (iv) Other direct income. The AO has considered the GP/NP ratio of all the activities on consolidated basis. It was pointed out by him that the trading result for a part of the year was being compared with the trading result of the whole preceding accounting year and therefore, it is bound to reflect distorted results and position, because certain entries such as depreciation, interest cost on secured and unsecured loan as well as certain provision of
9 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 expenses is made only at the end of the accounting period. He further pointed out that out of Rs. 38.74 Crores the labour charges are only to the extent of Rs. 4.63 Crores. Our attention was drawn to the following details of expenditure:
Sr No Particulars Amount (Rs) Activities involving only transportation of goods i through hired vehicles. 139,076,271 Activities involving cargo handling through ii hired equipments. 201,985,155 Labour charges for stevedoring, cargo handling iii and misc. activities. 46,381,992 Total 387,443,418
It was further submitted by Mr. Jain that main reliance by the AO and ld. CIT(A) has been placed upon statements of only two labour contractors recorded at the time of the survey under Section 133A of the Act. In this regard he submitted that firstly, copies of such statements were not provided to the Assessee; secondly, statement recorded under Section 133A does not have any evidentiary value; and lastly, he pointed out that none of the labour contractors whose statements have been recorded were involved in any contract work in the relevant assessment year, that is, year under consideration. Therefore, reliance on any such statements does not throw light on the modus operandi of the Assessee and is totally irrelevant for taking any kind of adverse inference in this year and thus consequent finding is not sustainable in law. He summed up his arguments by stating that the Ld. CIT(A) though has rightly deleted the addition made by the AO on account of suppression of GP/NP,
10 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 however got swayed away by the statements of the two labour contractors and erroneously made an ad-hoc disallowance which is unwarranted. It was thus pleaded that the addition deleted by the CIT(A) be confirmed and the ad-hoc disallowance made by the CIT(A) should be deleted.
The Ld. Departmental Representative on the other hand vehemently argued and emphasized on the modus operandi of the assessee, which goes to indicate that assessee was inflating the labour expenses to suppress its profit. The survey finding indicates that the assessee was inflating the expenses and this is sufficient reason to draw adverse inference in this year to estimate net profit rate. He pleaded that the order of the AO therefore be restored. In the alternative, he submitted that the order of Ld. CIT(A) confirming the disallowance out of the cargo handling and labour expenses should be confirmed, looking to the overall facts of the case.
In the rejoinder Mr. Jain submitted without admitting that the modus operandi of a subsequent year cannot be imported to the preceding year without any evidence.
We have heard the rival submissions, gone through the relevant finding given in the impugned orders as well as material placed before us. The entire genesis of addition on account of net profit rate and ad-hoc disallowance of labour expenses is the information gathered during the course of survey conducted on 27th December, 2012 at the Branch Office situated at Gandhidham, that is, during the financial
11 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 year 2012-13 (AY 2013-14). The authorised officers at the time of survey analyzed the comparison of gross profit/net profit position of the company for the financial year 2011-12 and financial year 2012-13 (up till the period 27.12.2012) and found that, the net profit for the financial year 2012-12 was @ 17.61% whereas in the earlier financial year it was @ 4.69%. Based on this premise, AO has applied net profit rate @ 17% to make the addition. The assessee’s case had been that, the trading result cannot be casted or arrived at in the middle of the year, because most of the entries like, interest expenses, depreciation and certain administrative expenses are debited on the last day of the accounting year. It was also pointed out that, many bills were pending for incorporating it in the books of account. The Ld. CIT(A) had partly agreed with the assessee’s contention and held that, estimation of net profit rate by the AO is completely incorrect for the reason that, firstly, there is no evidence gathered during the survey to show any defect in the books of account for the assessment year 2010-11 and secondly, the assessee has been able to give proper analysis of net profit working taking into account all the genuine expenditures in the profit and loss account. However, he has proceeded to make an ad-hoc disallowance on account labour expenses @ 5%. So far as the application of net profit rate is concerned, the entire basis and premise of the AO is factually incorrect, because, firstly, net profit worked out on a particular date in the middle of the year will give a distorted picture for the same year itself due non posting of several expenses and provisions which are made only at the year end; and secondly, it cannot be imputed for a period prior to two financial years. Hence, reason cannot be
