PCIT Vs Shapoorji Pallonji And Co. Ltd. (Supreme Court of India)
Summary: The Supreme Court dismissed the Revenue’s special leave petition against the Bombay High Court judgment in PCIT Vs. Shapoorji Pallonji & Co. Ltd. The Supreme Court’s supplied order contains only the dismissal and disposal of the pending application; it does not provide independent reasons or expressly affirm the High Court’s reasoning. The substantive findings therefore arise from the Bombay High Court judgment concerning assessment year 2010–11.
Read Bombay HC Judgment in this case: Bombay HC Upholds Deletion of Section 14A, Interest and Bogus Purchase Additions
The Revenue had challenged the Income Tax Appellate Tribunal’s order dated 28 September 2016 on four issues. First, it disputed the restriction of disallowance under Section 14A read with Rule 8D to ₹10 lakh, which had resulted in relief of ₹2,38,71,710. The High Court held that the Revenue had not established the factual foundation necessary to invoke the apportionment principle discussed in Maxopp Investment Ltd. v. CIT. The assessee possessed interest-free funds substantially exceeding the advances made, and the Revenue did not dispute that factual finding. Applying CIT v. Reliance Utilities and Power Ltd., subsequently affirmed by the Supreme Court in CIT v. Reliance Industries Ltd., the High Court declined to entertain the proposed question.
Second, the Revenue questioned deletion of a disallowance of ₹7,38,98,631 under Section 36(1)(iii), alleging diversion of interest-bearing borrowed funds for non-business purposes. The High Court referred to earlier proceedings involving the same assessee, in which it had been established that interest-bearing borrowings were not used for the advances and that sufficient interest-free funds were available. Treating this as a factual determination, the Court declined to admit the question.
Third, the Revenue challenged deletion of foreign-exchange fluctuation losses and consequential adjustments to book profits under Section 115JB. The Tribunal had applied CIT v. Woodward Governor India Pvt. Ltd., recognising that losses arising from valuation of outstanding foreign-currency liabilities or receivables were not merely notional. Since the underlying additions had been deleted, the High Court found no basis for consequential book-profit adjustments.
Finally, the Revenue challenged deletion of additions aggregating ₹3,32,867 relating to purchases from Kant Enterprises and Nutan Metals. The Assessing Officer had relied on information from the Maharashtra Sales Tax Department alleging that the suppliers issued accommodation bills. However, the Tribunal found that the assessee had produced supporting purchase records and that the Assessing Officer had neither conducted independent inquiries nor established that the documents were bogus. Agreeing with the Tribunal, the High Court held that suspicion based on another authority’s information, without independent investigation and a proper opportunity to rebut adverse statements, could not justify the additions. The Revenue’s appeal was consequently dismissed.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
The special leave petition will stand dismissed. Pending application stands disposed of.
