2022 (6) TMI 1161 - AT - Income Tax

Validity of order u/s 144 - HELD THAT - In order of learned CIT (A), it was categorically held that all the submissions produced before the learned Assessing Officer was considered. Further, in response to notice under Section 153A of the Act, the assessee did not care to file even the return of income. Therefore, we find that no force in the ground no.1 of the appeal. Hence, dismiss. Addition made without having any incriminating material - HELD THAT - We find that during the course of search enough evidences were found which are tabulated by the learned Assessing Officer and based on that addition has been made. Therefore, it cannot be said that there is no incriminating material found during the course of search. In the result ground number 3 of the appeal of the assessee is dismissed. Bogus purchases - HELD THAT - We find that the CIT A has considered all the explanations furnished by the assessee. He has categorically stated that the assessee had booked purchases from six suppliers identified by the sales tax Department as hawala/bogus dealers. The assessee is also not in possession of the bills and other supporting evidences for purchases to the tune of ₹ 5.92 crores. Therefore, there was no doubt that the assessee has indulged in bogus purchases for all these years. The learned and CIT A observed that the average ratio of bogus purchases to the turnover is merely 1.04% and therefore the bogus purchases were estimated for assessment year 2007 08 to 2009 10 at ₹ 60.76 crores. When assessee was confronted with evidences, the key persons, managing director enhanced the admission and offered an additional amount of unaccounted income. On that basis the learned CIT A the addition of ₹ 223,411,367/ . In view of this, we do not find any infirmity in the orders of the lower authorities in confirming the addition of the above amount on account of alleged bogus purchase. Accordingly, ground number 2 of the appeal is dismissed. Disallowance on account of speed money - HELD THAT - CIT A confirmed the addition however he telescope the same in view of the addition confirmed by him on account of bogus purchases for the reason that in answer to question number 135 the managing director of the company has stated that the source of the above speed money paid is on account of bogus purchases. Therefore we do not find any infirmity in the order of the learned CIT A in allowing the telescoping of the above disallowance with respect to the addition confirmed by him on account of bogus purchases. Accordingly, ground numbers 1 2 of the appeal of the AO are dismissed. Disallowance u/s 14A - assessee has incurred substantial interest expenditure and has also made investment where from exempt dividend on income could have been earned - HELD THAT - As we find that now with effect from 1 April 2022 the Finance act, 2022 has introduced an explanation, which makes it very clear that the provisions of Section 14A with respect to the disallowance will apply and shall be deemed to have always been applied in case where the assessee has not earned any exempt income. Therefore, in view of the amendment made we set-aside these grounds back to the file of the learned assessing officer to grant an opportunity of the hearing to the assessee and decide the issue afresh. Accordingly, these grounds are allowed with above directions. Disallowance of interest expenditure - CIT- A has deleted the above disallowance holding that assessee has interest free funds available with it in the form of share capital and reserve - HELD THAT - As relying on the decision of the honourable Bombay High Court in case of Reliance utilities and powers Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT held that the presumption is available in favour of the assessee that no interest-bearing funds have been utilized for the above interest free loans and advances. The learned departmental representative could not show any infirmity in the order of the learned CIT A. Therefore, we confirm the action of the learned CIT A in deleting the above disallowance and accordingly ground of the appeal of the AO is dismissed. Disallowance of deduction u/s 80 IA - AO did not allow the claim of the assessee for the reason that no audit report in form number 10CCB was filed - Before the learned CIT A assessee also failed to show that any such form has been filed before the assessing officer. The assessee also did not produce any evidence before the learned CIT A also. CIT A also asked the assessee to produce certain details, which were not produced. Accordingly, the deduction was disallowed - HELD THAT - No such details were also produced before us. Disallowance confirmed. Disallowance on account of purchases of development rights of fully developed when the power site acquired from Vish wind infrastructure LLP LLP - HELD THAT - CIT- A on perusal of the finding of the learned assessing officer, settlement commission as well as in absence of any further information except the further valuation report, confirmed the action of the learned assessing officer. We find that when the payment was not found to be genuine, the party to which payments have been made did not have any capability of performing such work, the report of expert was found to be backdated and without any further evidence, the expert also did not visit the site or carry out any personal inspection, there is no doubt in our mind that the expenditure incurred by the assessee is bogus. Accordingly we confirm the action of the learned CIT A in disallowing the above expenditure. Accordingly, ground of the appeal is dismissed. Disallowance u/s 37 (1) - This offer was made by the assessee before the settlement commission - addition was on account of the provisions of Section 43B of the act since the above sum is not paid before the end of relevant year - HELD THAT - During the course of assessment proceedings, also assessee did not object to the same. Before the learned CIT A also no evidences were produced. There are no evidences that the above sum has been paid even before the due date of filing of the return of income. Therefore, we do not have any other alternative but to confirm the action of the learned CIT A in confirming the above disallowance - Accordingly, ground of the appeal is dismissed. Disallowance of certain expenditure - HELD THAT - On careful analysis of the order of the learned CIT A we find that in each of the disallowance, he is faced with the situation where no complete details are available on record but comparative analysis of expenditure is available. He applied his mind and applied reasonable ratio to uphold the disallowance. No infirmity can be imputed in such an order.

