I.T.O WD - 7(2),KOLKATA., KOLKATA vs. M/S UMV TELE LINK, KOLKATA

This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-VIII, Kolkata dated 22.02.2013. Assessment was framed by ITO Ward- 7(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.12.2011 for assessment year 2009-10. The grounds raised by the Revenue per its appeal are as under:- “1. That the Ld. CIT(Appeals)-VIII, Kolkata has erred in facts in deleting the addition made by the Assessing Officer for Rs.19,15,540.00 on account of inflated purchase.

For that in the facts and in the circumstances of the case the Ld. CIT(A) is not correct by deleting the addition made by the AO for Rs.4,326.00 on account of concealment of income.

Facts in brief as culled out from the order of Authorities Below and relevant records are that assessee, a Private Limited Company and engaged in the distribution business of mobile phone connection and mobile phones. The assessee for the year under consideration has filed its return of income dated 25.09.2009 declaring total income of ₹4,97,425/- comprising of business income only. Thereafter, the case was selected for scrutiny and accordingly notices u/s 143(2)/142(1) was issued upon assessee on different dates. The assessment was framed on 31.12.2011 at a total income of ₹40,12,513/- after disallowing / making additions of various expenses claimed by assessee which have been discussed in the aforesaid grounds of appeal.

Before us Ld. DR requested before the Bench to restore the mater back to the file of AO for further adjudication as per law. On the other hand, Ld. AR filed a paper book which is comprising of pages 1 to 94 and submitted that the purchases made from other parties were wrongly included in the purchase list of VESL. The assessee in support of his contention has submitted the copies of ledger of all the purchase parties which are placed on pages from 50 to 57 of the paper book. The ld. AR raised no objection if the file is restored back to the AO for fresh adjudication. The Ld. AR relied on the order of Ld. CIT(A).

We have heard rival contentions and perused the materials available on record. From the foregoing discussion, we find that assessee has submitted the details of the purchase from VESL which was not matching with the sales shown by VESL. The assessee submitted reconciliation and explained that the difference is arising mainly due to the names of other parties included in the list of purchase from VESL. Therefore in the interest of justice and fair play we are inclined to restore the matter to the file of AO. Needless to add that any materials, adverse to the assessee, will have to be confronted to the assessee by the AO, and that, in case AO intends to pass any fresh order as a result of these directions, he will do so only after giving due and fair opportunity of hearing to the assessee, in accordance with the law and by way of a speaking order. Hence, this ground of Revenue’s appeal is allowed for statistical purpose in terms of above.

The second issue raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for ₹34,528/- on account of inflated purchase.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that the actual purchase shown by assessee was of ₹23,10,585/- and assessee has reduced its purchase by the amount of ₹18677.85 and ₹15850/- (total ₹34,528/-) on account of claimed by assessee from HMPPL. Ld. CIT(A), accordingly, deleted the addition made by AO by observing as under:- “The appellant further clarified that during the course of relevant year, it made claims of Rs.18677.85 on and Rs.15850.95. The total amount of said claim was Rs.34528.80. The said claim arose due to defective material supplied by the said party on 2nd July 2008 and on 25th September 2008 respectively for the aforesaid amounts. The party ultimately accepted the claim and extended the discount. The appellant contended that it debited the said amount to purchase account. From the said detail and accounting, it is seen that the appellant has not inflated its purchase from Hutchison Max paging (P) Ltd by Rs.34528.80 but has duly accounted for the said amount in its income by deducting the said figure from the amount of total purchase along with other adjustments. Under the circumstances, I find that the said addition is without any substance and hence I direct the Assessing Officer to delete the said amount of Rs.34528/-“ Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.

Before us Ld. DR submitted that Ld. CIT(A) has granted relief to assessee after considering the claim filed by assessee to HMPPL for ₹34528/-. However this claim was not accounted for in the books of account and he requested the Bench to restore the issue back to the file of AO for fresh adjudication. On the other hand, Ld. AR drew our attention on page 58 of the paper book where the reconciliation statement was placed for the difference shown between assessee and HMPPL and he relied on the order of Ld. CIT(A).

We have heard the rival contentions and perused the materials available on record. From the facts, we find that assessee has made the claim of ₹34,528/- on ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 6 02.07.2008 and 25.07.2008 respectively and these claimed were duly reduced from the amount purchased. However, Ld. AR did not bring anything on record with regard to claim made by assessee. Therefore, in the interest of justice and fair play we are inclined to restore the matter back to the file of AO for fresh adjudication as per law with the direction to check whether the claim made by assessee has been accounted for in the books of account. Hence, this ground of Revenue is allowed for statistical purpose.

