Income Tax Appellate Tribunal - Jaipur
Vedansh Jewels P. Ltd., Jaipur vs Deputy Commissioner Of Income Tax, ... on 23 December, 2019
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCH 'A', JAIPUR
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Before : Shri Vijay Pal Rao, JM & Shri Vikram Singh Yadav, AM
vk;dj vihy la-@ITA No. 439, 440 & 149/JP/2019
fu/kZkj.k o"kZ@Assessment Year : 2010-11, 2012-13 & 2012-13
M/s. Vedansh Jewel (P) Ltd. cuke
The DCIT
H-20, Bhagat Singh Marg Vs.Circle - 6
C-Scheme, Jaipur Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@ PAN/GIR No.: AACCV1538 R
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Ashok Kumar Gupta &
Shri S.L.Jain ,Advocate
jktLo dh vksj ls@ Revenue by : Ms. Chanchal Meena, JCIT- DR
lquokbZ dh rkjh[k@ Date of Hearing : 18/12/2019
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 23/12/2019
vkns'k@ ORDER
PER VIJAY PAL RAO, JM
These three appeals by the assessee are directed against three separate orders of the ld. CIT(A) dated 8-01-2019, 8-01-2019 and 19-11-2018 arising from the reassessment order passed u/s 143(3) read with section 147 of the Act for the Assessment Year 2010-11 and 2 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur 2012-13 and original assessment order passed u/s 143(3) for the Assessment Year 2012-13.
2.1 In ITA No. 439/JP/2019 for the Assessment Year 2010-11, the assessee has raised the following grounds of appeal.
''1.Time Bard Re-assessment -
That on the facts and in the circumstances of the case Ld. CIT(A) Ajmer has grossly erred in law and facts where the assessee has already made a full and true disclosure of all the relevant materials in the first instance and the original assessment was framed u/s 143(3) then the case is covered under proviso to section 147 ( 4 years time limit ). The Ld. AO failed to mention which material was not disclosed by the assessee. There is no finding of concealed income.
2. (a) Re-opining of Assessment on the basis of general confessional statement by third party without Cross- examination is bad in law That on the facts and in the circumstances of the case Ld. CIT(A) Ajmer has grossly erred in law and facts upholding the assessment completed by AO u/s r.w.s. of Income Tax Act 1961 merely on the basis or statements of a third party without bringing any corroborative material on record and without making proper enquires in the matter to ensure that any income of assessee has escaped assessment. Thus appellant prays completion of assessment u/s 147 r.w.s. 143 (3) must be held bad in law.
S.P. Agarwalla alias Sukhdeo Prasad Agarwalla Vs ITO & others [19831 140ITR 1010(Cal.) Cross - examination -
Any statement of third party recorded at the back of the assessee has no evidentiary value unless the witness is cross- examination.
- CIT Vs Pradeep Kumar Gupta 303 ITR 95 Delhi SLP dismissed.
3. That the AO has No power to reopen the completed assessments merely for a change of opinion : -
Where the primary facts necessary for assessment , are fully and truly disclosed, the ITO will not be entitled merely on change of opinion to commence proceedings for reassessment.3 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur
- CIT Vs Dinesh Chandra 82 ITR 367 (SC)
4. Re-assessment is based on borrowed satisfaction :-
That on the facts and in the circumstances of the case Ld. CIT(A) Ajmer has grossly erred in law and facts in confirming issuing of notice u/s 148 on the basis of information received from the DIT Jaipur that fictitious profit and losses were created by some brokers by misusing the client code modification facility in F&O segment on NSE during FY 2009-10 and without verifying the correctness of the information and therefore re- assessment proceeding is absolutely bad in law and without jurisdiction and further AO not recorded his satisfaction and reassessment is based on borrowed satisfaction which was not sufficient to confer power on the AO to initiate reassessment proceedings against the assessee.
− CIT Vs. Shree Rajasthan Syntex Ltd. (2009) 313 ITR 231 (Raj) SLP dismissed :(2009) 313 ITR (St.) 27 (SC) − Sun Pharmaceutical Industries Lt. Vs. Dy. CIT (2016)287 CTR ( Del.) 621
5. Sanction u/s 151 without Application of mind by Ld. (Pr.CIT) :-
That the learned Pr. CIT has grossly erred both in law and facts in granting approval u/s 151 mechanically and without application of mind and there for sanction is not according to mandate of Sc.
6. Business Loss Disallowed Rs. 10,50,960/-
That on the facts and in the circumstances of the case Ld. CIT(A) Ajmer has grossly erred in law and facts where the loss was originally assessed as non speculative loss and where without having any new information the AO. came to a conclusion after the expiry of 4 years that the loss suffered by the assessee was a speculative loss the court held that there was no failure on the part of assessee to disclose true & full material required for assessment. ACIT Vs ICICI Securities Primary Dealership Ltd. 348 ITR 299(SC)
7. Business Expenditure Disallowed Rs. 21,019/-/- That on the facts and in the circumstances of the case Ld. CIT(A) Ajmer has grossly erred in law and facts in making assumption of brokerage paid on share transactions amounting to Rs. 21019/- by the assessee without-any-basis. 4 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur
8. No Show Cause Notice :-
That on the facts and in the circumstances of the case AO has grossly erred in law and facts in making disputed additions without serving show cause notice which is mandatory as per CBDT circular.
9. Interest levied u/s 234A, 234B and 234C That on the facts and in the circumstances of the case Ld. AO has grossly erred in law and facts in by confirming in charging interest u/s, 234(A), 234(B) & 234(C).'' 3.1 The Ground No. 1 to 5 of the assessee are relating to validity of reopening of the assessment after 4 years from the end of the relevant Assessment Year.
3.2 The assessee is a Private Limited Company and engaged in the business of Gems and Jewellery. The assessee has also carried out trading in shares under F&O as well as investment in shares and securities. The assessee filed its return of income for the Assessment Year 2010-11 on 15-10-2010 declaring total income at Rs. 28,93,970/-. The original assessment was completed u/s 143(3) on 28-03-2013. Subsequently, the AO reopened the assessment by issuing notice u/s 148 of the Act on 27-03-2017 by recording the reasons that as per information received from ADIT, Investigation Wing, Ahemdabad, some stock brokers are found indulged in shifting of profits and losses from trading of shares under F&O segment by misusing client code modification facility. 5 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur Accordingly, the AO formed the belief that loss of Rs. 10,50,960/- shown by the assessee from share trading is fictitious and consequently the income assessable tax has escaped assessment. The AO completed the reassessment vide order dated 13-12-2017 whereby addition of Rs. 10,50,960/- was made on account of alleged fictitious losses on trading in shares. The AO also made the addition of Rs. 21,019/- on account of payment of commission 3.3 The assessee challenged the action of the AO before the ld. CIT(A) and also raised the objection against validity of reopening of the assessment. The ld. CIT(A) has dismissed the objection raised by the assessee against reopening of the assessment.
