Dcit Cen Cir 3 3 Cen Rg 3 Mumbai v. Welspun Syntex Ltd Mumbai

In The Income Tax Appellate Tribunal G Bench Mumbai Before Shri Shamim Yahya A M And Shri Amarjit Singh Jm I T A No 5728 Mum 2015 Assessment Year 2011 12 Dy Cit Centr Al Circle 3 3 Room No 401 Aayakar Bhavan 4 Th Floor M K Road Mumbai 400 020 Vs M S Welspun Syntex Ltd Welspun House 7 Th Floor B Wing Kamla Mills Compound Senapati Bapat Marg Lower Parel Mumbai 400 013 Pan Gir No Aaacw 0489 L Appellant Respondent Appellant By Shri Abhijit Patankar Respondent By Shri Mitesh Shah Date Of Hearing 28 09 2017 Date Of Pronouncement 11 12 2017 O R D E R Per Shamim Yahya A M This Appeal By The Revenue Is Directed Against The Order By The Commissioner Of Income Tax Appeals 51 Mumbai Cit A For Short Dated 11 09 2015 And Pertains To The Assessment Year A Y 2011 12 The Grounds Of Appeal Read As Under 1 On The Facts And In The Circumstances Of The Case Ld Cit A Erred In Deleting The Disallowance Made U S 14 A Read With Rule 8 D Despite The Express Mandate To Do So U S 14 A O F The It Act 2 On The Facts And In The Circumstances Of The Case Ld Cit A Erred In That No Disallowance U S 14 A Read With Rule 8 D Can Be Made When 2 Ita No 5728 Mum 2015 A Y 2011 12 Dy Cit Vs M S Welspun Syntex Ltd There Is No Exempt Income Despite There Being No Such Condition Stipulated In The It Act 3 On The Fa Cts And In The Circumstances Of The Case Ld Cit A Erred In Deleting The Addition Of Rs 2 Crores Being Payment Made To M S Maginot Trading Company Thereby Disregarding The Admission Of Bogus Accommodation Entry By Shri Balakrishna Goenka And Also The Ev Idence Found In The Seized Material 4 On The Facts And In The Circumstances Of The Case Ld Cit A Erred In Deleting The Addition Of Rs 2 Crores Without Giving Any Direction To Treat The Same As Unaccounted Income In The Hands Of Shri Balakrishna Goenka As Was Done By The Ld Cit A On Similar Transaction In The Case Of M S Welspun Maxsteel Ltd A Sister Concern Of The Assessee Apropos Ground Relating To Disallowance U S 14 A 3 The Brief Facts Of The Case Are That The Assessee Held Investment In Shares As At 31 3 2011 As Under 1 Shares In Subsidiary And Group Companies 25 073 2 Shares Of Other Companies 22 33 35 000 Total 22 33 60 073 4 The Assessee Has Not Made Any Provision For Disallowance U S 14 A On The Ground That N O Dividend Income Was Earned During The Previous Year However The Assessing Officer Made An Addition Of Rs 1 37 60 144 U S 14 A However The Ld Commissioner Of Income Tax Appeals Deleted The Addition Relying On The Decision Of Honble Bombay High C Ourt In The Case Of Cit Vs Delight Enterprises In Ita No 110 2009 That No Disallowance U S 14 A Should Be Made When There Is No Exempt Income 5 A Gainst This Order The Revenue Is In Appeal Before Us 6 We Have Heard Both The Ld Counsel And Perus Ed The Records We Find That This Issue Is Covered In Favour Of The Assessee By The Decision Of Honble Jurisdictional 3 Ita No 5728 Mum 2015 A Y 2011 12 Dy Cit Vs M S Welspun Syntex Ltd High Court Referred As Above The Decision Of Special Bench Of The Tribunal In Cheminvest Ltd Vs Ito 2009 121 Itd 318 Del Trib S B Has Already Been Reversed By The Honble Delhi High Court Furthermore The Honble Jurisdictional High Court In The Case Of Pr Cit Vs Ballarpur Industries Ltd In Ita No 51 Of 2016 It Has Been Held As Under By This Income Tax Appeal The Appellant Department Challenges The Orders Of T He Commissioner Of Income Tax And The Income Tax Appellate Tribunal Nagpur On Hearing The Learned Counsel For The Department And On A Perusal Of The Impugned Orders It Appears That Both The Authorities Have Recorded A Clear Finding Of Fact That There Was No Exempt Income Earned By The Assessee W H Ile Holding So The