Income Tax Appellate Tribunal - Chandigarh
Dcit, Cc-Iii, Ludhiana vs M/S Sel Manufacturing Co. Ltd., ... on 28 February, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, "बी" च डीगढ़
I N T H E I NC O ME T A X A P PE L L A T E T RI B U N AL
D I VI S I O N B E NC H , ' B ' , C H AND I G AR H
ी संजय गग , या यक सद य एवं डा. बी.आर.आर, कुमार, लेखा सद य
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND
DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 157/ C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2010-11
M/s SEL Manufacturing Co. बनाम DCIT, Central Circle-III,
Limited, 274, G.T.Road, Ludhiana
Dhandari Khurd, Ludhiana
थायी लेखा सं./PAN NO: AAHCS9189E
Appeal against the order of CIT(A)-2, Jalandhar dated 29.12.2017
आयकर अपील सं./ ITA No. 158/ C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2011-12
M/s SEL Manufacturing Co. बनाम DCIT, Central Circle-III,
Limited, 274, G.T.Road, Ludhiana
Dhandari Khurd, Ludhiana
थायी लेखा सं./PAN NO: AAHCS9189E
Appeal against the order of CIT(A)-2, Jalandhar dated 29.12.2017
आयकर अपील सं./ ITA No. 159/ C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2012-13
M/s SEL Manufacturing Co. बनाम DCIT, Central Circle-III,
Limited, 274, G.T.Road, Ludhiana
Dhandari Khurd, Ludhiana
थायी लेखा सं./PAN NO: AAHCS9189E
Appeal against the order of CIT(A)-2, Jalandhar dated 21.12.2017
आयकर अपील सं./ ITA No. 160/ C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2013-14
M/s SEL Manufacturing Co. बनाम DCIT, Central Circle-III,
Limited, 274, G.T.Road, Ludhiana
Dhandari Khurd, Ludhiana
थायी लेखा सं./PAN NO: AAHCS9189E
Appeal against the order of CIT(A)-2, Jalandhar dated 29.12.2017
ITA Nos. 157 to 161 & 302 -303-C-2018
M/s SEL Manufacturing Co Ltd., Ludhiana
2
आयकर अपील सं./ ITA No. 161/C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2014-15
M/s SEL Manufacturing Co. बनाम DCIT, Central Circle-III,
Limited, 274, G.T.Road, Ludhiana
Dhandari Khurd, Ludhiana
थायी लेखा सं./PAN NO: AAHCS9189E
Appeal against the order of CIT(A)-2, Jalandhar dated 21.12.2017
आयकर अपील सं./ ITA No. 302/ C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2012-13
DCIT, Central Circle-III, बनाम M/s SEL Manufacturing Co.
Ludhiana Limited, 274,
G.T.Road,Dhandasri Khurd,
Ludhiana
थायी लेखा सं./PAN NO: AAHCS9189E
Appeal against the order of CIT(A)-2, Jalandhar dated 21.12.2017
&
आयकर अपील सं./ ITA No. 303/ C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2014-15
M/s SEL Manufacturing Co. बनाम DCIT, Central Circle-III,
Limited, 274, Ludhiana
G.T.Road,Dhandasri Khurd,
Ludhiana
थायी लेखा सं./PAN NO: AAHCS9189E
Appeal against the order of CIT(A)-2, Jalandhar dated 21.12.2017
अपीलाथ /Appellant यथ /Respondent
नधा रती क ओर से/Assessee by : S/Sh. Ashwani Kumar & Sh. Aditya Kumar, CA
& Ms. Kanika Gupta, CA
राज व क ओर से/ Revenue by : Smt. Renu Amitabh, CIT DR
सन
ु वाई क तार%ख/Date of Hearing : 13.02. 2019
उदघोषणा क तार%ख/Date of Pronouncement : 28.02. 2019
आदे श/Order
Per Sanjay Garg, Judicial Member:
The captioned cross appeals for different assessment years have been preferred by the assessee and Revenue against the order of the ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 3 Commissioner of Income Tax (Appeals), Jalandhar [hereinafter referred to as CIT(A)].
2. First, we shall deal with the appeal of the assessee in ITA No. 157/Chd/2018 for assessment year 2010-11.
ITA No. 157/Chd/2018 (A.Y. 2010-11):
3. In this appeal the assesse/appellant has taken following grounds of appeal:-
1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-2, Jalandhar is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in framing assessment u/s 153A despite the fact that no incriminating material was found during the course of search.
2. That Ld. CIT(A) gravely erred in holding that the assessment framed by the Ld. Assessing Officer was not beyond the period of limitation prescribed under the Act.
3. That Ld. CIT(A) was not justified to arbitrarily uphold the addition made at Rs. 39,70,08,480/- representing proceeds of GDR issued by the appellant as unexplained credit by resort to provisions of Section 68 of the Income Tax Act.
4. That Ld. CIT(A) has relied on a lot of irrelevant data marshalled by the Ld. Assessing Officer while upholding the above mentioned addition of Rs. 39,70,08,480/-.
5. That Ld. CIT(A) was not justified in upholding the assessment despite the fact that principles of natural justice were grossly violated by the Ld. Assessing Officer in framing of assessment.
6. That Ld. CIT(A) was not justified to uphold the action of the Ld. Assessing Officer in not considering the appellant's request for not making any disallowance u/s 14A which was initially made by the appellant while filing the return of income.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 4
4. Ground No.1 : Vide ground No.1 the assessee has taken a legal issue agitating that order passed u/s 250(6) of the Income-tax Act, 1961 (in short 'the Act') by the Ld. CIT(A) is against law and facts on the file and that CIT(A) was not justified to uphold the action of the Assessing officer in framing assessment u/s 153A of the Act and thereby making impugned additions into the income of the assessee, despite the fact that no incriminating material was found during the course of search.
5. The Ld. Counsel for the assessee has submitted that a search action was carried out at the premises at the assessee and its Group concerns on 11.9.2013, however, no incriminating material was found during the search action. That for assessment year 2010-11, the original assessment u/s 143(3) of the Act was framed by the Assessing officer vide order dated 17.9.2012. Since on the date of search, the original assessment already stood completed and in the absence of any incriminating material found during the search action, the addition made by the Assessing officer by way of revisiting the issue was bad in law. That since no incriminating material was found during the search action and hence, no additions were warranted under the assessment carried out u/s 153A of the Act. The Ld. Counsel for the assessee has relied upon various judicial decisions including the decision of the in the Hon'ble Bombay High Court in the case of 'CIT Vs. Murli Agro Products Pvt Ltd', (2014) 49 taxman.com 172 (Bom.), ITA No.36 of 2009 and in the case of 'CIT Vs. Continental Warehousing Corporation' ITA No. 523 of 2013 reported in (2015) 279 CTR 0389 (Bombay) and of the Hon'ble Delhi High Court in the case of 'CIT Vs. Kabul Chawla' 234 Taxman 300 (Delhi) and subsequent decision of the Delhi High Court in the case of 'Principal CIT Vs. Meeta Gutgutia ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 5 Prop M/s Ferns 'N' Petals", ITA 306/2017 and others decided vide order dated 25.5.2017.
6. The Ld. DR has also been fair enough to admit that no incriminating material was found in the case during the search action and that the facts and issue involved are squarely covered by the aforesaid decisions. We find force in the contention of the Ld. AR. Admittedly, the assessment for the year under consideration stood completed on the date of search. No incriminating material, whatsoever, in relation to the share application money/GDR was found. It has been time and again held by the various High Courts that if no incriminating material is found during the search action, the addition in the case of already concluded assessment cannot be made while framing assessment u/s 153A of the Act. Reliance in this respect can be placed in the case of 'CIT Vs. Continental Warehousing Corporation' ITA No. 523 of 2013 reported in (2015) 279 CTR 0389 (Bombay) and of the Hon'ble Delhi High Court in the case of 'CIT Vs. Kabul Chawla' 234 Taxman 300 (Delhi). We find that the case of the assessee is squarely covered by the aforesaid decisions. The view taken in the aforesaid decisions has been further affirmed by the Delhi High Court in the case of 'Principal CIT Vs. Meeta Gutgutia Prop M/s Ferns 'N' Petals", ITA 306/2017 and others decided vide order dated 25.5.2017. The aforesaid case laws can be well applied to the facts and circumstances of the case in hand. In view of this, we hold that the Ld. CIT(A) was not justified in upholding the action of the Ld. Assessing officer in framing u/s 153A of the Act. The assessment framed under section 153A for the assessment year under consideration is hereby quashed.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 6 Since the issue taken on merits of the case though rendered academic in nature for assessment year 2010-11, have also been raised in subsequent assessment years also, hence, we proceed to decide the same also.
