1979 (6) TMI 77 - AT - Income Tax

Summary

Issues:
- Disallowance of inflated purchases and unproved transport charges for the assessment year 1973-74.

Detailed Analysis:
1. The appeal was filed by the assessee against the order of the ITO passed under section 143(3), which was confirmed by the learned AAC. The assessee, a registered firm engaged in manufacturing steel furniture, disclosed a sum of Rs. 28,483 in its return of income. However, the ITO made a total addition of Rs. 29,200 due to inflation of purchases and unproved transport charges.

2. The ITO detected discrepancies in the purchase invoices provided by the assessee, including instances where the actual purchase amounts were enhanced in the bills. The assessee's explanations were rejected, and the entire inflated amount of Rs. 27,000 was added to the income. Additionally, an addition of Rs. 2,200 for transport charges, lacking evidence, was made by the ITO.

3. During the appeal hearing, the assessee argued that the inflated purchases were due to on-money paid for scarce steel materials, which should be considered a business expense. The Departmental Representative contended that the purchases were deliberately inflated to reduce profit, supported by alterations in purchase memos and discrepancies in original bills examined by the ITO.

4. The Tribunal agreed with the lower authorities, noting deliberate alterations in purchase memos by the assessee to inflate purchases by Rs. 27,000. The argument of on-money payment lacked evidence and circumstantial support. The Tribunal held that the deliberate inflation of purchases to reduce profit was a grave offense, justifying the disallowance upheld by the AAC.

5. Regarding the addition of Rs. 2,200 for transport charges, the Tribunal found no substantial evidence for disallowance and deemed the claimed charges reasonable considering the business volume and profit earned. Consequently, the disallowance of Rs. 2,200 was deleted, and the appeal was partly allowed.

This judgment highlights the importance of maintaining accurate financial records, the burden of proof on the taxpayer to substantiate expenses, and the consequences of deliberate inflation of purchases to manipulate profits.