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2017 (1) TMI 560 - AT - Income TaxDisallowance of alleged unverified purchases/expenditure - AO holding that amount of certain purchases and expenses debited in the books of accounts could not be properly verified and, therefore, he added a sum to the returned income - CIT(A), on the other hand, has restricted the disallowance to 25% - Held that - At pages 50 to 62 of the paper book is placed the explanation of the assessee with regard to 24 such parties regarding the variation found by the Assessing Officer in cases where purchases recorded by assessee were of different amounts. In this regard, we may refer to one item of Simplex Engineering & FDR Works Pvt. Ltd. in whose case a sum of ₹ 7,83,247/- has been considered as unexplained purchases because the reply received from the suppliers showed that sales effected to the assessee has been shown as ₹ 37,99,042/-, whereas as the amount of purchase as per assessee was ₹ 30,15,795/-. In this context assessee had explained that the bill of the said supplier was of last year but assessee had accounted for the same in the instant year and relevant invoices of the party was also placed on record. The assessee had also furnished confirmed ledger account of the party of the earlier assessment years highlighting the bills which reconciled the difference. We find that there is no rebuttal to any of such explanation furnished and the entire amount has been added as unexplained purchases by the Assessing Officer, while the CIT(A) effected an overall scaling down of the disallowance. Considering the manner in which the replies/reconciliation filed by the assessee have been considered, in our view, the addition of ₹ 3,61,44,082/- is not at all justified. Even addition of ₹ 54,19,143/- on account of variation in the year of recording is also not justified at all. The verification exercise carried out by the Assessing Officer does not result in unearthing of any falsity in the claims made by the assessee and thus, no addition is merited. Absence of receipt of any reply from the suppliers cannot by itself demonstrate any bogus claim by the assessee unless any of the attendant facts bear out any bogus nature of the claim of expenditure by the assessee. Under these circumstances, in our considered opinion, additions not justified - Decided in favour of assessee. Addition with respect to the payment of labour charges and off-loading expenses - Held that - A perusal of the statement reveals that though the contractor admitted of having arrangement with the assessee for providing labour but he has also tendered that a portion of the amount was refunded back to the assessee company. Because of such statement and for the fact that other contractors could not be produced, the amount of ₹ 1,47,91,709/- has been disallowed. Even disallowance out of offloading expenses have also been made in the cases of five parties, because the amount could not be verified at all. On this two elements of expenditure, in our view, the approach of the Assessing Officer in principle is justified in principle. The contractor examined by the Assessing Officer reveals inherent discrepancy in the claim of expenses by the assessee. Under these circumstances, in our view, certain addition deserves to be made even though specific discrepancy is available only with respect to the one of the parties. Considering the entirety of facts and circumstances, some amount of unverifiability in the claim of the expenses cannot be ruled out and, therefore, on this aspect of the matter we find no reason to interfere with the conclusion of the CIT(A) that 25% of such expenses of labour charges ₹ 1,47,91,709/- and out of off-loading expenses of ₹ 54,87,524/-, deserve to be disallowed - Decided in favour of assessee partly .
Issues Involved:
1. Disallowance of 25% of alleged unverified purchases/expenditure. 2. Disallowance of ?4,38,96,447/- despite specified instances amounting to ?1,38,45,354/-. 3. Non-direction for deduction for subsequent assessment years for specific amounts. 4. Restriction of disallowance by CIT(A) to 25% of ?17,55,85,788/-. 5. Deletion of additions on account of commission payments to SEFW Projects Pvt. Ltd. and the bank. Issue-wise Detailed Analysis: 1. Disallowance of 25% of Alleged Unverified Purchases/Expenditure: The assessee challenged the CIT(A)'s confirmation of 25% disallowance of alleged unverified purchases/expenditure. The Assessing Officer (AO) had initially disallowed ?17,55,85,788/- on account of unexplained/inflated purchases and expenses, which the CIT(A) restricted to ?4,38,96,447/-. The AO's verification process involved issuing notices under section 133(6) of the Income Tax Act, 1961, to various parties, many of which returned unserved or received no replies. The assessee contended that the purchases and expenses were genuine, and the short response time to the notice issued under section 142(1) was insufficient to provide all necessary details. The AO inferred that the assessee was involved in inflating expenses and showing purchases in the names of certain parties against which cash was received. 2. Disallowance of ?4,38,96,447/- Despite Specified Instances Amounting to ?1,38,45,354/-: The assessee argued that the CIT(A) erred in upholding a disallowance of ?4,38,96,447/- when the specified instances of discrepancies only amounted to ?1,38,45,354/-. The CIT(A) had considered the discrepancies in the dates of recording purchases by the assessee and suppliers and noted non-compliance with the mercantile system of accounting. The CIT(A) restricted the disallowance to 25% of the total amount, considering the inadequacy of complete details provided by the assessee. 3. Non-Direction for Deduction for Subsequent Assessment Years for Specific Amounts: The assessee also contended that the CIT(A) failed to direct deductions for Assessment Year 2011-12 for ?1,13,58,809/- and for Assessment Year 2009-10 for ?24,77,708/-, despite deciding the appellant's appeal for Assessment Year 2011-12 on the same date. The CIT(A) did not address these amounts for deduction in his order. 4. Restriction of Disallowance by CIT(A) to 25% of ?17,55,85,788/-: The Revenue contested the CIT(A)'s decision to restrict the disallowance to 25% of ?17,55,85,788/-. The AO had made the disallowance based on discrepancies in the verification of purchases and expenses. The CIT(A) upheld the AO's stand that the assessee failed to discharge its burden regarding the amounts in question but restricted the disallowance to 25%, considering the partial information and reconciliations provided by the assessee. 5. Deletion of Additions on Account of Commission Payments to SEFW Projects Pvt. Ltd. and the Bank: The Revenue challenged the CIT(A)'s deletion of additions amounting to ?96,96,318/- and ?1,06,16,357/- on account of commission payments to SEFW Projects Pvt. Ltd. and the bank, respectively. The AO had disallowed these amounts, stating that the assessee could not prove the purpose and identity of the payments. The CIT(A) deleted the disallowance, citing a similar deletion in the previous assessment year, which was pending appeal before the Tribunal. The Tribunal remanded the matter back to the CIT(A) to decide in light of the Tribunal's decision for the previous assessment year. Conclusion: The Tribunal partly allowed the appeals of both the assessee and the Revenue. The disallowance of 25% of labour charges and off-loading expenses was upheld, while the remaining disallowances were deleted. The issue of commission payments was remanded back to the CIT(A) for a fresh decision based on the Tribunal's ruling for the previous assessment year.
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