Tribunal rulings on expenses, bogus purchase, interest, professional fees, books of accounts upheld and partly allowed.

The Tribunal allowed the assessee's appeal regarding the disallowance of expenses under Section 14A, directing the deletion of the disallowance. However, the Tribunal upheld the addition on account of bogus purchase of machinery and interest thereon, as well as the addition made under Section 40A(3). The deletion of expenditures related to professional fees was reversed, and the rejection of books of accounts under Section 145(3) was upheld. Both the assessee's appeal and the Revenue's appeal were partly allowed in the case, with the Tribunal's order issued on 19th July 2019.

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Issues Involved:
1. Disallowance of expenses under Section 14A read with Rule 8D.
2. Addition on account of bogus purchase of machinery and interest thereon.
3. Deletion of disallowance of expenditures related to professional fees.
4. Deletion of addition made under Section 40A(3).
5. Rejection of books of accounts under Section 145(3) and related additions.

Issue-wise Detailed Analysis:

1. Disallowance of Expenses under Section 14A read with Rule 8D:
The assessee argued that no exempt income was earned during the year, thus disallowance under Section 14A was not warranted. The assessee referred to Schedule-11 of the Balance Sheet to demonstrate the absence of exempt income. The Tribunal observed that the Hon'ble Apex Court in CIT Vs. Walfort Share & Stock Brokers (P) Ltd. held that a proximate cause between exempt income and disallowance is necessary for Section 14A to apply. Similarly, the Hon'ble Gujarat High Court in CIT Vs. Corrtech Energy P. Ltd. and the Hon'ble Delhi High Court in Cheminvest Ltd. Vs. CIT supported this view. Consequently, the Tribunal set aside the CIT(Appeals)'s order and directed the deletion of the disallowance under Section 14A, allowing the assessee's appeal on this ground.

2. Addition on Account of Bogus Purchase of Machinery and Interest Thereon:
The Assessing Officer (AO) noted the lack of evidence showing the machinery reached the assessee's site and added the entire amount of Rs. 36 lakhs to the income, disallowing interest of Rs. 80,787/- on borrowed funds. The CIT(Appeals) upheld the addition, citing the assessee's initial acceptance and failure to prove the genuineness of the purchase. During the hearing, the assessee argued that the acceptance was ad-hoc and relied on various judicial pronouncements. However, the Tribunal found no evidence to demonstrate the machinery's delivery or installation and concluded that the assessee's acceptance was not ad-hoc but a well-planned action. Thus, the Tribunal upheld the CIT(Appeals)'s findings, dismissing the assessee's appeal on this ground.

3. Deletion of Disallowance of Expenditures Related to Professional Fees:
The AO treated the expenses related to the installation of machinery and new asset setup as capital expenditure. The CIT(Appeals) reclassified these as revenue expenditure and deleted the addition. The Tribunal, after reviewing the detailed chart of expenses, concluded that these were indeed capital in nature and reversed the CIT(Appeals)'s decision, sustaining the AO's addition. Thus, the Revenue's appeal on this ground was allowed.

4. Deletion of Addition Made under Section 40A(3):
The CIT(Appeals) allowed cash payments of Rs. 1,50,000/- made under the Consumer Dispute Redressal Forum's order, despite them being in contravention of Section 40A(3). The Tribunal noted that Rule 6DD of the Income Tax Rules, 1962, lists exceptions to Section 40A(3), none of which covered payments made under such orders. Hence, the Tribunal reversed the CIT(Appeals)'s findings and upheld the AO's addition, allowing the Revenue's appeal on this ground.

5. Rejection of Books of Accounts under Section 145(3) and Related Additions:
The CIT(Appeals) had deleted the AO's additions related to extra profit on manufacturing sales and unexplained investment towards extra production, rejecting the application of Section 145(3). Both parties agreed that the facts and issues were similar to the assessee's case for the assessment year 2009-10, where the Tribunal had upheld the CIT(Appeals)'s deletion of such additions. Applying the same rationale, the Tribunal dismissed the Revenue's appeal on these grounds for the assessment year 2010-11.

Conclusion:
In the combined result, both the assessee's appeal and the Revenue's appeal were partly allowed. The Tribunal's order was pronounced on 19th July 2019.

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