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Facts
The Revenue and the Assessee filed appeals against the CIT(A)'s order for AY 2021-22. The AO made additions on account of disallowance of advance, disallowance of interest, unoffered income, and bogus purchases.
Held
The Tribunal held that the addition on account of advance payment was not justified as it was not debited to the P&L account. The disallowance of interest was also not justified as no nexus was proved. The addition for unoffered income was deleted as no evidence of receipt was found. The assessee's appeal regarding the disallowance for bogus purchases was allowed as no defects were pinpointed in the purchases or accounts.
Key Issues
Whether additions made by the AO on account of advance, interest disallowance, and unoffered income are justified, and whether the disallowance of expenses for suspicious purchases can be sustained without pinpointing defects.
Sections Cited
37, 36(1)(iii), 143(3), 144B, 250
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आयकरअपीलीयअिधकरण,च"ीगढ़ "ायपीठ “ए” , च"ीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PSYSICAL HEARING "ी लिलत कुमार, "ाियक सद" एवं "ी कृणव" सहाय, लेखा सद" BEFORE: SHRI LALIET KUMAR, JM & SHRI. KRINWANT SAHAY, AM आयकर अपील सं./ 2024 िनधा"रण वष" / Assessment Year : 2021-22 Dy. CIT, बनाम Bhawani Industries Pvt. Ltd. Circle, Patiala G.T. Road, Village Ajnali Mandi Gobindgarh, Punjab-147001 "ायी लेखा सं./PAN NO: AABCB5105H अपीलाथ"/Appellant ""थ"/Respondent आयकर अपील सं./ ITA No. 826/Chd/ 2024 िनधा"रण वष" / Assessment Year : 2021-22 Bhawani Industries Pvt. Ltd. बनाम The Dy. CIT G.T. Road, Village Ajnali Circle, Patiala Mandi Gobindgarh, Punjab-147001 "ायी लेखा सं./PAN NO: AABCB5105H अपीलाथ"/Appellant ""थ"/Respondent िनधा"रती कीओरसे/Assessee by : Shri Ashwani Kumar & Ms. Muskan Garg, C.A’s राज"की ओर से/ Revenue by : Shri Rohit Sharma, CIT DR & Shri Vivek Vardhan, Sr. DR सुनवाईकीतारीख/Date of Hearing : 19/03/2025 उदघोषणाकीतारीख/Date of Pronouncement : 09/06/2025 आदेश/Order PER KRINWANT SAHAY, A.M:
The present appeal, filed by the Revenue, and the cross-appeal, filed by the Assessee, are against the order of the Ld. CIT(A) / National Faceless Appeal Centre (NFAC), Delhi, dated 20th June 2024, pertaining to the Assessment Year 2021-22. 2. In Following grounds have been raised by the Revenue :
1. Under the given facts & circumstances of the case, the Ld CIT(A) erred in allowing the appeal of the assessee.
2. Under the given facts & circumstances of the case, the Ld CIT(A) erred in deleting the addition of Rs. 17,65,00,000/- made u/s 37 of the Income-tax Act, 1961 since the assessee could not submit any evidence to prove that such advance was made in AY 2008-09.
3. Under the given facts & circumstances of the case, the Ld CIT(A) erred in allowing assessee's appeal on the issue of disallowance of Rs. 1,91,89,506/- u/s 36(1)(iii) of the Act.
4. Under the given facts & circumstances of the case, the Ld CIT(A) erred in deletion of unoffered income of Rs. 5,30,22,476/- since the statutory auditor has mentioned that settlement of this amount was made by the assessee.
5. The Appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of Appeal.
3. The sole ground raised by the assessee in its appeal in read as under: “That order passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi is against law and facts on the file in as much as he was not justified to arbitrarily uphold the addition at Rs. 71,92,064/- representing 25% of purchases amounting to Rs. 2,87,68,257/-made by the Learned Assessing Officer despite the fact that the entire evidence in support of such purchases was duly submitted. Neither any defect has been pointed out in the maintenance of the books of accounts nor any defectin the documents submitted in support of the purchases made.”
4. The assessee is a private limited company engaged in the business of manufacture of billets and flats in furnace and re-rolling mill. The return for A/Y 2021-22 was filed on 13.02.2022 declaring Nil income. Assessment u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 was framed by National Faceless Assessment Centre at a total income of Rs. 25,59,04,046/- vide order dated 16.12.2022. While framing assessment, following additions were made by the Learned Assessing Officer: -
(a) Addition of Rs. 17,65,00,000/- u/s 37 on the ground that the assessee could not prove that such advance was made during A/Y 2008 09. (b) Disallowance a sum of 1,91,89,506/- u/s 36(1)(iii) out of the interest cost paid by the assessee against the loans taken by him.
