TMI Blog2017 (11) TMI 1601X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the debit note. The ld CIT (A) has considered all the reasons given by the ld Assessing Officer for disallowance and after that has allowed the claim of the assessee. The ld Departmental Representative also could not point out any error in the order of the ld CIT (A). In view of this we confirm the finding of the ld CIT(A) in deleting the disallowance of ₹ 4.85 crores on account of reimbursement of the cost of short supply replenished to the buyer as deduction under the head ‘Profits and Gains‖ of the business. In the result, the solitary ground of appeal of the revenue is dismissed. Disallowance u/s 14A - Held that:- Admittedly, the assessee has earned exempt income of ₹ 55204/- as per page No. 7 of the assessment order. The above issue is squarely covered in favour of the assessee in case of Joint Investments Pvt. Ltd vs. CIT [2015 (3) TMI 155 - DELHI HIGH COURT] wherein, in para No. 9 Hon'ble High Court has held that disallowance cannot swallow the entire exempt income. Therefore, the disallowance u/s 14A confirmed by the ld CIT (A) of ₹ 1545259/- is restricted up to ₹ 55204/-. - ITA No. 5999/Del/2014, CO No. 170/Del/2015 And ITA No. 5999/De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s basis for ₹ 1806556340/- to M/s Rabirun Vinimay Limited. The buyer took delivery of the material at Paradeep port and It reported to the assessee that some of the items had not been received as per bill and the value of such items are determined by the buyer at ₹ 9.5 crores which was calculated on the basis of the expenditure incurred by the buyer for buying the same parts in order to make the project functional. Hence, the parties after discussion entered in to a settlement agreement and assessee agreed to compensate the buyer for ₹ 4.85 cr out of the total additional cost incurred by buyer. Accordingly, the buyer raised a debit note on 12/03/2010 for short supply of ₹ 4.85 crores towards the settlement based on the settlement deed dated 01/03/2010 between the parties. The settlement deed provided that the assessee was doing business the buyer of the goods for a fairly long time and to maintain the business relation in future also both the parties decided to settle the dispute amicably with regard to the short supply of equipments. As per the claim of the buyer, vital parts from CR mill equipment are missing and therefore the buyer to complete the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er both were not in position to identify the party out of the 3 overseas sellers who have actually responsible for the so-called short supply. Ld. assessing officer was further of the opinion that assessee has reduced the above amount from the total sales made by the assessee to the above party. However, according to him, the assessee as short supply should have recorded such amount. Therefore, according to the Ld. assessing officer the above claim of the assessee was not a bonafide and he further held that even the case of purchase by the buyer on on high seas sales is also not bonafide. He further held that settlement deed and related correspondence between the parties regarding short supply of goods does not have any evidentiary value. Therefore, he made disallowance of ₹ 4.85 crores to the total profit of the assessee. 7. On appeal before the Ld. CIT (A), the above addition deleted the above deletion as under:- 8.1 I have considered the Observations of the Assessing Officer and Submissions of the Appellant. It is seen from the Assessment Order that the Assessee is engaged in the business of Trading in Iron Steel, Wheat Pulses, Diamond, Garments, Machinery Equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated at ₹ 9.50 Crores, which was calculated on the basis of the expenditure incurred by M/s Rabirun Vinimay Pvt. Ltd. for buying the same parts in order to make the project functional. The Assessee stated that it was agreed between the Assessee and M/s Rabirun Vinimay Pvt. Ltd. that the buyer would raise debit notes of ₹ 4,85,00,000/- on the Assessee, and thus the Assessee and M/s Rabirun Vinimay Pvt. Ltd. would share the loss due to Short Supplies which amounted to ₹ 9.50 Crores. On the raising of such Debit Note dated 12.03.10, an amount of ₹ 4,85,00,000/- was debited towards settlement of Short Supplies. Such Debit Note was raised by M/s Rabirun Vinimay Pvt. Ltd. on the basis of the Settlement Deed dated 01.03. between M/s Jain Enterprises and M/s Rabirun Vinimay Pvt. Ltd. in which it was inter alia stated as under :- Whereas the first party and second party are doing business since a long time and to maintain the same in future have mutually agreed to settle the dispute with regard to short supply of shipment. Whereas the real dispute between the parties is with regard to short supply of material. As per the second party, they are li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the income merely on the basis of suspicion. 