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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER These are two appeals by the assessee against the order of the Commissioner of Income Tax (Appeals)-2, Ahmedabad (in short referred to as “ld.CIT(A)”) of even date i.e. 25.1.2018 passed under section 250(6) of the Income Tax Act, 1961 ("the Act" for short) pertaining to Assessment Years 2013-14 and 2014-15.
It was common ground that one of the issues involved in both the appeals arose in the background of identical facts. Therefore, both the appeals were taken up together for hearing and are being disposed of by this common consolidated order.
ITA No.891 and 892/Ahd/2018 2 3. We shall first deal with the assessee’s appeal in for A.Y 2013-14.
Ground no.1 raised by the assessee reads as under:
(1) The learned Assessing Officer has and Hon. CIT(A) has erred in disallowing and confirming disallowance of Rs.54,53,724/- (43,82,718 + 10,71,006/-) the claim of Assessee u/s 35(2AB) disregarding the submissions made by the Assessee. 4. Grievance raised by the assessee in the above ground is with respect to disallowance of claim of deduction under section 35(2AB) of the Act amounting to Rs.54,53,724/-.
The facts relating to the issue are that the assessee had claimed weighted deduction of Rs.98,36,442/- under section 35(2AB) of the Act on account of in-house research and development activity carried out by it. The assessee was entitled to claim deduction of 200% of the expenditure incurred on account of the said activity both under the revenue head and capital head, and accordingly, the assessee has claimed deduction under section 35(2AB) on the revenue head of Rs.87,65,436/- being 200% of Rs.43,82,718/- and under the head capital expenditure of Rs.10,71,006/- being 200% of Rs.5,35,503/-. The weighted deduction was claimed by the assessee of Rs.43,82,718/- under the revenue head and Rs.5,35,503/- under the capital head, was denied by the AO, since he found that the assessee had failed to submit the basic certificate for eligibility of claim of weighted deduction under section 35(2AB) of the Act from the competent authority for such claim, which was form no.3CL to be issued by the prescribed authority, DSIR.
The ld.CIT(A) upheld the disallowance, finding the issue to be identical with that in the case for the assessee for the preceding assessment year, and noting that identical disallowance made by the AO in the said year, had been confirmed by the first appellate authority, finding that the approval granted by the prescribed authority to the assessee for claiming deduction under section 35(2AB) of the Act was only w.e.f. 1-4-2014 i.e. for Asst.Year 2015-16 and upto 31-3-2016 i.e. Asst.Year 2016-17; that therefore, the requisite approval was not granted to the assessee for the impugned assessment year i.e. Asst.Year 2013-14. The relevant finding of the ld.CIT(A) at para 4.3 of his order in this regard are as under:
“4.3 I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has made the disallowance of weighted deduction claimed u/s.35(2AB) of the Act of Rs.54,53,724/- for the reason that the appellant had failed to submit the certificate for the eligibility of the claim of weighted deduction from the competent authority for such claim. 4.4 On going through the facts of the case, it is noticed that similar issue has been decided by the CIT(A_-2, Ahmedabad in the preceding year, wherein the issue has been decided against the appellant. The relevant findings given are reproduced hereunder:-
The ld.counsel for the assessee before us was unable to controvert the factual finding of the ld.CIT(A) in his order in the case of the assessee for Asst.Year 2012-13,that the approval granted by the prescribed authority i.e. Department of Scientific & Industrial Research for in-house R&D facility in terms of section 35(2AB) of the Act in form No.3CM, was w.e.f. 1-4-2014 upto 31-3-2016, and hence the assessee’s in-house R&D facility was not approved for the impugned year, i.e A.Y 2013-14.
In view of the same, we see no reason to interfere in the order of the ld.CIT(A) upholding the disallowance of claim of weighted deduction to the assessee under section 35(2AB) of the Act, amounting in all to Rs.87,65,436/-, in the absence of the requisite approval by the prescribed authority to the in-house R&D facility of the assessee.
Ground No.1 raised by the assessee is dismissed.
Ground No.2 raised by the assessee reads as under:
(2) The Learned Assessing Officer and Hon. CIT (A) have erred in law and on facts in making and confirming addition of Rs.62,08,914/- holding as bogus purchases disregarding the submissions of the Assessee. 9. As is evident from the perusal of the above ground the assessee is aggrieved by the confirmation of disallowance of bogus purchases to the tune of Rs.62,08,914/- by the ld.CIT(A).