Authorities Relied On The Judgment Of The Delhi High Court In Income Tax Appeal No 749 2014 Which Holds That The Expression Does Not Form Part Of The T Otal Income In Section 14 A Of The Income Tax Act 1961 Envisages That There Should Be An Actual Receipt Of The Income Which Is Not Includible In The Total Income During The Relevant Previous Year For The Purpose Of Disallowing Any Expenditure Incurred I N Relation To The Said Income The Income Tax Appellate Tribunal Held That The Provisions Of Section 14 A Of The Income Tax Act 1961 Would Not Apply To The Facts Of This Case As No Exempt Income Was Received Or Receivable During The Relevant Previous Year It Is Not The Case Of The Assessing Officer That Any Actual Income Was Received By The Assessee And The Same Was Includible In The Total Income In The Facts Of The Case The Authorities Held That Since The Investments Made By The Assessee In The Sister C Oncerns Were Not The Actual Income Received By The Assessee They Could Not Have Been Included In The Total Income The Findings Of Facts Recorded By Both The Authorities Do Not Give Rise To Any Substantial Question Of Law Since No Substantial Question Of Law Arises In This Income Tax Appeal The Income Tax Appeal Is Dismissed With No Order As To Costs 7 Principally Following The Precedent As Above We Do Not Find Any Infirmity In The Proposition That W Hen No Exempt Income Is Earned No Disallowance U S 14 A Should Be Made However This Aspect As To Whether The Assessee Has Earned Exempt 4 Ita No 5728 Mum 2015 A Y 2011 12 Dy Cit Vs M S Welspun Syntex Ltd Income Or Not Remains To Be Examined At The Level Of The Assessing Officer Hence We Remit The Issue To The File Of The Assessing Officer To Examine As To Whether The Assessee Has Earned Exempt Income Or Not If The Assessee Has Not Earned Any Exempt Income Then As Per The Ratio Emanating From The Above The Honble Jurisdictional High Court Decisions No Disallowance U S 14 A Is Required Needless To Add The Assesse E Should Be Granted Adequate Opportunity Of Being Heard Accordingly We Uphold The Same Apropos Addition Of Rs 2 Crores Of Bogus Accommodation Entry 8 The Order Of The Assessing Officer In This Regard Making Disallowance Of Rs 2 Cores Reads As Under 7 Bogus Billing 7 1 Assessee Has Debited Bogus Expenditure Amounting To Rs 2 00 00 000 Under The Head Land Development In The Name Of M S Maginot Trading Co Pvt Ltd 7 2 During The Course Of Assessment Proceedings Vide Question No L B Of Notic E U S 142 1 Dated 18 10 2012 The Assessee Was Asked To Explain Where The Above Income Has Been Offered To Tax With Supporting Documents The Assessee As Also Asked To Specify The End Use Of Funds Raised By M S Maginot Trading Co Pvt Ltd With Supporti Ng Evidences In Response The Assessee Vide Its Letter Dated 03 12 2012 Submitted As Under In Answer Of Question No 14 Mr B K Goenka Has Stated That Rs 5 Crores Is An Accommodation Entry In The Hands Of M S Welspun Max Steel And Rs 2 Crores In The Hand S Of M S Welspun Syntex Ltd It May Please Be Noted That The Above Referred Two Payments Have Been Debited As Land Development Charges In The Books Of Accounts Of The Respective Companies 5 Ita No 5728 Mum 2015 A Y 2011 12 Dy Cit Vs M S Welspun Syntex Ltd We Confirm That No Depreciation Has Been Claimed So Far And No D Epreciation Will Be Claimed By Any Of The Above Companies On The Abovementioned Amounts The Balance Tax If Any Will Be Paid By M S Welspun Max Steel In Due Course Of Time 7 3 In This Regard It Is To Mention That Shri Balkrishna Goenka In His State Ment On Oath Recorded U S 132 4 Of The Income Tax Act 1961 At The Premises Of M S Welspun Corp Ltd Welspun House Trade World B Kamla Mills Compound Lower Parel Mumbai During The Course Of