2013 (9) TMI 362 - AT - Income Tax

Deletion of Bogus Purchase Held that - Following Nishant Housing Development Vs. ACIT 1994 (9) TMI 139 - ITAT PATNA - if any addition was made on the ground of expenditure incurred the source of which was to be treated as unexplained, then similar amount will have to be simultaneously allowed as expenditure to earn that income - rejection of part to be also accepted - On the basis that the purchases have been entered into stock register - Although the linkage of these purchases with the sale was not ascertainable because the purchases of raw material had undergone the various processes before its sale as a finished product - The raw material and finished goods have different entity and cannot have direct link the evidences had clearly shown the authenticity of the purchases - The addition was not justified as per law and facts of the case. Deletion of Payment of Interest for Sales Tax Deposit - Held that - Non-payment of statutory dues like sales tax, income-tax etc. may entail penalty but late payment of the same may not necessarily attract penalty but interest for such delayed payment/deposit - interest paid by the assessee to the sales tax department on arrears of sales tax/purchase tax was an admissible deduction - Following CIT Vs. Western Indian State Motors 1988 (3) TMI 22 - RAJASTHAN High Court and CIT vs. Lachhman Das Mathura 1980 (1) TMI 63 - ALLAHABAD High Court the addition was directed to be deleted. Deletion of Deduction u/s 80IB - Consideration of interest of FDR for calculating deduction u/s 80IB Income from Business profit from Duty Entitlement Passbook Scheme (DEPB) and Duty Drawback Scheme Held that - Following M/s Liberty India Versus Commissioner of Income Tax 2009 (8) TMI 63 - SUPREME COURT - Duty drawback, rebate etc. should not be treated as adjustment (credited) to cost of purchase or manufacture of goods - They should be treated as separate items of revenue or income and accounted for accordingly - for the purposes of AS-2, Cenvat credits should not be included in the cost of purchase of inventories - duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking - Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80-IA/80-IB of the 1961 Act.

Summary

Issues Involved:
1. Bogus purchase of Rs. 5,62,17,980/-
2. Payment of interest for sales tax deposit of Rs. 4,50,405/-
3. Consideration of interest of FDR of Rs. 6,38,558 for calculating deduction u/s. 80IB

Issue-wise Detailed Analysis:

1. Bogus Purchase of Rs. 5,62,17,980/-:
The revenue challenged the deletion of Rs. 5,62,17,980/- on account of bogus purchases. The assessee was found to have purchased goods aggregating to Rs. 22,48,71,920/- from entities operated by Mr. Atul Bansal, which were alleged to be accommodation entries. The Additional Commissioner of Income Tax directed the AO to disallow 25% of these purchases, amounting to Rs. 5,62,17,980/-, based on the ITAT judgment in the case of M/s. Vijay Proteins Ltd. Vs. ACIT.

The CIT (A) deleted the addition, noting that the purchases were genuine and supported by various documents such as stock registers, freight receipts, and sales tax forms. The CIT (A) emphasized that the sales had been accepted by the Excise and Trade department, and thus, the corresponding purchases should also be accepted. The CIT (A) concluded that there was no definite material finding to establish that the purchases were bogus.

The ITAT upheld the CIT (A)'s decision, stating that the information from the Investigation Wing could not be held as clinching evidence without independent inquiry and corroboration. The ITAT found that the AO's reliance on the Vijay Proteins case was misplaced, as the facts of the present case were distinguishable. The ITAT noted that the purchases were supported by account payee cheques, transportation vouchers, and sales tax forms, and the quantities of purchases and sales had been accepted by the AO. The ITAT concluded that the addition was based on assumptions and suspicions, which could not be considered as proof. Therefore, the ITAT dismissed the revenue's ground on this issue.

2. Payment of Interest for Sales Tax Deposit of Rs. 4,50,405/-:
The AO disallowed the interest payment of Rs. 4,50,405/- on the late deposit of sales tax, treating it as a penalty under Section 37 of the IT Act. The CIT (A) allowed the interest payment, stating that it was compensatory in nature and not a penalty. The CIT (A) cited various judicial decisions supporting the view that interest paid on arrears of sales tax is an admissible deduction.

The ITAT upheld the CIT (A)'s decision, noting that the interest payment was compensatory for the late payment of sales tax dues and not penal in nature. The ITAT emphasized that merely because the term "penalty" is used in the statute does not change the compensatory nature of the payment. Therefore, the ITAT dismissed the revenue's ground on this issue.

3. Consideration of Interest of FDR of Rs. 6,38,558 for Calculating Deduction u/s. 80IB:
The AO excluded the interest income of Rs. 6,38,558/- from the computation of deduction under Section 80IB, stating that it was not attributable to the assessee's business of manufacturing. The assessee conceded that this issue was covered against it by the Supreme Court judgment in the case of Liberty India 317 ITR 218.

The ITAT allowed the revenue's ground on this issue, as the assessee had conceded that the exclusion of interest income from the computation of deduction under Section 80IB was in line with the Supreme Court judgment.

In conclusion, the ITAT partly allowed the revenue's appeal by upholding the exclusion of interest income from the computation of deduction under Section 80IB but dismissed the revenue's grounds on the issues of bogus purchases and interest payment on the late deposit of sales tax. The order was pronounced in open court on 24-08-2012.