2019 (10) TMI 1190 - AT - Income Tax

Reopening of assessment u/s 147 - addition of bogus expenditure - original assessment order was passed by the Assessing Officer under scrutiny proceedings - whether information received from the Investigation Wing of the Department for reopening the assessment has been justified or not ? - HELD THAT - In the present case, it cannot be said that the Assessing Officer had initiated reassessment proceedings on the borrowed satisfaction of DCIT, Kolkata. From the reasons recorded, it is clear that the Assessing Officer had perused the material which had come to his knowledge and formed an opinion that income had escaped assessment for the failure of the assessee to disclose all material facts which are necessary for assessment. Information received from DCIT, Kolkata throws light on the truth fullness or otherwise of transactions with M/s. Sakshi Trade Links Pvt. Ltd. This information enabled the Assessing Officer to form belief that income escaped assessment. As stated by us (supra) at the initial stage of issue of notice u/s.148 of the Act, it is not necessary to go into the sufficing or of otherwise of the new material to make the addition. Therefore the information received from DCIT, Kolkata suggested that payment made to M/s. Sakshi Trade Link P. Ltd is bogus, the Assessing Officer formed belief that income chargeable to tax had escaped assessment and accordingly initiated reassessment proceedings. Therefore we uphold the validity of the reopening of the assessment and accordingly, allow ground No.2 raised by the Revenue. Addition of payments made to M/s. Sakshi Trade Link - In the present case, admittedly, there is no corroborative evidence brought by the Assessing Officer in support of the information received from DCIT, Kolkata. In the absence of such corroborative materials addition cannot be sustained, in the backdrop of legal position discussed above. Therefore, grounds of appeal challenging the deletion of addition of payment made to M/s. Sakshi Trade Link Pvt Ltd stands dismissed. Disallowance u/s 14A - HELD THAT - In the present case, Indisputedly own and interest free funds are more than the investment made and therefore that the presumption should be drawn that investments are made out of own funds in view of the principle enunciated in above mentioned decisions. Therefore, no disallowance of interest under clause (ii) of Rule 8D can be made. As regards to the disallowance of administrative expenses under clause (iii), the law is settled to the extent that for the purpose of computing the amount of disallowance on clause (iii) of Rule 8D, only investments which yielded exempt income alone should be considered. Accordingly, we direct the Assessing Officer to compute the amount of disallowance under Rule 8D(iii) by considering the value of investments which yielded exempt income alone. In the result, ground No.2 filed by the Revenue is partly allowed for statistical purpose. CSR disallowance - CIT-A restricted the disallowance to 10% the expenditure incurred in cash - ao disallowed the amount only to the extent as expenditure was incurred in the nature of donation and renovation of college building etc - HELD THAT - Admittedly, the expenditure was incurred in the areas where business operations of the assessee company were carried out in order to promote social economic condition of the local community living and in order to win the goodwill of the local people. The Hon ble Jurisdictional High Court in the cases of Madras Refineries Ltd 2003 (11) TMI 47 - MADRAS HIGH COURT , Velumanickam Lodge 2009 (6) TMI 76 - MADRAS HIGH COURT as well as Cholan Roadways Corporation Ltd 1997 (2) TMI 38 - MADRAS HIGH COURT had held that the expenditure incurred on promoting social welfare of the local community and providing drinking water facilities, educational facilities cannot be regarded as expenditure wholly incurred outside the ambit of business of the assessee and allowed business deduction. Having regard to the ratio of the decisions, we are of the considered opinion that the decision of the ld. Commissioner of Income Tax (Appeals) is based on proper appreciation of facts - Decided against revenue Addition on account of discrepancy between the amount of receipt reflected in form 26AS and credited to P L account - CIT-A granted part relief - HELD THAT - pparently there is discrepancy between the amount reflected in form 26AS and the amount shown in the Profit and Loss account. Assessee company offered an explanation as to how the discrepancies arose between the two. The ld. CIT(A) considering the explanation partly granted relief to