12 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 the ground for drawing any inference for applying the same net profit rate for estimation in this year. To assess the true profit the AO is required to scrutinise and examine the regular books of account maintained by the assessee along with the details and evidences maintained qua the entries made in the books of account. If on such details and entries made in the books of account, no defect has been found, then, trading result shown in the regular books of account have to be accepted and no estimation of net profit rate can be made. Even in the course of survey, admittedly no material or information whatsoever relating to the financial year 2009- 10 (i.e., relating to the impugned assessment year 2010-11) was found, therefore, we agree with the conclusion of the Ld. CIT(A) that net profit rate cannot be estimated for this year for making any kind of addition. It has been brought on record by the Ld. Counsel that for the year of survey itself assessment under section 143(3) has been completed and no such addition either on estimation of net profit rate or on account of labour expenditure has been made. This fact clearly implies that, once in the survey year no adverse inference has been drawn, then as a logical corollary without any material or information on record qua this year, no addition on account of estimation of net profit can be made. We also agree with the contention of the Ld. Counsel that the trading result for the part of the year cannot be compared with the trading result of whole of preceding accounting year, because various expenditures like, interest, depreciation and host of other expenditures are debited or provided on the last day of the accounting year. Thus, we reject the estimation of
13 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 net profit by the AO and uphold the order of the CIT(A) on this point.
Now, coming to the ad-hoc disallowance on account of labour expenditure, it has been pointed out before us that, out of Rs.37.78 crores expenditure on labour charges, only Rs.4.63 crores pertains to labour charges for stevedoring, cargo handling and misc. activities and the majority of the payments have been made through account payee cheques except for paltry payment made in cash to the extent of approximately Rs.45 lakhs. In light of this fact, we do not find any reason to sustain any estimation of disallowance on ad- hoc basis for the entire amount of Rs.38.74 crores as done by the ld. CIT(A) which is factually incorrect. That apart, we find that, the entire reason for making the disallowance on account of labour expenditure is the statement of two labour contractors recorded at the time of survey under section 133A. It is an admitted fact that, none of the two labour contractors whose statements were recorded were involved in any of the contract work relating to the assessment year under consideration and it has also been pointed out by the Ld. Counsel that, in fact, one of the contractors was never employed by the assessee company at all, therefore, we agree him that reliance placed on such statements does not corroborate the stand of the Department and in fact this material cannot be considered for making any kind of disallowance on account of labour expenses. This fact has been noted by the Ld. CIT(A) also as incorporated above by us. However, ld. CIT(A) has proceeded to make the ad-hoc disallowance @ 5% simply on the reason that it reflects a
14 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 modus operandi that, assessee might be inflating the labour expenditure. Once the material relied upon itself has been disapproved or found to be irrelevant qua the present assessment year, then it cannot be the basis or ground for drawing any adverse inference. Thus, we hold that, ad-hoc disallowance as sustained by the Ld. CIT(A) @ 5% cannot be upheld either on facts or in law and accordingly we direct the AO to delete the addition made on this score. Thus, ground No.3 as raised by the assessee is allowed.
Now, we will take-up ground No.4, which relates to disallowance of depreciation of Rs.2,53,39,773/- claimed by the assessee on the windmill installed at Rajasthan. The facts in brief qua this issue are that, the Assessee company is also engaged in the business of production of power through windmill projects. During the year the assessee had started generation of power through a windmill project installed in the state of Rajasthan. During the course of the assessment proceedings the Assessing Officer noticed that the Assessee was not in possession of the land for setting up the windmill project as on 31stMarch, 2010 and in any case assessee did not have sufficient evidence to show that the windmill commenced its operation during the year as the Commissioning Certificate was itself dated 15thApril, 2010. It was thus concluded by him that the windmill project did not commence its operations in the year under consideration and therefore, assessee was not entitled to claim depreciation on the windmill in the AY 2010-11. However he held that the assessee can claim depreciation it in the subsequent year.
