2012 (8) TMI 674 - AT - Income Tax

Addition u/s 68 made for purchases disbelieved on ground of alleged inability of assessee to prove trade creditors appearing in its books - self made vouchers - assessee being a wholesale grain merchant - Held that - Keeping in mind the nature of business, preponderance of probability is that the purchases were from agriculturists. It would not generally be possible to obtain bills from agriculturists and therefore, the best that could be done in such circumstances was to have self-made vouchers. No defect in such self-vouchers has been pointed out. Further, application of Section 68 is called for only where any credit balance stands unproved. In present case, there were no trade credit balances at all. In view of aforesaid, dis-allowance stands deleted. Addition u/s 40A(3) - Held that - There is no finding by the A.O. that payment made to Shri Annadurai was for any purchase at all. If Section 40A(3) has to be applied, there should be a finding that the payment was in relation to an expenditure. As long as this finding is not there, application of said Section is not called for at all. Interest dis-allowance - Held that - As long as the credits were not questioned, interest alone could not have been disallowed. Just for a reason that partners current account was showing a debit balance, interest expenses could not have been disallowed. Dis-allowance made out of Cooly and Delivery charges claimed - Held that - Defects in vouchers produced by the assessee were not pointed out. Generalised reasons for disallowances cannot stand the test of reason - Decided in favor of assessee

Summary

Issues involved:
1. Disallowance of purchases made by the assessee.
2. Addition made under Section 40A(3).
3. Disallowance of interest claim.
4. Disallowance of Cooly and Delivery charges claimed.

Detailed Analysis:
1. Disallowance of Purchases:
The assessing officer disallowed purchases made by the assessee amounting to Rs. 28,27,500 as the assessee could not prove the identity, creditworthiness of the parties, and genuineness of the transactions. The CIT(Appeals) confirmed this disallowance, stating that the burden of proof was on the assessee to establish the trade creditors' authenticity, invoking Section 68 of the Act. However, the ITAT Chennai found that the purchases were likely made from agriculturists, making it difficult to obtain bills and justifying the use of self-made vouchers. The ITAT held that disallowances were unjustified as there were no trade credit balances and the purchases were supported by self-vouchers.

2. Addition under Section 40A(3):
An addition of Rs. 20,000 was made under Section 40A(3) due to a payment of Rs. 1,00,000 made to Shri Annadurai by cheque. The ITAT Chennai noted that the assessing officer did not establish that the payment was related to any purchase, rendering the application of Section 40A(3) unwarranted.

3. Disallowance of Interest Claim:
The assessing officer disallowed Rs. 2,54,791 out of the total interest claim of Rs. 3,75,330, citing lack of proof regarding the identity, genuineness, and creditworthiness of the concerned parties. The ITAT Chennai held that disallowing interest solely based on partners' debit balance was unjustified, as long as the credits were not in question.

4. Disallowance of Cooly and Delivery Charges:
A disallowance of Rs. 52,198 (25% of the claimed amount) on Cooly and Delivery charges was made by the assessing officer due to the absence of proper vouchers. The ITAT Chennai found the reasons for disallowance vague and generalized, as specific defects in the vouchers were not identified. Consequently, the ITAT concluded that the disallowances and additions were unwarranted and ordered their deletion, allowing the appeal filed by the assessee.

The judgment was delivered by the ITAT Chennai on June 19, 2012, overturning the disallowances and additions made by the lower authorities.