Search Seizure Action On 14 10 2010 Stated As Under I N Response To Question No 14 Q 24 Now I Am Showing You Page No 46 61 Of Annexure A L An Enquiry Was Conducted At The Address Given In The Memo However No Such Party Was Found To Be Existing At Either Of The Addresses Given In The Memo Please Furn Ish The Address Of This Party And Explain The Transactions With Them Ans The Payments Made To M S Maginot Trading Co Pvt Ltd Amounting To Total Of Rs 5 Cr In The Current Financial Year Made On Account Of Supply Of Muram At The Raigad Site Of M S Welspun Maxsteel Ltd Is Nothing But An Accommodation Entry Arranged By One Of The Broker For Generation Of Cash By Debiting Bogus Expenses I Confirm That We Have Taken An Accommodation Entry To Generate Cash For Expenditure I Have Also Taken A Similar Entry In The Accounts Of M S Welspun Syntex Ltd For An Amount Ofrs 2 Cr In The Current Financial Year I Take This Opportunity To Surrender This Amount Of Rs 7 Cr 5 Cr In The Hands Of M S Welspun Maxsteel Ltd 2 Cr In The Hands Of M S Welspun Syntex Ltd As My Unaccounted Income Generated By Debiting Bogus Expenses And Offer This Amount As My Taxable Income Over Above My Regular Income For The Current Financial Year 7 4 From The Above Discussion It Is Clear That Assessee Has Not Offered Th E Unaccounted Income Generated By Debiting Bogus Expenses Hence Addition Of Rs 2 00 00 000 Is Made To The Total Income Of The Assessee Penalty Proceedings Are Initiated U S 271 Aaa Of The I T Act 1961 9 Against The Above Order The Assessee Appealed Before The Ld Commissioner Of Income Tax Appeals 10 The Ld Commissioner Of Income Tax Appeals Deleted The Addition By Holding As Under 6 Ita No 5728 Mum 2015 A Y 2011 12 Dy Cit Vs M S Welspun Syntex Ltd I Have Carefully Considered The Facts Of The Case The Submissions Of Appellant And Reasons Recorded By The A O It Is Noted That Shri Bal Krishna Goenka Has Admitted Of The Accommodation Entries In Hands Of His Two Companies Including The Appellant Company For Rs 2 Crores It Is Seen That The Ao Has Made The Addition On Account Of Bogus Expenses On The Plea Tha T These Expenses Cannot Form Part Of Cost Of Land And These Expenses Cannot Be Allowed As Deduction Under Any Head Of Income For Income Tax Purposes In Any Of The Assessment Years However It Is Seen From The Facts Of The Case That The Appellant Has Not Cl Aimed Any Deduction Of Whatsoever Nature In Respect Of Land Development Expenses Nor Any Deduction On Account Of Depreciation Was Claimed Thereon The Disallowance Of Any Expenses Presuppose The Claim Of Deduction Of Such Expenses Which Is Absent In This C Ase Therefore In My Opinion The Addition Made By The Ao Is Unwarranted And Liable To Be Deleted From The Hands Of The Appellant Even Otherwise Also The Phraseology Used In Section 69 C In Respect Of Unexplained Expenditure Shows That For Invoking The Pro Visions Of Section 69 C The Condition Precedent Is To Establish The Existence Of Expenditure Not Explained Satisfactory By Evidence Or Material On Record In The Case Of The Appellant Payment Of Rs 2 Crores Was Made To M S Maginot Trading Co From The Re Gular Bank Account And The Source Of Such Payments Are Not Doubted By The Ao The Payments Are Properly Recorded In The Books Of Account Hence The Addition Is Unwarranted On That Count Also Since The Nature And Source Of Payments Are Accepted By The Ao T He Admission By Shri Bal Krishna Goenka U S 132 4 Is Not Relevant On The Facts Of The Case Of The Appellant Company In View Of The Above I Find That The Addition Made By The Ao Is Unwarranted And Therefore I Delete The Addition In The Result This Gro Und Of Appeal Is Allowed 11 Against The Above Order The Assessee Is In Appeal Before Us 12 We Have Heard Both