2014 (11) TMI 646 - AT - Income Tax

Disallowance of loss Losses incurred evidences for suppression of profit present or not - Held that - AO has noted that assessee was asked to justify the claim of loss, which assessee had failed to do - assessee did not produce the books of accounts for examination by AO - even before CIT(A) no material has been placed on record by the assessee to substantiate its claim of loss - It is a fact that in the absence of details the entire gross profit has been disallowed by AO is unjustified thus, the matter is remitted back to the AO for verification Decided in favour of assessee. Addition u/s 68 Assessee furnished full details of loans Held that - CIT(A) rightly found that even the audit report of the assessee does not given any details regarding the amount borrowed the Column regarding amount of loan/deposit taken/accepted the words Our Account are mentioned but there is no mention about the amount accepted apparent that this is only a paper report, otherwise, the figure should have been mentioned - auditor has not at all verified this fact in the circumstances merely on the basis of tax audit report it cannot be accepted that deposits are genuine the order of the CIT(A) is upheld Decided against assessee. Claim of revenue expenses disallowed Held that - Assessee has not produced any material before A.O. or CIT(A) in support of his claim assessee submitted that it had already made the disallowance - Since the submission has not been examined by AO, this factual aspect needs re-examination thus, the matter is remitted back to the AO for ascertaining the factual position Decided in favour of assessee. Claim of claims, rebate & reversal of claim disallowed Claim of writing off disallowed Held that - AO while disallowing the claim has noted that assessee has failed to submit any details or justification about expenditure - CIT(A) has also noted that no details were submitted and whether amounts were ever offered as income or not since the submission related to the precedence was not made before lower authorities by the assessee, the issue needs re-examination thus, the matter is remitted back to the AO Decided in favour of assessee. Disallowance out of interest expenses Held that - Assessee contended that the investments were made out of interest free funds and not borrowed funds - CIT(A) has given finding that assessee does not have any surplus funds - In view of the contrary facts, the factual position needs to be re-examined the matter is remitted back to the AO for verification Decided in favour of assessee. Disallowance on hire charges Held that - the AO held the transaction entered by the Assessee with Blue Bell Finance Co. Ltd. to be non genuine the matter is remitted back to the AO for consideration Decided in favour of assessee.

Issues Involved:

1. Disallowance of loss of Rs. 2,11,82,046/-.
2. Addition of Rs. 1,54,84,837/- under Section 68 of the Income Tax Act.
3. Disallowance of revenue expenses of Rs. 3,10,49,616/-.
4. Disallowance of claims, rebate & reversal of claim of Rs. 3,92,66,819/-.
5. Disallowance of writing off of Rs. 64,504/-.
6. Disallowance of Rs. 2,25,73,649/- out of interest expenses.
7. Disallowance of Rs. 6,20,002/- out of interest expenses on advances.
8. Disallowance of Rs. 5,24,421/- of hire charges.
9. Non-dropping of penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Loss of Rs. 2,11,82,046/-:

During the assessment proceedings, the Assessing Officer (A.O.) observed a drastic fall in the gross profit of the assessee and asked for an explanation. The assessee failed to produce relevant books of account or provide necessary explanations. Consequently, the A.O. treated the gross profit as Nil. The CIT(A) upheld this decision due to the absence of details and non-production of books of accounts. On appeal, the Tribunal noted that the assessee did not substantiate the loss claim before the A.O. or CIT(A). However, since the working of gross profit required examination, the issue was remitted back to the A.O. for verification and re-examination.

2. Addition of Rs. 1,54,84,837/- under Section 68:

The A.O. added Rs. 1,54,84,837/- under unsecured loans as deferred payment credits due to the assessee's failure to file confirmations and substantiate the identity, genuineness, and creditworthiness of the creditors. The CIT(A) confirmed this addition, noting that even the audit report lacked details about the borrowings. The Tribunal upheld the CIT(A)'s decision, as no details or materials were provided by the assessee to support the claim.

3. Disallowance of Revenue Expenses of Rs. 3,10,49,616/-:

The A.O. disallowed the deferred revenue expenses claimed by the assessee, as no substantiating evidence or reasons for allowability were provided. The CIT(A) upheld this disallowance due to the absence of details. On appeal, the Tribunal noted that the assessee claimed to have already disallowed the payment while computing income. Since this factual aspect required re-examination, the issue was remitted back to the A.O. for verification.

4. Disallowance of Claims, Rebate & Reversal of Claim of Rs. 3,92,66,819/-:

The A.O. disallowed the claim of Rs. 3,92,66,819/- as the assessee failed to submit detailed break-up and justification. The CIT(A) upheld this disallowance, noting the absence of details and evidence. The Tribunal remitted the issue back to the A.O. for re-examination in light of the decision of the Apex Court in the case of TRF Ltd., directing the assessee to furnish required details.

5. Disallowance of Writing Off of Rs. 64,504/-:

The A.O. disallowed the amount of Rs. 64,504/- under office expenses due to the absence of details. The CIT(A) confirmed this disallowance. The Tribunal remitted the issue back to the A.O. for re-examination in light of the decision of the Apex Court in the case of TRF Ltd., directing the assessee to furnish required details.

6. Disallowance of Rs. 2,25,73,649/- out of Interest Expenses:

The A.O. disallowed interest expenses on investments in shares of subsidiary companies, considering them non-business expenses under Section 36(1)(iii) and not deductible under Section 14A. The CIT(A) upheld this disallowance. The Tribunal remitted the matter back to the A.O. for re-examination of the factual position regarding the availability of free funds at the time of making investments.

7. Disallowance of Rs. 6,20,002/- out of Interest Expenses on Advances:

The A.O. disallowed interest expenses on interest-free deposits given to corporates and others due to the absence of details about the availability of interest-free funds. The CIT(A) confirmed this disallowance. The Tribunal upheld the CIT(A)'s decision, noting the absence of details and cash flow submissions by the assessee.

8. Disallowance of Rs. 5,24,421/- of Hire Charges:

The A.O. disallowed hire charges paid to Blue Bell Finance Ltd. for plant and machinery, considering the transaction non-genuine based on earlier years' inquiries. The CIT(A) confirmed this disallowance. The Tribunal remitted the matter back to the A.O. with similar directions as in the A.Y. 1999-2000, to decide based on the outcome of the reference petition pending before the Gujarat High Court.

9. Non-dropping of Penalty Proceedings Initiated under Section 271(1)(c):

The Tribunal did not specifically address this issue in the detailed analysis provided.

Conclusion:

The appeal was partly allowed for statistical purposes, with several issues remitted back to the A.O. for re-examination and verification based on the directions provided by the Tribunal.

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