3.4 Before us, the ld.AR of the assessee has submitted that original assessment was completed u/s 143(3). The assessee has duly disclosed all relevant facts in the return of income filed including the losses on shares trading. The AO during the scrutiny assessment had issued the notice u/s 142(1) alongwith questionnaire dated 20-12-2012. He has referred to Question No. 4 of the said questionnaire and submitted that the AO had specifically asked the assessee to file the details/ evidence of loss incurred/claimed from share trading. The assessee filed the relevant details alongwith its reply dated 11-01-2013. Thus the ld.AR of the 6 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur assessee submitted that during the scrutiny assessment the AO had duly examined the claim of loss from sharing trading and after he was satisfied the said claim was allowed. Further the assessee also produced audited financial statement during the scrutiny assessment and no defect was found by the AO. Once the assessee has produced all the details and documentary evidence regarding the transaction in shares and losses arising from the share trading then reopening of the assessment after four years from the end of the Assessment Year and that too on the basis of the information received by the AO is not valid as there is no failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. Further the AO has reopened the assessment on the basis of borrowed satisfaction without conducting any enquiry or verification of the relevant details and records to form the opinion that income assessable to tax has escaped assessment. He has referred to the reasons recorded by the AO and submitted that the AO has mentioned general information received from the Investigation Wing, Ahemdabad without any specific allegation against the assessee. He has also referred to the objection of the assessee filed against notice u/s 148 of the Act and submitted that the AO has raised all these objections. However, the AO has rejected the same. In support of his contentions, the ld.AR of the 7 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur assessee relied on the decision of Hon'ble Allahabad High Court in the case of Smt. Raj Rani Gulati vs Union of India, (2010), 329 ITR 370 (All.) and submitted that Hon'ble High Court has held that notice issued u/s 148 after 4 years in the absence of failure on the part of the assessee to disclose fully and truly all materials facts is not valid and liable to be quashed. The ld.AR of the assessee also relied on the decision of this Tribunal dated 23-10-2018 in the case of DCIT vs Gyandeep Khemka (ITA No.695/JP/2018 for the Assessment Year 2009-10) and Gyandeep Khanna vs DCIT (C.O. No.15/JP/2018 for the Assessment Year 2009-10) where the assessment was reopened on the basis of the information received by the assessee from the Investigation Wing, Ahemdabad regarding transfer of profits/losses in share trading by misusing the client code modification facility provided by the Stock Exchange. Thus, he has submitted that the reopening of assessment is not valid and liable to be quashed.
3.5 On the other hand, the ld. DR has submitted that the information received by the AO from the Investigation Wing, Ahemdabad is a tangible material to disclose that the assessee has claimed fictitious loss from the share trading by misusing the client code modification facility. The said information was not available before the AO at the time of 8 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur scrutiny assessment framed u/s 143(3). Thus, it is a case of failure on the part of the assessee to disclose fully and truly all materials facts necessary for assessment. The ld. DR further contended that at the time of reopening of the assessment what is required, is the prima facie reasons to believe that income assessable to tax has escaped assessment. When the AO had specific information regarding shifting of loss in order to reduce the income by misusing the facility of client code modification through certain brokers including the broker of the assessee then this information and discovery of facts constitute a tangible material for forming the belief that income assessable to tax on account of fictitious loss allowed in the original assessment has escaped assessment. The ld. DR relied on the orders of the authorities below.
3.6 We have considered the rival submissions as well as relevant materials available on record. There is no dispute that the original assessment was completed u/s 143 (3) on 28-03-2013. We further note that during scrutiny assessment the AO vide questionnaire dated 20-12- 2012 has specifically asked the assessee to file details / evidence in respect of loss on share trading. In reply to the said notice issued by the AO, the assessee filed its reply dated 11-01-2013 giving details/ evidence in respect of loss incurred on account of share trading. Thus the AO has 9 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur verified the claim of loss arising from share trading in F&O segment and after satisfying himself allowed the same. The notice u/s 148 of the Act was issued by the AO on 27-03-2017 which is clearly after 4 years from the end of the Assessment Year in question. Thus it is mandatory precondition that the income assessable to tax has escaped assessment due to failure on the part of the assessee to disclose fully and truly all materials facts necessary for assessment, the AO can exercise its power u/s 147/148 of the Act to reopen the completed assessment u/s 143(3) of the Act after four years. In the case in hand, the AO has reopened the assessment by recording the reasons as under:-
''The assessee company has filed its return of income on 15-10-2010 by declaring total income of Rs. 28,93,970/-. Business income was shown at Rs. Nil/-. The case was assessed u/s 143(3) on 28-03-2013 at total income of Rs. 2,82,26,324/- by disallowance of exemption u/s 10AA. Consequently to the order of the CIT (A) dated 23-03-2015 the revised total income comes to Rs. 1,08,34,060/-.
In the computation of income assessee has declared loss from trading of shares at Rs. 10,89,418/-. In this case, information has been received from the ADIT (Inv), Unit 1(3), Ahemdabad. From the information, it is gathered that fictitious profits and losses were created by some brokers by misusing the Client Code Modification facility in F&O segment on NSE during the F.Y. 2009-10. The brokers were alleged to be indulging in transferring the fictitious losses to different clients to reduce their tax liability and fictitious profit to other clients. In some cases of brokers as well as clients, survey u/s 133A was carried out and they confirmed having misused the facility of client code modification 10 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur to create fictitious losses/ profits and in transferring profits and losses from original clients to modified clients.
From the details received, it is noticed that during the year under consideration assessee has shifted in ascertained loss of Rs. 10,50,960/-. In this way, net reduction in income due to misuse of client code modification facility comes to Rs. 10,50,960/- For taking in such contrived losses the assessee would have paid commission also On the basis of statement of brokers, I estimate that the assessee would have paid commission @ 2% which comes to Rs. 21,019/-. Such expenditure would have been paid out of books of accounts.
Thus, I have reasons to believe that income of Rs.