7. Ground No.2: As regards the issue raised vide ground No.2, the assessee has taken a plea that the assessment framed by the Ld. Assessing officer was beyond the period of limitation prescribed. The Ld. Counsel for the assessee in this respect has submitted that during the assessment proceedings, which were going on till March, 2016, the Assessing officer without any intimation to the assessee, purportedly referred the to matter to JS (FT &TR) in respect of GDR issue of the assessee. Despite assessee's request vide letters dated 5.1.2017 and 19.1.2017, the details of so called reference was never communicated to the assessee. It has been submitted that that in case the Assessing officer had to take the benefit of extended period of limitation as prescribed in section 153, the Assessing officer ought to have communicated the details of such reference to the assessee. In the absence of any such communication, there was nothing on record to support the averment in the assessment order that the matter was referred to JS(FT &TGR).
8. The Ld. DR, on the other hand, has relied upon the findings of the CIT(A) on this issue.
9. We have considered the rival contentions. We find that the Ld. CIT(A) has categorically observed that the provisions of Income Tax Act empowers the Assessing officer to make a reference to the competent authority for collecting information with regard to the transactions executed by the assessee outside India and on account of that the Assessing ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 7 officer referred the matter to the JS(FT&TR) in respect of the Global Depository Receipt (GDR) received by the assessee from foreign entities. The time frame for framing assessment was accordingly extended by the competent authority. We, therefore, do not find any merit on this issue and this ground of appeal of the assessee is hereby dismissed.
10. Ground Nos. 3, 4 & 5 : So far as the issue raised vide these grounds, the assessee has agitated on merits of the additions made by the Assessing officer in respect of proceeds of GDRs issued by the appellant holding the same as unexplained credit.
11. Brief facts of the case, as extracted from the order of the CIT(A), are that the appellant is a limited company engaged in the business of manufacturing and trading of yarn, garments, towel, knitted cloth and running a dyeing house etc. A search and seizure operation under section 132 of the Income Tax Act, 1961 was conducted in the case of the appellant on 11.09.2013. In pursuance to the search operation, proceedings under section 153 A of the Act were initiated by the Assessing Officer vide notice dated 24.03.2014, requiring the appellant to furnish return of income in respect of assessment years falling within the six assessment years, immediately preceding the previous year in which search was conducted. In response to the said notice, the appellant filed return of income for assessment year under consideration as under:
AY Profit/Loss as per Return Date of Filing us 153 A 2010-11 Profit of Rs. 45,15,11,920 05.03.2015 2011-12 Profit of Rs. 60,85,81,130 02.03.2015 2013-14 Loss of Rs.29,03,51,706 02.03.2015
12. The assessment was completed vide order dated 30.01.2017, passed under section 143(3) r.w.s. 153A of the Act, and income of the appellant ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 8 has been assessed at Rs. 84,85,20,400/-, Rs. 431,02,21,140 and Rs.241,64,40,090 for AY 2010-11, 2011-12 and 2013-14 respectively. The assessing officer has made additions Rs. 39,70,08,480/-, (ii) Rs.
370,16,40,000/- and (iii) Rs. 241,64,40,094/- respectively, on account of Global Depository Receipts (GDR) proceeds ) issued by the appellant, as unexplained credit by resorting to provisions of section 68 of the Income Tax Act, 1961, on the ground that the appellant was unable to prove the identity, genuineness and credit worthiness of the investors and the financial trail of the money having been paid by such investors in the form of investment in GDR.
13. Being aggrieved by the above additions made by the AO, the assesse preferred appeal before the CIT(A). The Ld. CIT( A), however, confirmed the additions so made by assessing officer observing as under:
"5.13 I have carefully considered detailed submissions made by the appellant including judicial citations given therein and find that it is not disputed that total funds to the tune of Rs. 651.15 crore have been raised by the appellant in the years under consideration in this appeal through issue of GDRs. The appellant has contended that a list of the lead managers for each of the series of GDRs has been furnished before the AO, which substantiate the quantum of funds raised from outside India. The appellant has discharged the onus placed upon him under section 68 of the IT act, as regards the flow of funds in the account of the appellant is concerned. It is submitted that these funds have been raised by the lead managers to the issue from various investors who are based outside India and after deducting their commission the net funds are transferred to the appellant company.
5.14 The appellant was asked to furnish the name and address of the investors, who subscribed to the issue of GDRs issued by the company. The details were examined by the AO and it is found that in each of the series of GDRs issued by the appellant only a handful of the investors have subscribed to the GDR issue. AO has gone through the incriminating material collected in the course of search (details given in ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 9 page no. 3 of the assessment order) and made elaborate enquiries in the course of assessment proceedings which reveal that each of the GDR issue made by the appellant compan y was in fact a private placement of GDRs. The list of subscribers to each of the GDR issue has been given in the assessment order and was also filed by the appellant in the course of present proceedings. It is seen from the same that not more than seven persons have subscribed to the issue of GDRs.
5.15 The appellant was asked in the course of assessment proceedings to furnish the details of these subscribers to the GDR issue by furnishing evidence to prove their identity, genuineness and creditworthiness of the investors along with the financial trail of the money which has been received from these investors into the accounts of the appellant. The appellant has failed to furnish any evidence on either of these parameters on the ground that GDR issue was a public issue and therefore, there is no onus placed upon him to furnish the details of these investors.
5.16 It would be pertinent at this stage to examine the provisions of section 68 of the IT act, which are reproduced as under: -
"Cash credits.
68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:
Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless--
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited;
and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10. "
5.17 The intentions of the legislature for making this amendment in the provisions of section 68 of the IT act is clear ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 10 from the Memorandum explaining the Finance Bill 2012, relevant extracts of which is re-produced as under:
"C. Measures to Prevent Generation and Circulation of Unaccounted Money Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either
(i) does not offer any explanation about nature and source of money- or
(ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer, then, such amount can be taxed as income of the assessee.
The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited. If such person fails to offer an explanation or ;he explanation is not found to he satisfactory then the sum is added to the total income of the person. Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc. Judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The Courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large.
In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income. It is, therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder, However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply ij the shareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBl).
This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years. "
5.18 Thus, it is clear from the reading of above memorandum to the provisions of Finance act that in case of private placement of shares, the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the present case the facts ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 11 make it apparent that it was a private placement under the guise of a public issue of GDRs. AO is under an obligation by virtue of the provisions of the IT act and a duty is cast upon him to investigate the sources of funds as the appellant company has failed to discharge the onus placed upon it.
5.19 AO had to make a reference in the course of assessment proceedings through the competent authority i.e. JS FT&TR to the authorities located outside India for obtaining information regarding the bank accounts, sources of income, credit of the worthiness etc of the subscribers to the GDR issue. The information received by the AO through the competent authority after the completion of assessment proceedings was forwarded to the appellant by the undersigned vide letter dated 18.12.2017. In the course of present proceedings. The appellant has submitted that prima-facie it appears that no adverse finding has been given by any foreign jurisdiction. The purpose was to obtain information with regard to the identity, creditworthiness and genuineness of the transactions. The appellant has admitted in the written submissions filed before the AO and also in the course of present proceedings that no copy of bank account was furnished for Investec Bank, Zurich with regard to the funds received from Series-II and for Series- III of GDR issue. AO has further stated that appellant has failed to provide the financial trail of the GDR proceeds in so far as the debit appearing in the bank accounts of the investors was not correspondingly found credited in the bank account of the appellant.
5.20 AO has followed the principles of natural justice and forwarded details, of certain bank accounts allegedly received from the competent authority in respect of certain investors who had made investment in the GDR issue of the appellant company- Lemon Diversified Fund; KII Ltd., Emerging India Focus Funds and Sparrow Asia Diversified Opportunities Fund. AO has held that amounts debited from the bank account of the aforesaid investors, were not found correspondingly credited in the books of the appellant. Thus, I find that appellant has failed to furnish any information in this regard, though the primary onus lies upon him.
5.21 AO has after examination of the evidence filed by the appellant and received through the competent authority from outside India held that investees of the appellant company did not have sufficient sources to make such investment in the GDR of the appellant company. It is seen from the order that income ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 12 tax returns of the investors for different years reflect a negative returned income (losses) and also show that these are 100$ companies, which means that all these entities have a share capital of about 100$. Thus, it is held by the AO that considering the paid-up share capital, the quantum of investments made by them in the GDRs of the appellant company is not commensurate to the profitability of these entities.
5.22 AO has further made enquiries in the matter and found out from SEBI that orders have been passed against few entities
- M/s KII Ltd, M/s Pan Asia Advisors Ltd., M/s Credo capital etc. who have invested funds through the GDRs issued by the appellant. SEBI has passed the directions under section 11(1), 11(4) and 11B of the SEBI Act 1992 for market manipulation using GDR issues. The names of other entities against which action has been taken by the SEBI and who are involved in the GDR issues of the appellant are as under: -
i Fundabilis Gmbh, Muntergasse, 12,800, Zurich, Switzerland ii Asset Logi Ltd., Aufder, Mauer 9, CH 8001, Zurich, Switzerland iii Calixis AG, Dufiurstrasee 101, Zurich 8008, Switzerland iv KII Ltd.
v. Credo India Thematic Fund Ltd. (Credo Group) vi Investec bank Switzerland AG
5.23 It was held by the AO that the entities involved in the GDR issue of the appellant company were suspicious/fictitious entities as per SEBI and therefore, the provisions of section 68 are clearly attracted in this case. The appellant has in response to this submitted that SEBI has merely suspected the transactions undertaken by the aforesaid entities and has nowhere suspended the said entities from undertaking any activities/transactions and the said order too was only an interim order. After considering all this factors, I find that the fact of having raised capital through a private placement which have been camaflouged as a public issue stands exposed. I do not find force in the contentions of the appellant that simply on account of the fact that money has been received through banking channel, the onus which is cast upon the appellant stands discharged.
