TMI Blog2019 (10) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 1277 - GUJARAT HIGH COURT] or only those investments should only be considered for the purpose of the disallowance which have resulted the dividend income. We are also conscious to the fact that the above judgments were rendered in connection with the income determined under normal computation of income but to our mind the same principles can also be applied to the case on hand. It is because, the provisions of section 115JB of the Act require to make the disallowance of the expenditure related to any income to which section 10 applies other than section 10(38) - we hold that the expenses incurred in connection with the exempted income cannot exceed the amount of such exempted income under the provisions of section 115JB of the Act. Accordingly, we limit the disallowance of the expenses to the extent of exempt income which is NIL in the case on hand. Thus no disallowance of the expense is warranted under section 115BJB of the Act. Hence the ground of appeal of the Revenue is dismissed. Suppression of production/sales after rejecting the books of accounts under section 145(3) - AO has compared the production of the tiles shown by the assessee with the companies available i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts are not sufficient enough and cogent to reject the books of accounts. Accordingly, we conclude that once the books of accounts of the assessee are not liable to be rejected then its book profit should be accepted in the given facts and circumstances. Depreciation on car - HELD THAT:- From the preceding discussion we note that the payment for the purchase of the car was made by the assessee though the same was registered in the name of the director. This fact can be verified from the assessment order as well as CIT (A) order. Thus it is clear that, the assessee was the beneficial owner of the car and accordingly it was eligible for claiming the deduction for the depreciation on such car. We hold that the assessee is eligible for depreciation on the car purchased by it but registered in the name of the director as the assessee is the beneficial owner of such car. Hence the ground of appeal of the Revenue is dismissed. - ITA No.1517/AHD/2016 And ITA No. 2451/AHD/2016 - - - Dated:- 23-10-2019 - Shri Waseem Ahmed, Accountant Member And Ms. Madhumita Roy, Judicial Member For the Assessee : Shri Ankit Talsania, A.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2 However, the AO being dissatisfied with the contention of the assessee computed the amount of disallowance as per rule 8D of Income Tax Rule as detailed below: i. direct expenditure NIL ii. interest expenditure 540723 iii. administrative expenditure 75000 total 615723 4.3 Accordingly, the AO disallowed the sum of ₹ 6,15,723/- under the provisions of section 14A read with rule 8D of income tax rule under the normal computation of income as well as under MAT computation of income. Aggrieved assessee preferred an appeal to the learned CIT (A). 5. The assessee before the learned CIT (A) submitted that there was no exempt income earned by it in the year under consideration. Therefore there cannot be any disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with such method as may be prescribed 89 , if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. 7.3 The above provision requires to makes the disallowance of the expenses in relation to the income which does not form part of the total income under this Act. The term used under section 14A of the Act amount of expenditure incurred in relation to such income implies that the expenditure cannot exceed the amount of exempted income. 7.4 In holding so we draw support and guidance from the judgment of Hon ble Delhi High Court in the case of joint investments private Ltd vs. CIT reported in 372 ITR 694 wherein it was held as under: By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issing the Special Leave petition. In view of the above, we hold that the disallowance of the expenses under section 14A read with rule 8D cannot be made in absence of exempt income. Hence we do not find any reason to interfere in the order of the learned CIT (A). 7.7 Regarding the disallowance under MAT, we note that the AO in the instant case has made the disallowance u/s 14A r.w.r. 8D of the Income Tax Rules for ₹ 6,15,723/- while determining the income under normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, has also added the disallowance made under the normal computation of Income under section 14A r.w.r. 8D of Income Tax Rule for ₹ 6,15,723/- in pursuance to the clause (f) of explanation 1 to section 115JB of the Act. 7.8 However, we note that in the recent judgment of Special Bench of Hon ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. However, we find that there are judgments on the issue which mandates that the disallowance of the expenses cannot exceed the exempt income i.e. CIT Vs. Vision Finstock Ltd. of Hon ble Gujarat High Court in 486 of 2017 or only those investments should only be considered for the purpose of the disallowance which have resulted the dividend income. However, we are also conscious to the fact that the above judgments were rendered in connection with the income determined under normal computation