TMI Blog2020 (1) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... ME COURT] we direct the ld. AO to delete the disallowance made on account of rent payment and society maintenance charges. Accordingly, the ground Nos.1 2 raised by the assessee are allowed. Determination of net profit of Bhilai Unit by adopting 5% of turnover thereon - HELD THAT:- We find that the ld. AR fairly stated that he is agreeable for adoption of 5% net profit in respect of its Bhilai Unit and hence, this ground raised by the assessee is dismissed. Disallowance u/s.14A - HELD THAT:- We find that the law is now very well settled that the disallowance u/s.14A of the Act should be restricted only to the extent of exempt income. Reliance in this regard is placed on the decision of Hon ble Delhi High Court in the case of Joint Investment Pvt. Ltd. [ 2015 (3) TMI 155 - DELHI HIGH COURT] . We direct the ld. AO to restrict the disallowance only to the extent of ₹ 1,575/- being the exempt income. Disallowance of foreign expenses - HELD THAT:- CIT(A) after verifying the Board resolution and appreciating the fact that turnover has substantially increased during the year under consideration pursuant to the said foreign visits observed that assessee had duly est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odus Operandi of DOC trading business of the assessee and the said goods being available as security for earning finance for the assessee within a time gap of three weeks. Since the ld. CIT(A) had not asked for a remand report or not given proper opportunity for the ld. AO to understand the entire facts of the case, we find that the principles of natural justice have been grossly violated in the instant case. Hence, we deem it fit and appropriate, in the interest of justice and fair play, to remand this issue to the file of the ld. AO for denovo adjudication in accordance with law. The assessee is at liberty to furnish further evidences, if any, in support of its contentions. Accordingly, the ground No.1 raised by the revenue is allowed for statistical purposes. - ITA No.1631/Mum/2016, 1731/Mum/2016, 2674/Mum/2016 (Assessment Year :2011-13) - - - Dated:- 11-12-2019 - SHRI MAHAVIR SINGH, JM AND SHRI M. BALAGANESH, AM Assessee by: Shri Haridas Bhat Revenue by: Shri Anadi Varma Shri S. Michael Jerald ORDER PER M. BALAGANESH (A.M): These cross appeals in ITA No.1631/Mum/2016, 1731/Mum/2017 and 2634/Mum/2017 for A.Y.2011-12 2012-13 arise out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent stand during this year alone. Following the principle of consistency as approved by the decision of the Hon ble Supreme Court in the case of Radhasaomi Satsang vs CIT reported in 193 ITR 321, we direct the ld. AO to delete the disallowance made on account of rent payment and society maintenance charges. Accordingly, the ground Nos.1 2 raised by the assessee are allowed. 4. The ground No.3 raised by the assessee is with regard to determination of net profit of Bhilai Unit by adopting 5% of turnover thereon. We find that the ld. AR fairly stated that he is agreeable for adoption of 5% net profit in respect of its Bhilai Unit and hence, this ground raised by the assessee is dismissed. 5. The ground No.4 raised by the assessee is challenging the disallowance made u/s. 40A(2)(b) of the Act in respect of Bhilai Unit amounting to ₹ 46,896/-. Since we have already held that the net profit of Bhilai unit should be determined at 5%, there cannot be any further disallowance / addition towards business expenditure or business income to the said estimated net profit. Accordingly, the ground No.5 raised by the assessee is allowed. 6. The ground No.5 raised by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance only to the extent of ₹ 1,575/- being the exempt income. Accordingly, the ground No.5 raised by the assessee is partly allowed. 7. The ground No.6 raised by the assessee is general in nature and does not require any specific adjudication. 8. In the result, the appeal of the assessee for A.Y.2011-12 in ITA No.1631/Mum/2016 is partly allowed. ITA No.2674/Mum/2016 (A.Y.2011-12) Revenue Appeal 9. The ground Nos.2 3 raised by the revenue are with regard to deletion of disallowance of salary paid to Mr. Sandeep Agarwal and Mrs. Chitra Agarwal by the assessee by invoking provisions of Section 40A(2)(b) of the Act. We find that similar payments were made by the assessee in earlier years and no disallowance was made by the ld. AO while framing scrutiny assessments as is evident from assessment orders for A.Yrs 2006-07 to 2011-12 placed on record by the ld. AR. Following the principle of consistency as approved by the decision of the Hon ble Supreme Court in the case of Radhasaomi Satsang vs CIT reported in 193 ITR 321, we direct the ld. AO to delete the disallowance made on account of salary payments to Mr Sandeep Agarwal and Mrs Chitra Agarwal. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the F.Y.2009-10 by the assessee. The assessee further pleaded that the turnover of Soya DOC Hypro have gone up substantially from ₹ 44.50 Crores to ₹ 126.15 Crores from F.Yrs 2009-10 to 2010-11 which was possible only as a result of these foreign visits wherein the Directors were able to promote the product of the assessee company in the European market. We find that the ld. CIT(A) after verifying the Board resolution and appreciating the fact that turnover has substantially increased during the year under consideration pursuant to the said foreign visits observed that assessee had duly established the business nexus thereon and accordingly, deleted the disallowance made by the ld. AO. It is not in dispute that Soya DOC Hypro was a new variety of DE oiled cake developed specially for the European market by the assessee and the same has been launched for the first time during the F.Y.2009-10. Hence, this product required to be promoted in the European market for which the Directors of the assessee company had visited the relevant foreign country. It is also not in dispute that the turnover has substantially increased from ₹ 44.50 Crores to ₹ 126.15 Crores du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by journal entry. The said amount of ₹ 18,00,41,709.54 has been earlier transferred to Maurya Merchandise s ledger account from various parties to whom payments have been made. The company has produced debit note of Maurya Merchandise for purchase rate difference of ₹ 18,00,41,709.54. It was informed to us that the said debit note is on account of purchase rate difference on purchase of Soya DOC made during the year. We are unable to comment on purchase rate difference of ₹ 18,00,41,709.54 charged by Maurya Merchandise in absence of market price of Soya DOC for the Financial Year 2010-11. 12.3. The ld. AO asked the assessee to justify the expenses debited on this account vide notice dated 15/09/2014. The assessee submitted vide letter dated 01/10/2014 its submissions by enclosing copies of debit notes issued by MUL alongwith the statement of the rate difference and agreement dated 05/06/2010 between MUL and the assessee. The assessee further submitted before the ld. AO as under:- a. The assessee had purchased soya seed of about 2.94 Lacs metric tons of the value ₹ 456 Crores and sold soya seed of 2.16 Lacs metric tons of value ₹ 381 Crores. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icient to explain the correctness and genuineness of the expenses. (9) The onus was on the assessee to establish its claim which it failed to do. Therefore the claim of the expenses of ₹ 18,00,41,709.54 cannot be entertained and thus disallowed. Penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income is initiated separately. j) Without prejudice to the above, such arrangement of buy back of goods was nothing but a tool to raise finance (as admitted by the assessee in its submission filed vide letter dated 13.10.2014) on which interest has been paid in the guise of rate difference. The assessee received such finance whenever DOC is sold to MUL. Total sale of DOC during the year was 381.42 Cr throughout the year on which the assessee paid interest of ₹ 18 Cr approximately in form of rate difference. The assessee did not deduct TDS on such amount. Therefore interest paid in the guise of rate difference shall not be an allowable deduction u/s 40(a)(ia). Penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income is initiated separately. 12.5. Before arriving at the aforesaid conclusion, the ld. AO had als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) MUL ought to have given Business advance/Loan to the appellant Company to the extent of ₹ 100 crores for the whole year, considering the interest rate @ 18% , or (100 crores X 18% = 18 crores) OR b) MUL ought to have given Business advance/Loan to the appellant Company to the extent of ₹ 150 crores for the whole year, considering the interest rate @ 12% (150 crores X 12% = 18 crores) 7.6 Whereas, contrary to above , MUL has not given any amount by way of Business advance/Loan to the appellant, as a matter of fact the audited accounts of the appellant shows that the appellant company has to receive the amount which was due from MUL and not payable. 7.7 The Ld. A.O. ought to have .considered following facts related to the nature of Business arrangements with MUL, which indeed are independent of each other and not related to each other. i) The agreement between the appellant (LVIL) and Mauria Udyog Ltd. (MUL) refers to the terms conditions of trading transaction of DOC at Commodity Exchange MCX/MCDEX and ii) The debit notes of difference in rates relates to DOC trading transaction between LVIL MUL, which are other then, the MCDEX trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presence with customers located at Iran-Iraq and European countries. MUL envisaged very strong synergy in taking up pursuing of dealing in processed soya products (DOC-Hypro DOC etc.) for Iran-Iraq and European Market, alongwith their existing Engineering Products Exports business. Whilst MUL desired to get exposure to the business related to processed soya products, M/s. Laxmi Solvex, found it more beneficial to pursue sale and purchase of processed soya product entailing the raising of liquid funds urgently required for making market payment towards Soya Seed Purchases, pending the ultimate sale and dispatch of goods to the foreign buyer resulting in maximizing of the volume of solvent extraction and exports of DOC with available limited funds and other resources as explained below. Therefore, by way of summing up the explanation for Trading Transaction between LVIL and MUL of processed soya products we explain below:- The Flowchart stated below explains the prevailing Trade Practice followed at various stages in processed soya product trade. On the Perusal of above Flow Chart of production of DOC at Solvent Extraction Plant and Loading of DOC on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F.Y. 2010-11 resulted in gross profit of ₹ 44.50 Lacs. Lastly, we