5.24 It is pertinent to note that volume of the GDR issues made by the company in different years and the subsequent cancelation and conversion into equity shares created doubts ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 13 about the genuineness of the transaction. The appellant has in the written submissions filed admitted that in terms of the provisions of section 68 of the Act, the primary onus to explain the nature and source of the amount so found to be credited is on the assessee. The expression 'nature' encompasses bringing on record evidence about nature of the receipt, be it loan, advance, share application money, etc. The expression 'source' envisages establishing the identity and creditworthiness of the source/ person from whom the amount is received. The appellant has however furnished only skeleton information and failed to prove the identity of the creditor, credit worthiness of the creditor as well as genuineness of the transaction. The ultimate subscribers to the GDR issue were found to be only seven parties/entities and therefore, the claim of having made a public issue of GDR issue stands not proved. Further, the flow of funds from those entities to the bank account of the appellant could not be proved by the appellant. These entities are also found to be not credit worthy on account of these entities being hundred dollars companies having incurred losses as per their tax returns which have been collected by the AO.
5.25 Further, the fact which has been brought on record by the Assessing officer with regard to the cancellation of GDRs issued in different series, is as under: -
GDR-I Series-Issued on 14.12.2009 Cancellation - 100% between 11.03.2010 to 26.03.2010 GDR-II Series- Issued on 04.05.2010 Cancellation- 99.99% between 23.06.2010 to 06.08.2010 GDR-II Series- Issued on 09.09.2010 Cancellation-99.95% between 26.10.2010 to 20.12.2010 GDR-II Series- Issued on 01.06.2012 Cancellation- 77% between 03.07.2012 to 25.03.2014 5.26 The contention of the appellant made in the course of present proceedings that the high percentage of cancellation of GDRs is and cannot be an indicator of the genuineness of the transactions. It is submitted that it is a market decision taken by the investors for which no adverse inference can be drown against the appellant. I have considered the contentions of the appellant and do not agree with the same as it is an indicator of the reality. It may not be conclusive evidence in Itself but can only be used as an indicator of the state of affairs. The GDRs after cancellation are converted into shares of the company and data for the same showing GDR redemption for different series ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 14 of GDRs issued has been compiled from annexure-J which reveals the following results :-
Series D. P. Name D.P. Id Client I.d
Series- 1 HSBC Bank Ltd. India IN300142 10641890
HSBC Mumbai INS00142 10672895
ICICI Bank Ltd IN301348 20006082
Standard Chartered Bank IN301524 10023704
Serics-2 Citibank NA IN300054 10067517
Deutsche Bank AG IN300167 10009079
ICICI Bank Ltd IN301348 20013093
Series- 3 Citibank NA IN300054 10013912
Deutsche Bank AG IN300167 10067517
Series -4 DBS Bank Ltd. IN303307 10000158
Deutsche Bank AG IN300167 10104412
5.27 It is seen from the above table that all the GDRs after being cancelled and converting them into the shares of the appellant company have got transferred to the DP Accounts of 11 beneficiaries, who have purchased these shares at a fraction of the cost of issue of GDRs. Further, it is seen that the volume of these shares being traded is apparent from the data which is captured for bulk deals executed for the shares of the appellant company at both NSE &BSE and is reproduced as under:-
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 15 ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 16 ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 17 5.28 It is seen from the above data that bulk shares have been transferred/ purchased by less than 10 investors who are associated with the appellant company or by the directors of the company. Further, I find from the details of shareholding of the promoter family given by the AO in the assessment order page 55 to 60 that it has increased from 98.30 lac shares to 2.77 crore shares as a result of the conversion of GDRs into shares. It is also seen from the details available in the financial market that not even a single financial institution or mutual funds has purchased shares/ GDRs of the appellant company.
Further, utilization of GDR proceeds for the purposes for which funds were raised could not be established with evidence by the appellant in the course of assessment proceedings. The appellant has stated that advance payments were made for procurement of capital assets to the following parties out of the proceeds received on account of issue of GDR's:-
(i) Feather stone universal Ltd
(it) Autumn Star International Limited
(iii) Midland overseas trading Ltd
5.29 All the three companies/entities to whom payments have been made for procurement of capital assets could not be traced by the AO. Efforts were made in the course of present proceedings by making search on the Internet about the strength of these entities but no such company could be found in any of the jurisdiction with in India (On the web site of Ministry of Corporate Affairs) and outside India. The appellant company also failed to furnish any evidence with regard to the payments made in the account of these companies and the resulting assets purchased from them and supplied to the appellant company.
5.30 Further, I find that AO has in the order, specifically stated that a special investigation audit report was procured from State Bank of Patiala, wherein it was specifically pointed out that utilization of the entire GDR proceeds for acquisition of capital assets and for business expansion purposes could not be proved with evidence. AO has further stated that GDR proceeds were utilized for making real estate investment in Dubai.
5.31 AO has further stated in the order (page 31 of the order) that auditor has also not certified the utilization of GDR proceeds in the report. The appellant in the course of present ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 18 proceedings has failed to controvert the findings given by the Assessing officer on this issue and could not bring any evidence on record to support his contentions that funds were utilized for the purposes of business. The appellant has made bald statements that GDR proceeds were utilized by the appellant purely for the purpose of purchasing capital assets and for undertaking business expansion. However, in the absence of any evidence being furnished by the appellant to substantiate his contentions and coupled with the fact that none of the companies to whom funds were stated to have been paid are found to be existing, I find that AO was justified in holding that GDR proceeds received by the appellant have not been utilised for the business purposes. AO has brought evidence on record that funds have been used for the purposes of purchasing assets (real estate) in the name of concerns controlled directly/indirectly by the family members of the promoters of the company.
5.32 Thus, considering all these factors, 1 hold that appellant has failed to establish the identity, creditworthiness of the investors-subscribers to the GDR issue and genuineness of the transactions, and the assessing officer was justified in invoking the provisions of section 68 of the Act for bringing to tax the GDR proceeds for the three years. Accordingly, I confirm the addition of Rs. 39,70,08,480 for AY 2010-11 made by the AO, Rs. 370,16,40,000 for AY 2011-12 and Rs. 241,64,40,094 for AY 2013-14 under s. 68 of the IT Act i.e. for all the three years under consideration."
14. Being aggrieved by the above order of the CIT(A), the assesse has come in appeal before us.
15. We have heard the rival contentions and have also gone through the record. A perusal of the order of the Assessing officer as well as that of the CIT(A) reveals that both the authorities below have made the impugned additions on the basis of suspicion only. Despite best efforts made and even calling for information from foreign authorities i.e. from the authorities of the countries to which the subscriber of the GDRs belong ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 19 through Foreign Tax Division, the AO could not extract any reliable evidence to show that the aforesaid subscription to the GDRs was out of the own funds of the assesse. The entire case has been built against the assessee by the Assessing Officer on certain assumptions, which the Ld. CIT(A) in the later part of the impugned order has taken/assumed as if the same were established facts, whereas it is not so. The assessing officer sought details through the Competent Authority (JS FT&TR) CBDT, Ministry of Finance, Delhi under the Indo-Switzerland, Double Taxation Avoidance Agreement (DTAA), Indo-US DTAA, Indo-UAE DTAA and Indo-Mauritius DTAA to verif y the identity, genuineness and credit worthiness of the investors and financial trail of the GDR proceeds received from the alleged investors. However, in the information received from the foreign authorities, no incriminating material or adverse fact had been found against the assesse.
16. The Ld. counsel for the assesse has submitted and demonstrated from the record that the appellant went public by listing its equity shares on the Bombay Stock Exchange and National Stock Exchange in the year 2007. The Ld. Counsel has further submitted that thereafter, in the year 2009, the company, in order to finance the expansion plans and to expand its market reach globally, offered its shares to non-residents. Thus, in order to raise capital denominated in foreign currency and to venture into private markets overseas, the appellant raised fours series of GDR issues over a period of these years and raised capital of 651 crores. It is submitted that each GDR represented one hundred equity shares of par value of Rs.10 and such underlying shares of the GDR was duly listed on the Luxemburg ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 20 Stock Exchange and traded on the Euro MTF Market. It is submitted that GDR issue is considered to be a 'private placement' in cases where no offering circular is placed before the overseas exchange, the approval of overseas exchange is not obtained and listing fees is not paid i.e. when the issue is not listed on the stock exchange. However, in this case the appellant had complied with requirements and the GDRs were duly listed on stock exchange. That the appellant raised four series of GDR issue over a period of three years and raised the capital.
