2020 (3) TMI 1073 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - CIT-A deleted the addition - AR submitted that the assessee has not received any exempt income during the year under consideration - HELD THAT - CIT (A) has given a categorical finding that there is no exempt income received by the assessee during the year under consideration. This fact was not disputed by the Revenue. Therefore, the CIT(A) has rightly deleted this disallowance in view of the Cheminvestment Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT . Thus, Ground No. 1 of the Revenue s appeal is dismissed. Addition u/s 69C - Bogus purchases - purchases were not genuine and all the notices u/s 133(6) issued to parties were returned undelivered - AR submitted that all the export receipts are credited in the bank accounts where from the withdrawals were made for the disbursement of purchase and other expenses - CIT-A deleted the addition - HELD THAT - ale of the assessee was never doubted by the Assessing Officer. As regards the purchase from the records as mentioned in the Assessment Order itself, was found that quantitative tally of purchases of meat and exports and the same was reflected in the credit column of the bank account of the assessee. It is not a case of the Assessing Officer that payments against purchases have been made by the assessee out of books of accounts. The contention of the Ld. DR are also not tenable as the assessee filed the details of the parties from whom purchases were made and the same is mentioned in the Assessment Order itself. The CIT(A) has also given categorical finding that only 20% of the purchases where disallowed on account of cash payment which was duly reflected in the books of account of the assessee - there is no need to interfere with the findings of the CIT(A). The appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance under Section 14A read with Rule 8D.
2. Deletion of addition under Section 69C for unverifiable cash purchases.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 14A read with Rule 8D:

The Revenue challenged the deletion of ?1,64,54,752/- disallowance made under Section 14A read with Rule 8D. The Assessing Officer (AO) had made this disallowance, but the CIT(A) deleted it. The Revenue argued that the AO's disallowance was justified. However, the assessee contended that no exempt income was received during the year under consideration. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had given a categorical finding that no exempt income was received, which was not disputed by the Revenue. The Tribunal referenced the Cheminvestment Ltd. case (61 taxman.com 118 Delhi) to support the deletion. Therefore, Ground No. 1 of the Revenue’s appeal was dismissed.

2. Deletion of Addition under Section 69C for Unverifiable Cash Purchases:

The Revenue also challenged the deletion of ?79,13,46,369/- added under Section 69C for unverifiable cash purchases. The AO had made this addition, asserting that the purchases were not genuine, supported by the fact that notices issued under Section 133(6) to 26 parties were returned undelivered with remarks "No such person." The AO observed discrepancies in signatures on payment slips and letters filed by the assessee. The CIT(A) deleted the addition, noting that in earlier years, similar disallowances under Section 40A(3) were made but later deleted by the Tribunal.

The assessee argued that all export receipts were credited in bank accounts from which withdrawals were made for purchases and other expenses. The purchases amounting to ?79.13 crores were made in cash from farmers and growers of animals, who were illiterate and did not maintain bank accounts. The CIT(A) observed that the AO had mixed up two issues: the investment in purchase and the genuineness of parties from whom purchases were made. The CIT(A) noted that the AO accepted the sales and the quantitative tally of purchases, indicating that purchases were indeed made. The Tribunal referenced the Eagle Impex case (ITA No. 5697/Mum/2010) and other decisions to support the deletion, emphasizing that disallowing total purchases would result in impractical gross profit rates and distorted trading results.

The Tribunal found that the CIT(A) had correctly observed that only 20% of purchases were disallowed on account of cash payment, which was reflected in the books of account. The Tribunal concluded that the case laws referred by the Revenue were factually irrelevant and distinguishable. Therefore, Ground No. 2 of the Revenue’s appeal was dismissed.

Conclusion:

The Tribunal dismissed the Revenue’s appeal on both grounds, upholding the CIT(A)'s deletion of disallowances under Section 14A read with Rule 8D and Section 69C. The Tribunal emphasized the factual findings and precedents supporting the CIT(A)'s decision, ensuring that the disallowances were not warranted based on the evidence and legal provisions. The order was pronounced in the Open Court on 18th March 2020.