Itxa1298_17.Doc v. Rbk Share Broking Pvt.ltd., 37 Taxmann 128 (2013), M/S. Viraj Profiles Limited Inita

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.1298 OF 2017 Principal Commissioner of Income Tax-3Vs.Shapoorji Pallonji & Co. Ltd. …Appellant…Respondent Mr. A. R. Malhotra for Appellant.Mr. Porus F. Kaka, Senior Advocate a/w. Mr. Divesh Chawla i/b. Mr.Atul K. Jasani for Respondent. CORAM : UJJAL BHUYAN,MILIND N. JADHAV, JJ.DATE :MARCH 04, 2020 P.C.: Heard Mr. Malhotra, learned counsel for the appellant and Mr.Kaka, learned senior counsel assisted by Mr. Chawla and Mr. Jasani,learned counsel for the respondent - assessee. 2.This appeal has been preferred by the Revenue under Section 260-A of the Income Tax Act, 1961 (briefly 'the Act' hereinafter) assailing theorder dated 28.09.2016 passed by the Income Tax Appellate Tribunal, 'E'Bench, Mumbai ('the Tribunal' for short) in I.T.A.Nos.5768/Mum/2013and 5304/Mum/2013 for the assessment year 2010-11. 3.The appeal has been preferred projecting the following questionsas substantial questions of law: "1.Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in upholding the decisionof the Commissioner in restricting the disallowance madeunder Section 14A of the Act to Rs.10,00,000.00 giving reliefof Rs.2,38,71,710.00 without appreciating the fact that thedisallowance was worked out as per Rule 8D of the Income TaxRules, 1962 read with Section 14A of the Act? 2.Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in upholding the decisionof the Commissioner in deleting the disallowance ofRs.7,38,98,631.00 under Section 36(1)(iii) of the Act withoutappreciating the fact that interest bearing funds were advancedfor non business purpose? 3.Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in upholding the decisionof the Commissioner in deleting the disallowance underSection 14A and foreign exchange fluctuations to the bookprofit under Section 115JB of the Act ignoring the decisions ofthe Tribunal in the case of ITO Vs. RBK Share Broking Pvt.Ltd., 37 Taxmann 128 (2013), M/s. Viraj Profiles Limited inITA No.4439/Mum/2013 dated 21.10.2015 - 46 ITR (T) 626and in Ferani Hotels Pvt. Ltd. in ITA No.857/Mum/2013 dated17/11/2014? 4.Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in deleting the addition ofRs.3,32,867.00 relating to bogus purchases withoutappreciating the fact that the addition was made on the basis ofstatement given before the Sale Tax Department by theproprietors of M/s. Nutan Metal and M/s. Kant Enterprises whohave submitted that they have neither purchased nor sold goodsand have issued fake bills for the amount received by chequeand have returned these amounts in cash?" 4.In respect of question No.1 initial submission of Mr. Malhotrawas that identical question was admitted for hearing by this Court videorder dated 05.12.2017 in Income Tax Appeal No.1195 of 2015 in thecase of the assessee itself for the assessment year 2009-10. However,Mr. Kaka has pointed out that because of the low tax effect being belowthe prescribed limit under the relevant CBDT Circular, the said appealwas dismissed as withdrawn. Moreover, he submits that in the case ofthe assessee itself for the assessment year 2008-2009 being Income TaxAppeal No.1843 of 2016, this Court by order dated 06.03.2019 declinedto admit identical question framed. 5.However, Mr. Malhotra submits that while declining to admit theabove question, this Court did not take into consideration the decision ofthe Supreme Court in Maxopp Investment Limited Vs. CIT, 402 ITR 640and also did not apply the principle of apportionment in terms of Rule8D(2) of the Income Tax Rules, 1962 (briefly 'the Rules' hereinafter). 5.However, Mr. Malhotra submits that while declining to admit theabove question, this Court did not take into consideration the decision ofthe Supreme Court in Maxopp Investment Limited Vs. CIT, 402 ITR 640and also did not apply the principle of apportionment in terms of Rule8D(2) of the Income Tax Rules, 1962 (briefly 'the Rules' hereinafter). 6.On thorough consideration we find that the principle ofapportionment does not arise in this case as the jurisdictional facts havenot been pleaded by the Revenue. In fact Tribunal while affirming the order of the first appellate authority noted that the first appellateauthority had deleted the addition made by the assessing officer underSection 14-A of the Act by observing that the interest-free fund availablewith the respondent - assessee was far in excess of the advance given.Tribunal further noted that the Revenue does not dispute the said findingand relying on the decision of this Court in CIT Vs. Reliance Utilitiesand Power Limited, 313 ITR 340, affirmed the deletion made by thefirst appellate authority. 7.We have perused the decision of this Court in Reliance Utilitiesand Power Limited (supra) wherein it has been held that if there arefunds available with the assessee, both, interest-free and overdraft and /or loans taken then a presumption would arise that investments would beout of the interest-free funds generated or available with the assessee ifthe interest-free funds were sufficient to meet the investments. In thefacts of that case, it was noted that the said presumption was establishedconsidering the finding of fact returned by the first appellate authority asaffirmed by the Tribunal which is identical in the present case. 7.1.We also note that the said decision of this Court has been affirmedby the Supreme Court in CIT Vs. Reliance Industries Limited, 410 ITR466. 8.In the light of the above, we do not find any good ground toentertain this question for consideration. 9.In so far question No.2 is concerned, the same relates to deletionby the first appellate authority of the disallowance made by the assessingofficer by invoking the provisions of Section 36(1)(iii) of the Act. Wefind that this question is intertwined with question No.1. We also findthat this issue was raised by the Revenue in the case of the assessee itselfin Income Tax Appeal Nos.766 and 820 of 2016 before this Courtdecided on 04.12.2018. In that decision, this Court referred to the finding of the first appellate authority as affirmed by the Tribunal thatrespondent / assessee had not utilized interest bearing borrowed fundsfor making such interest-free advances. Respondent - assessee had itsown interest-free fund far in excess of interest-free advance. This being apure question of fact, it was held that no question of law arisestherefrom. 