confirm and state that, the DOC trading transaction with MUL does not include any transaction done at Commodity Stock Exchange - MCX/NCDX. The Ld. A.O. instead of understanding the modus operandi as per the above submission has drawn the conclusion that the said trading of DOC cargo between LVIL MUL was pursued with the objective of raising finance and the debit notes amount relates to interest payable. Whereas, as a matter of fact, the transaction between MUL LVIL relates to REGULAR Purchase and sale transaction of DOC, based on the customary practice followed in Soya Industry of entailing higher volume of business and consequent higher profitability. The said facts has also been explained by the appellant vide above submission and also duly supported by the statement of profit made in DOC trading. The Certificate of Chartered Accountants confirming the profitability from the Trading activities are attached. (Annexure: 18) The Ld. A.O. ought to have considered the submissions made by the A.R of the Appellant marked as No.8 vide letter dated 17/10/2014 of A.R placed on record and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the clearing House Agent which adequately confirmed the contention of appellant that entire transaction of DOC between LVIL MUL were en actual delivery and there were no transactions of DOC trading, without delivery of goods / DOC. The ld. A.O. ought to have considered and relied upon all the submissions placed on record and the fact that the A.O. did not examine and relied upon the submissions made during assessment proceedings indicates and confirms the contention of the appellant that the Ld. A.O had a time constrains and therefore completed the assessment proceedings under that limitations. The ld. AO ought to have considered, before completion of the assessment proceedings, the Submission by the A.R of the appellant marked as Submission No. 8 dated 17.10.2014 placed on record during the course of assessment proceedings. As a matter of fact the submission dated 17.10.2014 brought out the details desired by Ld. A.O. relating to profitability of trading activity of DOC, Qt value of DOC trading as stated below: (a) Comparative details of trading activities of DOC with Mauria Udyog Ltd. and others for the year ended 31.03.2011 and for the preceding y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission No.-6 dated 13.10.2014 placed on record brought out clarity on business profile of MUL and the reasons and basis of trading transaction between MUL LVIL which reads as under: b. The trading transaction has been undertaken by MUL primarily to understand and to get exposure of the soya processing and the Domestic and International Trade Practice in Soya Processed Products (DOC and Soya Oil etc.) c. Messrs MUL is a recognized Export House, engaged in the business of Merchant Exports and Exports of Engineering products manufactured by them. MUL has very strong business presence with customers located at Iran-Iraq and European countries. d. MUL envisaged very Strong Synergy in taking up pursuing of dealing in processed So/a products (DOC-Hypro DOC etc.) for Iran-lraq and European Market, along with their existing Engineering Products Exports business. e. Whilst MUL desired to get exposure to the business related to processed Soya products, M/s. Laxmi Solvex, found it more beneficial to pursue Safe and Purchase of processed Soya product entailing the raising of liquid funds urgently required for making market payment towards Soya Seed purchases, pending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs which were delivery based that there were No paper transaction of DOC trading, which were without actual delivery of goods, the documents evidence in the delivery of the goods have been disregarded, (b) The copies of Debit Notes, working of rate of difference, the working of rate difference in each invoice, the complete Ledger Extracts of MUL A/c in the books of LVIL, all these documents brought out clarity and established the nature of expenses debited through Debit Note, and the correctness of the rate difference as per the statement of rate difference charged in each invoice (c) the ledger account giving complete transaction and the confirmation of balance provided and other verification carried out while conducting the Special Audit u/s.142(2A) established the genuineness of the expenses debited (d) the non-relevance of agreement between MUL LVIL for MCX/NCDX transaction , so far it related to debit notes of rate difference (e) it is evident and established that despite considering the rate difference amount the DOC trading resulted in profit and therefore it is incorrect to consider that there is loss on account of rate difference, (f) the 25% service charge on transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oya seeds which are quickly crushed in a week to commence another three-week cycle of dispatch and eventual trading of DOC. These twin businesses of crushing of soya seeds and trading of DOC are hence peculiarly interdependent. 