IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri K.Narsimha Chary, Judicial Member ITA No.906/Kol/2013 Assessment Years:2009-10 ITO Ward-7(2) M/s UMV Tele Link P-7, Chowringhee 207, Chittaranjan Avenue, V/s. Square, 5 t h Floor, Kolkata-700 006 Kolkata-700 069 [PAN No.AAACW 2606 B] Appellant .. Respondent By Appellant Shri R.P.Nag, Addl-CIT-DR By Respondent Shri Subash Agarwal, Advocate Date of Hearing 15-09-2016 Date of Pronouncement 19-10-2016 O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by Revenue is against order of Commissioner of Income Tax (Appeals)-VIII, Kolkata dated 22.02.2013. Assessment was framed by ITO Ward- 7(2), Kolkata u/s 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act ) vide his order dated 30.12.2011 for assessment year 2009-10. grounds raised by Revenue per its appeal are as under:- 1. That Ld. CIT(Appeals)-VIII, Kolkata has erred in facts in deleting addition made by Assessing Officer for Rs.19,15,540.00 on account of inflated purchase. 2. For that facts and in circumstances of case Ld. CIT(A) is not correct by deleting addition made by AO for Rs.34,528.00 on account of inflated purchase. 3. For that in facts and in circumstances of case Ld. CIT(A) is not correct by deleting addition made by AO for Rs.8,75,753.00 on account of bogus purchase. ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 2 4. For that in facts and in circumstances of case Ld. CIT(A) is not correct by deleting addition made by AO for Rs.5,25,577/- on account of concealment of income. 5. For that in facts and in circumstances of case Ld. CIT(A) is not correct by deleting addition made by AO for Rs.4,326.00 on account of concealment of income. 6. For that in facts and in circumstances of case Ld. CIT(A) is not correct by deleting addition made by AO for Rs.1,17,494.00 on account of disallowance u/s. 14D read with Rule-8D inflated purchase. Shri R.P.Nag, Ld. Departmental Representative appeared on behalf of Revenue and Shri Subash Agarwal, Ld. Authorized Representative appeared on behalf of assessee. 2. Facts in brief as culled out from order of Authorities Below and relevant records are that assessee, Private Limited Company and engaged in distribution business of mobile phone connection and mobile phones. assessee for year under consideration has filed its return of income dated 25.09.2009 declaring total income of 4,97,425/- comprising of business income only. Thereafter, case was selected for scrutiny and accordingly notices u/s 143(2)/142(1) was issued upon assessee on different dates. assessment was framed on 31.12.2011 at total income of 40,12,513/- after disallowing / making additions of various expenses claimed by assessee which have been discussed in aforesaid grounds of appeal. 3. first issue raised by Revenue is that Ld. CIT(A) erred in deleting addition made by Assessing Officer for 19,15,540/- on account of inflated purchase. 4. assessee, during year has made purchase transactions from M/s Vodafone Essar South Limited (VESL for short). During course of assessment proceedings, AO issued notice u/s. 133(6) of Act to VESL for confirmation of said transactions. In response to said notice, VESL submitted that goods worth of 3,01,93,940/- had been sold to assessee. However, as per assessee, purchased amount was shown at amount of 3,21,16,059.87 which was subsequently reduced to 302,00,519.78 by assessee. AO observed that assessee has made its submission to reduce gap between amount of purchase shown by it ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 3 and shown by VESL. As per AO, actual purchase of 321,16,059.87 which is excess by 19,22,120/- being difference between amount shown by assessee and shown by VESL. Accordingly, AO disallowed difference amount of Rs. 19,22,120.00 and added to total income of assessee. 5. Aggrieved, assessee preferred appeal before Ld. CIT(A) where it was submitted total purchase is at 16,96,93,049.00 which is tallying from audited profit and loss a/c. There was no difference in total amount of purchase but while submitting details to AO at time of assessment proceedings wrong figure has been given by mistake. assessee further submitted that purchase made from other parties were included in list of purchase from VESL. details of purchases from other parties stand as under:- Sl.No Name of party Amount (Rs) 1 Tata Enterprise 960665.22 2 Hutchison Max Paging Pvt. Ltd 875752.95 3 Hutchison Max Paging (P)Ltd transfer of 71217.76 stock from H.O. to Asansol only difference is only of 6579.78. assessee further submitted that all details as mentioned aforesaid were submitted at time of assessment. Ld. CIT(A), accordingly restricted addition to 6579.78 and deleted excess amount of addition by observing as under:- I have gone through records and papers submitted by appellant. I am of view that non acceptance of reconciled or revised