2014 (3) TMI 977 - AT - Income Tax

Addition on purchase of H.R. Coils and profit earned thereon @ 10% - Held that - Though the assessee has filed an appeal before the ld. CIT(A), but did not file any confirmation from JSJAI with regard to the debit balance shown in its books of account as on 31.3.2003. The ld. CIT(A) has taken note of the fact that according to the assessee a sum of 17,98,142.70 was the debit balance as on 31.3.2003 and it remained the same till disposal of the appeal before him and the assessee has not made any effort to recover the said amount. In this regard, the ld. counsel for the assessee could not furnish any valid explanation as to why the assessee has not made any effort to recover the aforesaid amount, if he has not purchased any goods through invoices as disclosed in the accounts of JSJAI during the period 2.5.2002 to 15.5.2002. The ld. CIT(A) has also observed that the assessee has raised technical objection to the evidences collected by the Assessing Officer during the course of assessment proceedings. From the orders of the lower authorities, we find that after collecting the evidence from JSJAI, the Assessing Officer has immediately confronted the same to the assessee. Thereafter the ld. counsel for the assessee asked the Assessing Officer to afford an opportunity to cross-examine the responsible Director of JSJAI but he has not made any effort to obtain the confirmations from JSJAI or to ask him as to why he has shown sales in its name in its books of account. We also find force in the observations of the ld. CIT(A) that if JSJAI has done mischief with the assessee or has committed any fraud by showing wrong sales in its name, there could have been some criminal complaint or FIR against JSJAI. But nothing has been done by the assessee against JSJAI. Even till final hearing of the appeal before the Tribunal, the ld. counsel for the assessee could not place any evidence on record as to how and when he has recovered the outstanding debit balance of 17,98,142.70 from JSJAI nor did he claim it to be as bad debt if he failed to recover it for any reason. All these facts support the case of the Revenue that the assessee has made purchases as declared in the books of JSJAI out of its books of account and made sale thereof and earned profit. Since the assessee has been showing debit balance in the name of JSJAI in its books of account and no purchase was shown in its account, the purchases made by it as per statement of JSJAI is outside the books of account, in which the investment made is to be considered as unexplained investment for which addition is called for. Similar is the position with regard to the profit earned thereon on its sales outside the books of account. - Decided against assessee. Disallowance of General expenses; Office expenses and Travelling and Conveyance expenses - Held that - Assessing Officer has made the disallowances under different heads on ad hoc basis without pointing out any specific defect in the maintenance of the details of these expenses. Therefore, we find no merit in the ad hoc disallowances and we accordingly delete the disallowances made on this account. - Decided in favour of assessee.

Summary

Issues Involved:

1. Addition of Rs. 17,99,042/- on account of unaccounted purchase of H.R. Coils.
2. Addition of Rs. 1,79,904/- on account of profit calculated at 10% of the alleged purchase.
3. Ad hoc disallowance of Rs. 20,000 each under general expenses, office expenses, and traveling and conveyance expenses.

Issue-wise Detailed Analysis:

1. Addition of Rs. 17,99,042/- on account of unaccounted purchase of H.R. Coils:

The authorities below upheld an addition of Rs. 17,99,042/- on account of the purchase of H.R. Coils allegedly made by the appellant from J.S. Jain Agro Industries (P) Ltd. (JSJAI) and not accounted for in its books. During the assessment proceedings, the assessee filed a list of debtors and creditors showing a debit balance of Rs. 17,98,142.70 receivable from JSJAI. The Assessing Officer (AO) verified this with JSJAI, which confirmed the sales through various invoices and provided transport receipts. The assessee disputed these purchases, claiming no transactions with JSJAI and requested to cross-examine JSJAI's Director, which was denied by the AO. The CIT(A) upheld the addition, noting the absence of any effort by the assessee to recover the alleged outstanding amount from JSJAI or to dispute the transaction formally. The Tribunal found that the assessee failed to provide evidence of recovering the outstanding amount or to prove the transactions were not genuine, thus confirming the addition as unexplained investment.

2. Addition of Rs. 1,79,904/- on account of profit calculated at 10% of the alleged purchase:

The authorities also upheld an addition of Rs. 1,79,904/- calculated at 10% of the alleged unaccounted purchase of H.R. Coils as profit. The AO added this amount to the total income of the assessee, considering it as profit earned from sales outside the books. The CIT(A) confirmed this addition, and the Tribunal upheld the decision, agreeing that the profit earned on unaccounted purchases should be added to the income.

3. Ad hoc disallowance of Rs. 20,000 each under general expenses, office expenses, and traveling and conveyance expenses:

The AO made ad hoc disallowances of Rs. 20,000 each under the heads of general expenses, office expenses, and traveling and conveyance expenses without pointing out specific defects. The CIT(A) upheld these disallowances. However, the Tribunal found no merit in the ad hoc disallowances as they were made without identifying specific discrepancies in the maintenance of these expenses. Consequently, the Tribunal deleted the disallowances made on this account.

Conclusion:

The appeal was partly allowed. The Tribunal confirmed the additions related to the unaccounted purchase of H.R. Coils and the profit thereon, while it deleted the ad hoc disallowances under various expense heads. The order was pronounced in the open court on 07.03.2014.