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2020 (9) TMI 766 - AT - Income TaxEstimation of income - bogus purchases - HELD THAT - We direct the AO to restrict the addition limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases. Disallowance of interest - CIT(A) deleted the said addition on the ground that the interest free funds available with the assessee at the beginning of the year whereas the interest free advance - HELD THAT - We find that the Ld.CIT(A) has rightly followed the decision in Reliance Utilities Power Limited 2009 (1) TMI 4 - BOMBAY HIGH COURT as the interest free funds available with the assessee at the beginning of the year was much more then the interest free advances. We uphold the order of the CIT(A) and dismiss the second ground of appeal of the revenue.
Issues Involved:
1. Quashing of order u/s 143(3) by AO and deletion of addition on account of unallowable interest expense. 2. Disallowance of &8377; 64,89,180/- being 10% of alleged purchases. Issue 1: Quashing of Order u/s 143(3) and Deletion of Addition on Account of Unallowable Interest Expense: The appeal by the revenue and cross objection by the assessee challenged the order passed by the Commissioner of Income Tax (Appeals) and arose from the assessment completed u/s. 143(3) of the Income Tax Act, 1961. The revenue contended that the CIT(A) erred in quashing the AO's order without appreciating the findings of the Sales Tax Department and the Directorate General of Income Tax that identified certain parties as bogus. The assessee's defense was that these were genuine purchases, supported by relevant documentation. The CIT(A) restricted the disallowances to &8377; 64,89,180/- based on previous tribunal decisions. During the hearing, the Departmental Representative argued that the purchases were from non-existing or bogus parties. The assessee, however, relied on a High Court decision to support their case. The Tribunal considered the submissions, reviewed the relevant materials, and upheld the CIT(A)'s decision based on the explanations provided by the assessee and the legal precedents cited. Issue 2: Disallowance of &8377; 64,89,180/- being 10% of Alleged Purchases: The dispute centered around the disallowance of &8377; 64,89,180/-, representing 10% of the alleged purchases made by the assessee. The CIT(A) had based this disallowance on a previous tribunal decision and directed the AO to restrict the addition to 10% of purchases from certain dealers. The revenue challenged this decision, but the Tribunal upheld the CIT(A)'s order, citing the principle that purchases cannot be rejected without affecting sales in the case of a trader. The Tribunal referred to a High Court case involving similar circumstances where the court had restricted additions to maintain consistency with genuine purchases. Consequently, the Tribunal partly allowed the appeal by the revenue and the cross objection by the assessee. In conclusion, the Appellate Tribunal ITAT Mumbai addressed the issues raised by the revenue and the assessee regarding the quashing of the AO's order, deletion of addition on account of unallowable interest expense, and the disallowance of &8377; 64,89,180/- as part of alleged purchases. The Tribunal's decision was based on a thorough examination of the facts, legal precedents, and submissions made by both parties, resulting in a partial allowance of the appeal and cross objection.
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