2013 (10) TMI 466 - AT - Income Tax

Addition on account of bogus expenses - The nature of the business of the assessee is that of government contractor, engaged in road construction, bridge etc. and also a quarry owned by the assessee Held that - Assessee has inflated its expenses to a great extent under various heads of the expenses, and has claimed at Rs.50,84,982/- as diesel expenses, and has claimed that it was purchased from M/s.Millan Auto Care. The AO has issued noticed under section 133(6) at the address given by the assessee, but the notice could not be served as the party is not available at the address given by the assessee. The assessee was specifically requested to produce party or furnish its new address on which the notice could be served, but there was no compliance - The AO has recorded that at the address given by the assessee, there is no concern in the name and style of M/s.Millan Auto Care - Disallowed entire diesel expenses claimed to have been incurred by the assessee. Similar defects were found in other claims of expenses of the assessee under various heads of expenses - In the immediately preceding assessment year, the assessee has declared a net profit of 8.8% - Assessee has claimed expenses on the higher side, under various heads of the expenses and not supported by evidences/vouchers, during the year, ends of justice shall be met, if flat rate of 6% net profit is applied to the gross contract receipt of Rs.3.85 crores, without allowing any further deduction on account of depreciation etc. Decided against the Assessee.

Summary

Issues:
Cross appeals by Revenue and assessee for assessment year 2005-2006 against CIT(A) order.

Revenue's Appeal:
1. Addition of non-genuine purchase of diesel.
2. Addition of spare parts purchase.
3. Addition of non-genuine purchase of materials.
4. Addition of bogus creditors in balance sheet.
5. Addition of non-genuine expenses.
6. Addition of bogus sub-contract expenses.
7. Addition of labor and salary expenses.
8. Addition of spare parts expenses.
9. Under-valuation of work in progress.
10. Motor cycle and motor car expenses.
11. Household and personal expenses.

Assessee's Appeal:
1. Partial confirmation of addition of bogus/non-genuine expenses.
2. Addition of bogus expenses in the name of a specific entity.
3. Difference in accounts of various parties.
4. Partial disallowance of labor & salary expenses.
5. Partial disallowance of motorcar and motorcycle expenses.
6. Unexplained expenditure under section 69C.

Detailed Analysis:
The Revenue contended that the assessee failed to produce account books and details, leading to defects in the account statement. The AO completed assessment based on information from section 133(6) inquiries, alleging non-genuine and bogus expenses. The Revenue argued for applying a flat rate of net profit due to lack of supporting evidence.

The assessee defended by stating regular maintenance of account books and CIT(A) upholding some additions, resulting in an inflated income. The assessee's business involved government contracting and quarry operations, justifying genuine diesel purchases. The assessee disputed the Revenue's claims of inflated expenses.

The tribunal noted the assessee's lack of cooperation in providing details and the AO's reliance on external information for assessment. Finding discrepancies in expense claims and failure to substantiate purchases, the tribunal upheld the Revenue's position. It applied a flat 6% net profit rate to gross receipts, disregarding further deductions, to assess the assessee's income.

Ultimately, the Revenue's appeal was partly allowed, and the assessee's appeal became infructuous as per the tribunal's decision pronounced in open court.