statement submitted by appellant during curse of scrutiny proceeding amounts to denial of natural justice to appellant. I do not agree with view of Assessing Officer that revision of submitted papers are attempts to bridge gap in purchase figure given by said party and purchase figures submitted by appellant at initial stage of scrutiny proceedings and finally lowering its purchase figure. I fully agree with contention of appellant that all revised statements are fully reflected in books of account and by denying acceptance of revised figure submitted by verified by AO and by denying acceptance of revised figure submitted by appellant and making unwarranted additions while said revised details furnished by appellant could have been again verified by AO from said books of account and by not dong that injustice was done to appellant. I have also gone through appellant s submitted by appellant in form of papers book. From those figures it can only hold that there is only minor difference of Rs.6579.78 ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 4 (Rs.30200519.78 Rs.301933940) which Assessing Officer could have added had he gone through records and details submitted by appellant. In view of above discussion and finding, I hereby direct Assessing Officer to delete Rs.19,15,540/- (i.e. Rs.19,22,120/- - Rs.6580/-) out of Rs.19,22,120/- added by him in returned income. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 6. Before us Ld. DR requested before Bench to restore mater back to file of AO for further adjudication as per law. On other hand, Ld. AR filed paper book which is comprising of pages 1 to 94 and submitted that purchases made from other parties were wrongly included in purchase list of VESL. assessee in support of his contention has submitted copies of ledger of all purchase parties which are placed on pages from 50 to 57 of paper book. ld. AR raised no objection if file is restored back to AO for fresh adjudication. Ld. AR relied on order of Ld. CIT(A). 7. We have heard rival contentions and perused materials available on record. From foregoing discussion, we find that assessee has submitted details of purchase from VESL which was not matching with sales shown by VESL. assessee submitted reconciliation and explained that difference is arising mainly due to names of other parties included in list of purchase from VESL. Therefore in interest of justice and fair play we are inclined to restore matter to file of AO. Needless to add that any materials, adverse to assessee, will have to be confronted to assessee by AO, and that, in case AO intends to pass any fresh order as result of these directions, he will do so only after giving due and fair opportunity of hearing to assessee, in accordance with law and by way of speaking order. Hence, this ground of Revenue s appeal is allowed for statistical purpose in terms of above. 8. second issue raised by Revenue is that Ld. CIT(A) erred in deleting addition made by Assessing Officer for 34,528/- on account of inflated purchase. ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 5 9. Assessee during year has shown purchases from M/s Hutchison Max Paging Pvt. Ltd. (HMPPL for short) from Kolkata Zone for 24,45,113.47. However, HMPPL has shown sales in its books of account for 23,10,585/-. AO observed difference of 34,528/- and treated same as inflated purchase as shown by assessee which was added to total income of assessee. 10. Aggrieved, assessee preferred appeal before Ld. CIT(A) whereas assessee submitted that actual purchase shown by assessee was of 23,10,585/- and assessee has reduced its purchase by amount of 18677.85 and 15850/- (total 34,528/-) on account of claimed by assessee from HMPPL. Ld. CIT(A), accordingly, deleted addition made by AO by observing as under:- appellant further clarified that during course of relevant year, it made claims of Rs.18677.85 on and Rs.15850.95. total amount of said claim was Rs.34528.80. said claim arose due to defective material supplied by said party on 2nd July 2008 and on 25th September 2008 respectively for aforesaid amounts. party ultimately accepted claim and extended discount. appellant contended that it debited said amount to purchase account. From said detail and accounting, it is seen that appellant has not inflated its purchase from Hutchison Max paging (P) Ltd by Rs.34528.80 but has duly accounted for said amount in its income by deducting said figure from amount of total purchase along with other adjustments. Under circumstances, I find that said addition is without any substance and hence I direct Assessing Officer to delete said amount of Rs.34528/- Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 11. Before us Ld. DR submitted that Ld. CIT(A) has granted relief to assessee after considering claim filed by assessee to HMPPL for 34528/-. However this claim was not accounted for in books of account and he requested Bench to restore issue back to file of AO for fresh adjudication. On other hand, Ld. AR drew our attention on page 58 of paper book where reconciliation statement was placed for difference shown between assessee and HMPPL and he relied on order of Ld. CIT(A). 