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2021 (8) TMI 365 - AT - Income TaxValidity of the reassessment proceeding framed u/s 147 - eligibility of reason to believe - information received from VAT department - whether reasons recorded to the assessee within the period of 60 days from the date of filing of return in pursuance to section 148? - HELD THAT - We find that the AO in his reassessment order has given a clear finding that the information from the VAT department, Maharashtra was received upon the conclusion of the assessment under section 143(3) Reasons recorded by the AO to the assessee on demand which has been duly complied with by the AO in the case on hand - we note that there was no violation of the principles laid down by the Hon'ble Gujarat High Court in SAHKARI KHAND UDYOG MANDAL LTD. 2014 (6) TMI 149 - GUJARAT HIGH COURT -Thus the issue whether the assessment framed under section 147 of the Act in the given facts and circumstances is sustainable in the eyes of law is upheld. Accordingly, we are not impressed with the argument of assessee. Whether the proceedings under section 147 of the Act were initiated by the AO was merely on the basis of the information received from the VAT department, Maharashtra without application of mind? - AO upon receiving the information from the VAT department, Maharashtra verified from the financial statements of the assessee and thereafter found that the assessee has shown creditors in its books in the name of the aforesaid entities on account of purchases of consumables. The amount of consumables purchase from the aforesaid entities shown in the books of accounts was exactly matching with the information received from the VAT department, Maharashtra. Thus what is inferred is this that the AO after application of his mind arrived on the reasons to believe that the income of the assessee has escaped assessment. Furthermore, the AO at the time of issuing notice under section 148 of the Act has to form prima facie opinion for the escapement of income rather than he has to reach to the conclusion that the income has escaped assessment - we are not impressed with the argument of the learned AR for the assessee. Disallowance made by the AO in the assessment framed under section 147 - Proceedings were initiated under section 147 of the Act after recording the reasons on two counts namely bogus purchases viz a viz freight expenses on such bogus purchases. Admittedly, the addition on account of bogus purchases has been made by the AO which is sufficient enough for initiating the proceedings under section 147 of the Act - initiation of the proceedings cannot be held invalid merely on the reasoning that there was no addition made by the AO on account of freight expenses though there was the mention of such expenses in the reasons recorded. Accordingly, after considering the facts in totality we hold that the initiation of proceedings under section 147 of the Act was within the framework of the law. Accordingly we uphold the same. Thus the ground of appeal of the assessee is hereby dismissed. Bogus purchases - addition by estimating the profit at the rate of 25% of the purchases - HELD THAT - CIT(A) was of the opinion that the estimated disallowance at the rate of 25% of the purchases will provide justice to plug the leakage of revenue. Accordingly the learned CIT(A) confirmed the addition in part for an amount of ₹ 25,12,43,170/- and deleted the addition for an amount of ₹ 75,37,29,510/-. Thus the ground of appeal of the assessee was partly allowed. Disallowances of letter of credit charges - HELD THAT - As we have already given a finding that the assessee carried out bogus transactions of purchase and sales, thus in our considered view such charges are not eligible for the deduction. It is because the assessee was not carrying out the bogus transactions. Hence, we do not find any reason to interfere in the finding of the authorities below. Thus the ground of appeal of the assessee is dismissed. TDS u/s 195 - commission to its agent based in USA and UAE without deducting taxes - HELD THAT - We note the assessee before authorities below only contended that the agents have no establishment or business connection in India and payments were made outside India. As such the assessee has not substantiated the nature of services provided by the foreign agent. Accordingly we direct the assessee to provide the details of the services obtained from the commission agents to the AO. Therefore in such circumstances we do not find any infirmity in the order of the learned CIT(A). Hence the ground of appeal of the assessee is allowed subject to verification. Addition on account late payment of EPF - Addition u/s 36(1)(va) read with section 2(24)(x) on delayed payment of Employee contribution to the PF account - HELD THAT - As relying on GUJARAT STATE ROAD TRANSPORT CORPORATION 2014 (1) TMI 502 - GUJARAT HIGH COURT issue decided against assessee. Addition u/s 14A - AO found that the assessee during the year made