THE DCIT, CENTRAL CIRCLE-2(2),, AHMEDABAD vs. M/S. JOHN ENERGY LTD.,, MEHSANA

These are cross appeals filed by the Revenue & Assessee against order dated 31.01.2017 passed by the CIT(A), Gandhinagar, Ahmedabad for the Assessment Year 2013-14.

The Revenue in its has raised the following grounds of appeal :-

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent”. The Assessee in its has raised the following grounds of appeal :-

Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

The Ld. AR, while contesting the appeal which was filed in consonance with the assessee’s appeal, submitted that the search was conducted in case of Praveen Kumar Jain under Section 153 and the order under Section 153D of the Act was passed. Therefore, in assessee’s case, no incriminating material was found and whether the appeal in respect of the order under Section 153D of the Act has been filed or not becomes immaterial.

The Ld. DR submitted that the order under challenge before the CIT(A) as well as before the ITAT is emerging from Assessment Order passed under Section 143(3) of the Act and the question of no incriminating material found will not be the criteria for quashing the Assessment Order under Section 143(3) of the Act.

We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Assessment Order under question before us is emerging from \Section 143(3) of the Act and though the Assessing Officer has taken cognisance of the investigation report dated 16.06.2015, the assessment is not solely upon the same search itself. On the contrary, the Assessing Officer has categorically given the genuineness of the transactions and the creditworthiness of the depositors which the assessee could not establish hence the contentions of the Ld. AR does not survive. & 711/Ahd/2017 Assessment Year: 2013-14 Page 5 of 8 8. As regards ground no.1 of the Revenue’s appeal relating to deletion of disallowance of professional and consultancy fee paid outside India of Rs 3,32,31,388/-, the Ld. DR submitted that the payment is that of the nature of professional and consultancy fees paid outside India but the assessee has not deducted taxes at source on certain payments. The provisions of Section 5 and 9(1)(vii) of the Act clearly mentions that taxability of payment of consideration by a resident assessee to non-resident assessee where the purpose of earning and the profit derived in India has to be taxed at source.

The Ld. AR relied upon the order of the CIT(A).

We have heard both the parties and perused all the relevant material available on record. The CIT(A) has categorically given finding that in the absence of clause pertaining to fees paid for technical services under the India UAE DTA as well as there being no evidence brought on record by the assessee to prove that there is business connection or permanent establishment of Gulf Engineering Consultancy FZC, UAE, in India, the consideration paid by the assessee to the UAE based party is not taxable in India and, therefore, there is no requirement under the provisions of the Act to withhold the taxes. Therefore, there is no requirement under the provisions of the Act to withheld the taxes. Therefore, the CIT(A) has rightly deleted the disallowance of the said payment under Section 40(a)(ia) of the Act. There is no need to interfere with the said finding of the CIT(A). Hence, ground no.1 of Revenue’s appeal is dismissed.

As regards ground nos.2 & 3 of the Revenue’s appeal, the same are general in nature and hence not adjudicated.

Now, coming to the assessee’s appeal, in respect of ground no.1, the same is general in nature and hence not adjudicated.

As regards ground nos.2.1, 2.4 & 2.2, the Ld. AR submitted that the assessee has discharged the initial burden cast upon it under Section 68 before the Assessing Officer thereby filing confirmation copy of bank statement, audit & 711/Ahd/2017 Assessment Year: 2013-14 Page 6 of 8 report and ITR. In fact, the Ld. AR submitted that impugned loans were repaid in subsequent year by cheques. The assessee paid interest and even TDS which was made from interest paid, thus initial burden was fully discharged. The Ld. AR relied upon the decision of ITO vs. M/s. Minimed Laboratories Pvt. Ltd. (ITA No 3585/Mum/2019, order dated 22.02.2023). The Ld. AR submitted that perusal of the ledger account of Josh Trading Pvt. Ltd. from the books of assessee for the A.Y. 2013-14 indicate that Rs.50,00,000/- each were transferred by a journal entry dated 29.08.2012 and 31.08.2012 respectively to the account of Viraj Mercantile Private Limited, so that, the said addition in respect of Viraj Mercantile Private Limited of Rs.1,00,00,000/- is unjustifiable in law and on facts. The Ld. AR submitted that both the Authorities failed to appreciate that the said addition of Rs.1,00,00,000/- in respect of Viraj Mercantile Private Limited was a journal entry which is not covered under Section 68 of the Act. The Ld. AR further submitted that in subsequent Financial Year Rs.2,00,00,000/- has been repaid by cheque and, therefore, no dues were remained from December 2013 onwards. The Ld. AR further submitted that the statement of Praveen Kumar Jain was subsequently retracted though the same was rejected by the CIT(A), still the retracted statement cannot be sole basis for making the addition which is in fact repaid by the assessee in subsequent Assessment Years.

The Ld. DR submitted that the Investigation Wing has clearly set out that Praveen Kumar Jain was found to be an entry provider and the Companies i.e. Josh Trading Pvt. Ltd. and Viraj Mercantile Private Limited and, therefore, merely repaying on paper the loan which was not actually a loan will not make the assessee to escape from his liabilities for the alleged accommodation entry transaction. The Ld. DR relied upon the Assessment Order and the order of the CIT(A).

We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Assessing Officer though has mentioned that the investigation report in case of Praveen Kumar Jain clearly set out that the transactions with alleged Companies is that of entry provider which was admitted by the said Praveen Kumar Jain for accommodation entries to & 711/Ahd/2017 Assessment Year: 2013-14 Page 7 of 8 various natures like bogus unsecured loans, bogus share application/capital and bogus sales and purchases to various beneficiaries including the entities of Josh Trading Pvt. Ltd. and Viraj Mercantile Private Limited, the fact remains that the assessee has duly entered these transactions in his accounts and in fact has repaid the said amount to these entities in subsequent year with interest. Therefore, the assessee’s role in accommodation entries has not been set out by the Assessing Officer directly and, hence, the addition made in the hands of the assessee on the basis of statement of Praveen Kumar Jain which was later on retracted cannot be criteria for making the addition. Hence, ground nos.2.1, 2.4 and 2.2 of the assessee’s appeal is allowed.

As regards ground no.3.1 related to disallowance of employees’ contribution to PF under Section 36(1)(va) of the Act, the same is decided by the Hon’ble Supreme Court in case of Checkmate Services (P.) Limited vs. CIT-1 (2022) 143 taxmann.com 178 (SC) against the assessee, hence, ground no.3.1 of the assessee’s appeal is dismissed.

In the result, appeal of the Revenue is dismissed and appeal of the assessee is partly allowed.