2018 (6) TMI 1313 - AT - Income Tax

Addition of unverifiable purchase - Held that - The cash corresponding to the RTGS payment must have been received back by the assessee after date of payment i.e. after 21/10/2010 and therefore goods for supplying to sales parties were purchased (i.e. 21/6/2010 to 25/06/2010) from other persons, utilizing cash. The onus is on the assessee to explain when & how the cash has been paid for purchase from gray market and it is for the assessee to explain availability of cash in books of account. In such circumstances generally cash purchases are made at lower price than normal, and the gross profit of the taxpayer also becomes higher. Cash investment in purchases has not been examined by the Ld. Assessing Officer and consequently the assessee also did not get opportunity to explain its stand, we feel it appropriate to restore the issue of unverifiable purchases to the file of the Assessing Officer for deciding afresh in view of our observations above and in accordance with law after providing adequate opportunity of being heard to the assessee accordingly, this ground of Revenue s appeal is allowed for statistical purposes. Disallowance on account of leave encashment under section 43B - Held that - In the instant case it is evident from the order of the Ld. CIT(A) that the assessee has not made actual payment of the said amount of leave encashment. As per the provisions of the section 43B of the Act, claim of leave encashment is allowed only in payment basis. If the assessee has not made the actual payment, it is not entitled for deduction under section 43B. We do not find any error in the order of the Ld. CIT(A) and accordingly we uphold the same. The ground of the appeal of the assessee is rejected. Disallowance under section 14A - Held that - The contention of the assessee of utilization of owned interest free funds for investment in shares of sister concern will become relevant only when the disallowance of interest attributable to investment in assets capable of yielding exempted income has been made, while computing the disallowance of ₹ 1,39,462/-. Since no such details have been furnished before us by either of the party, thus in the interest of Justice, we feel it appropriate to restore this issue to the file of the Assessing Officer for deciding afresh in accordance with law.

Issues Involved:
1. Deletion of addition of ?87,59,437/- made by the Assessing Officer on account of unverifiable purchase from M/s Reliable Metal India.
2. Disallowance of ?15,66,869/- on account of leave encashment under section 43B of the Income Tax Act, 1961.
3. Disallowance of interest of ?1,39,462/- under section 14A read with Rule 8D of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?87,59,437/-:
The Revenue challenged the deletion of ?87,59,437/- by the CIT(A), which was initially added by the Assessing Officer (AO) due to unverifiable purchases from M/s Reliable Metal India. The AO based the addition on information from the Maharashtra VAT Department indicating that the bills from M/s Reliable Metal India were non-genuine. The AO's disallowance was supported by the supplier's affidavit admitting to issuing only tax invoices without actual delivery of goods. Despite the assessee providing purchase details, stock registers, and payment confirmations, the AO disallowed the purchases as the assessee could not produce the supplier or fresh confirmation from them.

The CIT(A) deleted the addition, relying on the Delhi High Court's decision in CIT vs. Sunrise Tooling Systems Pvt. Ltd., noting that the assessee had provided all primary documents supporting the purchases, thus discharging its onus. The CIT(A) observed that the AO did not find discrepancies in the stock register or sales records and that the sales figures were accepted. The CIT(A) concluded that the purchases could not be disallowed based solely on the VAT Department's findings without concrete adverse evidence.

The Tribunal noted discrepancies in the purchase bills and delivery challans, such as missing details of transport and truck numbers. It observed that the statement of purchases and sales provided by the assessee was not a genuine stock register but rather a prepared document to match purchases and sales. The Tribunal concluded that the assessee likely purchased goods in cash from other sources and used M/s Reliable Metal India's invoices for accounting purposes. The Tribunal restored the issue to the AO for fresh examination, emphasizing the need to investigate the cash investment in purchases.

2. Disallowance of ?15,66,869/- on Account of Leave Encashment:
The assessee contested the disallowance of ?15,66,869/- for leave encashment under section 43B of the Act. The CIT(A) upheld the AO's decision, noting that the assessee had not made an actual payment of the leave encashment amount. The CIT(A) emphasized that section 43B allows such claims only on a payment basis, and since no payment was made, the disallowance was justified. The Tribunal agreed with the CIT(A) and upheld the disallowance, reiterating that actual payment is required for a deduction under section 43B.

3. Disallowance of Interest of ?1,39,462/- under Section 14A:
The assessee challenged the disallowance of ?1,39,462/- under section 14A, claiming that the investment in shares was made from interest-free funds and no expenditure was incurred for earning the dividend income. The AO and CIT(A) rejected the assessee's claim as it was not made through a revised return of income. The Tribunal noted that it was unclear whether the disallowance was in accordance with Rule 8D of the Income Tax Rules. The Tribunal restored the issue to the AO for fresh examination, instructing to verify if the disallowance was correctly computed and to consider the assessee's claim of utilizing interest-free funds.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, restoring the issue of unverifiable purchases to the AO for fresh examination. The assessee's appeal was partly allowed for statistical purposes, with the issue of disallowance under section 14A being remanded to the AO for reconsideration. The disallowance of leave encashment under section 43B was upheld.

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