2015 (9) TMI 745 - AT - Income Tax

Addition on on account of alleged inflated expenses - Held that - It is settled position of law that the assessee is required to prove veracity of the claim which it has made before the Revenue Authorities. In the case in hand, the assessee made purchases from three parties amounting to ₹ 12,69,880/-. It was found that such parties did not exist on the given addresses. Therefore, the genuineness of the claim could not be verified. The assessee was duly confronted with this finding and did not give any plausible explanation with regard to the same except that the GP declared by the assessee is quite reasonable and the assessee did not suppress any profit margins. In our considered view, it is incumbent upon the assessee to prove the genuineness of its claim in respect of the purchases made, but the assessee in the given case has grossly failed to do so. The AO pointed out that on the bills furnished by the assessee, there was no mention of VAP/ST Numbers. All the bills were computer-generated did not have detailed addresses of the parties and no contact numbers are mentioned in any of the Bill. - Decided against assessee. Confirmation of disallowance u/s.40A(3) - contention of the assessee is that the payment is made to the Electricity Company of the Government of Gujarat - Held that - the payment was made in cash is not in dispute. The payment is made to a Company engaged in the business of distribution of power-supply. It is not the case where the assessee has booked bogus expenditure to a non-existent entity. Therefore, keeping in view the object of the provisions of section 40A(3) of the Act and intention of the legislation, we hereby direct the AO to delete the addition. - Decided in favour of assessee.

Summary

Issues:
1. Alleged inflated expenses - Addition made by AO and confirmed by CIT(A)
2. Disallowance under section 40A(3) - Upheld by CIT(A)

Analysis:

Issue 1: Alleged Inflated Expenses
The appellant challenged the addition of Rs. 8,75,698 on account of alleged inflated expenses. The appellant argued that the Gross Profit (GP) ratio was reasonable and cited a High Court judgment to support their case. However, the Sr. DR contended that the purchases claimed were incorrect and highlighted the difference in profit margins between industries. The tribunal noted the discrepancy in the parties' existence and lack of verifiable details in the bills. Despite the appellant's arguments, the tribunal upheld the addition, emphasizing the need for the appellant to substantiate their claims, which they failed to do. The tribunal differentiated the case from the cited judgment due to varying profit margins across industries, ultimately dismissing the grounds related to inflated expenses.

Issue 2: Disallowance under Section 40A(3)
The appellant contested the disallowance of Rs. 1,37,780 under section 40A(3), arguing that the payment to the Electricity Company of the Government of Gujarat should not be disallowed. The Sr. DR opposed this, citing the absence of Rule-6DD(j) in the statute book. The tribunal considered the appellant's submission regarding the payment to a government company and referenced a Delhi High Court judgment that acknowledged cash payments due to financial constraints. The tribunal observed that the payment was made to a legitimate entity and not a fictitious one, thus directing the AO to delete the addition under section 40A(3). Consequently, the grounds related to the disallowance under section 40A(3) were allowed.

In conclusion, the tribunal partially allowed the appeal, confirming the addition for inflated expenses while directing the deletion of the disallowance under section 40A(3. The judgment was pronounced on August 21, 2015, at Ahmedabad.