15 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 13. Before the ld. CIT(A), the assessee submitted that, AO has mainly relied upon one single fact that the land was registered on 22nd November, 2010, therefore, assessee was not in possession of the land. This observation of the AO was rebutted on the ground that registration of the sub-lease deed was only on legal formality pursuant to registration of land revenue rules which came into effect as early as in the year 2007. The main lessee, M/s Suzlon Infrastructure Ltd. from whom the land was taken on sub-lease was already given the possession of the land as early as on 31st May, 2007 and the same lease-deed was formally executed on July 8, 2010. This does not mean that there was no possession of the land with the main lessee and consequent with the assessee. In fact, the process of sub-lease deed of the land was already started and was clarified vide letter dated 15th February, 2010. It was also pointed out that, assessee has raised invoices on “Rajasthan Vidyut Board” in respect of sale of electricity, the details of which are as under:- Month Invoice No. Amount (Rs.) April, 2010 2010-11/002 1,17,503 May, 2010 2010-11/003 9,64,194 June, 2010 2010-11/004 13,76,240 July, 2010 2010-11/005 6,47,808
That apart, following evidences were also filed, which were also filed and placed before the AO:- (a) “Copy of bank statement letter from Allahabad Bank for term loan of rs.443.00 lacs dated March 31, 2009 i.e. last day of the relevant F.Y. 2009-10;
(b) Copy of bank statement of the Allahabad Bank showing disbursement of sanctioned loan upto 373.6 lacs on March 31, 2010;
16 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 (c) Copy of ledger account of interest on term loan (Allahabad Bank stating providing of expenses of Rs.11,101/- for windmill at Rajasthan on March 31, 2010; (d) Commissioning certificate dated April 15, 2010. It is stated that certificate that this commissioning certificate is issued on the basis of the minutes of meeting dated March 31, 2010; and (e) Copy of monthly power generation report for March, 2010 and Joint Energy Meter Reading taken on April 02, 2010 for the month of March 2010 of Suzion Energy Ltd.”.
A bill, wherein power generation of 23.23 kw of power generated as per invoices as on 31st March, 2010 was also produced which goes to show not only the existence of the windmill at the particular site but also goes to prove that power was generated and sold in this year. However, the Ld. CIT(A), upheld the order of the AO and observed that, actual function of the wind-mill had only started / commenced in the financial year relevant to assessment year 2011-12, therefore, assessee was entitled to depreciation in the subsequent year only, as per law.
Before us, Mr. Ajit Jain submitted that the Assessing Officer as well as the ld. CIT(A) have not considered the documentary evidences submitted by the Assessee before them. It was pointed out by him that the power was generated for the month of March 2010 and the billing for the same was also done. In support our attention was invited to page 107 of the paper book for the power generation invoice and page 108 of the paper book for the power generation report. He submitted that the power generation bill showing 23.23 kW of power generated as per the invoice dated March 31, 2010 is the conclusive evidence of existence of windmill at the
17 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 particular site and there is no reason to have even remote suspicion because the agreement to purchase the power is with none other than a semi-Government authority i.e. Rajasthan Renewable Energy Corporation Limited. It was further pointed out by him that the registration of the sublease deed was only a legal formality pursuant to the Rajasthan Land Revenue Rules. The main lessee i.e. M/s. Suzlon Infrastructure limited had already given the possession of land as early as on May 31, 2007 and the said main lease deed was also formally executed only on July 8, 2010. The formal approval and subsequent registration of sub-lease agreement does not mean that there was no possession of the same with the main lessee and consequently with the Assessee. He invited our attention to page 76 of the paper book which is a letter given by Suzlon wherein the procedure for registration of land is mentioned. Mr. Jain further pointed out that a payment of Rs.23,79,215/- was received from the said government corporation on August 16, 2010 for power generated for months April 2010 to July 2010, which conclusively demolishes the finding that the windmill could not have come into existence before the date of execution of the sub lease deed. He also referred to Page 106 of the paper book and pointed out that the Commissioning Certificate is dated April 15, 2010, and this certificate has been issued on the basis of the minutes of meeting dated March 31, 2010. In a nutshell the case of the Ld. Counsel is before us is that, in the light of the evidences placed before the lower authorities, the conclusion drawn by the Assessing Officer/CIT(A) that the sub-lease agreement was made after the close of the accounting period and therefore, the Assessee
18 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 was not in possession of land, is not correct. Additionally, it was also pointed out by him that the revenue generated from sale of power has been accepted by the Assessing Officer /CIT(A) as income during the year and also taxed but the depreciation has not been allowed. It was thus pleaded that the depreciation on windmill should be granted in AY 2010-11 itself.