8.5 It has been vehemently argued by Sh. R.S. Singhvi, CA, the Learned Counsel of the Appellant that the Assessing Officer did not disbelieve or have any doubt about the genuineness of the transaction i.e. the purchase of the CR Mill Equipment by High Seas Sales from foreign parties at ₹ 178,86,69,647/- and its sale to M/s Rabirun Vinimay Ltd., Kolkata, which were recorded in the Books of Account and that only part of the transaction i.e. loss of ₹ 4,85,00,000/- on account of Short Supply was suspected and disallowed on adverse observations of technical nature. It was claimed that once the purchase of ₹ 1,78,86,69,647/- was debited and the sale of ₹ 1,80,65,56,340/- was credited in the accounts, and these were not doubted, the subsequent debit of ₹ 4,85,00,000/- in the same transaction was disallowed merely on the basis of suspicion. It was stated by the Ld. Counsel that the Assessing Officer was motivated for disallowance on the basis of the original nomenclature of the loss as Sales Return and subsequent nomenclature of the loss as Business Loss ; and that once it was clear that it was a case of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank statement c. Euro Eagle General Trading FZC i. Copy of Commercial Invoice with packing list ii. Copy of Bill of Lading iii. Copy of bill of exchange iv. Copy of ledger account v. Copy of Bank statement B. Documents relating to Sales ( M/s. Rabirun Vinimay P. Ltd.) a. Copy of Retail Invoice b. Copy of High Sea Sale contract c. Copy of Bill of Entry for Home Consumption d. Copy of Calculation Sheet of Margin e. Copy of list of Missing Quantity f Copy of Confirmation of Account g Copy of Assessee s Ledger Account h. Copy of ITR Acknowledgement C. Settlement deed. D. Debit Note The Assessing Officer has not disputed the genuineness and correctness of these documents and merely raised doubts because of claim of loss. There is no dispute that payment for purchases was through banking channels with the approval by Reserve Bank of India. Similarly, receipt from buyers was also through banking channels. In fact, the Assessing Officer himself has considered the profit emanating from the very same transaction to the extent of ₹ 1,78,86,693/- as per particulars extracted in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the transactions. 8.8 It is seen that the Ld. Assessing Officer has come up with a theory of several types of evidence, which is seen from a perusal of Para 2.4 on Page 5 of the Assessment Order. The Ld. Assessing Officer has mentioned several types of evidence which include 'Available Evidence', 'Crucial Evidence', 'Neutral Evidence', 'More Evidence' and 'Missing Evidence'. The Assessing Officer has very appropriately mentioned in Para 2.4 on page 5 of the Assessment Order that Every transaction or issue has to be examined in the light of totality of the evidence and also the surrounding circumstances. In a case where the genuineness of transactions apparent on the basis of evidence available and surrounding circumstances, then even if some of the evidence is missing or not available, there is no difficulty in accepting the transaction as genuine. . However, thereafter, the Assessing Officer has propounded his theory about various types of evidences such as 'Available Evidence', 'Crucial Evidence', 'Neutral Evidence', 'More Evidence' and 'Missing Evidence'. Other than the 'Available Eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has further stated that If it is a case of collusive transaction, the evidence submitted by the assessee can be termed as neutral evidence, which the assessee might have fabricated to make an apparent case. . It is seen that the Assessing Officer has not even given the clear finding that it is a collusive transaction and has just mentioned the possibility that it may be a collusive transaction stating that If it is a case of collusive transaction... . Further, It has not been specified as to what is implied by Neutral Evidence , though the Assessment Order appears to suggest that the evidence submitted in the case of collusive transaction would be a 'Neutral Evidence', but even that is not clear and the order further mentions that the neutral evidence, which the assessee might have fabricated , suggesting that 'Neutral Evidence' was one which was fabricated. However, even though apparently suggested by the Assessment Order, this conclusion cannot be drawn, as the Assessing Officer has not given any clear finding that 'Neutral Evidence' was one which was fabricated, in view of the use of the word might , which shows the uncertainty. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction . If the Assessing Officer was convinced that the transaction was a collusive transaction, then he should have given a clear finding that he was holding that the transaction was a collusive transaction, his reasons for such a decision alongwith the evidences and material for the same. However, it is seen that the Ld. Assessing Officer has merely voiced his suspicion about the possibility of the transaction being collusive. The reasons given by the Ld. Assessing Officer for his suspicion was that the other party i.e. M/s Rabirun Vinimay Pvt. Ltd. could have made part of the payment for the purchase of CR Mill Equipment to the extent of ₹ 4,85,00,000/- out of undisclosed Cash which could have been received by the Assessee, the