2017 (3) TMI 819 - AT - Income Tax

Disallowance of 5% of the expenses disclosed under the head Financial and Administrative expenses - Held that - The total expenses incurred by the assessee towards Financial and Administrative Expenses were ₹ 56,42,384/-. The A.O. has made disallowance of 5% of the total expenses towards Financial and Administrative Expenses which led to the disallowance of ₹ 2,82,119/-, which was later upheld by the ld. CIT(A) by dismissing the appeal of the assessee on not being pressed. In our considered view, this matter need to go back to the file of learned CIT(A) who shall adjudicate the same based on merits after hearing the assessee. Needless to say that proper and adequate opportunity of being heard shall be provided by learned CIT(A) to the assessee in accordance with law and the assessee shall be allowed by learned CIT(A) to produce cogent material/ evidences in its defense which shall be admitted by learned CIT(A) in the interest of justice. Bogus purchases - Revenue has received information from Maharashtra Sales Tax Department as well Information was received by the AO from DGIT (Inv.), from where it was unraveled that these three parties were accommodation entry providers issuing bogus bills - Held that - No attempt has been even made before us to prove genuineness of purchases to prove genuineness of the material purchased and that the said material been used wholly and exclusively for the purpose of the manufacturing/business activities of the assessee nor any effort has been made even before us to co-relate quantitative reconciliation of quantities of sale with purchases so made nor the assessee could prove , correlate and reconcile the consumption of material so purchased with the manufacturing/ business activity of the assessee. We do not find any merit in the contentions of the assessee. In the absence of quantitative reconciliation of material so allegedly purchased with sale, consumption or stock in hand held by the assessee, the plea of the assessee to adopt gross profit ratio is devoid of any merits and is hereby repelled. - Decided against assessee

Summary

Issues Involved:
1. Disallowance of 5% of financial and administrative expenses.
2. Addition of ?9,68,628/- on account of purchases treated as unexplained expenditure.
3. Non-consideration of ?2,52,001/- declared as income in the assessment year 2013-14 on account of unpaid liability written off.

Detailed Analysis:

Issue 1: Disallowance of 5% of Financial and Administrative Expenses
The assessee agreed to a disallowance of 5% of the total expenses under the head 'Financial and Administrative Expenses' amounting to ?56,42,384/-. The AO made a disallowance of ?2,82,119/-, which was upheld by the CIT(A) as the assessee did not press this ground. The Tribunal observed that the matter should be reconsidered by the CIT(A) on merits, allowing the assessee to present evidence, especially concerning statutory dues included in the disallowed expenses. The Tribunal remanded the matter back to the CIT(A) for a fresh adjudication.

Issue 2: Addition of ?9,68,628/- on Account of Unexplained Purchases
The AO received information from the Sales Tax Department and DGIT(Inv.) that certain parties were issuing accommodation entries without actual delivery of goods. The AO identified three such purchases by the assessee, amounting to ?9,68,628/-, from parties deemed to be issuing bogus bills. Notices issued to these parties under section 133(6) remained uncomplied with. The assessee failed to provide transportation memos, delivery challans, or any corroborative documents. The AO concluded that the purchases were unexplained and made an addition under section 69C. The CIT(A) upheld this addition, noting the absence of a stock register and failure to substantiate the consumption or sale of the goods. The Tribunal agreed with the CIT(A), emphasizing the lack of quantitative reconciliation and evidence of material consumption, thereby confirming the addition.

Issue 3: Non-Consideration of ?2,52,001/- Declared as Income in AY 2013-14
The assessee argued that the amount of ?2,52,001/- from Blue Cross Networks, written back as income in AY 2013-14 due to non-payment, should not be added in AY 2011-12. The CIT(A) dismissed this argument, as the amount was debited in the Profit and Loss Account for the relevant year. The Tribunal held that the genuineness of the purchase needed to be proved for AY 2011-12, which the assessee failed to do. However, to avoid double jeopardy, the Tribunal directed the Revenue to grant appropriate relief in AY 2013-14 after verifying the claim.

Conclusion:
The Tribunal partly allowed the appeal. The issue of disallowance of 5% expenses was remanded back to the CIT(A) for fresh consideration. The addition of ?9,68,628/- on account of unexplained purchases was upheld. The Tribunal directed the Revenue to verify and grant relief for the amount of ?2,52,001/- written back in AY 2013-14 to avoid double taxation.