The Ld. Departmental Representative on the other hand, strongly relied upon the orders of the Assessing Officer & CIT(A) and alternatively submitted that to verify these evidences matter can be restored back to the file of the AO.
We have carefully considered the rival submissions and perused the relevant material placed on record. The sole ground for disallowing the claim on depreciation by the authorities below is that, assessee did not commence its wind-mil project and did not start the production in the year under consideration. The main reason given is that, firstly, the land on which the wind-mill was installed was registered on 22.11.2010 and assessee was not in possession of requisite land and secondly, the commissioning certificate is dated 15.04.2010, therefore, depreciation cannot be allowed in this year. From the perusal of the relevant records, it is seen that, the assessee had raised the bill to the Supritendent Engineer, Rajasthan (RPPC), Jaipur Discom on 31st March, 2010 for the sale of power of more than 23 KW generated on the last day of March, 2010, which has been placed in the paper book at page 108. The finding of the authorities below that the assessee was not in the possession of the land to
19 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 install the Wind Mill as the registration of land was done in November, 2010, has no substance, because it has been brought on the record that assessee was in the possession of the land by virtue of sub-lease agreement and not only had installed the wind-mill project but also commenced the production from the month of March, 2010 onwards. This is evident from in the invoices raised right from April 2010 to July 2010 and other host of other material and evidence filed before the authorities below which has been incorporated by us in the foregoing paragraphs. The commission certificate dated 15th July, 2010 was issued on basis of minutes of the meeting held on 31st March, 2010, wherein, it has been mentioned that date of commissioning of the said project viz. Wind-Mill is from 31st March, 2010. Another important fact which has been completely missed by the authorities below is that, revenue generated from the sale of power have been accepted as income of the project and it has been taxed also in this year. Thus, we are unable to accept the finding and conclusion arrived at by the authorities below that no depreciation is allowable to the assessee and accordingly, we set aside the finding of CIT(A) and hold that not only the Wind-Mil was installed and commissioned in this financial year but also had started its operation on 31st March, 2010. Thus, assessee is entitled for claim of depreciation. The claim of depreciation on the Wind-Mill is directed to be allowed in the assessment year 2010-11 itself. Thus, ground No.4 is treated as allowed.
Next we will take up ground no. 5 of the assessee’s appeal which pertains to the disallowance of finance cost of
20 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 Rs. 11,101 on account of interest paid by the assessee for the purposes of Wind-Mill at Rajasthan. The Assessee had claimed finance cost of Rs.11,101/- on account of interest paid to Allahabad Bank for the windmill project at Rajasthan. The same was denied by the Assessing Officer/CIT(A) on the ground that since the Assessee had failed to prove that the Wind-Mill project had actually commenced operations during the year under consideration. Therefore, the question of allowing finance cost did not arise.
Before us, Ld. Counsel submitted that this ground is interconnected with the ground of depreciation on Wind-Mill project at Rajasthan. It was submitted by him that the interest on the loan taken for the purposes of installing the Wind-Mill at Rajasthan should be allowed as the sale proceeds of power generation has not been disputed by the lower authorities. The Ld. DR on the other hand, relied upon the orders of the lower authorities.
In view of the finding given with regard to ground No.4, we do not find any reason for disallowance of finance cost of Rs.11,101/- which is on account of interest paid for the purpose of Wind-Mill Project. Accordingly, we direct the AO to allow the interest on the loan taken for the purpose for installing wind-mill, because as stated above, the sale proceed of the power generation has been accepted and taxed in this year. Thus, ground no.5 is allowed.
Ground No. 6, relates to disallowance made by the AO u/s 14A for sums amounting to Rs. 19,552/-. During the
21 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 assessment proceedings, the Assessee was asked to compute the disallowance under Section 14A of the Act, since the Assessee had earned dividend income of Rs.35,800 during the year under consideration in the investments made in other companies. It was further observed that in the Balance Sheet, the Assessee had shown investment to the tune of Rs.55,25,062 during the year which stood at Rs.25,95,829 last year.
