2017 (1) TMI 983 - AT - Income Tax

Disallowance of interest - Held that - Considering the peculiarity of the facts of the present case when the assessee has sufficient surplus fund available with them at their disposal to lend to its sister concern at lower rate of interest compared to the other non-related parties no disallowance was warranted. Hence, we do not find any infirmity or illegality in the order passed by Commissioner (Appeals)in deleting addition which require our interference - Decided in favour of assessee Disallowance of bogus purchases @ 23% of the total purchases - Held that - Considering the facts that the genuineness of the purchases made by the assessee was not doubted by ld Commissioner (Appeals) the disallowance restricted @23% to our opinion is at higher side. Thus as per our considered opinion the disallowance @ 15% of total impugned purchases would be sufficient to meet the end of Justice. We accordingly direct the AO to calculate the disallowance is of impugned bogus purchases @15% of total cost of impugned purchases. With this observation the appeal of the assessee is partly allowed.

Summary

Issues:
Cross appeals under section 253 of Income Tax Act against the order of Commissioner (Appeals) for assessment year 2010-11.

Analysis:
1. Deletion of disallowance of interest: The AO disallowed interest expenses of &8377; 2,82,837/-, considering loans to related parties at lower rates. However, the CIT(A) deleted the disallowance, citing the availability of sufficient capital with the assessee to lend at lower rates. The Tribunal upheld the CIT(A)'s decision, emphasizing the surplus funds available with the assessee and the absence of any need for disallowance.

2. Sustaining disallowance of bogus purchases: The AO added &8377; 52,12,502/- as bogus purchases based on information from the Sale Tax Department. The assessee failed to provide delivery evidence, leading to the disallowance. The CIT(A) reduced the disallowance to &8377; 11,98,875/-, considering the lack of independent verification by the AO and reconciling sales with purchases. The Tribunal further reduced the disallowance to 15% of the total purchases, finding the 23% disallowance excessive given the genuine nature of the transactions.

In conclusion, the Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, directing the AO to calculate the disallowance of bogus purchases at 15% of the total cost. The judgment emphasized the importance of independent verification and proper assessment of facts in determining disallowances related to interest and purchases.