17. The counsel for the assessee has further submitted that in the course of assessment as well as appellate proceeding, the process involved in the issuance of GDRs, role of the Overseas Depository Bank, Lead Managers/Underwriters to the issue was duly explained. It is submitted that the GDR issue may be in the form of a 'private placement' or a 'public issue' is dependent upon the terms of the issue as agreed by the issuing company with the lead managers. The details of GDR issued by the appellant along with particulars of the depository bank, lead manager who managed the GDR issues in different years , i.e. AY 2010-11, 2011-12 and 2013-14 has been provided to the AO. It was explained that GDRs were not directly issued to investors but were issued in the name of the Depository by the Company and delivered to the Domestic Custodian bank and the ultimate issuance to the investors was thereafter coordinated/managed by the Lead Managers. The Company duly issued the Shares in the name of the Depository. That in terms of the GDR offering circular and the terms of engagement with the lead manager, the investors were to make payment in respect of their investment in GDR to the lead managers in US Dollars and the same was in turn to be remitted to the ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 21 issuing company i.e., the appellant, after deduction of lead manager fees. Thus, the entire amount was received by the appellant company through normal banking channels by means of online fund transfers from the accounts of its lead managers and in some cases through their offshore advisors. In view of the above explanation submitted by the Ld. Counsel for the appellant which is duly corroborated with the relevant documents/evidence, the assumption of the lower authorities that it was in fact a private placement of shares is not established on the file in an y manner.
18. So far as the observation of the Assessing Officer that there was difference between the amount withdrawn by the investors from their account and that has been received by the appellant, the Ld. Counsel for the appellant has explained that since the amount was not directly transferred by the investees to the appellant company, rather the same was routed through lead managers, after deducting their fee, hence it was likely that there was a difference of the amount withdrawn by the investors and that was received by the appellant. In view of above explanation, we do not think that the same can be a valid ground to doubt the investments in GDRs by the foreign entities.
19. So far as the issue relating to the utilization of the funds is concerned, the Ld. Counsel for the appellant has submitted that the funds raised by the appellant by issuing GDRs were utilized for business, capital expansion and meeting working capital requirements. He in this respect has relied upon various documents/financial statements also. However, without further going into this question, we are of the view that issue in this appeal is not relating to the utilization of the funds. Even if it ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 22 is assumed that the assesse company has misutilized its funds that, in our view, can not be said to be an income tax dispute. The issue in this appeal is relating to the establishment of source of funds. Though the case of the assesse is that the funds were utilized for business, capital expansion and meeting working capital requirements, however, in our view, the observations of the of the lower authorities on the utilization or misutilization of funds, is not relevant to the issue under adjudication, hence, we do not deem fit to go deep on this point .
20. Further, the counsel for the appellant has submitted that the assesseee/appellant had made all out efforts and submitted the requisite evidences not only to prove the genuineness of the transactions but also the financial trail of the money having been paid by the investors. The appellant filed copy of its bank statements in which GDR proceeds were received along with confirmations from the Lead Manager and the investors, establishing the complete financial trail in respect of each of the GDR Issue. Thus, the appellant discharged the initial onus by providing complete particulars of the lead managers and the investors and the amount of proceeds received from the GDR issue. It has been further submitted that the appellant cannot be expected to provide copies of bank statements and details of net worth of the investors, who are non-residents, in order to establish their creditworthiness. That even it was not practically feasible to produce such investors who were non-residents and not even in direct contact with the appellant. It is submitted that the appellant has raised this money through a public issue, the instrument being listed on a stock exchange overseas, wherein there is no interaction between the appellant and the investor. In fact, most of the investors have off loaded their GDRs ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 23 and now those shares are in the equity market (listed on the Indian Stock Exchange). Thus, to expect the appellant to produce the said entities and/or produce their original bank statements was not possible.
21. Regarding the issue of creditworthiness of the investors and further the onus on the appellant to establish the source of the source, the counsel for the appellant has submitted that GDR issue was a Public Issue, in case of public companies, since the shares are listed on stock exchange and traded on a real time basis, the company cannot be expected to provide details of the shareholders. The counsel for the appellant in this respect has also placed reliance on various judicial decisions to contend that no addition could be made u/s 68 of the IT Act as the money was raised by the company through GDR issue from Overseas Investors by way of public issue, for which sufficient details have been filed before the AO. That the onus placed upon the appellant has been discharged by way of furnishing evidence. Even the appellant has furnished copy of confirmations procured from the lead managers in support of the GDR issue, which clearl y supports the genuineness of the transaction. Further, the amounts received by the appellant were duly reflected in the bank statement. It is stated that all the concerns from whom the appellant had received GDR investments were companies registered under the relevant laws of their state; regular income-tax assessees of the relevant countries. Further, the amounts received by the appellant were duly reflected in the regular books of accounts and the financial statements of the said concerns/parties duly furnished. Even that the that the investors in the appellant company were large fund houses and had made investments in well-known and reputed entities and all the funds were registered as either FII's or Funds with ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 24 SEBI and their details were also available with the regulators.
22. Further on the issue of onus on the appellant to establish the source of the source after the amendment to section 68 of the Act vide Finance Act 2012 by way of insertion of proviso to the said section the Ld. counsel has submitted that no addition can be made in this case u/s 68 of the IT Act. It is explained that the said proviso applies only in respect of closely held private companies and excludes public companies from its purview. Thus, a public company is not statutorily required to establish the source of source. It is stated that additional onus has been placed only on private limited companies owing to the fact that in case of privately held companies, the investments made in such companies are known and thus such companies are required to prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. That the amended provisions of section 68 of the Act are not at all applicable in the case of the appellant, being a listed company in which public was substantially interested.
23. The Ld. Counsel for the assesse has further submitted though the AO had sought information about the foreign investors through competent authority i.e. JS FT&TR to the authorities located outside India for obtaining information regarding the bank accounts, sources of income, credit of the worthiness etc. of the subscribers to the GDR issue, however, the information received by the AO did not point out any adverse finding given by any foreign jurisdiction. The appellant provided all the information which it was supposed to provide. Though the AO in the assessment order has pointed out some dissatisfaction about the sufficiency of information received from foreign authorities through ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 25 competent authority , however, that itself cannot be ground to take an y adverse view against the assesse.
24. So far as issue relating to some information received from SEBI of market manipulation by a few entities some of whom had invested funds through the GDRs issued by the appellant, the Ld. Counsel has explained that the SEBI has merely suspected the transactions undertaken by the aforesaid entities and has nowhere suspended the said entities from undertaking any activities/transactions and the said order too was only an interim order. That no allegation whatsoever was made by SEBI in respect of the GDR issue made by the appellant company. Further that the allegation of market manipulation has no relevancy with issue of the creditworthiness of the investors.
25. So far as the issue of cancellation of GDR's is concerned, the Assessing officer has pointed out that GDR's have been cancelled and that the percentage of such cancellation is very high. In this respect, the Ld. Counsel for the assessee has submitted that the cancellation of GDR's is the market decision of the investors. That assessee had already furnished the details as in whose names the GDR's were converted to shares by virtue of cancellation where the DP ID and Client ID of the persons was available. That since shares were available with the depository, hence, the assessee did not have the names of such persons. Despite providing of the details, the Assessing officer did not get it verified from the depository as to who those persons were.
26. Though, the Ld. CIT(A), from the data captured from the Stock Exchange, mentioned that these shares have been got transferred to the DP ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 26 account of eleven beneficiaries who have purchased these shares at a low cost, however, there is no evidence on the file that those 11 parties who have purchased the shares, as alleged by the Revenue, are the directors or promoters of the assessee company. On the other hand it is the case of the assesse that these shares never reverted to the company or to any of the promoters of the company. Under the circumstances, adverse inference in this respect cannot formed on the basis mere assumptions of the revenue authorities. Further, we note that there is a contradictory observation of the Assessing officer and that of the CIT(A) in this respect. The Assessing officer has observed that the promoters i.e Saluja family was holding 57.27% of the shares as on March 2009 and that after GDR's issue came, that the holding of Saluja family came down to 19.45%. The Assessing officer has tried to infer that because the shareholding of the promoter had come down after the GDR's issue, it was not a company in which the public was interested and, hence, the proviso to section 68 of the Act was to be applied. On the other hand, Ld. CIT(A) has observed that from the details of shareholding of the promoter family given by the Assessing officer in the assessment order pages 55 to 60 that it had increased from 95.30 lacs shares to 2.77 crores shares as a result of the conversion of GDR into shares. However, a perusal of the details / chart, as reproduced in pages 55 to 60 of the assessment order reveals that though after conversion, the number of shares had increased which was obvious, however, the percentage of holding i.e. from 57.27% before the issue of GDR's had decreased to 8.37%, though the number of shares increased to 2.77 Crores. It is a matter of fact that once the GDR's were cancelled for conversion to the shares, the number of shares will increase. Under the ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 27 circumstances, the observation of the Ld. CIT(A) that shareholding has increased is against the facts on the file. Moreover, it is likely that once the GDR is issued, the shareholding of the promoter is likely to decrease.