Assessee gaining by concealing the receipt of this Cash and M/s Rabirun Vinimay Pvt. Ltd. gaining by utilizing its undisclosed Cash. However, this again is a theory made up by the Ld. Assessing Officer without any evidence or material in support and is at best in the nature of a suspicion only. Any addition to the income cannot be made merely on the basis of suspicion. If the Ld. Assessing Officer had any information, evidence or material or even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Supreme Court of India in the case of Krishak Bharati Co-operative Ltd. vs. JCIT, 310 ITR 400, as under (as per Catchwords) :- Industrial undertaking-service charges-whether qualify for deduction- assessee manufacturing urea and ammonia-supplying ammonia gas to heavy water plant located in its premises and receiving service charges- ammonia gas returned to assessee after extracting deuterium-whether there was interdependence-appellate tribunal rejecting claim for allowance owing to paucity of facts-supreme court-matter remanded to appellate tribunal for reconsideration after permitting parties to produce relevant evidence- income-tax act, 1961, s. 80-i. 8.17 It has been held by the Hon'ble Allahabad High Court in the case of Ajeet Singh vs. Appropriate Authority, 226 ITR 330, as under :- This is a case where the authorities have deliberately or ignorantly refused to consider the cogent and relevant evidence and relied on irrelevant and extraneous considerations. The authorities are guilty of non-application of mind and have failed to apply the established principles and method of valuation of property and as such the said order suffers from severe infirmity bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Dalmia Cement (P) Ltd., 254 ITR 377. 9.1 The Ld. Assessing Officer has also stated in Para 2.5 of page 6 of the Assessment Order that No prudent businessman would enter into such a highly risky deal for a mere return of 1%.Again, it is not for the Revenue to dictate as to how the business should be run and what risks the Assessee should take and at what return. If the ld Assessing Officer was of the view that the transactions for purchase and sale which gave a return of only 1% were false, then some evidence or material should have been collected, but adverse inference can be drawn merely on the basis of suspicion. The Assessing Officer has himself stated in Para 2 on page 1 of the Order dated 28.03.13 that the assessee is engaged in bulk trading of the above items on low profit margin . Once it is accepted by the Assessing Officer that the nature of business of the Assessee is bulk trading of items on low profit margin , there is no reason to take adverse view against one particular transaction which is again in the nature of bulk trading on low profit margin. Further, though much higher profit rates are possible and have been confirmed by Courts and Tribunals (for inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on different footing than the assessee. 9.3 In the present case also, the Assessing Officer has not pointed out any mistake in the purchase, sales etc. nor in the details of Short Supplied items. In fact, the situation in the instant case is even worse than the case of Girish M. Mehta (supra), as in that case, the Assessing Officer had drawn adverse inference against the profit rate by at least comparing it with some other concern. There was no such comparison by the Assessing Officer in the present case for drawing adverse inference against the rate of return being only 1%. It is again seen that the observations of the Ld. Assessing Officer are in the nature of suspicion only. 9.4 The Ld. Assessing Officer has further stated in Para 2.5 on page 6 of the Assessment Order that assessee has no correspondence worth the name with the overseas sellers in the aftermath of the so called disclosure of short supplies.From the allegation itself, it is clear that he Assessee did have some correspondence, but in the opinion of the Ld. Assessing Officer it was not worth the name . It is again seen that the Ld. Assessing Officer has made generalized allegations, without any substanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Rabirun Vinimay Pvt. Ltd. was also at fault as it did not verify the goods at the time of taking delivery from the overseas parties. In such a situation, the options before the two parties involved were, firstly, that the parties share the loss incurred, or secondly, go through protracted litigation whose outcome could not be predicted. 