ITAT ruling: Assessee's appeal partially allowed, disallowance under section 14A deleted

The ITAT partially allowed the assessee's appeal by deleting the disallowance under section 14A, reducing the disallowance on alleged bogus purchases, and allowing the deduction claimed for employee contributions to PF/ESIC. The Tribunal emphasized the lack of independent verification by the Assessing Officer in the case of alleged bogus purchases and held that no disallowance could be made considering the amendment to section 43B of the Act. The judgment was pronounced on 10.11.2017.

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Issues:
1. Challenge to disallowance under section 14A r/w rule 8D.
2. Addition made on account of alleged bogus purchase.
3. Disallowance of deduction claimed on account of payment made towards employee's contribution to PF/ESIC.

Issue 1: Disallowance under section 14A r/w rule 8D
The assessee challenged the disallowance made under section 14A r/w rule 8D for the assessment year 2010-11. The Assessing Officer disallowed an amount based on the investment in shares of a company, assuming it would yield exempt income. The assessee contended that no exempt income was earned in the relevant year. The ITAT held that disallowance under section 14A cannot be made if no exempt income was earned, citing a similar precedent. The Tribunal deleted the disallowance, following the decision of the Hon'ble Delhi High Court. The ITAT also referred to a similar view expressed by the Hon'ble Jurisdictional High Court in a different case, leading to the deletion of the disallowance.

Issue 2: Alleged Bogus Purchase
The Assessing Officer added back an amount claimed as purchases by the assessee, treating them as bogus based on information from the Sales Tax Department. The assessee tried to prove the genuineness of purchases but was unsuccessful. The ITAT observed that the AO did not conduct an independent inquiry and solely relied on external information. The Tribunal directed the AO to disallow only 12.5% of the alleged bogus purchase, following a similar decision in the assessee's case for a different assessment year. The ITAT emphasized the lack of independent verification by the AO and reduced the disallowance accordingly.

Issue 3: Disallowance of Deduction for PF/ESIC Contribution
The Assessing Officer disallowed the deduction claimed for employee's contribution to PF/ESIC as it was not paid within the due date under section 36(1)(va) of the Act. However, the ITAT noted that the contributions were paid before the due date for filing the return of income under section 139(1) of the Act. Citing a precedent, the ITAT deleted the disallowance, stating that no disallowance could be made considering the amendment to section 43B of the Act. Consequently, the ITAT allowed this ground of appeal.

In conclusion, the ITAT partially allowed the assessee's appeal, deleting the disallowance under section 14A, reducing the disallowance on alleged bogus purchases, and allowing the deduction claimed for employee contributions to PF/ESIC. The judgment was pronounced on 10.11.2017.

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