2020 (4) TMI 465 - AT - Income Tax

Bogus purchases - Un substantiated closing credit balance of trade creditors - AO has restricted his enquiry only with regard to the purchases made from Advait Distributors Pvt. Ltd. which has been shown as outstanding sundry creditor - HELD THAT - From the materials placed in the paper book it is noticed that the additional evidences furnished before Commissioner (Appeals) included PAN details of Advait Distributors Pvt. Ltd., copy of confirmation obtained from the said party, copy of ledger account of concerned party in assessee s books, copy of assessee s account in the books of Advait Distributors Pvt. Ltd. Commissioner (Appeals) has declined to look into the aforesaid evidences filed by the assessee with a general statement that no fruitful purpose would be served by admitting the evidences. Before rejecting the additional evidences, CIT(A) should have verified their authenticity himself or could have directed the Assessing Officer to verify them. - Matter restored before the AO. Disallowance u/s 14A r/w rule 8D - assessee has earned exempt income by way of dividend - assessee has not disallowed any expenditure attributable to such income - HELD THAT - The contention of the learned Authorised Representative that due to availability of surplus interest free funds, no disallowance of interest expenditure under rule 8D(2)(ii) is to be made is acceptable keeping in view the legal position on the issue. Accordingly, we delete the disallowance of interest expenditure made under rule 8D(2)(ii). As regards the disallowance of administrative expenditure under rule 8D(2)(iii) amounting to ₹ 9,032, since, no convincing arguments have been advanced on behalf of the assessee, we confirm the said disallowance. Accordingly, disallowance u/s 14A r/w rule 8D is restricted to ₹ 9,032. These grounds are partly allowed.

Summary

Issues:
1. Challenge to addition of un-substantiated closing credit balance of trade creditors.
2. Challenge to disallowance made under section 14A r/w rule 8D.

Analysis:
1. Issue 1 - Addition of Un-substantiated Closing Credit Balance of Trade Creditors:
The assessee challenged the addition of ?31,91,853 on account of un-substantiated closing credit balance of trade creditors. The Assessing Officer disallowed a round figure of ?90 lakh on an ad-hoc basis, suspecting non-genuine purchases against outstanding sundry creditors. The first appellate authority restricted the disallowance to ?39,91,853, as the Assessing Officer doubted only this specific amount. The assessee submitted additional evidence before the Commissioner (Appeals) to prove the genuineness of transactions with the concerned party. However, the Commissioner (Appeals) rejected these evidences without proper verification, leading to the Tribunal directing the issue to be sent back to the Assessing Officer for fresh adjudication after providing a reasonable opportunity of being heard to the assessee.

2. Issue 2 - Disallowance Made under Section 14A r/w Rule 8D:
The Assessing Officer noticed that the assessee earned exempt income through dividends but did not disallow any expenditure attributable to this income. Consequently, the Assessing Officer computed a disallowance under rule 8D at ?78,546, comprising interest expenditure and administrative expenses. The Commissioner (Appeals) upheld this disallowance. The Tribunal, after considering the available surplus funds with the assessee, deleted the disallowance of interest expenditure but confirmed the disallowance of administrative expenditure. The disallowance under section 14A r/w rule 8D was restricted to ?9,032. The Tribunal partially allowed this ground of appeal.

In conclusion, the Tribunal partially allowed the appeal, directing a fresh adjudication on the addition of un-substantiated closing credit balance of trade creditors and modifying the disallowance made under section 14A r/w rule 8D.