2014 (3) TMI 854 - HC - Income Tax

Rate of disallowance of expenses Held that - The AO had gone into the matter in quite some detail after obtaining the responses pursuant to notices issued to the suppliers of the goods - in respect of large number of notices only 4 suppliers came forward and supplied the details - That forms the basis for analysis - As to whether the percentage was rightly kept at 3% or 6% is not a substantial question of law arises for consideration the assessee itself did not appeal to the Tribunal against the disallowance of 3% sustained by the CIT (A), a position which can be prima facie taken as indicative of the reliability of its books and the evidence there was no merit in the appeal - Decided against Assessee.

Summary

Issues:
1. Disallowance of expenditure by ITAT.
2. Dispute over percentage of disallowance.
3. Reliability of books of accounts and evidence.

Analysis:
1. The judgment revolves around the disallowance of expenditure by the Income Tax Appellate Tribunal (ITAT). The appellant contested the ITAT's order dated 07.12.2012, which directed an increase in the disallowance from 3% to 6% out of the total expenditure claimed. The appellant, engaged in construction activities, had claimed expenses for materials purchased from various parties. The Assessing Officer (AO) initially disallowed 15% of the claimed amount based on his analysis of responses from suppliers. The Commissioner of Income Tax (Appeals) [CIT (A)] reduced the disallowance to 3%, but the Revenue's appeal led to an increase to 6%.

2. The crux of the dispute lay in the percentage of disallowance. The Tribunal's order highlighted that the disallowance was based on estimation due to concerns about inflated expenditure and tax avoidance. The Tribunal justified the increase to 6% considering the past history of the assessee and available material. The Court noted the detailed analysis by the AO and emphasized that the matter primarily involved factual appreciation. The Court found no substantial legal question in determining whether the disallowance should be at 3% or 6%. Additionally, the appellant's failure to appeal against the 3% disallowance suggested the reliability of their books and evidence.

3. The judgment also addressed the reliability of the appellant's books of accounts and evidence. Despite the appellant's argument that no further disallowance was warranted beyond the specific amount identified by the lower authority, the Court upheld the Tribunal's decision. The Court dismissed the appeal, emphasizing the detailed examination conducted by the AO and the lack of substantial legal issues in the dispute over the percentage of disallowance. The judgment concluded by rejecting the appeal and all pending applications in the matter.