Case Law Details
Bhartiya International Ltd. Vs DCIT (ITAT Delhi)
ITAT Delhi held that disallowance of purchases by treating it as bogus unjustified as the impugned purchases have been sold and the sales have been accepted as there cannot be any sale without purchases.
Facts- During the year under consideration, assessee has earned exempt income of Rs. 1,01,073/-. As against the same, assessee has made suo motu disallowance of Rs. 2,52,249/- on the basis of 1% of average value of investment from which tax free dividend income was received. The assessee thus contends that in view of suo motu disallowance which far exceeds the exempt income, no further disallowance is permissible under Section 14A r.w. Rule 8D of the Income Tax Rules, 1963.
Further, AO proposed disallowance on account of bogus purchases of denim fabric from SunGold Trade Pvt. Ltd.(STPL) amounting to Rs. 15,17,87,755/-which was, in turn, sold to two parties namely Shivoham Trading Pvt. Ltd. – Rs.5,05,85,780/-; and Shakumbri Tradelink Pvt. Ltd. – Rs.10,22,38,920/-. AO held the purchases made from STPL as bogus purchases and proposed additions under Section 69C of the Act in the draft assessment order. DRP expressed a view that there cannot be any sale without purchases in any business transaction as the accounting is complete only by taking into account both the sides of the transactions. The sale and purchase transactions are thus requires to be simultaneously considered. The AO was accordingly directed to make verifications in the light of such observations. However, AO in the final assessment order however continued to treat the purchases of fabric from STPL as bogus without bringing any fresh facts on record.
Conclusion- Held that it is well settled law that disallowance under Section 14A can be made only in respect of those investments which have yielded tax free income during the year as held in Caraf Builders and ACB India Ltd. vs. ACIT (2015) 374 ITR 108 (Del). The AO is thus directed to delete the disallowance under Section 14A made over and above the disallowance offered by the assessee.
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