2013 (9) TMI 198 - AT - Income Tax

Tribunal decision: 5% disallowance, MODVAT credit, repairs expenses favored assessee

GUJARAT AMBUJA EXPORT LTD Versus ASSTT COMMISSIONER OF INCOME TAX

The Tribunal directed a 5% disallowance of purchases from M/s. Vishal Traders, rejecting the revenue's appeal for a higher disallowance. Additionally, the ... Disallowance(100%) on the ground of being a bogus purchase - In respect of purchases from M/s. Vishal Traders, 100% disallowance was made by the A.O. by holding that the entire purchase is bogus purchase – Held that:- assessee has furnished quantitative tally of the purchases and sales and no defect has been pointed out by the A.O. in the same and the A.O. has accepted the sales made by the assessee. Yield reported by the assessee in the present year is better than the preceding year and the same is almost 100% and, therefore, it cannot be said that any extra quantity of purchase has been declared by the assessee for which deduction has been claimed by the assessee is not justified – Action taken by A.O. regarding 100% disallowance is not sustainable – Decided in favor of Assessee. Part disallowance is justified or not – Held that:- In view of various conflicting statements of Mr. Dharampal J Pandya, Mr. Madanlal R Chandak and Shri Piyushbhai B Acharya, this is not beyond doubt that there may be some over invoicing in the present case. But this is very important fact that the sale price as per the bills of Vishal Traders is comparable with other suppliers - Assessee has maintained quantitative details in which no defect is pointed out by the assessing officer and the yield percentage of the present year is better than the preceding year - GP and NP rate of the present year are better than the previous year - Only a token disallowance will meet the ends of justice in the facts of the present case as noted above - 5% disallowance out of purchase from Vishal Traders will meet the ends of justice in the facts of the present case – Partly decided in favor of Assessee. Disallowance on the applicability of section 40A(3) of the Income Tax Act - Reliance placed by the Ld. D.R. on the judgement of Hon'ble Gujarat High court rendered in the case of Hynoup Food and Oil (P) Ltd. [2005 (2) TMI 99 - GUJARAT High Court], on this contention that the provisions of Section 40A(3) are to be invoked in the present case and disallowance has to be made of the entire amount – Held that:- Facts of the present case are different from the abovementioned case - As per the facts of that case, the assessee was engaged in an illegal business and the transactions were not reflected in its regular books of account maintained by the assessee. It was also found that assessee has paid Rs.43.36 lacs in cash in respect of purchases made in relation to the said business. Under these facts, it was held by Hon'ble Gujarat High court that the provisions of Section 40A (3) are applicable and exceptions carved out in Rule 6DDJ were not available to the assessee and disallowance was confirmed - In the present case, the facts are different. As per the books of accounts of the assessee, entire purchases from Vishal Traders are accounted for and the payments were made by way of a/c payee cheques. Hence, it becomes clear that the payments in respect of purchases from Vishal Traders was not made in cash and, therefore, there is no occasion to even consider the applicability of provisions of Section 40A(3) in the present case – Decided in favor of Assessee. Disallowance of speculation loss - section 43(5) - Held that:- Revenue could not establish that the transaction undertaken by the assessee is not hedging transaction and, therefore, this issue is squarely covered in favour of the assessee by this judgement of Hon'ble Gujarat High court rendered in the case of Pankaj Oil Mills (1976 (5) TMI 3 - GUJARAT High Court) Issues Involved:1. Bogus Purchases from M/s. Vishal Traders2. Unutilized MODVAT/CENVAT Credit3. Disallowance of Speculation Loss4. Repairs Expenses of D.G. Set5. Alleged Bogus Purchases from M/s. Amber Trading Co.Detailed Analysis:1. Bogus Purchases from M/s. Vishal Traders:The primary issue revolves around the disallowance of purchases from M/s. Vishal Traders, which the Assessing Officer (A.O.) deemed bogus. The A.O. made a 100% disallowance, but the Commissioner of Income Tax (Appeals) [CIT(A)] reduced it to 25%.Findings:- The Tribunal noted that the assessee furnished quantitative details of purchases and sales, with no defects pointed out by the A.O. The yield and profit margins were better than the previous year.- The Tribunal acknowledged conflicting statements from individuals related to M/s. Vishal Traders but found no evidence of over-invoicing.- The Tribunal decided that a 5% disallowance out of purchases from M/s. Vishal Traders would meet the ends of justice, considering the better yield and profit margins.Conclusion:The Tribunal directed the A.O. to make a 5% disallowance of purchases from M/s. Vishal Traders, rejecting the revenue's appeal for a higher disallowance.2. Unutilized MODVAT/CENVAT Credit:The A.O. made additions on account of unutilized MODVAT/CENVAT credit, which the CIT(A) deleted.Findings:- The Tribunal found that this issue is covered by the judgment of the Hon'ble Apex Court in the case of Indo Nippon, which supports the assessee's claim.Conclusion:The Tribunal decided in favor of the assessee, rejecting the revenue's appeal on this issue.3. Disallowance of Speculation Loss:The A.O. disallowed speculation losses, which the CIT(A) deleted.Findings:- The Tribunal noted that the assessee entered into hedging transactions to guard against losses due to price fluctuations, which is permissible under Section 43(5) of the Act.- The Tribunal relied on the judgment of the Hon'ble Gujarat High Court in the case of Pankaj Oil Mills, which supports the assessee's claim.Conclusion:The Tribunal upheld the CIT(A)'s decision, rejecting the revenue's appeal on this issue.4. Repairs Expenses of D.G. Set:The A.O. treated the repairs expenses of the D.G. Set as capital expenses, allowing only depreciation. The CIT(A) treated these as current repairs.Findings:- The Tribunal found that the issue was covered in favor of the assessee by its own decision in the assessee's case for the assessment year 2005-06.- The Tribunal noted that the expenses were incurred to convert the D.G. Set from High-Speed Diesel to Furnace Oil, which did not enhance the capacity of the genset.Conclusion:The Tribunal decided in favor of the assessee, treating the expenses as current repairs.5. Alleged Bogus Purchases from M/s. Amber Trading Co.:The A.O. made disallowances for purchases from M/s. Amber Trading Co., which the CIT(A) deleted.Findings:- The CIT(A) noted that M/s. Amber Trading Co. accepted the sales to the assessee, provided evidence of delivery, and received payments by account payee cheques.- The A.O. of M/s. Amber Trading Co. treated the URD purchases as genuine, which led the CIT(A) to conclude that the purchases by the assessee were also genuine.Conclusion:The Tribunal upheld the CIT(A)'s decision, rejecting the revenue's appeal on this issue.Combined Result:- All three appeals of the revenue were dismissed.- All three appeals of the assessee were partly allowed.