Tribunal limits additions on alleged bogus purchases, allows expenses, reduces Corporate Guarantee commission

The Tribunal partially allowed the assessee's appeals and dismissed the revenue's appeals. The Tribunal directed the AO to restrict additions on alleged bogus purchases to 2% of the value, allowed expenses disallowed under section 37, and upheld the reduction of Corporate Guarantee commission to 0.50% of the actual loan value.

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Issues Involved:
1. Addition relating to alleged bogus purchases.
2. Disallowance of expenses u/s 37 of the Act.
3. Addition relating to Corporate Guarantee commission.

Summary:

1. Addition relating to alleged bogus purchases:

The first common issue in both these years relates to the addition made on account of alleged bogus purchases. The AO disallowed entire purchases made from certain parties, concluding that these entities provided only accommodation bills without actually supplying materials. The Ld CIT(A) restricted the addition to 6% of the value of said purchases. Both parties appealed against this decision. The Tribunal noted that the assessee furnished all relevant documents to prove the purchases and that manufacturing loss declared by the assessee was within the prescribed limit of SION. The Tribunal modified the order and directed the AO to restrict the addition on account of non-genuine purchases to 2% of the value of alleged bogus purchases in both the years.

2. Disallowance of expenses u/s 37 of the Act:

The AO disallowed payments made to Ms. Ramita Jain and Mrs. Sangitha Jain, related to the CFO, concluding there was no association between these persons and the assessee company. The Ld CIT(A) confirmed the disallowance. The Tribunal, however, noted that both Ms. Ramita Jain and Mrs. Sangitha Jain provided services to the assessee company and that the retraction of their statements was not given much importance due to the delay. The Tribunal also considered the AO's view that the payments might have been split to reduce tax liability. The Tribunal set aside the disallowance and directed the AO to allow the expenses in all the years under consideration.

3. Addition relating to Corporate Guarantee commission:

The assessee provided Corporate Guarantee to its Associated Enterprises for the loan taken by them, and the TPO made a transfer pricing adjustment @ 1.50% of the Guarantee amount. The Ld CIT(A) directed the AO to restrict the Commission on Corporate Guarantee to 0.50% of the actual value of the loan, following the Tribunal's decision in the assessee's own case for AY 2010-11 and the Bombay High Court's decision in Everest Canto Cylinders Ltd. The Tribunal upheld the Ld CIT(A)'s decision.

Conclusion:

Both the appeals of the assessee are partly allowed, and both the appeals of the revenue are dismissed.

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