Third issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by AO for ₹8,75,753/- on account of bogus purchase.

The assessee has shown purchase from Hutchison Max Paging (P) Ltd (Asansol claim Account) for ₹8,75,753/-. However, AO found that there is no sales made by Hutchison Max Paging (P) Ltd. (Asansol) in response to the notice issued u/s. 133(6) of the Act. Accordingly, AO held the transactions of purchase for ₹8,75,753/- as bogus and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- “The appellant submitted that during the curse of its business, it receives various amounts as incentives on achieving a specified target set by the parties. The said incentives are inform of cash and also in kind by way of free delivery of products mainly telephone handsets. The incentives given in the kind form as called “R C Coupon”. The appellant received a total amount of such R C Coupon for Rs.943491.49 from Hutchison Max paging (P) limited during the relevant year. The amount of aid R C Coupon were debited to purchase account. Out of the said R C Coupon converted into mobile handsets, handsets of two values amounting to Rs.46380.82 and Rs.21357.72 totaling Rs.67738.54 were returned to the said party leaving a sum of Rs.875752.95 being debited to purchase account. It further clarified that as the appellant was not required to pay the said amount for which he received the handsets for free as incentive, the amount was credited to commission account. However, the party did not account for this amount to its sale to the appellant because the same was give to the appellant for free. This is only due to this accounting difference that prompted the AO to add the said amount to the returned income of the appellant. The appellant also submitted the details of such RC Coupon received and the detail of commission where the said amount is included.

Before us Ld. DR vehemently relied on the order of AO where as Ld. AR relied on the order of Ld. CIT(A). Ld. AR before us submitted that Hutchison Max Paging (P) Ltd. has given incentive to the assessee which has been included in the commission income as per Schedule-12 of the profit and loss account which is placed on page 9 of the paper book. M/s Hutchison Max Paging (P) Ltd. has given this commission in the form of kind by giving free products which were treated as purchase in the books of account of assessee in order to maintain stock register.

We have heard rival contentions and perused the materials available on record. From the facts we find that assessee has shown the incentive received in kind as purchase with the sole purpose and maintaining the quantitative details of the stock. At the same time assessee has credited the commission amount by the amount of incentive received in the form of free products. However, assessee before us has not demonstrated by producing the details of the commission shown by assessee. Therefore, in the interest of justice and fair play we are inclined to restore back this issue to the file of AO for fresh adjudication as per law with the direction to check whether the products received in the form of incentive at free of cost has been duly accounted for in the purchase and in the correspondence commission account simultaneously. The free produces should have also been included in the stock register maintained by assessee. Hence, this ground of Revenue is allowed for statistical purpose.

Both inter connected Fourth and fifth issues raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by AO for ₹5,25,577/- and ₹ 4,326/-on account of concealment of income.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) where a reconciliation statement for justifying the difference of Rs. 5,25,577.00 was submitted as under:- Total amount credited/paid by Vodafone Rs.2810459/- Essar East Ltd. during FY 08-09 Less: Service tax included in the said Rs.305195/- amount but credited to separate account by the appellant as service tax collection is not an income but liability Rs.2505264/- Less: Amount of income u/s. 194A Rs.36049/- Rs.2469215/- Less: Income included in preceding AY Rs.176637/- i.e. 08-09 by the appellant but shown in the A.Y 09-10 buy the said party Income included in preceding AY i.e. Rs.170805/- Rs.347442/- 08-09 by the appellant but sown in A.Y. 09-10 by the said party Rs.2121773/- Less: Income included in succeeding AY Rs.48521/- i.e. 10-11 by the appellant but shown in AY 09-10 by the said party Income included in succeeding AY i.e. Rs.106906/- Rs.155427/- 10-11 by the appellant but shown in AY 09-10 by the said party Amount of income shown by the Rs.1966346/- appellant in the return for AY 09-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 9 Similarly the assessee submitted that the difference of Rs. 4,326.00 is nothing but representing the amount of service tax charged @12.36% over and above Rs. 35,000/- The ld. CIT(A) accordingly deleted the addition made by the AO for Rs. 5,25,577.00 by observing as under : “On going through the statement and supporting documents furnished by the appellant, I do not find any anomalies sin the contention of the appellant. I am also of the view that the Assessing Officer did not apply his mind in the instant case particularly to the fact that service tax collections are not credited to income but are credited to a separate account according to the accounting standards, even though tax is required to be deducted by the payers on service tax components. The appellant has also proved its case of inclusion of above two amounts of Rs.1,76,637/- and Rs.1,70,805/- in assessment year 2008-09 and also the inclusion of two amounts of Rs.48,521/- and R.1,06,906/- in AY 2009-10 according to the date of the invoices and accounting procedure being followed by the appellant. Thus, it is clearly evident that the AO while framing the assessment order had made the additions with prejudiced mind without applying the principles of justice and in the process ignored all the facts, explanations and supporting documents submitted by the appellant. In view of this, I hereby direct the Assessing Officer to delete the said addition of Rs.5,25,577/- made by him from the assessed income. The ld. CIT(A) accordingly deleted the addition made by the AO for Rs. 4,326.00 by observing as under : In this regard it is observed that the AO made an addition of Rs.4326/- on the ground similar to the one referred to in para 5.4 above. In this case also the Income paid/credited by Tata Tele Services Ltd as per Form 26AS was Rs.39326/- whereas the appellant had shown only Rs.35000/- as income. The appellant submits that Rs.4326/- presents the amount of service tax collected from the party @ 12.36% which does not form part of the income of the service provider i.e the appellant in this case.

