2017 (10) TMI 591 - AT - Income Tax

Tribunal Grants Relief to Assessee on Various Tax Issues

The Tribunal partially allowed the assessee's appeal by directing the AO to make a reasonable disallowance of 12.5% of alleged bogus purchases. The claim ... Bogus purchases - addition upheld by CIT(A) by observing that the provisions of section 69C treating the purchases as unexplained expenditure was rightly applied - Held that:- AO doubted the entire purchases and added the same to the income of the assessee which was upheld by the ld. CIT(A) by observing that the provisions of section 69C of the Act treating the purchases as unexplained expenditure was rightly applied. In the case of bogus purchases, the practice followed by the beneficiaries are that the bills are prepared from the hawala dealers while purchases the goods from the grey market thereby making the saving of non-payment of VAT and other incidental charges. We are not in agreement with the conclusion drawn by the CIT(A) specifically when the assessee has filed the statement of receipt of materials and consumption thereof at the various sites and hence at the most a reasonable disallowance to cover the leakages of revenue and various types of savings made by the assessee by purchasing goods from the grey market could be made. In the similar cases, the Co-ordinate Benches of the Tribunal have taken a consistent view of directing addition ranging from 5% to 12.5% depending upon the facts of the case. In the present case, we are of the view that it would be fair and reasonable to make the addition towards gross profit at the rate of 12.5% of the said purchases. Accordingly, we set aside the order of CIT(A) on this issue and direct the AO to make addition at 12.5% of the bogus purchases. Addition in respect of retention money - Held that:- In the case of the assessee, most of the customers are government agencies where the exacts details of retention money are not even available with the assessee. We find merit in the contention of the assessee that the assessee has not received money retained by the contractees and also that some retention could not be accounted due to non availability of details and information with the assessee. It is only when these details were available with the assessee the necessary entries were made in the books of accounts. Therefore, though the mercantile system of accounting provides for accounting and taxing of income on accrual basis but in the instant case the assessee has no control over the retention money deducted by the contractees. Therefore, the assessee should be allowed deduction in the year of retention or in that year in which it comes to know about the said deductions nevertheless it is pertinent to say that retention has to be taxed as and when received by the assessee. Accordingly, we are not agreement with the conclusion of CIT(A) that the deduction of retention money which pertained to earlier years is not allowable and accordingly direct the AO to allow claim of retention money Disallowance of interest u/s 40(a)(ia) - Held that:- In our opinion the disallowance u/s 40(a)(ia) on account of interest can be made only if the payee has not offered the receipts in his return of income. We, therefore, feel that the issue has to be sent back to the file of the AO to verify the same in terms of second proviso to section 40(a)(ia) of the Act and accordingly the AO is directed to decide the same as per facts and law after giving reasonable hearing to the assessee. This ground is allowed for statistical purposes. Addition on TDS on VAT - Held that:- The customers normally intimate the assessee about the TDS on VAT vide certificate as per VAT rules but in many cases the contractors come to know when the payments are received from the customers after reducing the amount of TDS. Thus, the short recovery of bill amount due to deduction of TDS under VAT Act is accounted for in the books of account as and when it comes to the notice of the assessee and accordingly claimed as expenditure. Even otherwise the deduction of such type of taxes is available upon its payment as per the provisions of section 43B of the Act. If we consider the claim from another angle that the said claim crystallized during the year as the assessee came to know about the said deduction only during the year under consideration as the customer failed to issue any deduction certificate and as a result was not claimed by the assessee in those years. In our considered view the assessee should be allowed the claim in the year in which it first comes to know about the said deductions. In view of these facts, we are inclined to direct the AO to allow ₹ 39,87,561/- as admissible deduction while assessing the income. The ground raised by the assessee is allowed. Issues Involved:1. Addition on account of alleged bogus purchases.2. Restriction of the claim of retention money.3. Disallowance of interest under section 40(a)(ia).4. Restriction of the claim of TDS on VAT.5. Late payment of employees' contribution to PF.Detailed Analysis:1. Addition on Account of Alleged Bogus Purchases:The assessee challenged the addition of Rs. 39,88,535/- made by the AO and confirmed by the CIT(A) on account of bogus purchases from three parties declared as hawala operators. The AO issued notices to the assessee to prove the genuineness of the purchases, but the assessee failed to do so. The AO added the entire amount of purchases to the income, which was upheld by the CIT(A). However, the Tribunal observed that the assessee had filed statements showing receipt and consumption of materials and concluded that a reasonable disallowance to cover revenue leakages should be made. The Tribunal directed the AO to make an addition at 12.5% of the bogus purchases, partly allowing the assessee's ground.2. Restriction of the Claim of Retention Money:The assessee claimed a deduction for retention money amounting to Rs. 6,88,85,000/-, which was partly allowed by the CIT(A) to the extent of Rs. 4,76,62,505/-. The Tribunal noted that the retention money was withheld by customers as a performance guarantee and would be payable only upon satisfactory completion of the contract. The Tribunal cited several case laws, including E.D. Sassoon & Co. Ltd. vs. CIT and CIT vs. Gujarat Apollo Industries Ltd., supporting the view that retention money should be taxed in the year of receipt. The Tribunal directed the AO to allow the claim of retention money of Rs. 2,12,22,495/-, allowing the assessee's ground.3. Disallowance of Interest under Section 40(a)(ia):The assessee contested the disallowance of Rs. 16,86,094/- on account of interest under section 40(a)(ia). The Tribunal opined that disallowance under this section could be made only if the payee had not offered the receipts in their return of income. The Tribunal remanded the issue back to the AO to verify this aspect and decide as per facts and law, allowing the ground for statistical purposes.4. Restriction of the Claim of TDS on VAT:The assessee added back TDS on VAT amounting to Rs. 68,54,483/- to the income but later claimed it was a mistake. The CIT(A) allowed the claim to the extent of Rs. 28,66,922/- but disallowed Rs. 39,87,561/- as it pertained to earlier years. The Tribunal found merit in the assessee's contention that the amount should be allowed as it was accounted for when the details became available. The Tribunal directed the AO to allow Rs. 39,87,561/- as an admissible deduction, allowing the assessee's ground.5. Late Payment of Employees' Contribution to PF:The AO disallowed Rs. 1,02,404/- towards late payment of employees' contribution to PF. The CIT(A) deleted the addition, following the jurisdictional High Court's decision in Ghatge Patil Transport Ltd., which held that payments made on or before the due date of filing the return should be allowed. The Tribunal upheld the CIT(A)'s order, dismissing the revenue's ground.Conclusion:The appeals resulted in partial relief for the assessee and dismissal of the revenue's grounds. The Tribunal provided detailed reasoning for each issue, ensuring that the legal principles and facts were thoroughly examined. The order was pronounced in the open court on 9th October 2017.