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2020 (2) TMI 264 - AT - Income TaxBogus purchases - estimation of income - profit element embedded in these purchase transactions to factorize for profit - HELD THAT - Primary onus casted upon assessee, to prove the transactions, remained undischarged. The stated factual matrix, in our considered opinion, would make it a fit case to make estimated additions to account for profit element embedded in these purchase transactions to factorize for profit earned by assessee against possible purchase of material in the grey / unorganized market and undue benefit of VAT against such bogus purchases, which learned first appellate authority has rightly done so. Accepting the submissions that the assessee was dealing in low margin item like iron steel which would warrant lower estimation and keeping in view the healthy Gross profit rate of 5.43% already reflected by the assessee, we restrict the estimation to net 5% of alleged bogus purchases of ₹ 3,40,80,030/- which comes to ₹ 17.04 Lacs.- Decided partly in favour of assessee. Disallowance u/s 14A - HELD THAT - It transpires that the dividend income of ₹ 51,250/- stated to be earned by the assessee has been found to be taxable and Ld. AO has been directed to include the same while computing taxable income. Therefore, there would be no exempt income earned by the assessee and hence, no disallowance u/s 14A would be warranted as held by Hon ble Madras High Court in Chettinad Logistics P. Ltd. 2017 (4) TMI 298 - MADRAS HIGH COURT as relied upon by Ld. CIT(A). Therefore, finding no fault in the adjudication of Ld. CIT(A), we dismiss this ground of appeal. Disallowance u/s 36(1)(iii) - AO was directed by CIT-A to exclude interest on letter of credit interest on car loan while computing the disallowance and consider only the balance interest component while computing the proportionate disallowance. HELD THAT - We find that Ld. CIT(A) has clinched the issue in correct perspective and met the assessee s submissions with due application of mind. No fault could be found in the directions of Ld. CIT(A) for exclusion of interest on letter of credit and interest on car loan since the same did not have any nexus with interest free loans advanced by the assessee. Resultantly, this ground stand dismissed. Disallowance u/s 40(a)(ia) on mere reimbursements - HELD THAT - Undisputed position that emerges is that the assessee has duly deducted tax at source against service charges whereas no tax has been deducted against mere reimbursements. These reimbursements were supported by the supporting bills of the agents and there was no profit element in it. All these expenses were pure reimbursement in nature. This being the case, no TDS was required on such reimbursements. The decision of this Tribunal in Utility Powertech Ltd. V/s ACIT 2010 (4) TMI 1063 - ITAT MUMBAI also supports the same view. This decision has been rendered after considering the decision of Hon ble Bombay High Court in CIT V/s Siemens Aktiongesellschaft 2008 (11) TMI 74 - BOMBAY HIGH COURT Therefore, we find no fault in the action of Ld. CIT(A) in deleting the same by relying upon the order for AY 2012-13. This ground stands dismissed. - Decided in favour of assessee.
Issues Involved:
1. Addition on account of alleged bogus purchases. 2. Disallowance under Section 14A. 3. Disallowance under Section 36(1)(iii). 4. Disallowance under Section 40(a)(ia). Issue-wise Detailed Analysis: 1. Addition on Account of Alleged Bogus Purchases: The assessee made purchases worth ?340.80 Lacs from four suspicious suppliers. Despite the assessee's defense that there was a one-to-one correlation between purchases and corresponding sales, and payments were made through banking channels, the assessee failed to prove the dispatch, transportation, and delivery of goods. Notices issued to suppliers were returned unserved, and field inquiries revealed non-existence of suppliers at given addresses. Consequently, the Ld. AO termed the purchases as non-genuine and added the entire amount to the income of the assessee. The Ld. CIT(A) noted that during the survey, soft copies of the books of accounts, including quantitative details of corresponding sales, were impounded. Since there was a correlation between purchases and sales, only the profit element embedded in such transactions could be added. The Ld. CIT(A) estimated additions at 12.5% of these purchases, with a set-off of Gross Profit already shown by the assessee. The Tribunal opined that there could be no sale without actual purchase of material, given the trading activities of the assessee. However, the assessee failed to substantiate the purchases. Thus, the Tribunal found it appropriate to make estimated additions to account for the profit element embedded in these transactions. Considering the low margin nature of iron & steel trading, the Tribunal restricted the estimation to a net 5% of alleged bogus purchases, resulting in an addition of ?17.04 Lacs, and deleted the balance addition. 2. Disallowance under Section 14A: During assessment, it was noted that the assessee had closing investments of ?435.28 Lacs and earned exempt dividend income of ?51,250/-. The Ld. AO, applying Rule 8D, computed a disallowance of ?2.89 Lacs. The Ld. CIT(A) directed deletion of disallowance u/s 14A as no exempt income was earned, relying on the decision of the Hon’ble Madras High Court in Chettinad Logistics P. Ltd., which was upheld by the Hon’ble Apex Court. The Tribunal upheld the Ld. CIT(A)’s decision, noting that the dividend income was taxable, and thus, no disallowance under Section 14A was warranted. 3. Disallowance under Section 36(1)(iii): The assessee claimed interest expenditure of ?11.67 Lacs but did not reflect any interest income against loans & advances of ?620.42 Lacs. The Ld. AO made a proportionate disallowance of ?3.03 Lacs, opining that the assessee diverted interest-bearing funds towards interest-free advances. The Ld. CIT(A) directed the exclusion of interest on the letter of credit and car loan while computing the disallowance, considering only the balance interest component of ?5.65 Lacs. The Tribunal found no fault in the Ld. CIT(A)’s directions and dismissed the revenue’s ground. 4. Disallowance under Section 40(a)(ia): The assessee did not deduct TDS on certain expenses aggregating to ?17.44 Lacs, stated to be reimbursements. The Ld. AO disallowed the same, observing that the assessee could not demonstrate the absence of income element in these reimbursements. The Ld. CIT(A) deleted the disallowance, relying on the decision in the assessee’s own case for AY 2012-13. The Tribunal concurred with the Ld. CIT(A)’s decision, noting that the reimbursements were supported by bills and had no profit element. Thus, no TDS was required on such reimbursements. Conclusion: The assessee’s appeal was partly allowed, and the revenue’s appeal was dismissed. The Tribunal pronounced the order in the open court on 05/02/2020.
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