2019 (8) TMI 1772 - AT - Income Tax

Estimation of income - unexplained purchases - HELD THAT - The assessee produced complete details before the authorities below in which no deficiency have been pointed-out. The assessee need not to prove source of the source i.e., purchase made by the purchaser parties i.e., Damor concerns. The assessee also established common practice in Textile Sector in Surat for supply of goods at door step of consumer. Thus, the initial burden upon assessee to prove the genuine purchases have been discharged by assessee. The assessee has fully discharged its onus of proving the purchases by giving names, addresses, confirmation, PAN, bills and invoices, details of payment by account payee cheques, ITRs and Audit reports of its suppliers. Merely because further suppliers to Damor family did not respond to the notice of the assessing officer is no ground to reject the explanation of assessee. Since in the case of assessee no incriminating material was found to prove bogus purchases, therefore, the decision in the case of M/s. N.K. Proteins Limited 2017 (1) TMI 1090 - SC ORDER would not apply. We do not find it to be a fit case where even gross profit rate of 5% be applied against the assessee as per Judgment of Hon ble Gujarat High Court in the case of Mayank Diamonds Pvt. Ltd., 2014 (11) TMI 812 - GUJARAT HIGH COURT - In view of the above discussion, we set aside the Orders of the authorities below and delete the entire addition. - Decided in favour of assessee. Disallowance u/s 14A - AO disallowed proportionate interest expenses under Rule 8D - assessee submitted before assessing officer that there is no exempted income earned during the year and, therefore, the disallowance made by the assessing officer is wholly erroneous - HELD THAT - It is clear that since assessee has not earned any exempt income during assessment year under appeal, therefore, there is no question of applicability of provisions of Section 14A of the I.T. Act in the matter. Similarly, in the case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT held that when no exempt income received or receivable in assessment year under appeal, no disallowance under section 14A is required. In view of the above legal proposition, we set aside the Orders of the authorities below and delete the entire addition. - Decided in favour of assessee. Disallowance on account of claims of bad debts - HELD THAT - It is not in dispute that the amount in question claimed as bad debt is written-off as irrecoverable in the accounts of the assessee. Therefore, issue is covered by the Judgment of Hon ble Supreme Court in the case of TRF Limited 2010 (2) TMI 211 - SUPREME COURT . In view of the facts explained by Learned Counsel for the Assessee which are not controverted by Ld. D.R. in the light of Judgment of Hon ble Supreme Court in the case of TRF Limited (supra), we set aside the Orders of the authorities below and delete the entire addition.

Summary

Issues Involved:
1. Addition on account of unexplained purchases.
2. Disallowance under section 14A of the Income Tax Act.
3. Disallowance of bad debts.
4. Addition on account of advances received from customers.

Issue-wise Detailed Analysis:

1. Addition on Account of Unexplained Purchases:

The assessee challenged the addition of ?38.81 crores made by the Assessing Officer (AO) on account of unexplained purchases from the Damor family. The AO had treated these purchases as bogus based on the survey findings and the non-appearance of the Damor family before the AO. The CIT(A) upheld this addition citing the judgment in N.K. Proteins Limited, which allowed 100% disallowance of bogus purchases. However, the Tribunal, considering the detailed submissions and evidence provided by the assessee, including confirmations from the Damor family, payments through banking channels, and the fact that the purchases were part of the exported goods, ruled in favor of the assessee. The Tribunal emphasized the absence of any evidence showing that the purchase money was returned to the assessee and noted that the books of account were not rejected by the authorities. Consequently, the Tribunal deleted the entire addition.

2. Disallowance Under Section 14A of the Income Tax Act:

The AO disallowed ?2,24,741/- under section 14A, which was confirmed by the CIT(A), despite the assessee not earning any exempt income during the year. The Tribunal referred to the judgments of the Hon'ble Supreme Court in Chettinad Logistics Pvt. Ltd. and the Hon'ble Gujarat High Court in Corrtech Energy Pvt. Ltd., which held that section 14A cannot be invoked where no exempt income is earned. Based on these judgments, the Tribunal set aside the orders of the lower authorities and deleted the disallowance.

3. Disallowance of Bad Debts:

The AO disallowed the assessee's claim of bad debts amounting to ?2,57,30,902/-, considering them as government liabilities and questioning the steps taken for recovery. The CIT(A) partly allowed the claim, reducing the disallowance to ?1,21,25,273/-. The Tribunal, however, found that the assessee had written off the bad debts in the books of account and referred to the Supreme Court judgment in TRF Limited, which held that it is sufficient if the bad debt is written off as irrecoverable in the accounts. Consequently, the Tribunal deleted the entire disallowance of bad debts.

4. Addition on Account of Advances Received from Customers:

The AO added ?29,17,91,322/- as advances from customers, suspecting them to be unexplained. The CIT(A) called for a remand report, and the AO verified the details provided by the assessee, including the export invoices against the advances. The CIT(A), after verification, found the claim of the assessee to be correct and deleted the entire addition. The Tribunal upheld the CIT(A)'s decision, noting that the AO had verified the facts and found no discrepancies.

Conclusion:

The Tribunal allowed the assessee's appeal on all grounds, deleting the additions and disallowances made by the AO and confirmed by the CIT(A) where applicable. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition on account of advances received from customers. The final order pronounced in the open court concluded with the assessee's appeal being allowed and the Revenue's appeal being dismissed.