Before us both the parties relied on the order of Authorities Below as favourable to them. Before us Ld. AR submitted that income of ₹347442.00 was ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 10 offered to tax in the AY 2008-09 and in support of its claim has submitted copy of ledger which is placed on page 87 of the paper book. Similarly the commission income of ₹1,55,427/- was shown in the AY 2010-11 and therefore as such there was no concealment of income.

We have heard rival contentions and perused the materials available on record. At the outset, both parties agreed to restore this issue back to the file of AO for fresh adjudication. Therefore, in the interest of justice and fair play we are inclined to restore the matter back to the file of AO for fresh adjudication as per law with the direction to check whether the claim made by assessee has been accounted for in the books of account. Hence, both the ground of Revenue is allowed for statistical purpose.

Last issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for ₹ 1,17,494/- u/s 14A r.w.s Rule 8D of the IT Rules, 1962.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who gave partly relief to assessee by observing as under:- “There is no denying of the facts that Rule 8D of Income Tax Rules 1962 suffers from various controversies and ambiguities. From the judgments cited above, it is noted that the amount of disallowance cannot exceed the amount of exempt income when separate books of account for exempt and non exempt income are not kept or where the Assessing Officer fails to find nexus between any direct expenses incurred by the assessee for earning any particular exempt income. In view of the same I consider that disallowing an amount of Rs.1,52,784/- calculated by applying Rule 8D for an exempt dividend income of Rs.35,290/- is unjustified especially in the light of various controversies surrounding blanker application of Rule 8D. Hence, I direct the Assessing Officer to restrict the disallowance of Rs.35,290/- i.e. to the extent of ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 11 exempt income and delete the balance Rs.1,17,494/- (Rs.1,52,784/- - 35,290/-) from the income assessed by him. Thus, this ground of appeal is partly allowed.”

We have heard rival contentions and perused the materials available on record. At the outset we find that it is the duty of the assessee to demonstrate whether investment of in share capital is made out of the borrowed fund or owned fund. From the balance sheet of the assessee we find that the there is sufficient owned fund available to the assessee for making the investment. But it is not clear whether owned fund was invested or borrowed fund. In this connection we rely in the case of Dhanuka & Sons Vs. CIT 12 taxmann.com 227 where the Jurisdictional Hon’ble High Court of Calcutta has held as under : “Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income - Assessment year 1998-99 - Assessee earned dividend income apart from income from trading in share, interest and commission - Assessee claimed deduction of interest payment - Assessing Officer disallowed interest on proportionate basis alleging that part of it related to dividend income which is exempt under section 10(34) - Assessee submitted that for last few years before relevant previous year, no new share had been acquired and, thus, loan that was taken and for which interest was payable by it was not for acquisition of those old shares and, therefore, authorities below erred in law in not allowing deduction of interest - Whether mere fact that shares were old ones and not acquired recently was immaterial; it was for assessee to show by production of materials that those shares were acquired from funds available in its hand at relevant point of time without taking benefit of any loan - Held, yes - Whether since no such material was produced by assessee, authorities below had rightly disallowed proportionate amount of interest having regard to total income and income from exempt source - Held, yes”