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DATE: April 4, 2017 (Date of pronouncement)
DATE: April 7, 2017 (Date of publication)
AY: 2009-10
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CITATION:
Bogus Purchases: If the assessee has not discharged the onus of producing the documentation and the suppliers, the AO is entitled to estimate the gross profit. The GP estimate should be fair, honest and rational and cannot be arbitrarily applied at the discretion of the AO. Industry comparisons or other rational comparability vis-à vis preceding years GP ratio should be brought on record. The books should be rejected. On facts, GP ratio of 12.5% as applied in Simit P Sheth 356 ITR 451(Guj) is fair, reasonable and rational after giving credit for the GP already declared

The authorities below in the instant case did not made any industry comparisons to arrive at fair, honest and rational estimation of GP ratio, rather applied GP ratio of 12.5% on alleged bogus purchases which estimation was in addition to the normal GP ratio declared by the assessee in return of income filed with Revenue. The Revenue made aforesaid additions relying on the presumption that the material was in-fact purchased from grey market at a lower rate and to cover deficiencies in record, the invoices were procured from these entry operators to reduce the profit. It was also considered that there will be savings on account of taxes while procuring material from grey market. The authorities below relied upon decision of Hon’ble Gujarat High Court in the case of Simit P Sheth (2013) 356 ITR 451(Guj HC), which has estimated disallowance @12.5% of the disputed bogus purchases to meet the end of justice. The authorities below has not brought on record industry comparables nor any rational comparability vis-à vis preceding years GP ratio are brought on record. There is no allegation brought on record by learned DR that similar additions were also made in the immediately preceding year

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DATE: October 31, 2016 (Date of pronouncement)
DATE: December 30, 2016 (Date of publication)
AY: 2008-09
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CITATION:
S. 14A/ Rule 8D disallowance applies also to dividends received from strategic investments in subsidiaries. S. 40A(2) disallowance is not applicable to co-operative societies. As per Circular No. 14 (XL-35) of 1955 dated 11.4.1955, the AO is obliged to assist the assessee and allow deduction even if not claimed

We are also of the considered view, that strategic investment made by the assessee in its subsidiary Saraswat Infotech Limited as well in the other securities which are capable of yielding exempt income i.e. by way of dividend etc. which are exempt from tax shall be included while computing disallowance u/s 14A of the Act as per the scheme of the Act as contained in provisions of Section 14A of the Act as the statute does not grant any exemption to the strategic investments which are capable of yielding exempt income to be excluded while computing disallowance u/s 14A of the Act and hence the investment made by the assessee in subsidiary company M/s Saraswat Infotech Limited and all other securities which are capable of yielding exempt income by way of dividend etc shall be included for the purposes of disallowance of expenditure incurred in relation to the earning of exempt income , as stipulated u/s 14A of the Act. Our decision is fortified by the recent decision of Hon’ble Karnataka High Court in the case of United Breweries Limited v. DCIT in ITA No. 419/2009 vide orders dated 31-05-2016 and also decision of the tribunal in the case of ACIT v. Uma Polymers Limited in ITA no 5366/Mum/2012 and CO No. 234/Mum/2013 vide orders dated 30-09-2015

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DATE: May 25, 2016 (Date of pronouncement)
DATE: May 30, 2016 (Date of publication)
AY: 2003-04
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CITATION:
Transfer Pricing: Arbitrary action of the AO in treating the payment by the assessee to the AE as "excessive/ unreasonable" deplored. Whims and fancies of an AO cannot decide tax liability of an assessee. Either the AO was ignorant of the TP provisions or he was adamant to make the disallowance at any cost. Either way, his action cannot be endorsed

It is said that rights and duties are two sides of the same coin. In other words, rights demand that a person using his rights should also observe his duties. In taxation matters discretionary powers have been given to the AO’s but they are expected to use the power in a fair and just manner. State as an institution can levy and collect only due taxes from its subjects. So, if the AOs determine the tax liability in an unfair manner and if the demand is not of the DUE taxes appellate authorities are expected to allow relief to the assessee. He very well knew that the assessee had objected to the ad hoc disallowance and rejection of the CUP method. But, he stuck to his guns while submitting the remand report and supported the estimated disallowance. His approach goes against the very basis of the TP provisions. Either he was ignorant of the TP provisions or he was adamant to make the disallowance at any cost. But, his action cannot be endorsed. Why was the transaction entered in to by the AE with MIT Hungary could not be a basis for arriving at ALP was never discussed by the AO. The assessee has discharged his burden of proof. After that onus had shifted to the assessee and in our opinion he has failed miserably to prove that his action of making disallowance was supported by any logical argument or scientific basis. Whims and fancies of an AO cannot decide tax liability of an assessee

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DATE: May 25, 2016 (Date of pronouncement)
DATE: May 30, 2016 (Date of publication)
AY: 2006-07
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CITATION:
S. 37(1): (i) Product Trial expenses of a new product is revenue in nature as it does not provide the assessee with any enduring benefit, (ii) Compensation paid to supplier to ensure goodwill and continued relationship is revenue expenditure

For allowing / disallowing any expenditure under Section 37 of the Act, the basic thing to be seen as to whether the expenditure was incurred for furtherance of business interest of the Assessee or not. It is a fact that in this case because of the expenditure incurred no new assets came into existence. The expenditure was incurred considering the old relation with the supplier and to avoid future business complications. If an assessee makes payment which is compensatory nature, it has to be allowed. In this case, the payment was made in pursuance of an agreement and that was of compensatory nature i.e.it was not penal, hence it was to be allowed

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DATE: July 31, 2014 (Date of pronouncement)
DATE: August 15, 2014 (Date of publication)
AY: 2009-10
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CITATION:
S. 14A/ Rule 8D: No disallowance can be made if there is no exempt income. Cheminvest (SB) & CBDT Circular are not good law


S. 14A/ Rule 8D: No disallowance can be made if there is no exempt income. Cheminvest (SB) & CBDT Circular are not good law

No doubt in Cheminvest Ltd vs. ITO 121 ITD 318 (SB) the Special Bench of the Tribunal has held that disallowance u/s 14A can be made even in the year in which no exempt income has been earned or received by the assessee. This decision of Special Bench of the Tribunal has been impliedly overruled by the decisions of High Courts in Shivam Motors P Ltd (All HC), CIT vs. Corrtech Energy Pvt. Ltd (Guj HC), CIT vs. Delite Enterprises (Bom HC), CIT vs. Lakhani Marketing (P&H HC), CIT vs. Winsome Textiles Industries Ltd 319 ITR 204 (P&H) where it has been held that when there is no exempt income and no claim for exemption, s. 14A and Rule 8D have no application and no disallowance can be made.

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