12. We have heard rival contentions and perused materials available on record. From facts, we find that assessee has made claim of 34,528/- on ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 6 02.07.2008 and 25.07.2008 respectively and these claimed were duly reduced from amount purchased. However, Ld. AR did not bring anything on record with regard to claim made by assessee. Therefore, in interest of justice and fair play we are inclined to restore matter back to file of AO for fresh adjudication as per law with direction to check whether claim made by assessee has been accounted for in books of account. Hence, this ground of Revenue is allowed for statistical purpose. 13. Third issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting addition made by AO for 8,75,753/- on account of bogus purchase. 14. assessee has shown purchase from Hutchison Max Paging (P) Ltd (Asansol claim Account) for 8,75,753/-. However, AO found that there is no sales made by Hutchison Max Paging (P) Ltd. (Asansol) in response to notice issued u/s. 133(6) of Act. Accordingly, AO held transactions of purchase for 8,75,753/- as bogus and added to total income of assessee. 15. Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted addition made by AO by observing as under:- appellant submitted that during curse of its business, it receives various amounts as incentives on achieving specified target set by parties. said incentives are inform of cash and also in kind by way of free delivery of products mainly telephone handsets. incentives given in kind form as called R C Coupon . appellant received total amount of such R C Coupon for Rs.943491.49 from Hutchison Max paging (P) limited during relevant year. amount of aid R C Coupon were debited to purchase account. Out of said R C Coupon converted into mobile handsets, handsets of two values amounting to Rs.46380.82 and Rs.21357.72 totaling Rs.67738.54 were returned to said party leaving sum of Rs.875752.95 being debited to purchase account. It further clarified that as appellant was not required to pay said amount for which he received handsets for free as incentive, amount was credited to commission account. However, party did not account for this amount to its sale to appellant because same was give to appellant for free. This is only due to this accounting difference that prompted AO to add said amount to returned income of appellant. appellant also submitted details of such RC Coupon received and detail of commission where said amount is included. ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 7 In view of above, and after carefully considering submission and said detail, I find that appellant has accounted for this amount of Rs.8,75,753/- by including this in its purchase figure on one side and correspondingly included same in commission on income side. As such I do not find this to be case of concealment of income and hence direct Assessing Officer to delete said addition of Rs.8,75,753/- from assessed income. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 16. Before us Ld. DR vehemently relied on order of AO where as Ld. AR relied on order of Ld. CIT(A). Ld. AR before us submitted that Hutchison Max Paging (P) Ltd. has given incentive to assessee which has been included in commission income as per Schedule-12 of profit and loss account which is placed on page 9 of paper book. M/s Hutchison Max Paging (P) Ltd. has given this commission in form of kind by giving free products which were treated as purchase in books of account of assessee in order to maintain stock register. 17. We have heard rival contentions and perused materials available on record. From facts we find that assessee has shown incentive received in kind as purchase with sole purpose and maintaining quantitative details of stock. At same time assessee has credited commission amount by amount of incentive received in form of free products. However, assessee before us has not demonstrated by producing details of commission shown by assessee. Therefore, in interest of justice and fair play we are inclined to restore back this issue to file of AO for fresh adjudication as per law with direction to check whether products received in form of incentive at free of cost has been duly accounted for in purchase and in correspondence commission account simultaneously. free produces should have also been included in stock register maintained by assessee. Hence, this ground of Revenue is allowed for statistical purpose. 