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Income Tax Appellate Tribunal, BENCH, NAGPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
.......अपीलाथ� / Appellant बनाम / V/s. The Pr. Commissioner of Income Tax (Central), Nagpur. ……��यथ� / Respondent Assessee by : Shri Rajesh V Loya, AR Revenue by : Smt. Agnes P Thomas, DR सुनवाई क� तार�ख / Date of Hearing : 16.02.2022 घोषणा क� तार�ख / Date of Pronouncement : 05.04.2022 आदेश / ORDER
PER RAVISH SOOD, JM :
The captioned appeals filed by the aforementioned assessee companies are directed against the respective orders passed by the Pr. Commissioner of Income Tax (Central), Nagpur (for short ‘Pr. CIT’) under Section 263 of the Income-tax Act, 1961 (“Act”, for short), dated 09.03.2016, which in turn arises from the respective orders passed by the A.O under Sec. 143(3) of the Act, dated 03.03.2014 for assessment year 2011-12. As common issues are involved in the captioned appeals, therefore, the same are being taken up and disposed off together by way of a consolidated order. We shall first take up the appeal filed by the assessee, viz. Gupta Domestic Fuels (Nagpur) Ltd. in , wherein the impugned order has been assailed on the following grounds of appeal before us:
“(1) That the notice and the order of the Learned Pr. Commissioner of Income Tax (Central), Nagpur passed u/s. 263 is bad in law and wrong on facts. On the facts and circumstances of the case, the assessment order passed by the AO u/s. 143(3) was neither erroneous nor prejudicial to the interest of the revenue and the notice u/s. 263 and the proceedings thereafter are illegal and liable to be quashed. (2) That the learned Pr. CIT erred in law and on facts in holding that the interest on unsecured loans Rs.44,26,767/-, Brokerage charges on unsecured loans Rs.75,656/- and processing charges of Rs.5,44,412/- are not allowable. On the facts and circumstances of the case, the expenditure is incurred for the purpose of the business and the learned Pr. CIT erred in directing the AO to disallow such expenditure. (3) That the learned Pr. CIT erred in law and on facts in holding that the assessee has not done any real business and hence the AO should have rejected the claim of trading loss. On the facts and circumstances of the case the Pr. CIT failed to appreciate that the AO had carried out detailed scrutiny of assessee's records and have verified the allowability of the expenses claimed before passing the assessment order. (4) That for any other ground with kind permission of your honour at the time of hearing of appeal.”
Succinctly stated, the assesee company which is engaged in the business of processing of coal products, trading of coal and steel, HR sheets etc., had e-filed its return of income for the assessment year 2011-12 on 30.03.2012, declaring a net loss of Rs.7,74,51,051/-.
Subsequently, the case of the assessee company was selected for scrutiny assessment u/s. 143(2) of the Act.
3. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee was engaged in coal trading business wherein all the transactions were non-delivery based i.e., no physical delivery of the trading commodity was therein involved. It was noticed by the Assessing Officer that the assessee had categorically admitted that trading transactions in its books of account as well as those of its sister concern were non-delivery based. Considering the nature of the assessee’s business the Assessing Officer was of the view that the assessee had not carried out actual purchase and sales of goods. It was observed by him that all the coal trading transactions were non-delivery based i.e. trading on spot delivery basis. It was observed by the A.O that the assessee had carried out the aforesaid transactions for the purpose of availing L/C facility from the bank i.e., receiving short term bank credit by showing higher turnover to banks.. On the basis of his aforesaid deliberations, the Assessing Officer was of the view that as the assessee was involved in non-delivery-based transactions wherein no physical movement of coal was involved, therefore, the opening stock, sale, purchase, closing stock and gross profit shown by it were merely notional and not real and tangible. In order to support his aforesaid conviction the Assessing Officer drew support from the fact that the assessee company had not debited any transportation charges in its Profit & loss account. Considering the aforesaid nature of business of the assessee, the Assessing Officer was of the view that the assessee’s claim for deduction of expenses was to be restricted to only those expenses which were genuinely incurred to carry out its non-delivery transactions or paper transactions. Observing, that the assessee had in its Profit & loss account debited various expenses which were not be required to be incurred in the case of business involving paper transactions, the Assessing Officer decided to allow only those expenses which were genuinely incurred to carry out such non-delivery transactions or paper transactions. On the basis of his aforesaid deliberations the Assessing Officer called upon the assesee to substantiate the genuineness of the expenses and put forth an explanation as to why the allowability of its claim for deduction be not restricted to the expenses which were genuinely incurred to carry out paper transactions. After considering the reply of the assessee the Assessing Officer disallowed the following expenses: Particulars Amount (Rs.) Remarks Manufacturing 1,92,713 Since there is no manufacturing required expenses is paper transaction Consultancy charges 3,09,887 Since there is no consultancy work required in paper transactions Travelling expenses 1,57,126 Since there is no travelling required for (Director) paper transactions Professional fees 23,309 Since there is no professional services are required in paper transactions Selling expenses 12,585 Since there is no actual/physical sale and purchase of goods Interest paid to 1,04,87,959 Interest expenses are disallowed since bank the assessee is only carrying out paper transaction and not any actual business.
Interest paid to 13,83,463 Interest expenses are disallowed since others the assessee is only carrying out paper transaction and not any actual business.
Interest on vehicle 70,518 Interest expenses are disallowed since loan the assessee is only carrying out paper transaction and not any actual business.
Bank commission 24,83,945 Bank charges are disallowed since the and charges assessee is only carrying out paper transaction and not any actual business. Total 1,51,21,505 After disallowing the aforesaid expenses of Rs.1,51,21,505/- (supra), the Assessing Officer vide his order passed u/s.143(3) of the Act, dated 03.03.2014 assessed its total loss at Rs.6,15,33,580/-.
After culmination of the assessment proceedings the Pr. CIT called for the assessment records of the assessee. Observing, that now when the assessee had itself in the course of search proceedings and thereafter admitted that it was only carrying out paper transactions and there was no actual business, therefore, the Assessing Officer had erroneously disallowed only certain expenses, viz. manufacturing expenses, consultancy charges, travelling expenses, professional fees, selling expenses, interest paid to bank and others and bank commission, and had failed to disallow the remaining expenses aggregating to Rs.50,46,835/-, as under: (i) Interest on unsecured loans Rs.44,26,767/- (ii) Brokerage charges on unsecured loans Rs. 75,656/- (iii) Processing charges Rs. 5,44,412/- Total Rs.50,46, 835/- , the Pr. CIT was of the view that the failure on the part of the A.O to disallow the aforesaid balance expenses had rendered his order erroneous in so far as it was prejudicial to the interest of the revenue under Section 263 of the Act. It was also observed by the Pr. CIT that now when the assessee had itself accepted the fact that no physical delivery of purchases and sales had taken place, therefore, there could have been no trading loss as claimed by the assessee. Backed by his aforesaid observations the Pr. CIT called upon the assessee to explain that as to why the order passed by the Assessing Officer under Sec. 143(3), dated 03.03.2014 may not be revised u/s 263 of the Act. As the reply filed by the assessee did not find favor with the Pr. CIT, therefore, he vide his order passed u/s. 263 of the Act, dated 09.03.2016 held the assessment order passed by the Assessing Officer u/s. 143(3) of the Act, dated 03.03.2014 as erroneous in so far it was prejudicial to the interest of the revenue, and, set aside the same with a direction to him to pass a fresh order after affording a reasonable opportunity of being heard to the assessee.
The assessee being aggrieved with the order passed by the Pr. CIT u/s. 263 of the Act, dated 09.03.2016 has carried the matter in appeal before us.