10,79,979/- (Rs. 10,50,960/- + 21,019/-) has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. The escapement of income was on account of failure on the part of the assessee to disclose all the material facts.'' The AO has stated in the reasons that information has been received from the ADIT, Investigation Wing, Ahemdabad, revealing the fact of fictitious profits and losses were created by some brokers by misusing the client code modification facility in F&O Segment on NSE. Thus the AO has narrated the general statement that brokers were allegedly indulged in in transferring the fictitious losses to different clients to reduce their tax liability. However, in some cases of brokers as well as clients, survey u/s 133A of the Act was carried out wherein they have confirmed having misused the facility of client code modification to create fictitious lossess/ profits. It is manifest from the reasons recorded by the AO that 11 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur information received from Investigation Wing, Ahemdabad is general in nature and the AO has not specified about any particular transaction of shifting the losses from one client to another client. Based on that general information, the AO has then formed his belief that the assessee has claimed loss of Rs. 10,50,960/- arising from shifting of losses by misusing the cline code modification facility. Further in reasons, the AO estimated that the assessee would have paid commission @ 2%. At the outset, we note that this Tribunal in the case of DCIT vs Gyandeep Khemka (supra) has considered this issue in para 17 as under:-
''17. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the original assessment was completed U/s 143(3) of the Act on 24/11/2011. Subsequently the Assessing Officer issued notice U/s 148 of the Act on 31/3/2016 which is after expiry of four years from the end of the assessment year under consideration. The reasons recorded by the Assessing Officer for reopening of the assessment are as under:
"On perusal of information in possession, it is revealed the fictitious profits and losses were created by some brokers by misusing the Client Code Modification facility in derivatives transactions on NSE during March, 2010. In some cases of brokers as well as clients, survey U/s 133A was carried out by the Department and it has admittedly being confirmed having misused the facility of client code modification to create fictitious losses/profits and further admittedly explained in the case of assessee also to receive commission at the rate varying from 0.5% to 2% on this account."12 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur The Assessing Officer has referred to the information in possession, which was gathered during the survey U/s 133A carried out by the department at Mumbai and Ahmadabad. Thus, the Assessing Officer himself was not involved in the survey proceedings, which is the basis for reopening of the assessment as per the reasons recorded by the Assessing Officer. The facts recorded by the Assessing Officer that the assessee has fictitiously transferred the profits in respect of trading of derivatives through broker C.M. Goyenka Stock brokers is not a new fact but the transactions were duly part of the assessee's book of account and the assessee has offered the income from these transactions which were done on behalf of the assessee by the said broker. The dispute is only regarding the certain transactions which were rectified by using the Client code Modification facility on the part of the broker as those transactions were not intended to be done on behalf of the assessee but due to mistake in punching client code, those were carried out on behalf of the assessee and therefore, subsequently the broker has made necessary rectification. Once the original assessment was completed U/s 143(3) of the Act then the reopening of the assessment after four years is not permissible until and unless it is a case of failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment. The Assessing Officer has not spelled out which facts were not disclosed by the assessee in his return of income or which could not be discovered by the Assessing Officer during the original assessment completed U/s 143(3) of the Act. The Hon'ble Bombay High court in the case of Pr.CIT Vs. Shodiman Investments (P) Ltd. (supra) while examining the validity of reopening based on the report of the DDIT (Inv.) has observed and held in para 9 to 14 as under:
"9. We find that at the time of re-opening of the Assessment, the Assessing Officer did not provide the reasons recorded in support of the re- opening notice in its entirety, to the Respondent-Assessee. This was contrary to and in defiance of the decision of the Apex Court in GKN Driveshafts v. ITO [2002] 125 Taxman 963/[2003] 259 ITR 19. The entire objects of reasons for re- opening notice as recorded being made available to an Assessee, is to enable the Assessing Officer to have a second look at his reasons recorded before he proceeds to assess the income, which according to him, has escaped Assessment. In fact, non 13 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur furnishing of reasons would make an Assessment Order bad as held by this Court in CIT v. Videsh Sanchar Nigam Ltd. [2012] 21 taxmann.com 53/340 ITR 66. In fact, partial furnishing of reasons will also necessarily meet the same fate i.e. render the Assessment Order on re- opening notice bad. Therefore, on the above ground itself, the question as proposed does not give rise to any substantial question of law as it is covered by the decision of this Court in Videsh Sanchar Nigam Ltd.'s, case (supra) against the Revenue in the present facts.
10. Besides, the submissions made on behalf of the Revenue that in view of the decision of the Apex Court in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s, case (supra), the Assessing Officer is entitled to re-open the Assessment for whatever reasons and the same cannot be subjected to jurisdictional review, is preposterous. First of all, taking out a word or sentence from the entire judgment, divorced from the context and relying upon it, is not permissible (see CIT v. Sun Engg. Works (P.) Ltd. [1992] 64 Taxman 442/198 ITR 297 (SC)). It may be useful to reproduce the context in which the sentence in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra) being relied upon by the Revenue to support its case, was made. The context, is as under:--
"The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitutions. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed to confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under Section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices."
Therefore, the sentence being relied upon was made in the context of the change in law that under the amended provision 'reason to believe' that in case of escaped assessment, is sufficient to re-open the assessment. This unlike the earlier provision of Section 147(a) of the Act which required two conditions i.e. failure to disclose fully and truly all facts necessary for assessment and reason to believe that income has escaped assessment. Thus, the observations being relied 14 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur upon must be read in the context in which it was rendered. On so reading the submission, will not survive.
11. Further, a reading of the entire decision, it is clear that the reasonable belief on the basis of tangible material could be, prima facie, formed to conclude that income chargeable to tax has escaped assessment. Mr. Mohanty, learned Counsel is ignoring the fact that the words 'whatever reasons' is qualified by the words 'having reasons to believe that income has escaped assessment'. The words whatever reasons only means any tangible material which would on application to the facts on record lead to reasonable belief that income chargeable to tax has escaped assessment. This material which forms the basis, is not restricted, but the material must lead to the formation of reason to believe that income chargeable to tax has escaped Assessment. Mere obtaining of material by itself does not result in reason to believe that income has escaped assessment. In fact, this would be evident from the fact that in para 16 of the decision in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s, case (supra), it is observed that the word 'reason' in the .... 'reason to believe' would mean cause or justification. Therefore, it can only be the basis of forming the belief However, the belief must be independently formed in the context of the material obtained that there is an escapement of income. Otherwise, no meaning is being given to the words 'to believe' as found in Section 147 of the Act. Therefore, the words 'whatever reasons' in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s, case (supra), only means whatever the material, the reasons recorded must indicate the reasons to believe that income has escaped assessment. This is so as reasons as recorded alone give the Assessing Officer power to re-open an assessment, if it reveals/indicate, reasons to believe that income chargeable to tax has escaped assessment.