18. Both inter connected Fourth and fifth issues raised by Revenue is that Ld. CIT(A) erred in deleting addition made by AO for 5,25,577/- and 4,326/-on account of concealment of income. ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 8 19. assessee, during year, has shown income of 19,66,346/- as commission from Vodafone Essar East Ltd. but AO found from AIR information that assessee has received commission income for 24,91,923/-. Accordingly, AO has observed difference of 5,25,577/- which was added to total income of assessee. Similarly commission income was received as per AIR for Rs. 39,326.00 from TATA Tele Services Limited but assessee has shown for Rs. 35,000.00 only. Accordingly there was understatement of income for Rs. 4,326.00 which was added to total income of assessee. 20. Aggrieved, assessee preferred appeal before Ld. CIT(A) where reconciliation statement for justifying difference of Rs. 5,25,577.00 was submitted as under:- Total amount credited/paid by Vodafone Rs.2810459/- Essar East Ltd. during FY 08-09 Less: Service tax included in said Rs.305195/- amount but credited to separate account by appellant as service tax collection is not income but liability Rs.2505264/- Less: Amount of income u/s. 194A Rs.36049/- Rs.2469215/- Less: Income included in preceding AY Rs.176637/- i.e. 08-09 by appellant but shown in A.Y 09-10 buy said party Income included in preceding AY i.e. Rs.170805/- Rs.347442/- 08-09 by appellant but sown in A.Y. 09-10 by said party Rs.2121773/- Less: Income included in succeeding AY Rs.48521/- i.e. 10-11 by appellant but shown in AY 09-10 by said party Income included in succeeding AY i.e. Rs.106906/- Rs.155427/- 10-11 by appellant but shown in AY 09-10 by said party Amount of income shown by Rs.1966346/- appellant in return for AY 09-10 ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 9 Similarly assessee submitted that difference of Rs. 4,326.00 is nothing but representing amount of service tax charged @12.36% over and above Rs. 35,000/- ld. CIT(A) accordingly deleted addition made by AO for Rs. 5,25,577.00 by observing as under : On going through statement and supporting documents furnished by appellant, I do not find any anomalies sin contention of appellant. I am also of view that Assessing Officer did not apply his mind in instant case particularly to fact that service tax collections are not credited to income but are credited to separate account according to accounting standards, even though tax is required to be deducted by payers on service tax components. appellant has also proved its case of inclusion of above two amounts of Rs.1,76,637/- and Rs.1,70,805/- in assessment year 2008-09 and also inclusion of two amounts of Rs.48,521/- and R.1,06,906/- in AY 2009-10 according to date of invoices and accounting procedure being followed by appellant. Thus, it is clearly evident that AO while framing assessment order had made additions with prejudiced mind without applying principles of justice and in process ignored all facts, explanations and supporting documents submitted by appellant. In view of this, I hereby direct Assessing Officer to delete said addition of Rs.5,25,577/- made by him from assessed income. ld. CIT(A) accordingly deleted addition made by AO for Rs. 4,326.00 by observing as under : In this regard it is observed that AO made addition of Rs.4326/- on ground similar to one referred to in para 5.4 above. In this case also Income paid/credited by Tata Tele Services Ltd as per Form 26AS was Rs.39326/- whereas appellant had shown only Rs.35000/- as income. appellant submits that Rs.4326/- presents amount of service tax collected from party @ 12.36% which does not form part of income of service provider i.e appellant in this case. As stated above in immediately preceding paragraph that service tax component is not part of income of service provider, I hereby direct Assessing Officer to delete said addition of Rs.4326/- from income assessed by him. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 21. Before us both parties relied on order of Authorities Below as favourable to them. Before us Ld. AR submitted that income of 347442.00 was ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 10 offered to tax in AY 2008-09 and in support of its claim has submitted copy of ledger which is placed on page 87 of paper book. Similarly commission income of 1,55,427/- was shown in AY 2010-11 and therefore as such there was no concealment of income. 22. We have heard rival contentions and perused materials available on record. At outset, both parties agreed to restore this issue back to file of AO for fresh adjudication. Therefore, in interest of justice and fair play we are inclined to restore matter back to file of AO for fresh adjudication as per law with direction to check whether claim made by assessee has been accounted for in books of account. Hence, both ground of Revenue is allowed for statistical purpose. 