2018 (6) TMI 97 - AT - Income Tax

Disallowance of purchases - guinity of claim - payment to the parties were made by account payee cheques - Held that - We find merit in the contention of the learned AR that the purchases in the present case are not bogus and the parties involved are not declared as hawala parties by the sales tax department of Government of Maharashtra. Even if the purchases are not genuine or are bogus the entire addition to the income of the assessee is uncalled for and wrong. The purpose of the statute is only to tax the income of the assessee, which is only a fraction of the total purchases. Under these circumstances we are of the considered view that the total addition to the income of the assessee on account of purchases from three parties is not justified and cannot be sustained. We, therefore, deem it fit and proper to apply a gross profit rate of 4% and set aside the order of the CIT(A) - Decided in favour of assessee in part.

Summary

Issues:
- Delay in filing the appeal by the assessee
- Disallowance of purchases by the CIT(A)

Delay in Filing the Appeal:
The appeal filed by the assessee was delayed by 1087 days due to the poor health of a partner who suffered a heart attack and was advised complete bed rest. Additionally, the resignation of the accountant and the subsequent recruitment of a new person who was unaware of the appeal also contributed to the delay. The assessee claimed that the delay was unintentional and beyond their control. The learned DR objected to the admission of the appeal, citing the extraordinary delay and failure to provide a satisfactory explanation. However, the Tribunal, considering various judicial pronouncements, including the Supreme Court cases of N Balakrishnan vs. M Krishnamoorthy and National Thermal Power Company Ltd. vs. CIT, decided to condone the delay and admit the appeal for adjudication.

Disallowance of Purchases by the CIT(A):
The appeal raised the issue of the disallowance of purchases amounting to &8377; 29,47,054 by the CIT(A). The assessee contended that the purchases were genuine and used in construction activities, with payments made through account payee cheques. The AO issued notices to verify these purchases from three parties, but the notices were returned un-served. The assessee voluntarily offered to add the purchase value to its total income, but later appealed against this addition. The CIT(A upheld the addition, stating that the appellant had voluntarily offered the addition and there was no coercion involved. However, the Tribunal found merit in the argument that the purchases were not bogus, as the parties were not declared as hawala parties by the sales tax department. Considering the facts and submissions, the Tribunal set aside the CIT(A)'s order, applying a gross profit rate of 4% and directing the Assessing Officer accordingly.

In conclusion, the Tribunal partly allowed the appeal, emphasizing that the total addition to the income of the assessee on account of the purchases from the three parties was not justified and could not be sustained. The decision was pronounced on 31st May 2018.