12. The re-opening of an Assessment is an exercise of extra-ordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before re- opening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of re-opening Assessment and its reasons which would evidence the linkage/nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in ITO v. Lakhmani Merwal Das [1976] 103 ITR 437 had laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link 15 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitled to challenge the very act of re-opening of Assessment and assuming jurisdiction on the part of the Assessing Officer.
13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment.
14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding re-opening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that re- opening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction."
Thus, the Hon'ble High Court has held that the reasonable belief must be based on tangible material and could be prima facie formed to conclude that the income chargeable to tax has escaped assessment. Therefore, the reopening on borrowed satisfaction is not permissible under the law. The Hon'ble Jurisdictional High Court in the case of Sandeep Stocks Pvt. Ltd. Vs ACIT (supra) had occasion to consider the issue of reopening of the assessment based on the same information received from ADIT relating to fictitious profit and losses created by some brokers by misusing Client Code Modification facility in F&O Segment on NSE and held as under:
"Having heard both the; counsel, this court finds that the petitioner had submitted initial return on 27th September, 2009. The case was assessed under Section 143(3) on 23.11.11 at total income of Rs.23,54,40,980/- and assessment order was passed and the same attained finality. The 16 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur petitioner was issued a notice on 29th March, 2016 under Section 148 quoting that the income chargeable to tax for assessment, 2009-2010 has escaped. On having asked by the petitioner to provide reasons for reassessment, the respondents provided reasons as noted above. A look at the said reasons shows that the Department has gathered information received from their ADIT relating to fictitious profits and losses created by some brokers by misusing the Client Code Modification Facility in F&O segment on NSE during the financial year 2008-2009 and on the basis thereto and on the basis of some raids carried out wherein the said brokers having misused the Client Code Modification and presumption has been drawn that the petitioner have during the said year under consideration shifted out certain profits to the tune of Rs. 19865635.37, but the fact remains as to how the said figure has been arrived at, has neither been shown in the reason nor in answer to the objection. It is also not reflected in reply to the present writ petition. The submission of the respondent with regard to not providing details, is not satisfactory.
It is to be noted that the reasons as required to be recorded in the proceedings under Section 148 of the Act cannot be vague. This Court is of the firm view that if the reassessment is required to be made, the vested right also created in favour of the assessee after assessment is sought to be taken away and therefore detailed reasons must be given out by the Revenue for reassessment in a given case. In the case of Sabh Infrastructure Ltd.(supra). The Delhi High Court has while relying on judgment of Supreme Court observed as under:
11. Thus, it is also now well settled that the reasons to believe have to be self explanatory. The reasons cannot be thereafter supported by any extraneous material. The order disposing of the objections cannot act as a substitute for the reasons to believe and neither can any counter affidavit filed before this court in writ proceedings.
Similar situation arose in the present case. The basis for arriving at the conclusions are not to be found factually on record as has been noted in the aforesaid judgments. The basis for the reasons to believe including evidence collected was required to be provided at this stage. The judgment as cited by learned counsel for the Revenue in "GNK Driveshafts (India) Ltd. Vs Income Tax Officer" as at the stage when the assessee had not submitted any objection to the issuance of notice and it is in the circumstances and facts of the case chat Supreme Court observed as under:
17 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur
11. Therefore, at this stage in the present facts, we are satisfied that the Assessing Officer on the basis of reasons recorded to issue impugned notice dated 30th March, 2016, had reasonable belief to come to the conclusion that income chargeable to tax has escaped assessment. The Petitioner can during the assessment proceedings establish that no amount has escaped assessment. However, we do not find this to be a fit case to interdict the reassessment proceedings.
In the present case however, this Court finds that the assessee has first raised objections arid after reply to the objections, has approached this. Court challenging both the reasons provided initially as well as in reply and the objections. This Court agrees to the submission of the learned counsel for the petitioner that even in the reply and the objection, there is no specific averment that the petitioner was having any knowledge relating to the conduct of the said brokers and therefore, presumption of shifting of certain profits at the level of assessee is not made out prima facie and in the circumstances therefore, the detailed reasons as has been observed in the judgment passed by Delhi High Court ought to have been made available to the petitioner. In view thereof, the action of reopening of assessment on the basis of the reasons as provided letter dated 3.8.2016 is not made out. The assumption of jurisdiction of reassessment under Section 148 was therefore not justified and the petitioner cannot be said to have failed to disclose fully and truly all the material facts. The proceedings are therefore set aside and the order of reassessment and the notice dated 29.3.2016 is quashed and set aside."` Therefore, the Hon'ble High Court has held that the reopening of the assessment on the basis of the report of DIT (Inv.) is not valid. Following the decisions of the Hon'ble Bombay High Court in the case of Pr.CIT Vs. Shodiman Investments (P) Ltd. (supra) as well as the decision of Hon'ble Jurisdictional High Court in the case of Sandeep Stocks Pvt. Ltd. Vs ACIT (supra), we hold that the reopening of the assessment based on the report of DIT (Inv) is not valid when the case is hit by the proviso to Section 147 of the Act. It is pertinent to note that the assessee is not expected to disclose the fact that he has indulged in transaction of fictitious transfer of profits but what is required to be disclosed is the transactions carried out by the assessee thorugh the broker. Hence, once the transactions carried out by the assessee are 18 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur matter of record then the case does not fall in the category of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The assessee is not supposed to do what ought to have been done by the Assessing Officer during the scrutiny assessment. Accordingly, the reopening is bad in law and liable to be quashed.'' Following the earlier decision of this Tribunal (supra) as well as binding precedents as referred and relied upon in the said decision, we hold that reopening of the assessment on the basis of the report of the Investigation Wing, Ahemdabad after four years from the end of the assessment year where original assessment was completed u/s 143(3), is not valid as the case is hit by the proviso to Section 147 of the Act. The AO has not pointed out as to what facts or particulars of income, the assessee has failed to disclosed fully and truly. Accordingly, the reopening of assessment is bad in law and liable to be quashed. Since we have quashed the issue of reopening of the assessment by the AO, therefore, we do not propose to adjudicate upon the other issues raised by the assessee in its grounds of appeal. Thus the appeal of the assessee is allowed. 4.1 In ITA No.440/JP/2019 for the Assessment Year 2012-13, the assessee has raised the following grounds of appeal 19 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur ''1. No Valid Reasons for Re-assessment That on the facts and in the circumstances of the case Ld. CIT(A) Ajmer has grossly erred in law and facts in reopening the assessment u/s 148 of the IT Act 1961 arbitrarily, without appreciating the facts and circumstances of the case and the submission made, thus, reopening of assessment u/s 147 must be held bad in law and the consequent order passed by Ld. AO deserves to be held void ab- initio.