In the first appeal the Ld. CIT(A) held that the Assessee had not made any disallowance under Section 14A even though it had earned exempt income during the year. It was further held that Rule 8D has been applied by the AO while computing the disallowance which is justifiable and further AO had not made any disallowance on account of interest payments and had restricted only to dividend income of the Assessee. Thus, he confirmed the disallowance made by the AO.
Before us, the Ld. Counsel submitted that the authorities below have not recorded any finding in relation to any expenditure attributable for the earning of the exempt income which does not form part of the total income. He submitted that the assessee had received the dividend of Rs.35,800/- and pointed out that no nexus was established between investment in shares and source of funding of such shares. He also argued that the AO has to record requisite satisfaction as envisaged in Section 14A (2) of the Act before proceeding to consider the applicability of Rule 8D. In support he relied upon the decisions of Raj Shipping Agencies Ltd v.
22 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 Additional Commissioner of Income Tax (38 Taxman.com 345 (Mumbai)) and the decision of Godrej & Boyce Mfg. Co Ltd v. Deputy Commissioner of Income Tax (328 ITR 81 (Bombay)), stating that recording of requisite satisfaction is sine qua non before making any disallowance under Section 14A. Therefore, in the absence of claim of any expenditure directly relating to exempt income, question of making any disallowance under Section 14A does not arise. The Departmental Representative on the other hand relied on the orders of the CIT(A) and Assessing Officer.
After considering the rival submissions and on perusal of the impugned orders, we find that the only disallowance which has been made by the AO is on account of indirect expenditure under Rule 8D(2)(iii) of Rs.19,552/-. The assessee had shown investment of Rs.55.25 lakhs for which it has not attributed any expenditure for earning of the dividend income nor it had been demonstrated that, why no expenditure can be held to be attributable. The primary and initial onus is upon the assessee to demonstrate that no expenditure is attributable for earning of the exempt income and expenses debited in the accounts. It is then onus shifts to the AO to satisfy himself about the correctness of the claim of the assessee having regard to the accounts maintained by the assessee. Thus, looking to the facts of the case, we find that the disallowance made by the AO and as confirmed by the CIT(A) under Rule 8D(2)(iii) appears to be reasonable hence, the disallowance is confirmed. Accordingly, ground No.6 is treated as dismissed.
23 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 24. Now we will take-up revenue’s appeal, vide which following grounds have been raised:-
“On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made by the A.O. of Rs. 1,05,84,936/- against the liasoning fees paid to M/s. Sahadev Projects Pvt. Ltd. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O. of Rs. 3,29,01,134/- against the suppression of GP/NP. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the A.O. of Rs. 53,17,741/- against the survey fees paid. 4. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 5. The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer be restored”.
Since we have already decided ground No.2 in while deciding the issue in ground No.3 in assessee’s appeal, therefore, in view of the finding given therein, the addition made on account of estimation of net profit rate does not stand and accordingly, ground No.2 is dismissed.
Ground No.1 relates to the addition made by the AO on account of liasioning fee paid to M/s Sahadev Projects Pvt. Limited to the extent of Rs. 1,05,84,936. The addition made by the AO has been deleted by the CIT(A). The brief facts qua this ground as explained by the Ld. Counsel are that, since inception of the Company, the assessee has been receiving liasoning services from M/s Sahadev Projects Pvt. Limited. These services were received under a written agreement dated 2nd September, 2004. In the course of the survey under section 133A, the authorized officer found bills of the said
24 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 company i.e. M/s. Sahadev Projects Pvt. Ltd. with regard to the liaison work done by it. The authorized officer recorded the statement of Shri Harshad Gandhi, Director of the Assessee Company and it was explained by him that the Assessee has regularly engaged the said company under a written agreement for providing certain specific professional services and the fees paid to the said company is claimed as liaison charges. It was also explained to the authorized officer that the Assessee company has no personal relation whatsoever with the said M/s. Sahadev Projects and it is certainly not a relative of the Assessee company within the meaning of section 40A(2)(b) of the Act. The authorized officer also caused further direct enquiry through the DDIT, Inv. Wing VIII-2, Mumbai to ascertain the genuineness of the liaison fees paid to M/s. Sahadev Projects. The relevant facts have been discussed at Pages-6 to 8 of the assessment order. The DDIT opined that the payment made by the assesse to Sahdev Projects is very high. The AO based on the report of the DDIT has disallowed 50% of the payments made to Sahdev Projects.