We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. As is discernible from the records, we find, that as stated by the Ld. Authorized Representative (for short ‘AR’), and rightly so, the assessee had never claimed that it had not carried out any actual business and was only involved in paper transactions and accommodation entries. On a perusal of the assessment order, we find that it was claimed by the assessee that it was involved in the business of coal trading transactions which were non-delivery based i.e. no physical delivery was therein involved. In fact, we find that the Assessing Officer after categorically referring to the statement of Shri Mahesh Gupta, Director of the assessee company, had observed, that the assessee company was involved in trading on spot delivery basis i.e., trading without delivery of goods. Apart from that, the Assessing Officer had also observed that the aforesaid arrangement of carrying out paper transactions by the assessee was backed with a purpose of raising L/C facility i.e, raising of short term bank credit by showing higher turnover to banks. Observing, that the assessee was engaged in the trading of coal without actual delivery, we find that the Assessing Officer had on the said count restricted the assessee’s claim for deduction of expenses to only those which were related to non-delivery based transactions or paper transactions. It was categorically observed by the Assessing Officer that only those expenses which were genuinely incurred by the assessee to carry out paper transactions could reasonably be allowed. It was in the backdrop of the aforesaid observations that the Assessing Officer had disallowed expenses to the tune of Rs.1,51,21,505/-.
In our considered view, the Pr. CIT had proceeded with absolutely on the basis of misconceived facts. The very basis for the Pr. CIT to infer that the assessee company was not carrying out any actual business and was only involved in paper transactions and accommodation entries is absolutely incorrect and fallacious. In fact, we may herein observe, that the reference to paper transactions of the assessee by the Assessing Officer was in the context of the fact that the assessee was carrying out coal trading transactions which were non-delivery based i.e. no physical delivery of the commodity was therein involved. As noticed by us hereinabove, the Assessing Officer on the basis of his aforesaid observations that the assessee was engaged in the business of coal trading transactions which were non- delivery based i.e. trading on spot delivery basis, had thus, for the said reason concluded that the assessee’s claim for deduction of expenses were to be restricted only to those which were related to non-delivery transactions or paper transactions.
On the other hand, we find that the Pr. CIT had construed the paper transactions of the assessee as if no actual business was being carried out by it. In our considered view, not only the basis adopted by the Pr. CIT is found to be fallacious, but also, the same is not consistent with the past history of the assessee. As brought to our notice by the Ld. AR, the Assessing Officer while framing assessment in the assessee’s own case for the immediately preceding year i.e, assessment year 2010-11, had observed, that the assessee’s claim for deduction of the expenses was to be restricted to only those expenses which were related to non-delivery based transactions or paper transactions and had allowed those expenses which were genuinely incurred to carry out such transactions. It was submitted by the Ld. AR that the Assessing Officer on the basis of his aforesaid observations had therein allowed the assessee’s claim for deduction of interest to banks on the L/C transactions and finance facilities, bank charges and commission paid for L/C discounting, as well as interest paid to others for securing funds for the purpose of business. On further appeal, it was observed by the CIT(Appeals), that as the assessee had carried out regular business activities on which profit was earned, therefore, expenses incurred for such transactions or for facilitating the business had to be allowed. It was further submitted by the Ld. AR that the CIT (Appeals) had observed, that as the assessee had incurred expenditure, as regards which neither any defect/infirmity had been pointed out by the Assessing Officer, nor any evidence was found during the course of search on the basis of which the Assessing Officer could have disallowed such expenditure, therefore, taking cognizance of the fact that in the earlier years also the assessee’s claim for deduction of expenses was allowed, it was observed by him that as the assessee had carried out a regular business activity on which profit was earned, therefore, the expenditure incurred for such transactions or for facilitating the business had to be allowed. It was further submitted by the Ld. AR that the CIT(Appeals) while disposing off the assessee’s appeal for assessment year 2010-11 had vacated the disallowance of the assessee’s claim of expenses of Rs.1,63,64,142/- that was made by the Assessing Officer. It was further submitted by the Ld. AR that the aforesaid order of the CIT(Appeals) had thereafter been upheld by the Income Tax Appellate Tribunal, Nagpur vide its order in & CO No.24/NAG/2017, dated 29.03.2019, and the appeal filed by the Revenue was dismissed.
