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2018 (4) TMI 440 - AT - Income TaxAddition on account of employees contribution to Provident Fund and ESI fund beyond due date - Held that - We note that the payments of PF and ESI had not beenpaid by the assessee within the grace period as specified in the relevant statute. However, we note that the payment of ESI and PF have been made by the assessee within the due date of filing return of income u/s. 139(1) of the Act. Therefore, it is a sufficient compliance made by the assessee and there is no breach of duty or default on the part of the assessee and for that we rely on the judgment of the Hon ble Supreme Court in the case of CIT vs. Alam Extrusions Ltd. (2009 (11) TMI 27 - SUPREME COURT ) Addition u/s. 14A r.w.r. 8D - Held that - Disallowance cannot be made u/s. 14A r.w.r. Rule 8D of the IT Rules, where the assessee has not earned / received any exempt income during the assessment year under consideration i.e. until and unless there is receipt of exempt income for the concerned assessment year, the disallowance u/s 14A r.w.r. Rule 8D of the IT Rules cannot be invoked. Since in the assessee case under consideration, as the assessee had not earned any exempt income during assessment year 2011-12, therefore, the invoking of the provision of Section 14A r.w.r. Rule 8D of the I.T. Rules by the Assessing Officer is not warranted. Disallowance as interest on loan to subsidiary company - Held that - We note that money was advanced to the subsidiary company on account of commercial expediency and the ratio of the judgment of Hon ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT And Another (2006 (12) TMI 82 - SUPREME COURT) is applicable to the facts of the assessee s case under consideration. We also note that assessee was having sufficient interest free fund and the Assessing Officer was unable to establish any nexus between borrowed fund and the loan fund to the subsidiary company. Therefore the disallowance for interest on loan to subsidiary u/s 36(1)(iii) by the Assessing Officer is not justified. Addition made on account of bogus purchases of raw materials - Held that - Assessee has produced details, such as copy of vouchers of purchases of raw jute,invoices, delivery memo, ledger account, bank statement and deduction of TDS for payment made for purchases etc. There is physical movement of goods in the assessee s case under consideration. We also note that once sales were accepted by the assessing officer then the corresponding purchases could not be disallowed, because without purchase there can not be sale. Further, we note that Assessing Officer has not found any patent defect in the method of accounting and has accepted the books result of the assessee.In view of the totality of factual matrix of the case, we note that the Assessing Officer has failed to bring any cogent evidence on record to show that purchases made by the assessee are bogus. Revenue appeal dismissed.
Issues Involved:
1. Addition of ?7,49,749/- on account of employees’ contribution to Provident Fund and ESI fund beyond due date. 2. Addition of ?7,11,527/- made under Section 14A read with Rule 8D. 3. Disallowance of ?58,29,079/- as interest on loan to subsidiary company. 4. Addition of ?25,12,469/- on account of bogus purchases of raw materials. Issue-wise Detailed Analysis: 1. Addition of ?7,49,749/- on account of employees’ contribution to Provident Fund and ESI fund beyond due date: The Assessing Officer (AO) noted that employees’ contributions to PF and ESI were deposited after the due date specified under Section 36(1)(va) of the Income Tax Act. The assessee explained the delay was due to server issues with the ESI Department's new online payment system. The AO did not accept this explanation and made an addition of ?7,49,749/-. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, relying on the decision of the ITAT Kolkata in the assessee’s own case for AY 2008-09, and the Supreme Court judgment in CIT vs. Alam Extrusions Ltd. The Tribunal upheld the CIT(A)’s decision, noting that the payments were made within the due date of filing the return under Section 139(1), constituting sufficient compliance. 2. Addition of ?7,11,527/- made under Section 14A read with Rule 8D: The AO disallowed ?7,11,527/- under Section 14A read with Rule 8D, arguing that the assessee had investments in equities of subsidiary and other companies, which could generate tax-free income. The assessee contended that no tax-free income was earned during the assessment year, making Section 14A inapplicable. The CIT(A) deleted the addition, and the Tribunal upheld this decision, citing the Delhi High Court’s judgment in Cheminvest Ltd. vs. CIT, which held that disallowance under Section 14A is not warranted if no exempt income is earned. The Tribunal also referred to the Kolkata Tribunal’s decision in REI Agro Ltd. vs. DCIT, affirming that only investments yielding dividend during the year should be considered for disallowance under Rule 8D. 3. Disallowance of ?58,29,079/- as interest on loan to subsidiary company: The AO noted that the assessee had advanced interest-free loans to its subsidiary, Kamarhatty Power Ltd., and made a proportionate disallowance of interest amounting to ?58,29,079/-, alleging it was a tax evasion device. The assessee argued that the loans were advanced from its cash profits. The CIT(A) deleted the addition, observing that the assessee had sufficient interest-free funds and the AO could not establish a nexus between borrowed funds and the loan to the subsidiary. The Tribunal upheld the CIT(A)’s decision, relying on the Supreme Court’s judgment in S.A. Builders Ltd. vs. CIT, which recognized the commercial expediency of such loans. The Tribunal also noted that the issue was covered by its earlier decision in the assessee’s own case for AY 2008-09. 4. Addition of ?25,12,469/- on account of bogus purchases of raw materials: The AO disallowed purchases of ?13,21,385/- from M/s Kajal Agencies Pvt. Ltd. and ?11,91,084/- from M/s High Growth Vanijya Pvt. Ltd., totaling ?25,12,469/-, alleging these were bogus transactions. The AO based this on the financial performance and activities of the supplier companies, which indicated they were “jamakharchi” or entry operators. The CIT(A) deleted the addition, noting that the assessee had provided detailed documentation, including purchase vouchers, sales invoices, delivery memos, and bank statements. The Tribunal upheld the CIT(A)’s decision, emphasizing that the AO accepted the sales and the corresponding purchases could not be disallowed without concrete evidence. The Tribunal cited judgments from the Gujarat High Court and ITAT Mumbai, which held that purchases supported by proper documentation and banking transactions cannot be deemed bogus. Conclusion: The Tribunal dismissed the Revenue’s appeal on all grounds, upholding the CIT(A)’s deletions of the additions and disallowances made by the AO. The Tribunal relied on precedent judgments and the factual matrix of the case, emphasizing the sufficiency of compliance, commercial expediency, and proper documentation provided by the assessee.
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