5.3.1 The appellant crushes soya seeds on behalf of MUL as well as on its own behalf. Insofar as DOC trading is concerned, it is carried out with regard to the DOC arising from the crushing of its own soya seeds, apart from the general trading of DOC emanating from other crushing units. The trade in DOC is hence carried out with several parties, MUL being just one of them. 5.3.2 According to the appellant, the final year-end debit note (which was preceded by monthly notes) indicates the difference in its DOC trading account with MUL, the total of such trade during the relevant previous year being ₹ 381.42 crores. According to the appellant, the AO has applied facts relating to the soya seeds crushing business to the DOC trading business and has come up with erroneous conclusions. It would be hence instructive to deal with all the objections of the AO in seriatum, as they appear in his order, since he has finally based his addition thereon. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note, MUL was a manufacturer of LPG cylinders, valves and regulators. As such it was not connected with either trading of soya seeds or with DOC . According to the appellant, the debit note briefly mentions the manufacturing activities of MUL. Its trading activity -carried out by its trading division viz. Maurya Merchandise - was simply not mentioned on the debit note. This by itself cannot be proof that MUL was not engaged in crushing (not trading) of soya seeds or in trading of DOC. After careful consideration, I am inclined to agree with the appellant. 5.3.2.7 According to the AO, there was no response to the notice under section 133(6) of the Act issued to MUL on 1st October 2014. Here, the appellant has come with a serious counter filing a copy of its letter 7lh October 2014, wherein it had provided the name and address of MUL. Thus, it was contended that the AO could possibly not have sent any notice under section 133(6) of the Act, in the absence of its address, which was provided to the AO only later. In my opinion, even if this counter were to be disregarded for a moment, the AO had neither brought this to the appellant's notice nor had he insisted on pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us. 12.9. We have heard rival submissions and perused the materials available on record. From the facts narrated above, we find that the assessee had entered into an agreement with MUL on 05/06/2010. The preamble to the said agreement and the relevant clauses which drives the operation of the said understanding are as under: WHEREAS: A. MUL is a company engaged in the business of Manufacturing and Export of Engineering products and dealing in commodities including exports of merchandise. B. Laxmi Solvex has a solvent extraction plant (hereinafter referred as Processing Unit ) at Gram Durgapura, AB Road, Dewas, M.P. having an installed capacity to crush 1500 MT per day and refinery capacity of 300 MT per day capable of converting soya seed into crude-oil and soya meal. C. Laxmi Solvex has represented to MUL that they have inhouse expertise of dealing in Soya and Other comoodities and also had during the lean season carried out the required maintenance and upkeep of the soya Processing Unit and possess the required trained and skilled manpower and is ready to operate the Processing Unit at full capacity during the entire season for the F.Y. 2010-11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Mandi license and in resolving other Mandi related issues. 3. Laxmi Solvex shall intimate the value of the goods taking the rates from NCDEX / MCX (Spot) or any other reference rate as decided mutually and advise MUL on a weekly basis. 4. Laxmi Solvex has represented that it shall at its Processing Unit process Soya Seeds to extract Soyabean Oil (Hereinafter also referred as Oil) and Soyabean De-Oiled Cake (hereinafter also referred as DOC) Laxmi Solvex shall process the Soyabeen seed within the ayieed peiiuu1 uf lecelpt of Soya Seeds in the Processing Unit. 5. The Parties agree that since the Soyabean Seed as well as Oil and DOC shall be stored and processed at the Processing Unit 01 Laxmi Solvex. and Laxmi Solvex having de facto possession shall be responsible for the safeguarding of the Stock. 6. Notwithstanding the above, Laxmi Solvex shall procure adequate insurance coverage for the Oil and DOC in the Processing Unit. Laxmi Solvex shall furnish a copy of the insurance policy taken for the Oil and DOC in the Processing Unit. 7. Laxmi Solvex agrees that if due to any unforeseen circumstance or otherwise, the Soya Seeds and/or Oil and/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind from the perusal of the debit notes raised every month on the assessee towards rate difference which are enclosed in pages 1-12 of the paper book, the same were raised by MUL on the assessee only towards sale of DOC and not soya bean. The said debit notes are also supported by the detailed workings on day to day basis duly representing the sale of DOC in quantity as well as rate and the rate difference thereon on each date. These documents are enclosed in pages 14 to 17 of the paper book filed before us. Hence, we categorically hold that reliance placed by the Revenue on Clause-2 of the said agreement basing which no claim shall be raised by MUL on the assessee deserves to be dismissed. 12.10.1. We find that the entire modus operandi of the said business has been explained in detail, which fact is not disputed by both the parties before us. We also find that the ld. AO had drawn an adverse inference against the assessee by observing that notice u/s.133(6) of the Act sent to MUL was not responded by MUL. We find that the entire modus operandi on DOC trading has been elaborated in para 5.2.2. of the order of the ld. CIT(A) as submitted by the assessee thereon. The rates for DO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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