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TMI Blog2022 (11) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore in the given facts circumstances, we feel that adhoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus in view of the above the ground of appeal of the Revenue is partly allowed. Bogus purchases - whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, dated 29/04/2016 arising in the matter of Assessment Order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2012-2013. 2. The Revenue has raised following grounds of appeal : 1. The Ld.CIT(A) has erred in law and on facts in restricting the disallowance u/s.14A to Rs.71,436/- as against Rs.12,21,613/- on account of which the book profit u/s.115JB has also been reduced to that extent without properly appreciating the facts of the case and the material brought on record. 2. The Ld.CIT(A) has erred in law and on facts in restricting the disallowance on account of bogus purchases to Rs.5,00,000/- as against Rs.2,63,08,871/- made by the AO without properly appreciating the facts of the case and the material brought on record. 3. The Ld.CIT(A) erred in law and facts in deleting the addition of commission expenses amounting to Rs.19,29,530/- made by the AO without appreciating the facts of the case and the material brought on record. 4. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 5. It is therefore, praye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 12,21,613/- only. We find that it is settled position of law that the disallowances under section 14A of the Act cannot exceeds the amount of exempted income claimed by the assessee. In holding so, we find support and guidance from judgment of Hon ble Gujarat High Court in the case of Corrtech Energy Ltd reported in 372 ITR 97 wherein it was held as under: Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application. 8.2. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed not and cannot be made to section 14A of the Act. 8.6. Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra). 8.7. Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore in the given facts circumstances, we feel that adhoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore he disallowed the same by adding the sum of Rs. 2,63,08,871/- to the total income of the assessee. 13. Aggrieved assessee preferred an appeal to the Ld.CIT(A). 14. The assessee before the Ld. CIT(A), submitted that there was no doubt raised by the AO with respect to the export of the raw cotton which was not possible without the purchase. There were many clinching documentary evidence in the form of export invoices, shipping document, bill of lading and shipping bill along with the bank account statement wherein export proceeds were realized. If the purchases are not allowed than the corresponding sales cannot be possible for such export. 14.1 In the case of non-service of notice u/s 133(6) of the Act, the authorized representative of M/s Uma Cotton Industries appeared before the AO along with the books of accounts. The statement was also recorded u/s 131(1) of the Act, and no doubt of whatsoever was raised by the AO except that the person who appeared was neither the partner nor the employees of M/s Uma Cotton Industries. As such the AO failed to realize that the person namely Shri Yogesh G. Sanetar was the nephew of the managing partner namely Shri Babu A. Patel. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epara, a nephew of Managing Partner, Shri Babu A Patef duly authorized on behalf of M/s. Urna Cotton Industries attended before the AO and filed confirmation letter as per the books of account of M/s. Uma Cotton Industries. As per the appellant, the AO recorded the statement also and nothing has been found adversely except to the observation that neither Shri Yogesh was a Partner nor on employee of M/s. Uma Cotton Industries. The AO's observation in this regard would not be enough to form an opinion for declaring the purchases as bogus from Urna Cotton Industries merely that he was not a partner or an employee. Apart from confirmation, copy of bill of sale of cotton and bank statement of the aforesaid party showing credit of the payment received from appellant were submitted. The AO did not controverted the fact of purchases from the said concern. Once, the aforesaid person has attended with the Power of Attorney given by M/s. Uma Cotton Industries, then it was a valid appearance before the AO and the AO's observation in this regard is without any basis. 5.5. With regard to the personal appearance of M/s. Somnath Cottgin Pvt. Ltd., it was not possible due to short spa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1148084.00 1364084.00 Net Profit 6098713.00 Total 7,462,797.00 7,462,797.00 5.9. It has been further noticed that the movement of goods from the place of purchase to the port as mentioned with the truck no. in the transport bills and lorry receipt no, which ore properly supported transportation. Thus, there remains no discrepancy on this account. 5.10. In view of the above discussion, the AO's action for making the disallowance of the purchases for the above two parties is totally unjustified and more particularly when corresponding sales / export thereof has been accepted. The AO has not brought anything on record ' ^^ ^showing that the purchases were not made from these two parties but third parties, thus there means no doubt for purchases from these. However, because of few minor discrepancies noticed by the AO, 'a lumpsum disallowance of Rs.5.00 lacs is made to pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses has furnished the copy of the agreement, assessment details of the respective parties, TDS certificate etc. However, the AO found that the assessee failed to provide the details of the services rendered by the commission agent. Accordingly, the AO disallowed the same and added to the total income of the assessee 21. On appeal, the Ld. CIT(A) deleted the addition made by the AO by observing as under: 6.5. Having considered the facts and submission, it has been noticed that the appellant has provided the copies of the debit notes raised by the agents, confirmation of the agents besides copy of Form No. 16A and all these documents contain the full address of the agents and their PAN No., besides the details of their bank account in the case of Gautam Trading Co. The appellant has also made the TDS u/s. 194H of the I.T. Act and deposited the same in the Govt. Account. The commission payments have been made through banking channels and hence genuineness has been duly proved by the appellant. Nothing has been brought on record by the AO through an enquiry that the claim of expenditure was made bogus. 6.6. In view of the overwhelming evidences, the claim of the commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing has been brought on record by the AO through an enquiry that the claim of expenditure was made bogus. Even the AO has accepted the commission payment to these six agents in Assessment Year 2013-14 and no disallowance in this regard have been made. 6.10 In view of the overwhelming evidences as discussed above, the claim of the commission is found genuine and hence disallowance with commission made by the AO is deleted. Thus, ground of appeal is allowed. 22. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 23. Both the Ld. DR and Ld. AR, before us relied on the order of the authorities below as favourable to them. 24. We have heard the rival contentions of both the parties and perused the materials available on record. Indeed the assessee was able to furnish the necessary supporting evidence relating to the commission expenses in the form of debit note, confirmation, TDS certificate, and agreement bank account statement. Likewise, the commission parties have also confirmed the transaction in response to the notice issued to them u/s 133(6) of the Act. However, all these documentary evidences are not sufficient enough until an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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