TMI Blog2021 (10) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... ng officer. We do not concur with such observations and findings recorded by the first appellate authority and we thus hold that the addition as long term capital gain and made in the assessment order and confirmed by the first appellate authority do not stand to the test of law and are not justified on the facts and circumstances of the case and hence we delete the above said both the additions and allow the grounds of appeal of the assessee. Bogus of job work - HELD THAT:- Contention of CIT(A) that evidence filed by the assessee selfserving documents and circumstantial evidence leads to the conclusion of A.O. that Sh. Mohinder Kumar Garg was an old employee of the assessee company cannot take the case of revenue anywhere. It would be enough for us to say that voluminous documentary evidences filed by the assessee to which we have made elaborate reference above are clearly establishing the genuineness of the job work expenses. In the face of direct documentary evidences, how can the so called circumstantial evidences be relied. Documentary evidences filed by the assessee before the lower authorities which have been referred by CIT(A) in his appeal order to which reference has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, respectively are as under:- 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction u/s 153A and further erred in passing the impugned assessment order. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in assuming jurisdiction and framing the impugned assessment order u/s 153A, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the addition of ₹ 1,55,38,830/- made by Ld. AO on account of capital gain and ₹ 39,96,76,340/- as business income in terms of section 45(2) and section 28 respectively, more so when the stock was not sold in the year under appeal as per the case of Ld. AO himself. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in not deleting the addition of ₹ 1,55,38,830/- made by Ld. AO on account of capital gain and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the submissions of the assessee. 10. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of ₹ 15,41,15,599/- allegedly on account of bogus purchases from M/s Akansha Fashion M/s Jindal Fashion, is bad in law and against the facts and circumstances of the case. 11. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of ₹ 26,48,09,191/- allegedly as unexplained transactions recorded in seized document on account of bogus purchases from M/s Super Connection, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice and without appreciating/considering the submissions of the assessee. 12. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of ₹ 26,48,09,191/- allegedly as unexplained transactions recorded in seized document on account of bogus purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 11,93,649/- made by the AO on account of bogus expenses placing reliance on the documents furnished by the assessee which failed to prove that the expenditure was incurred wholly and exclusively for the purpose of business. ii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that the onus to prove that the expenses of ₹ 11,93,649/- have been incurred for the services rendered by the proprietary concern M/s Palwal Enterprises (Prop. Smt. Hema Sharma) is on the assessee company. iii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that at the time of search no evidence was found to prove that the expenses incurred in respect of fabrication job alleged to be undertaken by M/s Palwal Enterprises. iv) Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the disallowance of product development /sampling expenses ₹ 13,73,86,146/- made by the AO by ignoring the decision of the Hon ble Supreme court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposition of law u/s 14A of the Income Tax Act, 1961 as propounded by the CBDT Circular no. 5 of 2014 dated 11.02.2014 i.e. section 14A is triggered for disallowance of expenditure incurred which is relatable to tax-exempt income even though no tax-exempt income under the Act has been earned during a particular year. x) Whether the CBDT Circular no 5 of 2014 is illegal and not in consonance with legislative intent behind Section 14A and the charging sections 4 and 5 of the Income Tax Act, 1961 which lay down that total income under the Act would include income from all sources whether received , deemed to be received , accrued or deemed to accrue . xi) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 2. We shall now proceed to dispose of the appeals as under: 3. Assessee has filed paper book in 4 Volumes having Pages 1 to 1734, which were referred by Ld. AR extensively during the course of hearing of the above appeals. Brief synopsis has also been filed by Ld. Counsel for the assessee in both the appeals running into 8 pages, which is also held on record and has also been considered by us. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the mandate of section 45(2). According to him, income has to be brought to tax when stocks were sold in future years and in that regard, it was submitted that partial stocks were sold in the previous year relevant to AY 2017-18 and it is in that year appropriate income was offered to tax and which has also been accepted by Revenue. On the other hand, Ld. CIT(DR) relied upon the findings recorded by AO and CIT(A) and urged that the income was correctly taxed in this year and orders passed by the lower authorities may be confirmed. 9. We have considered the submissions made on behalf of the appellant and Revenue and we have taken into account the orders passed by the lower authorities. We have read and referred the pages of the paper book as contained in this regard. 