23. Last issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting addition made by Assessing Officer for 1,17,494/- u/s 14A r.w.s Rule 8D of IT Rules, 1962. 24. assessee, during year has received dividend income of 35,290/- which was claimed as exempted income. But assessee did not make any disallowance. Therefore, AO has invoked provision of Rule 8D of IT Rules, and made disallowance of 1,52,784/- in aggregate. 25. Aggrieved, assessee preferred appeal before Ld. CIT(A) who gave partly relief to assessee by observing as under:- There is no denying of facts that Rule 8D of Income Tax Rules 1962 suffers from various controversies and ambiguities. From judgments cited above, it is noted that amount of disallowance cannot exceed amount of exempt income when separate books of account for exempt and non exempt income are not kept or where Assessing Officer fails to find nexus between any direct expenses incurred by assessee for earning any particular exempt income. In view of same I consider that disallowing amount of Rs.1,52,784/- calculated by applying Rule 8D for exempt dividend income of Rs.35,290/- is unjustified especially in light of various controversies surrounding blanker application of Rule 8D. Hence, I direct Assessing Officer to restrict disallowance of Rs.35,290/- i.e. to extent of ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 11 exempt income and delete balance Rs.1,17,494/- (Rs.1,52,784/- - 35,290/-) from income assessed by him. Thus, this ground of appeal is partly allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. Before us ld. DR vehemently supported order of AO and on contrary ld. AR submitted that no borrowed fund has been utilized in making investment. ld. AR in support of his claim has drawn our attention on page 2 of paper book where audited balance sheet of assessee is placed. Therefore question of making disallowance of interest does not arise. ld. AR has cited case of CIT Vs. HDFC Bank Ltd. 366 ITR 505 in support of its claim. ld. AR relied in order of ld. CIT(A). 26. We have heard rival contentions and perused materials available on record. At outset we find that it is duty of assessee to demonstrate whether investment of in share capital is made out of borrowed fund or owned fund. From balance sheet of assessee we find that there is sufficient owned fund available to assessee for making investment. But it is not clear whether owned fund was invested or borrowed fund. In this connection we rely in case of Dhanuka & Sons Vs. CIT 12 taxmann.com 227 where Jurisdictional Hon ble High Court of Calcutta has held as under : Section 14A of Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income - Assessment year 1998-99 - Assessee earned dividend income apart from income from trading in share, interest and commission - Assessee claimed deduction of interest payment - Assessing Officer disallowed interest on proportionate basis alleging that part of it related to dividend income which is exempt under section 10(34) - Assessee submitted that for last few years before relevant previous year, no new share had been acquired and, thus, loan that was taken and for which interest was payable by it was not for acquisition of those old shares and, therefore, authorities below erred in law in not allowing deduction of interest - Whether mere fact that shares were old ones and not acquired recently was immaterial; it was for assessee to show by production of materials that those shares were acquired from funds available in its hand at relevant point of time without taking benefit of any loan - Held, yes - Whether since no such material was produced by assessee, authorities below had rightly disallowed proportionate amount of interest having regard to total income and income from exempt source - Held, yes ITA No.906/Kol/2013 A.Y.2009-10 ITO Wd-7(2) Kol. vs. M/s UMV Tele Link Page 12 We also find that ld. DR has not brought anything on record to show whether borrowed fund has been utilized for investment. Therefore in interest of justice & fair play we are inclined to restore issue to file of AO for fresh adjudication as per law with direction to check whether borrowed fund has been utilized in investment of shares. In view of above ground of appeal of Revenue is allowed for statistical purposes. 27. In result, Revenue s appeal stands allowed for statistical purpose. Order pronounced in open court on 19/10/2016 Sd/- Sd/- (K.Narsimha Chary) (Waseem Ahmed) Judicial Member Accountant Member *Dkp, Sr.P.S - 19/10/2016 Kolkata Copy of Order Forwarded to:- 1. Appellant-ITO Ward-7(2), P7 Chowringhee Square, 5th Floor, Kol-69 2. Respondent-M/s UMV Tele Link, 207, Chittaranjan Avenue, Kolkata-06 3. Concerned CIT 4. - CIT (A) 5. , DR, ITAT, Kolkata 6. Guard file. /True Copy/ By order/ / , ITO Ward-7(2), Kolkata v. M/s UMV Tele Link