ITXA1298_17.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1298 OF 2017 Principal Commissioner of Income Tax-3 Appellant Vs. Shapoorji Pallonji & Co. Ltd. Respondent Mr. A. R. Malhotra for Appellant. Mr. Porus F. Kaka, Senior Advocate a/w. Mr. Divesh Chawla i/b. Mr. Atul K. Jasani for Respondent. CORAM : UJJAL BHUYAN, MILIND N. JADHAV, JJ. DATE : MARCH 04, 2020 P.C. : Heard Mr. Malhotra, learned counsel for appellant and Mr. Kaka, learned senior counsel assisted by Mr. Chawla and Mr. Jasani, learned counsel for respondent - assessee. 2. This appeal has been preferred by Revenue under Section 260- of Income Tax Act, 1961 (briefly 'the Act' hereinafter) assailing order dated 28.09.2016 passed by Income Tax Appellate Tribunal, 'E' Bench, Mumbai ('the Tribunal' for short) in I.T.A.Nos.5768/Mum/2013 and 5304/Mum/2013 for assessment year 2010-11. 3. appeal has been preferred projecting following questions as substantial questions of law: "1. Whether on facts and in circumstances of case and in law, Tribunal was justified in upholding decision of Commissioner in restricting disallowance made under Section 14A of Act to Rs.10,00,000.00 giving relief of Rs.2,38,71,710.00 without appreciating fact that disallowance was worked out as per Rule 8D of Income Tax Rules, 1962 read with Section 14A of Act? 2. Whether on facts and in circumstances of case and in law, Tribunal was justified in upholding decision of Commissioner in deleting disallowance of Rs.7,38,98,631.00 under Section 36(1)(iii) of Act without appreciating fact that interest bearing funds were advanced for non business purpose? 1/6 Uploaded on - 11/03/2020 Downloaded on - 14/03/2020 16:44:34 ITXA1298_17.doc 3. Whether on facts and in circumstances of case and in law, Tribunal was justified in upholding decision of Commissioner in deleting disallowance under Section 14A and foreign exchange fluctuations to book profit under Section 115JB of Act ignoring decisions of Tribunal in case of ITO Vs. RBK Share Broking Pvt. Ltd., 37 Taxmann 128 (2013), M/s. Viraj Profiles Limited in ITA No.4439/Mum/2013 dated 21.10.2015 - 46 ITR (T) 626 and in Ferani Hotels Pvt. Ltd. in ITA No.857/Mum/2013 dated 17/11/2014? 4. Whether on facts and in circumstances of case and in law, Tribunal was justified in deleting addition of Rs.3,32,867.00 relating to bogus purchases without appreciating fact that addition was made on basis of statement given before Sale Tax Department by proprietors of M/s. Nutan Metal and M/s. Kant Enterprises who have submitted that they have neither purchased nor sold goods and have issued fake bills for amount received by cheque and have returned these amounts in cash?" 4. In respect of question No.1 initial submission of Mr. Malhotra was that identical question was admitted for hearing by this Court vide order dated 05.12.2017 in Income Tax Appeal No.1195 of 2015 in case of assessee itself for assessment year 2009-10. However, Mr. Kaka has pointed out that because of low tax effect being below prescribed limit under relevant CBDT Circular, said appeal was dismissed as withdrawn. Moreover, he submits that in case of assessee itself for assessment year 2008-2009 being Income Tax Appeal No.1843 of 2016, this Court by order dated 06.03.2019 declined to admit identical question framed. 5. However, Mr. Malhotra submits that while declining to admit above question, this Court did not take into consideration decision of Supreme Court in Maxopp Investment Limited Vs. CIT, 402 ITR 640 and also did not apply principle of apportionment in terms of Rule 8D(2) of Income Tax Rules, 1962 (briefly 'the Rules' hereinafter). 6. On thorough consideration we find that principle of apportionment does not arise in this case as jurisdictional facts have not been pleaded by Revenue. In fact Tribunal while affirming 2/6 Uploaded on - 11/03/2020 Downloaded on - 14/03/2020 16:44:34 ITXA1298_17.doc order of first appellate authority noted that first appellate authority had deleted addition made by assessing officer under Section 14-A of Act by observing that interest-free fund available with respondent - assessee was far in excess of advance given. Tribunal further noted that Revenue does not dispute said finding and relying on decision of this Court in CIT Vs. Reliance Utilities and Power Limited, 313 ITR 340, affirmed deletion made by first appellate authority. 7. We have perused decision of this Court in Reliance Utilities and Power Limited (supra) wherein it has been held that if there are funds available with assessee, both, interest-free and overdraft and / or loans taken then presumption would arise that investments would be out of interest-free funds generated or available with assessee if interest-free funds were sufficient to meet investments. In facts of that case, it was noted that said presumption was established considering finding of fact returned by first appellate authority as affirmed by Tribunal which is identical in present case. 7.1. We also note that said decision of this Court has been affirmed by Supreme Court in CIT Vs. Reliance Industries Limited, 410 ITR 466. 8. In light of above, we do not find any good ground to entertain this question for consideration. 9. In so far question No.2 is concerned, same relates to deletion by first appellate authority of disallowance made by assessing officer by invoking provisions of Section 36(1)(iii) of Act. We find that this question is intertwined with question No.1. We also find that this issue was raised by Revenue in case of assessee itself in Income Tax Appeal Nos.766 and 820 of 2016 before this Court decided on 04.12.2018. In that decision, this Court referred to 3/6 Uploaded on - 11/03/2020 Downloaded on - 14/03/2020 16:44:34 ITXA1298_17.doc finding of first appellate authority as affirmed by Tribunal that respondent / assessee had not utilized interest bearing borrowed funds for making such interest-free advances. Respondent - assessee had its own interest-free fund far in excess of interest-free advance. This being pure question of fact, it was held that no question of law arises therefrom. 