2017 (5) TMI 1751 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - investment was made in subsidiary company of the assessee-company - HELD THAT - When the investment was made by the assessee-company in its subsidiary company for the purpose of business this Tribunal is of the considered opinion that such investment was only for commercial expediency and it has to be construed as strategic investment - investment made by the assessee was for business purpose. As rightly observed by the CIT(Appeals) the strategic investment made in the subsidiary company cannot be considered for disallowance u/s 14A - This Tribunal is of the considered opinion that the CIT(Appeals) has rightly deleted the disallowance made by the AO u/s 14A - assessee ha not earn any income from the investment. Therefore in view of this the judgment of Madras High Court in Redington (India) Ltd. 2017 (1) TMI 318 - MADRAS HIGH COURT there cannot be any disallowance at all. Bogus purchases - AO disallowed the claim of the assessee only on the ground that the TIN registration was cancelled by State Commercial Tax Department on 22.02.2013 - HELD THAT - AO has not made any independent verification with regard to existence of R.N. Enterprise and Nakoda Agency. It is also not the case of the Revenue that the assessee has no stock as claimed. When the existence of stock or availability of pen pencil gift boxes is not in dispute it shows that the assessee has purchased the same. Merely because R.N. Enterprise and Nakoda Agency engaged itself in the business of sale of pen pencil and gift items after the cancellation of TIN registration by the Commercial Tax Department that cannot be a reason to doubt the purchases made by the assessee. State Commercial Tax Department may proceed further against R.N. Enterprise and Nakoda Agency for doing business even after cancellation of TIN registration - When the availability of purchased items is not in dispute this Tribunal is of the considered opinion that merely because TINs of R.N. Enterprise and Nakoda Agency were cancelled and postal authorities returned the letter sent by State Commercial Tax Department the Assessing Officer is not justified in disallowing the claim of the assessee without independent verification. - Decided in favour of assessee.

Summary

Issues: Disallowance under Section 14A of the Income-tax Act, 1961 and Disallowance of Bogus Purchases

Disallowance under Section 14A of the Income-tax Act, 1961:
The judgment involved three appeals by the Revenue against a common order pertaining to assessment years 2011-12, 2012-13, and 2013-14. The main issue was the disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962. The Departmental Representative argued that the disallowance should be computed as per Rule 8D(2) and not restricted by the CIT(Appeals). The representative for the assessee contended that the investments were made in a subsidiary company for business purposes, not to earn exempted income. The Tribunal considered the submissions and found that for the assessment year 2011-12, the tax effect was below the threshold for appeal. For the subsequent years, since the investments were strategic and for business purposes, the Tribunal upheld the CIT(Appeals) decision to delete the disallowance made by the Assessing Officer under Section 14A of the Act.

Disallowance of Bogus Purchases:
The second issue concerned the disallowance of bogus purchases. The Assessing Officer disallowed purchases from certain dealers based on canceled TIN numbers and lack of physical verification. The assessee argued that despite canceled TINs, purchases were made and goods were received. The Tribunal noted that the Assessing Officer did not independently verify the existence of the dealers and that the goods were received by the assessee. The Tribunal held that the cancellation of TINs did not automatically invalidate the purchases, especially when the goods were physically received. Consequently, the Tribunal confirmed the decision of the lower authority to dismiss the appeals filed by the Revenue.

In conclusion, the Tribunal dismissed all appeals by the Revenue, maintaining the decisions of the lower authorities regarding both the disallowance under Section 14A and the disallowance of bogus purchases.