2022 (12) TMI 1160 - AT - Income Tax

Estimation of income - bogus purchases - assessee has made an alternate plea that when the purchases are held to be bogus and only certain percentage only to be disallowed - HELD THAT - By relying on the decision of the Hon'ble Bombay High Court in the case of Pr. CIT v. M/s. Mohommad Haji Adam Co 2019 (2) TMI 1632 - BOMBAY HIGH COURT we are in agreement with the above submissions, the Coordinate Benches are disallowing only 12.5% of the total purchases as reasonable in these type of cases. We observe in the present case that assessee has already declared profit @ 9% (confirmed by AO) the net difference of 3.5% (12.5 - 9) should be considered for disallowance. Accordingly, we direct Assessing Officer to disallow @ 3.5% of the alleged bogus purchases. Appeal filed by the assessee is partly allowed.

Summary

Issues:
1. Addition under section 40A(3)
2. Disallowance of donation as miscellaneous expenses
3. Disallowance of purchases for project Woods Bld No. 1 to 4
4. Disallowance of purchases for project Gaurav Jewels
5. Treatment of loose papers as cash book
6. Addition on account of cessation of liability
7. Additional addition made by the Assessing Officer

Analysis:

Issue 1: Addition under section 40A(3)
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2011-12. The appellant contested the addition of Rs. 2,32,000 under section 40A(3) for payments made to labor contractors. The Coordinate Bench in a previous case decided similar issues in favor of the assessee for the assessment years 2009-10 and 2010-11. The Coordinate Bench held that the addition was not justified, and the issue was decided in favor of the assessee.

Issue 2: Disallowance of donation as miscellaneous expenses
The appellant challenged the disallowance of Rs. 6,58,000 as a donation under the head of miscellaneous expenses, contending that the expenses were incurred wholly and exclusively for business purposes. The Coordinate Bench in a previous case ruled in favor of the assessee on similar grounds. However, the appellant did not press Ground Nos. 1, 2, 7, and 8 during the hearing, leading to their dismissal.

Issue 3: Disallowance of purchases for project Woods Bld No. 1 to 4
The appellant contested the disallowance of 91% of purchases claimed for project Woods Bld No. 1 to 4, amounting to Rs. 73,34,032, made in the financial year 2008-09. The Coordinate Bench found that the purchases were not adequately verified by the Assessing Officer, and the addition was made based on incomplete information. The Coordinate Bench directed the Assessing Officer to disallow only 3.5% of the alleged bogus purchases, considering the declared profit rate of 9%.

Issue 4: Disallowance of purchases for project Gaurav Jewels
The appellant disputed the disallowance of purchases claimed for project Gaurav Jewels in the financial year 2008-09 and the reduction of the Work-in-Progress by Rs. 5,45,99,733. The Coordinate Bench found that the disallowance was not properly substantiated and directed the deletion of the addition amount of Rs. 62,32,777.

Issue 5: Treatment of loose papers as cash book
The appellant challenged the treatment of loose papers found in the business premises as a cash book for a specific period. However, no specific decision or ruling was provided in the judgment regarding this issue.

Issue 6: Addition on account of cessation of liability
The appellant contested the addition of Rs. 2,52,077 on account of the cessation of liability. The judgment did not provide detailed analysis or ruling on this issue.

Issue 7: Additional addition made by the Assessing Officer
The appellant disputed the addition of Rs. 5,01,253 made by the Assessing Officer. However, the judgment did not elaborate on the specific grounds or reasons for this addition.

In conclusion, the appellate tribunal partially allowed the appeal filed by the assessee, addressing various issues related to disallowances, additions, and treatment of purchases. The judgment highlighted the importance of proper verification and substantiation of expenses and purchases while emphasizing the need for a fair and reasonable approach in determining disallowances.