of income but to our mind the same principles can also be applied to the case on hand. It is because, the provisions of section 115JB of the Act require to make the disallowance of the expenditure related to any income to which section 10 applies other than section 10(38) of the Act. Accordingly, we hold that the expenses incurred in connection with the exempted income cannot exceed the amount of such exempted income under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the clarification from the assessee. The contents of the show cause notice are set out here in below: From the Annexure-M to Form NO.3CD, it is noticed that you have total production excluding marble at 12519851 Sq.Mrt. It is further noticed from Annexure-1 to Form No.3CD that you have shown consumption of raw material weighing 343877640 Kg. The information available in the public domain shows that for production of 1.92 Sq.Mtr. of tiles requires 45 to 48 Kg. of raw material. Applying the said thumb-rule ratio and considering the fact that you have shown consumption of raw material weighing 34877640 Kg. the correct production during the year would Consumption of raw material Ratio of production 343877640 Ratio of production 1.92 Sq.Mtr. per 47 Kg. By applying thumb-rule the quantity of production during the year 343877640/47 X 1.92 14047767 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exure-L dated 27-03- 2015 claimed that it has consumed 29,60,34,781 kgs raw materials to produce 1,25,19,851 square meters of tiles and worked out consumption production yield ratio at 45.40 kgs material for 1.92 square meters of tiles. Similarly, the assessee claimed to have utilized 4,52,18,213 kgs of raw material against the production of 5,99,953 square meters of marbles. 12. However, the AO observed that the assessee has been changing its stands by furnishing the different details of the material consumed in the production of tiles and the Marbles. As such the assessee was increasing the consumption of the raw materials in the production of Marbles whereas it was decreasing the consumption of raw materials in the production of tiles in order to maintain the input output ratio for the production of the tiles. Thus it was clear that the assessee did not maintain the stock registers properly. Thus, the AO rejected the books of accounts of the assessee. 12.1 It was also observed that the assessee has not furnished the details of the consumption of the materials with respect to different Marbles such as composite marble and quartz marble produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suppression of sale in vlue 299239 x 470 140642330 5.25 From the above working, it can be seen that the assessee under stated the production of tiles by 299239 Sq.Mtr. the value thereof of ₹ 470/- works out as above, comes to ₹ 14,06,42,330/- is treated as undisclosed income of the assessee by suppressing the production of tiles weighing 299239 Sq. Mtr. and the same is added to the total income. The aggrieved assessee preferred an appeal to the learned CIT (A). 13. The assessee before the learned CIT (A) submitted that the entire foundation of the addition was the arithmetical formula of production which was based on some information gathered from public domain. There was no material available to the AO during the assessment proceedings suggesting that the assessee has suppressed its production and sold in the market without recording the same in the books of accounts. The assessee in support of its contention relied on the orders as detailed below: i. RA Casting Pvt Ltd vs. CCE Meerut (237) ELT 674 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsite of the companies where such details of consumption of raw materials viz a viz production of tiles was displayed which was actually in relation to the packing detail of the tile boxes. In fact, the AO has never called for any internal production data from such companies. 13.5 The assessee also submitted that it has furnished the details of the raw material used in the production of tiles/marbles vide letter dated 17 March 2015 and 27th of March 2015. These details were supported with the invoices, lorry receipt, goods receipt. Moreover, the entire production was subject to the excise duty and there was also independent audit conducted by the excise department but there was no allegation for such suppression and sale of the goods outside the books. Accordingly, the assessee claimed that there cannot be rejection of its books of accounts. The assessee further claimed that even if it does not maintain the stock registers, then also its books of accounts cannot be rejected. The assessee to support its contentions referred to the following judgments: (a) Pundit Bros V CIT 26 ITR 159 (Punj) (b) Ashoke Refactories (P) Ltd v CIT 279 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antities used in the manufacture of tiles and the marbles and the same was supported on the basis of invoices, lorry receipt and goods receipts etc. 14.4 The learned CIT (A) also observed that the assessee requested the AO in the latter dated 27th of March 2015 that if he requires, the senior vice president sales and marketing would remain present on the next date of hearing. Similarly the assessee also offered the AO to visit the factory to understand the exact production process involving different kinds of raw materials. But the AO has not considered the request of the assessee. 