TMI Blog2024 (1) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Seafoods Pvt Ltd., v. CIT [ 2021 (11) TMI 1168 - ITAT MUMBAI] Various courts have held that donation on account of CSR Expenditure made to institutions registered under section 80G are eligible for deduction u/s 80G - Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of deduction u/s 80G. Accordingly, ground raised by the revenue is dismissed. Disallowance of mark to market losses - Nature of loss - allowable business loss or not? - HELD THAT:- We observe from the record that identical issue is decided in assessee s own case for the A.Y. 2011-12 has decided the issue in favour of assessee observing assessee has regular export business and in order to mitigate the forex exposure, it has booked the forward contract. At the end of the year, assessee has accounted for mark to market loss and profit in the pending forward contracts. In this year, assessee has incurred net loss. It is also observed that in the subsequent Assessment Years the assessee has accounted the net profit and the same was accepted by the revenue and charged to tax. The assessee is consistently following the method of accounting. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire purchases. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in not appreciating the decision of the Hon'ble Supreme Court in the case of N.K proteins [2017] 250 Taxmann 22 wherein it has been held that in cases where the entire purchase transactions is found to be bogus, the addition could not be restricted to G.P additions. 3. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in admitting the new evidence in the form of DGCEI report under Rule 46A of the Income Tax Rules, 1962 without giving opportunity to the assessing officer. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing deduction u/s 80G on the amount of expenditure incurred by the assessee on CSR. 5. On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting the disallowance of loss of Mark to Market on forward contract, ignoring the CBDT Circular No. 3 of 2010 dated 23.03.2010, wherein, it is mentioned that, the loss so claimed by the assessee in the books of account is a notional loss and cannot be allowed and that decision of Hon'ble Supreme Court relied upon by the Ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same be suitably reduced. 4. At the time of hearing, Ld. DR brought to our notice relevant facts relating to the above grounds of appeal and requested to set-aside the order of the Ld. CIT(A). Ld. DR filed its written submissions vide letter dated 10.10.2023, for the sake of clarity it is reproduced below:- 1. Bogus purchases- i) Evidences were brought on record by AO and confirmed by the CIT(A) that assessee did not purchase from the three parties mentioned in the trading account. ii) Assessee stick to the contention that purchases were made from these parties and they retracted statement. Assessee never stated that it had purchased from other parties but bills were taken from these bogus. parties. Assessee never submitted the details of parties from whom it actually purchased the material. Assessee never accepted that entries in the books of accounts are false and known to be false. iii) Issue in dispute was whether purchases were genuine or Bogus? iv) Issue in dispute was never how much amount of GP is suppressed by the Assessee v) Neither department, not assessee appealed for the arbitration, or settlement or amicable solutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d availed accommodation entries in respect of purchase of raw materials without actually supplying materials in respect of three parties. Accordingly, he made 100% disallowance of the purchases amounting to Rs. 27,62,09,547/. 2. In appellate order, Id. CIT(A) observed that the material has been duly received which was also accepted by AO in para 5.18 on page 13 of the assessment order. Further, Id. CITA) relying on orders passed by its predecessor and Id. CIT(A)-58 in the assessee's own case for earlier years, he restricted the disallowance to the extent of 6% of the bogus purchases. 