[2020] 117 625 (Bombay)

 

HIGH COURT OF BOMBAY

 

Principal Commissioner of Income-tax

 

v.

 

Shapoorji Pallonji & Co. Ltd.*

 

UJJAL BHUYAN AND MILIND N. JADHAV, JJ.

IT APPEAL NO. 1298 OF 2017†

 

MARCH  4, 2020

 

Held :

 

1.Where assessee had not utilized interest bearing borrowed funds for making interest-free advances as assessee had its own interest-free fund far in excess of interest-free advance, interest on borrowed capital could not be disallowed

 

2.Where disallowance under substantive provision have been deleted, question of consequential adjustments in book profit under section 115JB does not arise

 

3.Merely on suspicion based on information received from sales tax authority, Assessing officer could not make additions on account of bogus purchases without carrying out independent enquiry and affording opportunity to assessee to controvert statements made by seller

 

Short overview: 

 

1.Section 14A of the Income-tax Act, 1961

 

– Expenditure incurred in relation to income not includible in total income – – Assessment year 2010-11

 

– Whether where both interest-free and interest bearing funds were available with assessee, it is to be presumed that investments were made out of interest-free fund

 

– Held, yes

 

– Addition was made by Assessing Officer under section 14A

 

– First appellate authority deleted said addition by observing that sufficient interest-free fund was available with assessee which was far in excess of the advance given

 

– Tribunal affirmed deletion – Whether there was no good ground to entertain instant issue for consideration

 

– Held, yes [Para 8] [In favour of assessee]

1.

 

– Section 36(1)(iii) of the Income-tax Act, 1961

 

– Interest on borrowed capital (Condition precedent)

 

– Assessment year 2010-11

 

– Assessing Officer disallowed interest paid on borrowed capital on ground that

assessee had advanced interest free funds

 

– Commissioner deleted disallowance which was upheld by Tribunal

 

– Whether where assessee had not utilized interest bearing borrowed funds for making interest-free advances as assessee had its own interest-free fund far in excess of interest-free advance, no question of law arises from order deleting disallowance of interest on borrowed capital

 

– Held, yes [Para 9] [in favour of assessee]

III.

 

– Section 115JB of the Income-Tax Act, 1961

 

– Minimum alternate tax

 

– Payment of tax (Computation book profit)

 

– Assessment year 2010-11 – Whether where disallowance under substantive provision had been deleted, question of consequential adjustments in book profit under section 115JB did not arise

 

– Held, yes [Para 12] [In favour of assessee]

 

IV.

 

–  Section 69C of the Income-tax Act, 1961 – Unexplained expenditure (Bogus purchase)

 

– Assessment year 2010-11

 

– State Sales Tax Department informed Assessing Officer that two sellers from whom assessee made purchases, had stated that they had not actually sold any material to assessee

 

– Though assessee furnished copies of relevant bills and entries made in its books of account, Assessing Officer made addition under section 69-C on account of bogus purchases

 

– Tribunal found that Assessing Officer had not carried out any independent enquiry and failed to show that purchases were bogus

 

– Whether merely on suspicion based on information received from another authority, Assessing officer ought not to have made additions without carrying out independent enquiry and affording opportunity to assessee to controvert statements made by sellers

 

– Held, yes [Para 19] [In favour of assessee]