Before the ld. CIT(A), the assessee’s submission as incorporated by the CIT(A) in this regard are reproduced here under:- 1. “Since its incorporation, it has been regularly in receipt of liaisoning services under a written agreement dated September 2, 2004 between the Appellant company and M/s. Sahadev Projects Pvt. Ltd. 2. Shri Devkinandan Sehgal is a prominent professional engineer. He was a B. Tech. Production Engineer from Punjab Engineering College, Chandigarh and M. Tech, Industrial Engineering from NITI, Mumbai. He is also on the board of directors of well- known company such as PSL
25 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 Limited having turnover of more than Rs 2,000 crores since many years. (As per statement recorded)
In the course of the survey under section 133A, the authorized officer did find the bills from the said company i.e. M/s. Sahadev Projects Pvt. Ltd. in regard to the liaison work done by it. It was now the question of not using the services of M/s. Sahadev Projects Pvt. Ltd but the payments made our very high. It is only the personal opinion of the DDIT (Inv)/AO.
The authorized officer recorded the statement of Shri Harshad Gandhi, Director of the Appellant company and it was explained to him that the Appellant has regularly engaged the said company under a written agreement for providing certain specific professional services as specified in each bill and the fees paid to the said company is claimed as liaison charges.
It was also explained to the authorized officer that the Appellant company has no personal relation whatsoever with the said M/s. Sahadev Projects Pvt. Ltd, and it is certainly not a relative of the Appellant company within the meaning of section 40A(2)(b) of the Act.
The Appellant submits that the company M/s. Sahadev Projects Pvt. Ltd. have categorically confirmed that certain specific professional services were rendered and also gave detailed reply to each of the questions put forth by the DDIT in regard to the type of services rendered.
M/s. Sahadev Projects Pvt. Ltd. is engaged in the business of providing this kind of services not only to the Appellant but also to various other customers, as can be seen from its Form No.26AS
M/s. Sahadev Projects Pvt. Ltd is regularly assessed to tax having PAN AAGCS4189P. The returns of income are filed with the ACIT, Circle-8(3), Mumbai. The return for the year under appeal showing total income of Rs7,73,88,298 was filed on March 8,2007. The said party has, in addition to TDS, has paid advance tax of Rs 82,00,000 and self- assessment tax of Rs 1,45,00,000. The gross professional receipts shown by the said party is to the tune of Rs 7,79,35,398 besides rent receipts of Rs 40,09,500. In addition to the above, the said company has provided liaison services to various persons as under:
26 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016
It is not a case of the DDIT (Inv) or the AO observing that there were cash withdrawals from the bank account of M/s. Sahadev Projects Limited which could have raised some doubts about the genuineness of the expenditure claimed. In fact as the Appellant has been given to understand, which can also be inferred from the audited accounts of the said company, it is a very high tax paying company and in addition to the professional services, it is in receipt of substantial other income also dispelling any doubt that it is working as conduit or bogus concern to facilitate inflation of expenses. 10. Without prejudice to the above ground, the AO erred in law and on facts in making the said disallowance disregarding the fact that the payment included opening outstanding balance of Rs.1,13,68,440/- and the expenditure to this extent was not debited to P&L A/c for the year under appeal”.
The Ld. CIT(A) after considering all the submissions filed by the Assessee, deleted the addition made by the AO. The relevant extract of the finding of CIT(A) is reproduced hereunder:-
“I have carefully considered the facts and circumstances of the case. As seen from the facts of the case, there was no dispute with regard to payment of liasoning fee by the Assessee company to Sahadev Projects even though the AO has raised several doubts as to whether such services were
27 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 actually rendered by Sahadev Projects or not. The objection of the AO was that the amount paid is on the higher side as such he has restricted to 50% of the amount debited. On the other hand, the learned AR with detailed explanations has brought on record that the services were rendered as per a written agreement and payments were made in cheque after making applicable TDS. The assessment details of Sahadev Projects were filed and services to other companies, besides the Assessee Company, was never questioned. The explanation given by Ld. AR is self-explanatory and convincing. In view of these facts I fully agree with the learned AR that the disallowance of 50% of liasoning fee is uncalled for. The ground is allowed.”
