2020 (3) TMI 552 - HC - Income Tax

Disallowance u/s 14A - HELD THAT - As perused the decision of this Court in Reliance Utilities and Power Limited 2009 (1) TMI 4 - BOMBAY HIGH COURT wherein it has been held that if there are funds available with the assessee, both, interest-free and overdraft and / or loans taken then a presumption would arise that investments would be out of the interest-free funds generated or available with the assessee if the interest-free funds were sufficient to meet the investments. In the facts of that case, it was noted that the said presumption was established considering the finding of fact returned by the first appellate authority as affirmed by the Tribunal which is identical in the present case. We also note that the said decision of this Court has been affirmed by the Supreme Court in CIT Vs. Reliance Industries Limited 2019 (1) TMI 757 - SUPREME COURT . We do not find any good ground to entertain this question for consideration. Loss arising on account of valuation of outstanding liabilities / receivables - HELD THAT - Tribunal followed the decision of the Supreme Court in CIT Vs. Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT declaring that it is now settled proposition of law that the loss arising on account of valuation of outstanding liabilities / receivables cannot be considered as a notional loss. Therefore, Tribunal held that the first appellate authority had rightly set aside the addition made by the assessing officer. Adjustments made in the book profit u/s 115JB following disallowance made u/s 14A on account of foreign exchange fluctuations - tribunal held that since it had upheld the order of the first appellate authority deleting the additions made under Section 14A contention of the Revenue needed to be turned down - HELD THAT - In the present decision, we have also affirmed the finding of the Tribunal affirming the deletion of disallowance made under Section 14A of the Act. Since disallowance under the substantive provision have been interfered with, question of consequential adjustments in book profit under Section 115JB of the Act does not arise. Bogus purchases u/s 69C - HELD THAT - We find that according to the Tribunal the assessing officer had merely relied upon information received from the Sales Tax Department, Government of Maharashtra without carrying out any independent enquiry. Tribunal had recorded a finding that assessing officer had failed to show that the purchased materials were bogus and held that there was no justification to doubt genuineness of the purchases made by the respondent - assessee. We are in agreement with the views expressed by the Tribunal. Merely on suspicion based on information received from another authority, the assessing officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent - assessee to controvert the statements made by the sellers before the other authority. Accordingly, we do not find any good ground to entertain this question for consideration as well.

Summary

Issues:
1. Disallowance under Section 14A of the Income Tax Act
2. Disallowance under Section 36(1)(iii) of the Act
3. Disallowance under Section 14A and foreign exchange fluctuations to the book profit under Section 115JB of the Act
4. Addition of amount relating to bogus purchases under Section 69-C of the Act

Analysis:

Issue 1: Disallowance under Section 14A of the Income Tax Act
The Revenue appealed the order of the Income Tax Appellate Tribunal regarding disallowance under Section 14A of the Act. The Tribunal upheld the decision of the Commissioner, restricting the disallowance to a certain amount. The appellant contended that the disallowance should have been calculated as per Rule 8D of the Income Tax Rules. However, the Court found that the interest-free funds available with the assessee were sufficient to meet the investments, as noted by the first appellate authority. Citing precedent cases, the Court affirmed the Tribunal's decision, stating that no grounds existed to entertain the question for consideration.

Issue 2: Disallowance under Section 36(1)(iii) of the Act
The second issue related to the deletion of disallowance under Section 36(1)(iii) by the first appellate authority. The Court found that this issue was intertwined with the first issue. Referring to previous decisions, it was held that no question of law arose from the factual findings that the respondent had not utilized interest-bearing borrowed funds for interest-free advances, as it had sufficient interest-free funds.

Issue 3: Disallowance under Section 14A and foreign exchange fluctuations to the book profit under Section 115JB of the Act
Regarding disallowance under Section 14A and foreign exchange fluctuations to the book profit under Section 115JB, the Tribunal followed the decision of the Supreme Court, declaring that losses on account of valuation of liabilities/receivables could not be considered as notional losses. Since the Tribunal upheld the deletion of additions under Section 14A, no adjustments in book profit under Section 115JB were required. The Court affirmed the Tribunal's findings, concluding that the Revenue's contentions did not hold ground.

Issue 4: Addition of amount relating to bogus purchases under Section 69-C of the Act
The final issue concerned the addition of an amount for bogus purchases under Section 69-C of the Act. The assessing officer disallowed and added the amount to the total income based on information received from the Sales Tax Department. However, the Tribunal found that the assessing officer had not conducted independent inquiries and failed to prove the purchases were bogus. The Court agreed with the Tribunal's findings, emphasizing the necessity of proper grounds for disallowance and dismissed the appeal by the Revenue.

In conclusion, the Court dismissed the Revenue's appeal, finding no merit in the arguments presented across all issues raised in the case.