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2021 (6) TMI 946 - AT - Income TaxBogus purchases - assessee was not able to produce transport bills as well as stock register for receipt of goods, other than production of bogus bills and claim of cheque payments - search conducted in the premises of the assessee - HELD THAT - AO has made 100% additions towards alleged purchases on the basis of evidences gathered during the course of search and post-search investigation. The Tribunal has accepted the findings recorded by the AO to treat the purchases as bogus however, restricted additions to the extent of 25% of such bogus purchases. Hon ble Supreme Court in N.K. PROTEINS LTD. 2017 (1) TMI 1090 - SC ORDER came to the conclusion that once the purchases from certain parties are treated as bogus then question of making estimation of profit on those purchases does not arise. In this case, facts borne out from record clearly indicate that during the course of search, bills and invoices of those alleged suppliers were found in the business premises of the assessee and assessee was unable to satisfactorily explain reasons for keeping those bills and invoices. The other facts brought out by the AO were also not controverted by the assessee with any evidences - we are of the considered view that there is no error in the findings recorded by the ld.CIT(A) to confirm additions made by the AO towards alleged bogus purchases from five parties and hence, we are inclined to uphold the findings of the ld.CIT(A) and reject ground taken by the assessee for assessment years 2011-12 to 2013-14. Disallowance of warranty obligation - AO has disallowed provision for warranty on the ground that it is unascertained liability and contingent in nature and hence, cannot be allowed u/s.37 - HELD THAT - The assessee in the present case is a contractor for power installations. Although, the assessee suppliers several power related equipments but such equipments were sourced from various manufacturers and it is obvious that said manufacturers and suppliers will provide warranty obligation. Since, the assessee is not a manufacturer of any equipment and assessee is only a contractor who executes civil, electrical and mechanical works, requirement for making provision for warranty is very minimal and this fact is strengthened by the fact that although the assessee has made huge provisions year on year but when it comes to utilization, it has utilized a meager amount which is not even 5 to 10% of provisions made in the books of account. We are of the considered view that provision made in the books of account for warranty obligation is unascertained liability and contingent in nature. Once liability is contingent liability and unascertained liability, then same cannot be allowed as deduction u/s.37(1) of the Act. In this case, the assessee has neither manufactured equipments nor made provision on the basis of past experience and hence, we are of the considered view that there is no error in the findings recorded by the ld.CIT(A) to confirm additions made towards disallowance of provision made for warranty obligation and hence, we are inclined to uphold the findings of the ld.CIT(A) and reject ground taken by the assessee. Disallowance of interest on advances to subsidiaries u/s.40A - AO was of the opinion that the assessee has diverted interest bearing funds to subsidiaries for non-business purposes and hence, worked out interest at the rate of 11% pa on outstanding balance of loans and advances and made addition u/s.40A(2)(a) - HELD THAT - Although assessee claims that it has given advances to subsidiaries out of commercial expediency but failed to provide any evidence to prove that what is commercial advantage derived by the assessee from its subsidiaries. We further noted that out of three advances given to subsidiaries, the assessee has failed to file evidences in any one case to prove that it has derived some commercial benefit. No doubt, advances given to subsidiaries are out of scope of disallowance of interest but it is for the assessee to prove beyond doubt that said advances are given out to commercial expediency. In this case, the assessee neither produced any detail to prove commercial expediency nor proved that said advances were given out of own funds. Therefore, we are of the considered view that there is no error in the findings recorded by the ld.CIT(A) to confirm disallowance of interest. Hence, we are inclined to uphold the findings of the ld.CIT(A) and reject ground taken by the assessee. Bogus purchases made from five parties in the hands of M/s. BGR Energy Systems Ltd . - HELD THAT - We are of the considered view that once addition was made towards alleged bogus purchases in the hands of M/s. BGR Energy Systems Ltd., no additions can be made to similar amounts in the hands of the assessee because it amounts to double addition. The ld.CIT(A) after considering relevant facts has rightly deleted additions made by the AO and hence, we are inclined to uphold findings of the ld.CIT(A) and reject ground taken by the Revenue for all Assessment years. Addition towards cash found during the course of search - HELD THAT - CIT(A) after considering the fact that said amount was subjected to tax in the hands of Smt. Sasikala Raghupathy has rejected additions made by the AO in the hands of the assessee. Therefore, we are of the considered view that there is no error in the findings recorded by the ld.CIT(A) to delete additions made towards cash found in the bank locker of Shri Mahadeven and offered to tax in the hands of Smt. Sasikala Raghupathy and hence, we are inclined to uphold findings of ld.CIT(A) and reject ground taken by the Revenue.
