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2019 (12) TMI 1151 - AT - Income TaxUnexplained expenses u/s 69C - Addition on basis of the information obtained from the website of the sales tax department about the cancellation of registration certificate of the parties - claimed to be allowed as business loss u/s 28 or 37 - HELD THAT - assessee has already declared the GP in its books of accounts by recording the sales and the corresponding purchases. But to prevent the possible leakage of the Revenue, as the purchases from the local/grey market is normally cheaper, we are inclined to make the ad hoc addition at the rate of 10% of such purchases in order to meet the end of justice and to stop the ongoing dispute. Claim of Bad Debts - assessee failed to furnish the details of the parties viz a viz details of the sales made to them - Held that - It is the settled law that the losses incurred by the assessee in the course of the business activities are allowable deduction either under section 37(1) or 28 of the Act - assessee is eligible for the deduction of the impugned loss as incurred in the course of the business but not as bad debts under the provisions of section 36(1)(vii) of the Act. Addition made for ₹ 4,899/- on account of the Act VAT credit written off. - Held that - there was an allegation from the authorities below that the assessee has purchased the goods from the parties whose VAT/ CST registrations were cancelled. In the absence of the assistance from the side of the assessee, we can draw an adverse inference by holding that such amount of VAT credit relates to such parties i.e. the registrations were cancelled. If that be so, then it is clear that the claim was made by the assessee on account of such VAT credit for the purchases from the parties not having valid registration number. Therefore, it is inferred that such claim of the assessee was not bona fide in the absence of contrary documentary evidence. Thus we not find any reason to interfere in the order of the Ld. CIT(A). Hence, the ground of appeal of the assessee is dismissed.
Issues Involved:
1. Disallowance of ?11,35,011/- under Section 69C of the Income Tax Act by treating purchases as unexplained expenditure. 2. Alternative plea to limit the disallowance to 25% of the purchases. 3. Disallowance of bad debts amounting to ?5,20,205/-. 4. Disallowance of VAT credit written off amounting to ?4,899/-. 5. Alleged breach of law and Principles of Natural Justice by lower authorities. 6. Levying interest under Section 234A/B/C of the Act. 7. Initiating penalty under Section 271(1)(c) of the Act. Detailed Analysis: 1. Disallowance of ?11,35,011/- under Section 69C: The Assessing Officer (AO) treated purchases from Impex Sales Corporation and Sankalp Traders as unexplained expenses under Section 69C based on the cancellation of their VAT/CST registration. The CIT(A) confirmed this, stating the onus was on the assessee to prove the genuineness of purchases. The Tribunal noted that the AO did not verify the transactions independently and that the assessee had recorded corresponding sales. The Tribunal inferred that the assessee might have purchased goods from the grey market and justified purchases using accommodation bills. Thus, it directed an ad-hoc addition of 10% of the purchases to prevent revenue leakage, partly allowing the assessee's appeal. 2. Alternative Plea to Limit Disallowance to 25%: The Tribunal did not specifically address this alternative plea but implicitly considered it by directing an ad-hoc addition of 10% of the purchases instead of disallowing the entire amount. 3. Disallowance of Bad Debts Amounting to ?5,20,205/-: The AO disallowed the bad debts as the assessee failed to provide details of sales made to the parties. The CIT(A) upheld this, noting the amounts were not shown as income in earlier years. The Tribunal, however, allowed the claim for Sino Star Minerals Ltd. as a business loss under Section 28 or 37, given it was a commercial transaction. For Ishita Overseas, the Tribunal inferred from the ledger that the amount represented sales and directed the AO to delete the addition, allowing the assessee's appeal on this issue. 4. Disallowance of VAT Credit Written Off Amounting to ?4,899/-: The AO disallowed the VAT credit as the assessee failed to provide supporting evidence. The CIT(A) upheld this. The Tribunal noted the primary onus on the assessee to furnish details and inferred that the VAT credit related to purchases from parties with cancelled registrations, thus not bona fide. The Tribunal dismissed the assessee's appeal on this issue. 5. Alleged Breach of Law and Principles of Natural Justice: The Tribunal did not specifically address this issue separately but considered the procedural aspects while discussing the main issues. 6. Levying Interest under Section 234A/B/C: The Tribunal did not specifically address this issue, implying it was not contested separately. 7. Initiating Penalty under Section 271(1)(c): The Tribunal did not specifically address this issue, implying it was not contested separately. Conclusion: The appeal was partly allowed, with the Tribunal directing an ad-hoc addition of 10% for unexplained purchases, allowing the claim for bad debts as business loss, and dismissing the claim for VAT credit written off.
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