10. It would be appropriate at this stage to reproduce the written submissions filed before the first appellate authority for and on behalf of the appellant-assessee: 11. Ld. AO has made the addition of ₹ 1,55,38,830/- vide discussion made in para-7 at pages 45-61 of the assessment order on the ground that assessee has converted its capital asset into stock in trade and therefore, as per the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 10 of the Depositories Act, 1996, and for the purposes of- (i) section 48; and (ii) proviso to clause (42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method. Explanation.-For the purposes of this sub-section, the expressions beneficial owner , depository and security shall have the meanings respectively assigned to them in clauses (a), (e) and (l) of sub-section (1) of section 2 of the Depositories Act, 1996. 16. It can be seen that capital asset so converted is deemed to be transferred at the time of conversion and its fair market value at the time of conversion is deemed to be the sale consideration for the purpose of determining the capital gain. But this has further been provided in this section itself that the liability to capital gain tax is deferred till the year in which the stock is sold. Similarly, business profits can be taxed in the year in which sale of stock takes place. 17. Your good self would also kindly see from the entire discussion made by Ld. AO in the impugned assessment order that stock in trade was admittedly not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. . 22. This is further clear from the reply of the assessee reproduced at page 57 of the assessment order wherein it has been mentioned: 1.2 The above stated land was purchased on various dates as stated above for its own use in garment business, which was earlier shown as fixed assets in the books of accounts of the assessee company, later in the F.Y. 2007-08, the company (OCL) intended to use these land for development of IT park and the cost of such Land was transferred as stock in trade .. .. 2.6 In the case of the assessee s company income is recognized in the year in which property is being sold by the company as per provision of section 45(2) of the Income Tax Act, 1961. The assessee company converted the land in question from capital asset to business asset in A.Y. 2008-09. As per provision of section 45(2) capital gain tax up to the date of conversion and further business profits if any generated on sale of the asset is required to be shown in the computation of tax in the year in which asset is sold and accordingly tax liability channelized in that year. During assessment year 2014-15 and 2015-16 no part of commercial units have been sold by the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udhir Dhingra reproduced in the assessment order also refers to section 45(2) and therefore, how can the taxability of income be brought into force in this year merely on the basis of statement of the main promoter when section 45(2) itself provides for the taxability in the year of sale of stocks. Moreover, Mr. Sudhir Dhingra stated in his statement to offer income in previous year relevant to AY 2015-16 as can be seen from para (v) of CIT(A) s order page 121 and not in the year under appeal. In our considered opinion, obtaining completion certificate of the project from the Appropriate Authority as on 8.5.2013 does not ipso facto give rise to any business income. We have also read/seen considered the objections raised by the first appellate authority which in our considered opinion are more or less on the same lines as adopted by the assessing officer. We do not concur with such observations and findings recorded by the first appellate authority and we thus hold that the addition of ₹ 1,55,38830/- as long term capital gain and ₹ 39,96,76,340/- made in the assessment order and confirmed by the first appellate authority do not stand to the test of law and are not justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to provide any details regarding work done by M/s Sai Exports for the assseesee and he was also unable to produce any copy of vouchers, challans and goods sent for job work for M/s Sai Exports. During the course of survey, statement of Sh. Pawan Arya of M/s Orient Craft Ltd. was also recorded on oath in which he stated that M/s Sai Export used to do some job work for M/s Orient Craft Ltd. but he was unable to furnish any particular detail and he was even unable to name of the owner and address of M/s Sai Export and further that auditor of Sh. Mohinder Kumar Garg and the assessee company with the same. 27. Arguments were made by Ld. Counsel on the basis of evidences referred at page 1709-1716 of the paper book. It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the job worker M/s Sai Export has raised invoice and payment have been made through account payee cheques and tax having been deducted at source and documents at page 507-514, 565-1463 the paper book establish the existence of the job worker and the job work carried out by M/s Sai Exports. We have also seen the statement of Mr. Mohinder Kumar Garg and Sh. Rajiv Poddar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred by CIT(A) in his appeal order to which reference has also been made in the written submissions filed by the assessee and to which out attention was drawn clearly establish that job work expense claimed by the assessee to have been paid to M/s Sai Exports are quite genuine and established. In the result, the grounds of appeal in the appeal of the assessee are allowed the addition of ₹ 7,28,980/- is hereby deleted. 29. Ground No. 7 8 of the assessee s appeal are in respect of disallowance of ₹ 7,98,79,360/- made by the A.O. and confirmed by CIT(A) and are in respect of the expenses claimed to be incurred by the assessee company on account of job work done by M/s Shri Ram Exports. Assessing Officer at page 36-39 of his order held such expense as bogus which was upheld by CIT(A) vide discussion made at page 105-110. 