2015 (2) TMI 109 - AT - Income Tax

Bogus purchases - sham transactions - CIT(A) partly deleted addition - Held that - Simple confirmation on the ledger account and confirmation of sales to the parties in the absence of any filing of return of income tax or sales tax return and without having any PAN/CST/PST numbers and the said parties having no books of account or any explanation offered or any evidence of having consumed the goods by the assessee, the purchases cannot be said to be proved especially in the absence of any consumption shown by the assessee on the alleged purchases debited in the books of account. It will be too early to conclude that the said purchases are sham in the absence of any verification or examination of M/s Rajiv Electric Trading Co. and M/s Krishna Hardware & Mill Store and their books of account and records and whether at all genuine purchases have been made or not. Therefore, in the interest of justice, matter is set aside to the file of A.O. to find the genuineness of the purchases/genuineness of the parties from whom the purchases are claimed to have been made. - Decided in favour of asseessee and revenue for statistical purposes. Disallowance on account of ESI and EPF - delay in payment - CIT(A) deleted the addition - Held that - No infirmity in the order of ld. CIT(A) as the contributions by employees are regulated by sections 2(24)(x) r.w.s. 36(1)(va) of I.T. Act than under section 43B of I.T. Act. But in the light of decision of ITAT, Delhi C Bench in the case of Addl. CIT vs. Vestas RRB India Limited (2004 (5) TMI 245 - ITAT DELHI-C ) one of the issue in that case being of addition under section 2(24)(x) of IT Act, the deposit of employees contribution to PF etc. in this case as in that case being late, but before the due date of return, the same is eligible as deduction as per the said decision. Thus, the assessee has rightly been allowed relief of ₹ 1,49,429/-. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of expenses related to electric repairs and purchases from Rajiv Electric Trading Co.
2. Disallowance of purchases from Krishna Hardware & Mill Store.
3. Disallowance of consumable account and depreciation of machinery.
4. Deletion of addition made on account of late payment of ESI and EPF.

Detailed Analysis:

1. Disallowance of Expenses Related to Electric Repairs and Purchases from Rajiv Electric Trading Co.:
The assessee claimed expenses under the head "electric repairs" amounting to Rs. 15,14,709, which was significantly higher than the previous year. The Assessing Officer (A.O.) questioned the genuineness of purchases from M/s Rajiv Electric Trading Co. due to discrepancies such as non-existence of the firm at the stated address, non-maintenance of books of accounts, and absence of sales tax returns. Consequently, the A.O. disallowed Rs. 7,76,915/- as bogus purchases. The CIT(A) allowed partial relief of Rs. 3,62,206/- based on proportionate increase in sales.

2. Disallowance of Purchases from Krishna Hardware & Mill Store:
Similar issues were observed with purchases from M/s Krishna Hardware & Mill Store. The A.O. found that the firm did not exist at the given address, and the transactions appeared to be sham. The A.O. disallowed Rs. 17,35,064/- and Rs. 4,80,125/- on account of depreciation. The CIT(A) allowed partial relief of Rs. 4,00,000/- based on proportionate increase in sales.

3. Disallowance of Consumable Account and Depreciation of Machinery:
The A.O. disallowed Rs. 17,35,064/- on account of consumables and Rs. 4,80,125/- for depreciation on machinery, citing lack of evidence for genuine purchases and consumption. The CIT(A) provided partial relief considering the proportionate increase in sales.

4. Deletion of Addition Made on Account of Late Payment of ESI and EPF:
The A.O. disallowed Rs. 1,49,429/- for late payment of ESI and EPF. The CIT(A) deleted this addition, referencing the ITAT Delhi Bench decision in Addl. CIT vs. Vestas RRB India Limited, which allowed such deductions if payments were made before the due date of return filing.

Conclusion:
The Tribunal set aside the issues related to the genuineness of purchases from M/s Rajiv Electric Trading Co. and M/s Krishna Hardware & Mill Store to the A.O. for fresh examination, directing the assessee to cooperate and provide necessary evidence. The deletion of the addition for late payment of ESI and EPF by the CIT(A) was upheld, finding no infirmity in the order.

Result:
- The assessee's appeal was allowed for statistical purposes.
- The Revenue's appeal was partly allowed for statistical purposes.
- The order was pronounced in the open Court on 27.11.2014.