2020 (9) TMI 535 - AT - Income Tax

Disallowance of R D Expenditure - HELD THAT - Additional evidence has placed by the assessee for the first time before the CIT(A) and the ld. CIT(A) has decided the addition without calling for remand report from the AO and without making any verification of the expenditure independently. We are of the view that the issue is to be remitted back to the file of the AO and accordingly we remit the issue back to the file of the AO with a direction to re-examine the issue and decide the same on merits in accordance with law after providing reasonable opportunity of being heard to the assessee. Thus ground Nos. 1 to 4 are treated as allowed for statistical purposes. Addition on account of under reporting of consignment sales the assessee during the year made through M/s ABS Mercantile Pvt Ltd( in short consignee) - HELD THAT - CIT(A) merely relied on the reconciliation statement without verifying the same with the books of account representing the cheques cancelled. The ld. DR contended that the opening balance claimed by the assessee was not reported by the ABS in it s reply and with regard to the cancellation of cheques and the stocks sold were required to be verified. With regard to the sales of M/s Adley Formulation the AO found that he same was not reflected separately in the statement of sales for the A.Y2013-14. CIT(A) deleted the addition without calling the remand report of the AO. Therefore the issue needs to be verified with the books of account and if necessary cross verification to be made with ABS to reconcile the sales. Both the parties have agreed to remit the matter back to the file of the AO for further verification and reconciliation. Hence in the interest of justice we remit this matter back to the file of AO with a direction to reexamine the issue and decide the same afresh after providing reasonable opportunity of being heard to the assessee. Accordingly ground is treated as allowed for statistical purposes. Disallowance of expenditure u/s 14A - HELD THAT - There was no dispute that in the impugned AY the assessee did not earn any exempt income. When the assessee has not earned any exempt income and there can be no disallowance under section 14A - In the case of Cheminvest Ltd. reported in 2015 (9) TMI 238 - DELHI HIGH COURT has held that section 14A will not apply where no exempt income is received or receivable during the relevant assessment year - we hold that no disallowance is called for u/s 14A. Accordingly we uphold the order of the ld. CIT(A) on this issue and dismiss the ground raised by the revenue on this issue. Disallowance of interest expenditure attributable interest free advances - HELD THAT - No information was placed before us to substantiate whether the assessee has advanced interest free funds or interest bearing borrowed funds to it s group concerns. Hence this issue also needs verification at the end of the AO with regard to the availability of interest free funds and both the counsels have agreed to remit the matter back to the fie of the AO to verify the facts. Accordingly the issue is remitted back to the file of the AO with a direction to examine whether the assessee has made advances out of interest free funds or interest bearing funds and decide the issue afresh on merits after giving opportunity to the assessee. The grounds raised on this issue are treated as allowed for statistical purposes. Addition on account of difference of amount between the books of account of the assessee and the books of ABS Mercantile (P) Ltd. - HELD THAT - In this case the assessee is maintaining the regular books of accounts which were produced before the AO. The assessee also duty bound to explain the discrepancies with the books of accounts and the supporting documents. The correctness of the entries made in the ABS and the reconciliation submitted by the assessee needs verification. It appears to us that there were some issues which need to be verified relating to the accounts of ABS. As AO made the addition of Rs. 19.80 crores due to under reporting of sales in respect of ABS. We are of the opinion that the account of ABS needs to be verified in detail to ascertain the factual position. Therefore we remit the matter back to the file of AO with a direction to cause necessary enquiries with M/s ABS Mercantile Pvt Ltd and decide the issue afresh on merits. Differences in purchases debited to the Profit and Loss account and the information received from the vendors - HELD THAT - There is no dispute that the assessee filed reconciliation statement before the Ld. CIT(A) and the Ld. CIT(A) rejected the assessee s claim for want of cross verifications. CIT(A) ought have verified the information or should have called for the remand report from the AO. It is unjustified to reject the claim without making proper verification. Therefore we remit the issue back to the file of the AO with a direction make necessary verifications and cross verifications and decide the issue afresh on merits after providing reasonable opportunity of being heard to the assessee. Thus ground Nos. 2 3 are treated as allowed for statistical purposes. Disallowance of commission expenses - HELD THAT - The evidences were placed by the assessee before the CIT(A) for the first time we are inclined to remit this issue back to the file of the AO with a direction to examine the correctness and genuineness of the expenditure with the evidences produced by the assessee and decide the issue afresh on merits and after providing reasonable opportunity of being heard to the assessee. Accordingly this ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of disallowance of R&D Expenditure.
2. Deletion of addition on account of underreporting of consignment sales.
3. Deletion of disallowance of expenditure under Section 14A.
4. Deletion of disallowance of interest expenditure attributable to interest-free advances.
5. Addition due to difference in books of account and ABS Mercantile (P) Ltd.
6. Addition due to excess claim of purchases.
7. Disallowance of commission expenses.
8. Levy of interest under Sections 234B and 234C.