investment in share and mutual funds and also incurring interest expenses but did not offer any disallowances of expenses - addition on two fold i.e. on account of interest expenses and on account of administrative expenses - HELD THAT - Assessee before CIT(A) has claimed that it has sufficient interest free fund of ₹ 10308.49 million to meet the amount of investment of ₹ 72.69 million. The assessee in support of its claim has also submitted copy of balance sheet before the learned CIT(A). We find that the claim of the assessee was not controverted by the learned CIT(A) or by the learned DR. At the outset we note that it has been now settled position of law by the various courts that where own interest free fund of the assessee is sufficient enough to meet the investment then no any disallowances is warranted under section 14A r.w.r. 8D of the Act on account of interest expenses - See TORRENT POWER LTD 2014 (6) TMI 185 - GUJARAT HIGH COURT - thus we direct to the AO delete the addition made on the account of interest expenses. Addition on account of administrative expenses - We note that the issue on hand has been covered by the order of the coordinate bench of this ITAT in case of Madhusudhan Industries Limited 2015 (2) TMI 1329 - ITAT AHMEDABAD where it was held by the coordinate bench that the disallowances of expenses under section 14A r.w.r 8D of the Act cannot be made over and above the exempt income earned by the assessee. Respectfully following the same we do not find any infirmity in the order of the learned CIT(A). In the result the ground of appeal of the assessee is allowed whereas the ground of appeal of the Revenue is dismissed. Addition on account of advertisement expenses - HELD THAT - There was no doubt raised by the AO about the advertisement expenses claimed by the assessee in the profit and loss account. What was doubted the advertisement expenses which were treated as deferred revenue expenditure and therefore the same was disallowed. The question arises, can the AO made the disallowance of part of the expenses on the reasoning that the assessee failed to furnish the business purpose viz a viz the identity of the party. The answer stands in negative provided part of the expenses were allowed by the AO and part of the expenses which were disallowed by the AO were pertaining to the same parties - such facts are not arising from the order of the authorities below. In such a situation, we are inclined to restore the issue to the file of the AO for de-novo adjudication as per the provisions of law. It is also directed to the assessee that it shall cooperate in the set-aside proceedings before the AO and liberty is also granted to it for filing the necessary evidences in support of its claim. Hence the ground of appeal of the assessee is allowed for the statistical purposes. Addition on account of claim made u/s 35D - assessee in computation of income claimed deferred revenue expenses - HELD THAT - genuineness of expenses incurred by the assessee in the earlier year which were treated as deferred revenue expenditure and the same were accepted by the revenue in the assessment framed under section 143(3) of the Act cannot be doubted in the year under consideration. It is because the expenses were not incurred in the year under consideration. But the deduction was claimed in the year under consideration as the same was treated as deferred revenue expenses in the earlier assessment year and that fact was also admitted by the revenue. Accordingly we are of the view that such expenses cannot be disallowed in the year under consideration without disturbing the year to which such expenses relate. Accordingly, we are not impressed with the finding of the authorities below - we direct the AO to verify before allowing the deduction of such expenses whether these expenses were treated as deferred revenue expenditure in the earlier assessment years and the same were accepted in the assessment framed under section 143(3). Addition made on account mismatch in the amount of income disclosed in the books of accounts viz a viz reflected in the form 26 AS - HELD THAT - Admittedly, the onus lies upon the assessee to furnish the necessary details as desired by the AO during the assessment proceedings. However, in the case on hand, the revenue before rejecting the contention of the assessee should have verified the fact from the aforesaid parties whether they have paid any income to the assessee. It is for the reason that the form 26AS is generated by the income tax Department on the basis of information furnished in the TDS returns by various parties. Accordingly, in the interest of justice and fair play, we restore the issue to the file of the AO for fresh adjudication as per the provisions of law. It is also pertinent to note that the assessee shall cooperate in the assessment proceedings and it will be at liberty to file the necessary details in support of its contention. Hence the ground of appeal of the assessee is allowed for the statistical purposes.
Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act. 2. Addition of ?25,12,43,170/- out of the purchases. 3. Addition of ?1,65,71,352/- of letter of credit charges. 4. Disallowance of foreign commission expenses of ?32,27,452/-. 5. Addition of ?8,69,374/- of late payment of Employees’ contribution to Provident Fund. 6. Disallowance of ?2,32,22,722/- under section 14A of the Act. 7. Addition of ?56,94,49,965/- out of the purchases. 8. Addition of ?2,50,28,509/- of advertisement expenses. 9. Disallowance of ?3,19,231/- of additional depreciation. 10. Disallowance of claim of ?3,63,06,857/- made under section 35D of the Act. 11. Addition of ?2,50,965/- on the basis of TDS reflected in 26AS. Issue-wise Detailed Analysis: 1. Validity of Reassessment Proceedings: The assessee challenged the reassessment proceedings under section 147 of the Act on the grounds that the information from the VAT department was available at the time of original assessment under section 143(3) and that the reassessment was based on borrowed satisfaction. The Tribunal held that the AO received the information post the original assessment and applied his mind before reopening the assessment. Thus, the reassessment proceedings were upheld as valid. 2. Addition of ?25,12,43,170/- out of the Purchases: The AO made an addition of ?100,49,72,680/- based on information from the VAT department regarding bogus purchases. The CIT(A) restricted the addition to 25% of the purchases, i.e., ?25,12,43,170/-. The Tribunal upheld the CIT(A)’s decision, noting that the profit element embedded in the bogus purchases should be taxed, not the entire amount. 3. Addition of ?1,65,71,352/- of Letter of Credit Charges: The AO disallowed the letter of credit charges related to the bogus purchases. The CIT(A) confirmed the disallowance, and the Tribunal upheld the decision, stating that expenses related to bogus transactions are not deductible. 4. Disallowance of Foreign Commission Expenses of ?32,27,452/-: The AO disallowed the commission paid to foreign agents for non-deduction of TDS under section 195. The CIT(A) directed the AO to verify the nature of services and allow the deduction if the services were for procuring orders outside India. The Tribunal upheld the CIT(A)’s decision, directing the AO to verify the nature of services. 5. Addition of ?8,69,374/- of Late Payment of Employees’ Contribution to Provident Fund: The AO disallowed the late payment of employees' contribution to PF. The CIT(A) confirmed the disallowance, and the Tribunal upheld the decision, citing the Gujarat High Court’s judgment in CIT vs. GSTRC. 6. Disallowance of ?2,32,22,722/- under Section 14A of the Act: The AO made a disallowance under section 14A for interest and administrative expenses. The CIT(A) restricted the disallowance to the extent of exempt income earned. The Tribunal upheld the CIT(A)’s decision, noting that disallowance cannot exceed the exempt income. 7. Addition of ?56,94,49,965/- out of the Purchases: Similar to issue 2, the AO made an addition for bogus purchases. The CIT(A) restricted the addition to 25% of the purchases, and the Tribunal upheld the decision, following the same rationale as in issue 2. 8. Addition of ?2,50,28,509/- of Advertisement Expenses: The AO disallowed the advertisement expenses treated as deferred revenue expenses in the books. The CIT(A) confirmed the disallowance. The Tribunal restored the issue to the AO for fresh adjudication, directing the assessee to provide necessary details. 9. Disallowance of ?3,19,231/- of Additional Depreciation: The assessee did not press this ground of appeal, and the Tribunal dismissed it as not pressed. 10. Disallowance of Claim of ?3,63,06,857/- Made Under Section 35D of the Act: The AO disallowed the claim for preliminary expenses under section 35D, stating that the expenses were not incurred in the year under consideration. The CIT(A) confirmed the disallowance. The Tribunal directed the AO to verify if the expenses were treated as deferred revenue expenditure in earlier years and allowed in assessments under section 143(3). 11. Addition of ?2,50,965/- on the Basis of TDS Reflected in 26AS: The AO added income not shown in the books but reflected in Form 26AS. The CIT(A) confirmed part of the addition. The Tribunal restored the issue to the AO for fresh adjudication, directing verification from the parties whether they paid any income to the assessee. Separate Judgments: The Tribunal delivered separate judgments for each appeal, addressing the issues raised by both the assessee and the Revenue comprehensively. The decisions were based on the facts and evidence presented, legal precedents, and principles of natural justice.
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