2019 (9) TMI 948 - AT - Income Tax

Bogus expenses/purchase - genuineness of various expenses incurred for the construction - sales turnover of the suppliers are not matching - HELD THAT - The assessee in order to claim that all the expenses claimed and paid to the above parties are genuine has filed ledger account of construction material for all the three years, copy of invoices of all the parties, bank statement through which the payments has been made and the details about the contractor who carried out the work. In respect of the parties which have shown Tax Identification No.(TIN) in their bills AO called information from the Commercial Tax Department. As far as the identity of the alleged suppliers is concerned their was on assessee favouring report from the Commercial Tax Department but with regard to the sales turnover it was not matching with the sales shown by these suppliers. This was the main reason which created doubts in the mind of the assessing authority. However, the assessee placed all the documentary evidences before the AO along with photographs of the land and the work carried out thereon. As requested during the assessment proceedings by the assessee to the Ld AO to depute inspector for site visit so that the issue relating to genuineness of development expenses can be resolved but the request was declined by the Ld. AO. No summons was issued to the alleged suppliers of the Ld. AO directly and only report of Commercial Tax Department was taken as the basis. AO failed to consider the fact that all the payments were made through account payee cheques. After receiving respective bills issued by the parties as well as a contractor it was incumbent on the AO to carry out the investigation by summoning the suppliers. In the body of the assessment order AO observed that the alleged suppliers are small retail suppliers hardly having the capacity to store the building materials. We find such remarks to be very general and casual with no homework. As far as the claim of the assessee is concerned, apart from placing the copy of invoices, ledger account, bank statement and few photographs, the assessee could not file any confirmation from the alleged suppliers. In the sale deed also there is no mention about the Boundary Wall, land leveling work carried out which could have justify the assessee s claim. No valuation report was filed. Payments for various expenses made after a period of 12 months also raises doubts. However, merely for the payments being late and the suppliers having retail business, and not produced before the AO cannot be a sound basis to disprove the claim of expenses made by the assessee. Thus sustaining of disallowance @ 15% of the alleged amount will meet the end of justice - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Lack of opportunity to the appellant.
2. Disallowance of purchases amounting to ?51,12,040/- as bogus expenses.

Issue-wise Detailed Analysis:

1. Lack of Opportunity to the Appellant:
The appellant contended that the order passed by the Ld. CIT(A) was without giving any opportunity to the appellant, thus violating principles of law, equity, and justice. However, this issue was not further elaborated in the judgment and seems to be a preliminary ground raised by the appellant.

2. Disallowance of Purchases as Bogus Expenses:
The main contention in the appeal was the disallowance of ?51,12,040/- claimed as expenses for the purchase of building materials and labor charges, which were treated as bogus by the Assessing Officer (AO).

Facts and Proceedings:
- The assessee, an individual earning income from salary and capital gain, filed a return for A.Y. 2013-14 declaring an income of ?21,75,220/-. The case was selected for scrutiny.
- The AO observed discrepancies in the expenses claimed for boundary wall construction and land leveling, leading to doubts about the genuineness of these expenses.
- The AO noted irregularities such as the timing of purchases, lack of storage facilities, and delayed payments. Information from the Commercial Tax Department indicated that the suppliers were engaged in issuing bogus bills.
- The AO disallowed the expenses totaling ?51,12,040/- and added this amount to the income of the assessee, initiating penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income.

Appellant's Arguments:
- The appellant argued that the expenses were genuine, supported by invoices, bank statements, and photographs of the work done. It was claimed that the work was assigned to a local contractor who provided the materials and labor.
- The appellant criticized the AO for relying solely on information from the Commercial Tax Department without conducting independent inquiries or summoning the suppliers.

Tribunal's Findings:
- The Tribunal noted that while the AO had valid reasons to doubt the genuineness of the expenses, the appellant had provided substantial documentary evidence, including invoices and bank statements.
- The AO's failure to conduct a site visit or issue summons to the suppliers was seen as a lapse. The Tribunal found the AO's remarks about the suppliers being small retailers insufficient to disprove the expenses.
- However, the Tribunal also observed that the appellant could not provide confirmations from the suppliers or a valuation report, and the delayed payments raised doubts.

Conclusion:
- The Tribunal decided that a fair resolution would be to sustain a disallowance of 15% of the claimed expenses, amounting to ?7,66,806/-, thereby partly allowing the appeal of the assessee.
- The final order confirmed the partial disallowance and directed the reduction of the disallowed amount to ?7,66,806/-.

Outcome:
The appeal filed by the assessee was partly allowed, with the Tribunal confirming a partial disallowance of ?7,66,806/- out of the total ?51,12,040/- claimed as expenses. The order was pronounced on 20.09.2019.