2018 (1) TMI 1287 - AT - Income Tax

Disallowance u/s 14A r/w rule 8D - specific plea of the assessee is that the assessee has not earned any exempt income - Held that - On careful reading of the assessment order as well as first appellate authority s order we are of the view that disallowance under section 14A r/w rule 8D has been made fundamentally on the basis that the assessee has made investment in shares of companies which would give rise to exempt income. There is nothing in the order of the Departmental Authorities to suggest that in the relevant previous year the assessee had earned any exempt income. Therefore prima facie the assessee s claim that it has not earned any exempt income in the relevant previous year appears to be correct. - Decided in favour of assessee Addition made on account of alleged bogus purchase - addition relying upon the information obtained from the Sales Tax Department - Held that - AO has not made any independent enquiry or investigation to find out the existence of the concerned parties or the genuineness of purchases. It is also a fact on record that the Assessing Officer has not doubted the sales effected by the assessee in the relevant previous year. Moreover on identical facts and circumstances addition made on account of bogus purchase in assessee s own case for assessment year 2011 12 was reduced to 12.5% of the bogus purchase. Respectfully following the same we direct AO to disallow 12.5% of the alleged bogus purchase Disallowance of deduction claimed on account of payment made towards employee s contribution to PF/ESIC - Held that - As could be seen from the facts on record employee s contribution to PF/ESIC were paid by the assessee much before the due date of filing of return of income as provided under section 139(1) of the Act. That being the case as per ratio laid down by the Hon ble Jurisdictional High Court in CIT v/s Hindustan Chemicals Organics Ltd.(2014 (7) TMI 477 - BOMBAY HIGH COURT) no disallowance can be made keeping in view the amendment brought to section 43B

Summary

Issues:
1. Challenge to disallowance under section 14A r/w rule 8D.
2. Addition made on account of alleged bogus purchase.
3. Disallowance of deduction claimed on account of payment made towards employee's contribution to PF/ESIC.

Issue 1: Disallowance under section 14A r/w rule 8D
The assessee challenged the disallowance made under section 14A r/w rule 8D for the assessment year 2010-11. The Assessing Officer disallowed an amount based on the investment in shares of a company, assuming it would yield exempt income. The assessee contended that no exempt income was earned in the relevant year. The ITAT held that disallowance under section 14A cannot be made if no exempt income was earned, citing a similar precedent. The Tribunal deleted the disallowance, following the decision of the Hon'ble Delhi High Court. The ITAT also referred to a similar view expressed by the Hon'ble Jurisdictional High Court in a different case, leading to the deletion of the disallowance.

Issue 2: Alleged Bogus Purchase
The Assessing Officer added back an amount claimed as purchases by the assessee, treating them as bogus based on information from the Sales Tax Department. The assessee tried to prove the genuineness of purchases but was unsuccessful. The ITAT observed that the AO did not conduct an independent inquiry and solely relied on external information. The Tribunal directed the AO to disallow only 12.5% of the alleged bogus purchase, following a similar decision in the assessee's case for a different assessment year. The ITAT emphasized the lack of independent verification by the AO and reduced the disallowance accordingly.

Issue 3: Disallowance of Deduction for PF/ESIC Contribution
The Assessing Officer disallowed the deduction claimed for employee's contribution to PF/ESIC as it was not paid within the due date under section 36(1)(va) of the Act. However, the ITAT noted that the contributions were paid before the due date for filing the return of income under section 139(1) of the Act. Citing a precedent, the ITAT deleted the disallowance, stating that no disallowance could be made considering the amendment to section 43B of the Act. Consequently, the ITAT allowed this ground of appeal.

In conclusion, the ITAT partially allowed the assessee's appeal, deleting the disallowance under section 14A, reducing the disallowance on alleged bogus purchases, and allowing the deduction claimed for employee contributions to PF/ESIC. The judgment was pronounced on 10.11.2017.