2016 (4) TMI 301 - AT - Income Tax

Disallowance at the rate of 20% of the business expenses - Held that - If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we note that keeping in view, the totality of facts and magnitude of the business of the assessee, the expenses of ₹ 63,101/- as staff welfare expenses is not towards higher side. Identically, octroi charges is allowable deduction and transportation charges are also seems to be genuine. The accounts of the assessee are audited one and the total turnover of the assessee is approximately ₹ 29 crores. The assessee before the ld. Assessing Officer produced the ledger of expenses and the payment of expenses are to the reputed transportation. The ad-hoc disallowance has been made purely on guess work and it has not been mentioned in the assessment order that such expenses were not incurred. As mentioned earlier, the ld. Assessing Officer himself has mentioned that possibly the expenses have been incurred, thus, since, the incurring of expenses is not in doubt, the ad-hoc disallowance made by the ld. Assessing Officer cannot be said to be justified, more specifically, when no defect was pointed out in the books of accounts of the assessee, therefore, this ground of the assessee is allowed. Addition on account of purchases - Held that - The assessee even after asking by the ld. Assessing Officer neither furnished the list of persons from whom purchases were made and even did not explain the genuineness of the purchases from the aforementioned three parties. The assessee was issued notice u/s 142(1) dated 18/03/2003 asking the assessee to explain the purchases but the same was neither explained nor the parties were produced at any stage. The totality of facts, clearly indicates that the onus cast upon the assessee to explain the genuineness of the claim was not discharged, therefore, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). So far as, cases relied upon by the assessee is concerned, they are on different facts, therefore, may not help the assessee. So far as, burden upon the Department is concerned, we are of the view that the initial burden is upon the assessee which has not been discharged, therefore, there is no question of shifting the burden upon the Revenue. So far as, violation of principle of natural justice is concerned, due opportunity was provided to the assessee, therefore, there is no violation as such, consequently, this ground of the assessee is having no merit, therefore, dismissed. Ageing analysis of sundry creditors - Held that - We are of the view that one more opportunity needs to be provided to the assessee, so that true facts can be ascertained and then may be decided in accordance with law. The assessee is directed to furnish the necessary evidence before the ld. Assessing Officer so that it can be examined. Opportunity be provided to the assessee to substantiate his claim, thus, this ground of the assessee is allowed for statistical purposes

Issues Involved:

1. Ad-hoc disallowance of Rs. 69,329/- out of business expenses.
2. Addition on account of purchases amounting to Rs. 4,76,446/-.
3. Ageing analysis of sundry creditors amounting to Rs. 20,28,605/-.

Issue-wise Detailed Analysis:

1. Ad-hoc Disallowance of Rs. 69,329/- Out of Business Expenses:

The assessee contested the ad-hoc disallowance of Rs. 69,329/- at the rate of 20% of the business expenses totaling Rs. 3,46,644/-. The assessee argued that the disallowance was made without reason and despite providing necessary evidence and explanations to the Assessing Officer (AO). The expenses included Rs. 63,101/- for staff welfare, Rs. 1,12,752/- for octroi charges, and Rs. 1,70,791/- for transportation charges. The AO, however, claimed that the assessee did not produce any bills or vouchers, leading to an ad-hoc disallowance based on the assumption that the expenses were higher than usual.

Upon reviewing the submissions and material on record, the Tribunal noted that the assessee's accounts were audited and the turnover was approximately Rs. 29 crores. The Tribunal found that the expenses were genuine and supported by ledgers, and the disallowance was based on guesswork without pointing out any defects in the books of accounts. Consequently, the Tribunal allowed this ground of the assessee, concluding that the ad-hoc disallowance was unjustified.

2. Addition on Account of Purchases Amounting to Rs. 4,76,446/-:

The assessee challenged the addition of Rs. 4,76,446/- made by the AO on the grounds that the purchases were from suppliers listed as suspicious dealers by the Sales Tax Department of Maharashtra. The AO had information that the suppliers issued invoices without supplying materials. Notices issued to these suppliers under Section 133(6) were either returned or not responded to. The AO added the amount to the assessee's income due to the lack of explanation and evidence from the assessee.

The Tribunal analyzed the situation, noting that the assessee did not contradict the fact that the suppliers were on the suspicious list and failed to discharge the onus of proving the genuineness of the transactions. The Tribunal upheld the addition, citing that the initial burden of proof was on the assessee, which was not met. The Tribunal referenced several judicial precedents to support its view, including decisions from the Andhra Pradesh High Court and the Supreme Court. Therefore, this ground of the assessee was dismissed.

3. Ageing Analysis of Sundry Creditors Amounting to Rs. 20,28,605/-:

The assessee argued that the ageing analysis for five parties was submitted, with three parties having credit balances and two having debit balances. The assessee claimed that the addition was made without proper consideration of the evidence and explanations provided. The assessee also contended that sufficient time was not given to submit confirmations and that the liabilities were still outstanding in the balance sheet.

The Tribunal, after considering the submissions, decided that the assessee should be given another opportunity to furnish the necessary evidence before the AO. The Tribunal directed the AO to re-examine the evidence and ascertain the true facts. Consequently, this ground was allowed for statistical purposes, providing the assessee an opportunity to substantiate the claim.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, with the Tribunal providing relief on the ad-hoc disallowance of business expenses and directing a re-examination of the sundry creditors' ageing analysis, while upholding the addition on account of purchases from suspicious dealers. This order was pronounced in the open court on 01/03/2016.

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