The facts relating to the issue are that the AO had received information from the DIT(Inv.), Surat that the assessee had been provided bogus bills from certain entities for purchases amounting in all to Rs.1,22,03,455/-. The list of the same is reproduced at pageno.48 to 50 of the assessment order, and it reveals that these bogus purchases were provided to the assessee in the impugned year, and also in the succeeding year i.e. Asst.Year 2014-15. The AO, on receipt of all this information, sought confirmation from the concerned parties of the purchases whether made by the assessee. Some of the letters were returned with the remark “left” while no response was received from other parties. Accordingly, the AO show caused the assessee as to why purchase of Rs.54,10,651/- made by the assessee during the impugned year from the said parties be not treated as bogus purchases. The assessee submitted reply to the AO contending that the parties who had stated to have made bogus sales and on the basis of whose statement, which was recorded by the ITO, DIT(Inv.) Office, the impugned details had been extracted, had not mentioned the name of the assessee, as one of the parties to whom the bogus sales had been made. He had also pointed out that the names of the concerns, mentioned in the show cause notice issued by the AO to the assessee, were not mentioned in any of the statement by the respective deponents. He also pointed out that the one of the deponents had mentioned similarly sounding names of the parties, who had allegedly given bogus purchases, though the addresses were different from parties from whom the assessee had actually made purchases. He further contended that with respect to the one of the parties no purchases were made by the assessee. The assessee had also stated that all these purchases were substantiated by the purchase bills and payments had been made through banking and 892/Ahd/2018 7 channel; that all the items purchased had been consumed in manufacturing final products, and recorded in the stock register also. The AO however did not find the reply of the assessee acceptable, and stated that since entry provider had confirmed during survey proceedings that he had provided accommodation entries to his various concerns, therefore, there was no case with the assessee and the purchases made to the tune of Rs.62,08,914/-, pertaining to the impugned year, from the listed parties, was disallowed, treated as bogus purchases.
Before ld.CIT(A),the assessee reiterated the contention made before the AO ,who however found no reasons to digress from the order of the AO.
Before us, the ld.counsel for the assessee has relied on the submissions made before the AO/CIT(A) in support of his contentions that there was no basis with the AO to treat the purchases made from the impugned parties as bogus, and the assessee had duly substantiated his claim of purchases made being genuine.
The ld.DR on the other hand relied on the orders of the AO/CIT(A).
We have heard both the parities, and have gone through the orders of the authorities below.
We have noted that the ld.CIT(A) has confirmed the order of the AO, noting that he had arrived at his finding of the purchases being bogus based on detailed inquiry conducted by the investigation wing to the effect that Shri Kamal Jhaveri was entry provider and had given bogus bills to the assessee company. His finding in this regard at para 8.5 and 8.6 of the order is as under:
In fact, therefore, he found the AO’s inquiries to have adequately established that the purchases were bogus. and 892/Ahd/2018 9 15. Coming to the assessment order, we note that the AO rejected all contentions made by the assessee before him, and treated the purchases as bogus on the basis of statement of entry providers to the effect that they had provided accommodation entries through various concerns. His findings in this regard are at para 8.4of his order as under:
Coming to the submissions made by the ld.counsel for the assessee, we note that, he had contended that no credence could be given to the statement of entry providers or for that matter, Shri Kamal Jhaveri for the reasons that – i. he had not named the assessee as one of the beneficiaries of the bogus bills, and and 892/Ahd/2018 11 ii. that even the name of the concerns, which entry provider had mentioned as providing bogus bills was not the same as that whose bills had been treated by the AO as bogus. The assessee had stated that all four parties listed by the AO, as having provided bogus bills to the assessee i.e. Royal Traders, Jay Traders, Shubham Enterprise and Roshani Marketing were not names of the concerns which had been taken by the entry providers for having provided bogus bills. iii. that the AO had misread the names of the concerns which had been taken by the entry providers, since they sounded the same to the names from which the assessee had made purchases. In the case of Jay Traders and Roshani Marketing, they were separate entities with separate addresses. He had pointed out that while Jay traders with the address at 1019/E Lawar Sheri, Gomtipur, Ahmedabad had issued bills to the assessee, the entry providers had taken the names of “Jai Traders” at Shivaji Nagar, Limbayat, that is similarly sounded. That while the assessee made purchases from Roshani Marketing at E/9/16 Santosh Park Society, Nable Nagar, Ahmedabad, the entry providers had mentioned name of “ROSHNEE MARKETING” at B/104 Krishna Park, Palanpur.