(c) The sum of Rs. 5,30,22,476/- as unoffered income on the ground that the same had accrued to the assessee as soon as the assessee receives the amount against settlement, no matter whether it is full or part payment and therefore, the income is set to have been accrued to him and once the income is accrued to the assessee is becomes liable to the assessee.
(d) Rs. 71,92,064/- being 25% of total of Rs. 2,87,68,257/- alleged to be bogus purchases made by the assessee.
The Learned Commissioner of Income Tax (Appeals), while deciding the appeal vide his order dated 22.06.2024 deleted the additions on first three grounds and sustained the addition made by the Learned Assessing Officer on account of alleged bogus purchases. The Department is in appeal against the order of the Learned Commissioner of Income Tax (Appeals) deleting the additions of Rs. 17,65,00,000/-, Rs. 1,91,89,506/- and Rs. 5,30,22,476/-. The assessee is in appeal against upholding of addition of Rs. 71,92,064/-.
Vide the first ground, the department is agitated against the deletion of addition of Rs. 17,65,00,000/- made by the Ld. AO on account of advance payment for purchase of raw-material. The Ld. CIT(A) has adjudicated this issue in para 7.1 at page 29 of his order. It was respectfully submitted before him that this amount was given as advance during A/Y 2008-09 and it was duly reflected in the Balance Sheet. There was no provision under the Act to make an addition of a advance given by the assessee considering the addition can only be made by him u/s 37 if and only if the amount given as advance is debited to Profit and Loss Account. References is drawn to the copy of Profit and Loss Account filed in the paper book at page 11 wherein it can be demonstrated that such an amount is not debited to the Profit and Loss Account. Keeping in view these facts, the Ld. CIT(A) has deleted the impugned addition. There was no justification on the part of the Ld. AO to make the addition of an amount which has never been claimed as an expenditure while filing the return of income.
Vide the next ground of appeal, the department is agitating the action of the Ld. CIT(A) for holding the disallowance of interest of Rs. 1,91,89,506/-. The disallowance of interest has been made by the Ld. AO on the amount of advance given by the assessee during A/Y 2008-09. The disallowance has been made by resort to provisions of Section 36(1)(iii) on the ground that no commercial expediency has been established for advancing said amount.
The Ld. AO has wrongly tried to correlate the advance given in A/Y 2008- 09 with the funds borrowed during the year under appeal. There is no link between borrowed funds during the year. The amount borrowed during the year under appeal were never utilized or even remotely linked for giving the advance in A/Y 2008-09 and thus, there was no warrant on the part of the Ld. AO to make such disallowance.
The Ld. CIT has adjudicated this ground in para 7.2 at page 29 of his order. The Ld. CIT(A) has rightly observed that the Ld. AO has not established any link between the advance given in A/U 2008-09 and the current loan received in A/Y 2021-22 on which interest was paid by the respondent company. The entire disallowance has been made by the Ld. AO on the presumption that the interest free advance was given by the assessee in A/Y 2008-09 whereas interest was paid on the loan received during A/Y 2021-22. The addition made on account of the advance of Rs. 17.65 crores have already been deleted while dealing with the earlier ground of appeal. Considering the facts and circumstances of the case, it is submitted that there is no justification in disallowing the interest paid on the loan borrowed during A/Y 2021-22 and it is, thus, prayed that the disallowance of Rs. 1,89,91,506/- already deleted by the Learned Commissioner of Income Tax (Appeals), ma kindly be upheld.
Vide the next ground of appeal, the department is agitating the action of the Ld. CIT(A) in holding the addition of Rs. 5,30,22,476/- which was made by the Ld. AO by holding that the debt has already been claimed as bad debt by the assessee. The impugned addition was made without ascertaining the fact and drawing wrong inference from Point No. 42 of the Notes to Accounts forming part of the Balance Sheet as on 31.03.2021. Note is as under: - "In respect of Sundry Debtors considered doubtful amount Rs. 6,84,77,902/- no provision has been made in the books due to pending court cases and other factors. The amount includes Rs. 5,30,22,476/- as on 31st March 2021 from a debtor whose settlement has been made but the court case has not been withdrawn, pending payment of settled amount of Rs. 1,50,00,000/- the adjustments in the accounts wll be made after the receipt of entire settled amount"
The Learned Assessing Officer, after examining the above note, has held as under: - "the income has accrued to the Assessee as soon as the assessee receives an amount against settlement, no matter whether it is full or part payment. And therefore the income is said to have been accrued to him/it. And once the income has accrued to him, it becomes liable to the taxed."
