2024 (11) TMI 888 - AT - Income Tax

Addition on account of accommodation entries - CIT(A) restricting the addition to only 15% instead of 100% - HELD THAT - The Coordinate Bench in 2024 (6) TMI 1416 - ITAT MUMBAI for AY 2011- 12, had the occasion to consider an identical issue f ind merit in the contention advance on the behalf of the Appellant that the Assessing Officer has failed to bring any material on record to establish that the work was not actually performed and therefore, disallowance of 100% payments made to sub-contractors is not warranted in the facts and circumstances of the present case. We are not inclined to interfere with the order passed by CIT(A) restricting the disallowance to 15% of payments made to sub-contractors. There is nothing on record to persuade us to take a view that disallowance at a higher rate was warranted in the facts and circumstances of the present case. We have already rejected the contention of the Revenue to restore the disallowance at the rate of 100% of payments made to sub-contractors. We also concur with the CIT(A) that in absence of any material to substantiate the allegation that Assessee had paid commission at the rate of 1%, the addition made in respect of commission expenses of INR 8,81,3000/- cannot be sustained merely on assumptions and guess work. Decided against revenue. Additional deduction u/s 80IA - denial of claim of deduction u/s 80-IA because the said claim was not made in the original return of income - HELD THAT - CIT(A) called for a remand report from the AO who in his remand report fairly conceded that the claim of deduction has been allowed in all subsequent assessment years. Therefore, the ld. CIT(A) also allowed the claim of deduction u/s 80-IA of the Act correctly. Decided against revenue. Disallowance u/s 14A - assessee has suo moto disallowed amount being 1% of the average investment as on 31/03/2016 - HELD THAT - The undisputed fact is that the assessee borrowed funds from Shapoorji Pallonji and Company Ltd., and it is also not in dispute that the said borrowings were interest free and the shares were purchased out of such interest free borrowings. Therefore, no merit in the addition on account of interest payment. Insofar as, administrative expenses are concerned, the AO has disallowed 0.5% but the assessee has disallowed a higher amount of 1% at Rs. 13,69,000/- which is more than the disallowance computed by the AO. We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A). Accordingly, Ground dismissed.

Issues Involved:

1. Restriction of addition on account of accommodation entries.
2. Justification of relief granted by CIT(A) ignoring the Supreme Court judgment.
3. Burden of proof regarding genuineness of transactions.
4. Justification of additional deduction under Section 80-IA.
5. Applicability of Section 14A in the absence of exempt income and related disallowance.

Detailed Analysis:

1. Restriction of Addition on Account of Accommodation Entries:

The primary issue was whether the CIT(A) was justified in restricting the addition to 15% instead of 100% for alleged accommodation entries. The assessee, engaged in civil construction, had subcontracted work to M/s. Kumar Enterprises. The AO questioned the genuineness of transactions, suspecting M/s. Kumar Enterprises as an accommodation entry provider. The assessee provided documentary evidence, including work orders and payment proofs, to support the genuineness of transactions. The CIT(A) found no denial of services performed by the subcontractor and noted that similar restrictions were applied in previous assessments. The ITAT upheld the CIT(A)'s decision, citing consistency with past rulings and lack of evidence from the AO to prove non-performance of services.

2. Justification of Relief Granted by CIT(A) Ignoring Supreme Court Judgment:

The revenue contended that the CIT(A) ignored the Supreme Court's dismissal in a related case, suggesting a precedent for 100% disallowance. However, the ITAT found that the CIT(A) appropriately considered the factual matrix and past decisions, which justified a 15% disallowance. The Tribunal emphasized the lack of material evidence from the AO to support a higher disallowance.

3. Burden of Proof Regarding Genuineness of Transactions:

The revenue argued that the assessee failed to meet the high burden of proof regarding the genuineness of transactions with M/s. Kumar Enterprises. The assessee, however, provided substantial documentation, including TDS certificates and bank statements, which the CIT(A) found credible. The ITAT agreed, noting the absence of contrary evidence from the AO.

4. Justification of Additional Deduction Under Section 80-IA:

The AO denied the deduction under Section 80-IA as it was not claimed in the original return, referencing the Supreme Court decision in Goetze India Ltd. The CIT(A), however, allowed the deduction after the AO conceded in a remand report that such deductions were granted in subsequent years. The ITAT upheld this decision, finding no reason to interfere with the CIT(A)'s findings.

5. Applicability of Section 14A in the Absence of Exempt Income and Related Disallowance:

The AO disallowed Rs. 68,17,000 under Section 14A, while the assessee had already disallowed Rs. 13,69,000 suo moto. The CIT(A) found that the assessee used interest-free funds for investments, negating interest disallowance, and the suo moto disallowance sufficed for administrative expenses. The ITAT upheld this view, highlighting the use of interest-free funds and the adequacy of the assessee's disallowance. The Tribunal dismissed the revenue's appeal, citing lack of evidence for a higher disallowance and consistency with past assessments.

Conclusion:

The ITAT dismissed the revenue's appeal, affirming the CIT(A)'s decisions on all grounds. The Tribunal found that the CIT(A) acted within reason, supported by documentary evidence and consistent with prior rulings. The appeal was dismissed in its entirety.

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