Pr. Commissioner Of Income Tax-1 v. M/S Attire Designers Pvt. Ltd

$~47 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 344/2022 PR. COMMISSIONER OF INCOME TAX-1..... Appellant Through:Mr.Sanjay Kumar, Sr.StandingCounsel for the Revenue withMs. Easha Kadian, Advocate. versus M/S ATTIRE DESIGNERS PVT. LTD ..... Respondent Through:None %Date of Decision: 20[th]September, 2022 CORAM:HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORAJ U D G M E N T MANMOHAN, J (Oral): 1.Present income tax appeal has been filed challenging the order dated29[th]November, 2021 passed by the Income Tax Appellate Tribunal(‘ITAT’) in ITA 5224/Del./2017 for the Assessment Year 2014-15. 2.Learned counsel for the Appellant states that the ITAT has erred inupholding the decision of the CIT(A) of deleting the addition made underSection 68 of the Income Tax Act, 1961 (‘the Act’) without appreciating thefindingsoftheAssessingOfficerandwithoutconsideringthecreditworthiness of the companies with whom assessee company hadexecuted large scale transactions. 3.He further states that the ITAT has erred in deleting the addition madeunder Section 37(1) of the Act without appreciating the facts clearly ITA No.344/2022Page 1 of 8 mentioned in the Assessment Order and without considering that assesseehas claimed and received excess incentive on the basis of erroneousdeclaration. 4.A perusal of the paper book reveals that the CIT(A) noted theobjection of the assessee that sufficient opportunity was not given by theAssessing Officer during assessment proceedings and accordingly directedthe assessee to furnish details of payments of outstanding balance as on 31[st]March, 2014 along with confirmation for fair and proper disposal of theappeal. The assessee submitted details of parties as well as detail oftransaction made by the Appellant with said parties during the FinancialYear under consideration mentioned in transfer pricing report in the Form of3CEB as well as transfer pricing study, which was submitted by Appellantbefore the Assessing Officer. 5.The CIT(A) noted that the said transactions of purchases were at arm'slength price and no adverse finding was brought on record by the AssessingOfficer and that the Assessing Officer never doubted purchases made by theAppellant during the year which includes purchases made from sundrycreditors, sale made by Appellant during year and book result declared bythe Appellant-Company for the financial year under consideration. 6.During the appellate proceedings, the CIT(A) also observed that M/sVikas Superfine Garments Pvt. Ltd. and M/s Mangat Superfine GarmentsPvt. Ltd. (the sundry creditors) have purchased goods during the year underconsideration from different parties and out of the said purchases, they havesold goods to the Appellant-Company and as per general business practice,goods were purchased on credit basis and therefore, the allegation ofAssessing Officer that the financial statement of the sundry creditors do not ITA No.344/2022 support their creditworthiness, is not based on proper appreciation of thefacts. The CIT (A) also perused the details of sale, purchase, trade payablesand trade receivables for the financial year under consideration of the saidsundry creditors and came to the conclusion that there are correspondingpurchases against sales declared by them for the financial year underconsideration and there are also trade payables outstanding as on 31[st]March,2014, which shows that the said companies also having trade payableagainst purchases of goods, therefore, the allegation made by the AssessingOfficer that such companies do not have creditworthiness to enter into largescale transaction of sale and purchase is factually incorrect. The CIT (A)held that once Assessing Officer has accepted sales and purchasetransactions, transfer pricing report at arm's length and book results declaredby the Appellant, he is not justified in treating the credit balance of associateparties relating to sales to the Appellant as non-genuine without bringingany adverse material on record. 7.It was also observed by the CIT (A) that the Appellant as well asparties in whose name credit balance have been treated as unexplained, havesubmitted sufficient documentary evidence during the course of assessmentproceedings to prove identity, creditworthiness and genuineness of thetransactions of purchases made by the Appellant from sundry creditors andno defect has been pointed out by the Assessing Officer in the assessmentorder. 8.The ITAT upheld the findings of the CIT (A) and dismissed theappeal of the Revenue. 