2012 (12) TMI 1063 - AT - Income Tax

Summary

Issues involved: The judgment involves issues related to deletion of addition of expenditure made u/s 40A(3) of the Income-tax Act, 1961 and restricting the disallowance on account of purchase of material.

Deletion of Addition of Expenditure u/s 40A(3): The Revenue challenged the deletion of addition of &8377; 26,61,084 by the learned CIT(A) under section 40A(3) of the Income-tax Act, 1961. The Revenue contended that necessary details for the claim of such expenditure were not furnished by the assessee. However, the learned CIT(A) and the Appellate Tribunal found that the payments were made to government departments, falling under the exceptions provided in Rule 6DD(b). It was concluded that the necessary details were indeed filed by the assessee, and the addition was deleted based on this finding.

Restriction of Disallowance on Purchase of Material: The Revenue objected to the learned CIT(A) restricting the disallowance on account of purchase of material to 3%, as opposed to the 15% estimated by the Assessing Officer. The Assessing Officer doubted purchases from four parties, alleging inflated consumption of material. However, the learned CIT(A) noted that the assessee's gross profit ratio was increasing, and overall material consumption had decreased. It was observed that the disallowance was made on an ad-hoc basis without concrete evidence. The learned CIT(A) considered the past history of the assessee and restricted the disallowance to 3%, which was further increased to 6% by the Appellate Tribunal to settle the matter. The decision was based on estimation and the specific circumstances of the case.

Conclusion: The Appellate Tribunal partly allowed the appeal of the Revenue, affirming the deletion of the addition of expenditure u/s 40A(3) and modifying the disallowance on purchase of material to 6%. The judgment was pronounced on 7th December, 2012.