Before us, Ld. DR filed the copy of statement of Shri Harshad C Gandhi, MD of the assessee company and the also the copy of statement of Shri Devikanand D. Sehgal recorded under section 131 in a separate paper book. He submitted that, Mr. Sehgal admitted that, there is no written agreement and further pointed out that he did not have any established office or staff and even the representative of the assessee company has never visited the office of Sahadev Project. Making such a huge payment to such an entity seems to be very high and excessive.
Before us, Mr. Jain, supporting the order of the CIT(A) submitted that M/s Sahadev Projects Pvt. Ltd. have categorically confirmed that certain specific professional services were rendered and also gave detailed reply to each of the questions put forth by the DDIT in regard to the type of services rendered. It was pointed out by him that there is no
28 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 dispute about the fact that certain specific services were rendered by the said company but, the DDIT (Inv) felt that the payments has been made at higher rates without bringing in any material in support of his belief. It was argued that the remark of the DDIT that “the payment made by the Assessee to M/s. Sahadev Projects Pvt. Ltd. is very high” is based on his personal opinion only and without any basis. It was argued by him that the entire payment has been made through account payee cheques; tax has been deducted for each payment; applicable Service Tax at 10.3% has been paid to the government and the service provider has shown such income in his return which is again subjected to tax at the maximum rate; thus, there cannot be any suspicion about any tax evasion or doubting the genuineness of the expenditure by way of liaison charges paid. He drew our attention to Page No. 1 to 4 of the paper book which contains the agreement between the assessee and M/s Sahadev Projects Pvt. Ltd. and further drew our attention to page nos. 5 to 24 of the paper book to demonstrate that the payment have been made to Sahadev Projects by cheques and too after deducting the tax at source. Further, Sahadev Projects have levied service tax and professional tax also for which the evidence of have been placed at pages 25 and 26 of the paper book. He submitted that M/s. Sahadev Projects Pvt. Ltd. is engaged in the business of providing this kind of services not only to the Assessee but also to various other customers. For this purpose he referred to the order of the CIT(A) who has given a categorical finding on this aspect based on Form No.26AS of Sahdev Projects. Mr Jain stated that the Assessing Officer cannot substitute his judicial decision of
29 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 making an assessment as per the provisions of law and simply based his decision on conjuncture and surmises. The said company is not a relative of the Assessee within the meaning of section 40A(2)(b) and therefore, there is no question of holding that the payment is excessive or unreasonable. The Assessee before the authorities below had relied upon plethora of judgments which have been taken note at page 6 of the assessment order on which there is no comment from the AOs side. Thus having regard to the totality of the facts and circumstances of the case he submitted that the disallowance of 50% of the liaison fees as made by the AO is not sustainable either on law or on facts. It was also clarified by him that during the year, the liaison fees debited in respect of the above party is Rs. 1,51,74,205/- but, the AO has considered 50% of the payments made to it during the year as disallowable and thereby making excessive addition on his own fallacious reasoning.
