2019 (12) TMI 1030 - AT - Income Tax

ITAT upholds CIT(A) decision on bogus purchases & disallowance under Section 14A

The ITAT upheld the CIT(A)'s decision, dismissing the appeal on both issues of bogus purchases and disallowance under Section 14A read with Rule 8D. The ... Bogus purchases - information received from investigation department which in turn relied on information from VAT Department - reliance on the statements of the dealers - disallowance u/s 14A - nexus of expenditure with tax free income - HELD THAT:- This present appeal has been filed by the assessee in ITAT against the aforesaid impugned appellate order of the CIT(A). At the time of hearing, Revenue was represented by Shri Saras Kumar, the Ld. Departmental Representative (in short 'Ld. DR'). However, none was present from the assessee's side. In the absence of any representation from assessee's side, at the time of hearing before us, we heard the Ld. DR. The Ld. DR relied upon the order of the Assessing Officer and the aforesaid impugned order of the Ld. CIT(A). After perusal of the order of the AO and the aforesaid impugned order dated 20.01.2016 of the Ld. CIT(A), we find that the Ld. CIT(A) has passed speaking order on merits. Relevant portion of the impugned order of the Ld. CIT(A) has already been reproduced in foregoing paragraph (C) of this order. We find that the Ld. CIT(A) has given detailed reasons for his decision on merits in the aforesaid impugned appellate order dated 20.01.2016 of Ld. C1T(A). During appellate proceedings in Income Tax Appellate Tribunal (“ITAT”, for short) no material has been brought for our consideration to persuade us to take a view different from the view taken by the Ld. CIT(A) in the impugned order on merit. After hearing the Ld. DR and after perusal of materials on record, and further, in view of the foregoing discussion, we decline to interfere with the aforesaid impugned appellate order of Ld. CIT(A); and this appeal filed by the assessee is dismissed. Issues Involved:1. Addition on account of bogus purchases.2. Disallowance under Section 14A read with Rule 8D for expenditure incurred in earning exempt income.Issue-wise Detailed Analysis:1. Addition on Account of Bogus Purchases:The assessee challenged the addition of Rs. 72,50,159/- made by the Assessing Officer (AO) based on information from the VAT Department, Mumbai, indicating that the purchases were bogus. The AO's findings were based on statements from hawala dealers who admitted to issuing fake bills. The assessee argued that the purchases were supported by invoices and payments made via account payee cheques. However, the AO noted that the assessee failed to substantiate the genuineness of the purchases or produce the parties for verification despite being given adequate time.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the assessee did not provide any specific clarification or evidence to prove the genuineness of the purchases. The CIT(A) also noted that the assessee's request for cross-examination of the dealers was not justified as the opportunity to substantiate the claim was already provided.The Income Tax Appellate Tribunal (ITAT) concurred with the CIT(A)'s findings, emphasizing that the assessee failed to bring any new material to challenge the CIT(A)'s decision. Consequently, the appeal on this ground was dismissed.2. Disallowance under Section 14A read with Rule 8D:The AO disallowed Rs. 90,42,612/- under Section 14A, which pertains to expenditure incurred in earning exempt income. The AO noted that the assessee had made significant investments and earned dividend income, but did not disallow any expenditure related to this exempt income. The AO computed the disallowance as per Rule 8D, which provides a method for determining the expenditure related to exempt income.The assessee contended that the investments were made from its own funds and not from borrowed funds, and therefore, no interest expenditure should be disallowed. The assessee also argued that the dividend income from Model Cooperative Bank Ltd. was not exempt under Section 10(34) as it was not from a domestic company.The CIT(A) rejected the assessee's arguments, noting that the assessee had claimed the dividend income as exempt in its return of income and that the AO had correctly applied Section 14A and Rule 8D. The CIT(A) also emphasized that the assessee failed to provide any details of expenditure incurred in relation to the exempt income.The ITAT upheld the CIT(A)'s decision, agreeing that the AO had correctly invoked Section 14A and Rule 8D. The ITAT noted that the assessee did not provide any new evidence to challenge the CIT(A)'s findings. As a result, the appeal on this ground was also dismissed.Conclusion:The ITAT dismissed the appeal filed by the assessee, upholding the CIT(A)'s decision on both the issues of bogus purchases and the disallowance under Section 14A read with Rule 8D. The ITAT found no reason to interfere with the CIT(A)'s detailed and reasoned order. The assessee was advised that it could approach the ITAT for restoration of the appeal in accordance with the Proviso to Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963, if it so desired.