2021 (9) TMI 880 - AT - Income Tax

Tribunal Partially Allows Appeals, Adjusts Commission, Disallows Expenses, Deletes Unexplained Expenditure

Mirah Dekor Pvt. Ltd Versus The Dy. Commissioner of Income Tax, Circle 2 (1), Mumbai

The Tribunal allowed the appeals partly by deleting the addition of commission on purchases and sales treated as bogus, restricting the disallowance of ... Bogus purchases - Addition of commission on notional basis - HELD THAT:- Similar, is the grounds in Assessment Year 2014-15 wherein purchases made from Sarvesh Mercantile Pvt. Ltd by assessee was added by Assessing Officer and confirmed by CIT(A) i.e. commission on the above purchases. Similarly, confirming the addition of commission on sales made by assessee to Ecoscapes International Pvt. Ltd on notional basis.Since, the facts and circumstances are exactly identical in these years also, respectfully following our finding in Para 6 of this order, we delete the addition of commission in these years also. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- This issue is covered by the decision of Hon’ble Supreme court in the case of Maxopp Investment Ltd. vs. CIT [2018 (3) TMI 805 - SUPREME COURT], wherein it is held that disallowance of section 14A read with Rule 8D of the Rules cannot exceed the exempt income claimed by assessee. Hence, we direct the Assessing Officer to restrict the disallowance to the extent of exempt income only. Hence, this common ground of the assessee in all the three appeals is partly allowed. Unexplained expenditure under section 69C - HELD THAT:- We have also gone through these nothings and as well as loose papers, which are indicative of incomings and outgoings but these notings does not indicate which amount pertain to which document and these are dumb notings. Even Revenue now could not controvert the above arguments, hence, we are of the view that addition made by Assessing Officer under section 69C is without any basis and hence, we delete the same. This issue of assessee’s appeal is allowed. Issues Involved:1. Addition of commission on purchases and sales treated as bogus.2. Disallowance of expenses related to exempt income under Section 14A.3. Addition of unexplained expenditure under Section 69C.Detailed Analysis:1. Addition of Commission on Purchases and Sales Treated as Bogus:The primary issue in these appeals is regarding the addition of commission made by the Assessing Officer (AO) on a notional basis by treating purchases from M/s Sarvesh Mercantile Pvt. Ltd. and sales to M/s Ecoscapes International Pvt. Ltd. as bogus. The AO added a commission of 2% on these transactions, amounting to Rs. 3,20,000 and Rs. 15,32,728 respectively, totaling Rs. 18,52,728. The CIT(A) confirmed these additions, stating that the assessee failed to produce corroborative evidence to substantiate the genuineness of the transactions.The Tribunal, however, referenced its earlier decision in the assessee’s own case for Assessment Years 2010-11 and 2011-12, where it was held that when sales are included in income, a further addition of 2% notional commission for bogus sales is unsustainable. The Tribunal reiterated that the same sale cannot be genuine and bogus simultaneously. Therefore, the addition of commission was deleted, and the appeals on this ground were allowed.2. Disallowance of Expenses Related to Exempt Income Under Section 14A:The second issue pertains to the disallowance of expenses related to exempt income by invoking Section 14A read with Rule 8D. The AO disallowed expenses amounting to Rs. 1,29,74,532 for AY 2012-13, Rs. 2,08,97,247 for AY 2013-14, and Rs. 3,10,82,872 for AY 2014-15. The assessee argued that the disallowance cannot exceed the exempt income received, which was Rs. 91,096, Rs. 18,250, and Rs. 19,697 respectively for the corresponding years.Both parties agreed that this issue is covered by the Supreme Court's decision in the case of Maxopp Investment Ltd. vs. CIT, where it was held that disallowance under Section 14A cannot exceed the exempt income claimed. Consequently, the Tribunal directed the AO to restrict the disallowance to the extent of the exempt income, thereby partly allowing these grounds of the assessee’s appeals.3. Addition of Unexplained Expenditure Under Section 69C:The final issue in AY 2013-14 concerns the addition of unexplained expenditure under Section 69C based on documents found from Vijay Mishra. The AO made an addition of Rs. 6,20,19,554, which was later revised to Rs. 68,52,034 after considering the assessee’s explanations and reconciliation statements.The assessee contended that the addition was due to overlapping entries and rough notations, which were dumb notings without clear indications. The Tribunal reviewed these documents and agreed with the assessee, noting that the notations were indeed rough and did not provide a clear basis for the addition. Therefore, the Tribunal deleted the addition of Rs. 68,52,034 under Section 69C, allowing this ground of the appeal.Conclusion:In conclusion, the Tribunal deleted the addition of commission on purchases and sales treated as bogus, restricted the disallowance of expenses related to exempt income to the extent of the exempt income received, and deleted the addition of unexplained expenditure under Section 69C. All three appeals were partly allowed as indicated.