2016 (5) TMI 150 - AT - Income Tax

Addition u/s 68 - Held that - After considering the necessary vouchers, confirmation of accounts, bank statements, we are of the opinion that addition made by the AO and confirmed by the CIT(A) is not justified. The AO without making any enquiry and exercising its power vested under the law, simply treated the sales as not genuine and bogus and added to the income effecting into treating the said sum of sales twice to income account once as sales and secondly as other income. Sales was already treated as income by the assessee company and again treating the said sum as income was not correct in facts and circumstances of the case. It is observed that the sale of ₹ 43,74,210/- has been made to M/s. Asia Trading. The details of payment by cheques, bank a/c. Address, etc. were already furnished to the AO by the assessee. In the facts and circumstances of the case, we are of the view that the addition made by the AO and confirmed by the CIT(A) is improper and unjustified - Decided in favour of assessee Disallowance of general charges - For non-production of proper bills and vouchers, the AO disallowed @20% of expenses - Held that - It is observed that no defect whatsoever was pointed out by the Assessing Officer in the vouchers produced by the assessee in support of its claim disallowed by him merely on the ground that the vouchers produced by the assessee were only self made vouchers. Keeping in view the nature of the business of the assessee as well as the nature of general expenses incurred during the course of business , we are of the view that the claim of the assessee on account of general expenses, which were duly supported by selfmade vouchers as well as other details, ought to have been examined properly and there was no justification on the part of the authorities below to make a disallowance on account of general expenses incurred during the course of business without pointing out any material or specific defect in the self-made vouchers and other details produced by the assessee in support of its claim. - Decided in favour of assessee

Summary

Issues involved:
1. Addition of sale amount as cash credit under section 68 of the Income Tax Act.
2. Disallowance of general expenses on estimation basis.

Analysis:
1. The appellant, a private limited company engaged in fabric manufacturing, filed its income tax return declaring total income of ?2,24,880, which was increased to ?67,56,460 by the Assessing Officer (AO) under section 143(3) of the Income Tax Act. The AO added ?65,31,586 as cash credits, treating sales transactions with certain entities as undisclosed income. The CIT(A) upheld the AO's decision, stating that the appellant failed to provide a satisfactory explanation. However, the ITAT Kolkata found that the appellant had adequately explained the sales transactions, providing details of invoices, bank statements, and identity proofs of the buyers. The ITAT held that the addition made by the AO and confirmed by the CIT(A) was unjustified, as the appellant had substantiated the transactions, leading to the allowance of the appeal on this issue.

2. The second issue involved the disallowance of general expenses claimed by the appellant. The AO disallowed ?32,550 (20% of ?1,62,743) on an estimation basis due to lack of proper bills and vouchers. The CIT(A) reduced the disallowance to 10%. The ITAT Kolkata observed that the vouchers provided by the appellant were self-made but found no specific defects pointed out by the AO. Referring to a decision by the ITAT Lucknow, the ITAT Kolkata held that disallowance based on general observations without specific defects was unjustified. The ITAT allowed the appeal on this issue, deleting the disallowance of general expenses.