DCIT Central Circle-II, Gurgaon vs. Orient Craft Ltd.
Assessment Year: 2013-14
Case Number: ITA 5037/DEL/2019
Appellant: DCIT Central Circle-II, Gurgaon
Respondent: Orient Craft Ltd., New Delhi
Case Filed on: 2019-05-31
Order Type: Final Tribunal Order
Date of Order: 2021-09-24
Pronounced on: 2021-09-24
Case Summary
The Assessee and the Revenue both filed appeals against the Order of Commissioner of Income Tax (Appeals)-III, Gurgaon, dated 30.03.2019. The primary grounds of appeal raised by the Revenue and the Assessee included multiple issues concerning alleged bogus expenses, speculative loss, and other disallowances under the Income Tax Act, 1961.
Revenue’s Grounds of Appeal
Deletion of addition of Rs. 17,992 on account of bogus expenses.
Failure to prove that expenses of Rs. 17,992 were incurred wholly and exclusively for business purposes.
No evidence found during the search to prove that expenses incurred in respect of fabrication job by M/s Aam Bee Clothing were genuine.
Deletion of addition of Rs. 25,58,77,724 made on account of deficit on settlement of forward contracts treated as speculation loss.
Deletion of disallowance of product development expenses amounting to Rs. 11,63,14,122.
Application of Section 14A even if tax-exempt income is not actually earned during the year.
Justification of deletion of addition on account of Section 14A without considering the Supreme Court judgment in CIT v. Rajendra Prasad Moody and Maxopp Investment Ltd.
Illegal nature of CBDT Circular No. 5 of 2014 in the context of Section 14A.
Assessee’s Grounds of Appeal
Jurisdiction assumed under Section 153A was improper.
Impugned assessment order is bad in law.
Disallowance of Rs. 115,28,15,940 on the grounds that the loss did not relate to the year under appeal.
Disallowance of Rs. 1,29,01,751 allegedly on account of bogus expenses with respect to M/s Sai Export.
Disallowance of Rs. 6,41,39,357 allegedly on account of bogus expenses with respect to M/s Shri Ram Exports.
Disallowance of Rs. 10,18,44,865 allegedly on account of bogus purchases from M/s Akansha Fashion and M/s Jindal Fashion.
Disallowance of Rs. 17,87,17,045 allegedly as unexplained transactions on account of bogus purchases from M/s Super Connection.
Disallowance of Rs. 85,656 made u/s 14A without incriminating material found during search.
Charging interest u/s 234B of the Income Tax Act, 1961.
Tribunal’s Findings
The Tribunal examined the evidences and submissions made by both parties extensively. It was observed that the disallowances made by the Assessing Officer (AO) and confirmed by the CIT(A) were not substantiated with sufficient evidence. Additionally, it was found that:
Many of the disallowances were made without incriminating material found during the search.
The disallowances on account of bogus expenses and speculative loss were not justified as per the evidence provided by the Assessee.
The Assessee was able to provide substantial documentary evidence supporting the genuineness of the transactions and expenses incurred.
The Tribunal set aside the impugned appellate order dated 30.03.2019 of the CIT(A) and restored all the issues in dispute in the present appeal to the file of the CIT(A) with directions to pass a fresh appellate order in accordance with law after providing reasonable opportunity to the Assessee.
Conclusion
For statistical purposes, the appeal was treated as partly allowed. The Tribunal emphasized the importance of providing proper opportunities to the Assessee for representing their case and the need for detailed scrutiny of the evidences provided before making any disallowances.
This case highlights the complexities involved in tax litigation, particularly regarding the substantiation of expenses and the importance of thorough investigation and documentation in resolving such disputes.
This article provides a detailed summary of the Tribunal’s order and the key issues involved in the appeal filed by DCIT Central Circle-II, Gurgaon vs. Orient Craft Ltd. for the assessment year 2013-14.
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