27. In view of the above discussion, the Revenue has failed to prove that the transaction relating to the GDR's issue was a sham transaction or that it was money of the assessee which was routed through foreign channels through GDR's. Despite of the fact that all the information which the assesse was supposed to provide was provided by the assessee and also that the information regarding the investors was also received by the Assessing officer from the foreign entities through competent authority, no adverse fact has been pointed out against the assessee. In view of this, we do not find any justification on the part of the lower authorities in making the impugned addition on assumption of facts and thereby on the basis of suspicion only. In view of this, this issue is allowed in favour of the assessee and the additions, if any, made on this ground are ordered to be deleted.
28. Ground No.5 : Vide ground No.5 the assessee has agitated the action of the CIT(A) in framing / upholding the assessment observing that the principles of natural justice have been grossly violated by the Assessing officer. The main plea of the assessee in this respect is that the assessee has not been afforded opportunity of being heard and to controvert / rebut the allegations of the Assessing officer. The time period to frame the assessment including the extended period was expiring on 30.1.2017. However, the Ld. Assessing officer at the fag end of the limitation period i.e. 27.1.2017 issued a lengthy questionnaire to the assessee and asked the assessee to furnish detailed reply and explanation in ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 28 this respect. Even the Assessing officer proceeded to frame the impugned assessment on the basis of incomplete and vague information and without even independently verif ying and considering the reply of the assessee on this issue.
29. The assessee making all out efforts tried to rebut / reply to the allegations and furnished the required details vide reply dated 30.1.2017, however, in the evening, the Assessing officer, without going through the reply and evidences furnished by the assessee, framed the assessment. The Ld. counsel has also invited our attention to para 1.1 and para 8 of the assessment order wherein it has been mentioned by the Assessing officer; that he had sought information from office of JS(FT&TR) and that though some information has been received, however, substantial information was still awaited. The contention of the Ld. counsel in this respect is that since the Assessing officer was not in possession of substantial information, there was no occasion for the Assessing officer to take any adverse inference.
30. The Ld. DR On the other hand, has submitted that after framing of the assessment, certain more information was received during the appellate proceedings before the CIT(A) that this information was supplied to the Assessing officer as well as the comments of the assessee were duly taken. Hence, the grievance of the assessee, if any, on this issue, stood re- addressed in the appellate proceedings. We do not agree with the above contention of the Ld. DR on this issue. The Assessing officer himself has observed that the substantial information from the Foreign Tax Division was awaited. The assessee was asked to furnish voluminous details and evidences at the fag end of the limitation period on 27.1.2017 to which the ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 29 assessee could reply with voluminous papers and evidences on 30.1.2017, however, the assessment was framed on 30.1.2017 itself. The facts itself speaks that the Assessing officer did not apply his mind to the reply filed by the assessee. Even the information received by the Assessing officer, as per his own version, was partial information and substantial information was awaited. In view of this, the assessment framed by the Assessing officer was not passed on the proper appreciation of the evidences. Even otherwise, in view of our observation made above, even despite information received during the appellate proceedings, no adverse view is established. Moreover, we have already discussed the issue in detail in our findings given above while adjudicating ground Nos.3 and 4 above. In view of this, it is held that principles of natural justice also stood violated as the Assessing officer did not give proper opportunity to the assessee to rebut the allegations and the assessment was framed in a hurry as the limitation period to frame the assessment was expired. The assessment framed by the AO was thus bad in law because of denial of proper opportunity to the assesse, no substantial information available against the assesse as well as on account of violation of principles of natural justice.
31. Ground No. 6 : Vide ground No.6, the assessee has agitated the disallowance of expenditure u/s 14A of the Income Tax Act which was initially made by the appellant while filing the return of income. The brief facts relevant to the issue are that a search operation was conducted at the business premises of the appellant company on 11.09.2013. During the search proceedings the appellant / assessee made a statement that in a keen desire to purchase peace of mind and to avoid litigation and multiplicity of proceedings, the assessee hereby offer a sum of Rs. 80 ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 30 crore as additional income over and above the book results, to cover various discrepancies such as cash, stock, assets, deductions, disallowable expenses etc; out of which, a sum of Rs. 4.54 crores, Rs. 7.09 Croresand Rs.23.28 crores for A.Y. 2010-11, 2011-12 and 2012-13 respectively were offered/made as disallowance of expenditure incurred for earning of tax exempt income under the provisions of u/s 14 A of the I.T. Act in the return of income filed in response to the notice under section 153A of the IT Act. However, subsequently in the course of assessment proceedings, the appellant filed a letter with the Assessing Officer dated 30.01.2017 submitting that the disallowance offered/ made in the return on section 14A need not be disallowed as the same was not called for and that appropriate adjustment be made in this regard. However the AO did not take cognizance of the above contention of the assesse and framed assessment as per disallowance offered u/s 14A in the return of income.
32. In the appellate proceedings before the Ld. CIT(A), the appellant submitted that AO has failed to take cognizance of the said letter dated 30.11.2017. Copy of the letter was again filed before the CIT(A) and it was submitted that the investment made was out of appellants own sources. It was submitted that the appellant company had share capital, share application money and reserves and surplus which was much more than the amount of investment made as can be seen from the table below:
AY Disallowance u/s Surplus Investments
2010-11 4.54 Crores 495.55 Crores 158.90 Crores
2011-12 7.09 Crores 997.37 Crores 214.23 Crores
2013-14 23.28 Crores 1435.86 Crores 556.44 Crores
It was submitted that appellant had borrowed funds in form of working ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 31 capital and term Loans from banks. That the funds raised by the assessee company had been used only for the purposes for which they had been granted and the chances of diversion of funds for any other purpose were miniscule considering the stringent standards of monitoring and documentation prescribed. That no part of the interest expenses was relatable to the investments in equity instruments/share application money. It was therefore submitted that since no interest-bearing funds were used in making investments thus, no interest expenditure was incurred in earning exempt dividend income. The appellant has further contended that as no expenditure (neither on account of interest nor otherwise) had been incurred for investments being made for earning exempt income, the expenditure on borrowed funds could not be disallowed, either, in whole or in part by resorting to the provisions under section 14A read with Rule 8D of the Income Tax Rules. The appellant has further placed reliance on the orders passed by the Hon'ble Chandigarh Bench of The Income Tax Appellate Tribunal in the case of the appellant for AY 2009-10. itself on identical issue.
33. The Ld. CIT(A), however rejected the above stated contentions raised by the assesse observing as under:
"1 have carefully considered the contentions of the appellant, assessment order passed by the AO and find that the issue of disallowance agitated by the appellant does not arise out of the order passed by the AO.I do not find the discussion pertaining to this issue from the assessment order and further, appellant has also failed to point out this fact with reference to the order. Second issue, which arises for consideration is whether CIT-A can take up an issue for consideration on which no addition has been made by the AO and also on which no discussion is there in the order itself. Thus, legally no claim can be entertained at this stage.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 32 6.7 Thus, I hold that a settled issue cannot be disturbed at this stage of the proceedings. In view of these facts, appeal filed on this ground is dismissed."
34. Before us, the Ld. Counsel for the assesse has submitted that the Ld.CIT(A) has wrongly and illegally rejected the additional claim put by the assesse before him. He in this respect has placed reliance on the decision of the Hon'ble Supreme Court in the case of "National Thermal Power Co. Ltd." vs. CIT" 229 ITR 383. The Ld. Counsel has also submitted that there was no bar to the assesse to claim refund or to put additional claim before the appellate authorities, if the assesse under wrong notion or mistaken belief had offered the income for taxation, to which, it otherwise not liable to pay. The Ld. DR on the other hand has relied upon the findings of the lower authorities on this issue.
35. We have considered the rival contentions on this issue. The facts before the Hon'ble Supreme Court in the case of "National Thermal Power Co. Ltd."(Supra) were that the assessee in that case offered the interest amount for taxation and the assessment was completed on that basis. Before the Ld. CIT(A), the assessee though , had taken a number of grounds of appeal, however, the inclusion of the said amount of interest was not challenged. The inclusion of the said amount of interest was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, the assessee by way of subsequent letter raised the additional ground in relation to the said inclusion of interest into the income of the assessee. In the above circumstances, the question before the Hon'ble Supreme Court was "Where on the facts found by the authorities below a question of law arises (though not raised before the ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 33 authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same?" The Hon'ble Supreme Court while answering the said question observed that under section 254 of the Income Tax Act, the power of the Tribunal in dealing with the appeals is expressed in the widest possible terms; the power of the Tribunal under section 254 is not restricted only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals); that both the assessee as well as the department have a right to file an appeal/cross objection before the Tribunal and the Tribunal is not prevented from considering questions of law arising in assessment proceedings although not raised earlier. While answering the question in affirmative, the Hon'ble Supreme Court concluded that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee.