14.5 The AO has not disputed the total consumption of the raw materials of 343877640 kgs but rejected the information furnished by the assessee in the letter dated 27th March 2015 detailing the raw materials used in the production of the tiles/marbles on the ground that the assessee has been changing its stands about the materials consumed in the production of tiles and the marbles. As such, there was no specific reason assigned by the AO for rejecting the details furnished by the assessee. 14.6 The learned CIT (A) similarly observed that there was no al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for production of tiles is on lower side in comparison to the consumption of raw material shown by various concerns who are into manufacturing of vitrified tiles. The ld. AO made huge addition of ₹ 14,06,42,330/- on account of 4. suppression of production / sales merely on the basis of weird thumb rule (public domain information), presumption, conjecture and surmises only. 5. The ld. AO held that in order to produce 1.92 Sq. Mtr. of tiles, 45.40 Kg. of Raw Material is required and since the Appellant has consumed Net Material of 303118075 Kg., the Appellant should have produced 12819090 Sq. Mtrs. of tiles, however, since the Appellant has actually produced 12519851 Sq. Mtrs. of tiles, there was suppression of sales of 299239 Sq. Mtr. of tiles resulting into value of suppression of sales at ₹ 14,06,42,330/-. Accordingly, the ld. AO arbitrarily made an addition of ₹ 14,06,42,330/- on account of alleged suppression of sales to the total income of the Appellant. 6. The ld. CIT(A) has deleted the addition made by the ld. AO on the ground (a) there is not a single evidence of suppression of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. the packing details of tiles boxes. They have not provided any production line data / ratio of consumption of raw material for production of tiles. In fact no prudent businessman would ever provide their crucial production line data on public domain. 7. The ld. CIT(A) has rightly held that the Public Domain Information as relied upon by the ld. AO do not indicate as to what should be the consumption of raw material into the production of 1.92 sq. mtr. Of tiles but it only indicates the packing details of box of tiles, which has nothing to do with the thumb rule of consumption of raw material to the production of tiles. (Pls. see para 6.3.1 to 6.3.2 on pg. nos.39-41 of the CIT(A) order) B. No arithmetic formula can be applied to allege suppressed production / sale of tiles without brining on record any cogent, tangible and incriminating material 1. Apart from relying upon so called packing details of boxes, the ld. AO has not brought on record any cogent and incriminating material so as to establish alleged suppression of production / sales of tiles. 2. The ld. AO fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o different sizes, weight and pattern of the tiles of other companies with the Appellant. Therefore, it is most respectfully submitted that the method adopted by the ld. AO is very absurd, illogical and irrational. 4. The Appellant most respectfully submits that time and again demand has been raised on account suppression of production / sales / clandestine removal of goods without payment of excise duty solely relying on the consumption of electricity by the excise authorities and addition in the hands of the assessee on account thereto by the assessing officer. 5. At this juncture, the Appellant would like to draw Your Honour s attention to the decision, of another statute i.e Excise Act, in the case of R.A. Casting Pvt. Ltd. vs. CCE, Meerut I, 2009 (237) ELT 674 , copy of which is enclosed herewith marked as Annexure A . In the case of R.A.Casting, the clandestine removal of goods was presumed on the basis of consumption of electricity to the production of MS Ingots and demand was raised. The allegations leveled in R. A. Casting ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Order was dismissed by the Apex Court in 2011 (269) ELT 1081 . Copy of the said decisions is enclosed herewith marked as Annexure B- Colly . 8.By drawing inference to this decision, the Appellant most respectfully submits that merely by applying arithmetical formula of consumption of raw material to the production of tiles, suppressed production of tiles and in turn suppressed sale of tiles cannot be determined, without bringing on record tangible, direct, affirmative and incontrovertible evidences relating to, (a) Receipt of raw material inside the factory premises, and non-accounting thereof in the statutory records; (b) Utilization of such raw material for suppressed manufacture of finished goods; (c) Manufacture of finished goods with reference to installed capacity, consumption of electricity, labour employed and payment made to them, packing material used, records of security officers, discrepancy in the stock of raw materials and final products; Suppressed sales of goods with reference to entry of vehicle/truck in the factory premises, loadi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of assumption and surmises. 