9.7 It is seen that the Ld. Assessing Officer has made further suspicions as to how the party responsible for Short Supplies out of the 3 overseas sellers could not be identified. However, it is seen that the goods were never in the actual possession of the Assessee who acquired the goods by way of High Seas Sales and sold the goods to M/s Rabirun Vinimay Pvt. Ltd., who took the possession of the goods at Paradip Port. It has been stated by the Assessee that we had purchased the complete plant as part of high seas sales and there is no details of component of the same in the purchase invoice. The total value of plant was ₹ 178,86,69,647 and value of missing or defective items was to the extent of ₹ 9,50,00,000/-, which is only a fraction of the total value. In fact these items are merely internal parts of the plant and as such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. Assessing Officer was dissatisfied with the method of accounting, then that matter should have been pursued further and in case any adverse evidence or material was found, the Books of Account could have been rejected u/s 145(3) of the I.T. Act, 1961. It is seen that neither the Books of Account were rejected, nor any adverse evidence or material was found against them. 9.9 The Ld. Assessing Officer has in the concluding part of Para 2.5 on page 6 of the Assessment Order has stated that The evidence in the form of settlement reached between the assessee and M/s Rabirun Vinmay (P) Ltd. is self-serving in nature. The settlement deed and related correspondence between these two parties does not have any evidentiary value, so long as it is complemented by evidence generated at the end of the overseas seller, actually responsible for the so-called short supplies of goods. Therefore, I am making an addition of ₹ 4,85,00,000/- to the total profits of the assessee.‖. It is seen that the Ld. Assessing Officer has rejected the settlement between the Assessee and M/s Rabirun Vinimay Pvt. Ltd. claiming that the settlement is self serving in nature and that the Settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the Ld. CIT- A. He submitted that the Ld. CIT (A) has considered all the arguments of the Ld. assessing officer and stated that the loss claimed by the assessee is genuine. He further submitted that such losses arise during the course of the business and is incurred during the year and therefore this claim is allowable. It was further stated that assessee has produced the complete details of such claim before the assessing officer in the form of details of purchases of the goods imported and as well as all details with respect to the high seas sale of the goods. The assessee has further produced the income tax return copies of the buyer as well as the settlement deed between the parties. He further stated that the Ld. assessing officer accepted the transaction of the purchases and sales of the goods and merely because there was a short supply from such a huge transaction, the loss incurred by the original buyer and partly compensated by the assessee, is not accepted. The Ld. assessing officer has also not stated that what more evidences were required to be produced by the assessee when the buyer has confirmed the above claim reimbursed to that assessee. He therefore sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radip port reported that there is a short supply of goods. As the goods were in short supply to complete the project of CR mill equipments, the buyer incurred the cost of buying those goods from the outside market. Therefore, the buyer incurred an additional cost of ₹ 9.5 crores. To compensate this loss the buyer and the assessee entered into a settlement deed where the material facts as well as the reasons for entering into the settlement deed were noted. According to the settlement deed, the buyer raised a debit note of ₹ 4.85 crores on the assessee and the assessee as a business loss made such claim. However while recording the purchases and sales in the books of accounts of the assessee reduced a sum of ₹ 4.85 crores from the total sales recorded therein of CR mill equipment. The claim of the assessing officer is that that assessee has reduced this sum from the sales, but should have been recorded as short supply. We do not find any merit in the argument of the Ld. assessing officer with respect to the accounting entries made by the assessee. In fact, the assessee has recorded the actual sales after reducing the short receipt or sales price reduced on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer also verified that the buyer has accounted for this loss may be towards the reduction in the cost of the purchase of the fixed assets by the buyer, but that does not make any difference regarding the claim of the assessee. As the above loss has been incurred by the assessee during the course of the business and incurred during the year, hence, the assessee is entitled to get the deduction of the same. Regarding the genuineness of the claim, it is supported by the settlement deed and confirmation of the buyer who received the above sum by issuing the debit note. The ld CIT (A) has considered all the reasons given by the ld Assessing Officer for disallowance and after that has allowed the claim of the assessee. The ld Departmental Representative also could not point out any error in the order of the ld CIT (A). In view of this we confirm the finding of the ld CIT(A) in deleting the disallowance of ₹ 4.85 crores on account of reimbursement of the cost of short supply replenished to the buyer as deduction under the head Profits and Gains‖ of the business. In the result, the solitary ground of appeal of the revenue is dismissed. 11. In the result, ITA No. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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