the assessee. However, ld. CIT(A) had not discussed the fact situation as to how the income shown in Form-26AS had not accrued. Therefore, we are of the considered opinion that the matter should be remand back to the file of the Assessing Officer for denovo assessment Addition on account of payment made to subcontractor - AO made disallowance on the ground that subcontractor had not responded to the notice issued by the AO u/s.133(6) - CIT-A deleted the addition - HELD THAT - There is no evidence to show that the amount paid to subcontractor is recycled back to the assessee and there is not even an allegation by the Assessing Officer to this effect. Nevertheless, the receipts from this contract was offered to tax and it is not the case of the Assessing Officer that assessee had incurred expenditure in executing the contract apart from the subcontract expenses. In the circumstances, we are unable to uphold the disallowance made by the Assessing Officer and accordingly do not find any reason to interfere with the order of the ld. CIT(A). Bogus purchases from Kolkata parties - HELD THAT - Admittedly, purchases made by the assessee company was duly supported by bills and the payments were made through banking channels and assessee had discharged the initial onus of filing the name, address, copies of invoice, TIN and CST etc. The Assessing Officer had not brought any evidence on record to show that the amounts paid to the sellers was recycled back to the assessee and moreover, the Assessing Officer had not doubted the consumption of the materials brought. In the absence of this material evidence, no addition can be made towards alleged bogus expenditure - Decided against revenue Accrual of income - Addition made on account of accrued interest in respect of work done for Electrical Engineer, Rural Works II, Keonjhar - CIT(A) deleted the addition considering the fact that income was offered to tax in the immediate succeeding assessment year - HELD THAT - No doubt each assessment year is a separate and distinct unit of assessment but the Assessing Officer had not brought any material on record to show that income had accrued to the assessee in terms of agreement of contract. Mere receipt of money does not constitute income and therefore we cannot uphold the addition to income. Addition made on account of subcontractor payment made to M/s. Preeya Earthmovers - disallowance made primary on the ground that subcontractor had not filed return of income - HELD THAT - CIT(A) the addition deleted the addition by holding that mere non filing of return by the sub contractor would not itself can be reason to disallow the payment. The Assessing Officer had not disputed the actual work done by M/s. Preeya Earthmovers Allowable revenue expenditure - disposal of the ore and realization thereof - claims on quality from the buyers of the ore - HELD THAT - It is not for the Assessing Officer to question the necessity of expenditure irrespective of the fact whether expenditure has resulted in profit or more income, as long as payment was made wholly and exclusively for business purpose, the same should be allowed as deduction. From the material on record, it can inferred that expenditure was incurred voluntarily indirectly to facilitate the carrying on of the assessee company as the expenditure was incurred on grounds of commercial expediency. The Hon ble SC in the case Gordon Woodrofee Leather Mfg vs. CIT 1961 (12) TMI 4 - SUPREME COURT held that any expenditure expended on the ground of commercial expediency in order to indirectly facilitate the carrying on the business is allowable as deduction. Therefore the claim falls within the purview of the provisions of Section37(1) Allowability of legal expenses - allowable revenue expenditure - HELD THAT - The law is settled to the extent that legal expenditure incurred in order to protect the business is allowable as revenue expenditure. In the present case as held by us (supra) it is an expenditure incurred to protect the business of the assessee company. Therefore we hold that the same is allowable as deduction without any hesitation.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of reassessment proceedings.
3. Disallowance of expenses claimed as bogus.
4. Disallowance under Section 14A read with Rule 8D.
5. Disallowance of Corporate Social Responsibility (CSR) expenses.
6. Disallowance of legal expenses.
7. Addition based on discrepancies in Form 26AS.
8. Disallowance of subcontractor payments.
9. Disallowance of purchases as bogus.
10. Disallowance of quality allowances and claims.
11. Disallowance of 100% depreciation on temporary structures.

Detailed Analysis:

1. Condonation of Delay:
The Tribunal condoned the delay of two days in filing the appeals by the Revenue, as the delay was neither willful nor wanton, and the Authorized Representative did not raise any serious objection.

2. Validity of Reassessment Proceedings:
The reassessment was initiated based on information from the Deputy Commissioner of Income Tax, Central Circle XXI, Kolkata, indicating that the assessee was a beneficiary of accommodation entries provided by M/s. Sakshi Trade Link Pvt Ltd. The Tribunal upheld the validity of the reassessment, stating that the information constituted "new tangible" information enabling the Assessing Officer to form a reason to believe that income had escaped assessment. The Tribunal referenced several judgments, including the Hon'ble Supreme Court's decision in Phool Chand Bajrang Lal and Another vs. ITO, which supported the notion that fresh information exposing the falsity of statements made during the original assessment constitutes grounds for reassessment.

3. Disallowance of Expenses Claimed as Bogus:
The Tribunal upheld the CIT(A)'s decision to delete the addition of payments made to M/s. Sakshi Trade Link Pvt Ltd, as the Assessing Officer did not provide the assessee with an opportunity to cross-examine the director whose statement was used as the basis for the addition. The Tribunal emphasized that no addition can be made based on an unconfronted oral statement of a third party.

4. Disallowance under Section 14A read with Rule 8D:
For assessment years 2012-13 and 2013-14, the Tribunal directed the Assessing Officer to compute the disallowance by considering only the value of investments that yielded exempt income. The Tribunal upheld the deletion of interest disallowance under Rule 8D(ii), as the assessee had sufficient own funds to cover the investments.

5. Disallowance of CSR Expenses:
The Tribunal upheld the CIT(A)'s decision to restrict the CSR disallowance to 10% of the expenditure incurred in cash, referencing the Jurisdictional High Court's decisions that expenditures incurred for promoting social welfare and providing facilities to the local community are allowable as business deductions.

6. Disallowance of Legal Expenses:
The Tribunal upheld the CIT(A)'s decision to allow the legal expenses incurred in connection with a PIL filed against illegal mining in Odisha, as the expenditure was incurred to protect the business interests of the assessee. The Tribunal referenced the Hon'ble Supreme Court's decisions in Dalmia Jain & Co. Ltd. and Sree Meenkshi Mills Ltd., which support the allowance of legal expenses incurred to protect the business.

7. Addition Based on Discrepancies in Form 26AS:
The Tribunal remanded the issue back to the Assessing Officer for a denovo assessment, as the CIT(A) had not discussed the fact situation regarding the discrepancies between the receipts reflected in Form 26AS and the amount credited to the Profit and Loss account.

8. Disallowance of Subcontractor Payments:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of subcontractor payments, as the assessee had discharged its initial onus by providing primary details and the Assessing Officer had not provided any evidence to show that the amounts paid were recycled back to the assessee.

9. Disallowance of Purchases as Bogus:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of purchases from Kolkata parties, as the assessee had provided sufficient details to support the purchases, and the Assessing Officer had not brought any evidence to show that the amounts paid were recycled back to the assessee.

10. Disallowance of Quality Allowances and Claims:
The Tribunal upheld the CIT(A)'s decision to allow the quality allowances and claims, as the Assessing Officer had not questioned the genuineness of the expenditure and the payments were made out of commercial expediency. The Tribunal referenced the Hon'ble Supreme Court's decisions in Eastern Investments Ltd. and CIT vs. Walchand and Co. Pvt Ltd, which support the allowance of expenditures incurred for business purposes.

11. Disallowance of 100% Depreciation on Temporary Structures:
The Tribunal upheld the CIT(A)'s decision to allow the claim as revenue expenditure, following the decisions of the Hon'ble Supreme Court in Laskhmiji Sugar Mills Co. P. Ltd vs. CIT and other relevant judgments.

Conclusion:
The appeals filed by the Revenue were partly allowed for statistical purposes for assessment years 2012-13, 2013-14, and 2014-15, while the appeal for assessment year 2011-12 was partly allowed. The Tribunal's decisions were based on a thorough analysis of the facts and legal principles governing the issues on hand.