We have heard the rival submissions and perused the relevant finding given in the impugned orders as well as material placed before us. The assessee is in the business of stevedoring relating to shipping business. It has been brought on record that, since inception, the assessee has been regularly receiving liasioning services under a written agreement dated 24th September, 2004 between the Assessee Company and M/s Sahadev Projects Pvt. Ltd. Such a payment had always been allowed, not only in the earlier years but also in the subsequent years. In the statement recorded, the key person of M/s Sahadev Project, Mr. Devikinandan Sehgal, who is a professional Engineer and has
30 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 a vast experience in the shipping business, has categorically confirmed before the departmental authorities about the specific professional services rendered by him and also given point wise reply clarifying the questions put forth by the Investigation Wing. The rendering of services by him has not been doubted and the revenue’s case is that the payment made to Mr. Sahadev Project is quite high and excessive and therefore, 50% of the payment has been disallowed. From the facts and material as discussed above, it is evidently clear that, M/s. Sahadev Project was providing this kind of services not only to the assessee but also to the various other customers in this line. As incorporated in the foregoing paragraphs, not only he has shown all such receipts from rendering of such services in his income-tax returns, but the entire details of regular assessment of M/s Sahadev Project were also filed before the authorities below to substantiate. Not only that, the details of TDS deducted were produced and the service tax paid on such professional services rendered by it, were also shown. Further, it is also an admitted fact that no one from M/s Sahadev Project or Mr. Devkinandan Sehgal is a relative of the assessee within the scope and ambit of section 40A(b) and, therefore, there cannot be any question for considering that any payment to excessive or unreasonable. Once, the genuineness of the payments and the purpose for which it has been made is not doubted then the entire payment has confirmed by the party has to be allowed. Accordingly, we uphold the order of the CIT(A) in deleting the said disallowance. Thus, ground No.1 is treated as allowed.
31 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 32. Next ground relates to relates to the addition made by the AO on account of survey fee to the extent of Rs. 53,17,741/-. The facts in brief qua this addition is that the AO has made disallowance on account of survey fees paid during the year on the basis of some telephonic conversions made with the ACIT, Gandhidham. This is evident from Para no. 5 of the order of the AO that the addition has been made on the basis of telephonic conversation.
Before the ld. CIT(A), it was contended that, engagement of surveyors for stevedoring activities was basic requirement and needs of the assessee’s business and the payment has been paid on the basis of bill raised by him on which payment of service tax has been paid and also TDS has been deducted. So, Ld. CIT(A) deleted the said addition after observing and holding as under:-
“I have carefully considered the submissions of the learned AR. As seen from the facts of the case the payments were made in cheques and duly accounted in the books of account. Required TDS was also made from the payments made to the surveyors I, therefore, do not find any irregularity in the payment. Further, the AO was also silent as to who is the party/parties to whom survey fee was paid in AY 2006-07 which is inadmissible. In view of the above, I’m of the opinion that the disallowance of survey fee is uncalled for. The ground is allowed.”
The Ld. DR strongly relied upon the order of the AO, whereas, the Ld. Counsel before us submitted that, engaging surveyors for stevedoring activities is a pre-requisite requirement. Survey fees are charges paid by the Assessee to
32 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016 surveyors who conduct a survey while loading and unloading of shipments and cargos. He drew our attention to paper book pages 35-106 which is ledger account of Survey Fee and the sample bills which were furnished before the AO as per letter dated 19th March 2013 which was summarily rejected, only on the basis of alleged telephonic conversion. It was demonstrated by him with the help of paper book that all the fees are paid on the strength of the bills received and wherever deduction of TDS was applicable has been made as well as payment of Service Tax from such payments has also been shown.
After considering the rival submissions and on perusal of the impugned order, we do not find any merits in the addition made by the AO, firstly, he has made the addition simply on the basis of some telephonic conversation and hence such an addition has no legs to stand; secondly, looking to the nature of activity carried out by the assessee, wherein surveyors are required to certify loading and unloading the shipment and cargos, therefore, such a payment made to them cannot be held to be for non-business purpose. The payment made to the surveyors is fully corroborated by the bills raised by them and also payment made throughout account payee cheques after deducting TDS. Thus, the order of the CIT(A) in deleting the said disallowance is upheld. Accordingly, ground No.3 is dismissed.
Ground no. 4 & 5 are general in nature and hence no adjudication is required.
33 अ�द�या मर�न �ल�मटेड Aditya Marine Ltd. ITA 430/Mum/2016 ITA 334/Mum/2016
In the result appeal of the assessee is partly allowed that of the revenue stands dismissed.
Order pronounced in the open court on 31st August, 2016.
Sd/- Sd/- (बी आर भा�करन) (अिमत शु�ला) लेखा सद�य �याईक सद�य (B R BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 31st August, 2016 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT –10, Mumbai. 4) The Pr. CIT –5/CIT __concerned, Mumbai 5) िवभागीय �ितिनिध “ए”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “A” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *च�हान व.िन.स *Chavan, Sr.PS