Summary

Issues Involved:
1. Validity of assessment order under Section 144.
2. Addition on account of alleged bogus purchases.
3. Addition without incriminating material found during search.
4. Disallowance of unaccounted cash expenses (speed money).
5. Disallowance under Section 14A.
6. Disallowance of interest under Section 36(1)(iii).
7. Disallowance of deduction under Section 80IA.
8. Disallowance of bad debts.
9. Disallowance of liquidated damages.
10. Disallowance of development rights.
11. Disallowance under Section 43B.
12. Set-off of brought forward losses.
13. Telescoping of unaccounted cash expenses against bogus purchases.

Detailed Analysis:

1. Validity of Assessment Order under Section 144:
The first ground of appeal challenged the validity of the assessment order under Section 144. The Tribunal noted that the learned CIT (A) had categorically stated that all submissions produced before the Assessing Officer were considered. Despite notice under Section 153A, the assessee did not file the return of income. Thus, the Tribunal found no force in the ground and dismissed it.

2. Addition on Account of Alleged Bogus Purchases:
The second ground concerned the addition of ?22,34,11,367/- on account of alleged bogus purchases. The Tribunal upheld the findings of the CIT (A) who had noted that the assessee had booked purchases from six suppliers identified as hawala/bogus dealers and was not in possession of bills and other supporting evidence for purchases amounting to ?5.92 crores. The Tribunal dismissed the ground, confirming the addition.

3. Addition Without Incriminating Material Found During Search:
The Tribunal found that enough evidence was found during the search, which was tabulated by the Assessing Officer and based on which the addition was made. Thus, the Tribunal dismissed the ground, stating that there was incriminating material found during the course of the search.

4. Disallowance of Unaccounted Cash Expenses (Speed Money):
The Tribunal noted that the primary documents seized during the search and the statements on oath recorded were critical and carried immense evidentiary value. The Managing Director had explained that the source of "speed money" was out of unaccounted funds generated by claiming bogus purchases. Thus, making a separate addition on account of speed money along with the addition on account of bogus purchases would result in a double addition. The Tribunal upheld the CIT (A)'s decision to allow telescoping of the unaccounted cash expenses against the income determined on account of bogus purchases.

5. Disallowance under Section 14A:
The Tribunal noted that the CIT (A) had deleted the disallowance under Section 14A on the ground that no exempt income was earned during the assessment year. However, with effect from April 1, 2022, the Finance Act, 2022 introduced an explanation that the provisions of Section 14A shall apply even if no exempt income is earned. Thus, the Tribunal set aside the ground back to the Assessing Officer to decide the issue afresh.

6. Disallowance of Interest under Section 36(1)(iii):
The Tribunal upheld the CIT (A)'s decision to delete the disallowance of interest expenditure under Section 36(1)(iii), noting that the assessee had sufficient interest-free funds available more than the amount invested in subsidiary companies without charging interest.

7. Disallowance of Deduction under Section 80IA:
The Tribunal dismissed the ground concerning the disallowance of deduction under Section 80IA, noting that the assessee had failed to produce the necessary certificate in Form 10CCB before the Assessing Officer and the CIT (A).

8. Disallowance of Bad Debts:
The Tribunal upheld the disallowance of bad debts, noting that the assessee did not produce any details before the Assessing Officer, in the remand proceedings, or before the CIT (A).

9. Disallowance of Liquidated Damages:
The Tribunal upheld the CIT (A)'s decision to allow the claim of ?31,119,000/- on account of liquidated damages, which was supported by the memorandum of understanding and a debit note. However, it confirmed the disallowance of ?53,075,465/- as the assessee could not furnish any supporting agreement for the interest paid on loans taken by the other party.

10. Disallowance of Development Rights:
The Tribunal confirmed the disallowance of ?291 crores (and similar amounts in subsequent years) on account of purchase of development rights, noting that the party from whom the rights were purchased did not have the necessary technical know-how, manpower, or infrastructure, and the transaction was found to be bogus.

11. Disallowance under Section 43B:
The Tribunal upheld the disallowance under Section 43B, noting that the assessee did not satisfy the requisite criteria for the deduction.

12. Set-off of Brought Forward Losses:
The Tribunal upheld the CIT (A)'s decision not to allow the set-off of brought forward losses, noting that there was no unabsorbed depreciation available to the assessee as per the assessment records of the earlier year.

13. Telescoping of Unaccounted Cash Expenses Against Bogus Purchases:
The Tribunal upheld the CIT (A)'s decision to allow telescoping of the unaccounted cash expenses against the income determined on account of bogus purchases, noting that the Managing Director had explained that the source of "speed money" was out of unaccounted funds generated by claiming bogus purchases.

Conclusion:
The Tribunal dismissed the appeals filed by the assessee for the assessment years 2007-08, 2010-11, 2011-12, 2012-13, 2013-14, and 2014-15, confirming the various additions and disallowances made by the Assessing Officer and upheld by the CIT (A). The Tribunal partly allowed the appeals filed by the Assessing Officer for the assessment years 2010-11, 2011-12, 2012-13, 2013-14, and 2014-15, setting aside certain issues back to the Assessing Officer for fresh consideration.