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2022 (11) TMI 1200 - AT - Income TaxDisallowances u/s 14A - Expenditure on exempt income - HELD THAT - No infirmity in the finding of learned CIT(A) as limiting the disallowances u/s 14A of the Act to the extent of exempted income. MAT - Exempted income - adjustment to book profit u/s 115JB - provision of clause (f) of the explanation 1 to section 115JB - HELD THAT - We note that the Special Bench in the case of ACIT vs. Vireet Investment Pvt. Ltd. . 2017 (6) TMI 1124 - ITAT DELHI has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of addition while determining the net profit u/s 115JB. We hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction in the case of CIT Vs. Jayshree Tea Industries Ltd. 2014 (11) TMI 1169 - CALCUTTA HIGH COURT . How to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently - There is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore in the given facts circumstances, we feel that adhoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus in view of the above the ground of appeal of the Revenue is partly allowed. Bogus purchases - whether the purchase shown by the assessee is bogus in nature? - HELD THAT - We note that the assesse has shown export sales which was duly supported based on form H, bill of lading, shipping bill etc. Likewise, there was received money against such export sales. Thus, all these cumulative informations suggest that the assessee without making the purchase, cannot export the goods. There were various documents filed by the assessee in his form of confirmation, sales bills of the parties. Besides, the authorized representative appeared on behalf of M/s Uma Cotton Industries, all these documents cannot be neglected merely on the reasoning that there was some mismatch in the transport bills as discussed above. Thus, in view of the above, and after considering the facts in totality we do not find any reason to interfere in the order of the Ld. CIT(A), hence the ground of appeal of the revenue is hereby dismissed. Addition of commission expenses - HELD THAT - All documentary evidences are not sufficient enough until and unless it is clear based on the evidences that the commission agents have rendered services to the assessee. It is the onus upon the assessee to bring such services based on the cogent materials but we note that there was no evidence brought on record about the services rendered by the commission agent, therefore, we are not inclined to uphold the order of the Ld. CIT(A), on the reasoning that the commission expenses have not been incurred by the assessee wholly and exclusively for the purpose of business. On perusal of the agreement, we note that there were executed on 01/04/2011 and the same were not notarized. Furthermore, most of the payment for the commission was made at the fag end of the Assessment Year though the assessee was carrying out business throughout the year. All these facts strongly suggest that the assessee has manipulated it profit by claiming commission expenses. Hence the ground of Revenue is allowed.
Issues Involved:
1. Disallowance under Section 14A. 2. Disallowance of bogus purchases. 3. Disallowance of commission expenses. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A: The Revenue contested the restriction of disallowance under Section 14A to Rs. 71,436 by the CIT(A), as opposed to the AO's disallowance of Rs. 12,21,613. The assessee, a limited company engaged in trading gold, silver, and raw cotton, claimed exempted dividend income of Rs. 71,435. The AO calculated disallowances based on interest and administrative expenses, totaling Rs. 12,21,613. The CIT(A) restricted the disallowance to the amount of exempted income, which was upheld by the Tribunal, referencing the Gujarat High Court's decision in Corrtech Energy Ltd. The Tribunal also noted that disallowance under Section 14A cannot exceed the exempted income and that such disallowance cannot be added to book profit under Section 115JB, as per the Delhi Tribunal's decision in ACIT vs. Vireet Investment Pvt. Ltd. However, the Tribunal directed an ad-hoc disallowance of 1% of the exempted income for determining book profit under Section 115JB. 2. Disallowance of Bogus Purchases: The Revenue challenged the CIT(A)'s restriction of disallowance for bogus purchases to Rs. 5,00,000 from Rs. 2,63,08,871 as determined by the AO. The AO found discrepancies in purchases from Uma Cotton Industries and Somnath Cottgin(I) Pvt. Ltd., including unserved notices, mismatched transport bills, and canceled VAT registrations. The CIT(A) noted that the purchases were supported by export documents and confirmations, and the sales were accepted by the AO. The CIT(A) partially upheld the disallowance, confirming Rs. 5,00,000 to address minor discrepancies. The Tribunal supported the CIT(A)'s decision, acknowledging that the purchases were necessary for the confirmed export sales and dismissing the Revenue's appeal on this ground. 3. Disallowance of Commission Expenses: The Revenue disputed the CIT(A)'s deletion of the AO's disallowance of Rs. 19,29,530 in commission expenses. The assessee incurred commission expenses related to export sales and gold bullion sales, supported by agreements, TDS certificates, and bank statements. The AO disallowed the expenses due to lack of evidence of services rendered by the commission agents. The CIT(A) found the commission payments genuine based on provided documents and previous assessments where similar expenses were accepted. However, the Tribunal reversed the CIT(A)'s decision, emphasizing the lack of evidence of actual services rendered by the agents and noting suspicious timing and execution of the agreements. The Tribunal concluded that the commission expenses were not incurred wholly and exclusively for business purposes, allowing the Revenue's appeal on this ground. Conclusion: The appeal by the Revenue was partly allowed, with the Tribunal upholding the CIT(A)'s decisions on disallowance under Section 14A and bogus purchases, but reversing the decision on commission expenses. The Tribunal emphasized the need for concrete evidence of services rendered in support of commission expenses and maintained a cautious approach towards disallowances exceeding exempted income.
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