2018 (8) TMI 1718 - AT - Income Tax

Bogus purchases - addition on purchases disallowed under section 69 - Held that - The purchases made are genuine and supported by bills and vouchers, transportation receipts, payment made by cheque and in support of the same copies of bank statements were filed. Even the sale made to other parties of the items purchased from Depuy Medical Pvt Ltd is not doubted. Once, this is the fact the purchases cannot be doubted as unexplained and hence has rightly deleted the addition and we confirm the same. This issue of Revenue s appeal is dismissed. Disallowance at 10% on account of staff welfare and salary and incentive expenses and sundry labour charges - Held that - CIT(A) has discussed in detail and restricted the disallowance on both the disallowance at 10%. We find that even CIT(A) admits that for supporting bills and vouchers the disallowance is restricted at 10%. Going by the facts and circumstances of the case, we restrict the disallowance at 5% on both the expenses and direct the AO accordingly.

Issues:
1. Deletion of addition made on purchases disallowed under section 69 of the Income Tax Act.
2. Admission of additional evidences by CIT(A) and violation of Rule 46A of Income Tax Rules, 1962.
3. Disallowance of staff welfare, salary, incentive expenses, and sundry labour charges.

Analysis:

1. The first issue revolves around the deletion of an addition made by the Assessing Officer (AO) on purchases disallowed under section 69 of the Income Tax Act. The Revenue challenged the CIT(A)'s decision to delete the addition, arguing that the assessee failed to establish the genuineness of the purchases and the identity of the parties involved. The AO disallowed the claim of expenditure on purchases as unexplained due to the assessee's inability to produce necessary documentary evidence. However, the CIT(A) allowed the claim based on various pieces of evidence provided by the assessee, including purchase invoices, ledger accounts, bank statements, and reconciliation statements. The Tribunal upheld the CIT(A)'s decision, emphasizing that the purchases were supported by genuine documentation, and confirmed the deletion of the addition.

2. The second issue pertains to the admission of additional evidences by CIT(A) and the alleged violation of Rule 46A of the Income Tax Rules, 1962. The Revenue contended that CIT(A) erred in admitting additional evidences without remanding them to the AO for proper verification. However, the CIT(A) considered the additional evidences provided by the assessee, which included various supporting documents, and decided in favor of the genuineness of the purchases. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had adequately substantiated the purchases with relevant documentation, leading to the deletion of the addition under section 69 of the Act.

3. The final issue involves the disallowance of staff welfare, salary, incentive expenses, and sundry labour charges by the AO, which was later restricted by the CIT(A) at 10%. The assessee appealed against this restriction, arguing that the disallowance was arbitrary despite providing details and original vouchers for verification. The CIT(A) reduced the disallowance to 10% based on the profits declared by the assessee. The Tribunal further reduced the disallowance to 5% on both types of expenses, considering the facts and circumstances of the case. Consequently, the appeal of the assessee was partly allowed, while that of the Revenue was dismissed.

In conclusion, the Tribunal's judgment upheld the decisions of the CIT(A) regarding the deletion of additions on purchases and the restriction of disallowances on expenses, emphasizing the importance of substantiating claims with appropriate documentation and adhering to the principles of natural justice in tax assessments.

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