9.1. Following above, we decline to admit question No.2 for consideration. 10. In so far question No.3 is concerned, we find that in paragraph 9 of order dated 28.09.2016, Tribunal followed decision of Supreme Court in CIT Vs. Woodward Governor India Pvt. Ltd., 312 ITR 254 declaring that it is now settled proposition of law that loss arising on account of valuation of outstanding liabilities / receivables cannot be considered as notional loss. Therefore, Tribunal held that first appellate authority had rightly set aside addition made by assessing officer. 11. Regarding adjustments made in book profit under Section 115JB of Act following disallowance made under Section 14A of Act on account of foreign exchange fluctuations, Tribunal held that since it had upheld order of first appellate authority deleting additions made under Section 14A of Act, contention of Revenue needed to be turned down. 12. In present decision, we have also affirmed finding of Tribunal affirming deletion of disallowance made under Section 14A of Act. Since disallowance under substantive provision have been interfered with, question of consequential adjustments in book profit under Section 115JB of Act does not arise. 13. In view of above, we are also not inclined to entertain this question as framed by Revenue for consideration. 4/6 Uploaded on - 11/03/2020 Downloaded on - 14/03/2020 16:44:34 ITXA1298_17.doc 14. This brings us to last question framed by Revenue, which is deletion by Tribunal of amount of Rs.3,32,867.00, addition of which was made by assessing officer under Section 69-C of Act as bogus purchases. 15. From assessment order, we find that assessing officer had noted that respondent - assessee had made purchases of Rs.3,23,944.00 and Rs.8,923.00 from M/s. Kant Enterprises and M/s. Nutan Metals respectively. Assessing officer further noted that information was received from Sale Tax Department, Government of Maharashtra that above two parties had not actually sold any material to respondent - assessee. Accordingly, show cause notice was issued to respondent - assessee to furnish details relating to above purchases. In response to show cause notice, respondent - assessee furnished copies of bills and entries made in its books of accounts relating to such purchases pertaining to glass mosaic tiles from M/s. Kant Enterprises and stainless steel top railing from M/s. Nutan Metals. However, assessing officer vide his assessment order dated 31.01.2013 held that there was no actual purchase of goods by respondent - assessee and accordingly aforesaid two amounts totalling Rs.3,32,867.00 was disallowed and consequently added to total income of respondent - assessee. 16. Though first appellate authority did not interfere with order passed by assessing officer, contention of respondent - assessee that copy of statement made by M/s. Kant Enterprises before Sales Tax Department, Government of Maharashtra was not made available to respondent - assessee though copy of statement made by M/s. Nutan Metals was made available, was recorded. 17. On further appeal before Tribunal by respondent - assessee, Tribunal held as under: 16. Having heard rival submissions, we are of view that there is merit in submissions made by assessee. We 5/6 Uploaded on - 11/03/2020 Downloaded on - 14/03/2020 16:44:34 ITXA1298_17.doc notice that AO has simply relied upon Sales Tax Department report about suspicious dealers, without making independent inquiries. On contrary, assessee has furnished all materials to prove genuineness of purchases and AO has failed to show that those materials were bogus. Under these set of facts, we are of view that there is no justification in doubting genuineness of purchases made by assessee. Further, these alleged bogus purchases forms minor fraction of total volume of assessee company and it is stated that there is no day to day involvement of management. It was further submitted that assessee is having strict internal controls. Hence we are of view that AO has not made proper ground in support of disallowance. Accordingly we set aside order passed by Ld. CIT (A) on this issue and direct AO to delete addition of Rs.3,23,944/-. 18. Thus, we find that according to Tribunal assessing officer had merely relied upon information received from Sales Tax Department, Government of Maharashtra without carrying out any independent enquiry. Tribunal had recorded finding that assessing officer had failed to show that purchased materials were bogus and held that there was no justification to doubt genuineness of purchases made by respondent - assessee. 19. We are in agreement with views expressed by Tribunal. Merely on suspicion based on information received from another authority, assessing officer ought not to have made additions without carrying out independent enquiry and without affording due opportunity to respondent - assessee to controvert statements made by sellers before other authority. Accordingly, we do not find any good ground to entertain this question for consideration as well. 20. Consequently, we find no merit in appeal preferred by Revenue. Appeal is dismissed. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) Minal Parab 6/6 Uploaded on - 11/03/2020 Downloaded on - 14/03/2020 16:44:34 Principal Commissioner of Income-tax-3 v. Shapoorji Pallonji & Co. Ltd