2012 (2) TMI 480 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of cash purchases of old silver.
2. Disallowance of rent paid u/s 40A(2).
3. Disallowance of commission paid u/s 40A(2).
4. Disallowance of car and telephone expenses.

Summary:

1. Addition on account of cash purchases of old silver:
The assessee challenged the addition of Rs. 42,48,003/- made by the AO, treating cash purchases of old silver as bogus. The AO noted the absence of seller details on purchase bills and deemed the transactions unverifiable. The CIT(A) upheld this addition. However, the Tribunal found merit in the assessee's argument that the sales, which were accepted as genuine by the AO, were derived from these purchases. The Tribunal concluded that the AO failed to demonstrate how sales could occur without the corresponding purchases and thus allowed the assessee's appeal on this ground.

2. Disallowance of rent paid u/s 40A(2):
The assessee contested the disallowance of Rs. 10,50,806/- out of the total rent paid of Rs. 14,40,000/-. The AO observed a significant increase in rent compared to the previous year and found no rent agreement or plausible explanation from the assessee. The CIT(A) upheld the AO's disallowance, noting the absence of evidence to support the rent payments. The Tribunal agreed with the CIT(A), emphasizing the lack of credible evidence and the assessee's failure to prove the genuineness of the transactions. This ground of appeal was dismissed.

3. Disallowance of commission paid u/s 40A(2):
The assessee disputed the disallowance of Rs. 16 lacs paid as commission to close relatives. The AO and CIT(A) found the payments excessive and unsupported by evidence of services rendered. The Tribunal upheld the CIT(A)'s findings, noting the absence of agreements or justification for the payments. The Tribunal referenced case law supporting the disallowance of such expenses when not substantiated by evidence. This ground of appeal was dismissed.

4. Disallowance of car and telephone expenses:
The assessee challenged the disallowance of Rs. 68,805/- out of car and telephone expenses. The AO disallowed 1/5th of these expenses, attributing them to personal use. The CIT(A) upheld this disallowance. The Tribunal found no justification to interfere with the CIT(A)'s findings, given the assessee's failure to prove the expenses were incurred wholly and exclusively for business purposes. This ground of appeal was dismissed.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal overturning the addition on account of cash purchases of old silver but upholding the disallowances related to rent, commission, and car and telephone expenses.