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2016 (1) TMI 1089 - AT - Income TaxUnexplained expenditure u/s.69C - FAA had reduced the addition to 20% - Held that - AO had made the addition on the basis of information received from the Sales tax department, but, he did not make any independent inquiry. He did not follow the principles of natural justice before making the addition. The FAA had reduced the addition to 20%, but he has not given any justification except stating that same was done to plug the probable leakage revenue. Considering the peculiar facts and circumstances of the case,we are reversing the order of the FAA. Effective ground of appeal is decided in favour of the assessee Disallowance made under conveyance expenses/office expenses/travelling expenses, telephone expenses and warehouse/godown rent - Held that - FAA had analysed the said agreement and had reached the conclusion that the assessee had no connection with that agreement. As the assessee had not proved that he had paid the warehousing charges therefore, the FAA rightly upheld the disallowance. For claiming deduction u/s.37(1) of the Act the assessee has to lead evidences in his support-he has to produce documentary evidence to prove that expend was actually incurred and was incurred wholly and exclusively for the purpose of business in the case of Ramanand Sagar (2002 (2) TMI 52 - BOMBAY High Court )the Hon ble Bombay High Court has held that the burden of proof is on the assessee to establish beyond doubt that the expenditure is solely incurred for the purpose of business. In the case before us, the incurring of expenditure disallowed by AO and upheld by the FAA itself is not proved. - Decided against assessee Addition on capital introduced - Held that - We find that the assessee had filed the cash flow statement and the balance sheet in his support, that the FAA had not analysed the documents properly, that availability of cash was prima facie established. In our opinion, it requires further investigation. Therefore, in the interest of justice we are remitting back the issue to the file of the AO for fresh adjudication, who will decide the matter afresh after affording a reasonable opportunity of hearing to the assessee. Addition on account of bogus purchase - Held that - AO had added ₹ 10.50 lakhs to the income of the assessee for the year under appeal and FAA had reduced it to ₹ 2.10 lakhs. We have deleted the addition made under the head bogus purchases while deciding the appeals filed by the assessee for both the AY.s. So, deciding the effective ground of appeal against the AO, we uphold the partial deletion made by the FAA.
Issues Involved:
1. Addition of Rs. 1,44,348/- as unexplained expenditure for AY 2009-10. 2. Disallowance of various expenses (conveyance, office, staff welfare, sundry, travelling, telephone, and warehouse rent) for AY 2010-11. 3. Addition of Rs. 3,00,000/- as income from undisclosed sources for AY 2010-11. 4. Addition of Rs. 2,10,000/- on account of bogus purchases for AY 2010-11. 5. Appeal by the AO against deletion of addition for bogus purchases for AY 2010-11. Detailed Analysis: 1. Addition of Rs. 1,44,348/- as Unexplained Expenditure for AY 2009-10: The AO found that the assessee had purchased goods worth Rs. 7.21 lakhs from Shiv Sagar Steel (India), a party listed as bogus by the Sales Tax Department (STD). The assessee failed to produce the supplier, and summons to Shiv Sagar were unserved. Consequently, the AO treated the purchase as bogus and added the entire amount as unexplained expenditure under Section 69C of the Income Tax Act. The First Appellate Authority (FAA) reduced the addition to 20% of the purchase, justifying it as a measure to plug revenue leakage. The assessee argued that the AO did not provide a copy of the statement from Shiv Sagar and denied cross-examination. The Tribunal found that the AO had not rejected the sales and maintained quantitative details and stock registers. Citing precedents, the Tribunal ruled that once sales are accepted, the entire purchase cannot be rejected. The Tribunal reversed the FAA's order, deciding the issue in favor of the assessee. 2. Disallowance of Various Expenses for AY 2010-11: The AO disallowed 50% of expenses under conveyance, office, staff welfare, sundry, and travelling expenses due to lack of proper supporting documents, resulting in an addition of Rs. 1.59 lakhs. Additionally, Rs. 51,799/- of telephone expenses and Rs. 96,000/- of warehouse rent were disallowed due to unsupported cash payments. The FAA upheld the AO's disallowance, noting the lack of documentary evidence and the fact that the assessee operated from a residential premise without any employees. The Tribunal found that the assessee failed to provide necessary evidence to substantiate the expenses and confirmed the FAA's order, deciding against the assessee. 3. Addition of Rs. 3,00,000/- as Income from Undisclosed Sources for AY 2010-11: The AO added Rs. 3,00,000/- as income from undisclosed sources under Section 68, as the assessee failed to provide a cash flow statement. The FAA upheld this addition, finding the assessee's explanation unsatisfactory. However, the Tribunal noted that the assessee had filed a cash flow statement and balance sheet showing sufficient funds. The Tribunal remitted the issue back to the AO for fresh adjudication, directing further investigation and providing the assessee a reasonable opportunity to be heard. 4. Addition of Rs. 2,10,000/- on Account of Bogus Purchases for AY 2010-11: The AO added Rs. 10.50 lakhs for purchases from Valiant Steel Engineering Co., listed as bogus by the STD. The FAA reduced this addition to Rs. 2.10 lakhs. The Tribunal, following its decision for AY 2009-10, deleted the partial addition retained by the FAA, deciding the issue in favor of the assessee. 5. Appeal by the AO Against Deletion of Addition for Bogus Purchases for AY 2010-11: The AO appealed against the FAA's reduction of the bogus purchase addition from Rs. 10.50 lakhs to Rs. 2.10 lakhs. The Tribunal upheld the FAA's partial deletion and dismissed the AO's appeal. Conclusion: The appeal filed by the assessee for AY 2009-10 was allowed, and the appeal for AY 2010-11 was partly allowed. The appeal filed by the AO was dismissed. The Tribunal emphasized the need for proper documentation and evidence to substantiate claims and the importance of following principles of natural justice in assessment proceedings.
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