2019 (1) TMI 1852 - AT - Income Tax

Bogus purchases - cash sales for less than purchase price for not producing the proof of payment to supplier - HELD THAT - The assessee in his written submission has stated that the supplier is local supplier having registered under the MVAT. The assessee has produced before the Assessing Officer and CIT(A) purchase bills Extract of account quantity statement and nexus with sale bills etc. It is the contention of the assessee in the written submissions that the Assessing Officer disallowed for the reason that no delivery challan and transport receipt were given. The Assessing Officer doubted sales as if cash sales for less than purchase price for not producing the proof of payment to supplier. As perused the case record and written submissions filed by the assessee. Taking into consideration of entirety of facts and circumstances we deem it fit and proper to uphold the disallowance @20% on the said purchases and Assessing Officer is directed to provide appeal effect accordingly. Hence ground No.1 of the appeal is partly allowed. Disallowance of commission payment - CIT(A) on the issue has observed that the commission was claimed by way of journal entry at the end of the year - HELD THAT - We find it is not disputed by the Revenue that broker or so called dalal they have shown income in their return and that the assessee has also deducted TDS on such payments. Taking into consideration of entire facts and circumstances the total disallowance is unjustified and therefore we restrict the disallowance @20% of the total expenses. Hence ground No.2 of the appeal is partly allowed. Addition of interest - interest was paid on the loans taken from the banks and on the other hand no interest was charged on loans given to the sister concerns - HELD THAT - We find that the CIT(Appeals) stated that nexus of interest free funds is not established and funds are inter mixed. The assessee stated in the written submission that working of interest on interest free funds received and interest on interest free funds advances have been submitted before the Ld.CIT(Appeals) - As per the contention of the assessee is that it has got more interest free funds which are more than the interest free advances made to meet the ends of justice we confirm 20% of the said disallowance. Hence ground No. 3 of the appeal is partly allowed.

Summary

Issues Involved:
1. Confirmation of alleged bogus purchases.
2. Disallowance of commission payments.
3. Disallowance of interest on interest-free advances to sister concerns.
4. General grounds for just and equitable relief.
5. Cancellation of interest charged under section 234B.
6. Right to add, amend, alter, modify, and/or withdraw grounds.

Detailed Analysis:

1. Confirmation of Alleged Bogus Purchases:
The assessee, engaged in the business of oil extraction and refining, had shown purchases from a sister concern totaling ?17,41,834/- without providing purchase bills. The Assessing Officer (AO) found these purchases to be bogus due to the lack of evidence and added the amount to the assessee's total income. The CIT(Appeals) confirmed this addition under sections 68 and 37 of the Income Tax Act. The Tribunal, considering the entire facts and circumstances, upheld a disallowance of 20% on the said purchases, thereby partly allowing the first ground of appeal.

2. Disallowance of Commission Payments:
The assessee claimed to have paid commission (dalali) totaling ?15,12,700/- to two individuals through journal entries at the end of the financial year. The AO disallowed 25% of this amount due to lack of detailed basis for the payments. The CIT(Appeals) disallowed the entire amount, noting the payments appeared as an afterthought since TDS was deducted post the financial year. The Tribunal found that the brokers had shown the income in their returns and TDS was deducted, thus restricting the disallowance to 20% of the total expenses, partly allowing the second ground of appeal.

3. Disallowance of Interest on Interest-Free Advances to Sister Concerns:
The AO disallowed ?13,98,527/- as interest on interest-free advances given to sister concerns while the assessee had substantial interest-bearing loans. The CIT(Appeals) upheld the disallowance, stating that the assessee failed to establish a nexus between interest-free funds received and advances made. The Tribunal, considering the assessee's reliance on judicial precedents which state that if interest-free funds exceed interest-free advances, no addition should be made, confirmed 20% of the disallowance, thereby partly allowing the third ground of appeal.

4. General Grounds for Just and Equitable Relief:
The Tribunal found these grounds to be general in nature and did not require specific adjudication.

5. Cancellation of Interest Charged under Section 234B:
This ground was not specifically adjudicated by the Tribunal.

6. Right to Add, Amend, Alter, Modify, and/or Withdraw Grounds:
This ground was also general in nature and did not require specific adjudication.

Conclusion:
The Tribunal partly allowed the appeal of the assessee, confirming partial disallowances while providing relief on certain grounds. The order was pronounced on January 3, 2019.