9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (3) TMI 1180 - AT - Income TaxAddition u/s 14A - Held that - The assessee company had share capital and reserves of 10.31 crores as against investment of 20, 00, 000/- at the year end. The CIT(A) has held that if the assessee s capital reserves surplus and current account deposits are higher than cost of tax free investments it has be presumed that the said investment is made by the assessee out of interest free funds. The CIT further held that if the funds are available both interest free and interest bearing then a presumption would arise that the investments made out of interest free funds generated or available with the company and if the interest free funds are sufficient to meet the investment then there is no need of disallowing any interest. We find that before A.O. and CIT(A) the Assessing Officer has not given any working of expenditure in relation to earning of such exempt income with any supporting evidences. Therefore the A.O. has applied of Rule 8D of the Income Tax Act and worked out the expenditure for earning the exempt income i.e. 23, 685/-. We find that CIT(A) has restricted disallowance upto 10, 669/-. In the result the appeal of the assessee is dismissed. Addition on account of bogus purchase - GP addition - Held that - Considering the decision of the Hon ble Mumbai Bench of ITAT in the case of Madukant B. Gandhi (2010 (2) TMI 1211 - ITAT MUMBAI ) and the approx. average GP of 5% declared by the appellant it is held that the net addition sustained in this case would be 12.5% as per Simit Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) 5% - 7.5%.
Issues Involved:
1. Applicability of CBDT Circular No. 21/2015 to Revenue’s appeal. 2. Disallowance under Section 14A. 3. Addition on account of bogus purchases. Issue-wise Detailed Analysis: 1. Applicability of CBDT Circular No. 21/2015 to Revenue’s appeal: At the outset, the AR pointed out that the CBDT Circular No. 21/2015 dated 10/12/2015 has revised the monetary limits for filing of appeals by the Department before the Tribunal retrospectively. The tax effect in dispute in the captioned appeal is below the monetary limit of ?10.00 lacs specified in the said CBDT Circular. The Departmental Representative did not provide any material to suggest that the appeal is protected by any of the circumstances prescribed in Para-8 of the Circular. Therefore, the appeal is deemed to be withdrawn/not pressed as its filing is in contravention of the CBDT Circular dated 10/12/2015. Consequently, the appeal of the Revenue is dismissed as withdrawn/not pressed. 2. Disallowance under Section 14A: The first ground in the assessee’s appeal is the disallowance of ?10,000/- under Section 14A. The assessee claimed long-term capital gains on the sale of investments of ?1,06,000/- as exempt from tax. The A.O. queried why expenses incurred and claimed in respect of exempt income should not be disallowed as per Section 14A read with Rule 8D. The assessee contended that the investments were made from its own capital and reserves without incurring any expenditure to earn such tax-free income. However, the A.O. worked out the expenses attributable to exempt income to ?23,685/-, restricting the disallowance to ?18,420/-. The CIT(A) dismissed the appeal of the assessee. The Tribunal found that the assessee had sufficient capital, reserves, surplus, and current account deposits to cover the cost of tax-free investments. Therefore, it was presumed that the investments were made out of interest-free funds. The CIT(A) restricted the disallowance to ?10,669/-. The appeal of the assessee on this ground is dismissed. 3. Addition on account of bogus purchases: The second ground in the assessee’s appeal is the addition on account of bogus purchases amounting to ?7,92,220/-. The assessee claimed to have made purchases from M/s. Shree Sundha Steels Pvt. Ltd., amounting to ?33,65,085/-. The assessee provided copies of quotations, purchase orders, tax invoices, bills, delivery challans, and confirmation copies. However, the Sales Tax Department recorded a statement from the Director of M/s. Shree Sundha Steels Pvt. Ltd., admitting that no goods were delivered, and cash was remitted back to the purchaser after deducting a nominal commission. The CIT(A) restricted the disallowance to 25% based on the judgment in Sanjay Oil Cake Industries vs 316 ITR 274. The Tribunal found that the assessee might have purchased goods from third parties and utilized them in its factory, making payments as per terms. The Tribunal relied on the decision of the Gujarat High Court in CIT vs Simit Sheth (2013) 38 Taxmann.com 385 (Guj), where it was held that only the profit element embedded in such purchases could be added to the assessee’s income. The Tribunal upheld the addition at 12.5% of the purchases, allowing partial relief to the assessee. The appeal filed by the assessee is partly allowed, and the A.O. is directed to take the GP at 12.5%. The appeal filed by the revenue is dismissed. Order Pronouncement: The order was pronounced in the open court on 21/03/2017.
|