9.The Appellate Authorities below relied on the judgment of this Courtin the case of Commissioner of Income Tax v. Ritu Anurag Aggarwal ITA No.344/2022 Page 3 of 8 [2010] 2 taxmann.com 134 (Delhi) wherein it has been held as under: “2. It would be worthwhile to mention that the aforesaidcreditors shown in the books of accounts, are the sundrycreditors, from whom as per the assessee, he had madepurchases. They are thus the creditors. The Tribunal foundthatevenifitisacceptedthatthebookswererejected, significantly the Assessing Officer had not disallowedthe purchases from those creditors nor the trading results havebeen disturbed. In this behalf, learned counsel for the assesseealso drew our attention to the orders of the Assessing Officer, asper which the assessee had shown the total turnover of Rs.1,03,44,054, on which gross profit rates declared was 68.94%as compared to sales of Rs. 21,18,994 in the previous year. TheAssessingOfficeracceptedtheaforesaidfiguresandcategorically observed as under: "The GP rate as well as the sales has beensubstantially increased during the year in comparisonto the last year. Sales trading results are notdisturbed." 3. This finding of Assessing Officer remained undisturbedbefore the CIT(A) as well and has been accepted by the ITAT.Proceeding on this basis, the ITAT observed that the sales,purchases as well as gross profits as disclosed by the assesseehave been accepted by the Assessing Officer. 4. Once this is accepted, we are of the opinion that the approachof the ITAT was correct inasmuch as the Assessing Officer didnot consider this aspect while making additions of the sundrycreditors under section 68 of the Income Tax Act. As there wasno case for disallowance for corresponding purchases, noaddition could be made under section 68 inasmuch as it is notin dispute that the creditors' outstanding related to purchasesand the trading results were accepted by the AssessingOfficer.” (emphasis supplied) ITA No.344/2022 10.As far as the second issue raised by the Appellant is concerned, thisCourt finds that the Appellate Authorities below have recorded that assesseehad received incentive of Rs.1,68,00,331/- from Custom DepartmentAuthority on export of ‘technical textile’. However, later on, Deputy DGFTasked the assessee to refund the incentive received, as certain exports did notfall in ‘technical textile’ category for which the incentives were payable.The Appellate Authorities below noted that in the letter directing theassessee to refund the incentive, nowhere it was stated that assessee hadcommitted any offence under foreign trade regulation. 11.The Appellate Authorities below further recorded that the Revenuehas not placed any material on record to point out that interest paid by theassessee was on account of any act of assessee which is prohibited by lawand to demonstrate that the payment is hit by Explanation 37(1) of the Act. 12.This Court in the case of CIT v. Enchante Jewellery Ltd. [2013]40 taxmann.com 216 (Delhi) has held as follows: 11.The Appellate Authorities below further recorded that the Revenuehas not placed any material on record to point out that interest paid by theassessee was on account of any act of assessee which is prohibited by lawand to demonstrate that the payment is hit by Explanation 37(1) of the Act. 12.This Court in the case of CIT v. Enchante Jewellery Ltd. [2013]40 taxmann.com 216 (Delhi) has held as follows: “2. The facts are that the assessee used to manufacture andtrade in gold jewellery. Its return for the assessment year 2001-02 was selected for scrutiny and notice under Section 143(2)was issued and served upon the assessee. During the assessmentproceedings the Assessing Officer disallowed Rs. 1,04,000/-paid by the assessee as interest on customs duty demand. Theassesseecontendedthatheusedtoimportjewellerymanufacturing machinery under Export Promotion CapitalGoods Scheme (EPCG Scheme) at a concessional rate with anexport obligation which it could not fulfil and was required topay interest @ 24% per annum to DGFT. The Assessing Officerafter considering the contentions of the assessee held that theinterest paid by the assessee cannot be allowed as deduction asit was penal in nature and, therefore, fell within the mischief ofExplanation below Section 37(1) of the Act. The assesseeappealed to the Commissioner (A) who ruled in favour of the ITA No.344/2022 assessee in the following terms:- "3.2 During the course of appellate proceedings it hasbeen submitted by the appellant counsel the interest ison late payment of customs duty and is not a penalty.The penalty was to surrender the special importlicences equivalent to thrice the value of importlicense. Therefore, the A.O. has wrongly disallowedthe amount. It was further submitted if any interest ispaidforpurchaseofcapitalassetaftercommencement of the business the same is allowableas a business expenditure. 