2 . T h at t h e AO h as No p o wer t o reo p en t h e co m p l et ed as s es s m en t s m erel y fo r a ch an ge o f o p i n i o n -
That on the facts and in the circumstances of the case Ld. CIT(A) Ajmer has grossly erred in law and facts where the primary facts necessary for assessment , are fully and truly disclosed, and the Ld. AO completed assessment u/s 143(3) after making necessary enquires in respect of loss from share trading Rs. 8,12,696/- the ITO will not be entitle to commence proceedings for reassessment merely on change of opinion.
- CITVs Dinesh Chandra 82 ITR367(SC)
3. Business Loss Disallowed Rs. 812,996/-
That on the facts and in the circumstances of the case Ld. CIT(A) Ajmer has grossly erred in law and facts where the loss was originally assessed as non speculative loss and where without having any new information the AO. came to a conclusion after the expiry of 2 years that the loss suffered by the assessee was a speculative loss without any evidence from outside source. ACIT Vs ICICI Securities Primary Dealership Ltd. 348 ITR 299(SC)
4. Sanction u/s 151 without Application of mind by Ld. (Pr.CIT) :-
That the learned Pr. CIT has grossly erred both in law and facts in granting approval u/s 151 mechanically and without application of mind and there for sanction is not according to mandate of SC.
5. Interest levied u/s 234A, 234B and 234C That on the facts and in the circumstances of the case Ld. AO has grossly erred in law and facts in by confirming in charging interest u/s, 234(A), 234(B) & 234(C).'' 20 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur 5.1 The Ground No. 1 to 4 of the assessee are regarding validity of reopening of the assessment.
5.2 The ld.AR of the assessee submitted that the assessee filed its return of income 30-09-2012 declaring total income of Rs. 71,71,910/-. The scrutiny assessment was completed u/s 143(3) of the Act on 21-02-2015. Thereafter the AO reopened the assessment by issuing notice u/s 148 of the Act on 31-01-2017 to disallow the loss on share trading by treating the same as capital in nature. The ld.AR of the assessee referred to the reasons recorded by the AO and submitted that after accepting the claim of loss from share trading, the AO now proposed to disallow the same by taking a different view which was taken during the scrutiny assessment. The ld.AR of the assessee pointed out that the AO has issued a notice u/s 142(1) of the Act on 20-09-2014 alongwith a questionnaire. He submitted that as per Question No. 14 of the Questionnaire dated 20-09-2014, the AO asked the assessee to furnish all the details regarding share transactions. Subsequently, vide questionnaire dated 11-11-2014, the AO against asked the assessee to produce evidence in support of loss from share trading. The same query was again asked by the AO on 16-12-2014 as per proceedings sheet. The ld.AR of the assessee submitted that the assessee furnished all the relevant details in support of 21 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur loss from share trading and accordingly the AO had accepted the said claim while passing the assessment order u/s 143(3) of the Act. Thus the reopening of the assessment based on the same material as available at the time of scrutiny assessment is not valid due to the reasons that the AO has reopened the assessment on the basis of change of opinion. The ld.AR of the assessee submitted that in the absence of any new information or any other development, a completed assessment u/s 143(3) cannot be disturbed by the AO merely on the basis of change of opinion. In support of his contention, the ld.AR of the assessee relied on the decision of Hon'ble Supreme Court in the case of ACIT vs ICICI Securities Primary Dealership Ltd. 348 ITR 299 (SC) as well as judgement in the case of CIT vs Kelvinator of India Ltd. 320 ITR 561 (SC).
5.3 On the other hand, the ld. DR has submitted that there is no dispute that the assessee has shown the shares as investment in its books of accounts and balance sheet and therefore, the loss on account of sale of investment cannot be allowed as business loss. The AO while completing the assessment u/s 143(3) of the Act had overlooked this fact that the claim of loss from share trading is not permissible being capital in nature. Thus the AO has reopened the assessment based on undisputed facts of 22 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur incorrect and impermissible claim of assessee regarding loss from share trading. The ld. DR relied on the orders of the authorities below. 5.4 We have considered the rival submissions as well as the materials available on record. The assessee filed the return of income on 30-09-2012 which was subjected to scrutiny assessment u/s 143(3) of the Act vide order dated 21-02-2015. During the scrutiny assessment, the AO has issued the notice u/s 142(1) alongwith questionnaire and raised specific queries regarding the shares transactions. We further note that as per proceedings sheet recorded by the AO during the scrutiny assessment, the AO again raised a query on 11-11-2014, 16-12-2014 and 23-12-2014 regarding the claim of loss from share trading. The AO has specifically asked the assessee to produce the evidence in support of share loss of Rs. 8,12,692/-. Thus after verifying the claim of loss of Rs. 8,12,692/- arising from purchase and sales of shares, the AO allowed the same while completing the assessment u/s 143(3) of the Act. Subsequently, the AO reopened the assessment by issuing notice u/s 148 of the Act on 31-01- 2017 by recording the reasons as under:-
''The assessee company has filed its return of income for A.Y. 2012-12 on 30-09-2012 declaring total income of Rs. 71,71,910/- which was assessed u/s 143(3) at the total income of Rs. 77,76,500/- on 21-02-2015.23 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur On going through the records, it was noticed that assessee has debited an account of Rs. 8,12,696/- on account of loss from share trading. The assessee has shown shares as investment in the balance sheet. Therefore, the loss from share trading cannot be claimed as business loss.
Hence income of Rs. 8,12,696/- has escaped from assessment.
In view of above, I have reasons to believe that income to the tune of Rs. 10,79,979/-, 8,12,696/- has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 for the Asstt. Year 2012-13.The escapement of income was on account of the failure on the part of the assessee to disclose all the material facts.'' From the reasons recorded by the AO, it is manifest that the AO has formed its belief on going through the records which is already available with the AO at the time of framing the scrutiny assessment u/s 143(3).
Though the loss on account of purchase and sale of shares claimed by the assessee is not allowable as business loss due to the reasons that the assessee has shown the shares as investment and not stock in trade.
