2023 (2) TMI 1268 - AT - Income Tax

AO must verify cash deposits during demonetization against bank withdrawals before section 68 additions

Jindal Drugs Pvt. Ltd. Versus The Assistant Commissioner of Income Tax, Circle, 3 (2) (1), Mumbai

Jindal Drugs Pvt. Ltd. Versus The Assistant Commissioner of Income Tax, Circle, 3 (2) (1), Mumbai - TMI Issues Involved:1. Validity of the assessment order under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961.2. Contravention of the Faceless Assessment Scheme, 2019.3. Addition of INR 1,98,42,000 under Section 68 of the Act.4. Computation of income under Section 115JB of the Act.5. Disallowance of INR 1,19,90,747 under Section 14A of the Act read with Rule 8D.6. Transfer pricing adjustment of INR 2,87,575.7. Levy of interest under Section 234D of the Act.Issue-wise Detailed Analysis:Ground No. 1:The order passed by the Assessing Officer under Section 143(3) read with Section 144C(13) of the Act was deemed general in nature and did not require adjudication.Ground No. 2:The draft assessment order under Section 144C was not pressed by the Appellant during the hearing, thus disposed of without further consideration.Ground No. 3:The addition of INR 1,98,42,000 under Section 68 of the Act was contested. The Assessing Officer noted significant cash deposits during the demonetization period. The Appellant claimed these funds were returned by M/s Gupta Suppliers Company, acting as an agent for raw material procurement. Despite providing details and a confirmation letter, the Assessing Officer was unconvinced due to non-compliance with notices under Section 133(6) by M/s Gupta Suppliers Company. The Tribunal remanded the issue to the Assessing Officer for further verification, directing the Appellant to furnish bank details and the Assessing Officer to obtain necessary bank statements to verify the genuineness of the transactions.Ground No. 4:The increase of Net Profits by INR 1,98,42,000 for computing 'Book Profit' under Section 115JB was challenged. The Tribunal noted that once accounts are certified under the Companies Act, the Assessing Officer's power is limited to adjustments provided in the Explanation to Section 115JB. The Tribunal allowed the Appellant's ground, emphasizing that the Assessing Officer cannot go beyond the certified accounts.Ground No. 5:The disallowance of INR 1,19,90,747 under Section 14A read with Rule 8D was contested. The Assessing Officer observed the Appellant's dividend income and interest expenses, leading to the disallowance. The Tribunal restricted the disallowance to the amount of exempt income (INR 96,031) based on precedents, including the Supreme Court's decision in DCIT Vs State Bank of Patiala, rejecting the retrospective application of amendments introduced by the Finance Act, 2022.Ground No. 6:The addition of INR 1,19,90,747 to Net Profits for computing 'Book Profits' under Section 115JB was remanded to the Assessing Officer. The Tribunal directed the determination of expenditure related to earning exempt income without resorting to Rule 8D, aligning with Clause (f) of Explanation 1 to Section 115JB(2).Ground No. 7:The transfer pricing adjustment of INR 2,87,575 was upheld. The Tribunal found no merit in the Appellant's argument for adopting weekly averages and noted that the TPO's method of considering individual transactions was justified. The Tribunal dismissed the Appellant's ground, supporting the TPO's approach of making adjustments only where the rate differed unfavorably for the Revenue.Ground No. 8:The levy of interest under Section 234D was deemed consequential and disposed of accordingly.Conclusion:The appeal was partly allowed, with specific issues remanded for further verification and others decided in favor of the Appellant or upheld as per the Tribunal's detailed analysis. The order was pronounced on 08.02.2023.