2019 (11) TMI 641 - AT - Income Tax

Bogus purchases u/s 69C - HELD THAT - AO has found that parties from whom the assessee has made purchases were not existed at the given addresses and the assessee also could not produce those parties for verification and also could not provide their current location and addresses. Even the notices issued u/s. 133(6) by the assessing officer could not be served on the addresses given as per the bills produced by the assessee. CIT(A) has given a substantial relief to the assessee on the ground that sale of gold jewelry items were reflected in the P L account and the addition of entire purchases cannot be made. CIT(A) s decision to restrict the disallowance to 10% of such purchases on the reasoning that assessee has earned extra profit from the purchases made from un-registered parties is justified. Therefore, we do not find any merit in the appeal of the assessee and the same is dismissed. Disallowance out of interest - HELD THAT - As counsel has contended that during the course of assessment proceedings vide letter dated 22-04-2010 the details of interest free fund along with copies of ledger account placed in the paper book from serial no. 76 to 90 were submitted and the same were not considered by the assessing officer and CIT(A) before deciding this issue. We have observed that the assessee has submitted such details of interest free funds from Aryavati Impax Pvt. Ltd., Aravati Commodity Pvt. Ltd. and other parties with complete detail of bank account and date of transactions. These undisputed facts were not contradicted by the assessing officer and ld. CIT(A), therefore, the decision of ld. CIT(A) is not justified. Disallowance u/s.14A - HELD THAT - During the course of appellate proceedings, the ld. counsel has placed reliance on the decision of Hon ble Jurisdictional High Court of Gujarat in the case of Corrtech Energy Pvt. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein it is held if no exempt income is earned then no disallowance can be made u/s. 14A of the act. Respectfully following the decision of Hon ble Gujarat High Court, we consider that the decision of ld. CIT(A) in sustaining the addition in respect of fact that no exempt income was earned is not justified , therefore, the appeal of the assessee is allowed on this issue. Addition to closing stock u/s. 145A - HELD THAT - We consider that assessee has consistently followed the exclusive method and VAT was not debited as expenses in the P L account and these facts were not contradicted by the lower authorities. Therefore, the appeal of the assessee on this issue is allowed.

Summary

Issues Involved:
1. Addition on account of alleged bogus purchases.
2. Disallowance of interest.
3. Disallowance under Section 14A of the Income Tax Act.
4. Addition due to difference in account of Jasbhai Jewellers.
5. Adjustment in the value of closing stock under Section 145A of the Income Tax Act.

Detailed Analysis:

Issue 1: Addition on account of alleged bogus purchases
The Assessing Officer (AO) disallowed purchases amounting to ?1,16,98,747/- from certain parties, stating that these purchases were unverifiable. The AO found that the cheques issued to these parties were converted into bearer cheques and credited to unrelated accounts, making the transactions suspicious. Notices issued under Section 133(6) were returned unserved, indicating that the parties did not exist at the given addresses. The CIT(A) restricted the addition to 10% of the purchases, acknowledging that while the purchases were unverifiable, the sales were recorded in the profit and loss account. The Tribunal upheld the CIT(A)’s decision, concluding that the assessee had earned extra profit from these unverifiable purchases, justifying a 10% addition.

Issue 2: Disallowance of interest
The AO disallowed interest expenses of ?14,18,613/- on the grounds that the assessee had given interest-free advances to various parties while incurring interest expenses. The assessee contended that these advances were made from interest-free funds. The Tribunal found that the assessee had provided sufficient details to show that the advances were from interest-free funds, which the AO and CIT(A) did not consider. Therefore, the Tribunal allowed the assessee’s appeal on this ground.

Issue 3: Disallowance under Section 14A
The AO made a disallowance of ?2,01,514/- under Section 14A, stating that the assessee had investments that could yield exempt income. The assessee argued that no exempt income was earned during the year. The Tribunal referred to the Gujarat High Court's decision in Corrtech Energy Pvt. Ltd., which held that if no exempt income is earned, no disallowance under Section 14A can be made. Consequently, the Tribunal allowed the assessee’s appeal on this issue.

Issue 4: Addition due to difference in account of Jasbhai Jewellers
The assessee did not press this ground during the appellate proceedings. Therefore, the Tribunal dismissed this ground.

Issue 5: Adjustment in the value of closing stock under Section 145A
The AO added ?65,625/- to the income of the assessee, stating that VAT was not included in the value of closing stock. The assessee argued that VAT was not debited as an expense in the profit and loss account and was shown separately in the balance sheet. The Tribunal found that the assessee consistently followed this accounting method and these facts were not contradicted by the lower authorities. Therefore, the Tribunal allowed the appeal on this issue.

Conclusion:
The Tribunal partly allowed the appeal, providing relief on the issues of disallowance of interest, disallowance under Section 14A, and adjustment in the value of closing stock, while upholding the addition on account of alleged bogus purchases and dismissing the issue related to the difference in the account of Jasbhai Jewellers.