30. It was submitted by the Ld. Counsel with the help of various evidences referred at page 1716-1721of the paper book It was argued that M/s Shri Ram Exports was one of the job workers engaged by the assessee for doing various job work such as bundling, cutting, stitching, thread cutting, finishing etc., which are integral part of the garm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made on the basis of evidences referred at page 1716-1721 It is seen from the evidences placed before us and relied upon by Ld. Counsel for the assessee that the job worker M/s Shri Ram Export has raised invoices on the assessee company and payment have been made by the assessee company to the job worker through account payee cheques and tax having been deducted at source and documents at page 507-514, 565- 1463 of the paper book establish the existence of the job worker and the job work carried out by M/s Shri Ram Exports. We have also seen the evidences referred in the paper book, which also establish the job work done by M/s Shri Ram Export. We have also referred to the copies of the relevant documents filed before the lower authorities from the Worker s personal Files (PB 588-774) such as Adhar Card, Application form, appointment letter, joining report, ESI Card, Family photos, PF Form -11,16 2 as per PF rules, ID proof, Medical test report etc. and sample copy of muster roll of the all the employees(PB 775-843) , employed by the job worker for two months for all the years involved and so also we have seen salary sheet for two months on sample basis(844-1236), on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etor cannot be used against the assessee. In the result grounds of appeal of the assessee in this regard are allowed the addition of ₹ 7.98.79,360/- is hereby deleted. 35. Ground No. 9 10 of the assessee s appeal are in respect of disallowance of ₹ 15,41,15,599/- made by the A.O. and confirmed by CIT(A) and are on account of not-genuine purchases of fabric made by the appellant from M/s Jindal Fashion and M/s Akanshha Fashion. Assessing Officer at page 2-18 of his order held such purchases were not genuine which was upheld by CIT(A) vide discussion made at page 63-90. 36. Ld. Counsel for the assessee first of all argued that there was no incriminating material found as a result of search in respect of impugned disallowance. Further, it was submitted by the Ld. Counsel with the help of various evidences referred at page 1692- 1699of the paper book it was argued that appellant is into the business of garments manufacturing in which fabric is the main raw material and input. The appellant has purchased fabric from the above said firm during the year under appeal, which is evident from the chart enclosed in the paper book (PB 173(i) to 173(ii).Ld. CIT(DR) reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. CIT(A) after considering the submissions of the assessee though upheld the disallowance but the submissions and the evidences furnished by the assessee and held in the paper book to which our attention was drawn, we find that the action of CIT(A) in confirming the impugned addition was not justified. 40. In view of the exhaustive pleadings and evidences filed by the assessee and considered by us, the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Comprehensive evidences have been brought on record by the assessee which prove that purchases of the fabric were made by the assessee. Without purchases of the fabric, the business of the assessee involving such large export would not have been possible. Both the suppliers are unrelated parties and assessed to income tax. The adverse observations made by the A.O. in the assessment order have been met by the assessee one by one and paper pages 1696-1699 and reproduced above and we have taken ourselves to these adverse observations and response of the assessee and we agree with the Ld. Counsel for the assessee that the adverse observations made by the A.O. are not of substance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of account of M/s SCIPL other companies in the books of in the assessee company as enclosed in the paper book and also statement of account in the books of M/s SCIPL other parties also enclosed in the paper book which would show that the payments have been made to M/s SCIPL other these companies through banking channel. It was also submitted that sales made by M/s SCIPL to the assessee has been accepted in the assessment of M/s SCIPL. Copy of assessment order of M/s SCIPL for A.Y. 2013-14 has been enclosed inthe paper book. On the other hand, Ld. CIT(DR) has relied upon the findings recorded in the assessment order and in the order passed by CIT(A). 43. We have considered the entire material including the orders passed by the lower authorities. We have taken ourselves to the pages of the synopsis and paper book filed. We have considered the rival submissions. It is seen that the assessment order does not refer any incriminating material found as a result of search in respect of purchase of fabric made by the appellant from M/s Super Connection India P. Ltd. other companies. Only evidence which have been referred in the assessment order was that statements of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apparel P Ltd of ₹ 40,57,278/-, M/s Modernistic Attire P Ltd of ₹ 30,42,448/-, M/s Starline clothing P Ltd of ₹ 37,69,943/- M/s Super Connection India P. Ltd. of ₹ 26,48,09,191/-, during the year which comes to an aggregate amount of ₹ 28,33,20,906/-, which is evidenced by the copies of purchase invoices, copy of statement of account in respect of said entities in the books of appellant company at (PB 2641-2642, 2643-2822, 1671-1738, 1746-1764which are already enclosed in the paper book for A.Y. 2013-14 in assessee s own case), and also statement of account in the books of said entities i.e. six companies at (PB 1821-1874 1884-1902which are already enclosed in the paper book for A.Y. 2013-14), which would show that the payments have been made to said entities through banking channel. It is further important to submit that sale made by the said entities to the assessee company has been accepted in the assessment of said companies. Copy of assessment order of said six entities are enclosed in the paper book at PB 1491-1617 together with copy of acknowledgment of return, computation of income, audited balance sheet, profit loss account together wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic sold and closing stock (which is already enclosed in the paper book for A.Y. 2013-14 in assessee s own case). PB 1911-1958 is the detailed chart showing the standard input/output ratio, as prescribed by the Standard Input/Output Norms under hand book of procedure Volume II of foreign trade policy, published by the Ministry of Commerce (which is already enclosed in the paper book for A.Y. 2013-14). PB 1959 is the detail of comparison between other garment exporter and the appellant company for material consumption as a percentage of sales (which is already enclosed in the paper book for A.Y. 2013-14). 