3. Without prejudice to above, even if it is presumed that the department has challenged the ground with regard to rejection of books of accounts in general, then also, it is most respectfully submitted that the ld. CIT(A) has righty discarded the action of ld. AO in rejecting books of accounts of the Appellant. The ld. AO was of the view that the yield shown by the assessee for production of tiles is on lower side in comparison to consumption of raw material shown by various concerns who are into manufacturing of vitrified tiles and accordingly, the Appellant vide SCN dated 12/03/2015 has been asked to explain the reason for such low yield. Further the ld. AO has relied upon unauthenticated, unreliable, illogical and irrational public domain data to contend that the yield shown by the Appellant is on lower side. Pls. refer pg. nos. 6 and 7 of the assessment order. In connection thereto, the Appellant vide letter dated 17/03/2015 categorically explained to the ld. AO that the arithmetical formula as proposed by the ld. AO in SCN is incorrect and not acceptable. However, without prejudice to such denial, the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide letter dated 27/03/2015. In fact, the Appellant vide letter dated 27/03/2015 also stated that the complete details of raw materials purchased, consumed etc. is maintained and complete details of the quantity of goods manufactured in the form of excise register is also maintained by the Appellant. It was also submitted and explained to the ld. AO that the books of accounts of the Appellant are subjected to the vigorous excise audit and for the year under consideration excise authorities have not found any discrepancies in the excise audit. It was also explained that the excise authorities have conducted their independent audit for the year under consideration and there was no such allegation made of suppression of sales and in fact the records of production / manufacture has been accepted by them. The Appellant further asked the ld. AO that if need be the Sr. Vice President, Sale Marketing, Shri B.M.Singhal, who is technically qualified person would also remain present and would explain any technical issue which the ld. AO may require. It was also proposed by the Appellant to the ld. AO that if it was required the ld. AO can visit the factory premises to understand the exact p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xist. A clear finding to that effect, along with the material on which such finding is based, has to be made out and given by the assessing officer. No assessment under the first proviso to S. 145(1) or under S. 145(2) can be sustained if the AO has not considered and recorded a finding against the assessee as to whether he has been regularly employing a method of accounting or whether his income, profits or gains can properly be deduced from his method of accounting if he has been regularly employing a method of accounting or whether the accounts are correct and complete, and the AO's decision on these matters is not a subjective or arbitrary decision but a judicial decision and cannot be accepted if there is no material to support his finding. Reliance is placed on CIT vs. Vikram Plastics Ors. reported in 239 ITR 161 (Guj.). 17. Both the ld. DR and the AR before us relied on the order of authorities below as favorable to them. 18. We have heard the rival contentions of both the parties and perused the materials available on record. The AO in the case on hand has alleged that the assessee has suppressed its production of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consignees, receipts of sale proceeds by the consignor and its disposal. In the instant case, no such evidences to the above effect have been brought on record. 18.2 We further note that the assessee is having a factory where the tiles are produced. To produce the tiles, the assessee requires raw materials, labourers, machines, electricity, finance, buyers, suppliers, registration with various authorities where the assessee declares the sales, purchases and production of the final product etc. But the AO has not pointed out any defects in the entire system of production as discussed above except a general remark that the assessee has shown more consumption in the production of marble to justify the consumption in the production of tiles, though there was no specific defect pointed out in the details furnished by the assessee for the raw materials used in the production of the tiles/marbles. Thus, in the absence of any specific defect/infirmity signifying that the assessee has suppressed production which was sold outside the books of accounts, we are of the view that the AO has made the impugned addition based on his surmise and conjecture. As s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows (c) Karinos Weave (P.) Ltd. Vs DCIT 13 taxmann.com 241(Cochin) The finding of suppression of income can only be validated on the basis of strong circumstantial evidence/s. There was no case of any tax avoidance, as (say) on account of differential rate of tax or there being losses in one firm which could be adjusted through the transfer of profits, or the transferee concern being exigible to a lower rate of tax, etc. In fact, there was no charge of tax avoidance in any manner. The charge of tax can only be on the real, and not notional, income, i.e., what it might or ought to have been. The law in the matter, i.e., of only the real income/actual income being liable to tax, is well-settled. The actual accruing/earning of income being a matter of fact, would include inferential findings based on the surrounding facts and circumstances as well, it was the genuineness of the stock transfer which was being essentially questioned by the revenue. 