3.3 On going through the letter placed on record bythe appellant counsel it is observed in the letter it isclearly mentioned that the entire duty saved alongwith interest @ 24% is to be deposited. It is alsomentioned that SIL equivalent to thrice the value ofimport license is also required to be surrendered aspenalty. Therefore, from this letter it is clear that theinterest paid is not in the nature of penalty. It is also afact that, the business of the appellant has alreadycommenced and even the interest paid on purchase ofmachinery is an allowable business expenditure.Therefore, the addition made by the A.O. is deleted." 3. The Revenue's appeal before the Tribunal was that thedisallowance directed to be set aside by the CIT (A) was notjustified since the amount paid was penal in nature. TheTribunal considered the submissions and held that there was noinfirmity in the order of the CIT (A) and the amount paid wasnot penal in nature as much as it was as per the declared policyof the government and occasioned by the failure of the assesseeto meet its obligations. The amount being interest wascompensatory and not penal according to the Tribunal. 4. The counsel for the Revenue attacked the reasoning of theTribunal contending that since the assessee availed the facilitywithout having fulfilled the obligations, there was a violation ofthe terms of the scheme, doing something that is prohibited by ITA No.344/2022 law. 5. The Revenue, in the opinion of the Court, has been unableto establish that the assessee's conduct was an offence or thatit did anything that was prohibited by law. The AssessingOfficer has not pointed out which provision of law was violatedby the assessee. Even if in any adjudicatory proceedings underCustoms Act the word "penalty" is used, that cannot bedeterminative of the nature of the payment, nor can theAssessing Officer conclude that the assessee did somethingthat was an offence or was prohibited by law. There is nothingbrought on record by the Revenue to show that the payment washit by the Explanation below Section 37(1) of the Act.” (emphasis supplied) ITA No.344/2022 law. 5. The Revenue, in the opinion of the Court, has been unableto establish that the assessee's conduct was an offence or thatit did anything that was prohibited by law. The AssessingOfficer has not pointed out which provision of law was violatedby the assessee. Even if in any adjudicatory proceedings underCustoms Act the word "penalty" is used, that cannot bedeterminative of the nature of the payment, nor can theAssessing Officer conclude that the assessee did somethingthat was an offence or was prohibited by law. There is nothingbrought on record by the Revenue to show that the payment washit by the Explanation below Section 37(1) of the Act.” (emphasis supplied) 13.Consequently, both the Appellate Authorities below have recordedconcurrent findings of fact on both the issues. 14.The Supreme Court in the case of Ram Kumar Aggarwal & Anr.vs. Thawar Das (through LRs), (1999) 7 SCC 303 has reiterated that underSection 100 of the Code of Civil Procedure the jurisdiction of the HighCourt to interfere with the orders passed by the Courts below is confined tohearing on substantial question of law and interference with finding ofthe fact is not warranted if it involves re-appreciation of evidence. Further,the Supreme Court in State of Haryana & Ors. vs. Khalsa Motor Limited &Ors., (1990) 4 SCC 659 has held that the High Court was not justified in lawin reversing, in second appeal, the concurrent finding of the fact recorded byboth the Courts below. The Supreme Court in Hero Vinoth (Minor) vs.Seshammal, (2006) 5 SCC 545 has also held that “in a case where from agiven set of circumstances two inferences of fact are possible, the one drawnby the lower appellate court will not be interfered by the High Court insecond appeal. Adopting any other approach is not permissible.” It has also ITA No.344/2022 Page 7 of 8 held that there is a difference between a ‘question of law’ and a ‘substantialquestion of law’. 15.Consequently, this Court finds that no substantial question of lawarises for consideration in the present appeal and accrordingly the same isdismissed. MANMOHAN, J SEPTEMBER 20, 2022KA MANMEET PRITAM SINGH ARORA, J ITA No.344/2022 Page 8 of 8