Detailed Analysis:

1. Deletion of Disallowance of R&D Expenditure:
The revenue appealed against the CIT(A)'s deletion of the disallowance of Rs. 1,10,48,321/- for R&D expenses. The CIT(A) accepted additional evidence in the form of bills for consumables, which were not produced during the assessment proceedings. The Tribunal found that the CIT(A) did not call for a remand report from the AO or verify the expenditure independently. Therefore, the issue was remitted back to the AO for reexamination and decision on merits after providing the assessee an opportunity to be heard.

2. Deletion of Addition on Account of Underreporting of Consignment Sales:
The AO added Rs. 19,80,09,010/- due to discrepancies in consignment sales reported by the assessee and confirmed by ABS Mercantile Pvt. Ltd. The CIT(A) deleted the addition based on the reconciliation statement provided by the assessee without verifying it with the books of account. The Tribunal remitted the issue back to the AO for further verification and reconciliation with the books of account and cross-verification with ABS Mercantile Pvt. Ltd.

3. Deletion of Disallowance of Expenditure under Section 14A:
The AO disallowed Rs. 5,06,343/- under Section 14A, but the CIT(A) deleted the addition as the assessee did not earn any exempt income during the relevant assessment year. The Tribunal upheld the CIT(A)'s decision, following the Delhi High Court's ruling in Cheminvest Ltd. and a similar view by the ITAT in Prathista Industries Ltd.

4. Deletion of Disallowance of Interest Expenditure Attributable to Interest-Free Advances:
The AO disallowed Rs. 1,35,65,645/- on the grounds that the assessee advanced interest-free funds to SV’s Remedies Ltd. out of interest-bearing borrowed funds. The CIT(A) deleted the disallowance, but the Tribunal found no information to substantiate whether the advances were made from interest-free or interest-bearing funds. The issue was remitted back to the AO for verification and decision on merits.

5. Addition Due to Difference in Books of Account and ABS Mercantile (P) Ltd.:
The AO added Rs. 18,55,71,506/- due to discrepancies between the books of account of the assessee and ABS Mercantile Pvt. Ltd. The CIT(A) sustained the addition. The Tribunal found that the discrepancies needed verification and remitted the matter back to the AO to verify the accounts of ABS Mercantile Pvt. Ltd. and decide the issue afresh.

6. Addition Due to Excess Claim of Purchases:
The AO added Rs. 97,94,743/- due to discrepancies in purchases reported by the assessee and confirmed by vendors. The CIT(A) sustained the addition. The Tribunal found merit in the assessee's argument that the differences were due to non-consideration of returned goods, credit notes, and returned cheques. The issue was remitted back to the AO for verification and decision on merits.

7. Disallowance of Commission Expenses:
The AO disallowed Rs. 1,75,06,656/- paid to M/s Feroz Tejarat Co. due to lack of documentary evidence. The CIT(A) confirmed the disallowance. The Tribunal remitted the issue back to the AO for reexamination of the correctness and genuineness of the expenditure based on the evidences produced by the assessee.

8. Levy of Interest under Sections 234B and 234C:
The issue of charging interest under Sections 234B and 234C was deemed consequential in nature. The AO was directed to levy interest accordingly.

Conclusion:
The appeal of the revenue was partly allowed for statistical purposes, and the appeal of the assessee was allowed for statistical purposes. The Tribunal remitted several issues back to the AO for verification and decision on merits after providing reasonable opportunity of being heard to the assessee.