On the basis of the aforesaid facts, it was submitted by the Ld. AR that as there have been no shift in the business of the assessee company during the year under consideration as against that of the immediately preceding year i.e, A.Y 2010-11, therefore, no infirmity did emerge from the allowing by the Assessing Officer vide his order passed u/s.143(3) of the Act, dated 03.03.2014 of the assessee’s claim for deduction of expenses i.e, to the extent the same were incurred to carry out non-delivery based trading transactions
We have given a thoughtful consideration to the issue before us, and find that the Assessing Officer had after deliberating at length arrived at a plausible view i.e., allowing of the assessee’s claim for deduction of expenses to the extent the same were genuinely incurred in the course of its coal trading transactions on a non-delivery basis. In sum and substance, the Assessing Officer had after due application of mind restricted the assessee’s claim for deduction to only those expenses which were related to its non-delivery based transactions or paper transactions. Apart from that, the view so taken by the Assessing Officer is found to be in conformity with that taken in the assessee’s own case for the assessment year 2010-11, which as observed by us hereinabove had been approved by the Tribunal vide its order passed in & CO No.24/NAG/2017, dated 29.03.2019. On the basis of our aforesaid observations, we have no hesitation to hold that the Pr.CIT had approached the issue in question absolutely on the basis of misconceived and incorrect facts i.e., by construing the term non-delivery based transactions or paper transactions as if no actual business was done by the assessee. Also, as observed by us hereinabove, the view taken by the Assessing Officer i.e, allowing of the assessee’s claim for deduction of certain expenses that were genuinely incurred in the course of its non-delivery based coal trading transactions is in conformity with the order passed by the Tribunal in the assessee’s own case for the immediately preceding year i.e., A.Y 2010-11 in ITA No. ITA No.201/NAG/2014 & CO No.24/NAG/2017, dated 29.03.2019. Backed by our aforesaid observations, finding no infirmity in the view taken by the Assessing Officer, we are unable to persuade ourselves to subscribe to the order passed by the Pr. CIT u/s.263 of the Act dated 09.03.2016 and thus, set-aside the same and restore the order passed by the Assessing Officer u/s.143(3) of the Act, dated 03.03.2014. Thus, the Grounds of appeal Nos. 1 to 3 are allowed in terms of our aforesaid observations.
The Ground of appeal No. 4 being general in nature is dismissed as not pressed.
In the result, appeal of the assessee in 2011-12 is allowed in terms of our aforesaid observations. A.Y.2011-12 13. As the facts and the issues involved in the present appeal remains the same as were there before us in the aforementioned appeal of M/s Gupta Domestic Fuels (Nagpur) Ltd., in ITA No. 308/Nag/2016 for assessment year 2011-12 in ITA No.308/NAG/2016, therefore, our order therein passed while disposing off the said appeal shall apply mutatis-mutandis for disposing off the present appeal of the captioned assessee i.e, M/s Gupta International Industries Ltd. in ITA No.309/NAG/2016 for the assessment year 2011-12. In this case also, we, herein, set-aside the order passed by the Pr. CIT u/s.263 of the Act, dated 09.03.2016 and restore the order passed by the Assessing Officer u/s.143(3) of the Act, dated 03.03.2014.
In the result, appeal of the assessee in for the assessment year 2011-12 is allowed in terms of our aforesaid observations.
Resultantly, both the appeals of the assessee are allowed in terms of our aforesaid observations. Order pronounced in open court on 05th day of April, 2022.
Sd/- Sd/- JAMLAPPA D. BATTULL RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 05th April, 2022 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2.
The Pr. CIT ( Central), Nagpur. 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, नागपुर/ DR, ITAT, Nagpur. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
Date 1 Draft dictated on 22.03.2021 Sr.PS/PS 2 Draft placed before author 22.03.2021 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order