However, the said mistake committed by the AO while completing the scrutiny assessment u/s 143(3) cannot be rectified or reviewed by resorting to the provisions of Section 147/148 of the Act and the AO is not permitted to improve its own decision or review its on order by using the provisions of Section 147/148 of the Act. There are remedies 24 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur provided under the Income Tax Act against the errors committed by the AO while passing the scrutiny assessment. In the case in hand, there is no dispute that the order passed by the AO u/s 143(3) of the Act is erroneous as well as prejudicial to the interest of Revenue so far as the claim of loss from purchase and sales of shares was allowed by the AO. The remedy for such error committed by the AO is provided u/s 263 of the Act. Even otherwise, at the time of issuing notice u/s 148 of the Act on 31-01-2017, the limitation was still available for exercising the powers by the ld. CIT u/s 263 of the Act. Thus instead of resorting to the provisions of Section 147/148 of the Act, the AO ought to have brought this error in the notice of the ld. CIT. It is also not in dispute that when the AO verified and examined the claim of the assessee during the scrutiny assessment and taken a decision which may be incorrect decision but the said decision cannot be reviewed on the basis of change of opinion. There is no fresh material or information received by the AO after passing the assessment order u/s 143(3) of the Act. Therefore, the reopening of the assessment based on change of opinion is not permitted. Accordingly, in view of the binding precedents in series of decisions including the judgment of Hon'ble Supreme Court in the case of ACIT vs ICICI Primary Dealership Ltd (supra) and CIT vs Kelvinator of India Ltd (supra), the reopening of 25 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur assessment in the case of the assessee is not sustainable in law and the same is quashed. Thus the appeal of the assessee is allowed.
6.1 The Ground No. 5 of the assessee is regarding charging of interest u/s 234A, 234B and 234C of the Act which are mandatory and consequential in nature.
7.1 In ITA No.149/JP/2019 for the Assessment Year 2012-13, the assessee has raised the following grounds of appeal.
1. Addition on account of Undisclosed Interest Income Rs. 48,000/-
That on the facts and in the circumstances of the case Ld. CIT(A) II has grossly erred in law and facts by confirming addition of interest income of Rs.48000/- in the P.Y. without any justification. The assassee has shown interest income in the subsequent assessment year and paid tax.
2. Disallowance of Expenses of Rs 1,67,310/- u/s 14A That on the facts and in the circumstances of the case Ld. CIT(A) II has grossly erred in law and facts by confirming disallowance of expanses of Rs.1,67,310/-u/s 14A (workout under Rule 8D(2)) on account of expenditure incurred in relation to exempted income.
3. Disallowance on account of Unverifiable expenses That on the facts and in the circumstances of the case Ld. CIT(A) II has grossly erred in law and facts by confirming disallowance of expanses on the ground of unverifiable. The disallowance is not based on any evidence /material on record. No enquiry was conducted. It is purely based on assumption, presumption and conjecture.
4. (a) Delay Payment of ESI/EPF :-
That on the facts and in the circumstances of the case Ld. CIT(A) II has grossly erred in law and facts by confirming addition of Rs. 54,066/- on account of delay in deposit of employee contribution PF and applying the provisions of section 36(1)(va) of the IT Act instead of provisions of section 43B of the IT Act which is applicable in the case of the assessee.26 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur
(b) That on the facts and in the circumstances of the case Ld. CIT(A) II has grossly erred in law and facts by confirming addition of Rs.
93,949/-on account of delay in deposit of employee contribution ESI and applying the provisions of section 36(1)(va) of the IT Act instead of provisions of section 43B of the IT Act which is applicable in the case of the assessee.
Such disallowance cannot be made where the payment of Government dues (EPF + ESI) is made on or before the due date of filling of ITR u/s 139(1).
5. No Show Cause Notice :-
That on the facts and in the circumstances of the case Ld. AO has grossly erred in law and facts in making disputed trading additions / disallowance without serving show cause notice which is mandatory as per CBDT circular and also against the principles of natural justice.
6. Interest levied u/s 234A, 234B and 234C That on the facts and in the circumstances of the case Ld. CIT(A) II has grossly erred in law and facts by confirming in charging interest u/s, 234(A), 234(8) & 234(C).'' 8.1 The Ground No. 1 of the assessee is regarding the addition made on account of undisclosed income of Rs. 48,000/-.
8.2 The assessee filed its return of income on 30-09-2012 declaring total income of Rs. 71,71,910/-. During the scrutiny assessment, the AO noted that the assessee had given advance of Rs. 20 lacs to M/s. Kiran Modes on which no interest income was shown by the assessee whereas as per Form 26AS it was found that M/s. Kiran Modes has shown interest paid to the assessee company of Rs. 48,000/- on which TDS of Rs. 4,800/- was deducted. Accordingly, the AO asked the assessee to explain 27 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur as to why such interest income was not disclosed in the return of income. The assessee submitted its reply and explained that an amount of Rs. 20 lacs was advanced to M/s. Kiran Modes at the end of month of March 2012 and therefore, no interest had accrued during the year under consideration. However, the interest received from these parties has been taken to the income in the next year. Thus the assessee claimed that the amount of Rs. 48,000/- was received as advance interest for the months of April and May 2013. The AO did not accept this explanation of the assessee and made an addition of Rs. 48,000/- on account of undisclosed interest income. The assessee challenged the action of the assessee before the ld. CIT(A) but could not succeed.
8.3 Before us, the ld.AR of the assessee has referred to the ledger account of M/s. Kiran Modes in the books of account of the account and submitted that the advance in question amounting to Rs. 20 lacs was given on 14-03-2012 and the amount of Rs. 48,000/- was received as advance interest for the month of April and May, 2013. The ld.AR of the assessee submitted that the entry on this account is made in the ledger account of M/s. Kiran Modes on 24-03-2012. Therefore, even otherwise, the interest for two months is not accrued at the end of March 2012 whereas the advance itself was given on 14-03-2012. The ld.AR of the 28 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur assessee submitted that this interest income of Rs. 48,000/- has been declared by the assessee in the return of income for the Assessment Year 2013-14. When this income was not accrued or arose during the year under consideration then the same cannot be assessed in the year under consideration. Even otherwise, it is subjected to double taxation when the assessee has offered this income in the subsequent Assessment Year. 8.4 On the other hand, the ld. DR has relied on the orders of the authorities below and submitted that as per Form 26AS, the AO found that the assessee had received interest of Rs. 48,000/- from M/s. Kiran Modes and therefore, once the assessee has claimed the credit of TDS on this amount then the income is also liable to be assessed for the year under consideration.