9.1.Following the above, we decline to admit question No.2 forconsideration. 10.In so far question No.3 is concerned, we find that in paragraph 9of the order dated 28.09.2016, the Tribunal followed the decision of theSupreme Court in CIT Vs. Woodward Governor India Pvt. Ltd., 312 ITR254 declaring that it is now settled proposition of law that the lossarising on account of valuation of outstanding liabilities / receivablescannot be considered as a notional loss. Therefore, Tribunal held that thefirst appellate authority had rightly set aside the addition made by theassessing officer. 11.Regarding adjustments made in the book profit under Section115JB of the Act following disallowance made under Section 14A of theAct on account of foreign exchange fluctuations, Tribunal held that sinceit had upheld the order of the first appellate authority deleting theadditions made under Section 14A of the Act, the contention of theRevenue needed to be turned down. 11.Regarding adjustments made in the book profit under Section115JB of the Act following disallowance made under Section 14A of theAct on account of foreign exchange fluctuations, Tribunal held that sinceit had upheld the order of the first appellate authority deleting theadditions made under Section 14A of the Act, the contention of theRevenue needed to be turned down. 12.In the present decision, we have also affirmed the finding of theTribunal affirming the deletion of disallowance made under Section 14Aof the Act. Since disallowance under the substantive provision have beeninterfered with, question of consequential adjustments in book profitunder Section 115JB of the Act does not arise. 13.In view of above, we are also not inclined to entertain thisquestion as framed by the Revenue for consideration. 14.This brings us to the last question framed by the Revenue, whichis deletion by the Tribunal of an amount of Rs.3,32,867.00, the additionof which was made by the assessing officer under Section 69-C of theAct as bogus purchases. 15.From the assessment order, we find that assessing officer hadnoted that the respondent - assessee had made purchases ofRs.3,23,944.00 and Rs.8,923.00 from M/s. Kant Enterprises and M/s.Nutan Metals respectively. Assessing officer further noted thatinformation was received from the Sale Tax Department, Government ofMaharashtra that the above two parties had not actually sold anymaterial to the respondent - assessee. Accordingly, show cause noticewas issued to the respondent - assessee to furnish details relating toabove purchases. In response to the show cause notice, respondent -assessee furnished copies of the bills and entries made in its books ofaccounts relating to such purchases pertaining to glass mosaic tiles fromM/s. Kant Enterprises and stainless steel top railing from M/s. NutanMetals. However, assessing officer vide his assessment order dated31.01.2013 held that there was no actual purchase of goods by therespondent - assessee and accordingly the aforesaid two amountstotalling Rs.3,32,867.00 was disallowed and consequently added to thetotal income of the respondent - assessee. 16.Though the first appellate authority did not interfere with theorder passed by the assessing officer, contention of the respondent -assessee that copy of the statement made by M/s. Kant Enterprisesbefore the Sales Tax Department, Government of Maharashtra was notmade available to the respondent - assessee though copy of statementmade by M/s. Nutan Metals was made available, was recorded. 17.On further appeal before the Tribunal by the respondent -assessee, Tribunal held as under: “16.Having heard rival submissions, we are of the view thatthere is merit in the submissions made by the assessee. We notice that the AO has simply relied upon the Sales TaxDepartment report about suspicious dealers, without makingindependent inquiries. On the contrary, the assessee hasfurnished all the materials to prove the genuineness ofpurchases and the AO has failed to show that those materialswere bogus. Under these set of facts, we are of the view thatthere is no justification in doubting the genuineness ofpurchases made by the assessee. Further, these alleged boguspurchases forms a minor fraction of total volume of theassessee company and it is stated that there is no day to dayinvolvement of the management. It was further submitted thatthe assessee is having strict internal controls. Hence we are ofthe view that the AO has not made a proper ground in supportof the disallowance. Accordingly we set aside the order passedby Ld. CIT (A) on this issue and direct the AO to delete theaddition of Rs.3,23,944/-.” 18.Thus, we find that according to the Tribunal the assessing officerhad merely relied upon information received from the Sales TaxDepartment, Government of Maharashtra without carrying out anyindependent enquiry. Tribunal had recorded a finding that assessingofficer had failed to show that the purchased materials were bogus andheld that there was no justification to doubt genuineness of the purchasesmade by the respondent - assessee. 19.We are in agreement with the views expressed by the Tribunal.Merely on suspicion based on information received from anotherauthority, the assessing officer ought not to have made the additionswithout carrying out independent enquiry and without affording dueopportunity to the respondent - assessee to controvert the statementsmade by the sellers before the other authority. Accordingly, we do notfind any good ground to entertain this question for consideration as well. 20.Consequently, we find no merit in the appeal preferred by theRevenue. Appeal is dismissed. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.)