The assessee had also stated to have made no purchases from Royal Traders during the year. Further, we have noted that the assessee had filed all copies of bills for purchases to the AO and pointed out that the payments to the parties had been made through the banking channel. He had also demonstrated the fact that all the goods received to have been utilized in the manufacturing process. The assessee had also asked for the copy of the statements and other material on which the AO had relied, to file a suitable reply. and 892/Ahd/2018 12 But we find that the AO completely ignored all the contentions made by the assessee as above pointing out why the information which devolved from the investigation conducted by the Department as also the inquiry conducted AO could not be utilized against the assessee to hold the purchases made to the tune of Rs.62,08,914/- as bogus. The AO has not controverted the contention of the assessee that the entry providers had not taken the name of the assessee as one of the beneficiaries of the bogus bills. He has neither controverted the contentions of the assessee that the parties from whom the assessee has purchased, were not mentioned by the entry providers as providing bogus bills. That the AO even misread all the names of the parties mentioned by the entry providers was also not dealt with by the AO. The AO has also not considered the fact that the all purchases were duly supported with invoices and payments made through banking channels. No adverse finding has been given by the AO even with respect to the contentions of the assessee that all items purchased were utilized in the manufacturing process of the assessee. More importantly, the AO has not even rejected the books of the assessee on finding bogus purchases to have been made by the assessee. Also a very important fact is that when the assessee asked for all adverse material to be given to it, so as to file a suitable reply, nothing was furnished to the assessee.
In the light of the same, we hold that the assessee, had suitably demonstrated that no credence could be given to the information regarding bogus purchases collected by the Investigation Wing of the Department, as also the investigation conducted by the AO, with a plausible explanation, in which no infirmity was noted by the AO. The entire case of the AO/ CIT(A) rests on the statement of entry providers which the assessee had suitably demonstrated to be not reliable and which has remained uncontroverted by the AO. and 892/Ahd/2018 13 That therefore, the disallowance made by the AO/CIT(A) merely on the basis of information from Investigation wing of the Department and inquiry conducted by the AO is not sustainable.
In the light of the same, we hold that there is no basis with the AO for making disallowance of bogus purchases to the tune of Rs.62,08,914/-, and we accordingly direct deletion of the same.
Ground No.2 of the assessee is allowed.
In the result, the appeal of the assessee in is partly allowed.
Now we take up the assessee’s appeal in Asst.Year 2014-15.
The issue raised in ground no.1 of appeal is against the disallowance of PF and ESI contribution of employees amounting to Rs.4,13,268/-, which was reflected in the ground in the following manner: “1. The learned Assessing Officer and Hon. CIT(A) have erred in law and on facts disallowing and confirming PF and ESI contribution of employees amounting to Rs.4,13,268/- when the payment was made within financial year and delay was only for three days which should have been condoned and the amount should not have been disallowed.”
At the outset, the ld.counsel for the assessee fairly conceded that the impugned issue is otherwise covered against the assessee by the decision of the Hon’ble Supreme Court in the case of Checkmate Services P.Ltd. Vs. CIT, 143 taxmann.com 178 (SC), and therefore, the issue may be disposed of accordingly.
We find that the Hon’ble Supreme Court in the case of Checkmate Services P.Ltd.(supra) held that payment towards and 892/Ahd/2018 14 employees’s contribution to provident fund after the due date prescribed under the relevant statue is not allowable as deduction under section 36(1)(va) of the Act. Therefore, following the settled position of law on the issue, we dismiss the ground no.1 of the assessee’s appeal.
The ground no.2 of the appeal is as under:
2. The Learned Assessing Officer and Hon. CIT (A) have erred in law and on facts in making and confirming addition of Rs.4,78,800/- holding as bogus purchases.
The above issue of confirmation of impugned addition on account of bogus purchases is identical to that of Asst.Year 2013-14 in and no disparity of the facts case being pointed out by either of the parties, therefore, our decision rendered therein shall apply equally for the appeal of the assessee for Asst.Year 2014-15 as well. Ground of appeal No.2 is accordingly allowed.
In effect appeal of the assessee in is partly allowed.
In the result, both the appeals of the assessee are partly allowed.
Order pronounced in the Court on 10th April, 2024 at Ahmedabad.