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2015 (6) TMI 320 - AT - Income TaxDisallowance under the head Purchase and Vendor Purchases - CIT(A) deleted the addition - Held that - AO has made the disallowance purely looking into the past history of the case and that too, twice the amount surrendered in the last year. Neither the AO has adduced any material, rational basis nor any justification for the doubling the addition made during the year. We further find that the business results of the assessee are certified by the audited accounts by the Auditors, M/s Vimla Chand Jain & Co., Chartered Accountants as per the Tax Audit Report in Form No. 3CB and 3 CD dated 28.10.2006 which clearly reflect that on or before 28.10.2006, vouchers / bills were available with the assessee and on the basis of which the audit of the accounts was conducted and report in Form No. 3CB & 3CD alongwith the return of income was filed on 31.10.2006. But since an accidental fire happened on 23.9.2007 i.e. after the audit was conducted on 28.10.2006, it can be safely assumed that the Auditor had prepared the Report based on the vouchers/ bills with the assessee and so it is authentic, since the said audit report have not been challenged by the AO at all. Therefore, simply on the ground that in previous year, the assessee made surrender cannot be the basis for disallowance which smacks of arbitrariness, which is the sworn enemy of Article 14 of the Constitution and the Ld. CIT(A) has rightly deleted the adhoc disallowances - Decided against revenue. Disallowance of expenses under the head Freight & Octroi, Staff & Workers welfare, traveling expenses, Diwali expenses, telephone expenses and Repair & maintenance CIT(A) deleted the addition - Held that - We concur with the Ld. CIT(A) that AO disallowed expenditure under these heads without any material or reasons brought on record, so it is unsustainable in the eyes of law. So, we are inclined to confirm the order of the Ld. CIT(A) on this issue - Decided against revenue.
Issues Involved:
1. Deletion of disallowance of Rs. 10,00,000/- under "Purchase and Vendor Purchases" for AY 2006-07. 2. Deletion of disallowance of Rs. 6,33,432/- under various expense heads for AY 2006-07. 3. Deletion of disallowance of Rs. 15,00,000/- under "Purchase and Vendor Purchases" for AY 2007-08. 4. Deletion of disallowance of Rs. 8,26,378/- (corrected to Rs. 6,98,153/-) under various expense heads for AY 2007-08. Detailed Analysis: Issue 1: Deletion of disallowance of Rs. 10,00,000/- under "Purchase and Vendor Purchases" for AY 2006-07 The Revenue argued that the Assessing Officer (AO) made a disallowance of Rs. 10,00,000/- due to the assessee's failure to produce vouchers/bills, citing their destruction in a fire. The AO's decision was influenced by the assessee's history of not maintaining complete records, as evidenced by a similar disallowance in the previous year. The CIT(A) deleted this disallowance, accepting the fire incident and the genuineness of the purchases based on supporting documents like FIR, insurance claims, and newspaper reports. The Tribunal upheld the CIT(A)'s decision, noting that the AO's disallowance was arbitrary and lacked a rational basis. The Tribunal emphasized that the books of accounts were audited, and the fire incident was verified. The AO's reliance on past conduct without current year discrepancies was deemed unjustifiable. Issue 2: Deletion of disallowance of Rs. 6,33,432/- under various expense heads for AY 2006-07 The AO disallowed Rs. 6,33,432/- under expenses for freight & octroi, staff welfare, traveling, Diwali, telephone, and repair & maintenance, due to the absence of vouchers destroyed in the fire. The CIT(A) deleted these disallowances, citing the lack of specific discrepancies and the arbitrary nature of the AO's actions. The Tribunal concurred with the CIT(A), noting that the AO failed to provide specific instances of unverifiable expenses and relied on arbitrary estimates. The Tribunal also highlighted that similar expenses were allowed in the previous year and the current year's improved turnover and profits. Issue 3: Deletion of disallowance of Rs. 15,00,000/- under "Purchase and Vendor Purchases" for AY 2007-08 For AY 2007-08, the AO disallowed Rs. 15,00,000/- under "Purchase and Vendor Purchases" due to the assessee's failure to produce evidence verifying the purchases. The CIT(A) deleted this disallowance, and the Tribunal upheld the CIT(A)'s decision, noting the similarity in facts and circumstances to the previous year's issue. The Tribunal found no change in facts that would warrant a different view. Issue 4: Deletion of disallowance of Rs. 8,26,378/- (corrected to Rs. 6,98,153/-) under various expense heads for AY 2007-08 The AO disallowed Rs. 9,07,350/- under various expense heads, including staff welfare, Diwali expenses, telephone expenses, vehicle maintenance, and charity & donation. The CIT(A) deleted Rs. 7,79,125/-, upholding only the disallowance for charity & donation. The Revenue's appeal incorrectly mentioned the deletion amount as Rs. 8,26,378/-. The Tribunal found the AO's disallowances arbitrary and unsupported by fresh facts or material. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to identify discrepancies in the audited books of accounts. The Tribunal noted that expenses allowed in the previous year should be allowed in the current year unless specific issues are identified. Conclusion: The Tribunal dismissed both appeals by the Revenue, upholding the CIT(A)'s decisions to delete the disallowances under various heads for both assessment years. The Tribunal found the AO's actions arbitrary and lacking in specific, material evidence to justify the disallowances.
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