The assessee had submitted necessary evidence in this regard. There is no document which suggests that the payment has already been received from M/s Mass Metals Private Limited. It was also pointed out that the assessee has not written off the amount as bad debt in the books of account. Considering the above fact and circumstances of the case, the Ld. CIT(A) has rightly deleted the addition of Rs. 5,30,22,476/- which was made by the Ld. AO as non-offered gross receipts.
Ld. AR prayed that the addition of Rs. 5,30,22,476/-deleted by the Ld. CIT(A) be kindly upheld.
Per contra, the Ld. DR relied on the orders of the lower authorities. 15. We have heard the rival contentions and perused the material available on the record. We have also gone through the order passed by the Assessing Officer and the appellate order passed by Ld. CIT(A) on different grounds of appeal
. We find that Ld. CIT(A) has taken into consideration all the facts and material available on record. The Ld. CIT(A) has deleted the addition of Rs. 17,65,00,000/- as it was just an advance given by the Assessee shown in the balance sheet. It was never debited in the profit and loss account. Therefore, the findings of the Ld. CIT(A) that unless an amount is debited in the profit and loss account, it does not make any difference on profitability of the Assessee. Therefore, the addition of this amount was not justified and uncalled for. Accordingly, the Ld. CIT(A) has deleted this addition. We are of this considered view that the findings given by the ld. CIT(A) is very much logical and legal in nature. Therefore, we do not find any reason to interfere with the findings given by the Ld. CIT(A) on this issue.
16. The second ground of appeal filed by the Revenue is against the disallowance of interest of Rs. 1,91,89,506/-. The Assessing Officer had presumed that the payment of this amount of interest was linked to the amount shown in the balance sheet without making any verification or bringing any tangible proof on record. The ld. CIT(A) has rightly deleted this interest amount as she has given a very categorical findings that no nexus has been proved by the Assessing Officer in the interest amount claimed by the Assessee on this amount of advance given as shown in the balance sheet. We are of this view that findings given by the Ld. CIT(A) are based on documents and facts of the case. Therefore, we find no reason to interfere in t eh findings given by the Ld. CIT(A) on this issue. 17. The third ground of appeal of the Revenue is against the deletion of addition of Rs. 5,30,22,476/- made by the Ld. CIT(A). in fact, the Assessing Officer had made this addition on the presumption that this amount had already been claimed as bad debt by the Assessee in the earlier years but the Ld. CIT(A) on the basis of facts and documents has given a very categorical findings that there is no document which suggests that the payment has already been received by the Assessee company in earlier years. Therefore, the presumption made by the Assessing Officer for making this addition was not justified. During the proceedings before us, the Revenue could not rebut the findings given by the Ld. CIT(A) in his appellate order, therefore, we find no reason to interfere in the findings given by the Ld. CIT(A). Accordingly, Revenue’s appeal on this issue is dismissed
18. In the result, Revenue’s appeal is dismissed.
19. Vide the assessee's appeal, the assessee is agitating the action of the Ld. CIT(A) in upholding the disallowance of Rs. 71,94,064/- representing 25% of Rs. 2,87,68,257/- as suspicious purchases. The Ld. AO, while framing assessment, observed that on the basis of some information available on record, the assessee has made purchases from parties who have never filed the return of income. He listed suspicious parties as under: - Information Party PAN Party name Aggregated Code Transaction Value (Rs) GSTR1-P LCRPS2724K Hari Chand Singh 37,58,911.00 GSTR1-P GMTPS1942A Nazzar Singh 7,67,910.00 GSTR1-P MFWPS5001L Sachin 14,49,548.00 GSTR1-P FBLPB9106F Kuldeep Bansal 4,19,793.50 GSTR1-P BOQPA5039A Aman 10,63,797.50 GSTR1-P MQXPS6299C Kuldeep Singh 22,58,699.50 GSTR1-P ALJPC9595L Lai Chand 25,03,110.00 GSTR1-P DDDPG5949H Raju Garg 8,87,412.50 GSTR1-P BIEPB6934K Sohan Bir 92,98,631.50 GSTR1-P CBTPJ2163D Kapil Jain 29,51,399.00 GSTR1-P AKJPR7702F Raju 10,67,342.00 GSTR1-P MRQPS1582L Gurpreet Singh 12,91,212.00 GSTR1-P EESPK5920P Vicky Kumar 4,58,893.50 GSTR1-P GBXPK5228N Jitendra Kumar 5,91,600.00 Total suspicious purchases 2,87,68,257.00 for which no documentary evidence given to substantiate
20. The Ld. AO has observed that the assessee failed to file necessary evidence in respect of the purchases made from the parties mentioned above. The assessee submitted before the Ld. CIT(A) that the evidence furnished by him in respect of purchases made, has been summarily ignored. The Ld. CIT(A) discussed the issue in para 4 of his order and upheld the disallowance of Rs. 71,92,064/-.
