2011 (11) TMI 843 - AT - Income Tax

Summary

Issues involved: Appeal against disallowance of sundry creditors for purchases.

Assessee's Grounds of Appeal:
1. Assessee is a partnership firm engaged in leather exports.
2. Dispute over disallowance on sundry creditors for purchases.
3. Assessee provided detailed purchase and sales information.
4. Dispute over adhoc disallowance of 10% of total purchases.
5. Records verified by government agencies like sales tax.
6. Books of accounts not rejected and subjected to audit.

Assessing Officer's Observation:
1. Addition of Rs. 3,13,92,083 as difference in sundry creditors and total purchases.
2. Concerns about genuineness of sundry creditors due to cash payments.
3. Lack of purchase party addresses for verification.
4. Discrepancies in ledger entries and cash payments.
5. Difficulty in verifying quantity and rates of purchases.
6. Considered sundry creditors as bogus due to lack of verifiability.

CIT(A) Decision:
1. Restricted disallowance to 10% of total purchases.
2. Accepted purchases made through local shandies but limited disallowance.
3. Noted unorganized nature of trade affecting precise details.
4. Allowed relief based on bank audits and sales tax records.
5. Disallowed Rs. 65,17,186 out of total disallowance.
6. Partially allowed appeal based on above considerations.

Appellant's Argument:
1. Addition made on suspicion without concrete evidence.
2. Closing stock valuation and purchase details found correct.
3. Discrepancy in treating sundry creditors as bogus.
4. Requested deletion of sustained disallowance.

Decision by ITAT Chennai:
1. Disallowance of Rs. 65,17,186 based on suspicion not justified.
2. Lack of evidence to show purchases were unreasonable.
3. Disallowance without basis not sustainable.
4. Deletion of Rs. 65,17,186 disallowance allowed.
5. Assessee's appeal upheld, relief granted.

Conclusion:
The ITAT Chennai allowed the appeal of the assessee, deleting the disallowance of Rs. 65,17,186 based on suspicion without concrete evidence, and found the disallowance without basis to be unsustainable.