The Counsel And Perused The Records We Find That This Tribunal In The Case Of M S Jsw Steel Salav L Imited Vs Dcit For The Same Assessm Ent Year Has Decided The Identical Issue Against The Assessee We May Gainfully Refer To The Relevant Portion Of The Order Of The Itat Dated 08 02 2017 In Ita No 394 Mum 2015 As Under 7 Ita No 5728 Mum 2015 A Y 2011 12 Dy Cit Vs M S Welspun Syntex Ltd 9 4 We Have Heard The Submissions And Perused The Material Before Us Before Proceeding Further We Would Like To Refer To Question And Answer No 14 Of The Statements Recorded On 14 10 2010 Q 14 Now I Am Showing You Page No 46 And 61 Of Annexure A 1 Sn Enquiry Was Conducted At The Address In The Memo However No Such Pa Rty Was Found To Be Existing At Either Of The 69 15 70 15 Jsw 394 15 Welspun Addresses Given In The Memo Please Furnish The Address Of This Party And Explain The Transactions With Them Ans The Payments Made To M S Maginot Trading Co Pvt Ltd Amountin G To Total Of Rs 5 Crores In The Current Financial Year Made On Account Of Supply Of Muram At The Raigad Site Of M S Welspun Maxsteel Ltd Is Nothing But An Accommodation Entry Arranged By One Of The Broker For Generation Of Cash By Debiting Bogus Expe Nses I Confirm That We Have Taken An Accommodation Entry To Generate Cash For Expenditure I Have Also Taken A Similar Entry In The Accounts Of M S Welspun Syntex Ltd For An Amount Of Rs 2 Cr In The Current Financial Year I Take This Opportunity To S Urrender This Amount Of Rs 7 Cr Rs 5 Cr In The Hands Of M S Welspun Maxsteel Ltd Rs 2 Cr In The Hands Of M S Welspun Syntex Ltd As My Unaccounted Income Generated By Debiting Bogus Expenses And Offer This Amount As My Taxable Income Over Above My Regular Income For The Current Financial Year It Is Further Found That In Its Letter Dt 3 12 2012 The Assessee Made Following Submissions Before The Ao In Answer Of Question No 14 Mr B K Goenka Has Stated That Rs 5 Crores Is An Accommodation Ent Ry In The Hands Of M S Welspun Max Steel And Rs 2 Crores In The Hands Of M S Welspun Syntex Ltd It May Please Be Noted That The Above Referred Two Payments Have Been Debited As Land Development Charges In The Books Of Accounts Of The Respective Compan Ies We Confirm That No Depreciation Has Been Claimed So Far And No Depreciation Will Be Claimed By Any Of The Above Companies On The Above Mentioned Amounts The Balance Tax If Any Will Be Paid By M S Welspun Max Steel In Due Course Of Time If We Go Through The Above Statement Of Bg And The Letter Of The Assessee Dt 3 12 2012 It Becomes Clear That The Bg Had Made The Disclosure Of Rs 5 Crores In The Capacity Of Md Of The Company And That The Assessee Had Promised To Pay Outstanding Taxes The Land De Velopment A C Clearly Proves That Accommodation Entries Were Obtained For Assessee Company Therefore In Our Opinion The Faa Was Not Justified In Reversing The Order Of The Ao In Our Opinion The Ao Had Rightly Made The Disallowance Of The Impugned Sum In The 8 Ita No 5728 Mum 2015 A Y 2011 12 Dy Cit Vs M S Welspun Syntex Ltd Hands Of The Assessee Confirming The Order Of The Ao We Decide Effective Ground Of Appeal In His Favour 13 Since In Identical Situation The Tribunal Has Decided The Issue In Favour Of The Assessee We Set Aside The Order Of The Ld Commissioner Of Income Tax Appeals And Restore The Order Of The Assessing Officer In This Case 14 In The Result Th Is Appeal By The Revenue Is Partly Allowed Order Pronounced In The Open Court On 11 12 2017 Sd Sd Amarjit Singh S Hamim Yahya J Udicial Member A Ccountant Member Mumbai Dated 11 12 2017 Roshani Sr Ps Copy Of The Order Forwarded To 1 The Appellant 2 The Respondent 3 The Cit A 4 Cit Concerned 5 Dr Itat Mumbai 6 Guard F Ile By Order Dy Asstt Registrar Itat Mumbai