21. The assessee during the course of hearing, has drawn attention to the voluminous details furnished before the lower authorities in respect of the impugned purchases. A paper book consisting pages 102 to 1231 was furnished before the Hon'ble Tribunal. The assessee also highlighted the facts that complete quantitative details are maintained by the assessee and the Ld. AO has not found any defect in the maintenance of books of accounts of the assessee which are duly audited. As per the assessee, no defect has been found or pointed out in the evidence filed with respect to the impugned purchases. 18.1 The assessee further relied on a decision of the Chandigarh bench in the case of Prime Steel Industries Private Limited v/s Deputy Commissioner of Income Tax, Patiala in wherein facts are absolutely identical and the addition made on account of alleged bogus purchase was deleted by the Hon'ble Bench.
22. Ld. AR submitted that keeping in view the facts with respect to the impugned addition and uncontroverted evidence filed, the addition upheld at Rs. 71,92,064/- by the Ld. CIT(A) be kindly ordered to be deleted.
Per contra, the Ld. DR relied on the orders of the lower authorities.
We have heard the rival contentions and perused the material available on the record. In this Cross Appeal filed by the Assessee, the only ground of appeal
raised by the Assessee is the addition of Rs. 71,96,064/-- i.e. 25% of the suspicious purchases of Rs. 2,87,68,257/-. The Assessing Officer made the addition on the basis that the Assessee did not file any document or relevant papers to substantiate its claim. The Ld. CIT(A) has simply sustained the addition made by the Assessing Officer without going into the details and documents filed by the Assessee. During proceedings before us, the ld. Counsel for the Assessee has filed voluminous record claiming that all these papers were filed before the authorities below but they have not gone into the details of these documents and not considered the relevant and necessary documents to prove the genuineness of such purchases.
25. We have considered the findings given by the authorities below and we have also considered the paper book and other details filed by the counsel of the Assessee. The Counsel argued that complete quantitative details are maintained by the Assessee and the ld. Assessing Officer could not find any defect in the maintenance of books of account of the Assessee which was duly audited. The Ld. Counsel has also brought on record an order of the Coordinate Chandigarh Bench of the ITAT in the case of Prime Steel Industries Private Limited v/s Deputy Commissioner of Income Tax, Patiala in wherein, on identical issue and facts, the Coordinate Bench has given full relief to the Assessee. We have also gone through the details filed by the Counsel of the Assessee and we have also heard his arguments.
26. Per contra, the ld. DR relied on the orders passed by the authorities below.
27. We are of this considered opinion that unless some defect is pointed out by the Assessing Officer in the maintenance of purchase register or in the books of account, the purchases of the Assessee cannot be rejected in a summarily manner. It is also important to note that although authorities below have questioned the purchases made by the Assessee but they could not bring anything on record to reject the production / sales of such purchases. In the absence of rejection of any corresponding production / sales, the purchases cannot be summarily rejected by the Revenue. We find that the authorities below could not pinpoint any defect in the purchases made by the Assessee, therefore, any adhoc disallowance on this issue cannot be sustained. Accordingly, Assessee’s appeal on this ground is allowed.
27. In the result, appeal filed by the Revenue is dismissed whereas, the appeal filed by the Assessee stands allowed. Order pronounced in the open Court on 09.06.2025 लिलत कुमार कृणव" सहाय (LALIET KUMAR) (KRINWANT SAHAY) "ाियक सद"/JUDICIAL MEMBER लेखासद"/ ACCOUNTANT MEMBER AG/rkk आदेशकी"ितिलिपअ"ेिषत/ Copy of the order forwarded to :