8.5 We have considered the rival submissions as well as the relevant materials available on record. We find that the AO has not disputed the fact that advance of Rs. 20 lacs was given by the assessee to M/s. Kiran Modes on 14-03-2012. As per ledger account of M/s. Kiran Modes in the books of accounts of the assessee, an amount of Rs. 48,000/- is shown as received on 24-03-2012 being two months interest. The ld.AR of the assessee explained that this is an advance interest received for the months of April and May, 2013. We find merits in the explanation of the assessee 29 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur as the entries found in the ledger account of M/s. Kiran Modes clearly manifests the interest of Rs. 48,000/- is for two months. Therefore, when the advance was given on 14-03-2012 then the interest for two months does not pertain to the year under consideration. Further, when the ld.AR of the assessee has pointed out that this interest income was offered to tax for Assessment Year 2013-14 then without verifying this fact from records which was available with the AO at the time of passing the assessment order, the denial of the claim of the assessee is highly arbitrary and unjustified. The ld. CIT(A) has also confirmed the addition made by the AO on very vague reasons stated at para 2.3 as under:-
''2.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. It is seen that assessee has not shown interest income of Rs. 48,000/- which is appearing in Form 26AS even though assessee is following mercantile system of accounting. The appellant has not given any evidence that this interest income was declared in the next year. Rather the account of M/s. Kiran Modes filed by the assessee shows that interest of Rs. 48,000/- was received in the month of March, 2012. Therefore, the addition of Rs. 48,000/- on this account is confirmed. This ground of appeal is dismissed.'' Thus the department has accepted that the assessee is following mercantile system of accounting and hence the income can be recognized only when it is accrued and not on the basis of receipt. The interest 30 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur received in advance and declared as income in subsequent year cannot be assessed for the year under consideration. When the record was with the Department regarding return of income for the Assessment Year 2013-14 then without verifying and giving a definite finding, the addition made by the AO and confirmed by the ld. CIT(A) is not justified and the same is deleted.
8.5.1 The TDS credit of Rs. 4,800/- in respect of interest income cannot be allowed for this year also when the corresponding income is not offered to tax for the year under consideration. Accordingly, the same may be allowed for the subsequent year when the assessee has offered the corresponding income to tax.
9.1 Ground No. 2 of the assessee is regarding disallowance of administrative expenses of Rs. 1,67,310/- u/s 14A of the Act.
9.2 The AO noted that the assessee has made investment of Rs. 3,70,60,847.51 in UTI LIQ Plus and also earned dividend income of Rs. 23,64,565/- from Mutual Fund and Rs. 30,962/- from shares totaling amount to Rs. 23,95,527/-. The AO has also noted that the assessee has claimed General, Administrative and other expenses of Rs. 2,49,89,974/-. Accordingly, the AO made disallowance on account of indirect administrative expenses being 0.5% of the average investment. The 31 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur assessee challenged the action of the AO before the ld. CIT(A) but could not succeed.
9.3 Before us, the ld.AR of the assessee submitted that for earning dividend income, the assessee has not incurred any expenditure. Therefore, no disallowance is called for u/s 14A of the Act. He has vehemently argued that the provisions of Section14A is invoked only when there is an expenditure incurred by the assessee for earning exempt income. The ld.AR of the assessee submitted that the expenditure claimed by the assessee in the profit and loss account was incurred for the purposes of business of the assessee and no expenditure was incurred for earning exempt income.
9.4 On the other hand, the ld. DR has submitted that the assessee has made huge investment in the mutual fund and shares and also received dividend income of more than Rs. 23 lacs. Therefore, the provisions of Section 14A read with rule 8 of Income Tax Rules, 1962 are applicable in this case. The ld. DR relied on the orders of the authorities below. 9.5 We have considered the rival submissions as well as the relevant materials available on record. The AO has made disallowance u/s 14A of the Act only on account of indirect administrative expenses and computed the quantum of disallowance as per rule 8D(2)(iii) of the Income Tax 32 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur Rules being 0.5% of average investment. We find that during the year under consideration the assessee has incurred expenditure of Rs.10,61,704/- on account of establishment/ office expenses, apart from misc. and office expenses. Further, the assessee has also made fresh investment of more than Rs. 1.5 crores in the mutual funds during the year under consideration and there was also sale of investments in shares during the year under consideration. Thus there is a substantial change and churning in the investment portfolio of the assessee during the year under consideration. It is also not in dispute that the decision of making investment and selling the investment in shares and mutual funds is taken at the highest level of the management which includes the Director of the assessee company. Therefore, it cannot be said that the assessee has not incurred any expenditure which can be attributed for earning exempt income. Accordingly, in the facts and circumstances of the case, we do not find any error or illegality in the action of the AO for making disallowance u/s 14A of the Act on account of indirect administrative expenditure. Thus Ground No. 2 of the assessee is dismissed. 10.1 The Ground No. 3 of the assessee is regarding adhod disallowance made by the AO @ 10% of certain expenses on the ground of unverifiable expenses which was restricted to 5% by the ld. CIT(A). 33 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur 10.2 We have heard the ld.AR as well as the ld. DR and considered the relevant materials available on record. The AO has made the disallowance @ 10% of various expenses total amount of Rs. 24,13,645/- and 10% of which comes to Rs. 2,41,365/-. The details of the expenses for which disallowance made by the AO are as under:-
SR. No. Item Expenses claimed
1. Selling expenses 1067583.00
2. Handling expenses 450000.00
3. Miscellaneous expenses 144387.00
4. Sales promotion expenses 83828.00
5. Staff Welfare expenses 24032.00
6. Telephone expenses 3200.00
7. Travelling & Conveyance 613717.00
expenses
8. Repair & Maintenance 26898.00
expense
Total 2413645.00
The AO has given the reasons for disallowance as some of the vouchers are self made and payment is made in cash. All these reasons given by the AO are very vague and general without pointing out any specific defects in respect of particular expenditure. The ld. CIT(A) has restricted the disallowance to 5% in para 4.3. of his impugned order as under:-
''4.3 I have perused the facts of the case, the assessment order and the submissions of the appellant.34 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur Assessing Officer made disallowance @ 10% of various expenses as the vouchers were not completed and some were self made and most the payments were in cash. I find that the reasons given above for disallowance by the Assessing Officer are correct. However, the disallowance seems to be on the higher side and therefore, reduced to 5% of expenses. Assessee gets consequent relief.'' Thus both the AO as well as ld. CIT(A) have made adhoc disallowance only on general ground of non-verifiable of some of the expenses on account of self made vouchers and payment made in cash. Neither the AO nor the ld. CIT(A) have pointed out any specific defects in respect of a particular expenditure or voucher. Accordingly, the disallowance confirmed by the ld. CIT(A) on adhoc basis is not permissible . Hence, we delete the adhoc disallowance of expenses. Thus Ground No. 3 of the assessee is allowed.