48. Therefore, purchases made by the assessee from M/s, Fashionable Attire P Ltd, M/s Fashionara Apparel P Ltd, M/s Modernistic Attire P Ltd, M/s Starline clothing P Ltd, M/s Trendy Attire P Ltd M/s Super Connection India P. Ltd were the genuine purchases and the addition made may therefore please be deleted. Adverse observations made by Ld. A.O. are met as under:- 1. Ld. AO has mentioned at pages 5.1.2 of the assessment order that the bank account of the supplier M/s Trendy Attire P. Ltd. revealed that it transferred payments on the same day of receipt and acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, the Ld. AO has failed to bring on record any material or evidence to corroborate arrive at the conclusion that purchases from various companies and these companies no actual material has been supplied. The allegations made by Ld. AO are baseless and this is evident from the very fact he has proceeded to assess the income on the basis of return filed by the assessee company. Therefore, the observation made by Ld. AO that the purchases made by the assessee company is bogus and is baseless and without any basis, material or evidence. 4. Ld. A.O. has mentioned in para 5.6.2 of the assessment order that statements of the directors namely Sh. AkshayDhanda and Sh. Ajay Nagpal were recorded on 22.06.2015, which show that they did not have knowledge of the affairs of the company. In reply, it was submitted that assessee was not made aware at any point of time during assessment proceeding that any statement of these two persons were recorded nor the copies of such statements were supplied to the assessee. So much so copies of such statements have not been made part of the assessment order even though it has been mentioned that they are enclosed as Annexure B and Annexure C a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee of the appellant company if helped M/s SCIPL to maintain its books of accounts at the premises of the appellant company only for the sake of mutual convenience and because of cost considerations mountain cannot be made out of the mole hills. In other words inferences drawn by Ld. A.O. from the statements of Mr. Dhanda and Mr. Nagpal do not establish that the sales made by M/s SCIPL to the assessee was not genuine, more so when such sales by M/s SCIPL and purchases by the appellant are supported by above mentioned comprehensive evidences and payments having been received / paid through banking channel and more so when the sales made by M/s SCIPL have been accepted by income tax department itself in the assessment of SCIPL, it is submitted above. 7. Ld. A.O. has mentioned in para 5.6.3,6.4, 6.5, of the assessment order that bulk of purchases were made by M/s SCIPL from the entities controlled by Sh. Sanjay Jindal and since amount remitted were withdrawn in cash it shows that ultimate beneficiary was the appellant company and entities controlled by Sh. Sanjay Jindal were mere entry providers. In reply, it was submitted that these observations of Ld. A.O. are me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial / fabric purchased from the M/s SCIPL has been used in production garments, which have been exported by the assessee company to various parties. Therefore, all the adverse observations made by Ld. AO in the assessment order in respect of the purchases made by the appellant from the above said supplier are incorrect and allegations against the appellant are denied and it is requested that the purchases made by the appellant in the year under appeal may please be accepted. 49. In view of the above pleadings and evidences filed by the assessee the disallowance made in the assessment order and confirmed by CIT(A) is not sustainable on merit. Assessee has proved that the material was purchased from the vendors involved here and payments have been made through banking channel. Other evidences as referred clearly establish the purchase made by the assessee. We do not want to discuss each and every evidence and it would suffice to hold that in the light of these evidences which have not been rebutted with the help of any cogent material, purchases made by the assessee from the above said vendors cannot be disbelieved. The adverse observations made by the A.O. in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... departmental appeal are dismissed. 52. Ground no. 16 and 19of the assessee s appeal are general and do not call for any adjudication under these grounds of appeal here. 53. Ground no. 17 of the assessee s appeal is regarding approval under section 153D but nothing specific submissions have been made before us and hence, the same is rejected. 54. Ground no. 18 of the assessee s appeal relating to interest u/s 234B is consequential in nature. Departmental Appeal No. ITA 5038/Del/2019 55. Grounds of appeal preferred by Revenue have been reproduced by above. 56. Grounds of appeal no. (i) to (iii) are in connection with the addition of ₹ 11,93,649/- made by the AO in respect of job work done through M/s Palwal Enterprises which was deleted by CIT(A). 57. AO has discussed this issue at page 39-44 of the assessment order whereas CIT(A) has discussed this issue at page 110-113 of the appeal order. 58. Ld. CIT(DR) relied upon the finding recorded in the assessment order and Ld. Counsel for the assessee relied upon the findings recorded by CIT(A) and has also relied upon the submissions made before CIT(A) placed at page 1721- 1726 of the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