36. The facts of the case in hand are on better footing. In the case in hand, though the assessee offered the additional income on account of disallowance U/s 14A of the Act for taxation in the return of income, however the assesse has taken the plea of excess amount offered during the assessment proceedings itself, but the Ld. AO failed to adjudicate this issue. During the first appeal before CIT(A) also, the assesse has specifically taken this plea, however the Ld. CIT(A) has declined to accept this plea, which in the light of the decision of the Hon'ble supreme court(supra) was supposed to be considered. The full bench of the Hon'ble Bombay High Court in the cases of "Ahmedabad Electricity Company Ltd. vs. CIT" and "Godavari Sugar Mills Ltd. vs. CIT" by way of a common order dated 30.04.1992 (1993) 199 ITR 351 has observed that the basic ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 34 purpose of an appeal procedure in an income tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either by the Appellate Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The appellate authorities, of course, cannot travel beyond the proceedings and examine new source of income, for that purpose other separate remedies are provided to the department under the Income Tax Act. The Hon'ble full bench of the Bombay High Court observed that apart from the above, there was nothing in section 254 or section 251 which would indicate that the appellate authorities are confined to considering only the objections raised before them or allowed to be raised before them either by the assessee or by the department, as the case may be. They can consider the entire proceedings to determine the tax liability of the assessee.
37. Further the Hon'ble Bombay High Court in the case of "CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd." (2012) 349 ITR 336 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words 'could not have been raised' must be construed liberally and not strictly. There may be several factors justif ying the raising of a new plea in an appeal and each case must be considered on its own facts.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 35
38. The co-ordinate bench of the Tribunal in the case of "Shri Chandrashekhar Bahirwani" ITA No.7810/M/2010 and 6599/M/2011 vide order dated 17.06.2015 while deciding the question as to whether the income cannot be assessed less than the returned income has observed as under:
"5. Now coming to the finding of the Ld. CIT(A), that income cannot be assessed less than the returned income, the Ld. A.R. of the assessee has submitted before us that the action of the Ld. CIT(A) in rejecting the claim of the assessee on this ground was not justified. He has further relied upon the decision of the Hon'ble Gujarat High Court in the case of "Gujarat Gas Ltd. vs. JCIT" (2000) 245 ITR 84. In the said case, the words of the Circular No.549, para 5.12, dt. 31st October, 1989, providing that the assessed income under section 143(3) shall not be less than the returned income was considered by the Hon'ble High Court and it was held that as per proviso to section 119 of the Act, the Board cannot issue instructions to the Income Tax Authority to make a particular assessment or to dispose of a particular case in a particular manner as well as not to interfere with the discretion of the Commissioner in exercise of his appellate functions. It was further held that the AO, while exercising his quasi judicial powers, was not bound by the said circular and should have exercised his powers independently. The Hon'ble High Court, therefore, directed the AO to make the assessment without keeping in mind the said circular. It may be further observed that the Hon'ble Bombay High Court in the case of 'Pruthvi Brokers & Shareholders Pvt. Ltd.' ITA No.3908 of 2010 decided on 21.06.12, while relying upon the various decisions of the Hon'ble Supreme Court and other Hon'ble High Courts has held that even if a claim is not made before the AO, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon'ble High Court has further observed that the decision of the Hon'ble Supreme Court in the case of 'Goetze (India) Limited v. CIT' (2006) 157 Taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 36 power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Even otherwise, the Ld. CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations, it is held that the assessee is not liable to pay Capital Gains Tax, though originally he had subjected himself to the said tax as per his return of income. The AO is directed to process the claim of refund in this respect as per provisions of the law."
39. In view of the above settled position of law it is held that the assessee is entitled to raise this additional legal ground.
40. Now coming to the merits of the case. First of all, it is pertinent to mention here that disallowance u/s 14A of the Act is not made on account of any additional income found either in cash or in kind or otherwise in respect of any documents or entries in the account book. It is, in fact, a notional disallowance out of the total expenditure claimed by the assessee on the footing that out of the total expenditure, some of the expenditure might have been attributable to the activity of making investment from which the assessee has earned tax exempt income. This is not the case of the Assessing officer that the aforesaid disallowance made by the Assessing officer u/s 14A of the Act is otherwise attributable / relating to the incriminating documents found during the search action or that the ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 37 aforesaid surrender can be related to part of any other income of the assessee. Even otherwise it has been held time and again by various Courts of law that a retracted surrender of income without any corroborative or any relatable evidence of any undisclosed income of the assessee cannot be made sole basis for addition to the income of the assessee. Moreover, the amount offered as disallowance relating to this issue is on account of notional disallowance of expenditure which may be attributable to earning of tax exempt income of the assessee. Under the circumstances, even if an assessee surrenders some amount as disallowance u/s 14A of the Act or otherwise has offered certain amount under the provisions of section 14A of the Act, however later on, the assessee demonstrates that as per the settled law the said disallowance of expenditure has wrongly been offered / agreed to and that as per the settled law his disallowance actually should be of a lower amount, in our view, that aspect can be looked into even at the appellate stage. This Tribunal is not of a penal jurisdiction to punish the litigants for their mistakes. Even the Income Tax Authorities are supposed to charge legitimate tax from the assessee and if an assessee offers a higher or more amount of tax, of which he otherwise is not supposed to pay, he can certainly put a claim that as per law he is required to pay a lower amount of tax on any issue. There is no denial or rebuttal to the pleadings of the assessee that the assessee was having own sufficient funds to make the investments which may yield tax exempt income. The issue is now squarely covered by the various decisions of the High Courts including that of the decision of the Hon'ble Jurisdictional High Court in the case of 'Bright Enterprises Pvt. Ltd Vs. CIT, Jalandhar' (supra), 'CIT Vs. Kapsons Associates' (2016) 381 ITR 204 (P&H) and the latest decision ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 38 of the Coordinate Bench of the Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' ITA No. 470/Chd/2018 order dated 16.10.2018, holding that that if the assessee is possessed of sufficient own interest free funds to meet the investments / interest free advances, then, under the circumstances, presumption will be that interest free advances / investments have been made by the assessee out of own funds / interest free funds. Reliance in this respect can also be placed on the decision of the Hon'ble Supreme Court in the case of 'Hero Cycles (P) Ltd Vs. CIT' 379 ITR 347 (SC) and also on the latest decision of the Hon'ble Supreme Court in the case of 'CIT (LTU) Vs. Reliance Industries Ltd.' [2019] 410 ITR 466 (SC).
41. Moreover, the assessee has taken a specific stand that no expenditure has been incurred by the assessee for making investments etc. and that no disallowance u/s 14A of the Act is attracted. Neither the Assessing officer nor the CIT(A) has recorded any satisfaction from the accounts of the assessee that the assessee's above contention is not correct.
41. Even the different Hon'ble High Courts of the country have been unanimous to hold that no disallowance is attracted u/s 14A in case the assessee has not earned any income not forming part of the total income and that the disallowance u/s 14A can not exceed the total tax exempt income earned by the assesse during the year. Reliance in this respect can be placed on various decisions of the Hon'ble High Courts including that of the Hon'ble Jurisdictional High Court of Punjab and Haryana in the case of 'CIT Vs. Winsome Textiles' (2009) 319 ITR 204 (P&H) and in the case of CIT Faridabad v. Lakhani Marketing INC 226 Taxmann 45 (P&H);
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 39 Hon'ble Delhi High Court in the case of 'Cheminvest Ltd Vs. ITO' (2015) 378 ITR 33 (Delhi) and of the Hon'ble Gujarat High Court in the case of 'Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116' and further of the Hon'ble Allahabad High Court in the case of 'CIT Vs. M/s Shivam Motors (P) Ltd' (2014) 272 CTR (All) 277.
42. In view of the proposition of law laid down in the above referred to decisions and also considering the overall facts and circumstances of the case, in our view, it will be proper to restrict the disallowance u/s 14A of the Act, , for the respective assessment years upto the total tax exempt income earned by the assesse irrespective of the amount of disallowance offered/s 14A in the return of income.
43. However, since we have already, while adjudicating ground No.1 of the appeal for assessment year 2010-11 have held that the additions made in the absence of any incriminating material in an assessment made u/s 153A of the Act, as per settled position of law, are not sustainable and thus the assessment framed u/s 153 A has been set aside, hence under the circumstances, the income assessed as per the original assessment framed/finalized for AY 2010-11 will remain sustained as such including the disallowance, if any made u/s 14A of the Act, subject to modification by any decision of any appellate authority on any issue in an appeal / rectification application in respect of originally framed assessment order dated 17.09.2017.
ITA No. 158/Cdh/2018 (A.Y. 2011-12)
44. In this appeal, the assessee has raised following grounds of appeal:-
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 40
1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-2, Jalandhar is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in framing assessment u/s 153A despite the fact that no incriminating material was found during the course of search.
2. That Ld. CIT(A) gravely erred in holding that the assessment framed by the Ld. Assessing Officer was not beyond the period of limitation prescribed under the Act.
3. That Ld. CIT(A) was not justified to arbitrarily uphold the addition made at Rs. 370,16,40,000/-
representing proceeds of GDR issued by the appellant as unexplained credit by resort to provisions of Section 68 of the Income Tax Act.
