2020 (8) TMI 88 - AT - Income Tax

Tribunal ruling: Assessee appeal partly allowed, revenue appeal dismissed. Key deductions and set-offs granted.

M/s Hindusthan Engineering And Industries Ltd. Versus DCIT, Circle-5, Kolkata And (Vice-Versa)

The Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal. The Tribunal directed the AO to allow prior period expenses ... Disallowance of prior period expenses - HELD THAT:- We note that all such expenditure though relating to earlier year but having materialized during the year and in respect of which bills were received during the year therefore, the entire amount having been paid during the year, the whole of the amount is allowable during the assessment year 2011-12. Hence, we direct the assessing officer to allow on account of prior period expenses which has been crystallized during the assessment year 2011-12. Bogus purchases - HELD THAT:- AO has treated the purchases as bogus without rejecting the books of account u/s 145(3) and hence assessing officer’s action is bad in law. We note that the Revenue has failed to furnish any evidence that the money has been recycled back to the assessee and in absence of such finding, the addition cannot be made by the assessing officer. No documentary evidences were furnished before the assessing officer i.e. the bill for purchases, the receipt of material, the payments by cheque, the entry made in the stock register & production register and vis-a-vis all such documents, no adverse finding has been made by the assessing officer. When the sales figures shown by the assessee has been accepted in totality, the entire purchases made by the assessee cannot be held it to be bogus since it is common knowledge that sales of goods cannot taken place without purchase of goods in the first place. So, therefore, in the light of the evidences adduced to prove the genuineness of the transactions and when the fact remains that the sales has been accepted by the AO in totality, the action of the AO to disallow the entire purchases is not justifiable.We note that the assessee did purchases, manufactures the goods and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. Considering the facts narrated above and to cover the small misgivings we restrict the addition @4% of purchases. Belated payment of Employees Contribution to ESI without appreciating that the amendment to section 43B of I.T. Act is regarding Employer's Contribution and not Employee's Contribution - HELD THAT:- Employees` contribution has been paid/deposited by the assessee much before the due date of filing the return of income, thus the same is clearly allowable in view of the judgment of jurisdictional High Court in the case of CIT vs. Vijayshree Ltd [2011 (9) TMI 30 - CALCUTTA HIGH COURT] - Decided in favour of assessee. Addition on account of provision for wealth tax and provision for gratuity and leave encashment while computing book profit u/s 115JB - HELD THAT:- We note that Wealth-tax has not been mentioned under prohibited item in the Explanation – Sec. 115JB of the Act, and only Income-tax has been prohibited and as such Wealth-tax is clearly allowable. Besides, the Provision for Gratuity and Leave Encashment are ascertained liability and hence cannot be added back in book profit.Therefore, we find no infirmity in the order passed by the ld. CIT(A). That being so, we decline to interfere in the order of ld. CIT(A), his order on this issue is hereby upheld and the ground no.3 raised by the revenue are dismissed. Accumulated losses including lapsed losses and unabsorbed depreciation of the merging company to be set off in the manner provided in section 72A - HELD THAT:- In assessee’s own case [2018 (2) TMI 1691 - ITAT KOLKATA] therefore the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee`s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings. Issues Involved:1. Disallowance of prior period expenses.2. Addition on account of bogus purchases.3. Disallowance of belated payment of Employees' Contribution to ESI.4. Addition of provision for wealth tax and provision for gratuity and leave encashment in the book profit.5. Set-off of accumulated losses including lapsed losses and unabsorbed depreciation of the merging company.Detailed Analysis:1. Disallowance of Prior Period Expenses:The assessee argued that expenses related to earlier years, amounting to Rs. 60,509, were crystallized and settled during the assessment year 2011-12. The Assessing Officer (AO) disallowed these expenses, stating they are not eligible for deduction as per accounting standards. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision. However, the Tribunal directed the AO to allow the expenses, as they were crystallized during the assessment year 2011-12.2. Addition on Account of Bogus Purchases:The AO disallowed purchases from three entities, treating them as bogus based on an Excise Department report and non-verification of the parties. The CIT(A) upheld the AO's decision. The Tribunal, however, noted that the AO relied solely on the Excise Department's report without independent verification. The Tribunal emphasized that the production and sales were not doubted, and complete documentary evidence was provided. It concluded that the purchases were genuine and restricted the addition to 4% of the total purchases, amounting to Rs. 34,51,441, and directed the deletion of the balance amount.3. Disallowance of Belated Payment of Employees' Contribution to ESI:The AO disallowed Rs. 3,03,447 for delayed payment of Employees' Contribution to ESI. The CIT(A) allowed the deduction, citing judgments from the jurisdictional High Court. The Tribunal upheld the CIT(A)'s decision, noting that the contributions were paid before the due date for filing the return of income, making them allowable.4. Addition of Provision for Wealth Tax and Provision for Gratuity and Leave Encashment in the Book Profit:The AO added provisions for wealth tax, gratuity, and leave encashment while computing book profit under section 115JB. The CIT(A) deleted these additions, stating that wealth tax is not mentioned in the prohibited items under section 115JB, and provisions for gratuity and leave encashment are ascertained liabilities. The Tribunal upheld the CIT(A)'s decision, noting that these provisions are allowable as they are ascertained liabilities.5. Set-off of Accumulated Losses Including Lapsed Losses and Unabsorbed Depreciation of the Merging Company:The AO disallowed the set-off of brought forward losses of Rs. 58,17,10,822, citing the limitation period of eight years under section 72. The CIT(A) allowed the set-off, following the Tribunal's earlier decision in the assessee's case, which held that section 72A overrides section 72, allowing the carry forward of losses beyond eight years as per the BIFR scheme. The Tribunal upheld the CIT(A)'s decision, noting no change in facts or law and relying on the earlier Tribunal decision.Conclusion:The Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal, providing detailed reasoning for each issue based on documentary evidence, legal provisions, and relevant case laws. The orders of the CIT(A) were largely upheld, with specific directions provided for the AO to follow.