3. In this regard, it is submitted that the impugned purchases of raw material are genuine which are duly supported by evidences. Further, the statement recorded during the search proceedings have been duly retracted later and the same was also denied by the promoter of the assessee company during the search action itself. No findings of search action apply to the transaction. carried out during the year under consideration except that the parties are same Further, the receipt of the material from the alleged bogus parties has been confirmed by the independent findings of DGCEI. Also, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods and when the raw materials is converted into other type of finished goods, the receipt of material can be judged on comparing the manufacturing loss. The gross profit rate declared by the assessee vis- -vis other comparable companies is another measure to judge the genuineness of purchases. If an assessee has introduced bogus bills without actually receiving the materials, then the natural tendency is to show higher manufacturing loss in order to adjust the quantity details and the same would result in showing lower gross profit rate. 5.10 The submissions made by the assessee with regard to the observations made by the AO are summarized below:- a. The assessee has submitted the entire documentary evidences such invoices, purchase order, Goods receipt note, stock register showing receipt, bank statement, etc, to establish the genuineness of the purchases and no doubt raised by the AO. b. The acceptance of employee of Mr. P Nandkumar is general in nature without any reference to any material found during the search and the same was duly denied by the CMD Mr. Neeraj Raja Kocchar. c. Reliance on statement of one Mr. Chandra Shekhar Nair who allegedly w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s himself stated that the material has been received by the assessee from open market in para 17 of the assessment order. l. Further it is also submitted that the majority of the suppliers have appears before the Id, AO and confirmed that they have supplied the material to the appellant. m. Further, we also rely on the findings of the DGCEI in the assessee's own case wherein after extensive search, they have concluded that the material has been duly received by the assessee. Kindly refer to conclusion of the DGCEI at page 136 of the CIT (A) order. n. Thus, it is submitted that assessee has duly purchased material from the suppliers. It is possible that the suppliers have themselves procured the material from open market and the same has been supplied to assessee. However, the said fact cannot lead to a conclusion that the purchases are bogus. 5.11 We notice that the AO himself has observed at paragraph 17 of the assessment order that the purchases have been made from open market against the bills obtained from entry providers. We also notice that the assessee has furnished all the relevant documents to prove the purchases, which are narrated in point (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 333) (Bom), wherein it was held by the High Court that in a case where the parties from whom such purchases allegedly made were bogus but the purchases in themselves were not bogus, only a gross profit ratio could be added to the income of an assessee. We notice that the Ld CIT(A) has estimated the said incremental profit @ 6% of the value of purchases, but did not give any basis for arriving at the above said rate of 6%. 5.14 It is the contention of the assessee that, in the facts and circumstances of the case, no disallowance of purchases is warranted, since the manufacturing loss and the gross profit rate declared by the assessee compares well with industry standards. The assessee itself, in the alternative, has submitted that the addition towards incremental gross profit may be restricted to 2% of the value of purchases. In support of this contention, the Ld A.R also relied upon certain case laws (referred supra). 5.15 We find merit in the said contentions under the facts of the present case. We noticed earlier that the manufacturing loss declared by the assessee was less than the SION standards prescribed by DGFT. The gross profit rate declared by the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the intent of the legislature was never to allow the CSR expenditure which is expressly mentioned in section 37(1). The donation and CSR expenditure are two different modes of ensuring fund for public welfare; accordingly, treating the same expenditure under two different head would defeat the very purpose of CSR. Therefore, Assessing Officer disallowed the deduction claimed u/s.80G in the assessment order. 11. On appeal, he submitted that Ld. CIT(A) had deleted the said addition by relying on the decision of Bangalore Tribunal in the case of Allegis Services (India) (P.) Ltd. v. Asstt. CIT [IT Appeal No. 1693 (Bang.) of 2019, dated 29-4-2020] and Coordinate Bench decision in the case of Naik Seafoods Pvt Ltd v. CIT [ITA No. 490/MUM/2021] wherein it was held that donations on account of CSR expenditure made to institutions registered u/s 80G are eligible for deduction u/s 80G of the Act. Further, Ld.AR of the assessee relied on the recent decision of Coordinate Bench in Synergia Lifesciences Pvt. Ltd. in ITA No. 938/Mum/2023 dated 20.06.2023. Therefore, Ld.AR of the assessee prayed that the order of the Ld. CIT(A) may kindly be upheld. 