4. That Ld. CIT(A) has relied on a lot of irrelevant data marshalled by the Ld. Assessing Officer while upholding the above mentioned addition of Rs.
370,16,40,000/-.
5. That Ld. CIT(A) was not justified in upholding the assessment despite the fact that principles of natural justice were grossly violated by the Ld. Assessing Officer in framing of assessment.
6. That Ld. CIT(A) was not justified to uphold the action of the Ld. Assessing Officer in not considering the appellant's request for not making any disallowance u/s 14A which was initially made by the appellant while filing the return of income.
45. Ground No.1 : In ground No.1, the assessee has taken a plea that the assessment framed u/s 153A of the Act in this case was bad in law as no incriminating material was found in search action carried at the premises of the assessee on 11.9.2013. Admittedly, the assessment year involved in this appeal is assessment year 2011-12. No argument has been addressed by the Ld. Counsel for the assessee to the fact that the original assessment proceedings on the date of search stood completed or that the same was not ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 41 abated on the date of search. In view of this, we do not find any merit in this ground and the same is accordingly dismissed.
46. Ground No.2 : Ground No.2 is on the limitation point of framing the assessment u/s 153A of the Act.
In view of our findings given above on ground No.2 of the assessee's appeal in ITA No.157/Chd/2018 for assessment year 2010-11, we do not find any merit on this issue.
47. Ground Nos. 3 & 4: These grounds are identical to ground Nos. 3 & 4 of the assessee's appeal for assessment year 2010-11 in ITA No. 157/Chd/2018. In view of our findings given above while deciding ground Nos. 3 & 4 of the appeal for assessment year 201-0-11, these grounds of appeal are decided in favour of the assessee and the additions made by the Assessing officer on this issue are ordered to be deleted.
48. Ground No.5 : Vide this ground the assessee has agitated the action of the CIT(A) in framing / upholding the assessment observing that the principles of natural justice have been grossly violated by the Assessing officer. This issue has also been deliberated upon by us vide ground No.5 of the assessee appeal in assessment year 2010-11 and our findings arrived at will accordingly apply to this ground of appeal.
49. Ground No. 6 : The issue raised vide ground No.6 of the appeal regarding disallowance u/s 14A of the Income Tax Act is similar to that of ground No.6 raised in ITA No. 157/Chd/2018 relating to assessment ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 42 year 2010-11. In view of our findings given above, the disallowance u/s 14A is restricted to the extent of tax exempt income earned by the assesee for the assessment year under consideration.
In the result, the appeal of the assessee is partly allowed. ITA No.159/Chd/2018 (A.Y. 2012-13)
50. The only ground raised by the assessee in this appeal reads as under:-
That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-2, Jalandhar is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in negating the request of the appellant for restricting; the disallowance u/s 14A to the extent of exempt income at Rs. 3,76,02,590/- as against disallowance made at Rs. 10,73,48,728/-.
51. We find that the issue raised above is similar to that of ground No. 6 raised in ITA No. 157/Chd/2018 relating to assessment year 2010-11. In view of our findings given above, the disallowance u/s 14A is restricted to the extent of tax exempt income earned by the assesee for the assessment year under consideration. This ground is accordingly allowed in favour of the assesse.
Accordingly, this appeal of the assessee is allowed. ITA No.160/Chd/2018 (A.Y. 2013-14)
52. In this appeal, the assessee has raised the following grounds of appeal:-
1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-2, Jalandhar is against law and facts on the file in as much as he was not justified to uphold the ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 43 action of the Ld. Assessing Officer in framing assessment u/s 153A despite the fact that no incriminating material was found during the course of search.
2. That Ld. CIT(A) gravely erred in holding that the assessment framed by the Ld. Assessing Officer was not beyond the period of limitation prescribed under the Act.
3. That Ld. CIT(A) was not justified to arbitrarily uphold the addition made at Rs. 241,64,40,094/-
representing proceeds of GDR issued by the appellant as unexplained credit by resort to provisions of Section 68 of the Income Tax Act.
4. That Ld. CIT(A) has relied on a lot of irrelevant data marshalled by the Ld. Assessing Officer while upholding the above mentioned addition of Rs.
241,64,40,094/-.
5. That Ld. CIT(A) was not justified in upholding the assessment despite the fact that principles of natural justice were grossly violated by the Ld. Assessing Officer in framing of assessment.
6. That Ld. CIT(A) was not justified to uphold the action of the Ld. Assessing Officer in not considering the appellant's request for not making any disallowance u/s 14A which was initially made by the appellant while filing the return of income.
7. That the Ld. CIT(A) was not justified in not adjudicating the ground relating to not allowing the set off of loss decaled in the return at Rs. 29,01,51,706/-.
53. We find that all the grounds raised in this appeal (except ground No.
7) are exactly similar to that of the grounds raised by the assessee for assessment year 2010-11 in ITA No. 157/Cdh/2018, wherein, all the issues have been deliberated upon by us at length and in view of our findings given against each of the respective issue separately, the grounds are disposed of accordingly.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 44
54. Ground No. 7: Vide ground No. 7, the assessee has pleaded that the Ld. CIT(A) has failed to adjudicate this issue relating to not allowing the set off of loss declared in the return at Rs. 29,01,51,706/-.
55. The Ld. DR has also fairly admitted that this ground has not been adjudicated by the Ld. CIT(A).
56. This issue is accordingly restored to the file of the CIT(A) with a direction to adjudicate the same in accordance with law after consideration of the submissions of the assessee and the relevant evidences so furnished by the parties. Accordingly, this ground of appeal stands allowed. In the result, this appeal of the assessee is partly allowed. ITA No.161/Chd/2018 (A.Y. 2014-15)
57. The assessee in this appeal has raised the following grounds of appeal:-
1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-2, Jalandhar was not justified to arbitrarily uphold the addition by estimating the profit at 25% as against declared by the appellant at 3.54%
2. That Ld. CIT(A) was not justified to uphold the action of the Ld. Assessing officer in not entertaining the claim of the appellant regarding disallowance of Rs.
30,34,94,742/- u/s 14A despite the fact that the specific request was made by the appellant before the Ld. Assessing officer during the course of assessment proceedings.
3 That the Ld. CIT(A) failed to adjudicate ground raised by the appellant with regard to the disallowance u/s 43B amounting to Rs. 79,61,619/-.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 45
58. Ground No.1: Vide this ground, the assessee has agitated the action of the CIT(A) in estimating the gross profit at 25% as against decaled by the assessee at 3.54% on account of shortage of stock. The plea of the Ld. Counsel for the assessee in this respect is that while estimating the income of the assessee on account of shortage of stock, the Assessing officer has treated the total value of the short stock as undisclosed income of the assessee. It has been further submitted that amount of Rs. 63,80,140/- which represented the gross profit earned on the value of short stock was already disclosed in the revised return of income filed on 28.2.2015. It has been further submitted that stock found short was out of the purchases made in the normal course of business from accounted income as the same was already declared in the purchases shown in the books of account. The assessee has further submitted that difference in the amount of stock as per the books of account and as per physical verification was worked out to 2.31% of the total value of stock shown in the books of account.
59. The Ld. CIT(A) though accepted the contention of the assessee that the total unaccounted sales made outside books of account cannot be treated as unexplained income of the assessee. He also accepted the contention of the assessee that no addition was warrantied on account of unaccounted purchases in this case as the unaccounted sales were made out of the duly account for purchases by the assessee. However, he estimated the unaccounted profit @ 25% as against 10% GP rate applied by the Assessing officer. The assesse, though, had declared the GP rate at 3.54%.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 46
60. We find from the impugned order that the Ld. CIT(A) has not pointed out any extra facts and circumstances of the case to enhance the estimation of the GP rate from 10% to 25%. In view of this, the action of the CIT(A) in this respect is set aside and we direct that the addition of unaccounted profit to be computed @ 10% as was applied by the Assessing officer on the amount of unaccounted sales in respect of stock shortage found in the course of search. This ground is accordingly partly allowed in favour of the assessee.
61. Ground No.2 : The issue relating to disallowance u/s 14A of the Act is similar to that has been raised by the assessee in assessment year 2010-11 in ITA No. 157/Chd/2018. In view of our findings arrived at while adjudicating assessee's appeal for assessment year 2010-11 the disallowance u/s 14A is restricted to the extent of tax exempt income earned by the assesee for the assessment year under consideration.
62. Ground No.3 : Vide ground No.3, the Ld. Counsel for the assessee has pleaded that the Ld. CIT(A) has failed to adjudicate this ground raised by the assessee with regard to the disallowance u/s 43B amounting to Rs. 79,61,619/-.
63. Since the issue raised vide this ground has not been adjudicated by the Ld. CIT(A) and further on noting the submissions of the Ld. Counsel for the assessee that the assessee also wants to furnish the receipts of payment etc., the issue is restored to the file of the Assessing officer for ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 47 adjudication afresh on this ground. Accordingly, this ground stands allowed for statistical purposes.
This appeal of the assessee is partly allowed.