11.1 The Ground No. 4 of the assessee is regarding the addition made by the AO in respect of delay in payment of ESI & PF.
11.2 We have head the ld.AR and ld. DR and considered the relevant materials available on record. There is no dispute that the assessee has made payment of Employees Contribution towards ESI and PF before 35 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur due date of filing of return of income u/s 139(1) of the Act. The ld. CIT(A) has not disputed this fact. However, the addition was confirmed by the ld. CIT(A) by relying on the decision dated 13-03-2018 of Hon'ble Jurisdictional High Court in the case of M/s. Rajasthan Renewable Energy Corporation Ltd, Jaipur. It is pertinent to note that this issue is covered in favour of assessee from the decision of Hon'ble Jurisdictional High Court in the case of CIT vs State Bank of Bikaner and Jaipur (2014), 363 ITR 70 (Raj). Even in the case of M/s. Rajasthan Renewable Energy Corporation Ltd.,Jaipur the Hon'ble Rajasthan High Court has followed the decision in the case of CIT vs State Bank of Bikaner and Jaipur (supra). However, there is a typographical mistake in the concluding part of the judgement in the case of M/s. Rajasthan Renewable Energy Corporation Ltd.,Jaipur that the issue is decided in favour of the Department which is otherwise not consistent with reasonings and decision followed by the Hon'ble Rajasthan High Court in the case of CIT vs State Bank of Bikaner and Jaipur (supra). It is pertinent to mention that similar issue has been decided by this Bench in the case of M/s. K.S. Automobiles (P) Ltd vs ITO/ DCIT (ITA No.1184 & 1185/JP/2018 for the Assessment Year 2013-14 & 2014-15) vide its order dated 8-03-2019 as under:-
36 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur ''3. We have heard the ld. AR as well as ld. DR and considered the relevant material on record. At the outset, we note that this issue is covered in favour of the assessee by the various decisions of the Hon'ble jurisdictional High Court including the decision in case of CIT vs. State Bank of Bikaner & Jaipur 99 DTR 131 as well as decision in case of CIT vs. Jaipur Vidyut Vitran Nigam Ltd. 363 ITR 307 and in case of CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. 366 ITR 163. We further note that the ld. CIT(A) though has not disputed the various decisions of Hon'ble High Court however, disallowance made by the AO are sustained as he misunderstood the decision of Hon'ble Jurisdictional High Court in case of PCIT vs. M/s Rajasthan Renewable Energy Corporation Limited in DB ITA No. 10,11 & 12/2018 dated 13.03.2018. In the case of PCIT vs. M/s Rajasthan Renewable Energy Corporation Limited (supra) the Hon'ble High Court has considered this issue in para 4 to 6 as under:-
"4. So far as question No. 1 is concerned, the same is now covered by the decisions of this Court in Principal Commissioner of Income-Tax V/s Rajasthan state seed Corporation Ltd. [2016] 386 ITR 267 (Raj) wherein it has been held as under:-
"In so far as the expenditure incurred on State Renewal Fund is concerned, the said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the State Renewal fund is solely for the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expenditure should be incurred in the course of business and expenditure of this nature being for 37 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur business expediency is certainly allowable deduction under section 37(1) of the Act. In our view any normal expenditure for the welfare and benefit of the employees is allowable expenditure under section 37(1), the Tribunal has come to a finding of fact that it was a legal obligation of the respondent-assessee towards contribution of the said amount to the State Renewal Fund and there being a legal obligation as well in our view the Tribunal has come to a correct conclusion."
In view of the above, question No. 1 is answered in favour of the assessee and against the department.
6. With regard to issue No. 2 and 3 the controversy is pending before the Supreme Court in C.I.T., Jaipur Vs/ Ms State Bank of Bikaner and Jaipur in SLP© No. 16249/2014, therefore, subject to decision of SLP, for the present, these issues are decided on in favour of the department and against the assessee. It will be open for the department to recover the amount if the decision is in their favour."
Thus, it is clear that the Hon'ble jurisdictional High Court has followed the earlier decisions in case of PCIT vs. Rajasthan State Seed Corporation Limited 386 ITR 267 as well as decision in case of CIT vs. State Bank of Bikaner & Jaipur (supra). All these decisions which were ollowed by the Hon'ble jurisdictional High Court are in favour of the assessee however, in the conclusion in para 6 there is a typographical mistake wherein it is stated "these issues decided in favour of the Department and against the assessee". The whole decision of the Hon'ble High Court has to be considered in the contest of the decision followed and the subsequent line which says "it will be opened for the Department to recover the amount" if the decision in their favour which means that in case of further appeal 38 ITA No.439/JP/2019 M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur before Hon'ble Supreme Court if decision is delivered in favour of the department it can recover the amount.
Therefore, even the decision which is relied upon the ld. CIT(A) the same is in favour of the assessee though due to typographical mistake it was misunderstood by the ld. CIT(A) as in favour of the Revenue. Accordingly, in view of a series of decisions of the Hon'ble Jurisdictional High Court in favour of the assessee and further Hon'ble Supreme Court in case of PCIT vs. Rajasthan State Beverages Corporation Ltd. 250 taxmann 16 has dismissed the SLP filed by the Department this issue is decided in favour of the assessee and against the Revenue. Hence, disallowances/additions made by the AO on account of employees contribution to PF & ESI are deleted. '' In view of the above facts, circumstances of the case and the decision of this Bench in the case of M/s.K.S. Automobiles Pvt. Ltd vs ITO (supra), the said disallowance/ addition made by the AO is deleted. 12.1 The Ground No. 5 of the assessee is general in nature which does not require any adjudication.
13.1 The Ground No. 6 of the assessee is regarding charging of interest u/s 234A, 234B and 234C of the Act which are mandatory and consequential in nature.
39 ITA No.439/JP/2019
M/s. Vedansh Jewel (P) Ltd. vs DCIT, Circle - 6,Jaipur 14.0 In the result, the appeals of the assessee in ITA No 439 & 440/JP/2019 are allowed and ITA No. 149/JP/2019 is partly allowed.
Order pronounced in the open court on 23 /12/2019.
Sd/- Sd/- ¼ foØe foØe flag ;kno ½ ¼fot; iky jko½ (Vikram Singh Yadav) (Vijay Pal Rao) ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 23 /12/ 2019 *Mishra
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s. Vedansh Jewel (P) Ltd. Jaipur
2. izR;FkhZ@ The Respondent- DCIT , Circle - 6,Jaipur
3. vk;dj vk;qDr¼vihy ) @ CIT(A),
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.439/JP/2019) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar