Tribunal decision on income tax disallowance and bookkeeping upheld and overturned

Tulsi Extrusions Ltd. Versus JCIT, Range-2, Jalgaon AND DCIT, Circle-1, Jalgaon Versus Tulsi Extrusions Ltd.

Tulsi Extrusions Ltd. Versus JCIT, Range-2, Jalgaon AND DCIT, Circle-1, Jalgaon Versus Tulsi Extrusions Ltd. - TMI Issues:
1. Disallowance under section 40A(3) of the Income-tax Act, 1961.
2. Disallowance under section 14A read with Rule 8D.
3. Rejection of books of account and addition on account of extra profit on sale of goods manufactured outside the books of account.

Issue 1: Disallowance under section 40A(3) of the Income-tax Act, 1961:
The case involved disallowance amounting to Rs. 28,18,584 made by the Assessing Officer under section 40A(3) of the Act. The assessee contended that the payment was covered under Rule 6DD(k) of the Income-tax Rules, 1962. However, it was found that the relationship between the assessee and the transporters did not meet the criteria of principal and agent as per Rule 6DD(k). The Tribunal upheld the disallowance, stating that the transporters were not agents of the assessee, and the payment made in violation of section 40A(3) could not be sheltered under Rule 6DD(k).

Issue 2: Disallowance under section 14A read with Rule 8D:
The AO computed a disallowance of Rs. 12,71,000 under section 14A read with Rule 8D(2)(iii) as the assessee made investments in shares but did not earn any exempt income during the year. The Tribunal referred to relevant case laws and held that if there is no exempt income, no disallowance can be made under section 14A. Therefore, the disallowance was overturned, and the ground raised by the assessee was allowed.

Issue 3: Rejection of books of account and addition on account of extra profit on sale of goods manufactured outside the books of account:
The AO rejected the books of account based on discrepancies in stock declarations and variations in power consumption. The AO alleged that the assessee had manufactured goods outside the books of account, leading to extra profit and unexplained investments. However, the Tribunal found that the valuation differences in stock declarations were due to valuation methods and not quantity discrepancies. Regarding manufacturing outside the books, the Tribunal noted that the assessee maintained proper records and was subject to excise duty, indicating no intentional concealment. The Tribunal referred to precedents and concluded that the books of account were properly maintained, overturning the additions made by the AO.

In conclusion, the Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, addressing all issues comprehensively in the judgment delivered on 19th July 2019.