64. Now, coming to appeals raised by the Revenue.
ITA No. 302/Chd/2018 (A.Y. 2012-13):-
65. The Revenue in its appeal has raised the following grounds:-
1. Whether the Ld. CIT(A) has erred in law and facts in deleting the addition of Rs. 79,75,547/- made by the Assessing officer u/s 36(i)(iii) on account of proportionate disallowance of interest expenditure on non-business interest free advances made by the assessee.
2. Whether the Ld. CIT(A) has erred in law and facts in deleting the addition of Rs. 39,84,576/- on account of delayed deposit of employees contribution to ESIC, FP and EPF by ignoring provisions of section 36(i)(iv) of the I.T. Act 1961 and CBDT Circular No. 22/2015 dated 17.12.2015
3. The appellant craves leave to add or amend the grounds of appeal on or before is heard and disposed off.
66. Ground No.1 : The first ground taken by the Revenue is regarding the action of the CIT(A) in deleting the addition made by the Assessing officer into the income of the assessee under the provisions of section 36(1)(iii) of the I.T. Act.
67. The brief facts of the case are that the assessee has given advances to M/s Shiv Narayan Investments Private Limited and Rythm Textiles & Apparel Park Limited. The Assessing Officer, therefore, disallowed a sum of Rs. 79,75,547/- (calculated @12% on the amounts advanced) out of ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 48 interest account. The Ld. CIT(A) however, deleted the disallowance made by the Assessing officer observing as under:-
"In view of the judgment of Hon'ble Supreme Court in the case of Hero Cycles Ltd and also of Honorable jurisdictional High Court in the case of Kapsons (supra) (which is after the decision of Abhishek Industries) where it has been held (that no disallowance could be made under this section if availability of sufficient interest free funds in the business has been established. Accordingly, taking these facts and judicial decisions into account, AO is being directed to delete the disallowance of Rs. 79,75,547 made on this account. Thus, appeal filed by appellant on this ground is allowed."
68. The Ld. Dr has assailed the order of the CIT(A) while relying upon the order of the assessing officer on this issue.
69. However, the Ld. Counsel for the assesse has submitted that the said advances were received back during the year under appeal only as the same were granted for temporary purposes. That otherwise also, no specific nexus has been established by the Assessing officer to correlate the fact that amounts advanced are out of borrowed funds. The reserves and share capital of the appellant company was much higher than the amounts advanced. That as per the Balance Sheet of the assessee company, the total of share capital and reserves of the assessee company as on 31.03.2012 were Rs. 1073.36 Crores, whereas, the amount of interest free advances was nil at the year end as the same were received back. That under these circumstances, there was no justification on the part of the Assessing Officer to make the impugned disallowance. The Ld. Counsel has placed reliance on the decision of the Hon'ble Supreme Court in the case of 'Hero Cycles Ltd'. reported in 379 ITR 340, wherein, their lordships have held ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 49 that, if the funds available with the assessee are more than the amounts advanced, no disallowance of interest is warranted. Reliance has also been placed on the decision of the Hon'ble Jurisdictional High Court in the case of 'CIT Vs. Kapsons Associates' '381 ITR 204, wherein, their lordships have held that the appellant had sufficient interest free advances from its Directors, Shareholders, Members and their families to cover the interest free advances made by the appellant, the interest on the borrowings to the extent interest free advances is not to be disallowed.
70. We find that the Ld. CIT(A) while deleting the impugned addition has followed the decision of the Hon'ble Supreme Court in the case of 'Hero Cycles Ltd.' 379 ITR 340 (SC) and of the Hon'ble Jurisdictional High Court in the case of 'CIT Vs. Kaspons Associates', 381 ITR 203 (P&H) and further this issue is squarely covered by the recent decision of the Coordinate Chandigarh Bench of the Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' ITA No. 470/Chd/2018 order dated 16.10.2018, wherein, the issue has been decided in favour of the assessee by considering the decision of the Hon'ble Apex Court in the case of 'Hero Cycles Vs. CIT' 379 ITR 347 (SC) and also findings arrived in the case of Avon C ycl es Ltd. Vs. CIT i n ITA No.277 of 2013. M oreover the issue now is square l y co vered b y the lates t decision of the Hon'ble Supre me Court in the case of 'CIT (LTU) Vs . Relia nce In dust ries Ltd.' [ 2019] 410 ITR 4 66 (SC) .
Hence, we do not find any reason to interfere in the order of the CIT(A) on this issue. The ground raised by the Revenue, thus, stands dismissed.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 50
71. Ground No.2 : Vide ground No.2 of the appeal, the Revenue has agitated the action of the CIT(A) in deleting the disallowance of Rs. 39,84,576/- on account of employees contribution of ESIC, FP and EPF u/s 36(1)(iii) of the Act.
72. The brief facts relating to the issue are that the Assessing officer has made the disallowance of Rs. 39,84,576/- on account of late payment of contribution to Employees Provident Fund and ESI by resorting to the provisions of section 36(1)(v) of the Act. The disallowance was made as the payments were not made before the stipulated dates.
73. Before the Ld. CIT(A), the assessee submitted that the details of the date of payment made towards Provident Fund and ESI by the assessee have been duly given to the Assessing Officer, which have been reproduced in the Assessment order at page 5. From the details, it appeared that payments were made by the assessee before the due date of filing of return for the year under consideration. It was also submitted that this issue has been considered by the Hon'ble Jurisdictional High Court in the case of 'CIT vs Lakhani India' Ltd. reported in 188 Taxman page 132, wherein, their Lordships have held that the assessee is entitled to claim deduction in respect of payment of contribution towards provident fund which was paid beyond stipulated date, on actual payment basis as per the provisions of Section 43B of the Income Tax Act, 1961. It had been further stated that the issue of allowance of such expenditure has also been settled by the honorable Supreme Court in the case of 'CIT vs Alom Extrusions Ltd.,' ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 51 319 ITR 306, wherein, their Lordships have held that such expenditure is allowable expenditure. The assessee had also stated that in a latest judgment by the ITAT, Chandigarh Bench, in the case of 'Modgill Hosier y Exports Pvt. Ltd.' in ITA No. 661/Chandi/2012 the similar issue has been decided in favour of the assessee by following the judgement of CIT vs Lakhani India Ltd.
74. The Ld. CIT(A) considering the above submissions of the assessee allowed the appeal of the assessee observing as under:-
"7.3 I have carefully considered the contentions of the appellant and have also gone through the decisions cited by the appellant on this issue and find that appellant had filed its return of income on 28.09.2012 and therefore, all the payments made on account of employee's contribution to ESI, EPF up to this date had to be allowed by the AO. I have gone through the details of payments made by the appellant as given in the assessment order and find that all the payments have been made by the appellant on account of EPF and ESI before the due date of filing of return of income. Therefore, considering these facts and placing reliance on the judgment of the honorable Supreme Court on this issue, the disallowance made by the AO is deleted. The appeal filed by the appellant on this ground is allowed.
8. In the result the appeal is partly allowed."
75. Before us, the Ld. DR, has submitted that the assessee has not furnished the proof that the employees have made payments towards PF & ESIC from the due date of filing of the return for the year under consideration. However, we find that the Ld. CIT(A) has given a ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 52 categorical finding that he has gone through the details of payments made by the appellant and has found that all the payments have been made by the appellant on account of EPF and ESIC before the due date of filing of return of income. Since the Ld. CIT(A) has given a factual findings, after going through the details, hence, at this stage, we do not find it a fit case to refer the matter to the file of the Assessing officer to verif y the details of payments. In view of this, we do not find any merit in the appeal of the Revenue on this issue also.
76. Ground No.3 raised by the Revenue is general in nature and needs no adjudication.
In the result, the appeal of the Revenue is dismissed. ITA No: 303/Chd/2018 (A.Y. 2014-15).
77. In this appeal the only effective ground raised by the Revenue reads as under:-
Whether the Ld. CIT(A) has erred in law and facts in deleting the addition of Rs. 2,17,51,819/- made by the Assessing officer u/s 36(i)(iii) on account of proportionate disallowance of interest expenditure on non-business interest free advances made by the assessee.
78. This ground is identical to that has been taken by the Revenue in the appeal for assessment year 2012-13 in ITA No. 302/Chd/2018.
79. In view of our findings given above, we do not find any merit in this appeal of the Revenue and the same is accordingly dismissed.
ITA Nos. 157 to 161 & 302 -303-C-2018 M/s SEL Manufacturing Co Ltd., Ludhiana 53 The appeal of the Revenue is hereby dismissed.
O rder pronounced in the Open Court on 28.02.2019.
Sd/- Sd/- ( बी,आर.आर. कुमार / B.R.R. KUMAR) (संजय गग / SANJAY GARG ) लेखा सद य/ Accountant Member या यक सद य /Judicial Member Dated : 28.02.2019 "आर.के."
आदे श क त,ल-प अ.े-षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आय/ ु त/ CIT
4. आयकर आय/ ु त (अपील)/ The CIT(A)
5. -वभागीय त न2ध, आयकर अपील%य आ2धकरण, च4डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar