2021 (10) TMI 905 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Scope of 2nd proviso to Sec. 40(a)(ia) - amount paid by the assessee company towards transportation charges to Reliance Gas Transportation Infrastructure Ltd. (RGTIL) - HELD THAT - Now when the deductee/payee i.e RGTIL had duly considered the transportation charges of ₹ 82.65 crores as part of its turnover for the year under consideration, and had duly considered/offered the said amount for tax while compiling its return of income for the year under consideration i.e A.Y. 2010-11, therefore, it could not be held to be an assessee in default qua the said amount. Accordingly, finding no infirmity in the view taken by the CIT(A) who had rightly vacated the disallowance u/s 40(a)(ia) made by the A.O, we uphold his order to the said extent. The Grounds of appeal Nos. 1.1 1.2 are dismissed. Addition of prior period expenditure - HELD THAT - In the backdrop of the aforesaid facts, we find that no infirmity arises from the order of the CIT(A), who in our considered view had rightly directed the A.O to restrict the disallowance of the prior period expenditure to an amount of ₹ 11.97 crores. Accordingly, finding no infirmity in the view taken by the CIT(A) qua the aforesaid issue in question, we uphold his order to the said extent. The Ground of appeal No. 2 is dismissed. Disallowance u/s 14A r.w Rule 8D - claim of the ld. A.R that as the assessee during the year under consideration had not received any exempt income, therefore, no disallowance u/s 14A was called for in its hands - HELD THAT - As is discernible from the order of the CIT(A), it is a matter of fact borne from the record that the assessee company had not received any exempt income during the year under consideration. Backed by the aforesaid facts, we concur with the claim of the ld. A.R that now when the assessee had not received any exempt income during the year under consideration, therefore, no disallowance u/s 14A could have been made in its hands - No infirmity with the view taken by the CIT(A) who had rightly vacated the disallowance - Decided in favour of assessee. Bogus purchases -CIT-A deleted the addition - HELD THAT - We find that the assessee in the course of the proceedings before the CIT(A) had duly substantiated the genuineness and veracity of the purchases that were claimed to have been made from one of the supplier party, viz. M/s Forum Traders. As the assessee had submitted the purchase bills, documents relating to the transportation and receipt of goods, copy of the bank statements evidencing the payments made to the aforementioned party, therefore, we find no infirmity in the view taken by the CIT(A), who had rightly held that the assessee had made genuine purchases from the aforementioned party. Neither is anything discernible from the records nor has been placed on our record which would point out any perversity in the aforesaid view so taken by the CIT(A). CIT(A) had rightly observed that the assessee had made genuine purchases from M/s Forum Traders. Accordingly, finding no infirmity in the view taken by the CIT(A) we uphold his order to the said extent. The Ground of appeal No. 4 is dismissed.

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of tax at source.
2. Disallowance of prior period expenditure.
3. Disallowance under Section 14A read with Rule 8D.
4. Disallowance of purchases from hawala operators.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of tax at source:

The primary issue was whether the disallowance of ?82,65,57,704 under Section 40(a)(ia) was justified due to the assessee's failure to deduct tax at source on payments made to Reliance Gas Transportation Infrastructure Ltd. (RGTIL). The CIT(A) deleted the disallowance, relying on a letter from RGTIL confirming that the amount was included in its income and tax was duly paid. The CIT(A) referenced the Supreme Court's decision in Hindustan Coca Cola Beverages (P) Ltd. v. CIT, which held that if the recipient has paid taxes on the income, the payer cannot be treated as an assessee in default. The Tribunal upheld the CIT(A)'s decision, noting that the second proviso to Section 40(a)(ia), inserted by the Finance Act, 2012 and applicable retrospectively, supports this view. The Tribunal dismissed the revenue's appeal on this ground.

2. Disallowance of prior period expenditure:

The assessee claimed a deduction of ?19,15,87,803 for prior period expenses, which the A.O disallowed. The CIT(A) found that the assessee had already disallowed ?7,18,55,412 of depreciation related to prior periods in its return, leading to a double disallowance. Following precedents from earlier years, the CIT(A) directed the A.O to allow the ?7,18,55,412 already disallowed by the assessee and restrict the disallowance to ?11,97,32,391. The Tribunal upheld the CIT(A)'s order, noting no infirmity in the decision.

3. Disallowance under Section 14A read with Rule 8D:

The revenue challenged the CIT(A)'s deletion of ?11,196 disallowed under Section 14A read with Rule 8D. The CIT(A) found that the assessee had not received any exempt income during the year, thus no disallowance under Section 14A was warranted. The Tribunal agreed, citing several judicial pronouncements, including CIT v. Delite Enterprises and CIT v. Chettinad Logistics (P) Ltd., which support the view that Section 14A disallowance is not applicable in the absence of exempt income. The Tribunal dismissed the revenue's appeal on this ground.

4. Disallowance of purchases from hawala operators:

The A.O disallowed ?4,97,432 of purchases from two parties identified as hawala operators. The CIT(A) found that the assessee substantiated the purchases from M/s Forum Traders with supporting documents, including transportation details and bank statements, and thus vacated the disallowance for this party. However, the CIT(A) upheld the disallowance for purchases from M/s Apple Index Manufacturing Company Ltd. due to lack of evidence. The Tribunal upheld the CIT(A)'s decision, finding no perversity in the conclusion that the purchases from M/s Forum Traders were genuine. The revenue's appeal on this ground was dismissed.

General Grounds:

The Tribunal dismissed the general grounds of appeal as not pressed and concluded by dismissing the revenue's appeal in its entirety.

Conclusion:

The Tribunal upheld the CIT(A)'s decisions on all contested issues, finding no merit in the revenue's appeals. The disallowances under Sections 40(a)(ia), 14A, and for prior period expenses were correctly addressed by the CIT(A), and the genuineness of purchases from M/s Forum Traders was rightly accepted. The appeal was dismissed in full.

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