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2022 (11) TMI 1219 - AT - Income TaxUnexplained Purchases - non compliance of notices u/s 133(6) to various parties for verification of purchases - AO made addition of the total purchases made by the assessee holding that the purchases were unverifiable - HELD THAT - As the fact of production of the parties by the ld. CIT(A) in the presence of the AO has not been in dispute. The fact that the parties supplied milk to the assessee company could not be disputed. AO has also held that milk purchases were made not from farmers but through the intermediaries of the milk traders, thus contradicted the fact that the purchases remain unverifiable. AO resorting to disallowance of entire purchases is bad in law. Since, the identity, genuineness and supply-worthiness of all the parties has been proved by the way of statement recorded u/s 131 of the Act and all the suppliers were duly paid, we refrain from interfering with the order of the ld. CIT(A) on this issue. Accordingly, Ground No. 1 2 of the Revenue s Appeal are dismissed. Disallowance Section 40A(3) - cash payments made to milk suppliers - AO held that the provisions of Rule 6DD(e) were not applicable to the facts of the assessee s case - HELD THAT - CIT(A) has gone to the root cause of the disallowance u/s 40A(3) and owing to the genuineness of the purchase, provisions of the rules and dates/days on which the payments have been made and the purpose thereof, has cogently held that the provisions of Section 40A(3) are not attracted in this case, the decision of which, we decline to interfere with the order of the ld. CIT(A). As a consequence, the adhoc estimation @ 0.23% of the sales made by the ld. CIT(A) is also liable to be deleted. Ad-hoc estimated disallowances - AO made ad-hoc disallowance of 30% on the power fuel, packing material and repairs maintenance and on administrative distribution expenses and also on finance charges - CIT (A) restricted it to 10% on adhoc basis and deleted the disallowance made on financial charges - HELD THAT - We hold that no disallowance is called for on financial charges owing to submission of complete documentary evidences. Hence, the order of the ld. CIT(A) deleting the financial expenses is affirmed. With regard to the ad-hoc disallowances on account of transport and administrative expenses, since they are ad-hoc in nature and indistinct rather than a generalized solution adaptable to collateral instances, we restrict to disallowance to 5% on ad-hoc basis. Accordingly, the Revenue s Ground are partly allowed. Deemed Dividend u/s 2(22)(e) - Common shareholders in company advancing loans - on perusal of annexure 12 of the balance sheet, assessee company has to pay amount as advance taken from said concern and Shri Malook Nagar was having 84.11% share holding in M/s AIMS Promoters Private Limited and 66.81% in the assessee company - CIT-A deleted the addition - HELD THAT - The assessee company did not hold any shares in the AIMS Promoters Pvt. Ltd. Therefore, the assessee Company neither the registered nor the beneficial share holders of M/s AIMS Promoters Pvt. Ltd. Thus we do not find any infirmity or error committed by Ld. CIT(A) in deleting the addition on account of deemed dividend u/s 2(22)(e) of the Act.
Issues Involved:
1. Deletion of addition on account of unexplained purchases. 2. Disallowance under Section 40A(3) of the Income Tax Act. 3. Ad-hoc disallowances of certain expenses. 4. Addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act. 5. Validity of jurisdiction assumed under Section 153C of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Deletion of Addition on Account of Unexplained Purchases: The Revenue challenged the deletion of an addition of Rs. 177,31,37,509/- made on account of unexplained purchases. The Assessing Officer (AO) had disallowed the purchases due to non-verification of suppliers. Notices sent under Section 133(6) to various suppliers were returned undelivered, leading the AO to conclude that the purchases were unverifiable. However, the CIT(A) summoned the parties under Section 131, who confirmed the transactions and the supply of milk. The CIT(A) concluded that the purchases could not be treated as bogus, citing the identity, genuineness, and creditworthiness of the suppliers. The Tribunal upheld the CIT(A)'s decision, noting that the AO's contradictory stance on the genuineness of purchases under Section 40A(3) undermined the disallowance. The Tribunal dismissed the Revenue's grounds on this issue. 2. Disallowance Under Section 40A(3) of the Income Tax Act: The AO disallowed Rs. 108,34,15,088/- under Section 40A(3) for cash payments exceeding the permissible limit. The CIT(A) examined the details and found that the payments fell under the exceptions provided in Rule 6DD of the Income Tax Rules, 1962. The CIT(A) noted that the payments were made on holidays or under circumstances justifying cash transactions. The Tribunal agreed with the CIT(A) that the provisions of Section 40A(3) were not applicable due to the genuineness of the transactions and the circumstances of the payments. The Tribunal dismissed the Revenue's grounds on this issue. 3. Ad-hoc Disallowances of Certain Expenses: The AO made ad-hoc disallowances of 30% on various expenses, which the CIT(A) reduced to 10%. The Tribunal found the disallowances to be ad-hoc and unsupported by specific evidence. The Tribunal further reduced the disallowance to 5% on an ad-hoc basis, affirming the deletion of disallowance on financial charges due to complete documentary evidence. The Tribunal partly allowed the grounds of both the Revenue and the Assessee on this issue. 4. Addition on Account of Deemed Dividend Under Section 2(22)(e): The AO added Rs. 72,18,132/- as deemed dividend under Section 2(22)(e), based on advances from M/s AIMS Promoters Pvt. Ltd. The CIT(A) deleted the addition, noting that the assessee company was not a registered shareholder in the lender company. The Tribunal upheld the CIT(A)'s decision, referencing the legal position that deemed dividend applies only to shareholders. The Tribunal dismissed the Revenue's grounds on this issue. 5. Validity of Jurisdiction Assumed Under Section 153C: The Assessee challenged the jurisdiction assumed under Section 153C, arguing the lack of mandatory satisfaction recording. The Tribunal dismissed the Assessee's grounds, citing a previous judgment that upheld the satisfaction recorded by the common AO of the searched person and the other person. The Tribunal found no merit in the Assessee's objections regarding the assessment based on seized material, affirming the validity of the jurisdiction. Conclusion: The Tribunal's decision resulted in partly allowing the appeals and cross-objections for the assessment years 2010-11 and 2011-12. The Tribunal upheld the CIT(A)'s decisions on unexplained purchases and Section 40A(3) disallowances, reduced the ad-hoc disallowances further, and confirmed the deletion of the deemed dividend addition. The jurisdictional challenge under Section 153C was dismissed. The order was pronounced in the open court on November 24, 2022.
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