Issues Involved:
1. Bogus Purchases from Five Vendors 2. Disallowance of Warranty Obligation 3. Disallowance of Interest on Advances to Subsidiaries 4. Double Addition of Bogus Purchases in Hands of Assessee and Company 5. Addition of Unaccounted Cash Found During Search 6. Addition of Cash Found in Bank Locker Issue-wise Detailed Analysis: 1. Bogus Purchases from Five Vendors: The primary issue revolved around the allegation of bogus purchases amounting to ?113.48 crores from five vendors. The Assessing Officer (AO) concluded that the purchases were not genuine based on the lack of supporting documents such as delivery notes and goods receipt notes, and the statements from the vendors admitting to issuing only bills without supplying any goods. The AO noted that the modus operandi involved routing payments through RTGS and subsequently withdrawing cash, which was returned to the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's findings, emphasizing the failure of the assessee to produce necessary evidence and the overwhelming body of evidence against the assessee's claims. The Tribunal agreed with the AO and CIT(A), noting that the assessee's robust internal control procedures were not followed for these transactions and that the suppliers admitted to bill trading without actual supply of goods. 2. Disallowance of Warranty Obligation: The assessee had made provisions for warranty obligations, which the AO disallowed as unascertained and contingent liabilities. The CIT(A) upheld this disallowance, noting that the provisions were not based on systematic estimation or past experience and were largely reversed in subsequent years without significant utilization. The Tribunal concurred, highlighting that the assessee, being a contractor and not a manufacturer, had minimal warranty obligations and the provisions made were not scientifically justified. 3. Disallowance of Interest on Advances to Subsidiaries: The AO disallowed interest on advances given to subsidiaries, arguing that the assessee diverted interest-bearing funds without charging interest. The CIT(A) upheld the disallowance, referencing the Tribunal's decision in the assessee's own case for earlier years. The Tribunal agreed, noting the lack of evidence to prove commercial expediency or that the advances were given out of own funds. 4. Double Addition of Bogus Purchases in Hands of Assessee and Company: The AO made additions for bogus purchases in both the hands of the assessee and the company, BGR Energy Systems Ltd. The CIT(A) deleted the additions in the assessee's hands, reasoning that it would result in double addition since the same amounts were already added in the company's hands. The Tribunal upheld this decision, agreeing that double addition was not justified. 5. Addition of Unaccounted Cash Found During Search: The AO added ?1,88,65,900/- found during the search in the hands of both the assessee and Smt. Sasikala Raghupathy. The CIT(A) deleted the addition in the assessee's hands, as the amount was already added in Smt. Sasikala Raghupathy's hands. The Tribunal upheld this decision to avoid double addition. 6. Addition of Cash Found in Bank Locker: The AO added ?15,00,000/- found in the bank locker of Shri V.R. Mahadevan in the hands of the assessee. Smt. Sasikala Raghupathy had already offered this amount as her income. The CIT(A) deleted the addition in the assessee's hands, and the Tribunal upheld this decision, again to prevent double addition. Conclusion: The Tribunal dismissed the appeals filed by the assessee and the Revenue, upholding the findings of the CIT(A) on all issues. The cross objections filed by the assessee were also dismissed as infructuous.
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