2018 (5) TMI 1155 - AT - Income Tax

Addition u/s 68 - Held that - AR referred to the paper book evidence in the audit report at page 1 to 11 and also the statement of loan creditors along with income tax details from page 12 to 30 disclosed in the income tax returns and computation of income and their financial statements. AR emphasized that the creditors are genuine and creditworthiness of the transaction and identity of the parties can be proved. AO has overlooked these facts. We are of the opinion that the assessee should be provided an opportunity of explain this loan creditors along with documentary evidence, filed before us and before the AO. Hence, we restore this issue to the file of AO for reconsideration Disallowance of 1% of purchase material - Held that - Assessee has claimed certain expenditure in respect of material purchase but failed to support with evidence before the assessing authority, therefore, the AO has no alternative but to make the disallowance on the basis of estimated percentage. Even before us, the AR could not submit the details in respect of purchases which has been called for the lower authorities. Accordingly, we are of the opinion that the CIT(A) having considered these facts and the findings of AO has confirmed the action of AO which is in accordance with law - Decided against assessee Contract expenses - AO has disallowed 1% of total purchases of materials and also disallowed contract expenses on adhoc basis @2% of the total expenses - Held that - As the assessee is a going concern and has been claiming from the earlier years, therefore, considering the overall aspects and circumstances and the trade practices followed by the assessee, we are of the opinion that the disallowance of 2% of work expenses where AR s submission is that work expenses are subject to the provisions of TDS and has been deducted, are on higher side. Accordingly, we set aside the order of the CIT(A) and restrict the addition to the extent of 1% of work expenses and order accordingly. Payment by cheque - Held that - We considering the material facts and submissions of the assessee are of the opinion that the assessee has issued the cheque in favour of the creditor which is not in dispute. Therefore, we are of the opinion that the matter has to be examined by the AO and accordingly, we remit this issue to the file of AO to verify the transaction

Summary

Issues:
1. Addition of unsecured creditors
2. Disallowance of purchase of materials
3. Disallowance of contract expenses
4. Addition of a specific amount
5. Overall appeal against CIT(A) order

Addition of Unsecured Creditors:
The assessee appealed against the addition of unsecured creditors under section 68 of the Income Tax Act. The Assessing Officer (AO) had made additions under sections 68 and 69 of the Act. The CIT(A) confirmed the additions made by the AO. The appellant argued that the creditors were genuine, providing loan confirmations, ledger account statements, and other supporting documents. The Tribunal found that the assessee should be given an opportunity to explain the loan creditors with proper documentary evidence. The issue was restored to the AO for verification of the genuineness and creditworthiness of the transactions and parties involved.

Disallowance of Purchase of Materials:
The AO had disallowed 1% of the purchase of materials as the assessee failed to provide evidence to support the claimed expenditure. The CIT(A) upheld this disallowance. The Tribunal noted that the assessee did not submit details of purchases even during the appeal. Consequently, the Tribunal upheld the CIT(A)'s decision, as the disallowance was made based on estimated percentages due to the lack of evidence provided by the assessee.

Disallowance of Contract Expenses:
The AO disallowed 2% of total expenses claimed by the assessee for contract expenses. The CIT(A) confirmed this disallowance. The Tribunal observed that the AO had disallowed expenses as they could not be verified, despite the TDS deductions. Considering the audited books and the trade practices of the assessee, the Tribunal reduced the disallowance to 1% of work expenses, overturning the CIT(A)'s decision.

Addition of a Specific Amount:
Regarding the addition of a specific amount made by the AO, the Tribunal found that the payment was made to a specific party for steel purchase, supported by bank statements. The AO doubted the transaction and made the addition. The Tribunal remitted this issue to the AO for verification, instructing the assessee to provide necessary details to support the claim.

Overall Appeal Against CIT(A) Order:
The Tribunal partly allowed the appeal for statistical purposes, setting aside some decisions of the CIT(A) and the AO. The Tribunal emphasized the importance of providing proper documentation and evidence to support claims during assessments and appeals. The case was remitted to the AO for further verification and examination of specific issues, ensuring a fair and thorough assessment process.

This detailed analysis covers the issues raised in the legal judgment comprehensively, outlining the arguments presented by the parties and the Tribunal's decisions on each matter.