12. Considered the rival submissions an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conflict with the decision of Hon'ble SC in case of Woodward (supra) as there is not dispute about the loss. Speculative transactions are complete world in themselves involving short-term, long-term capital gains, speculative gains etc to name a few. Loss from them set of against business loss is oversimplification of these transaction. Claiming this loss as business expenditure as next level of it. The circular 03/2010 is not declared as ultra vires by the HC or SC in any of the judgement. Why the circular is not applicable is not discussed in case laws. The circular gives alternative to accounting standards and not to the decision of Hon'ble SC. Therefore, question of either following circular or decision of SC is mischievous. Such situation is contemplated under the doctrine of harmonious construction of statute, which requires court to interpret the provisions of law in a way not to make any part as redundant. In case of Vaibhavi Trading (P.) Ltd. v. DCIT [2018] 89 taxmann.com 132 (Mumbai - Trib.) the ITAT Mumbai 'F' bench held that Unrealized loss on foreign exchange transactions was a contingent liability because it was no ascertainable as to at what exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year and accordingly, the assessee has booked a loss of Rs. 17,43,95,017/-. This loss was disallowed by the AO contending that the same is notional loss and cannot be claimed as deduction by relying on the CBDT circular no. 3 of 2010 dated 23.03.2010. 20. In the appellate order ld CIT(A) observed that the assessee has huge export turnover of Rs. 4760.14 Crs and forward contract have been entered to hedge the currency risk. He observed that the above issue was decided by the Hon'ble Supreme Court in the case of Woodward Governor India Pvt. Ltd. 312 ITR 254 He also observed that identical issue has been allowed by CIT(A) in the assessee's own case in AY 2011-12. He deleted the disallowance 21. In this regard, it is submitted that the above issue is duly covered by the assessee's own case for AY 2011-12 wherein the CIT(A) order has been confirmed by the ITAT in their order dated 12.05.2023 at para nos 27-33 after considering the CBDT circular (supra)The copy of the order was duly submitted before the Hon'ble Bench and copy of the same is enclosed herewith at Annexure -2 Furtherwe rely on the following decision wherein the above position has been upheld a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee s own case for the A.Y. 2011-12, we dismiss the ground raised by the revenue. 18. In the result, appeal filed by the revenue is dismissed. ITA NO. 1213/MUM/2023 (A.Y. 2020-21) (ASSESSEE APPEAL) 19. Assessee has raised following grounds in its appeal: - 1. On the facts and in the circumstances of the Appellant's case and in law, the Ld. CIT (A) erred in confirming the action of Ld. AO in holding that the Appellant has availed accommodation entries in the form of bogus purchases on the basis of the statement of third parties, for the reasons mentioned in the impugned order or otherwise The Appellant submits that the aforesaid contention being erroneous and unsustainable on facts and in law. 2. On the facts and in the circumstances of the Appellant's case and in law, the Ld. CIT(A) erred in confirming the action of Ld. AO in holding that the purchases made by the Appellant from parties namely M/s. Ankit International, M/s. GSP International and M/S SPA Heights Pvt. Ltd are bogus and merely accommodation entries, for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing. 20. Ground Nos. 1 to 4 are similar to ground Nos. 1 to 3 raised by the revenue. As we have already adjudicated the issue in the preceding paragraphs, we partly allow the grounds raised by the assessee. 21. With regard to Ground Nos. 5 6 raised by the assessee, Ld.AR of the assessee submitted that these grounds are not pressed, accordingly, the same are dismissed as not pressed. 22. With regard to Ground No. 7 which is in respect of disallowance under section 14A of the Act, brief facts of the case are, at the time of assessment Assessing Officer observed that assessee has earned the exempt income of ₹. 71,03,332/- and made investments of ₹. 30,33,47,000/-. The assessee was asked to furnish disallowance made under section 14A by issue of notice under section 142(1) of the Act. In response assessee has claimed that it has not incurred or claimed any expenditure for earning exempt income, therefore, no disallowance under section 14A was warranted. Assessing Officer observed that as per amended Rule 8D applicable w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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