2019 (11) TMI 977 - AT - Income Tax

Bogus purchases - AO being not satisfied with the assessee s reply on purchases he has disallowed 20% of assessee s purchases holding as unverifiable purchases - HELD THAT - It is seen that in the nature of purchases made by the assessee during the year under consideration and that of the assessment year 2012-13 and thereafter there is no change in the nature of purchases since they have been made in cash, supported by self made vouchers. The very nature of the industries, a slaughter house, the assessee company is required to made purchases from the small butchers in cash to whom it had to make advance payments where complete address would not be available. CIT(A) has observed that since the AO has accepted the part of the purchased made in cash supported by self made vouchers, there is no reason in making disallowance of 20% of the purchases, without pin pointing specific cash vouchers. CIT(A) has rightly observed that the AO has made disallowances in the realm of assumption and guess work. We are inclined to agree with the finding of the CIT(A) that assessee case get strength from the AO s own action that in subsequent years no such disallowances have been made by the AO, particularly when there was no change of facts in the case of the assessee. The disallowance made by the AO, without any basis cannot be approved. CIT(A) is justified in deleting disallowance - Decided against revenue.

Summary

Issues:
Deletion of addition of ?93,44,424/- against unverifiable purchases made by the assessee company.

Analysis:
1. The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) regarding the addition of ?93,44,424/- made by the Assessing Officer (AO) on account of unverifiable purchases for the assessment year 2011-12.

2. The AO disallowed 20% of the assessee's purchases as unverifiable, leading to the addition of ?93,44,424/-. The assessee, engaged in running a slaughterhouse, appealed to the CIT(A) who relied on the decision of the Calcutta High Court in the case of 'CIT vs. CPL Tannery' to delete the addition.

3. The CIT(A) found strength in the assessee's claim that purchases were made in cash due to industry demands and business expediency. The AO's acceptance of similar cash purchases in subsequent years further supported the assessee's case.

4. The CIT(A) observed that the AO's disallowance lacked a specific basis and was made on assumptions and guesswork. The CIT(A) upheld the deletion of the addition based on the consistency of the assessee's cash purchases and the lack of adverse findings by the AO in subsequent years.

5. The Tribunal concurred with the CIT(A)'s decision, emphasizing the acceptance of the assessee's trading results in subsequent assessment years. The Tribunal found no merit in the Revenue's appeal and upheld the deletion of the addition of ?93,44,424/-.

6. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition. The order was pronounced on 19th August 2019.