2021 (10) TMI 1046 - AT - Income Tax

Estimation of income - Bogus purchases - disallowance at 10% of disputed purchases made during the year - assessee is one of the beneficiaries of various dealers who provide only accommodation entries without any delivery of goods based on the information received from Sales Tax Department, Mumbai - HELD THAT - Taking the totality of the facts and circumstances into consideration we are of the view that ends of justice would be met if the disallowance is sustained at 6% of the alleged bogus purchases considering the fact that even the Assessing Officer in his remand report did not dispute the records in respect of purchases, consumption, sales as well as the stock reconciliation etc., furnished by the assessee - we direct the AO to restrict the disallowance to 6% of the alleged bogus purchases. Ground raised by the assessee on this issue is partly allowed. Deduction u/s. 35(2AB) - assessee company has incurred expenditure on research and development activities and has claimed additional deduction u/s. 35(2AB) - application for approval in form 3CK was made after the close of the Financial Year - HELD THAT - Merely because approval is received in the subsequent year, the deduction u/s 35(2AB) could not be denied to the assessee - denial of deduction u/s. 35(2AB) of the Act on the ground that the application for approval in form 3CK was made after the close of the Financial Year is also unsustainable. See BANCO PRODUCTS (INDIA) LTD. 2018 (7) TMI 1559 - GUJARAT HIGH COURT - we have no hesitation in holding that the deduction u/s.35(2AB) as claimed by the assessee is to be allowed. Hence, the deduction u/s 35(2AB) as claimed by the assessee is allowed. Disallowance u/s 14A r.w.r. 8D - CIT-A deleted the addition - HELD THAT - It is the finding of the Ld.CIT(A) that the financial statements of the assessee shows that it had sufficient own funds to make the investments on equities. The Ld.CIT(A) following the decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and HDFC BANK LTD. 2014 (8) TMI 119 - BOMBAY HIGH COURT held that there is no case for disallowance of any interest under Rule 8D(2)(ii) of I.T. Rules. We do not find any infirmity in the order of the Ld.CIT(A) in deleting the interest disallowance. The order of the Ld.CIT(A) is affirmed on this issue. The ground raised by the revenue is rejected.

Summary

Issues Involved:
1. Disallowance of 10% of disputed purchases.
2. Rejection of deduction claim under Section 35(2AB) of the IT Act.
3. Restriction of disallowance under Section 14A to the extent of exempt income earned.
4. Confirmation of disallowance of non-genuine purchases in the revised return.

Detailed Analysis:

1. Disallowance of 10% of Disputed Purchases:
The Assessing Officer (AO) disallowed ?4,92,14,139/- as non-genuine purchases based on information from the Sales Tax Department and a subsequent survey. The assessee argued that the purchases were genuine and provided evidence, but the AO was not convinced. The CIT(A) restricted the addition to 10% based on a previous Tribunal order. The Tribunal reviewed the remand report, which did not dispute the records, and concluded that a 6% disallowance would be just, considering the totality of facts and circumstances. Hence, the disallowance was restricted to 6% of the alleged bogus purchases.

2. Rejection of Deduction Claim Under Section 35(2AB):
The AO denied the claim for weighted deduction of ?4,98,89,829/- under Section 35(2AB) on the grounds that the approval for the R&D facilities was granted after the close of the relevant financial year. The CIT(A) upheld this decision, stating that the effective date of approval was crucial and the assessee did not comply with all conditions. The Tribunal, however, noted that the issue was covered by numerous judgments favoring the assessee, including the Bombay High Court in PCIT v. Strides Arcolab Ltd., which held that the date of approval relates back to the date of application. The Tribunal allowed the deduction, reversing the orders of the AO and CIT(A).

3. Restriction of Disallowance Under Section 14A:
The CIT(A) deleted the disallowance of ?39,354/- under Section 14A, observing that the assessee had sufficient own funds to make the investments in equities, as supported by the jurisdictional High Court decisions in Reliance Utilities and Power Ltd. and HDFC Bank Ltd. The Tribunal found no infirmity in the CIT(A)'s order and affirmed it, rejecting the revenue's ground of appeal.

4. Confirmation of Disallowance of Non-Genuine Purchases in the Revised Return:
For A.Y. 2009-10, the AO disallowed ?15,55,062/- based on information from the DGIT (Investigation) and a survey. The assessee initially offered this amount as additional income but later retracted. The CIT(A) upheld the disallowance, noting that the assessee voluntarily offered the amount during the survey. The Tribunal, however, found that the assessee provided substantial evidence of the purchases' genuineness during remand proceedings, which the AO did not dispute. The Tribunal directed the AO to restrict the disallowance to 6% of the alleged non-genuine purchases, similar to the decision for A.Y. 2011-12.

Conclusion:
The Tribunal partly allowed the assessee's appeals, restricting the disallowance of disputed purchases to 6% and allowing the deduction under Section 35(2AB). The revenue's appeal was dismissed, and the CIT(A)'s deletion of the disallowance under Section 14A was affirmed.