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2017 (12) TMI 1048 - AT - Income TaxAddition u/s 69C - Held that - We find that similar issue arose in the case of the assessee for the immediate previous assessment year 2010-11 2017 (12) TMI 1071 - ITAT MUMBAI . The Tribunal upheld the disallowance @ 15% of the bogus purchases made by the Ld. CIT(A). Facts being similar, we direct the AO to estimate the profit @ 15% on the bogus purchases of ₹ 1,88,40,628/- in place of 28.4% made by the Ld. CIT(A) and make the addition accordingly. Addition u/s 40(b) - Held that - Indisputably, as per the partnership deed dated 22.05.2003, remuneration to the working partners has been authorized to be paid in accordance with the computation provided in section 40(b). We find that the AO has not taken into account the amended provision of section 40(b) for the impugned assessment year. CIT(A) has rightly taken into account the said amended provision and then restricted the disallowance to ₹ 1,20,000/-. Accordingly, we uphold the order of the Ld. CIT(A) on the above ground of appeal. Addition u/s 41 - Held that - Addition u/s 41(1) cannot be made unless and until it is found that there was remission and/or cessation of liability, that too during the relevant assessment year. SEE Matru Prasad case 2015 (4) TMI 830 - GUJARAT HIGH COURT Disallowance of claim of pollution control equipment expenses - Held that - We find that the AO failed to give a single opportunity to the assessee to explain its case on the above issue. A proper hearing must always include a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view.In view of the above, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to decide the issue afresh Unauthorized occupation penalty - allowance u/s 37 - Held that - We find from the ledger account that cheque no. 163966 has been paid towards MCGM unauthorized occupation penalty. As this is purely penal in nature, we uphold the order of the Ld. CIT(A) and dismiss the 3rd cross objection raised by the assessee.
Issues Involved:
1. Addition under Section 69C for bogus purchases. 2. Disallowance of excess remuneration to partners under Section 40(b)(ii). 3. Addition under Section 41(1) for cessation of liability. 4. Depreciation rate on pollution control equipment. 5. Disallowance of penalty paid to MCGM under Section 37(1). Issue-wise Detailed Analysis: 1. Addition under Section 69C for Bogus Purchases: The Assessing Officer (AO) found that certain purchases amounting to ?1,88,40,628/- were bogus as the VAT and the names of the parties appeared in the 'Hawala Dealers List' provided by the Sales Tax Department, Government of Maharashtra. Notices issued under Section 133(6) to verify the purchases were returned undelivered. The assessee failed to produce the parties for verification but provided purchase bills, statements of account, and bank transaction details. The AO made an addition of ?1,88,40,628/- under Section 69C. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee had fulfilled its onus by making payments by cheque and providing the sellers' addresses. However, considering the information from the Sales Tax Department, the CIT(A) estimated the profit on the bogus purchases at the gross profit rate of 28.4%, restricting the disallowance to ?53,50,738/-. The Tribunal found that a similar issue in the previous assessment year resulted in a disallowance of 15% of the bogus purchases. Therefore, it directed the AO to estimate the profit at 15% on the bogus purchases of ?1,88,40,628/-, making the addition accordingly. Thus, the Revenue's appeal and the assessee's cross-objection were partly allowed. 2. Disallowance of Excess Remuneration to Partners under Section 40(b)(ii): The AO disallowed ?47,44,065/- as excess remuneration paid to partners, based on the partnership deed and the book profit calculation. The CIT(A) observed that the remuneration to working partners was authorized as per the partnership deed and should be computed according to Section 40(b). The CIT(A) found that the allowable remuneration was ?1,37,52,199/-, and the excess remuneration was only ?1,20,000/-. Thus, the CIT(A) restricted the disallowance to ?1,20,000/-. The Tribunal upheld the CIT(A)'s order, noting that the AO did not consider the amended provision of Section 40(b) for the relevant assessment year. Therefore, the Revenue's appeal on this ground was dismissed. 3. Addition under Section 41(1) for Cessation of Liability: The AO added ?37,34,907/- under Section 41(1) for 13 creditors existing since the financial year 2008-09, which were not paid till the end of the impugned assessment year. The CIT(A) held that the AO did not conduct any inquiry to ascertain the nature of the credits or whether the liabilities were paid in subsequent years. The CIT(A) relied on the Gujarat High Court judgment in Matru Prasad C. Pandey, which held that an addition under Section 41(1) requires evidence of remission or cessation of liability during the relevant assessment year. Therefore, the CIT(A) deleted the addition. The Tribunal upheld the CIT(A)'s order, finding no dispute on the facts and noting that the AO failed to provide elementary reasons. Thus, the Revenue's appeal on this ground was dismissed. 4. Depreciation Rate on Pollution Control Equipment: The AO disallowed pollution control equipment expenses of ?2,31,000/-, treating them as capital in nature and allowing depreciation at 15% for six months. The CIT(A) confirmed the addition, stating that the expenditure should be included in the block of assets, and the assessee took advantage of an extra debit in the profit and loss account. The Tribunal found that the AO did not provide the assessee an opportunity to explain its case. It set aside the CIT(A)'s order and restored the matter to the AO to decide afresh after giving the assessee a fair opportunity to present relevant documents/evidence. Thus, the assessee's cross-objection was allowed for statistical purposes. 5. Disallowance of Penalty Paid to MCGM under Section 37(1): The AO disallowed ?1,43,000/- paid to MCGM towards unauthorized occupation penalty, considering it penal in nature. The CIT(A) upheld the disallowance. The assessee argued that it was compensatory, not penal. The Tribunal found that the payment was towards unauthorized occupation penalty, which is penal in nature. Therefore, it upheld the CIT(A)'s order and dismissed the assessee's cross-objection on this ground. Conclusion: The appeal filed by the Revenue and the cross-objection by the assessee were partly allowed. The Tribunal directed the AO to estimate the profit at 15% on the bogus purchases and restored the issue of pollution control equipment expenses to the AO for fresh consideration. The disallowance of excess remuneration to partners and the addition under Section 41(1) were dismissed, and the disallowance of the penalty paid to MCGM was upheld.
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