18.4 We also note that the informations collected by the AO from the public domain and used against the assessee were never supplied to the assessee for the rebuttal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployed etc may be different to the assessee viz a viz to those companies. 18.6 The production of the assessee was subject to excise audit and there was no adverse remark signifying that the assessee has suppressed its production. Thus, in our considered view such report from the excise department supports the contention of the assessee. In case of excise unit, there is a direct control of the excise department on the movement of the purchase, consumption and closing stock of the raw materials as well as production and sales of the finished goods. The assessee under the excise law has to maintain various records including the purchases of the raw materials, issue of raw materials for the production, scrap generated in the process of the production and the final outcome of the goods produced. However, the AO has not pointed out any iota of infirmity/defects in such records. 18.7 Taking up the matter further, as per section 145 of the Act, the AO is empowered to reject the books of accounts of the assessee and make best judgment assessment in the manner as specified under section 144 of the Act if he is not inter-alia satisfied with the completeness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consumption of raw materials used in the production of tiles and marbles. But we note that final revised details furnished by the assessee were supported by purchase bills, goods receipt, lorry receipts, reconciliation statement, gate pass etc as placed on pages 95 to 254 of the PB. The AO did not point out any defect in the revised details of the consumption of raw materials furnished by the assessee. Therefore in our considered view, the books of accounts of the assessee cannot be rejected until and unless the AO points out the specific mistakes. A similar principle has been laid down by the Hon ble Allahabad High Court in case of Awadhesh Pratap Singh Adbul Rehman Bros v/s. CIT 201 ITR 404(All) which reads as; It is difficult to catalogue the various types of defects in the account books of an assessee which may render rejection of account books on the ground that the accounts are not complete or correct from which the correct profit cannot be deduced. Whether presence or absence of stock register is material or not, would depend upon the type of the business. It is true that absence of stock register or cash memos in a given s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee had increased from ₹ 1.24 crores to ₹ 1.54 crores. No defect was found in the books of account. There was no valid reason for rejection of books of account during the year under consideration and thereby applying higher GP rate of 11.51 per cent, which was earned by the assessee on low sales of ₹ 1.24 crores in the preceding year. The other reason stated by the Assessing Officer of making trading addition was that in the assessment year 2001-02, GP rate declared by the assessee at 9.64 per cent was not accepted and trading addition so made by rejecting the books of account was confirmed by the Commissioner (Appeals), therefore, by following the order of the earlier year the Assessing Officer had made an addition by rejecting the GP rate of 9.64 per cent declared during the year under consideration. The assessee placed on record the order of the Tribunal in the assessee's own case in the assessment year 2001-02 wherein addition made by the Assessing Officer by applying GP rate of 10.14 per cent was deleted by the Tribunal and the GP rate of 9.64 per cent declared by the assessee was found to be reasonable and correct. As the facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is dismissed. 23. The 3rd issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 3,85,979/- on account of depreciation on car. 24. The AO during the assessment proceedings observed that the assessee has claimed depreciation on car for ₹ 3,85,979/- whereas the car was registered in the name of the director. Accordingly, the AO was of the view that the assessee is not eligible for the depreciation on the impugned car. Accordingly, he disallowed the same and added to the total income of the assessee. 25. Aggrieved assessee preferred an appeal to the learned CIT (A) who has deleted the addition made by the AO. Being aggrieved by the order of the learned CIT-A the Revenue is in appeal before us. 26. The learned DR and the AR before us relied on the order of the authorities below as favourable to them. 27. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the payment for the purchase of the car was made b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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